OPERATIONS RESEARCH (OR)

1
Recommended Books and resources

1. Introductory Management Science by F. J. Gould , G.

D. Eppen , C. P. Schmidt
2. Introduction to Management by Bernard. W. Taylor
3.https://www.zeepedia.com/toc.php?operations_rese
arch&b=66
4. Introduction to operations research by Hiller /
Lieberman

2
Introduction
It is the sub-field of mathematics.

Operations
The activities/processes carried out in an
organization.

Research
The process of observing and investigating for
something new or better.

3
 Introduction
Operations Research : How to better coordinate and
conduct the activities within an organization.

OR is the representation of real-world systems by

mathematical models together with the use of
quantitative methods for solving such models with a
view to optimizing

4
Introduction
Operations research refers to optimal usage of
resources (Hardware, software , people etc) in any
organization to better perform the activities and
regular processes.

Optimize means to make the best possible use

of something.

5
 Introduction
Management science is the application of a scientific
approach to solving management problems in order to
help managers make better decisions.
As implied by this definition, management science
encompasses a number of mathematically oriented
techniques.

Management science can be used in a variety

of organizations to solve many different types of
problems.
6
 INTRODUCTION
It is a specialized discipline for business decision-making.
OR represents the study of optimal resource allocation.
The goal of OR is to provide rational bases for decision making by
seeking to understand and structure complex situations, and to utilize
this understanding to predict system behavior and improve system
performance.
Using analytical and numerical techniques to develop and manipulate
mathematical models of organizational systems that are composed of
people, machines, and procedures.
OR involves solving problems that have complex structural,
operational and investment dimensions, involving the allocation and
scheduling of resources.
7
 Terminology
• The British/Europeans refer to “Operational Research",
the Americans to “Operations Research" - but both are
often shortened to just "OR".

• Another term used for this field is “Management

Science" ("MS"). In U.S. OR and MS are combined
together to form "OR/MS" or "ORMS".

• Yet other terms sometimes used are “Industrial

Engineering" ("IE") and “Decision Science" ("DS").

8
Terminology
In simple terms, it is described as
“the science of better”.

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Management Science/OR
Approach to Problem Solving

10
 Observation/Identification Of The
Problem
 “Right solution” can not be
obtained from the “wrong
problem”.

 Management scientist/OR
specialist is trained to
identify the problems.

 This phase helps examine

the problem that exist in an
organization.
11
Problem Definition
Problem must be clearly and concisely
defined
Improperly defining a problem can easily
result in
◦ no solution or
◦ an inappropriate solution

12
Model Construction
A management science Model is an abstract
representation of an existing problem
situation.
Most frequently a management science
model consists of a set of mathematical
relationships.

13
Model Construction

Consider a business firm that sells a product. The product costs

$5 to produce and sells for $20.
A model that computes the total profit that will accrue from the
items sold is
Parameters
Dependent Z = $20x - $5x
Variable
Independent
variable
In this equation, x represents the number of units of the product
that are sold
Z Represents the total profit that results from the sale of the
product

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Model Construction
The equation as a whole is known as a functional
relationship.

A model is a functional relationship that includes

variables, parameters, and equations

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Model Solution
Once models have been constructed in
management science, they are solved using the
management science techniques.

When we refer to model solution, we also mean

problem solution.

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Implementation

Implementation is the actual use of a model once it has

been developed.

This is a critical but often over-looked step in the process.

If the management science model and solution are not

implemented, then the efforts and resources used in their
development will have been wasted.

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 OR is an On-going Process
Once the steps described above are complete,
it does not necessarily mean that OR
process is completed.
The model results and the decisions based on the results
provide feedback to the original model.

The original OR model can be modified to

test different conditions and
decisions that might occur in the future.
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 SCOPE

Purchasing
Procurement Production
Finance
and Exploration Management
Budgeting and
investments

Marketing Personal
Management Management
19
SCOPE

20
Better Better Co-
Control ordination
Role in
Managerial
Decision
Making
Better Better
Decisions Systems
21
Classification of Management Science Techniques

22
 Characteristics of Modeling Techniques

 Linear Mathematical Programming - clear objective;

restrictions on resources and requirements; parameters
known with certainty.
 Probabilistic Techniques - results contain uncertainty.
 Network Techniques - model often formulated as diagram;
deterministic or probabilistic.
 Forecasting and Inventory Analysis Techniques -
probabilistic and deterministic methods in demand
forecasting and inventory control.
 Other Techniques - variety of deterministic and
probabilistic methods for specific types of problems.

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 Mathematical Programming
Linear Programming Model (LP Model)

Mathematical programming is used to find the best or optimal

solution to a problem that requires a decision or set of decisions about
how best to use a set of limited resources to achieve a state goal of
objectives.
Steps involved in mathematical programming
◦ Conversion of stated problem into a mathematical model that
abstracts all the essential elements of the problem.
◦ Exploration of different solutions of the problem.
◦ Finding out the most suitable or optimum solution.
Linear programming requires that all the mathematical functions in
the model be linear functions.
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 Linear Programming Model
(LP Model)
Linear programming is a model that consists of linear
relationships representing a firm’s decision(s),given an
objective and resource constraints.

The linear programming technique derives its name from

the fact that the functional relationships in the
mathematical model are linear and the solution
technique consists of predetermined mathematical
steps—that is, a program

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Linear Programming Model
(LP Model)
A relationship of direct proportionality that, when
plotted on a graph, traces a straight line.

In linear relationships, any given change in

an independent variable will always produce a
corresponding change in the dependent variable

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Model Formulation
A linear programming model consists of certain
common components and characteristics.
The model components include decision variables, an
objective function, and model constraints.
Decision variables are mathematical symbols that
represent levels of activity by the firm. For example, an
electrical manufacturing firm desires to produce radios,
toasters, and clocks, where x, y and z are symbols
representing unknown variable quantities of each item.

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Model Formulation

The objective function is a linear mathematical

relationship that describes the objective of the firm in
terms of the decision variables.

The model constraints are also linear relationships of

the decision variables; they represent the restrictions
placed on the firm by the operating environment. The
restrictions can be in the form of limited resources or
restrictive guidelines.

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Model Formulation: Example Case Study

Beaver Creek Pottery Company is a small crafts operation run by a

Native American tribal council. The company employs skilled
artisans to produce clay bowls and mugs with authentic Native
American designs and colors.
The two primary resources used by the company are special
pottery clay and skilled labor. Given these limited resources, the
company desires to know how many bowls and mugs to produce
each day in order to maximize profit. This is generally referred to
as a product mix problem type. This scenario is illustrated in
Figure 2.1.

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 Example Case Study
The two products have the following resource
requirements for production and profit per item
produced (i.e., the model parameters):

30
Example Case Study
There are 40 hours of labor and 120 pounds of clay
available each day for production. Formulate LP
model for this problem.

31
STEP 1: Define the decision
variables
The two decision variables represent the number
of bowls and mugs to be produced on a daily basis.
The quantities to be produced can be represented
symbolically as

let x1 be the number of bowls to produce

let x2 be the number of mugs to produce

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STEP 2: Formulating the Objective
Function

The objective of the company is to maximize total profit.

The company’s profit is the sum of the individual profits
gained from each bowl and mug.

Maximize Z = 40x1 + 50x2

33
STEP 3: Formulating the Constraints

The total labor used by the company is the sum of the

individual amounts of labor used for each product.
However, the amount of labor represented by is limited
to 40 hours per day;
thus, the complete labor constraint is

1x1 + 2x2 <= 40 ……….. (1)

34
STEP 3: Formulating the Constraints

The amount of clay used daily for the production of

bowls is 4x1 pounds;
The amount of clay used daily for mugs is 3x2

Given that the amount of clay available for production

each day is 120 pounds, the clay/material constraint can
be formulated as:

4x1 + 3x2 <= 120

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LP Model
The complete linear programming model for this problem
can now be summarized as follows:

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 Class Exercise :Case Study of Astro
and Cosmo-a product-Mix Problem
A TV company produces two types of TV sets, the Astro and the
Cosmo.
There are two production lines, one for each set. The capacity of
the Astro production line is 70 sets per day. The capacity of the
Cosmo production line is 50 sets per day.
Apart from this, there are two departments A and B, both of which
are used in the production of each set.
In department A picture tubes are produced. In this department
the Astro set requires 1 labor hour and the Cosmo set requires 2
labor hours. Presently in department A maximum of 120 labor
hours per day are available for production of these two types of
sets.
37
Case Study of Astro and Cosmo-a
product-Mix Problem

In department B the chassis is constructed. In this

department the Astro set requires 1 labor hour and the
Cosmo set requires 1 labor hour as well. Presently in
department B a maximum of 90 labor hours per day are
available for production of these two types of sets.

38
Case Study of Astro and
Cosmo-a product-Mix Problem
If the profit contributions are $20 and $30 for each
Astro and Cosmo set, respectively, what should be
the daily production? Construct LP Model to
represent this problem.

39
 LP Model Construction
DEPARTMENT A DEPARTMENT B Capacity of PROFIT ($)
( Labor Hours) ( Labor Hours) Production Lines
(Sets/Day)

1 1 70 20
Astro

2 1 50 30
Cosmo

Total 120 90
Availability

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STEP 1: Define the decision variables

The two decision variables represent the number of Astro

and Cosmo TV sets to be produced on a daily basis. The
quantities to be produced can be represented symbolically
as

Let A be the units of Astros TV sets to be produced per

day and
Let C be the units of Cosmos TV sets to be produced per
day.

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STEP 2: Formulating the Objective
Function
The objective of the company is to maximize total profit.
The company’s profit is the sum of the individual profits gained
from Astro and Cosmo TV sets.

Maximize Z = 20A + 30C

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STEP 3: Formulating the
Constraints
1. Labor Constraint for Department A
1.A +2.C <= 120
2. Labor Constraint for Department B
1.A +1.C <= 90
3. Astro Production Line Constraint
A <=70
4. Cosmo Production Line Constraint
C<=50

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 LP Model

Maximize Z = 20A + 30C

Subject to:
A +2C <= 120 ….…… (1)
A + C <= 90 …………..(2)
A <= 50………………… (3)
C <= 70…………….…….(4)
A, C >=0 …………………(5)

44
Class Exercise
Product Mix Problem

The ABC Company produces two products: I and II. The raw
material requirements, space needed for storage, production rates,
and selling prices for these products are given below:

The total amount of raw material available per day for both
products is 15751b. The total storage space for all products is 1500
ft2, and a maximum of 700 hours per day can be used for
production. The company wants to determine how many units of
each product to produce per day to maximize its total income.
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 Case Study of PROTRAC
Incorporation
The ABC Company produces two lines of heavy
equipment. One of these product lines, termed
earthmoving equipment, is essentially for construction
applications. The other line, termed forestry equipment,
is destined for the lumber industry. The largest member
of the earthmoving equipment line (the E-9) and the
largest member of the forestry equipment line (the F-9)
are produced in the same departments and with the
same equipment.

46
Case Study of PROTRAC
Incorporation
Using economic forecasts for the next month,
ABC’s marketing manager has judged that during
that period it will be possible to sell as many E-9’s
or F-9’s as the firm can produce. Management
must now determine a production plan, with a goal
for maximizing profit. That is , how many E-9s and
F-9s should be produced?

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Company’s Data

1. Company will make a profit of $5000 on each E-9 and

$4000 on each F-9.
2. Each product is put through the machining operations
in both the departments A and B.
3. For next month’s production, these two departments
have 150 and 160 hours of available time
respectively. Each E-9 uses 10 hours in Department A
and 20 hours in department B whereas each F-9 uses
15 hours in department A and 10 hours in
department B.
48
Table # 1 Machining Data

49
Company’s Data
4. In order for management to honor an
agreement with the union, the total labor
hours used in the testing of finished
products can not fall more than 10%
below an arbitrary goal of 150 hours. This
testing is performed in third department.
Each E-9 is given 30 hours of testing and
each F-9 is given 10. The data is
summarized in table#2

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Table # 2 Testing Data

51
Company’s Data
5. In order to maintain the current marketing
position , it is necessary to build at least one F-9
for every three E-9s.
6. To fulfill a customer order during the next
month a total of at least 5 E-9s and F-9s must be
produced in any combination.

Construct LP model to identify optimal

production plan.

52
STEP 1: Define the decision variables

The two decision variables represent the number

of E-9 and F-9 equipments to be produced during
the next month. The quantities to be produced
can be represented symbolically as

Let E be the number of E-9 equipments to be

produced during the next month
Let F be the number of F-9 equipments to be
produced during the next month

53
STEP 2: Formulating the Objective
Function

The objective of the company is to maximize total

profit.
The company’s profit is the sum of the individual
profits gained from E-9 and F-9 equipments

Maximize Z = 5000E + 4000F

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STEP 3: Formulating the
Constraints
1. Constraint for Department A
10E +15F <= 150
2. Constraint for Department B
20E +10F <= 160
3. Testing Constraint
30E +10F >= 135

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STEP 3: Formulating the Constraints

4. Product-mix Constraint
F >= 1/3 E Or
E/3 <= F
E <= 3F
E- 3F <= 0

5. Combination Constraint

E + F >= 5

56
Final LP Model
Maximize Z = 5000E + 4000F
Subject to:
10E +15F <= 150 ….…… (1)
20E +10F <= 160 ………. (2)
30E +10F >= 135 ……… (3)
E- 3F <= 0….………….…….(4)
E + F >= 5……………………(5)
E, F >=0 ……………………..(6)

57
Blending Gruel: A Blending Problem
A 16-ounce can of food must contain
proteins, carbohydrates, and fat in at least
the following amounts: protein, 3 ounces;
carbohydrate, 5 ounces; fat, 4 ounces. Four
types of gruel are to be blended together in
various proportions to produce a least-cost
can of dog food satisfying these
requirements. The contents and prices for 16
ounces of the gruel are given below:

58
Table # 1: Gruel Blending Data

Formulate this gruel Blending Problem as a linear program.

59
 STEP 1: Define the decision variables

Since there are 4 gruels to blended in such a way so as to

fulfill the regular diet requirements while minimizing the
cost, therefore the 4 decision variables represent the
proportion of each gruel in a 16 ounce can of food.
◦ Let x1 denote the proportion of gruel 1 in a 16-ounce can of food.
◦ Let x2 denote the proportion of gruel 2 in a 16-ounce can of food.
◦ Let x3 denote the proportion of gruel 3 in a 16-ounce can of food.
◦ Let x4 denote the proportion of gruel 4 in a 16-ounce can of food.

60
STEP 2: Formulating the Objective
Function

The objective of the company is to formulate a least

cost can of food satisfying the given requirements.

Minimize Z = 4x1 + 6x2 + 3x3 + 2x4

61
STEP 3: Formulating the Constraints

1. Constraint for Protein contents

3x1 + 5x2 + 2x3 + 3x4 >= 3
2. Constraint for Carbohydrates
7x1 + 4x2 + 2x3 + 8x4 >= 5
3. Constraint for Fat contents
5x1 + 6x2 + 6x3 + 2x4 >= 4
4. Constraint for ensuring formulation of 1-can of food (16-
ounces)
x1 + x2 + x3 + x4 = 1

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Final LP Model
Minimize Z = 4x1 + 6x2 + 3x3 + 2x4
Subject to:
3x1 + 5x2 + 2x3 + 3x4 >= 3 ….…… (1)
7x1 + 4x2 + 2x3 + 8x4 >= 5…….... (2)
5x1 + 6x2 + 6x3 + 2x4 >= 4 ……… (3)
x1 + x2 + x3 + x4 = 1………….…….(4)
x1 ,x2 , x3 , x4 >=0 ………………….(5)

63
Blending problem
McNaughton produces two steak sauces, Spicy
Diablo and mild red Baron. These sauces are both
made by blending two ingredients, A and B. A
certain level of flexibility is permitted in the
formulas for these products. The allowable %,
along with revenue and cost are given in table.
Up to 40 quarts of A and 30 quarts of B could be
purchased. McNaughton can sell as much of
theses sauces as it produces. Formulate an LP
whose objective is to maximize the net revenue
from the sale of the sauces.

64
 Blending problem
Sauce Ingredient Sale price
per quart
($)
A B
Spicy Diablo At least 25% At least 50% 3.35
(A) (C)
Red Baron At most 75% (D) 2.85
(B)
Cost per $1.6 $2.59
quart
65
Blending problem
Let A, B = quarts of A to be used in Red Baron and Diablo
respectively.
Let C, D = quarts of B to be used in Red Baron and Diablo
respectively.
Max 3.35(A+C) +2.58(B+D) – 1.6(A+B)-2.59(C+D)
S.T
A/ (A+C) ≥ 0.25
C/(A+C) ≥ 0.5 , B /(B+D) ≤ 0.75
A+B ≤ 40, C+D ≤ 30
A, B, C, D ≥ 0
66
A Scheduling Problem

Officers work an eight hours shift and there

are six such shifts each day. The starting
and ending time for each of the 6 shifts is
also given below. The personnel manager
wants to determine how many officers need
to work each shift in order to minimize the
total number of officers employed while still
satisfying the staffing requirements.

67
 Security Force Scheduling: A Scheduling
Problem
The personnel manager must schedule a security
force in order to satisfy staffing requirements
shown below.

68
Table # 2: Shift Schedule

69
STEP 1: Define the decision variables
Let x1 = number of officers who work in shift 1
Let x2 = number of officers who work in shift 2
Let x3 = number of officers who work in shift 3
Let x4 = number of officers who work in shift 4
Let x5 = number of officers who work in shift 5
Let x6 = number of officers who work in shift 6
Or
Let xi = Number of officers who work in shift i
Where i = 1, ..., 6
70
STEP 2: Formulating the Objective
Function

The objective of the Personnel manager is to minimize

the total number of officers working in all the shifts
while still satisfying the given requirements.
The total number of officers is the sum of the officers
working in each shift. Therefore:

Min z = x1 + x2 + x3 + x4 + x5 + x6
(Total number of officers employed)

71
 STEP 3: Formulating the Constraints
TIME INTERVAL
SHIFT 12:00A.M 4:00A.M 8:00A.M NOON 4:00 P.M 8:00 P.M
to to to to to to
4:00 A.M 8:00 A.M NOON 4:00 P.M 8:00 P.M 12.00 A.M

1 x1 x1
2 x2 x2
3 x3 x3
4 x4 x4
5 x5 x5
6 x6 x6
Minimum
Requirement
5 7 15 7 12 9
72
 STEP 3: Formulating the
Constraints
1. x6 + x 1  5 (12am-4am)
2. x1 + x 2  7 (4am-8am)
3. x2 + x3  15 (8am-noon)
4. x3 + x 4  7 (noon-4pm)
5. x4 + x5  12 (4pm-8pm)
6. x5 + x 6  9 (8pm-12am)

7. xi  0, i = 1, ..., 6 (Non-negativity)

73
 Final LP Model
Min z = x1 + x2 + x3 + x4 + x5 + x6
Subject to:
x6 + x1  5 (12am-4am)
x1 + x2  7 (4am-8am)
x2 + x3  15 (8am-noon)
x3 + x4  7 (noon-4pm)
x4 + x5  12 (4pm-8pm)
x5 + x6  9 (8pm-12am)
xi  0, i = 1, ..., 6 (Non-negativity)
74
 Transportation model
A company has two plants and three warehouses.
The first plant can supply at most 100 units and
second at most 200 units of same product. The
sales potential at the first warehouse is 150, at the
second warehouse is 200 and at the third 350. The
sales revenues per unit at the three warehouses
are $12 at the first, $14 at the second and $15 at
the third. The cost of manufacturing one unit at
plant i and shipping it to warehouse j is given in
table.
75
 Transportation model
From plant To warehouse ($)
1 2 3
1 8 10 12
2 7 9 11

The company wishes to determine how many

units should be shipped from each plant to
each warehouse so as to maximize profit.

76
Transportation model
Xij= Units sent from plant i to warehouse j
For each variable, the corresponding profit is the
revenue per unit sold at warehouse j minus the
cost to shipping a unit from plant i to warehouse j.
From plant 1 to warehouse 1= profit ($12/unit-
$8/unit shipping=$4/unit

77
Transportation model
Max 4x11+5x21+4x12+5x22+3x13+4x23
S.t
x11+x12+x13 ≤ 100
X21+x22+x23 ≤ 200
X11+ X21 ≤ 150
X12+ X22 ≤ 200
X13+ X23 ≤ 350
Xij ≥ 0 all i, j
78
 Transportation Model
Bob Frapples packages holiday gift wrapped exotic
fruits. His packages are wrapped at two locations from
which they are sent to five wholesalers. The cost of
packaging at locations 1 and 2 are $5.25 and $5.70,
respectively. Bob’s forecasts indicate demand for
shipments as in given in table. Wrapping capacity at
location 1 is 20000 packages and at location 2 is 12000
packages. The distribution costs from the two locations
to the five wholesalers are given in the table. Formulate
an LP model to determine how many packages Bob
should send from each location to each wholesaler.

79
 Transportation Model
WholeSaler 1 2 3 4 5
Shipment 4000 6000 2000 10000 8000
required

From location To Wholesaler ($)

1 2 3 4 5
1 0.06 0.04 0.12 0.09 0.05
2 0.15 0.09 0.05 0.08 0.08

80
Transportation Model
Xij= Number of packets sent from location to I to wholesaler j i=1, 2
j = 1, 2, 3, 4, 5

81
Transportation Model
Min 5.25( x11+ x12+x13+ x14 + x15) + 5.7(x21+x22+ x23+ x24+x25)+
0.06x11+ 0.04x12+0.12x13+ 0.09x14 + 0.05x15+ 0.15x21+ 0.09x22+
0.05x23+ 0.08x24+0.08x25
S.t
x11+x12+x13 + x14 + x15 ≤ 20000
X21+x22+x23 + x24+x25≤ 12000
X11+ X21 =4000, X12+ X22 =6000, X13+ X23 = 2000
X14+ X24 = 10000, X15+ X25 = 8000
Xij ≥ 0 all i,j

82
Financial planning
Willie May is president of a one person
investment firm that manages stock portfolios
for a number of clients. A new client has just
requested the firm to handle a $100000
portfolio. The client would like to restrict the
portfolio to a mix of the three stocks shown in
table. Formulate the LP to show how many
shares of each stock Willie should purchase to
maximize the estimated total annual return.

83
Financial planning
Stock Price per Estimated Maximum
share ($) annual possible
return per investments
share $ $
Crude 60 7 60000
Can oil 25 3 25000
Petrolum 20 3 30000

84
Financial planning
Let C= Number of crude stocks to be bought
Let O= Number of can oil stocks to be bought
Let P= Number of petrol stocks to be bought

85
Financial planning
Max 7C+3O+3P
Subject to
60C+25O+20P ≤ 100000
C ≤60000 , O ≤ 25000
P ≤ 30000
C, O, P ≥0

86
 Portfolio planning
An investment company currently has $10 to invest.
The goal is to maximize expected return earned
over the next year. Their four investment
possibilities are given in table. The company has
specified that atleast 30% of the funds must be
placed in common stock and treasury bonds and no
more than 40% in money market funds and
municipal bonds. All of the $10 million currently on
hand will be invested. Formulate LP model that tells
how much money to invest in each investment.

87
Portfolio planning
Investment Expected Maximum
possibility earned return allowable
(%) investment
(Millions $)
Treasury bonds 8 5
Common stock 6 7
Money market 12 2
Municipal 9 4
bonds
88
Portfolio planning
Let A, B, C and D = dollars invested in treasury
bonds, common stocks, money market and
municipal bonds.

89
Portfolio planning
Max 0.08 A + 0.06B + 0.12C + 0.09D
Subject to
A ≤ 5 x 106 , B ≤ 7 x 106 , C ≤ 2 x 106 , D ≤ 4 x 106
A + B ≥ 3 x 106
C + D ≤ 4 x 106
A + B + C + D = 107 , A, B, C, D ≥ 0

90