Assignment Topic : Explain the term sub optimization?

Assignment of operation and production management on sub optimization

Submitted to Sir Salman
By: Zafar khan
Class number: 38
Section (A) morning BBA,6
th
semester :

In my words: Sub optimization is process where the sub-objectives are not directly aimed at
accomplishing over all organizational objectives. OR
To make the best of one part of the whole without making the best of the whole. OR
Optimization of the goals of different departments of the entire organization . Sub optimization
occurs when different subunits each attempt to reach a solution that is optimal for that unit, but
that may not be optimum for the organization as a whole.
The nature of the problem is most easily understood from examples.
Examples of Sub optimization:
If a firm focuses on minimization cost, a desirable aim if all other factors remain equal,
and takes measures which not only reduce cost but also reduce revenues even more the
profit of the firm is adversely affected.
A government agency that promotes a program for its benefits but ignores its costs may
make society worse off rather than better off. Maximization of benefits without taking
into account costs is not rational.
An educational institution concerned about thefts of equipment might take steps to
minimize theft which result in students not being able to use the equipment at all. This is
clearly not optimal because it results in the same effect as if all the equipment were
stolen. The proper policy has to consider the tradeoffs between security and access for
legitimate use.
Minimization of air pollution may be a valid goal if all other variables, such as economic
production, are held constant. But minimization of air pollution without regard to what
happens to production is not valid. The proper goal is maximization of net social benefit
which means that the tradeoffs between air pollution and economic production must be
taken into account.
The quality control department of a factory may want to introduce a program that will
guarantee that every bulb that is produced is perfect. However, the higher cost and the
Assignment Topic : Explain the term sub optimization?

resulting high price would lead to a disaster for the overall company in the form of lower
sales.
A plant manager moves her best employees to the production department and maximizes
its efficiency, but the loss of good employees in the shipping department results in so
many inefficiencies that the plant's overall output is less than optimal.


Definition and meaning for the books and net.
1) (Definition of sub-optimization noun from the Cambridge Business English Dictionary
Cambridge University Press)
A situation in which a business is not as successful as it could be because one part or
department works only on its own or only for its own success.

2) Definition of sub optimization by
(Thayer Watkins
SAN JOS STATE UNIVERSITY
ECONOMICS DEPARTMENT)
is a term that has been adopted for a common policy mistake. It refers to the
practice of focusing on one component of a total and making changes intended to improve that
one component and ignoring the effects on the other components.
2) ( Machol, 1965, pp. l-8)
Optimizing each subsystem independently will not in general lead to a system optimum, or
more strongly, improvement of a particular subsystem may actually worsen the overall
system. The principle of sub optimization provides the basis for a link between
organizational structure and the policies adopted.
The well-being of an element is dependent on the well-being of the system of which it is a
part. It is sometimes necessary for an element to limit its goals and actions in order to
preserve the well-being of the system. In acting to achieve its goals one element may come
to constrain the actions of another element to the point of serious injury to the other element.

Assignment Topic : Explain the term sub optimization?


The problem of sub optimization an article from net
Optimizing the outcome for a subsystem will in general not optimize the outcome for the system
as a whole. This intrinsic difficulty may degenerate into the "tragedy of the commons": the
exhaustion of shared resources because of competition between the subsystems.
When you try to optimize the global outcome for a system consisting of distinct subsystems (e.g.
maximizing the amount of prey hunted for a pack of wolves, or minimizing the total punishment
for the system consisting of the two prisoners in the Prisoners' Dilemma game), you might try to
do this by optimizing the result for each of the subsystems separately. This is called "sub
optimization". The principle of sub optimization states that sub optimization in general does not
lead to global optimization. Indeed, the optimization for each of the wolves separately is to let
the others do the hunting, and then come to eat from their captures. Yet if all wolves would act
like that, no prey would ever be captured and all wolves would starve. Similarly, the sub
optimization for each of the prisoners separately is to betray the other one, but this leads to both
of them being punished rather severely, whereas they might have escaped with a mild
punishment if they had stayed silent.
The principle of sub optimization can be derived from the more basic systemic principle stating
that "the whole is more than the sum of its parts". If the system (e.g. the wolf pack) would be a
simple sum or "aggregate" of its parts, then the outcome for the system as a whole (total prey
killed) would be a sum of the outcomes for the parts (prey killed by each wolf separately), but
that is clearly not the case when there is interaction (and in particular cooperation) between the
parts. Indeed, a pack of wolves together can kill animals (e.g. a moose or a deer), that are too big
to be killed by any wolf in separation. Another way of expressing this aspect of "non-linearity" is
to say that the interaction the different wolves are engaged in is a non-zero-sum game, that is, the
sum of resources that can be gained is not constant, and depends on the specific interactions
between the wolves.

As a last example, suppose you want to buy a new car, and you have the choice between a
normal model, and a model with a catalyzer, that strongly reduces the poisonous substances in
the exhaust. The model with catalyzer is definitely more expensive, but the advantage for you is
minimal since the pollution from your exhaust is diffused in the air and you yourself will never
be able to distinguish any effect on your health of pollution coming from your own car. Rational
or optimizing decision-making from your part would lead you to buy the car without catalyzer.
However, if everybody would make that choice, the total amount of pollution produced would
have an effect on everybody's health, including your own, that will be very serious, and certainly
worthy the relatively small investment of buying a catalyzer. The sub optimizing decision (no
Assignment Topic : Explain the term sub optimization?

catalyzer) is inconsistent with the globally optimizing one (everybody a catalyzer). The reason is
that there is interaction between the different subsystems (owners and their cars), since
everybody inhales the pollutants produced by everybody. Hence, there is also an interaction
between the decision problems of each of the subsystems, and the combination of the optimal
decisions for each of the sub problems will be different from the optimal decision for the global
problem.

The problem of sub optimization underlies most of the problems appearing in evolutionary
ethics. Indeed, ethics tries to achieve the "greatest good for the greatest number", but the greatest
good (optimal outcome) for an individual is in general different from the greatest group for a
system (e.g. society) of individuals.

Another, more dramatic implication of the problem of sub optimization is what Garrett Hardin
has called the "tragedy of the commons". The example is simple: imagine a group of shepherds
who let their animals graze on a common pasture. Each animal that is added will bring additional
profits to its shepherd. However, it will also diminish the overall profits of the group, since the
grass eaten by that animal will no longer be available to the other animals. Yet, the loss of profit
for the owner because of reduced grass will always be smaller than the gain because of an
additional animal. Thus, for each individual shepherd, the optimal decision is to increase his
herd. For the system consisting of all shepherds together, however, this strategy will result in an
overgrazing of the pasture and the eventual exhaustion of the common resource.

Reference: Heylighen F. (1992) : "Evolution, Selfishness and Cooperation", Journal of Ideas,
Vol 2, # 4, pp 70-76.


An article about sub optimization on (Top ERP Failure Causes - Sub Optimization
By Robert Jolliffe)


This is the fourth in a series of articles aimed at small businesses interested in purchasing an
ERP. I'm going to discuss a common practice I call "Sub Optimization" but that I've also heard
Assignment Topic : Explain the term sub optimization?

referred to as "Local Optima Rules" from Prof. Eli Goldratt. Either way the idea is the same or
the dangers are pretty serious!
I've made it my business for the past 18 years to help small customers (under 100 Million in
sales) with their ERP systems - focused recently on Microsoft Dynamics but also working with
other systems in the past. Almost ten years ago I described a phenomena that I refer to as Sub
Optimization as one of the critical errors that occur when implementing any process change.
When this occurs in an ERP project (Dynamics, Infor Visual ERP or any other product), it's
deadly.
Sub Optimization
Sub Optimization is something I define as follows:
"Any process in which an effort has been made and succeeded in making that process MOST
EFFECTIVE for the people who directly interact with it (it is optimized for those people) BUT
that is highly inefficient or was very poorly optimized for those who INDIRECTLY interact with
the process."
When you think of the saying "You can't see the forest for the trees" that is almost exactly what
I'm describing. The staff in a department or any part of a company work diligently and carefully
to improve their jobs, but they do it in a vacuum. They don't realize that the efforts they are
investing to make their own jobs easier are seriously impacting and damaging the ability of other
people to work effectively!
With both Dynamics and with Infor Visual I've seen the exact same thing happen. Sub
Optimization is extremely common, very hard to see coming even for consultants and totally
devastating.
Many businesses are broken into departments (I will refer to them as Silos) where business
processes take place. Often these Silos interact with each other but few people within the
organization really understand the interaction. Usually those who do understand the integration
and interaction (in a small or medium business) are promoted out of the departments into
executive levels. They were part of the creation of the silo's in the first place - and remember
times before they really existed. For these staff members it is obvious that the departments
interact. It's so obvious that they don't even consider that the staff who have now filled those
departments have no comprehension of that interaction.
Let me give you a very typical Silo and an example of sub optimization at work. The work the
purchasing department does directly impacts the accounts payable, receiving and production
staff. These are in different Silos and the purchasing department understands at a subconscious
or instinctive level that what they do impacts those people - but its pretty far removed from their
day to day.
Assignment Topic : Explain the term sub optimization?

Now imagine that one day an ERP purchase is made, and a project team is put together. The
"Power User" from purchasing is part of that team. This person knows purchasing extremely
well, and is given a simple task.
"Implement this ERP in a way that works best for purchasing."
When the switch is turned on in this ERP implementation, what has invariably happened is the
purchasing process works very efficiently within the purchasing department. However, receiving
complaints that information they need (due date for example) is missing or hard to find. Also AP
is always complaining that the terms on the PO's are inaccurate and the vendors are complaining
about not being paid on time. Production wants information added to the system but purchasing
has totally excluded those fields from their implementation.
It's not that the power user from purchasing was stupid, nor that they didn't care about other
people. They were given a mandate and without any more information they did the best they
could. They designed a system (sometimes with the full support of the consultants) that
optimized the work in purchasing. They did not really worry about AP, receiving and production
because those departments were taking care of their own project tasks. They were implementing
the ERP in the way that worked best for purchasing exactly as they were told.
In this way Sub Optimization kills the potential of what would otherwise have been a great ERP
fit.
The big question then is:
"How do we prevent this from happening?"
The answer is pretty simple, but in many cases it is not done because there is the perception that
it's more work and will be more money. The company implementing the ERP cannot allow the
departments to implement their processes independently of each other. There are two ways to
prevent this.
First: One way is to require the different departments to meet on a regular basis as part of an
overall ERP team and go over with each other how exactly they will be using the ERP. This will
seem (to many in these tems) a huge waste of time. In my example above, the AP
implementation lead sitting in these meetings might think (and will often be very vocal about)
the waste of time it is for them to hear everyone else' plans. For this reason you often need some
kind of strong manager to oversee and impose these meetings (see my Project Manager article
from November, 2012)
Second: Alternatively, an extremely experienced ERP implementation specialist needs to have
overall involvement in the design and planning of the process. By extremely experienced, we are
not talking about involvement in a few good ERP implementations. In this case quantity matters
more than quality. Fewer than 5 ERP implementations would not constitute experienced,
Assignment Topic : Explain the term sub optimization?

particularly if they were done in the same company. Someone who's worked on many (at least 6)
different ERP implementations with different businesses and especially that have not all gone
well! Working on ERP implementations that go well feels great, but you learn the most from
your mistakes (unfortunately). This individual should spot the pitfalls and mistakes relatively
early on, and get involvement from silos to ensure the process is never sub-optimized.
Sub-Optimization can be prevented in any business, but it takes a lot of communication and a
very, very clear understanding of the business. Rarely can one person lead this process, except
when they have learned the hard way what not to do. Multidisciplinary teams from different
departments are the best bet to ensure a smooth flow of data from department to department.
Robert Jolliffe is founder and president of Sabre -- http://www.sabreit.ca -- a Microsoft Certified
Partner located in Kitchener, ON Canada. Sabre is a Microsoft Dynamics partner focused on the
construction and trades, manufacturing and distribution industries as well as an Information
Technology infrastructure services company.
He is also founder and president of Creative Manufacturing Solutions Inc --
http://www.creativemfg.ca -- an aftermarket Infor Visual ERP software development firm. As
an entrepreneur, Robert frequently acts as sales, marketing, software designer, network engineer,
business consultant, manufacturing expert, janitor, and chief bottle washer.
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