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Unit 1

Unit 1

Structure: 1.1 Introduction Objectives 1.2 Historical Background Definitions of operations research 1.3 Scope of Operations Research 1.4 Features of Operations Research 1.5 Phases of Operations Research 1.6 Types of Operations Research Models A broad classification of OR models 1.7 Operations Research Methodology Definition Construction Solution Validation Implementation 1.8 Operations Research Techniques and Tools 1.9 Structure of the Mathematical Model 1.10 Limitations of Operations Research 1.11 Summary 1.12 Glossary 1.13 Terminal Questions 1.14 Answers 1.15 Case Study

1.1 Introduction

Welcome to the unit on operations research management. Operations research management focuses on the mathematical scoring of consequences of a decision aiming to optimise the use of time, effort, and resources to avoid blunders. The act of obtaining best results under any given circumstances is known as optimising. The key purpose of Operations Research (OR) is to do preparative calculations that aid the decision-making process.

Sikkim Manipal University Page No. 1

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Hence, decision-making is a key part of our daily life. The ultimate goal of all decisions is to maximise benefits and to minimise effort and time. OR gives decision makers the power to make effective decisions and improve day-today operations. Decision makers consider all the available options, study the outcomes, and estimate the risks. In simple situations, common sense and judgement can be used to take decisions. For example, if you are buying a microwave or washing machine, the decision-making process is not very complicated. You can simply compare the price, quality, and durability of the well-known brands and models in the market and take a decision based on it. However, in complex situations, although it is possible to take decisions based on ones common sense, a decision backed by mathematical calculations reduces the risk factor and increases the probability of success. Some such situations, where decision-makers have to depend on mathematical scoring and reasoning, are finding an appropriate product mix amidst competitors products or planning a public transportation network in a city. Objectives: After studying this unit, you should be able to: describe the historical background of OR list the significant features of OR describe the methodology of OR define the structure of a mathematical model in OR describe the significance of the function of OR

During the World War II, scientists from United Kingdom studied the strategic and tactical problems associated with air and land defence of the country. The aim of this study was to determine the effective utilisation of limited military resources to win the battle. The technique was named operations research. After World War II, operations research techniques were developed and deployed in the decision-making process in complicated situations in various fields, such as industrial, academic, and government organisations.

Sikkim Manipal University Page No. 2

Operations Research

Unit 1

1.2.1 Definitions of operations research Churchman, Aackoff, and Aruoff defined operations research as the application of scientific methods, techniques and tools to the operation of a system with optimum solutions to the problems where 'optimum' refers to the best possible alternative. The objective of OR is to provide a scientific basis to the decision-makers for solving problems involving interaction with various components of the organisation. This can be achieved by employing a team of scientists from different disciplines to work together for finding the best possible solution in the interest of the organisation as a whole. The solution thus obtained is known as an optimal decision. You can also define operations research as The use of scientific methods to provide criteria for decisions regarding man, machine, and systems involving repetitive operations. Self Assessment Questions 1. The main objective of OR is to provide a _______ ________ to the decision-makers. 2. OR employs a team of _________ from _________ __________.

Any problem, either simple or complicated, can use OR techniques to find the best possible solution. This section will explain the scope of OR by analysing its application in various fields of everyday life. In defence operations In modern warfare, the three major military components namely, Air Force, Army, and Navy carry out the defence operations. The activities in each of these components can be further divided in four sub-components - administration, intelligence, operations, training and supply. The applications of modern warfare techniques in each of the components of military organisations require expert knowledge in respective fields. Furthermore, each component works to drive maximum gains from its operations and there is always a possibility that the strategy beneficial to one component may be unfeasible for another component. Thus in defence operations, there is a requirement to co-ordinate the activities of various components. This

Sikkim Manipal University Page No. 3

Operations Research

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gives maximum benefit to the organisation as a whole, having maximum use of the individual components. A team of scientists from various disciplines gets together to study the strategies of different components. After appropriate analysis of the various courses of actions, the team selects the best course of action, known as the optimum strategy. In industry The system of modern industries is so complex that an individual cannot intuitively judge the optimum point of operation in its various components. The business environment is always changing and any decision useful at one time may not be suitable some time later. There is always a need to check the validity of decisions continuously against the situations. The industrial revolution with increased division of labour and introduction of management responsibilities has made each component an independent unit having its own goals. For example, production department minimises the cost of production but maximises output. Marketing department maximises the output, but minimises cost of unit sales. Finance department tries to optimise the capital investment and personnel department appoints good people at minimum cost. Thus, each department plans its own objectives and all these objectives of various departments or components come to conflict with one another and may not agree to the overall objectives of the organisation. The application of OR techniques helps in overcoming this difficulty by integrating the diversified activities of various components to efficiently serve the interest of the organisation as a whole. OR methods in industry can be applied in the fields of production, inventory controls and marketing, purchasing, transportation, and competitive strategies. Planning In modern times, it has become necessary for every government to carefully plan, for the economic development of the country. OR techniques can be fruitfully applied to maximise the per capita income, with minimum sacrifice and time. A government can thus use OR for framing future economic and social policies. Agriculture With increase in population, there is a need to increase agriculture output. However, this cannot be done arbitrarily. There are several restrictions. Hence, the need to determine a course of action that serves the best under the given restrictions. You can solve this problem by applying OR techniques.

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In hospitals OR methods can solve waiting problems in outpatient department of big hospitals and administrative problems of the hospital organisations. In transport Different OR methods can be applied to regulate the arrival of trains and processing times, to minimise the passengers waiting time and reduce congestion, and to formulate suitable transportation policy, thereby reducing the costs and time of transshipment. Research and development OR methodologies can be applied in the field of R&D for several purposes, such as to control and plan product introductions.

Self Assessment Questions 3. A government can thus use OR for framing future ______ and _______ 4. In hospital OR methods can solve waiting problems in ______ department of big hospitals and ______ problems of the hospital organisations.

Some key features of OR are as follows: OR is system-oriented. OR scrutinises the problem from an organisations perspective. The results can be optimal for one part of the system, while the same can be unfavourable for another part of the system. OR imbibes an interdisciplinary team approach. Since no single individual can have a thorough knowledge of all the fast developing scientific know-how, personalities from different scientific and managerial cadre form a team to solve the problem. OR uses scientific methods to solve problems. OR increases effectiveness of the managements decision-making ability. OR uses computers to solve large and complex problems. OR offers a quantitative solution. OR also takes into account the human factors.

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Self Assessment Questions 5. OR ________ inter-disciplinary approach. 6. OR increases the effectiveness of ________ ability.

The scientific method in OR study generally involves three phases. Figure 1.1 depicts the three phases of OR.

Let us now study the phases in detail. Judgment phase This phase includes the following activities: Determination of the operations Establishment of objectives and values related to the operations Determination of suitable measures of effectiveness Formulation of problems relative to the objectives Research phase This phase utilises the following methodologies: Operation and data collection for a better understanding of the problems Formulation of hypothesis and model Observation and experimentation to test the hypothesis on the basis of additional data Analysis of the available information and verification of the hypothesis using pre-established measure of effectiveness Prediction of various results and consideration of alternative methods

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Action phase This phase involves making recommendations for the decision process. The recommendations can be made by those who identify and present the problem or by anyone who influences the operation in which the problem has occurred. Self Assessment Questions 7. Action phase involves making recommendations for the decision process. (True/False) 8. One of the OR phases is judgement phase. (True/False)

A model is an idealised representation or abstraction of a real-life system. The objective of a model is to identify significant factors that affect the reallife system and their interrelationships. A model aids the decision-making process as it provides a simplified description of complexities and uncertainties of a problem in a logical structure. The most significant advantage of a model is that it does not interfere with the real-life system. 1.6.1 A broad classification of OR models You can broadly classify OR models into the types depicted in figure 1.2.

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Let us now study the models in detail. Physical models These models include all forms of diagrams, graphs, and charts. They are designed to tackle specific problems. They bring out significant factors and interrelationships in pictorial form to facilitate analysis. There are two types of physical models. They are: Iconic models Analogue models Let us now study the two types of physical models in detail. Iconic models are primarily images of objects or systems, represented on a smaller scale. These models can simulate the actual performance of a product. Analogue models are small physical systems having characteristics similar to the objects they represent, such as toys. Mathematical or symbolic models These models employ a set of mathematical symbols to represent the decision variable of the system. The variables are related by mathematical systems. Some examples of mathematical models are allocation, sequencing, and replacement models. By nature of environment These models can be further classified as follows: Deterministic models - These are the models in which everything is defined and the results are certain, such as an EOQ model. Probabilistic models - These are the models in which the input and output variables follow a defined probability distribution, such as the games theory.

By the extent of generality These models can be further classified as follows: General models These are the models which you can apply in general to any problem. For example, linear programming. Specific models - These are the models that you can apply only under specific conditions. For example, you can use the sales response curve or equation as a function in the marketing function.

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Self Assessment Questions 9. Diagram belongs to physical models. (True/False) 10. Allocation problems are represented by iconic models. (True/False)

The basic dominant characteristic feature of operations research is that it employs mathematical representations or models to analyse problems. This distinct approach represents an adaptation of the scientific methodology used by the physical sciences. The scientific method translates a given problem into a mathematical representation which is solved and retransformed into the original context. Figure 1.3 depicts the OR approach to problem solving.

As shown in figure 1.3, OR methodology consists of five steps. They are defining the problem, constructing the model, solving the model, validating the model, and implementing the result. Let us now study the steps in detail. 1.7.1 Definition The first and the most important step in the OR approach of problem solving is to define the problem. One needs to ensure that the problem is identified properly because this problem statement will indicate the following three major aspects: Description of the goal or the objective of the study Identification of the decision alternative to the system

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Operations Research

Unit 1

1.7.2 Construction Based on the problem definition, you need to identify and select the most appropriate model to represent the system. While selecting a model, you need to ensure that the model specifies quantitative expressions for the objective and the constraints of the problem in terms of its decision variables. A model gives a perspective picture of the whole problem and helps in tackling it in a well-organised manner. Therefore, if the resulting model fits into one of the common mathematical models, you can obtain a convenient solution by using mathematical techniques. If the mathematical relationships of the model are too complex to allow analytic solutions, a simulation model may be more appropriate. Hence, appropriate models can be constructed. 1.7.3 Solution After deciding on an appropriate model, you need to develop a solution for the model and interpret the solution in the context of the given problem. A solution to a model implies determination of a specific set of decision variables that would yield an optimum solution. An optimum solution is one which maximises or minimises the performance of any measure in a model subject to the conditions and constraints imposed on the model. 1.7.4 Validation A model is a good representation of a system. However, the optimal solution must work towards improving the systems performance. You can test the validity of a model by comparing its performance with some past data available from the actual system. If under similar conditions of inputs, your model can reproduce the past performance of the system, then you can be sure that your model is valid. However, you will still have no assurance that future performance will continue to duplicate the past behaviour. Secondly, since the model is based on careful examination of past data, the comparison should always reveal favourable results. In some instances, this problem may be overcome by using data from trial runs of the system. One must note that such validation methods are not appropriate for non-existent systems because data will not be available for comparison.

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1.7.5 Implementation You need to apply the optimal solution obtained from the model to the system and note the improvement in the performance of the system. You need to validate this performance check under changing conditions. To do so, you need to translate these results into detailed operating instructions issued in an understandable form to the individuals who will administer and operate the recommended system. The interaction between the operations research team and the operating personnel reaches its peak in this phase.

The different techniques and tools used in OR are as follows: Linear programming You can use linear programming to find a solution for optimising a given objective. The objective may be to maximise profit or to minimise cost. You need to ensure that both the objective function and the constraints can be expressed as linear expressions of decision variables. You will learn about the various uses of linear programming in Unit 2. Inventory control methods The production, purchasing, and material managers are always confronted with questions, such as when to buy, how much to buy, and how much to keep in stock. The inventory model aims at optimising these inventory levels. Goal programming In linear programming, you take a single objective function and consider all other factors as constraints. However, in real life there may be a number of important objective functions. Goal programming has several objective functions, each having a target value. Programming models are developed to minimise deviations from these targets. Queuing model The queuing theory is based on the concept of probability. It indicates the capability of a given system and the changes possible in the system when you modify the system. In formulating a queuing model, you need not take into account all the constraints. There is no maximisation or minimisation of an objective function. Therefore, the application of queuing theory cannot be viewed as an optimisation process. You can use the queuing theory to estimate the required balance between customer waiting time and the service capability of the

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system. You need to first consider several alternatives, evaluate them through queuing models, study their effect on the system, and then make a choice. The criteria for evaluation will be measures of efficiency of the system, such as the average length of a queue, expected waiting time of a customer, and the average time spent by the customer in the system. In this approach, your success primarily depends on the alternatives considered and not much on the queuing models developed. Transportation model The transportation model is an important class of linear programs. The model studies the minimisation of the cost of transporting a commodity from a number of sources to several destinations. The supply at each source and the demand at each destination are known. The objective of the model is to develop an integral transportation schedule that meets all the demands from the inventory at a minimum total transportation cost. The transportation problem involves m sources, each of which has ai (i = 1, 2, ..,m) units of homogeneous product and n destinations available, and each of which requires bj (j = 1, 2., n) units of products. Here ai and bj are positive integers. The cost cij of transporting one unit of the product from the ith source to the jth destination is given for each i and j. It is assumed that the total supply and the total demand are equal.

i 1

ai

bj

j 1

(1)

Condition (1) is guaranteed by creating either a fictitious destination with a demand equal to the surplus if total demand is less than the total supply or a (dummy) source with a supply equal to the shortage if total demand exceeds total supply. The cost of transportation from the fictitious destination to all sources and from all destinations to the fictitious sources are assumed to be zero so that the total cost of transportation will remain the same. In addition to the above, there are tools such as the sequence model, the assignment model, and network analysis, which you will learn in detail in the later units.

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Self Assessment Questions 11. OR methodology consists of definition, solution, and validation only. (True/False) 12. The interaction between the OR team and management reaches peak level in the implementation phase. (True/False)

Many industrial and business situations are concerned with planning activities. In each case of planning, there are limited sources, such as men, machines, material, and capital at the disposal of the planner. One has to take decisions regarding these resources to maximise production, minimise the cost of production, or maximise the profit. These problems are referred to as the problems of constrained optimisation. Linear programming is a technique for determining an optimal schedule of interdependent activities, for the given resources. Therefore, you can say that programming refers to planning and the process of decision-making about a particular plan of action from a given set of alternatives. Any business activity or production activity to be formulated as a mathematical model can best be discussed through its parts, which are as follows: Decision variables Objective function Constraints Let us now study the parts in detail. Decision variables Decision variables are the unknowns, which you need to determine from the solution of the model. The parameters represent the controlled variables of the system. Objective function The objective function defines the measure of effectiveness of the system as a mathematical function of its decision variables. The optimal solution to the model is obtained when the corresponding values of the decision variable yield the best value of the objective function whilst satisfying all constraints. Therefore, you can say that the objective function acts as an indicator for the achievement of the optimal solution.

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Operations Research

Unit 1

While formulating a problem, the desire of the decision-maker is expressed as a function of n decision variables. (This function is a linear programming problem, that is, each of its items will have only one variable raised to the power one). Some of the objective functions in practice are: Maximisation of contribution or profit Minimisation of cost Maximisation of production rate or minimisation of production time Minimisation of labour turnover Minimisation of overtime Maximisation of resource utilisation Minimisation of risk to environment or factory Constraints To account for the physical limitations of the system, you need to ensure that the model includes constraints, which limit the decision variables to their feasible range or permissible values. These are expressed as constraining mathematical functions. For example, in chemical industries, there are restrictions from the government regarding the releasing of gases into the environment. Restrictions from sales department about the marketability of some products are also treated as constraints. Thus, a linear programming problem has a set of constraints in practice. The mathematical models in OR may be viewed generally as determining the values of the decision variables x J, where J = 1, 2, 3, ------ n, which will optimise Z = f (x 1, x 2, ---- x n). Subject to the constraints: g i (x 1, x 2 ----- x n) b i, i = 1, 2, ---- m And xJ 0 j = 1, 2, 3 ---- n where is , , or =. The function f is called the objective function, where xj bi, represent the ith constraint for i = 1, 2, 3 ---- m where bi is a known constant. The constraint xj 0 is called the non-negativity condition, which restricts the variables to zero or positive values only.

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Example, Diet problem Formulate the mathematical model for the following: VitaminA and VitaminB are found in food1 and food2. One unit of food1 contains 5 units of vitaminA and 2 units of vitaminB. One unit of food2 contains 6 units of vitaminA and 3 units of vitaminB. The minimum daily requirement of a person is 60 units of vitaminA and 80 units of VitaminB. The cost per one unit of food1 is Rs.5 and one unit of food2 is Rs.6. Assume that any excess units of vitamins are not harmful. Find the minimum cost of the mixture (food1 and food2) which meets the daily minimum requirements of vitamins. Mathematical model of the diet problem: Suppose, x1 = the number of units of food1 in the mixture x2 = the number of units of food2 in the mixture. Let us formulate the constraint related to vitamin-A. Since each unit of food 1 contains 5 units of vitamin A, we have that x1 units of food1 contains 5x1 units of vitamin A. Since each unit of food 2 contains 6 units of vitaminA, we have that x2 units of food2 contains 6x2 units of vitaminA. Therefore, the mixture contains 5x1 + 6x2 units of vitamin-A. Since the minimum requirement of vitamin A is 60 units, you can say that 5x1 + 6x2 60. Now lets formulate the constraint related to vitaminB. Since each unit of food1 contains 2 units of vitaminB we have that x1 units of food1 contains 2x1 units of vitamin-B. Since each unit of food2 contains 3 units of vitaminB, we have that x2 units of food2 contains 3x2 units of vitaminB. Therefore the mixture contains 2x1 + 3x2 units of vitaminB. Since the minimum requirement of vitaminB is 80 units, you can say that 2x2 + 3x2 80 Next lets formulate the cost function. Given that the cost of one unit of food1 is Rs.5 and one unit of food2 is Rs.6. Therefore, x1 units of food1 costs Rs.5x1, and x2 units of food2 costs Rs.6x2. Therefore, the cost of the mixture is given by cost = 5x1 + 6x2. If we write z for the cost function, then you can write z = 5x1 + 6x2. Since cost has to be minimised, you can write min z = 5x1 + 6x2.

Sikkim Manipal University Page No. 15

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Since the number of units (x1 or x2) are always non-negative, you have x1 0, x2 0. Therefore, the mathematical model is: 5x1 + 6x2 60 2x1 + 3x2 80 x1 0, x2 0, min z = 5x1 + 6x2.

The limitations are more related to the problems of model building, time, and money factors. The limitations are:

of variables. The magnitude of computation makes it difficult to find the interrelationship.

factors cannot be taken into account.

managers and the aim of research professionals.

Time and money factors When you subject the basic data to frequent

changes then incorporating them into OR models becomes a costly affair.

and behaviour. Self Assessment Questions 13. OR imbibes _________ team approach. 14. Linear programming is tool of _______. 15. The three phases of OR are ________. 16. To solve any problem through OR approach, the first step is _______. 17. _________ represents a real life system. 18. _________ represents the controlled variables of the system.

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1.11 Summary

Let us recapitulate the important concepts discussed in this unit: The objective of OR is to provide a scientific basis to the decisionmakers for solving problems involving interaction with various components of the organisation The scope of OR is in various fields such as defence, industry, government, agriculture, hospitals, transport and research and development. Some key features of OR are OR is system oriented, it imbibes inter disciplinary team approach and uses scientific methods to solve problems. The three phases of OR are Judgement phase, research phase, and action phase. You can broadly classify OR models according to physical models, mathematical models , models by nature of environment and models by extent of generality. The steps in OR methodology are problem definition, model construction, model solution, model validation and result implementation. Linear programming, inventory control methods, goal programming, queuing model and transportation model are the different tools and techniques used in OR. Any business activity or production activity has to be formulated as a mathematical model. Some of the limitations of OR are magnitude of computation, intangible factors, communication gap, time and money factors and human factors

1.12 Glossary

Probability: possible outcomes of an event Hypothesis: unproved theory Network analysis: a mathematical representation of the problem by lines and nodes joined to form a network

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1. 2. 3. 4. 5. Define OR. What are the features of OR? What is a model in OR? Discuss the different models available in OR. Write short notes on the different phases of OR. What are the limitations of OR?

1.14 Answers

Self Assessment Questions 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. Scientific basis Scientists, different disciplines economic , social policies Outpatient, administrative Imbibes Decision making True True True False False False Inter-disciplinary OR Judgement phase, research phase, and action phase Define the problem Model Parameters

Terminal Questions 1. OR is defined as the application of scientific methods, techniques and tools to the operation of a system with optimum solutions to the problems - refer 1.2.1 2. Some key features of OR are OR is system oriented, it imbibes inter disciplinary team approach and uses scientific methods to solve problems - refer 1.4 3. Types of operations research models - refer 1.6

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Operations Research

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4. Phases of operations research are judgement, research and action phase - refer 1.5 5. Limitations of OR - refer 1.10

IMB Optimiser System IBM was considering integrating its national network of spare parts inventories to improve service support for their customers. They developed a model for their inventory system that improved customer service while reducing the value of IBMs inventories by $ 250 million and saving an additional $20 million per year through improved operational efficiency. A particularly interesting aspect of the model validation phase of this study was the way the future users of the inventory system had been incorporated into the testing process. Because these future users were sceptical about the system being developed, representatives were appointed to a user team to serve as advisors to the OR team. After a preliminary version of the new system had been developed, a pre-implementation test of the system was conducted. Extensive feedback from the user team led to major improvements in the proposed system. Large computer system was used to apply this model. The system developed was called optimiser. It provided optimal control of service levels and spare-parts inventories throughout IBMs U.S. parts distribution network, which included two central automated warehouses, dozens of field distribution centres, and many thousands of outstation locations. The parts inventory maintained in this network is valued in billions of dollars. Optimiser consists of four major modules. A forecasting system module contains a few programs for estimating the failure rates of individual types of parts. A data delivery system module consists of approximately 100 programs that process over 15 gigabytes of data to provide the input for the model. A decision system module then solves the model on a weekly basis to optimise control of the inventories. The fourth module includes six programs that integrate the optimiser into IBMs Parts Inventory Management System (PIMS). PIMS is a

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sophisticated information and control system that contains millions of lines of code. Careful planning was required to implement the complex optimiser system for controlling IBMs national network of spare-parts inventories. Three factors proved to be especially important in achieving a successful implementation. By the time implementation phase was reached, operational managers had a strong sense of ownership and had become ardent supporters for installing optimiser in their functional areas. A second success factor was a very extensive user acceptance test whereby users could identify problem areas that needed to be rectified prior to implementation. The third key was that a new system was phased in gradually, with careful testing at each phase, so the major bugs could be eliminated before the system went live nationally. Discussion Questions: 1. Analyse the need for OR team at IBM. 2. Explain optimiser with its modules. 3. How did this new system help and what were the reasons for its success. Reference: Kapoor V. K. (2005). Operations Research. Sultan Chand and Sons. Sharma J. K. (2006). Operations Research. Macmillan India Limited. Taha H. Operations Research. Prentice Hall. Kanti Swarup & Gupta P. K., & Hira D. S., & Manmohan (2004). Operation Research. Sultan Chand and Sons. Cohen M., & Kamesan P. V., & Kleindorfer P., & Lee H., & Tekerian A. (Jan-Feb. 1990). Optimizer: IBMs Multi-Echelon Invenentory System for Managing Service Logistics.

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