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    OR Intro

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    Ashwin singh
    Great effort for operation research method students

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    1:2 OPERATIONS RESEARCH : TECHNIQUES FOR MANAGEMENT 1-1, INTRODUCTION Jowsa-days life is becoming more and more complex. One has to ta decane Tor himself and for others. 4 stuclent has to decide which Coie Rena ete for study. A person seeking employment has to decide which job he oa take ot sitervice. Therefore, one has to develop his talents im such a way that h cea position fo take a correct decision at a proper time. An effective decision Fe Bi vgn many factors, which may be economic, social and politcal. For exam ie starting of a new factory at a place would depend on economic factors eich $ construction costs, labour costs, availability of raw materials, transportation costs, {ots energy, pollution control costs, etc. On the other hand, starting of a neil Management Institute in a State would depend on the number of students available for further studies and also on State and local politics. Decision-making in Business and Industry is extremely difficult since it affects many people. It has now become highly complex. In business, the decision-maker is not only faced with a large umber of interacting variables but has to take into account the actions of the other competitors, over which he has no control. People generally make decisions with the help of their past experience and intuitions but now they have started realizing that business decisions on intuitions alone in the face of complex interacting factors is often misleading and some formal system is needed to determine an effective course of action. In other words, understanding of the possible use of scientific approach to decision-making is ‘of great importance to the business students. Operations Research’ (also known as quantitative methods, management science, decision science and few other names) provides a quantitative_technique or s scientific approach to the executives for making better decisions for operation under their control. In other words, the Operations Research provides a scientific approach to problem-solving for executive management. ch is assuming an increasing degree of importance in theory Operations Resear and practice of management. ‘Some of the factors which are responsible for this development are : in management are so complex that only a (i) decision problems of moderi sed analysis can yield realistic solutions. systematic and scientifically ba (i) availabilty of different types of quantitative models for solving these complex managerial problems. (iii) availability of high-speed computers has made it possible both in terms of time and cost to apply quantitative models to all real-life problems in all types of organisations such as business, industry, military, government, health, and so on. Operations Research is not a fixed formula which can be applied to all types of problems. This requires that the problems be defined, alysed and solved in a rational, logical, systematic and scientific manner based on data, facts, information and logic and not on n_and subjective judgment. However, Op: rations Research does not totally eliminate the scope of qualitative or judam« ‘ability of the decision-maker. In actual practice, Operations Research is useful or ) if quantitative robes be built upon, and modified by the experience and ‘creative insights of the cision-mal . ‘Operations Research is synonymous with Operational Research (the nomenclatures in U.S.A, and UK. respectively). We shall use the former, the more common one throughout. INTRODUCTION TO OPERATIONS RESEARCH 1:3 1-2, EVALUATION OF OPERATIONS RESEARCH (Historic > al Perspective) During World War Il, Britain v : e angen nee wn fe to allocate the saree eae ime min tesorces, an the various military operations and to the activities within nano ective manner—to” the sen Te american rnllitary m agement ined late vant here | physicists, biologists, statisticine rey mest paola aul) pia to the many strategie ey Reese elie: strumental in winning the “Air battle of Britain”. “Battle of cae Alantie", and the “elon Campaian eannenaea mie tener aah 's in Britain encouraged United States, Canada and France to ateay ag such teams. The name Operations Rescate “O. Pea arfanrs to start a ; rch (O.R. ontex! Ip Whee was. used and developed, uiz., ‘Research on Military Operations. As the discipline eae ne esearch feveloped, many names like ‘Operational Analysis’ ‘Systems Analysis’, ‘Cost Benefit Analysis’, ‘Manageme; ferice’, “Decision ‘sytem stan doe accloned tengllt Analusis', “Management Science’, ‘Decision After the War, the apparent success of the military t of the industry, which was seeking solutions to problesas eae complexity and specialization in organizations. This created possible goal incompatibilities and interaction effects among areas of specialization and functionalization. This resulted in complex decision problems and the business organizations were thus prompted to use the formal tools of Operations Research. EGA E at i the scientists of this group moved to different ion, health, education, etc. Each of them carried with him a perations under the control of management can be analysed he optimum method for carrying out the operations can be doing 80 it soc soon becomes apparent that there is a commonality in different sectors. This resulted in categ on to different | iques and its recognition as an important ° 5 2 Operationa subject for decision- arch originated during the last phase of World War Il. tional | In| nda Operation Initially, an OR. centre was formed at the Air Headquarters to tackle problems relatin: i fo radar. The work done by this group of scienfists was extremely limited in scope. e In ratory, Hyderabad for using Operations Research in g research. Ahmedabad Textile (Industry Research Association organized an O.R. group for their industrial problemsxAt*the same time, another O.R. group was set up at the then Defence Science Laboratory (DSL) under the guidance of Prof. D.S. Kothari, which devoted itself to the problems of stores, purchase and weapons evaluation. In 1953, an O.R. unit was formed at the Indian Statistical Institute, Calcutta with a view to apply O.R. techniques to national n , guidance of Prof, Mahalanobis. OR go ts formal recognition in the country w n of OLR. Society of ‘India (ORS) in 1957, The first President of the Society was P.C. Mahalanobis. The society had the honour of receiving the patronage and support of such eminent personalities like Jagjit, Singh, Vikram Sarabhai, etc. The society became the member of ‘the Interna ional Federation of O.R. Societies in 1959 and ania its first confer l-India level during the same year, The publication of the journal OPSEARGH by ONS! 1964 Taher sled al aay nd organi y ORS! in 1964 further a the growth of O.R. activities in Inc A series of conferences/symposia/seminars were organized in the early years to promote the development of Operations Research. ORSI has regularly organized ERATIONS RESEARCH : TECHNIQUES 14 o FOR MANAGE MEH its Annual Convention si 68. An international seminar ‘Second Operations feeting "sponsored by ORSI and IFORS was held at Research Around-the-Wor! Th ff did i i i Mugust 7-10, 1967. These efforts did result in encour New Delhi STE eber 7-105 WR. groups In organizations such as Plagyt® vector Undertakings, e.g., BHIEL, SAIL, EIL, ONG formation | Sommission, Railways, Public S q 5 Commission, Rallvayr ive of Industrial Engineers also significantly contributed etc, The Indian towards the development of oR. remark, Operations Rescarch Fucation In India : OLR. education was formally initiated in Ina vat femark. Ope ducement at Ahmedabad and Calcutta during the year 1961-62 nt universities, Institutes af e papers in dif the formation of Indian Institute 0 f at et was taken up for teaching as one vate ay iin i aie at Management, and lndian Statistic! ‘netic, Caleutta and New Del Technology, India tol Manne Masters Degree programme in Operations Research in 1963 Ir'was introduced by the Operational Research Society of he University of Delhi sta Nga ‘Operations Researe f Operations frammes are being run by a number of professional institutions A grants progeane ta A NITIE, NBC wail the universities and institutions in India are offerin rem MR. et ey a he ee, inpols etonces are graiualy becoming conscious ° ihe role of Operations Research in decision-making 1.3. GROWTH OF OPERATIONS RESEARCH IN DIFFERENT SECTORS sponse of Indian industries by and large was poor in terms of ace nt Be methods till early sixties. After that O.R. activities started rapidly id this sector. Considerable effort in this direction has been made by National Productivity Council (NPC), National Industrial Development Corporation (NIDC), Administrative Staff College, Hyderabad and Indian Institutes of Management, etc. Initially the industries like Hindustan Lever Ltd., the Metal Box Company Ltd, Union Carbide (India) Ltd., Larson and Toubro Ltd., Indian Chemical Industries Ltd.’ DCM Ltd., etc., set UP ‘O.R. groups to work on problems of optimization and forecasting of market requirements relevant to their companies. Subsequently, many important public sector industries successfully attempted to use O.R. techniques viz., impeematical programming, inventory managemen' PERT/CPM, replacement and use of their resources. jntenance, queueing and reliability to evolve effective s mainte siies have been employing industrial, engineers with O.R. backgrounds for quite some time and discovered that these techniques could considerably improve their productivity by forecasting their requirements. The type of industries in which these techniques were applied include : (@ Steel and Heavy Engineering, (Light Engineering, (). Chemicals and Fertilizers, (a) Textiles, (@ Transportation and Distribution, and () Electronics. The applications inclu requirements, minimization optimal replacement and maintenance of parts and eq management and purchasing problems. cost-effectiveness s\ systems and manufacturing plants, production, etc. Transportation. An O.R. cell was set up in 1973 by the Railway Board to carry out studies concerning performance of drivers on electric trains, analysis of freight movernent, marshalling yard operation and cost-effectiveness analysis of additional seas ona Hoomolives These studies made some impact and as a result small O.R. Sroupe were a up at different regions of railways. The recent introduction of puters in the commercial and operations departments of railways further ide the problems such as forecasting of market of transportation cost, optimal distribution patterns, uipments, materials tudies, reliability of INTRODUCTION TO OPERATIONS RESEARCH 15 strengthened the use of O.R. in this sec bess consisting of officers from various vallays rag de perme Minister of State for Railways have been {¢ Menniques for operational improvement of litre ment moder management teen made in other sectors of transportation, Recee ey ons ae also pateporation: is being undertaken by Chil Krai sear ite In the field of Indian vInstitutes of Technology, University of ar yeo paniments_ of various Herpdetnant, (RITES) ots Gaveral:ranaareh of Roorkee, Indian Institutes of Institute, New Delhi, National Traffic Pertierra like Central Road Research etc,, have contributed effectively to the 1g and Research Centre, Trivandrum, techniques in transportation sector, Promotion of Operations Research Banking and Finance. One of took place in 1969 with the aay elespbreathrongh nh, ban aaa HH i davelootvezol the tein, Surescithe see ts decker Mee Tivaberking facies to agrillure,araltecleinlistiaes cee ota fegional developments, The ateas where OR’ has Pier fed Set oc BE ATR See re daeatolbiabates eas roahegeront piclece Sopra end forporate planning. National Institute of Bank Management, ste fa oe ox ih providing banking executives with training in application FOR a sf other management techniques in their programme. ae anes Agriculture. In the agriculture sector efforts SE es Ma smoot taker a aa ae optimizaiion of agricultural land and cilities. The attempts in this sector started Grring 1970 and since then OR/SA has made some impact in agricultural development programmes. In related areas of fertilizers, irrigation and power, bttempts have been made to study quality requirements of fertilizers, their production and distribution to farmers in a most cost-effective manner, determination of optimal reservoir operating policies, etc. + Defence. The growth of O.R. activity in Defence up to 1959 was very slow. In the initial phase efforts were directed ‘mostly to the study of simple problems relating to logistics. In order to create a general awareness and to expose the users to the potential of O.R. techniques, a ‘series of lectures were organized at Defence Science Laboratory in 1957. The attempt succeeded in creating an interest in O.R. to the users and provided a basis for holding @ conference on OR. in 1958 by Defence Science Organisation (DSO). This was attended by Service officers, civilian scientists and delegates from universities and other such organisations. With the advancement of new technologies and sophistication in military hardware, procurement of weapon systems from advanced countries have become in defence. These decisions are difficult an important issue for decision-makers i because of large number of technical characteristics of various available alternatives and have led to several cost-effectiveness studies regarding choice of gun systems, rockets, missiles, etc. With the advent of high technology weapon systems in our neighbourhood, compulsions to investigate optimal tactical plans became obviously important. A need and simulation to devise optimal tactical plans as was felt to carry out war gaming ; well as to provide training to commanders. The above developments made military Operations Research an important tool to assist decision-making in defence. 1-4, OPERATIONS RESEARCH DEFINED Quite a large number of definitions of Operations Research have been given from time to time but it is not possible to give a uniformly acceptable definition of O.R. 16 OPERATIONS RESEARCH TECHNIQUES FOR MANAGEMENT However, the September 1962 issue of the Operatt e y . ‘i f Now (London), the Journal of O.R. Society of U.K carried out the, follow - fare 1e methods of science to complex | onal Research Quarterly ition cl of th | ‘Operational Research is the application f tO aol \ probleme arising in the direction Hd a Tea ane af men, achines, materials and mon justry, business, nmenbandis . acne, metre pene eee Sancta ements of factors suc has chance and risk, with rer ets an ‘actions scientifically.” purpose is to help management, deter ctions scientific ine its policy and 4 ven eriticised because it emphasizes on its leng {inition has been criticised 7 h pt eh, dail ener ih heron a eee. highly technical and sophisticated approach appropria a yor large organizations. A few other definitions which are commonly ely acceptable are as follows + oF James Lundy writes, “O.R, is the sophisticated name Tat ead sut tinea) problem-oriented see to i lop CT oe esate cate application of the scientific methods in si a Gexcription, prediction and comparison for the purpose of making decisions. i OLR. as, “a scientific method of providing executive cepuinante Kim geantiative basis for decisions regarding the operations under their control.” ory Tatil Y ij “Operations Research is a managemen| in two ne ie One half by the free and bold exercise of commonsense untrammelled by any routine, and the other half by the application of a repertoire of well established pre-created methods and techniques.” According to Miller and Starr, “OR. is an applied decision theory. It uses any scientific, mathematical or logical means to attempt to cope with the problems that confront the executive when he tries to achieve a thorough going rationality in dealing with his decision problems.” O.R. Society of America gave the following definition of Operations Research : “O.R. is an experimental and applied science devoted to observing understanding and predicting the behaviour of purposeful man-machine systems; and Operations Research workers are actively engaged in applying this knowledge to practical problems in business, government and society”. Churchman, Ackoff and Arnoff have defined Operations Research in the following manner : “Operations Research is the application ‘of scientific methods, techniques and tools to operations of system with optimal solutions to the problems.” According to this definition, Operations Research uses scientific methods 1 arrive at the optimal solution. It emphasises on the overall approach of the system, i.e., it analyses all the aspects of the problem under consideration. It does so because the optimal operation of one part of the system may or may not be the optimal operation for some other part. For example, in an industry the finance department would like to have the minimum investment in inventories, marketing department would like to have large and diversified inventories, while production department wants continuous production even during lean season. The objectives of all these departments are fulfilled by Operations Research. In fact, Operations Research takes into account the requirements of all departments to arrive at ar optimal solution. uTRODUCTION TO OPERATIONS RESEARCH 17 The definition due to Aurther Clark ts, “O; i a a erat winning wars ee actually fighting them Pats detente rie oy oe ore wiitary origin of Operations Research and partly to the advisary set! cupcorive role TY Operations Research specialists. my end supportive role In the wolds of T.L. Satty, “Operations Re: ; ese! answers to problems where otherwise worse eneiiehl are cnt tle naa has touched only one aspect of Operations Research, Le. i iden tif lOneee Research as a technique for selecting the best course of action sat ef wenn available alternatives. Ode Sane Geeta However, with further development of Operati precise definitions than the existing ones would be tonieominge Perhete ete ‘Remark, It may be noted that most of the defint cn eetar aay be ot nitions of Operations Research are not satisfactory (Most of the definitions of Operations Research have been 0 ‘ evelopment of Operations Research and hence are bound to emphasive is ouine ee Sher capeet i) The interdisciplinary team approach which Is an etal Olin Research is not included in most of the definitions of OLR. Vere apne erage on Coersrecs {it is very dificult to define Operations Research te any well-defined physical, biological or social phenomenon, Tee a act sates Ceremra 1-5. CHARACTERISTICS OF OPERATIONS RESEARCH 1. OR. approaches problem-solving and decision-making from the total system's perspective. O.R. does not experiment with the system itself but constructs a model of the system upon which to conduct experiments. 2.0.R. is not necessarily using interdisciplinary teams, but it is interdisciplinary; it draws on techniques from sciences such as biology, physics, chemistry, mathematics, and economics and applies the appropriate techniques from each field to the system being studied. 3. Model building and mathematical manipulation provide the methodology which has been the key contribution of O.R. 4. Operations Research is for operations economy. 5. The primary focus is on decision-making and computers are used extensively. 1. Systems Approach. The term systems approach implies that each problem should be examined in its entirety to the extent possible and economically feasible from the point of view of the overall system of which the problem under consideration is one part. Under this approach a manager makes conscious attempt to understand the relationships among various parts of the organisation and their role in supporting the overall performance of the organisation. Operations objective of Operations Research is to provide managers of the organisation with a scientific basis for solving problems involving the interaction of components of the organisation as a whole. The decision which is best for the organisation as a whole is called an optimal decision. Operations Research tries to find the best decision relative to a large portion of the total organisation, Hence in Operations Research every problem is considered in its totality, Le., O.R. adopts systems approach for solving the problem. In other words, “Operations Research is the scientific study 0} large systems with a view to Identify problem areas and provide the managers with ¢ quantitative basis for decisions which will enhance their effectiveness in achieving the specified objectives.” 18 OPERATIONS RESEARCH : TECHNIQUES FOR MANAGEMENT : ap tant characteristi 2. Inter-disciplinary Team Approach. It is an impor Eso Operations Research. aceoralig to hts characteristic, nowinale Invicta eanibe an expert on all aspects of a problem under consideration. Thus, Operations ‘esearch il i Under this approach, a team comprising utilises the inter-disciplinary team approach. i : ¢ experts from Mifferent disciplines such as Mathematlrs, Statistics, Economics, -, Scienct 01 and Psychology, etc. is constituted. Management: Comper Seren problem determines its solution by utilising es hen confronted will 2 Deammates. Every expert of the team, while Solving the problem, tries to abstract the carte ot tne proviem and then selermaines whether a similar type of problem has beens BBE eeu nal If the answer is yes, then it is easy for an expert to apply 2 earlier used technique/methods to determine the solution of the current problem. In this way, each member of the team, by utilising his experience and expertise, may be in a position to suggest an approach to overcome a problem that otherwise may not be possible for an individual to tackle. 3. Methodological Approach. Operations Research utilises scientific methods for solving 2 problem. Specifically, the process begins with the careful observation and formulation of the problem. The next step is to construct a scientific model (typically a mathematical model) that attempts to abstract the essence of the real problem. From this model, conclusions or solutions are obtained which are also valid for the real problem. In an interactive fashion, the model is then verified through appropriate experiments to determine the best or optimal solution to the problem under consideration. 4. Operations Economy. O.R. is a problem-solving and a decision-making science. Whenever we have conflicts, uncertainty and complexity in any situation, O.R. can help in the end to reduce costs and improve profits and effect substantial “operations Economy”. Once the old approach of management by intuition is buried, a scientific approach to decision-making is bound to help. Often the conflicts are so tangled that they defy any intuitive solution, viz., the marketing function frequently caught up in recoinciling the following conflicting objectives : (i) product innovation, (ii) high scale volume, (if) increasing market share, (iv) flexibility in the market place, {v) entry into new markets and revenue markets. It is here that O.R. is likely to convincingly optimize the total effectiveness. } Such a team wl diverse background and s 1-6. SCOPE OF OPERATIONS RESEARCH Operations Research is today recognised as an applied science concerned with large number of diverse human activities. To be precise an operation uses some valuable resources like men, money, machines, time, effort, etc. The outcome of the operation has also some value. An Operations Research worker is required : (i) te minimize the input value for a, specific output, or/and (ii) to maximize the output value for a specific input, or/and (iii) maximize some function of these values, e.g., the profit function (difference between output and input values) or return-on-investmen function (ratio of output and input values), etc. Some of the areas of management where techniques of Operations Researcl are applied are listed below : 1. Finance, Budgeting and Investments (a) Cash flow analysis, long-range capital requirements, investment portfolio dividend policies, etc. (b) Credit policies, credit risks and delinquent account procedures. (c) Claim and complaint procedures. TO OPERATIONS yytODUCTION RESEARCH 10 1 purchasing, Procurement and Exploration Determining the quantity and timi te) achinery, etc. ing of purchase of raw materials, (py Rules for buying and supplies under varying prices (c) Bidding policies. (a) Equipment replacement policies, (e) Determination of quantities and timings of purchases. (f) Strategies for exploration and exploitation of new material sources. 3, Production Management {i) Project Planning. (a) Location and size of warehouses, distribution centres, retail outlets, et (b) Distribution policy. ; ee (id) Manufacturing and Facility Planning. (a) Production scheduling and sequencing, (b) Project scheduling and allocation of resources. (c) Selection and location of factories, werehouses’and their sizes. {d) Determining the optimal production mix. (e) Maintenance policies and preventive maintenance. (f) Maintenance crew sizes. (q) Scheduling and sequencing the production run by proper allocation of machines. 4, Marketing Management (a) Product selection, timing, competitive actions. (b) Advertising strategy and choice of different media of advertising. (c) Number of salesmen, frequency of calling of accounts, etc. (d) Effectiveness of market research. (e) Size of the stock to meet the future demand. 5, Personnel Management (a) Recruitment policies and assignment of jobs. (b) Selection of suitable personnel with due consideration for age and skills, etc. (c) Establishing equitable bonus systems. 6. Research and Development (a) Determination of areas of concentration of research and development. (b) Reliability and evaluation of alternative designs. {c) Control of development projects. (d) Co-ordination of multiple research projects. (e) Determination of time and cost sequirements. may conclude that O.R. can be widely d also used as a corrective measure. d not merely a personality of placed management by From all above areas of applications, one used in taking timely management decisions an The application of this tool involves certain data an decision-maker, and hence we can say ¢ O.R. has re! Personality, ERATIONS RESEARCH : TECHNIQUES FOR MANAGEMENT ori IS RES me jew technique was also utilised ina number of socio- a neOperations Research has come to be used in a very came up alter he tnt yestion of deciding a suitable fare structure for public as problems oF iting, lis use has now extended to academic spheres, such CE ea socio-economic fields and national planning. The real me of communication of Infirm TT field was carried out by Prof. Mohalanobis in India nations i windows or trains queueing up in marshalling yard, waiting to be sorted OLR, techniques. in industry. Remark, Besides its use Y economic problems which ach Reclonment of sen ese 110 whengers for tickets pase tackled by various he role of Operations Research in managerial decision-making : The ro anagerial responsibility of today’s managers under intense bs Deere ee ere tent poleary mage a decision-making in business has cor i event, A sound and useful decision-requires a regorous and scientific approach to been mie Operations Research, which has been defined as “the use of scientific method to tne Oe inttoria for decisions regarding man-machine system Involving repetitive operations”, provides managers with quantitative basis for decision-making. By employing a systematic Eady of a problem involving gathering data, building a mathematical model, experimenting with the model and predicting future operations; Operations Research provides those in control of the system with optimal solutions to the problems that confront the executive when he tries to achieve a thorough going rationality in dealing with his problems. In short, mathematical and logical means of Operations Research provides the executive with quantitative basis for decision-making, and enhance ability to make long-range plans and to solve everyday problems of running a business industry with greater efficiency, competence and confidence. 2. The advantages of O.R. study approach in business and management decision-making may be classified as follows : (i) Better Control. The management of big concerns finds it much costly to provide continuous executive supervisions over routine decisions. An O.R. approach directs the executives to devote their attention to more pressing matters. For example, O.R. approach deals with production scheduling and inventory control. (ii) Better Co-ordination. Sometimes O.R. has been very useful in maintaining the law and order situation out of chaos. For example, an O.R.-based planning model becomes a vehicle for coordinating marketing decisions with the limitations imposed on manufacturing capabilities (iii) Better Decisions. O.R. models frequently yield actions that do improve an intuitive decision making. Sometimes, a situation may be so complicated that the human mind can never hope to assimilate all the important factors without the help of O.R. and computer analysis, (iv) Better Systems. O.R. study is also initiated to analyse a particular problem of decision- making such as establishing a new warehouse. Later, O.R. approach can be further developed into a system to be employed repeatedly. Consequently, the cost of undertaking the first application may improve the profits. 3. Sometimes a business problem becomes so complex that it becomes difficult for a human being to arrive at a solution. The reason being that the human mind is incapable of assimilating all the important factors. Operations Research techniques can be very helpful in such a situation. The application of an appropriate technique enables the decision-maker to arrive at a solution. For example, Operations Research-based planning model helps the marketing executive in taking marketing decisions relating to distribution points, choice of customer, minimum per units sale price, etc. subject to the limitations imposed on manufacturing capabilities. Similarly O.R. techniques help in ascertaining the best locations for factories and warehouses, project scheduling as well as the most economical means of transportation. INTRODUCTION TO OPERATIONS RESEARCH Thus, one on rightly say that OR. models 4 114 .cision-maker in takin, increase i of det better decisions by working smarter © 2d fudictous capabilities 4. _——————osonunltieg —————— Opportunities a ee ee ee TCO. requires business managers to be ‘Shortcomings quite | 1. Of explicit about their objectives, their assumptions | problem. OLR. “approaches have to simplify th snd the way of visualiing the constraints, When| to solve sean elilvng assumptions in ord they define their problem so explicitly, the solution | the problems, ions in order Sbtained using O.R. techniques will be very precise. 2, Using O.R. approach, the decision maker can determine a solution to his routine or repetitive problem. For obtaining solution of such type of problems, itis necessary to build a model so that future solutions can be obtained using the model, thus freeing managers to concentrate on more pressing matters. Only when unusual Preumstances arise, the management is required to review the situation. In this way, they can achieve better control of their operation and can allocate their time more efficiently. 3, While using O.R. approach, a manager has to Consider very carefully all those variables which influence his decisions and the way these variables in a problem interact with each others. He, then selects a decision which is best for the organisation as a whole. In other words, it forces manager to adopt a total systems approach. 4, Using O.R. approach, a decision-maker can examine a situation from various angles by simulating the model which he has constructed for the real problem. He can change various conditions under which decisions are being made, and examine the effect of these changes through appropriate experiments on the model, to determine the best or optimal solution for the problem under consideration. All these experiments can be carried out without causing any serious damage to the existing system or incurring excessive cost. 5. O.R. approach allows a decision-maker to solve a complex problem involving multiple variables much more quickly than if he had to compute them using traditional methods. Sometimes it may not be possible to solve such complex problems without using O.R. methods. 2.7 it 2, There are certain problems which a deciston- Pca nay have to solve only once. Constructing iplex O.R, model for solving such problems te Gflen lo exrenshe when compared with the cost $0 othe less sophisticated approaches avaiable to 3. Sometimes O.R. specialists become too much enamoured with the model they have built and they forget the fact that their model does not represent the “real world problem” in which decisions have to be made. 4, Many O.R. models are so complex that they can not be solved without the use of computer. The solutions obtained from these models are difficult to explain to managers and hence fail to ain their support and confidence. 5, Sometimes O.R. specialists forget to counsel decision-makers on the limitations of the model which they build, Sometimes many of the Solutions have to be combined with judgement and intuition for effective use. When the users of the mode! do not obtain the expected results, they don't appreciate O.R. approaches. . i he conflicts resulting fro : 5. The purpose of O-R. is to resolve the COME and Personnel in an optimal neat of the functional areas like Production, optimal or satisfying way. Management functions have objectives so far that it impasses the wor been divided many times the samething of several executives looking after their resp foun is fives because each one O! \d to arise amongst the executives a of other ib-systems. As an exal m the various sub-divisions t be after the entire system cannot ‘ective sub-systems. Conflicts are is Table to pursue his sub- them sabe 0 purse CREATIONS RESEARCH : TECHNIQUES FOR MANAGE E4y Le and product policies of four functions-—Production. Marketing, Finance ang objectives and Tree of the general management are gion 97 ON HAA Perso ————eyhaobjectives ~_ Desired product pol [Sense To Ease of manufacture —T. Few products ee 2, Cost minimization 2. Similar products 3. Stability of demand and output 3. Products which are easily and 4. Maintenance of quality inexpensively manufactured. standards Marketing 1, Product innovation 1, Broad product lines ’ 2. High sales volume 2. Introduction of new products 3, Increasing market share 3. Frequent modifications of exist. 4. Flexibility in market shares ing product lines and products Personnel 1, Industrial relations 1. Desired quality products 2, Right person for right job. 2. High motivation resulting 3. Optimal policy of replacement in better productivity 3. Better efficiency and effective- ness for cutting down the cost Finance 1, Ensure liquidity 1. Market products which yield Maximize profit immediate profits. 3. Eliminate expenses not 2. Select most highly profitable directly contributing to products. profits. 3. Eliminate low profit products. 4, Minimize risks to the firm. General 1. Maximize difference 1. Markets products with proven Management between revenue and cost profitability. 2. Maximize long-run profit 2. Balance highly profitable product: 3, Secure an increase profits with short lives against products over time. which earn lower profits initially 4, Ensure corporate survival but exhibit excellent long-run growth profit potential 3. Provide for case in managing and co-ordinating the firm's activities both internally and in the market place. It is thus obvious that sub-objectives conflict with each other also with those of the general management. Thus the purpose of O.R. is to resolve the conflicts resulting from sub-divisions of the managerial functions in an optimal, near optimal or satisfying way. 6.0.R. is a problem-solving and a decision-making science. Whenever we have contflicts, uncertainty and complexity in any situation, O.R. can help in the end to reduce costs and improve profits and effect substantial “Operations Economy”. In inventory control in the past, for example, the order sizes and the reorder levels were based on rules of thumb. O.R. provides here scientific decision rules for setting these parameters and reducing acquisition costs, inventory-carrying costs and shortage costs considerably. Likewise, the technique of linear programming helps in maximizing profit or minimizing costs in product mix, advertising mix, transportation, assignment problems, etc. Once the old approach of management by intuition parnopucTion TO OPERATIONS RESEARCH 4-13 ved, 2 scientific APPTORCH to Arete bet oly tt Ore MAKING Ie fs is ba hat they dely any intuitive koktan aking ie bend to hele. Oftar thy anal nciting the follwing conflicting object (t., Yoe marketiny fietis att the confliets are $0 in fectpencing ematket hte, (i) fi dies a8 prosher montana Eker eee ii) INCOM thets, It is here that OR te Keone MAEM place, fet entry ints ee ee nite ovorne mon Rt Brey to convinetnate a inte nate anton ane 3. Four application areas of O.R, techevientes in Fi w total offectivenee in Financial inCash Management. The finance manager ents and units of the organisanon p's £0 enna that all ming techniques a used to find out hov nL v vearrepariments under the given conetraiate ‘Ae whe Moca xarene (gpeoltely essential for smooth flow ‘of cnaaecente supply of each at ae yet Hdentifying sections which have an excess of funds «6 fe tite LP. techniques can help in Jeor use by other sections which need funds at it can be contibited to the central uit inventory Contre. Ty may In : aremaintaining finished goods inventories can rim into mi associated with Ananeiny aifriguee of OR. can help managers to develop {nt milions of rupees. Inventory contre techiiment in inventories, Carrving cost. ordering cont of ntory policies and cut down the imvesmined using OR. so that a costefectiveness telationship cr ay 2nd shortage ensts are delet an appropriate balance between cost and shortages,” “*" be wed by management to {in) Simulation Model, which incorporates the eed to explore the best method of financing. This the present and projected cost of borrowing mone cost of underwriting a new stock issue, factors Management inches, factarte with adequate fur z wah ante (inde Linese ge companies, the expences average wx re eiahted cost of capital s often iders various factors concemit \cemins ey ftom commercial banks, the tax rates, afl Sn cosiages an optimal combination of financing ‘aetna the capitalisation rate, ete. and Pred amount of capita. equity and retained earnings) for the ie) Capital Budgeting involves evaluation of invest new Faced on the internal rate of return or net present value. NPU ef ee been from the estimates of cash inflows and outflows. This approach, bumeicr. inne tts gern a venture which can be quantified if the probability distributions of the cach ows con ba sk Mined (irom past data). Hiller’s and Herte's (simulation) models and decision tases co oseetrction with EMV utilities can be usefully applied in evaluating rutualy exckowe projec The techniques rd programing nico Programming and dynamic eat ven oS oon successfully applied for making selection of optimal i meing fa ‘thot estimates of risk). ti investment portfatios (with or 1-7. PHASES OF OPERATIONS RESEARCH Cs The scientific method in O.R. study generally involves the following three phases : 1, Judgement Phase. This phase consists of : (i) Determination of the operation, (ii) Establishment of the objectives and values related to the operation, (Ii!) Determination of the suitable measures of effectiveness, and (iv) Formulation of the problems relative to the objectives. 2. Research Phase, This phase utilises : (i) Operations and data collection for @ better understanding of the problems, (ii) Formulation of hypothesis and model, (tt) observation and experimentation to test the hypothesis on the basis of additional data, (iv) Analysis of the available information and verification of the hypothesis using pre-established measures of effectiveness, and (v) Predictions of various results from the hypothesis, (vf) generalisation of the various results and consideration of alternative methods. for: thé dects 3. Action Phase. It consists of making recommendations for the decision process by those who first posed the problem for consideration of by anyone a a position to make a decision, influencing the operation in which the problem ERATIONS RESEARCH : TECHNI 4-22 opt QUES FOR MANAGE Men, 1-10. AN OVERVIEW OF OPERATIONS RESEARCH TECHNIQUES. 1 on will briefly introduce some of the most common! of es Research, which can be freely applied by a progres in decision-making processes. 1. Linear Programming. It is one of the most versatile, powerful ai technique for making managerial decisions. As a technique of decision-maki demonstrated its significance value in such diverse areas as marketing, production, personnel, research and development, etc. As most of the business organisations have limited or inadequate resources, therefore, a chartered Accountant or management consultant may a Bre his clients to use linear programming model to deal effectively the problem o} making optimal allocation af scarce or limited resources to competing products or activities. Determination of optimal product mix, transportation schedules, plants location, assignment of personnel and machines, media selection and investment partfolio selection, blending Pf materials, energy, ecology (pollution) are some of the areas whose problems can be solved by using linear programming model. 9. Decision Models. Decision model are related to decision-making under conditions of certainty, risk and uncertainty. Most of the business problems involve 9 certain degree of uncertainty about the future. The use of probability theory enables a manager to calculate the probabilities of occurrence of various events in a business problem. The_use of these probabilities and the appropriate decision mode] helps the decision maker in arrive at a suitable course of action under single stage and multi-stage decision processes. The decision models are extremely useful in determining the degree of uncertainty and the extent to which it may be reduced, For example, if a client wants to evaluate various projects with different investments and outcomes, decision models such as a decision tree may be very helpful in selecting the project with maximum payoff. Decision analysis has also been applied to problems in controlling hurricanes, water pollution, medicine, law, nuclear safety, space exploration, new product decisions, advertising expenditures, research and development, and so forth. i 3. Network theory. Most of the projects that may be handled by public sector, private sector, or governments are usually delayed significantly due to lack of proper management, their improper scheduling and controlling. Network analysis enables managers to cope with such complexities involved in projects and suggests a way to ‘overcome them. The use of CPM and PERT which are network techniques is extremely useful for the purpose of planning, analysing, scheduling and controlling the progress and completion of one time and repeated projects. The application of these techniques will significantly reduce the time of their completion and will also cut down the unnecessary costs of such projects. These techniques are quite useful for qualified Management Consultants as well as Chartered Accountants to scheduie and control their various tasks in the areas of Income-tax, Audit, Sales-tax and Management Consultancy. 4. Inventory Control Models. It is a known fact that about 2/3 of the investment in industries is tied up in the form of inventories. It is utmost important to release part of this locked-up capital for other functions of the industries. Inventory models are used to determine optimal timing and quantities for orders of resources and what quantity of a product should be stored. All organisations must maintain some inventory to ensure that production and sales are not delayed. The basic or objective of an inventory model is to minimize the negative cost trade-offs associated with inventories. These costs are of three basic types: ordering costs, holding costs, and shortage costs. Shortage costs are those’ rel 4 ly used techniques sive managerment nd useful Ng, it has finance related to running OpUGTION TO OPERATIONS RESEARCH intr 123 tory, They inched t out of inven le not being able = om enwise possible and the costs of idle CRIs thee ey eevee when uch as having tot ottiple when they ate not working, Keepin MI ensure against incurring these she inventory materials would, required 8 would, in most case: because the firm might receive quantity oe. i minimize reperwork. Howerer, these potential benefits of lange ines holding costs Th ade expenses, h: Heft, and taxes. In addition, management must eon conside: thing up funds in inventory that could be used for mane prosetoe weoert ergs acy ae stocks, bonds, or bank deposits, Several specitic models Race eee ne ap management determine when and how much inventory to orde ere peek of work in progress and finished products should be maintained. oad tat 5. Queueing Theory. Waiting lines at a : phenomena and queueing theory is devoted alineteeatne netic Seehof aang Per Various alternative models have been used to describe such situations, but then basically share the following common features : (I) Units re dieu ee generated from an input source from different kinds of alts for service, ( Is Senice discipline by which queue members are selected for receivin seine Service mechanism which defines the type of service, after the pel eater the unit leaves the system or rejoins it for further processing, Queueing theory ha had application in solving problems concerned with tralfie congestion, servicing machines oe to oe determining the level of a service force, air trafic cheduling design of dams, job shop scheduling, receii Soe eoiniers Wt comer bane ee Queueing models provide management with information regarding the optimal number of service facilities to possesses in order to balance the trade-offs between the costs of having too few or too may facilities. 6. Sequencing. This method solves problem where effectiveness measure (in terms of cost, time, mileage, etc.), depends upon the sequence of performing given jobs. This helps to determine a sequence in which given jobs should be performed if the objective is to minimize the total efforts. 7. Game Theory. One of the most important variables affecting the success of ‘an organization is its competition. Clearly, the ability to predict the actions of competitors would be advantageous for any organization. Game theory is a modeling technique for assessing the impact ‘of a decision on one’s competitors. Developed by John Von Neumann and Morgenson, this is a mathematical theory applicable to competitive business problems. This technique deals with situations, Ghere two or more (finite) individuals are making decisions involving conflicting interests, However the final decision depends upon the decisions of the parties Concerned. The basic assumptions made are that every competing party will adopt the policy most unfavourable to us and therefore we are required to select the best position among the worst positions. In such situations, one’s favourable ‘item is unfavourable to other. 8. Simulation. It is a highly versatile technique of Operations Research. It has a wide ranging application in business situations. Simulation Is particularly appropriate Whore it B difficult to build a model for the real life situation mathematically or if at all it is modelled, it is difficult to solve the model analytically. It may be noted that simulation is a manipulation of a model constructed from the formal statements of mathematical representation in respect of logical relations between the elements in a structure or a system expressed In measurable terms, Thus, simulation is a process qa large inventory of ge inventory of needed mn rtage costs. Buying larqe quantiti of ordering costs es and perform less large Inventory are offset by andling, interest, insurance, breakage, woul OPERATIONS RESEARCH : TECHNIQUES FoR 4-24 MANAGENien {designing an experiment which will duplicate or present as nearly a of desig a a 'S Possib| designing and then watching what does happen. In every walk of life, the teat Ndequacy of our decisions is the test our reality, However, in partical life, of i a afford the luxury of testing the consequences of th Modern, business cathe real-life world. Instead of finding out the characteristics of an amar orn skyscraper, by actually building or constructing it, we can simulate a performance on the basis of its characteristics. In this way we can experimets Without incurring the cost of failure. The simulation techniques allow the moder, managers fo examine the probable consequences of his decisions without the rick ct teal life experimentations. In other words, simulation is often a practical wa substitute a model for the actual system or a full-scale prototype. Further, if ee results of experimentation with the simulation model indicate the modification is 3h improvement, the manager can more confidently decide to implement the corresponding change in the real system. 9, Replacement Theory. This theory suggested the determination of the time when items of plant should be replaced. The replacement of items is nec because the efficiency of an item deteriorates with time, or sometimes the item may fail completely. Replacement, on the one hand, requires investment, on the other, saves operating cost which otherwise is more while using old parts. Thus, a problem srises when the part should be replaced so that cost is minimum. The replacement problems arise in three conditions = (i) replacement of items that fail completely and are expensive to be replaced, (ii) replacement of items whose efficiency deteriorates with time, and (ji) replacement of items because of obsolescence. 10. Reliability. Reliability theory is concerned with quantifying the frequency of failures and developing in indicator of quality and dependability of a product. It is closely associated with probability theory therefore facilitates statistical analysis and measurement. The assessment of reliability of an equipment is most useful to the designer in improving the quality of the critical parts as well as in deciding how much to provide by way of standby. 11. Markovian Models, These models are applicable in the situation where the status of the system, called its ‘states’, can be defined by some descriptive measure ‘of numerical value and where the system moves from one state to another on a probability basis. In these models, we are given a sequence of events in which the probability of occurrence for an’ event depends upon the immediately preceding ‘event. Markovian models have been successfully applied to analyse consumer buying patterns, to forecast bad debts, for planning personnel needs, to analyse equipment replacement, etc. 12. Some Advanced O.R. Techniques. (a) Non-linear programming is that form of programming in which some or all of the variables are curvilinear. In other words, this means that either the objective function or constraints or both are not in linear form. In most of the practical situations, we encounter with non-linear programming problems but for computational purposes we approximate them as linear programming problems. Even then there may be some non-linear programming problems which may. not be fully solved by presently known methods. (b) Dynamic programming refers to a systematic search for optimal solutions to problems that involve many highly complex interrelations that are, moreover, sensitive to multistage effects as successive time phases. Dynamic problems involve manipulation of a large amount of information and require electronic computers: essary pucTION TO OPERATIONS RESEARGH wir er programming ay vetimtegers. Applications Trea the values of do a wes Goal programming deals w cial management and nyc etables_ are (d ue quite similar to linear Prograt 7 ee location, ing, tansportation problems, Portfolio PPlications neh ves a Iisa analysis. Production aa.) Heuristic: programming ‘OP selection in also known a arch toward an optimal sok = j dis lution when 9 ovr method s fies tg sefhematical programming form. The search prreeye™ SARNOt be exprencey- in? ations that lead { Procedure examines «sessed in 5 of combinal lo stepwise Mines successively serie stops when a near optimal has been found. wet the solution ang se s e Algorithmic programming is just the o Aso 'be termed as mathematical programming. ‘te. ul through and exhaustive mathematical appr ale 1 ‘oach to j give variables in order to obtain optimal solution, oan ) Quadratic programming refers t which the objective function and constrai they contain squared terms. (h) Parametric programming is the name given to liner pro i tater 8 modified for the purpose of inclusion of several oesearmng when th varying degrees of priority. The sensitivity of the solution to these. variations ; then studied. ° (i) Probabilistic programming, also known as stochastic pr i finear programming that includes an evaluation of 1 nolan aes r lative risks and uncertainties various alternatives of choice for management decisions. leuristic progr: Programming stigate all asp. ‘arming. It tefers to a ects of the lo a modificatio; 1 of Lin int equations aj ear rogrammin }PPear in quadratic form. te, Le, 4-11. ROLE OF COMPUTER IN SOLVING CURRENT AS WELL AS FUTURE OPERATIONS RESEARCH PROBLEMS. Recent developments in the field of computer technology have enabl Operatiohs Research to integrate their models into information systems a thus make O.R. a part of decision-making procedures of many organisations. Use of a digital computer has become an integral part of the O.R. approa decision-making. The computer may be required due to the complexity of the m volume of data required or the computations to be made. In other words, cor in today's scenario has become an indispensable tool for solving Oper Research problems. Many O.R. techniques are available today in the fo ‘canned’ programmes. : The O.R. problems are time consuming and involve tedious computations. simple problem with few variables take a long time to solve manually eneey hand calculator, For a highly complex, real life business protlen, e ; performing computations, even with a hand calculator, is simply ea of cot this reason many of the techniques were not widely used af 60's. 8 computers accelerated the wide use of O.R. techniques io solving ee problems faced by managers and administrators a usiness 2 aoe Computers provide the much needed computational supp ae techniques. The automation of computational algorthm gro he soli concentrate on problem's formulation and the Se cia package computer manufacturer and vendor have develope ot for problems to various computer systems providing computational supp cont OPERATIONS RESEARCH UC - : 1-27 ‘ion systems a eeike voltae to changing conditions. H rset He changes in the software packages, the usr ale ence order fo ge of various O.R, and quantitative techniques which sae Ged t0_ have orale owled

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