Background: OIS’s value proposition is very straight forward: Relax a MILP model of the income statement’s assumption of a fixed forecast. IT’s accomplished by inserting marketing mix modeling’s response function data into the MILP model. Traditionally, that data is the next 12 months of data.
However, assume a year’s worth of such data could be developed for a year in the future, say 3. Then a greenfield network design model could design the most profitable network. An original contribution to the literature, for sure.
So, that question was posed to Mike Hanssens, co-author of the definitive text on response function. To which he replied:
“A very good question. If the planned marketing support over the next 3 years is a continuation of the past, then you probably don’t need to supplement the existing 3 year forecast…
If marketing continuation is the mantra, then the marketing effects in the past have already been incorporated in past sales and therefore their forecasts.
Mike”
The following “division of labor” between Optilogic, Analytic Partners and the client was proposed to Mike who replied. “These are reasonable steps, Alan.”
Mike,
Otpilogic proposes the following to its clients with a MMM vendor: “Does your vendor expect the planned marketing support over the next 3 years to be stable? If so, Optilogic will be able to provide you with a first ever profit max rather than cost min greenfield supply chain network design!
Division of labor between the MMM vendor, the client and Optilogic:,
1. Client and Optilogic develop the greenfield network assumptions
2. Client develops a forecast for year 3
3. Optilogic builds an OIS model of the greenfield network
4. Vendor builds MMM of the planned marketing support and solves for response functions, having used Optilogic’s model’s products and demand areas
5. Vendor linearizes those response functions and passes to Optilogic
6. Optilogic populates with OIS model with them and, upon solution, the client has a new profit new supply chain.
A new best practice for sure.