Advanced Business Analytics

Advanced Business Analytics

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Fausto Pedro García Márquez Benjamin Lev Editors Advanced Business Analytics

Editors Fausto Pedro García Márquez ETSI Industriales de Ciudad Real University of Castilla-La Mancha Ciudad Real, Spain Benjamin Lev Decision Sciences Department, LeBow College of Business Drexel University Philadelphia, Pennsylvania, USA ISBN 978-3-319-11414-9 ISBN 978-3-319-11415-6 (ebook) DOI 10.1007/978-3-319-11415-6 Springer Cham Heidelberg New York Dordrecht London Library of Congress Control Number: 2014959092 Springer International Publishing Switzerland 2015 This work is subject to copyright. All rights are reserved by the Publisher, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilms or in any other physical way, and transmission or information storage and retrieval, electronic adaptation, computer software, or by similar or dissimilar methodology now known or hereafter developed. Exempted from this legal reservation are brief excerpts in connection with reviews or scholarly analysis or material supplied specifically for the purpose of being entered and executed on a computer system, for exclusive use by the purchaser of the work. Duplication of this publication or parts thereof is permitted only under the provisions of the Copyright Law of the Publisher s location, in its current version, and permission for use must always be obtained from Springer. Permissions for use may be obtained through RightsLink at the Copyright Clearance Center. Violations are liable to prosecution under the respective Copyright Law. The use of general descriptive names, registered names, trademarks, service marks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. While the advice and information in this book are believed to be true and accurate at the date of publication, neither the authors nor the editors nor the publisher can accept any legal responsibility for any errors or omissions that may be made. The publisher makes no warranty, express or implied, with respect to the material contained herein. Printed on acid-free paper Springer International Publishing AG Switzerland is part of Springer Science+Business Media (www.springer.com)

Preface The Advanced Business Analytics synthesizes analytic principles with business and provides an interface between the main disciplines of engineering/economics and the organizational, administrative, and planning abilities of management. It is also complementary to other disciplines such as finance, marketing, decision, and risk analysis. In this book, each chapter discusses different topics in Advanced Business Analytics. This book is intended for engineers, economists, and researchers who wish to know more about the new discipline of Business Analytics or who apply Business Analytics tools in their profession. The authors who contributed the various 12 chapters of this edited volume describe their original work in these areas or provide material for case studies, which have been successfully implemented in real-life cases. The first chapter presents Decision Making (DM) with a set of criteria for choosing among several alternatives. The diagram of a DM is performed by logical decision trees (LDTs). This is achieved by having a graphical representation of those cases that need to be improved. Applying Binary Decision Diagrams (BDDs) reduces the computational cost of quantitative analysis. LDT graphically describes the sources of certain problems and their interrelations. The size of the BDDs depends on the number of variables, thus affecting the computational cost of the analysis. A real case study is discussed here, which turns out to be an NP-hard nonlinear programming problem. The necessary conditions of optimality are defined by Karush Khun Tucker conditions and we find the optimal allocation when resources are limited. Chapter 2 focuses on the design of an efficient algorithm to reduce inventory costs and its eventual integration as an add-on in SAP Business One platform. The problem arises in those firms with storage capacity that replenish orders for several items along a finite planning horizon. After 2 years, the algorithm is finally implemented in Microsoft C# and.net. A comprehensive computational experiment is carried out considering a wide range of random cases. The experimental results revealed that heuristic solutions are on average 5 % better than CPLEX optimizers. The rising wind energy industry and the increasing number of failures of the large wind turbines necessitate the reduction of costs in this industry and increase competition in this sector. For this reason, the wind energy industry is focused on v

vi Preface the reduction of operation and maintenance (O&M) costs, which is discussed in Chap. 3. Condition Monitoring Systems (CMS) are probably the most effective approach to minimize O&M costs and substantially improve the availability, reliability, and safety of wind turbines by early detection of the problems. CMS requires knowledge and expertise to analyze the large volume of data collected from the sensors located in the wind turbines. The main objective of Chap. 3 is the development of a life cycle cost (LCC) model of the CMS for a wind turbine and the analysis of its economic feasibility. The LCC model has been applied to a real case study in Germany. Multiple-Attribute Decision Making (MADM) refers to making decisions when there are multiple alternatives and multiple criteria. MADM considers a problem where management needs to prioritize or rank order alternative choices: identify key nodes in a business network, pick a contractor/sub-contractor, choose airports, rank recruiting efforts, rank banking facilities, or rank schools/colleges. How does one proceed to accomplish this analytically? In Chap. 4, four methodologies are presented to rank order alternatives based upon multiple criteria. These four methodologies include Data Envelopment Analysis (DEA), Simple Average Weighting (SAW), Analytical Hierarchy Process (AHP), and Technique of Order Preference by Similarity to Ideal Solution (TOPSIS). We describe all four methods and their uses, discuss the strengths and limitations of each method, present suggestions for sensitivity analysis, and present illustrative examples. Business Analytics and Intelligence tools (BAI) are spreading across all industries. As the amount of business data grows exponentially, it is critical to have appropriate tools that make it possible to comprehend and utilize this digital era. Even though BAI tools have positively evolved in this direction, meaningful and productive use of data still remains a major challenge for many organizations. It has been demonstrated that BAI technologies should evolve toward a more holistic approach in which business users can focus on business concepts and questions, reducing time for data manipulation. Chapter 5 proposes a Business Analytics Architecture (BAA) as the infrastructure supporting smart enterprise BAI operations. It enables users to define the business concepts they want to focus on, as well as connecting them with data at storage-level. Analytical and data-mining algorithms are intensively exploited, all guided by the semantic layer previously depicted by business users. BAA integrates up-to-date data-mining and artificial intelligence techniques as well as some well-known business practices such as Balanced Scorecard and Strategy Maps. Considering the reliability of an area traffic control road network, most travel delays are directly dependent on correct operation of signal settings. The purpose of Chap. 6 is to devise an efficient scheme to evaluate the reliability of a signalcontrolled road network. A min max complementarity problem is proposed to characterize user equilibrium flow in the presence of a worst-case disruption of a given link capacity loss. A computationally tractable solution scheme is proposed to identify important links whose disruption could cause a substantial increase in travel delays to all road users. Numerical computations are conducted in a medium-sized road network to demonstrate the feasibility of the proposed solution

Preface vii scheme. The results indicate that the most critical signal-controlled traffic streams can be conveniently identified and, when failed to perform their normal functions, would give rise to maximum travel delays to all road users. Business development requires technologically reliable products developed through excellence in project management. This excellence is obtained with advanced project control that should include Earned Value Management (EVM) methodology and project objectives accomplishment orientation. Chapter 7 presents an analytical model to implement the project objectives control with the EVM. The objectives are periodically measured along the project life with their weights and impact at the end of the project affecting the earned value. This provides early indications for the project progress and results and highlights the possible need for corrective actions. The analytical model also considers the forecasting of the objectives and their limits at project completion. The model is applied to a case study of engineering product development focusing on obtaining technical objectives. The generality of the model permits to apply it to any type of project, small or large, in any industry and with any kind of objectives either technical, commercial, economic, etc. Chapter 8 describes a new point of view for the concept of a maturity model, introducing new evaluation elements beyond the concept of process. Maturity models can be defined as approaches to improving the business process management of any organization, or, from a global system-wide perspective, the organizational processes. The rationale behind the concept of maturity is that the organizations with experience carry out tasks systematically, where immature organizations achieve their outcomes as a result of considerable efforts of individuals using approaches that they create more or less spontaneously. Nowadays, maturity models are indissolubly linked with the process maturity models, as conceptual models compare the maturity of an organization s current practices against an industry standard. These models support any organization in setting priorities for improving the product/service operations in order to find the optimum levels of efficiency and effectiveness. On the other hand, excellence models provide a holistic view of the organization and can be used to determine how these different methods fit together and complement each other. Any excellence model can therefore be used in conjunction with any number of these tools, including Business Process Management, based on the needs and function of the organization, as an overarching framework for developing sustainable excellence. In fact, one of the eight fundamental concepts of the European Foundation for Quality Management (EFQM) excellence model is managing with agility, a principle based on how excellent organizations are managed through structured and strategically aligned processes using fact-based decision making to create balanced and sustained results. The structure of excellence models, in the case of the EFQM excellence model, includes the following criteria: fundamental concepts of excellence, model criteria, and RADAR Logic. They allow introducing a more complex concept about maturity in the management, and not only in processes. Chapter 9 gives an overview of the Analytic Hierarchy Process (AHP) and Intuitionistic Fuzzy TOPSIS (IFT) methods. It deals with an evaluation

viii Preface methodology based on the AHP-IFT where the uncertainties are handled with linguistic values. First, the supplier selection problem is formulated using AHP and, then, it is used to determine the weights of the criteria. Later, IFT is used to obtain full ranking among the alternatives based on the opinion of the Decision Makers. The present model provides an accurate and easy classification in supplier attributes by chains prioritized in the hybrid model. A numerical example is given to clarify the main result that is developed in this chapter. Chapter 10 intends to be a small guide to investing in hedge funds or a guide to consider when trying to understand the complexities of investing in hedge funds. It presents a general overview of the field of alternative investments and introduces its complexities, since investing in hedge funds is not a simple task. Alternative investment vehicles have taken an important role, not only in the diversification of portfolios but also as standalone investments. Capturing the entire risk dimensions implied in hedge fund investment strategies is paramount in understanding alternative investments. The chapter also analyzes the problem of the lack of benchmarks. Should the performance of a hedge fund follow a benchmark? As absolute return vehicles, alternative investment organizations should not be benchmarked. However, investors need to compare returns with other assets in order to properly assess the opportunity cost implied in hedge fund investing. This chapter considers benchmarking among peers as a new and latest strategy. Chapter 11 introduces functional data analysis, a relatively new technique for data analysis in business analytics. The distinct feature of this technique is that it deals with smooth functions or processes, which generate a discretized data sample that can be observed. The functional approach allows the user to flexibly model system dynamics, to analyze observations with measurement errors, and to fit data with sparse observations. This chapter illustrates the application of functional data analysis in the capital structure of California hospitals. It also points out the functional data analysis application in business research and future research directions. Finally, Chap. 12 presents a software application developed to optimize the annual planning of visits of a brewing company sales/marketing staff to their customers. Each of these customers must be annually visited a provided number of times. Therefore, each salesperson is assigned to a set of customers that must be visited each week. The application assigns all visits of a salesperson to each customer so that all weeks should have roughly the same number of visits. By virtue of this approach, the brewing company diminished their marketing operating costs, as well as improved their customer relationships. Ciudad Real, Spain Philadelphia, Pennsylvania Fausto Pedro García Márquez Benjamin Lev

Contents Decision Making Approach for Optimal Business Investments... 1 Alberto Pliego Marugán and Fausto Pedro García Márquez Integration of a Heuristic Method into an ERP Software: A Successful Experience for a Dynamic Multi-item Lot Sizing Problem... 21 José M. Gutiérrez, Marcos Colebrook, Cristian Rivero, and Teresa Pestana Economic Viability Analytics for Wind Energy Maintenance Management... 39 Jesús María Pinar Pérez, Eva Segura Asensio, and Fausto Pedro García Márquez Introduction to Multi-attribute Decision Making in Business Analytics... 55 William P. Fox How Business Analytics Should Work... 93 Marco Antonio Villegas-García, Fausto Pedro García Márquez, and Diego José Pedregal Tercero Vulnerability Analysis of a Signal-Controlled Road Network for Equilibrium Flow... 109 Suh-Wen Chiou Analytical Model Implementing Objectives in EVM for Advanced Project Control... 143 José Ignacio Muñoz-Hernández, José Ram on Otegi-Olaso, and Julen Rubio-G omez Use of Excellence Models as a Management Maturity Model (3M)... 165 Jose Ram on García Aranda and Fausto Pedro García Márquez ix

x Contents AHP and Intuitionistic Fuzzy TOPSIS Methodology for SCM Selection... 181 Babak Daneshvar Rouyendegh The Assessment and Selection of Hedge Funds... 195 Joaquin L opez Pascual Functional Data Analysis with an Application in the Capital Structure of California Hospitals... 211 Feng Mai and Chaojiang Wu A Software Application to Optimize the Visits of Sales/Marketing Agents to Their Customers in a Brewing Company... 225 Marcos Colebrook, Ana González-Larsson, and Antonio Sedeño-Noda

About the Editors Fausto Pedro García Márquez got the European Doctorate on Engineering at the University of Castilla-La Mancha (UCLM), 2004. He received his Engineering Degree from the University of Murcia, Spain, in 1998; Technical Engineer Degree at UCLM in 1995; and the degree in Business Administration and Management at UCLM 2006. He also holds the titles of Supper Technician in Labor Risks Prevention by UCLM 2000 and Transport Specialist at the Polytechnic University of Madrid, Spain, 2001. He has been Senior Manager in Accenture 2013/2014. He is Senior Lecture (Full professor accredited) at UCLM, and Honorary Senior Research Fellow at Birmingham University UK, Lecturer in Instituto Europeo de Postgrado since 2014, and Director of Ingenium Research Group. He has been principal investigator in 3 European Projects, and 60 national and company research projects. He has international and national patents, more than 110 international papers, 12 books, and 3 International Awards in Engineering Management and Management Science (www.uclm.es/profesorado/fausto). xi

xii About the Editors Benjamin Lev is Professor and Head of Decision Sciences at LeBow College of Business. He holds a PhD in Operations Research from Case Western Reserve University. Prior to joining Drexel University, Dr. Lev held academic and administrative positions at Temple University, University of Michigan-Dearborn, and Worcester Polytechnic Institute. He is the Editor-in- Chief of OMEGA-The International Journal of Management Science, is the Co-Editor-in-Chief of International Journal of Management Science and Engineering Management, and serves on several other journal editorial boards. He has published ten books and numerous articles and has organized many national and international conferences.