Chapter 1 wl INTRODUCTION TO "OPERATIONS RESEARCH © Intropuction Operations research (OR) as a subject has come to acquire a great deal of importance during the past few decades. It has an important role to play in decision-making in industry, agriculture, business and other spheres of the economy. OR has its origin in World War IT when the British and American Military Management used this tool for the military operations in order to attain the optimal utilisation of scarce military resources. The success of OR in military operations attracted the attention of Industrial Managers and Business Executes who were secking solutions to their complex business problems. Today, almost every large organisation, corporation or industry is making use of OR. © MEanine oF Operations RESEARCH Operations research abbreviated as OR is a science which deals with mathematical and | techniques for better management decision-making process. In other words, OR refers to the number of mathematical modelling techniques including optimisation methods which find applications in the study of rational decision-making. OR is an application of scientific methods to decision-making problems — especially allocation of scarce resources, OR takes tools from subjects like Mathematics, Statistics, Engineering, Economics, Psychology, etc., and uses them to evaluate the consequences of possible alternative actions. statis © Derinition of Operations RESEARCH Operations Research has been defined by different researchers in different ways. Some important definitions of OR are as given below: “OR is scientific methodology—analptical, experimental, quantitative—which by assessing the overall implication of various alternative courses of action in a management system, provides an improved basis for management decision.” —Pocock 2. “OR is a scientific method of providing executive department with a quantitative basis for decisions regarding the operations under control.” —Morse and Kimball “OR is applied decision theory. It uses any scientific, mathematical or logical means to attempt to copy with the problems that confront the executive, when he tries to achieve a thorough going rationality in dealing with his decision problems.” —Miller and Starr Seanned wiek CamScanner4 Operations Research TOR b the galematic application of quantitative methods, techniques and tools to the analysis of the problems involving the operation of systems” —Daellenbach and Gerorge 5. “ORs the ar of bad answers to problems to which otherwise have worse answers.” —Satty 6. “OR is the application of scientific methods, techniques and tool to problems inoluing the operations of a systems so as to provide those in contol of operations with optimum solutions tothe problems.” —Churchman, Acoff and Arnoff w basis for decisions.” —PM.S. Blackett ific methods, technique and 7. “OR isa scientific method of providing executives with an analytical and objet Thus, OR is a science which deals with the application of scient tools to improve decision-making. CO Features oF OPERATIONS RESEARCH eR From different definitions of OR, the main features of OR are as follows: 1. Inter-disciplinary Team Approach: OR requires a team approach for solution to the business problems. No single individual can have a thorough knowledge ofall aspects of OR. This requires a team of people with expertise in different areas like, Mathematics, Management, Economics, Statistics and so on. 2. System Approach: OR tries to find out the solution which is the best to entire organisation as a whole or to the maximum portion of the organisation, Its impact oo ther department should be taken into account. The system orientation features of OR helps in taking uniform decision for the organisation as a whole, which will help for the betterment of the organisation. 3. Scientific Approach: OR applies scientific methods and mathematical models for the purpose of solving business problems and there is no guesswork in it. In OR, each problem is defined in clear terms, data is collected, classified, analysed and interpreted. 4. Decision-making: OR is a problem-solving and a decision making-science. It increases the effectiveness of managerial decisions. OR techniques help the decision maker 0 analyse and to understand the problem leading to better control, better coordination and finally better decisions. 5. Quantitative Solution: OR attempts to provide a systematic and rational approach for quantitative solution to the various managerial problems. 6 Use of Computers: Use of digital computers has become an integral part of OR in decision-making, Digital computers may be required due to the complexity of the model, volume of data required and the computations to be made. Methodology or Phases of Operations Research in ii, Dn sinensis ‘The following phases are involved in OR. 1. Formulation of the problem in quantitative terms. 2, Constructing a mathematical model in which the various components of the syste™ under study and their interrelationship are expressed in symbols. ss Seanned wiek CamScannerIntroduction to Operations Research 2 3. Obtaining a solution of the model by analytical and numerical procedures. 4. Testing the model and the solutions obtained from 5. Controlling the model and its solutions, 6. Implementing the model i.e. putting the solution to work. G7 Important Operations RESEARCH TECHNIQUES During the last fifty years of its development, many operations research techniques have been developed. Some of the important operations research techniques often used these days in business and industry are as follows : 1. Linear Programming: Linear programming isa powerful mathematical technique which allocates given available resources under conditions of certainty in an optimum manner toachieve the objective of maximising or minimising a target variable, for example profit or cost. Here variables called decision variables are restricted to a set of linear equations or inequalities. In various practical situations, the number of equations may not equal to the number of variables and we have to maximise or minimise a linear function of the variables subject to certain constraints viz. non-negativity conditions. In that case, L.P. problem is difficult to solve graphically and we apply simplex method for the solution of a linear programming problem. 2. Waiting Line Theory or Queuing Theory : Waiting line theory or Queuing theory deals with mathematical study of queues. A flow of customers towards the service facility makes a queue e.g. persons waiting at a doctor's clinic or at a railway booking office.The queues are formed whenever the current demand for service exceeds the current capacity to provide that service. With the help of waiting line theory, we can find the optimal capacity to be installed to maintain a balance between cost of service and cost of waiting. 3. Game Theory: Game theory is used to determine the optimum strategy in a competitive situation, for example in bidding, contest for elections, etc. There are simple games where 2 players exists or complex games with many players where this technique can be used to determine the optimum strategy. 4, Inventory Control: Inventory means a useful idle resources - not presently required but may be needed in short time ahead or near future, e.g., raw material, spare parts, finished products, etc. Inventory planning emphasises on minimising the storage costs, ordering costs by making a decision regarding when to order, how often to order and how much to buy so that there is neither excess inventory nor deficient inventory. Such type of problems are also called as Economic Lot Size or Economic Order Quan (EOQ) problems. 5. Network Scheduling: Cable systems, transportation systems like Roads, Railway Lines, Pipelines, Blood Vessels arc network. Network scheduling is a technique used for planning and scheduling large projects in the fields of construction, maintenance, fabrication, purchasing, computer system installation, research and development Seanned wiek CamScannerOperations Research designs, etc. The technique is a method of minimising trouble spots such as production bottlenecks, delays and interruptions, etc. 6. Decision Theory: Decision theory concerns with making a sound decisions under conditions of certainty, risk and uncertainty. As a matter of fact these are three different kinds of states under which decisions are made, viz., deterministic, stochastic and uncertainty and the decision theory explains how to select a suitable strategy to achieve some object or goal under each of these three states. Dynamic Programming: Many decision-making problems involve a process that takes place in several stages (multi-stage process) in such a way that at each stage, the process is dependent on the strategy chosen. Dynamic programming is related to the theory of multi-stage decision process, that is the process in which a sequence of interrelated decisions has to be made. 8. Replacement Theory: These are concerned with situations which arise when some items such as machines, men, electrical appliances need replacement due to their reduced performance, failure or breakdown. The replacement theory can also be applied to the problems of recruitment and promotion of staff and superannuation as well 9. Simulation: Simulation is a method of solving decision-making problems by designing, ating a model of the real system. This technique is used to the effect of using the a for further analysis. constructing and manip! imitate an operation prior to its actual performance, to study model without actually using a real life situation, to generate da Sequencing refers to the determination of otimal sequence (order) ies to minimise the total 10, Sequencing Theory: for performing series of jobs on a number of service fac processing time. Certain assumptions have to make for solving a sequencing problem. C0 Sianiricance (IMPORTANCE) OF OPERATIONS RESEARCH ie ee eae ‘OR has gained increasing importance since World War II in the field of Engineering, Business and Industry. It greatly helps in solving the complex problems of modern business and industry. OR techniques are, in fact, based on the use of scientific method of management. The significance of OR can be understood from the following points: 1. Operations Research Helps in Better Control: In large business organisations continuous executive supervision to every routine work becomes extremely costly. OR may provide the executive with an analytical and quantitative basis to identify the problem and relieve the executive from the routine work of production scheduling and inventory replenishment and allow them to pay more attention in other urgent matters at the top priority. 2, Operations Research System is a Better System: The OR system analyse a particular problem of decision-making thoroughly such as best location for factory, whether to open anew warehouse, etc. It also helps in selecting economical means of transportation, jobs sequencing, production scheduling, replacement of machinery, etc. It is, thus, a better system of decision-making. te 3 Operations Research Helps in Better Decisions: OR models helps in improved decision-making and reduce the risk of making incorrect decisions. OR approach gives Seanned wiek CamScannerIntroduction to Operations Research the executive an improved insight into how the decision is taken. Thus, OR yields a better decision as compared to decision based on intuitions. 4. Operations Research Helps in Better Coordination: An OR oriented planning model helps in coordinating different decisions of a company. OR techniques improve the knowledge and skill of young researchers in the field of management. 5. Operations Research Enables in Minimising Waiting and Servicing Costs: The waiting line or queuing theory enables the management in minimising the total waiting and servicing costs. This technique also analyses the feasibility of expanding facilities and thereby enables the business people to take optimal and profitable decision. 6. Operations Research Helps in Selecting the Best Strategy: Game theory is specially used to determine the best strategy in a competitive situation and assists the businessmen to maximise profits or minimise losses by adopting the best strategy. 7. Operations Research Enables Optimum Allocation of Resources: OR renders valuable help in optimal allocation of resources. For example, Programme Evaluation and Review Technique (PERT) enables us to identify the earliest and the latest times for each of the events and activities and thereby helps in the determination of the critical path. All this helps in the allocation of resources from one activity to another to enable the project itself by a specified duration. 8. Operations Research Provides Optimum Results: OR techniques help the management personnel to obtain the optimum results. For example, assignment problem helps in determining the optimum decisions regarding the assigning the right jobs and the right facilities. Decision theory helps in finding out the optimum decision regarding available products. Inventory controls helps in optimizing the capital investment in various projects. Scope (APPLICATIONS) OF OPERATIONS RESEARCH eer Ee ‘OR has got its wide scope. In general, whenever there is any problem, simple or complicated, the OR techniques can be used to find the best solution. Some of the areas where the techniques of OR are used as given below: 1. In Defence Operations: Basically formulation of OR started from US army, so it has wide applications in the areas such as — development of new technology, optimization of cost and time, tender evaluation, setting and layouts of defence projects, effective maintenance and replacement of equipment, inventory control, transportation and supply depots, etc. 2. In Planning: OR is used for the preparation of Five Year Plans, annual budgets, forecasting of income and expenditure, scheduling of major projects of national importance, estimation of GNP, GDP, population and employment. 3. In Agriculture: In the area of agriculture and irrigation also, OR can be useful for project management, construction of major dams at minimum cost, optimum allocation of supply and collection points for fertilizer/seeds and agriculture outputs and optimum mix of fertilizers for better yield. Seanned wiek CamScannerOperations Research 4, In Industry: OR is used in the industry. OR can be effectively used in plant location and setting finance planning, product and process planning facility and construction, production planning and control, purchasing, maintenance management and personne] management 5. In Business Management: OR is widely used in business management. Some of the areas of management where techniques of OR are applied are as given below: (i). Production Management: OR techniquesare helpfulin a number of ways suchas proper sequencing of manufacturing operations and job assignment in a cost minimising (as well as time- saving) manner, time and motion studies in plant, process and product layout. Linear programming studies of input-mix or ingredients mix in a multiproduct firm, and Monte-Carlo simulation studies inventory and quality control. (i) Inventory Management: OR techniques help in: (?) Formulating the Bidding and Replacement Policies, (i) Determination of Economic Order Quantity (OQ) to maintain an optimum inventory level. (iii) Financial Management: OR techniques help in: (#) Devising a suitable asset-mix of the company portfolio, (i) Working out of optimal working capital requirements, (ii) Project evaluation and cost benefit analysis of various issues, vis. capacity expansion, mergers, acquisitions and amalgamations, joint ventures, etc, and (jv) Estimating credit and investment risk. (jv) Personnel Management: OR technique help in: (i) Recruitment Policies, (ii) Decision-making regarding number of promotions, and Discharge, (iii) Waiting-line studies to determine the number of personnel to be routed to a variety of jobs, (iv) Application of formulation theory for effective communication system between and within various departments of the information theory for effective communication system between and within various departments of the company, and () In studying accident rates, labour turnover, etc. () Marketing Management: OR techniques provides useful inputs for: () Location of retail outlets, mode of working for service stations, regional offices and liaison offices, (ii) Market research for consumer preference studies, sales forecasting and optimal brand positioning strategy, (iii) Optimum mix of channels of distr and (jv) Optimal tuning for new product, pilot trials and price manipulatio! (vi) Research and Development: OR techniques help in: (’) Work study and work- measurement, (i) Simulation studies design of Prototypes of new products: (ii) Helpful in making techno-economic feasibility studies of different projects and their budget estimation. and Retirement transfer, lay-off ns, etc. ‘Thus, OR can be widely used in various fields especially business management. Seanned wiek CamScannerIntroduction to Operations Research Limitations of Operations Research Some of the limitations of OR are discussed below: 1. Magnitude of Computations: OR tries to find out optimal solutions taking into: account all the factors. In modern society these factors require complicated calculations which can only be handled by computers and machines. 2. Non-Quantifiable Factors: OR provides solutions only when all elements related to a ied. Factors which cannot be quantified find no place in OR. Models We factors or emotional factors which are important. problem can be quant in OR do not take in to account qualita 3. Money and Time Costs: OR techniques usually prove very expensive. Services of specialised persons are needed while using OR techniques. As such only big organisations can think of using such techniques. Thus, the use of OR is a cosdy affair and this constitutes an important limitation of OR. 4. Gap between Manager and Operations Researcher : OR being specialised job requires the services of a Mathematician and Statistician. Similarly a manager fails to understand the complex working of OR. Thus, there is gap between the two. 5. Choice of Technique: OR techniques are very useful but they cannot be used indiscriminately. Choice of techniques depend upon the nature of the problem, assumption and objectives. 6. Implementation: Implementation of any decision is a difficult task. It must take in to account the complexities of human relations and behaviour. Sometime resistance is offered only due to psychological factors. 7. Nota Substitute of Management: Operations research only provides the toolsand cannot bea substitute of management. It only examine the result of alternative courses of action and final decision is made by the management within its authority and judgement. = Seanned wiek CamScanner