What is Operations Research?

Operations Research (O.R.), or operational research in the U.K, is a discipline that deals with the
application of advanced analytical methods to help make better decisions. The terms
management science, decision science and analytics are sometimes used as synonyms for
operations research.

Employing techniques from other mathematical sciences, such as mathematical modeling,

statistical analysis, and mathematical optimization, operations research arrives at optimal or
near-optimal solutions to complex decision-making problems.

Operations research overlaps with other disciplines, notably industrial engineering and
operations management. It is often concerned with determining a maximum (such as profit,
performance, or yield) or minimum (such as loss, risk, or cost.)

Operations research encompasses a wide range of problem-solving techniques and methods

applied in the pursuit of improved decision-making and efficiency, such as simulation,
mathematical optimization, queuing theory, Markov decision processes, economic methods, data
analysis, statistics, neural networks, expert systems, and decision analysis. Nearly all of these
techniques involve the construction of mathematical models that attempt to describe the system.
LINEAR PROGRAMMING

Linear programming is a problem-solving approach developed to help managers make

decisions.

Numerous applications of linear programming can be found in today’s competitive

business environment. For instance, Eastman Kodak uses linear programming to determine
Where to manufacture products throughout their worldwide facilities, and GE Capital uses
linear programming to help determine optimal lease structuring.

To illustrate some of the properties that all linear programming problems have in common,
Consider the following typical applications:

1. A manufacturer wants to develop a production schedule and an inventory policy

that will satisfy sales demand in future periods. Ideally, the schedule and policy will
enable the company to satisfy demand and at the same time minimize the total
production and inventory costs.

2. A financial analyst must select an investment portfolio from a variety of stock and
bond investment alternatives. The analyst would like to establish the portfolio that
maximizes the return on investment.

3. A marketing manager wants to determine how best to allocate a fixed advertising

budget among alternative advertising media such as radio, television, newspaper,
and magazine. The manager would like to determine the media mix that maximizes
advertising effectiveness.

4. A company has warehouses in a number of locations throughout the United States.

For a set of customer demands, the company would like to determine how much
each warehouse should ship to each customer so that total transportation costs are
minimized.
Assumptions underlying L P P:

1. Certainty: Numbers in the objective and constraints are known with certainty and
do not change during the period being studied.
2. Proportionality: Proportionality exists in the objective and constraints. This means
that if production of 1 unit of a product uses 3 hours of a particular scarce resource,
then making 10 units of that product uses 30 hours of the resource.
3. Additivity: It means that the total of all activities equals the sum of the individual
activities. For eg., if an objective is to maximize profit of Rs. 8 per unit of first
product made plus Rs. 3 per unit of second product made, and if 1 unit of each
product is actually produced, the profit contributions of Rs. 8 and Rs. 3 must add up
to produce a sum of Rs. 11.
4. Divisibility: This assumption implies that solution need not be in whole numbers
(integers). Instead they are divisible and may take any fractional value. In
production problems, we often define variables as the number of units per week or
per month, and a fractional value (eg., 0.3 chairs) would simplymean that there is
work in process.
5. Non-negativity: It is assumed that all decision variable take non-negative values.

Definition of important concepts:

Feasible solution:

A solution that satisfies all the constraints.

Feasible region:

The set of all feasible solutions.

Redundant constraint:

A constraint that does not affect the feasible region. If a constraint is redundant, it can be
removed from the problem without affecting the feasible region.
Some special cases

1. Multiple Optimal Solutions: Graphical Method of Linear Programming

The case in which more than one solution provides the optimal value for the objective
function.

The presence of multiple solutions is illustrated through the following example.

Maximize z = x1 + 2x2

subject to

x1 ≤ 80
x2 ≤ 60
5x1 + 6x2 ≤ 600
x1 + 2x2 ≤ 160

x1, x2 ≥ 0.

In the above figure, there is no unique outer most corner cut by the objective function line.
All points from P to Q lying on line PQ represent optimal solutions and all these will give
the same optimal value (maximum profit) of Rs. 160. This is indicated by the fact that both
the points P with co-ordinates (40, 60) and Q with co-ordinates (60, 50) are on the line x1 +
2x2 = 160. Thus, every point on the line PQ maximizes the value of the objective function
and the problem has multiple solutions.

2. Infeasible Problem: Graphical Method

In some cases, there is no feasible solution area, i.e., there are no points that satisfy all
constraints of the problem. An infeasible LP problem with two decision variables can be
identified through its graph. For example, let us consider the following linear programming
problem.

Minimize z = 200x1 + 300x2

subject to

2x1 + 3x2 ≥ 1200

x1 + x2 ≤ 400
2x1 + 1.5x2 ≥ 900

x1, x2 ≥ 0

The region located on the right of PQR includes all solutions, which satisfy the first and the
third constraints. The region located on the left of ST includes all solutions, which satisfy
the second constraint. Thus, the problem is infeasible because there is no set of points that
satisfy all the three constraints.
3. Unbounded Solutions

If the value of the solution may be made infinitely large in a maximization linear
programming problem or infinitely small in a minimization problem without violating any
of the constraints, the problem is said to be unbounded.

Minimize z = 40x1 + 60x2

subject to

2x1 + x2 ≥ 70
x1 + x2 ≥ 40
x1 + 3x2 ≥ 90

x1, x2 ≥ 0

The point (x1, x2) must be somewhere in the solution space as shown in the figure by
shaded portion.

The three extreme points (corner points) in the finite plane are:
P = (90, 0); Q = (24, 22) and R = (0, 70) The values of the objective function at these
extreme points are: Z(P) = 3600, Z(Q) = 2280 and Z(R) = 4200
In this case, no maximum of the objective function exists because the region has no
boundary for increasing values of x1 and x2. Thus, it is not possible to maximize the
objective function in this case and the solution is unbounded.
TRANSPORTATION PROBLEM

The transportation problem arises frequently in planning for the distribution of goods
and services from several supply locations to several demand locations. Typically, the
quantity of goods available at each supply location (origin) is limited, and the quantity of
goods needed at each of several demand locations (destinations) is known. The usual
objective in a transportation problem is to minimize the cost of shipping goods from the
origins to the destinations.

1. North West corner rule method:

The North West corner rule is a method for computing a basic feasible solution of a
transportation problem, where the basic variables are selected from the North – West
corner (i.e., top left corner).

Steps in North West Corner Rule

1. Select the upper left-hand corner cell of the transportation table and allocate as
many units as possible equal to the minimum between available supply and
demand, i.e., min (s1, d1).
2. Adjust the supply and demand numbers in the respective rows and columns.
3. If the demand for the first cell is satisfied, then move horizontally to the next cell in
the second column.
4. If the supply for the first row is exhausted, then move down to the first cell in the
second row.
5. If for any cell, supply equals demand, then the next allocation can be made in cell
either in the next row or column.
6. Continue the process until all supply and demand values are exhausted.
2. Least Cost Method:

In least cost method, we start giving allocations from the minimum cost in the matrix. It means that cell
for which cost is minimum is given allocation first. Then allocation is given in next minimum cost and so
on. It means lower cost cells are given priority over higher cost cells.

3. Vogel’s approximation method

The Vogel’s approximation method (Unit cost penalty method) is an iterative procedure for
computing a basic feasible solution of a transportation problem. This method is preferred
over the two methods discussed in the previous sections, because the initial basic feasible
solution obtained by this method is either optimal or very close to the optimal solution.

Steps in Vogel’s Approximation Method (VAM)

The standard instructions are paraphrased below:

1. Identify the boxes having minimum and next to minimum transportation cost in
each row and write the difference (penalty) along the side of the table against the
corresponding row.
2. Identify the boxes having minimum and next to minimum transportation cost in
each column and write the difference (penalty) against the corresponding column
3. Identify the maximum penalty. If it is along the side of the table, make maximum
allotment to the box having minimum cost of transportation in that row. If it is
below the table, make maximum allotment to the box having minimum cost of
transportation in that column.
4. If the penalties corresponding to two or more rows or columns are equal, you are at
liberty to break the tie arbitrarily.
5. Repeat the above steps until all restrictions are satisfied.
ASSIGNMENT PROBLEM

The assignment problem arises in a variety of decision-making situations; typical

assignment problems involve assigning jobs to machines, agents to tasks, sales personnel
to sales territories, contracts to bidders, and so on. A distinguishing feature of the
assignment problem is that one agent is assigned to one and only one task. Specifically, we
look for the set of assignments that will optimize a stated objective, such as minimize cost,
minimize time, or maximize profits.

To illustrate the assignment problem, let us consider the case of Fowle Marketing Research,
which has just received requests for market research studies from three newclients. The
company faces the task of assigning a project leader (agent) to each client (task). Currently,
three individuals have no other commitments and are available for the project leader
assignments. Fowle’s management realizes, however, that the time required to complete
each study will depend on the experience and ability of the project leader assigned. The
three projects have approximately the same priority, and management wants to assign
project leaders to minimize the total number of days required to complete all three
projects. If a project leader is to be assigned to one client only, what assignments should be
made?