TOPIC 1: INTRODUCTION TO OPERATIONS applied in industry, commerce,

RESEARCH government, the military, education,

health - in fact in virtually any area
What is Operations Research/ Management of human activity.
Sciences? 8. Operations Research (OR) is the
study of how to form mathematical
1. The focus of the Operations Research models of complex engineering and
is on applications of mathematics management problems and how to
and logic in research and decision- analyze them to gain insight about
making on operations, as well as possible solutions. - Ronald L. Rardin,
problem solving in all types of public Optimization in Operations Research,
and private organization business, prenticeHall, Inc., 1998
industry, government and state
enterprises to bring about optimal The Origins of Operations Research
outcomes in organizational
operations. 1. The World War II
2. “Scientific approach to decision - Prof Volacket formed the 1st OR
making that involves the operations team consisting of physiologist,
for organized systems. O.R. is mathematician, etc.
concerned with optimal decision - Found out the most effective
making in and modeling of allocations of limited resources.
deterministic and probabilistic 2. Industrial Revolution
systems that originate from real life,” - Development of OR
– Hillier & Lieberman, Introduction to - Replace man to machine
Operations Research, 7th Ed., 3. Computer Revolution
HoldenDay, 1996 - Arithmetic calculator
3. “Operations Research is the
application of scientific methods to GEORGE B. DANTZIG
decision problems. It has found wide
- 1947
use and acceptance in all areas of
- Linear Programming
business, government and industry.”
- Simplex method
– Saul L. Gass, College of Business &
Management, University of Maryland,
1979.
4. “The use of analytic methods
adapted from mathematics for
solving operational and business
problems” – Computer Dictionary,
Charles J. Sippl and Charles P. Sippl,
Howard W. Sams & Co., Inc.,
Indianapolis, 1978.
5. “A scientific method of providing
executive department with a
quantitative basis for decisions
making operations under their
control.” – Morse & Kimball, Methods
of Operations Research, Columbia
University Press for office of Naval
Research, 1943 (9th printing, 1963). Characteristics of Operations Research
6. “A branch of applied mathematics
wherein the application is to the Operation Research is the application of
decision-making process,” – Donald scientific methods, techniques and tools to
Gross, Department of Operations problems involving the operations of a system
Research, The George Washington so as to provide those in control of the system
University, 1979. with optimum solutions to the problems. The
7. Operations research employs significant features of operation research are
mathematical models to suggest how as below:
best to operate and coordinate the
activities within an organization. The 1. OR is a system approach
tools of operations research are - An activity influences other
activities in an organization
 2. OR is an Inter-disciplinary team 3. FINANCIAL MANAGEMENT The
approach financial manager can apply OR
- The team should consist of method for
diverse skills  Apply cash flow analysis for
3. OR increases creative ability of the capital budgeting
decision maker  Formulate credit policies,
4. OR is Scientific approach evaluate credit risks
- Formalized process of reasoning  Determine optimum
5. OR is Objectivistic approach replacement strategies.
- Finds solution to the problem  Frame claim and complaint
6. Digital computer procedures.
7. Quantitative solution  Frame policies regarding capital
8. OR is a continuing process structure.
9. Optimizing Nature  Long range capital requirement.
10. Human judgment  Investments portfolio.
 Dividend policies.
Scope of Operations Research 4. PERSONAL MANAGEMENT The
personal manager can apply OR
II.IN INDUSTRY method for
 Forecasting the manpower
Applications of operations research in the
requirement, framing of
area of management
recruitment policies, assignment
1. Production Management: The of jobs to machines or workers
production manager can apply OR etc.
methods for  Selection of suitable personnel
 The remunerative policy with due consideration for age,
with regard to time and education skills training etc.
piece rate.  Determination of optimum
 Determination of optimum number of persons for each
product mix. service centre.
 Production, scheduling and  The promotional policies.
sequencing the production  Mixes of age and skills.
run by allocation of 5. PURCHASE DEPARTMENT The
machines. purchased department can apply OR
 Work study operation method for
including time study.  Determining the quantity and
 Selecting plant location and timing of purchase of raw
design of the sites. materials, machinery etc.
 Distribution policy  Bidding policies.
 Loading and unloading  Rules for buying and supplies
facility for road under varying pries.
transportation.  Equipment replacement policies.
 Maintenance crew sizes  Determination of quantities and
2. MARKETING MANAGEMENT The timing of purchases.
marketing manager can apply OR 6. RESEARCH AND DEVELOPMENT
method for DEPARTMENT The research and
 Product selection, timing and development department can apply
formulation of competitive OR method for
strategies.  Determining the areas for
 Marketing research. research and development.
 Distribution strategies.  Scheduling and control of R and
 Sales forecasting. D projects.
 Sales promotion.  Resource allocation and crashing
 Selection of advertising media in projects.
and terms of cost and time  Project selection.
factor  Reliability and alternative
 To find optimum number of design.
Salesmen. 7. MANUFACTURING DEPARTMENT
The manufacturing department can
apply OR method for:
  Inventory control information system to collect the necessary
 Projection marketing balance. data.
 Production scheduling
 Production smoothing. Formulate a mathematical model: Build a
8. ORGANIZATION BEHAVIOUR mathematical model for abstracting the
DEPARTMENT The OB department essence of the subject of inquiry, showing
can apply OR method for interrelationships, and facilitating analysis.
 Personnel selection and
Developing algorithm: Develop a
planning.
(computer-based) procedure for deriving
 Scheduling of training programs.
solutions to the problem from this model or
 Skills balancing.
using one of a number of readily available
 Recruitment of Employees.
software packages. Samuel Eilon: "optimizing
9. ACCOUNTING DEPARTMENT The
is the science of the ultimate; satisfying is the
accounting department can apply OR
art of the feasible."
method for
 Cash flow and fund flow Test the model: The early version of a large
planning. mathematical model inevitably contains many
 Credit policy analysis. flaws. e.g. some interrelationships have not
 Planning of delinquent account been incorporated into the model, some
strategy. parameters have not been estimated
correctly.

Application of the model: If the model is to

10. TECHNIQUES AND GENERAL
be used repeatedly, then it is necessary to
MANAGEMENT The Techniques &
install a well-documented system for applying
General Management can apply OR
the model as prescribed by management.
method for
 Decision support systems and Implementation: The success of the
MIS; implementation phase depends a great deal
 forecasting. upon the support of both top management
 Organizational design and and operating management.
control
 Projection management, OR Techniques
 strategic planning.
A brief account of some of the important O.R
Chapter 2: Overview of the Operations techniques is given below: -
Research Modeling Approach
1. Allocation models: Involves the
allocation of resources to activities in
such a manner that some measure of
effectiveness is optimized. Solution
through linear and nonlinear
programming techniques.
2. Sequencing: Placing item in certain
sequence or order for service.
3. Waiting or Queuing theory:
Interruptions can occur due to many
reasons. This cause waiting line
problem. Waiting line theory aims in
minimizing the cost of both servicing
and waiting.
4. Inventory model: Regarding the
Define the problem of interest: Determine
holding or storing the resources.
the appropriate objectives, constraints,
5. Competitive Strategy model:
interrelationships between the area to be
These are models which arise when
studied and other areas of the organization,
two or more people are competing.
possible alternative courses of action, time
Game models are used to determine
limits for making a decision, . . .
the optimum strategy in a
Gathering relevant data: e.g. installing a competitive situation.
new computer-based management 6. Decision theory: Concerned with
making decisions under the
 conditions of certainty, risk and minimize the total production and
uncertainty. inventory cost.
7. Network analysis: determination of 2. 2. A financial analyst must select an
an optimum sequence of performing investment portfolio from a variety of
certain operations concerning some stock and bond investment
jobs to minimize overall time and alternatives. He would like to
money. establish the portfolio that
8. Simulation: Technique of testing a maximizes the return on investment.
model which resembles a real-life 3. A marketing manager wants to
situation. Imitate an operation before determine how best to allocate a
actually performing it. fixed advertising budget among
9. Replacement theory: Concerned alternative advertising media such
with situation that arise when some as radio, TV, newspaper, and
items need replacement because the magazines. The goal is to maximize
same may be deteriorated. The advertising effectiveness.
model concerned with prediction of 4. A company has warehouses in a
replacement cost and determination number of locations throughout the
of the most economic replacement country. For a set of customer
policy. demands for its products, the
company would like to determine
LINEAR PROGRAMMING how much each warehouse should
ship to each customer so that the
total transportation costs are
minimized.

Constructing Linear Programming

Models

1. Objective Function. There must be

an objective (or goal or target) the
firm or organization wants to
achieve.
2. Restrictions and Decisions. There
must be alternative courses of action
Linear programming is a mathematical or decisions, one of which will
technique that enables a decision maker to achieve the objective.
arrive at the optimal solution to problems 3. Linear Objective Function and
involving the allocation of scarce resources. Linear Constraints. We must be
able to express the decision problem
Typically, many economic and technical
incorporating the objective and
problems involve maximization or
restrictions on the decisions using
minimization of a certain objective subject to
only linear equations and linear
some restrictions.
inequalities.
During World War II US army began to - Explicit Constraints – stated
formulate certain linear optimization on the problem
problems. Their solutions were called plans or - Implicit Constraints – Non
programs. Today important application areas negativity rule of the decision
include airline crew scheduling, shipping or variable.
telecommunication networks, oil refining and
Three basic steps in constructing a
blending, and stock and bond portfolio
linear programing model:
selection.
Step I Identify the unknown variables to be
Typical Applications of Linear
determined (decision variables) and represent
Programming
them in terms of algebraic symbols. ( x₁, x₂,
1. A manufacturer wants to develop a x₃, x₄)
production schedule and inventory
Step II Identify all the restrictions or
policy that will satisfy sales demand
constraints in the problem and express them
in future periods and same time
as linear equations or inequalities which are
linear functions of the unknown variables.
(explicit and implicit)

Step III Identify the objective or criterion and

represent it as a linear function of the 2. You’re on a special diet and know that your
decision variables, which is to be maximized daily requirement of five nutrients is at least
or minimized. (Maximize Profit Z or Minimize 60 milligrams of vitamin C, at least 1,000
Cost Z) milligrams of calcium, at least 18 milligrams
of iron, at least 20 milligrams of niacin, and at
Example 1 Product-Mix Problem least 360 milligrams of magnesium. You have
two supplements to choose from: Vega Vita
The Handy-Dandy Company wishes to and Happy Health. Vega Vita costs 20 cents
schedule the production of a kitchen per tablet, and Happy Health costs 30 cents
appliance which requires two resources – per tablet. Vega Vita contains 20 milligrams of
labor and material. The company is vitamin C, 500 milligrams of calcium, 9
considering three different models of this milligrams of iron, 2 milligrams of niacin, and
appliance and its engineering department has 60 milligrams of magnesium. Happy Health
furnished the following data: contains 30 milligrams of vitamin C, 250
milligrams of calcium, 2 milligrams of iron, 10
Resources milligrams of niacin, and 90 milligrams of
required to Product/ Resources
magnesium. Formulate a linear programming
produce 1 Model Available
model to determine how many of each tablets
unit
should you take each day to meet your
A B C
minimum requirements while spending the
Labour
7 3 6 150 least amount of money
(hrs/unit)
Materials
4 4 5 200 Daily
(lbs./unit) Vega Happy
Requireme
Profit Vita Health
4 2 3 nt
($/unit)
Vitamin C 20mg 30mg 60mg
Calcium 500mg 250mg 1000mg
The supply of raw materials is restricted to Iron 9mg 2mg 18mg
200 pounds per day. The daily availability of Niacin 2mg 10mg 20mg
manpower is 150 hours. Formulate a linear Magnesiu
60mg 90mg 360mg
programming model to determine the daily m
Cost 0.20 0.30
production rate of the various models of
appliances in order to maximize the total
profit.
3. A company plans to make 3 models (A, B,
and C) of their main product next month.
Production capacity is limited to 100 total -
each model takes the same about of
production time. A supplier problem results in
only 1,000 gallons being available next
month. Each Model A requires 5 gallons of
paint, each Model B requires 7 gallons and
each Model C requires 10 gallons. Marketing
wants the following mix: exactly 20 Model A's;
at least 5 Model B's; and no more than 2
Model C's for every Model B produced. The
firm wants to select that product mix to
maximize profit contribution. Here are the
numbers that go into profit contribution:

Product Profit
A Php 4,000
B Php 5,200
C Php 3,000