The classic approach to outsourcing various aspects of a company’s operation is to solicit three or more bids, in detail, and choose among them. The problem is, how to choose? For one transportation requirement, a city department used an optimization model based on a software solution with Microsoft’s Excel.
Working with many variables, optimization software can solve the relationships between the variables and find the best solution. This method is both optimal and impartial, and it is faster than human analysis. The School District of Philadelphia applied this concept. They looked for software that could be applied to a contract model in Excel. Excel had been a convenient format for the district to collect information about vendors and to use formulas to express relationships in the business model.
The complexity that the district faced is intriguing. The School District of Philadelphia owned some school buses, but not all the buses it needed for its growing student population. They needed to determine how many additional buses they needed and what routes needed those additional buses, to get all the students to school on time. They turned to outside vendors but these vendors had their limitations in how many buses they would supply, what routes they would serve, and at what cost.
Approximately 725 bus routes were to be contracted out to private vendors. It was the primary job of the fiscal coordinator for the transportation office at the time, to come up with a way to maximize the return on investment and improve the process by which the routes were awarded.
In previous years, the process had been done by hand, determining which contracts would make the most sense given the constraints of budget and time. With the new contract, the school district needed to figure out a way to distribute bus routes between the various bids.
The district found that it was preferable to keep 30 to 40 percent of the routes in-house with existing buses and then to outsource the rest of the fleet. The transportation department had to find companies willing to take on the rest of the routes within the constraints of the model.
For more on this problem/solution, check out the case study in the Premier issue of Solver International, arriving in June 2017. Click on the subscription button to be notified exactly when the issue will be available.