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Operation Research(OR)

or
Operation Management

January 10, 2018

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Introduction

Operational research is a tool which is concerned with


the design and operation of the man-machine system
scientifically, usually under conditions requiring the
optimum allocation of limited resources.

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Operational research is a scientific approach to
problem solving for executive decision making which
requires the formulation of mathematical, economic
and statistical models for decision and control
problems to deal with situations arising out of risk and
uncertainty.

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Definition

Operations research is the application of the methods of


science to complex problems in the direction and
management of large systems of men, machines, materials
and money in the industry, business, government and
defence. The distinctive approach is to develop a scientific
model of the system incorporating measurements of
factors such as chance and risk, with which to predict and
compare the outcomes of alternative decisions.

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History

During World War II scientists and engineers were asked


to analyze several military problems: developing effective
methods of using the newly invented radar, how to better
manage convoy and antisubmarine, bombing and military
operations. The applications of mathematics and
scientific methods to military operations was called
Operations Research (OR).

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OR During World War II

The modern field of OR arose during World War II.


Scientists in the United Kingdom including Patrick
Blackett, Cecil Gordon, C. H. Waddington, Owen
Wansbrough-Jones and Frank Yates, and in the United
States with George Dantzig looked for ways to make
better decisions in such areas as logistics and training
schedules.

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Britain introduced the convoy system to reduce
shipping losses, but while the principle of using
warships to accompany merchant ships was generally
accepted, it was unclear whether it was better for
convoys to be small or large. Convoys travel at the
speed of the slowest member, so small convoys can
travel faster. It was also argued that small convoys
would be harder for German U-boats to detect.

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On the other hand, large convoys could deploy more
warships against an attacker. It turned out in OR analysis
that the losses suffered by convoys depended largely on
the number of escort vessels present, rather than on the
overall size of the convoy. The conclusion, therefore, was
that a few large convoys are more defensible than many
small ones.

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History Cont.

Following the end of World War, the success of military


teams attracted the attention of industrial managers who
were asking solutions to their complex executive-type
problems. In 1950 OR achieved recognition as a subject in
academics.

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History Cont.

In India OR came into existence in 1949 with the opening


of OR unit in Hyderabad. In 1953, an OR unit was
established ISI, Kolkatta by Prof. Mahalonobis. He
formulated OR techniques to forecast the trends of
demand, availability of resources and for scheduling the
complex schemes necessary for developing our country’s
economy.

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History Cont.

In India OR came into existence in 1949 with the opening


of OR unit in Hyderabad. In 1953, an OR unit was
established ISI, Kolkatta by Prof. Mahalonobis. He
formulated OR techniques to forecast the trends of
demand, availability of resources and for scheduling the
complex schemes necessary for developing our country’s
economy.
Professor Mahalonobis made the first important
application of OR in preparation of second Five Year Plan.
It was estimated that India could become self-sufficient in
food by reducing its wastage by 15%.
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Examples

A bank manager wants to reduce expenditures on


tellers’ salaries while still maintaining an adequate
level of customer service.
O.R. IN TRANSPORT

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Starting with the whole booking process where OR is
involved in helping to set the ticket prices and
calculate the seat availability through to the flights
logistics on the day. OR has a massive part to play in
a whole range of day to day decisions.

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TICKET PRICING

There is one challenge that every airline faces: Seats on


any flight are perishable – once the plane has taken off,
there is no possibility of selling any empty seats. This
being so, it pays an airline to fill a seat, even at a very low
fare, rather than have it take off empty. But obviously it
is not viable to sell every seat at a low price, so a ‘model’
has to be found for selling seats at different prices.

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Ideally, on any flight, the airline would first like to see how
many people are willing to pay the highest price, sell as
many tickets as possible to them, then sell as many as
possible at the next highest price, and so on, filling up any
remaining seats at the cheapest price. Unfortunately they
can not do it that way because the kind of people who are
willing to pay the higher fares often want to book at the
last minute. So the airline usually sells the cheaper tickets
first and holds back some places at the higher prices. The
problem is knowing how many seats to hold back.

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This is where the airline uses O.R. By observing the
day to day variations in the number of high priced
tickets sold, the number of seats that need to be
reserved to give high fare passengers the best chance
of being able to get on the flight can be estimated. In
addition the profile of bookings – how bookings come
in over time - is monitored on a continuous basis,
compared with the typical profile for the flight, and
the number of seats held back is adjusted according to
whether bookings are heavier or lighter than the
typical profile.
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Manufacturing

Operational Research is often at the heart of what makes


a business run efficiently. In a manufacturing plant,
everything must be planned and timed precisely to avoid
bottlenecks.

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At Crown Paints there are literally hundreds of
different colours made and well over a hundred
varieties of paint. So knowing what colours can be
made where and when and how many of each variety
will be needed is crucial to the success of the business.

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OR IN SPORT

The world of sport isn’t an obvious place where


Operational Research might be used. Yet, many of our
much loved activities rely on O.R. – in fact, without O.R.
some of the games we know and love wouldn’t be
recognizable.

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For example, in limited-overs cricket, when weather
interrupts play, an OR model- the Duckworth Lewis
method- is used to calculate the fairest run target for
the team batting second.
OR is also behind football’s Actim Index stats that
help calculate the best player in each position. O.R.
had a big part to play in the design of the magnificent
Emirates Stadium in North London – home of Arsenal
F.C.

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O.R. IN SUPPLY CHAINS

We all expect the things we want and need to be readily


available. That means shelves to be always stocked and
deliveries to arrive on time.

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Sales in large grocery retailers in the UK follow a
weekly cycle – more is sold on Fridays and Saturdays
than on other days of the week. So, on Thursdays and
Fridays their distribution centers supplying stores have
to work very hard. In fact, they often have to employ
temporary staff and sub-contract trucks to cope with
the peaks.

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More Examples

Formula 1 race;
Football mixtures;
At retail mall;
In satellite navigation;
In gas cylinder deliveries.

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Example

Let consider the case of an employee of software


company, who wants to travel from place Banglore to
Mumbai and back to Banglore every week for a project in
system analysis and program developement. He must
attend a business review meeting in Banglore on all
Monday and Wednesday evenings, which means that he
has to travel to Mumbai on Monday evening and return
latest by Wednesday afternoon. He has to do this for five
weeks. The price for round trip is Rs. 4000 and that of
one way ticket is 3000. The airlines offers a discount of
20 % on the round trip fare if the travel spans a weekend.
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Take five Banglore - Mumbai- Banglore tickets
Take one Banglore - Mumbai ticket for a week one
along with Mumbai- Banglore and 4 Mumbai-
Banglore-Mumbai
Take one Banglore - Mumbai- Banglore ticket with
return journey date in the fifth week and 4 as in
option 2

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Seven Steps of OR Study

Step 1: Formulate the problem


The OR analyst first defines the organization’s
problem. This includes specifying the organization’s
objectives and the parts of the organization (or
system) that must be studied before the problem can
be solved.

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Step 2: Observe the system
Next, the OR analyst collects data to estimate the
values of the parameters that affect the organization’s
problem. These estimates are used to develop (in Step
3) and to evaluate (in Step 4) a mathematical model
of the organization’s problem.

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Step 3: Formulate a mathematical model of the
problem
The OR analyst develops an idealized representation
i.e. a mathematical model of the problem.
Step 4: Verify the model and use it for
prediction
The OR analyst tries to determine if the mathematical
model developed in Step 3 is an accurate
representation of the reality. The verification typically
includes observing the system to check if the
parameters are correct.
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Step 5: Select a suitable alternative
Given a model and a set of alternatives, the analyst
now chooses the alternative that best meets the
organization’s objectives.
Step 6: Present the results and conclusions
The OR analyst presents the model and
recommendations from Step 5 to the organization’s
decision makers.

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Step 7: Implement and evaluate
recommendation
Finally, when the organization has accepted the study,
the OR analyst helps in implementing the
recommendations.

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Linear Programming problem (LPP)

The word linear refers to linear relationship among


variables in model. LPP refers to linear objective function
with linear constraints.
Basic structure of LPP
Objective To maximize or to minimize
Constraints Conditions
Feasibility

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Assumptions of LPP

Certainty: In LPP it is assumed that all its parameters


such as availability of resources, profit, cost per unit
of decision variables are constant and must be known.

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Assumptions of LPP

Certainty: In LPP it is assumed that all its parameters


such as availability of resources, profit, cost per unit
of decision variables are constant and must be known.
Additivity: The value of objective function and the
total amount of resource used must be additive in
nature.

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Assumptions of LPP

Certainty: In LPP it is assumed that all its parameters


such as availability of resources, profit, cost per unit
of decision variables are constant and must be known.
Additivity: The value of objective function and the
total amount of resource used must be additive in
nature.
Linearity

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Assumptions of LPP

Certainty: In LPP it is assumed that all its parameters


such as availability of resources, profit, cost per unit
of decision variables are constant and must be known.
Additivity: The value of objective function and the
total amount of resource used must be additive in
nature.
Linearity
Divisibility: The solution values must be continuous.

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Assumptions of LPP

Certainty: In LPP it is assumed that all its parameters


such as availability of resources, profit, cost per unit
of decision variables are constant and must be known.
Additivity: The value of objective function and the
total amount of resource used must be additive in
nature.
Linearity
Divisibility: The solution values must be continuous.
Finite choices
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