Mekelle university College of Business and Economics Department of marketing

Course Name: Operations research

Instructor Name: Gebrekiros Hagos(MBA) Address : selamhagos_2007@yahoo.com

Chapter I Introduction to Operations Research

Chapter objective

After Studying this chapter, you should be able to: Understand the meaning, purpose, and tools of Operations Research Describe the history of Operations Research Describe the Stages of O.R Explain the Applications of Operations Research Describe the Limitations of Operation Research Understand the OR specialist and Marketing Manager relationship.

1.1. Origin of Operations Research

The term Operations Research (OR) was first coined during the second world war The military commands of UK and USA

engaged several inter-disciplinary teams of scientists to undertake scientific research into strategic and tactical military operations. Their mission was to formulate specific proposals and to arrive at the decision on optimal utilization of scarce military resources and also to implement the decisions effectively. The name Operations Research (OR) was invented because the team was dealing with research on military operations.

Cont...
The first method in this direction was simplex method of linear programming. Now OR activities has become universally applicable to any area such as transportation, hospital

management, agriculture, libraries, city planning,

financial institutions, construction management and

so forth.

Definition:
Operation Research is a scientific methodology analytical, experimental and quantitative which by assessing the overall implications of various alternative courses of action in a management system provides an improved basis for management decisions

Characteristics of OR (Features)
The essential characteristics of OR are Inter-disciplinary team approach The optimum solution is found by a team of scientists selected from various disciplines. Wholistic approach to the system OR takes into account all significant factors and finds the best optimum solution to the total organization. Imperfectness of solutions Improves the quality of solution. Use of scientific research Uses scientific research to reach optimum solution. To optimize the total output It tries to optimize by maximizing the profit and minimizing the loss.

Operations Research process

Observation Real world problem

Abstraction
Model construction

Analysis
Model solution

Interpretation
Implementation

Assessment

Decision making and problem solving

Steps of problem solving identify and define the problem, problem is the necessary for decision making . Determine the set of alternative solutions. Develop a criteria for the evaluation. Evaluate the alternative solutions. Select the best solution from the alternative. Mostly select the best solution but not always. Implementing the selected solution Evaluate and control the implemented solution.

Cont......
Decision making : a process of selecting a solution for a given marketing problem. Steps of Decision making: identify and define the problem, problem is the necessary for decision making . Determine the set of alternative solutions. Develop a criteria for the evaluation. Evaluate the alternative solutions. Select the best solution from the alternative. Mostly select the best solution but not always.

Quantitative and qualitative decision making

Qualitative decision making Qualitative decision making needed when Problem is simple Familiar problem The cost involved are not so great. Immediate decision are needed. Quantitative decision making Quantitative decision making needed when Complex problem Problem is new The cost involved are substantial or great. Enough time is available to analyze the problems.

Operations Research Tools and Techniques

Linear Programming Game Theory Queuing Theory Inventory Models

Network Scheduling

Applications of Operations Research

Accounting, Construction, Facilities Planning, Manufacturing, Organizational Behaviour / Human Resources, Research and Development, Purchasing, Marketing. Marketing Advertising budget allocation Product introduction timing Selection of Product mix Deciding most effective packaging alternative

Formulating a mathematical model

This phase is to reformulate the problem in terms of mathematical symbols and expressions. The mathematical model of a business problem is described as the system of equations and related mathematical expressions. Thus Decision variables (x1, x2 xn) n related quantifiable decisions to be made. Objective function measure of performance (profit) expressed as mathematical function of decision variables. For example P=3x1 +5x2 + + 4xn Constraints any restriction on values that can be assigned to decision variables in terms of inequalities or equations. For example x1 +2x2 20 Parameters the constant in the constraints (right hand side values) The alternatives of the decision problem is in the form of unknown variables

cont.....
Example : consider a company producing chairs and tables with the aim of getting maximum profit, then the decision variables are number of chairs and tables to be produced (say mathematically x and y). Decision variables are used to construct the objective function and restrictions in mathematical functions.

The end result of OR model is a mathematical form relating the objective function, constraints with variables. The mathematical function is to optimize (maximize/ minimize) the magnitude of the objective function, simultaneously satisfying all the facility constraints.