OR 6205

Deterministic Operations
Research
Module 1: Introduction to
Operations Research and Linear
Programming
Himlona Palikhe, Ph.D.
Northeastern University

Read Chapters 1, 2, 3.1

and Appendix 1, 4

Lesson 1: Introduction to
OR and LP

Objectives
Describe OR & LP as they relate to
decision making in organizations
Use the Gauss-Jordan method to solve a
system of simultaneous linear equations
in algebraic and matrix form
Formulate small-size LP models
Solve two-variable LP problems with the
graphical method manually and in the
computer using lOR Tutorial
4

Operations Research
(OR)

Have you ever been asked to make a decision for your

organization to optimize a process or procedure?
OR is an entire field devoted to understanding how to
make these decisions.
OR deals with the application of scientific methods to
decision making, especially to the allocation of
resources.
OR uses analytical and numerical techniques to
develop and manipulate mathematical and computer
models of organizational systems composed of people,
machines, and procedures.
5

Operations Research
Cont.

OR draws upon ideas from many

diverse areas, such as, engineering,
management, mathematics and
psychology to contribute to a wide
variety of application domain.
Some real cases of OR application
are shown in the next slide.

Organization
Application
Year
Yearly savings
Dutch Ministry of Infrastructure
and the Environment
National Water management policy development, adding new facilities, operating and costs procedures 1985 $15 millions
(Netherlands Rijkswaterstaat)
Monsanto Corp.

Production's operations optimization to obey goals with a minimum cost

1985 $2 millions

Weyerhaeuser Co.

Cutting trees optimization to maximize wood products production

1986 $15 millions

Electrobras/CEPAL Brasil

Optimal allocation of hydraulic and thermic resources in the national energy generation system

1986 $43 millions

United Airlines

Shifts at book offices and airports scheduling to accomplish with the customer needs at minimal cost

1986 $6 millions

CITGO Petroleum Corp.

Optimization of refinement, offer, distribution and commercialization of products operations

1987 $70 millions

Santos, Ltd., Australia

Capital investment optimizing to produce natural gas along 25 years in Australia

1987 $3 millions

Electric Power Research

Institute

Administration of oil and coal inventories for the electric service with the intention of balancing inventory
1989 $59 millions
costs and risks of remaining

San Francisco Police

Department

Optimization programming and assignment of Patrol's officers with a computed system

1989 $11 millions

Texaco Inc.

Optimizing the mixing of ingredients available in order to obtain fuels which met with the quality
requirements and sales

1989 $30 millions

IBM

Integration of a national network of spare parts inventory to improve support service

1990

U.S. Military Airlift Command

Rapidity in the airplanes, crew, load and passengers coordination to drive the evacuation by air in the
"Desert Storm" project in the Middle Orient

1992 Victory

American Airlines

Design of a pricing, overbooking and flight coordination structure system to enhance benefits

1992 $500 millions of additional revenue

Yellow Freight System, Inc.

Optimizing the design of the national transport network and the scheduling of shipping routes in the U.S. 1992 $17.3 millions

New Haven Health Dept.

Design of an effective program of needles change to combat the AIDS contagion

1993 33% less of contagions

AT&T

Development of a computer system to design call centers to guide customers

1993 $750 millions

Delta Airlines

Maximizing profits from the allocation of aircraft types in 2.500 national flights in the U.S.

1994 $100 millions

Digital Equipment Corp.

Restructuring of the whole supply chain among suppliers, plants, distribution centers, potential sites and
1995 $800 millions
market areas

China

Selection and optimum programming of mass projects to obey with future energy needs of the country

$20 millions + $250 millions in

minor inventory

1995 $425 millions

South African National Defence Optimal restructuring of the size and form of the South African National Defence Force and his weapons
1997 $1.100 millions
Force (SANDF)
system
Procter & Gamble

Redesign of the North American production and distribution system to reduce costs and to improve the
incoming rapidity to the market

1997 $200 millions

Taco Bell

Optimum employees programming to provide the service to desired clients with a minimum cost

1998 $13 millions

Hewlett-Packard

Redesign of security inventories' size and location at printer production line to obey the production goals 1998 $280 millions of additional revenue

Source: http://www.phpsimplex.com/en/real_cases.htm

Operations Research
Cont.

OR is closely related to several other

fields in the "Decision Sciences:"
Applied Mathematics, Computer
Science, Systems Engineering,
Industrial Engineering and
Economics.
OR models win Nobel Prizes.

Nobel Prize Winning OR

Models
Samuelson Model
Markowitz Model
Merton Model

Samuelson Model
It is an input/output optimization model.
It maximizes the GNP of a country- think of a
country as a big organization.
Inputs of a country: Its resources (labor
force, raw materials, minerals, capital, etc.).
Processes and technology are used to
convert the materials to final products.
The goal is to utilize the resources of the
country in the best possible way, to
maximize its GNP (output).
10

Markowitz Model
It is an optimization model for portfolio selection. A
portfolio is the collection of securities one invests
in using capital. Given the amount of capital
available, the portfolio selection model selects the
securities from a given set one should invest.
An intuitive objective is to maximize the ROI after
a year or ten years. Markowitz was the first who
disagreed: ROI is not enough; one has to look at
the risk. He introduced the concept of
diversification of investments. He quantified the
risk using the variance of the return.
11

Markowitz Model Cont.

You make an investment, say $10,000 in
stocks and bonds, and after a year, the
value of the portfolio is uncertain (RV).
The variance of that RV is the
quantification of the risk that investment
companies use.
In addition to the variance, other
parameters such as beta, R-squared and
Sharpe ratio are used today to measure
the risk.
12

Merton Model
Merton won a Nobel Prize in the 1990s for
option pricing.
Option is not a stock or bond, but the right
to buy or sell a particular stock or bond at
a particular price at a particular time.
The price of that option is very important,
and Merton developed differential
equations and other mathematical models
for pricing options.
13

Brief History of OR
Research on military Operations
problems by the British government
during world war II led to the
development of OR
OR led to the development of methods
for effectively utilizing new defense
technologies, such as the radar
The air chief marshal directed the
project for the Royal Air Force, 1938
14

Brief History of OR Cont.

This first OR project contributed to
the first allied victory, the Battle of
Britain, 1940
Rapid expansion of OR in the USA
began in 1942, again as military OR
After the war, interest spread from
the military to other government
organizations and to the industry.
15

OR Professional
Organizations

In 1952, the OR Society of America (ORSA)

was founded by Professor Philip Morse of
MIT
In 1995, ORSA merged with The Institute
of Management Sciences (TIMS) to form
INFORMS
There are more than 50 societies in other
countries, all under the umbrella of the
International Federation of Operational
Research Societies.
16

OR Application Areas

Manufacturing
Transportation
Communication
Construction
Health Care
Banking

17

Theories and methods based

on OR

18

Theories and methods based

on OR

Game theory
Integer and nonlinear programming
Scheduling
Simulation
Multiple criteria decision making

19

Network analysis
It refers to some interesting LP
problems that have network structure.
Examples:
Transportation problem,
Assignment problem,
Shortest path problem,
Maximum flow problem and
Generalized network flow problem.
20

Dynamic programming
Different from LP
Method that is used to make a sequence of
interrelated decisions.
Example, the multi-period production planning
problem: we know the customer demand each
month and we want to determine the
production level each month that will minimize
total cost, including production setup cost,
variable production costs, and inventory
carrying costs. The decisions are interrelated.
21

Types of Decisions

Decisions are usually classified with respect

to their frequency of occurrence as:
Strategic decisions are performed every
5 to 10 years. Example: locating a plant or
a warehouse. The setup cost is so high that
we cannot afford to open a plant every
month or year.
Operating decisions are performed
routinely.
22

Example of Operating
Decisions

The delivery of products from a

warehouse to customers.
Every day, there are orders of
different customers to be delivered to
different locations by a fleet of trucks.
The routing decisions of the trucks
(customer sequencing) have to be
made every day.
23

Linear Programming (LP)

First OR area, developed in the 1940's
Most common application of LP:
allocation of limited resources to
competing activities in the optimal
way
LP stands for the linearity of the
functions used (linear), and the
planning of activities (programming)
24

Linear Programming Contd.

LP uses a mathematical model of the system:
Activity levels - decision variables that are used to
define the measure of performance (objective
function); Restrictions of the problem - functions in
equality or inequality form (constraints).
Tremendous impact of LP is mostly due to the
development of the digital computer and an
efficient computational procedure called simplex
(Dantzig 1947).
New (interior point) methods were developed (N.
Karmarkar, Bell Laboratories, 1984) which can solve
large size problems.
25

LP Applications
Allocating production facilities to products
o Activities: Products to be produced this week
o Resources: Labor, machines & raw materials
o Activity Levels: No. of units of each product to make

Selection of shipping patterns: Distributing

products from 3 warehouses to 4 customers
o Activities: Each pair of warehouse-customer
o Resources: Amount of product that is available at
each warehouse
o Activity Levels: Amount of products to be shipped
from each warehouse to each customer
26

LP Applications Cont.
Allocating limited funds to investment
opportunities
o Activities: Possible securities to buy
o Resources: Capital to be invested
o Activity Levels: Money to invest in each of the
securities

Agricultural planning: Farm business

o Activities: Crops (wheat, corn, etc.) & types of livestock
to grow this coming year
o Resources: Operating budget, equipment, labor, &
water
o Activity Levels: Amount of crops & livestock to grow
27

Lesson 2: Mathematical
Foundations of OR and LP

Gauss-Jordan Method
LP problems are converted to systems
of simultaneous linear equations and
then solved by the simplex algorithm.
At each iteration, simplex solves for a
new variable, a system of n
simultaneous linear equations in n
unknowns (variables), using the Gauss
Jordan method.

29

Gauss-Jordan Method
Example

Lets review this method in a simple

example with n=3 variables.
2x1 + 2x2 + x3 = 9
2x1 - x2 + 2x3 = 6
x1 - x2 + 2x3 = 5
The system of simultaneous linear
equations in the example had a
unique solution.
30

Gaussian Elimination
There are cases, however, where a system
of equations has no solution (inconsistent
system of equations), or it may have an
infinite no. of solutions. The no. of
solutions depends on the rank of the
matrices.
In LP, the resulting systems of equations
most often have an infinite number of
solutions and we try to identify the optimal
solution.
31

Matrix Form
Example

For a review of linear algebra:

http://mathworld.wolfram.com/topics
/LinearAlgebra.html
32

Lesson 3: LP Formulation

Formulation and Graphical

Solution

Prototype Example: Wyndor Glass

Company (Section 3.1, Page 24)

34

Special LP Cases & Graphical

Solutions
A LP with equality constraints
A LP with no feasible solutions
A LP that has multiple (alternative)
optimal solutions
A minimization LP

35

IOR Tutorial
www.mhhe.com/hillier
Steps:
1.Click Area and select General Linear
Programming
2.Click Procedure and select Graphical
Method and Sensitivity Analysis
36

Homework 1
To practice the Gauss-Jordan method, solve the
following system of three simultaneous linear
equations in three unknowns.
2x1 + 3x2 + x3 = 11
-3x2 + 2x3 = 5
x1 + x2 + x3 = 7
a) Solve in algebraic form and specify in each iteration
the pivot column, pivot row and pivot element
b) Solve in matrix form, by inverting manually the
appropriate matrix and postmultiply by the RHS vector.

37

Homework 1 Cont.

3.1-10 (solve manually)

3.2-2 (solve manually)
3.2-3 (solve manually)
3.2-6 (with lOR tutorial)
3.4-6 (with lOR tutorial)

38

Module 2 Reading:
Chapter 3.2-3.6 and
Appendix 1