MIT Professor David Simchi-Levi and eight colleagues have received the 2014 INFORMS Daniel H. Wagner Prize for Excellence in Operations Research Practice for a project that utilizes Simchi-Levi’s Risk Exposure Index (REI) to identify risk and mitigate disruptions in the automotive supply chain.
The Daniel H. Wagner Prize is awarded for a paper and presentation that describe a real-world, successful application of operations research or advanced analytics. This prize is given by the Institute for Operations Research and the Management Sciences (INFORMS), the largest society of professionals in the field of operations research, management science, and advanced analytics. The prize criteria emphasize innovative, elegant mathematical modeling, and clear exposition.
This year’s list of finalists included teams working with the U.S. Centers for Disease Control and Prevention, Intel Corporation, Procter & Gamble, SAS, Sabre Holdings, and others. Past winners include teams working with the IBM Thomas J. Watson Research Center and Intel Corporation.
The award was presented on Nov. 12 at the INFORMS plenary session in San Francisco. The team members included two of Simchi-Levi's former PhD students, Yehua Wei, now on the faculty at Duke University, and William Schmidt, now a faculty member at Cornell University; and a current PhD student, Peter Y. Zhang. Five individuals from the Ford Motor Company — Keith Combs, Yao Ge, Oleg Gusikhin, Michael Sanders, and Don Zhang — were also included in the award. Ford team members work in research and development, information technology, and procurement.
Ian A. Waitz, dean of the School of Engineering at MIT, noted: “This award shows the value of MIT’s collaborations with Ford, and serves as an example of how an innovative engineering concept can be quickly integrated into the ongoing activities of such a large company. Ford is an important MIT collaborator, and this award demonstrates the benefits of our relationship.”
The Risk Exposure Index (REI), which was developed by Simchi-Levi, helps prioritize the financial impact and/or operational impact of disruptions, thus enabling companies to focus mitigation efforts on the most important suppliers and risk areas. After the method was implemented successfully at Ford, a story about it ran in the Harvard Business Review.
The REI enables companies for the first time to fully quantify their maximum risk exposure from natural disasters or any other unpredictable supply chain disruptions. It specifically assesses for each node, or site, in a given supply chain the resulting financial impact, such as loss of revenue or loss of profit, or operational impact, such as loss of production volume.
Ford has implemented this concept in collaboration with the MIT team, by developing their Decision Support System for Risk Management, which is used daily. The system is used by procurement managers and directors in three ways: strategically, to identify exposure to risk associated with parts and suppliers, prioritize and allocate resources effectively, segment suppliers, and develop mitigation strategies; tactically, to track daily changes in risk exposure in order to alert procurement executives to changes in their risk position; and operationally, to respond to a disruptions by identifying an effective way to allocate resources after a disruption.
“We are very pleased to have won this prestigious award with the Ford team and to see our work on the Risk Exposure Index successfully implemented and used daily,” says Simchi-Levi. “This concept has had a large impact beyond automotive in industries such as telecommunication and pharmaceutical and has been recently adopted by United Nations Office for Disaster Risk Reduction to assess risks in emerging countries.”