EMÜ 221

Introduction to Optimization and

Modeling

Ceren Tuncer Şakar

2016-2017 Fall
Week 1
OUTLINE
 Introduction to Operations Research (OR)
• Successful Applications
• OR Characteristics
• Methodology of OR

 Introduction to Linear Programming

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Operations Research (OR)

 Operations Research is a quantitative approach

to decision making based on the scientific
method.

 It addresses the operations of complex

organizational systems, seeking the best way to
conduct and coordinate the activities to make
best use of limited resources.

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 OR is a major component of IE curriculums.

 The mathematical models and techniques used

by IE are primarily OR models and techniques.

 Management Science is another term for OR

(usually used at business schools).

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Some successful applications of OR
Organization Nature of Application Annual
Savings
United Schedule shift work at
Airlines reservations offices and $6 million
(1986) airports to meet customer
needs at minimum cost.
IBM Integrate a national network $20 million+
(1990) of spare parts inventories to $250 mil. less
improve service support. inventory
Delta Airlines Maximize the profit from
(1994) assigning airplane types to $100 million
over 2,500 domestic flights.
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 More applications
Proctor and Redesign the North
Gamble American production and $200 million
(1997) distribution system to
reduce costs and improve
speed to market.
Taco Bell Optimally schedule
(1997) employees to provide $13 million
desired customer service at
a minimum cost.
Grantham, Mayo, Construct optimal portfolios
Van Otterlee and with a limited number of $4 million
Company (1999) stocks and transactions.
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 More applications
Sears, Roebuck Develop a vehicle routing
(1999) and scheduling system for $42 million
delivery and home service
fleets
Hewlett-Packard Redesign the sizes and $280 million
(1998) location of buffers in a more
printer assembly line to revenue
meet production goals.
IBM Reengineer its global $750 million
(2000) supply chain to respond in the first
quicker to customers while year
holding minimum inventory.
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More Applications

 LP has been used successfully by several

people (Chandy and Kharabe 1986, Interfaces)
to determine bond portfolios that maximize
expected return subject to constraints on the
level of risk and diversification on the porfolio.
 Using LP and probabilistic inventory models,
Blue Bell, manufacturers of jeans and
sportswear, reduced its average inventory level
by 31% (Edwards et al. 1985 Interfaces).

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More Applications
 Using network models and DP, Powell et al.
(1988, Interfaces) developed a model that is
used to assign loads to North American Van
Lines drivers. Use of this model has provided
better service to customers and reduced costs
by $2.5 million/year.
 Determining how to blend incoming crude oils
into leaded regular, unleaded regular, unleaded
plus, and super unleaded gasolines through LP
and NLP saved Texaco over $30 million
annually. (Dewitt et al. 1989, Interfaces)
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More Applications
 Motorola won the 2004 “Edelman” award by
“Reinventing the Supplier Negotiation Process at
Motorola.”
It combined innovative bidding, online supplier
negotiations, and scenario-based optimization
analysis, to identify the best procurement
strategy while enhancing supplier relationships.
It sourced over $16 billion and saved more than
$600 million (in 2002 and 2003).

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More Applications
 In 2007, a physics professor (Marco Zaider, Cornell
U.) and an OR professor (Eva Lee, GaTech) won
the “Edelman” award:
Given a malignant tumor, where precisely do you
place the radioactive “seeds” to best combat the
cancer while protecting healthy tissue? Study results
are expected to improve the survival rate of patients
with prostate cancer, reduce the side effects of
treatment and, save $450 million a year in health
care costs.

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OR Characteristics
 Isbased on the scientific method
 Uses a multi-disciplinary approach
 Utilizes “Systems Approach”

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System
 A system is an organization of interdependent
components that work together to accomplish
common goals.

Eg. • Manufacturing systems

• Transportation systems
• Health care systems
• Etc.

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Systems Thinking
 Systems Thinking has been defined as an approach to
problem solving, by viewing "problems" as parts of an
overall system, rather than reacting to a specific part.

 Systems thinking is based on the fact that the

component parts of a system can best be understood in
the context of relationships with each other and with
other systems, rather than in isolation.

 Systems thinking focuses on cyclical rather than linear

cause and effect.

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Methodology of O.R.
Step 1. Define and formulate the problem
• Objectives
• Decision makers
• Alternative courses of action
• Controllable variables
• Uncontrollable variables
• Constraints
Step 2. Observe the system
(collect data and estimate parameters)

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Methodology of O.R. (Cont.)
Step 3. Formulate a mathematical model
Step 4. Validate and verify the model
Step 5. Select suitable alternatives
Step 6. Present results, make
recommendations and discuss with DMs
Step 7. Implement, evaluate results and make
adjustments as necessary.

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 Quantitative Analysis and Decision
Making
 Potential Reasons for a Quantitative Analysis
Approach to Decision Making
• The problem is complex.
• The problem is very important.

• The problem is new.

• The problem is repetitive.

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Quantitative Analysis

 Quantitative Analysis Process

• Model Development
• Data Preparation
• Model Solution and Validation
• Report Generation

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Model Development
 Models are representations of real objects or
situations.
 Three forms of models are iconic, analog,
and mathematical.
• Iconic models are physical replicas (scalar
representations) of real objects.
• Analog models are physical in form, but do not
physically resemble the object being modeled.
• Mathematical models represent real world
problems through a system of mathematical
formulas and expressions based on key
assumptions, estimates, or statistical analyses.
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Advantages of Models

 Generally, experimenting with models

(compared to experimenting with the real
situation):
• requires less time
• is less expensive
• involves less risk

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Mathematical Models
• Relate decision variables (controllable inputs) with fixed or
variable parameters (uncontrollable inputs).
• Frequently seek to maximize or minimize some objective
function subject to constraints.
• Are said to be stochastic if any of the uncontrollable inputs
is subject to variation, otherwise are said to be
deterministic.
• Generally, stochastic models are more difficult to analyze.
• The values of the decision variables that provide the
mathematically-best output are referred to as the optimal
solution for the model.
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 Transforming Model Inputs into
Output
Uncontrollable Inputs
(Environmental Factors)

Controllable Mathematical Output

Inputs Model (Projected Results)
(Decision Variables)

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EMÜ 221
 Building LP Models and Extensions
 Solution of LP Models and Sensitivity
Analysis
• Graphically
• Manually
• Using software (Excel, GAMS)

 Interpretation of Results

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Linear Programming

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Linear function and linear inequality

Linear Function: A function f(x1, x2, …, xn) of x1, x2, …, xn is a

linear function if and only if for some set of constants, c1, c2, …, cn,
f(x1, x2, …, xn) = c1x1 + c2x2 + … + cnxn.

For example, f(x1,x2) = 2x1 + x2 is a linear function of x1 and x2,

but f(x1,x2) = (x1)2x2 is not a linear function of x1 and x2.

For any linear function f(x1, x2, …, xn) and any number b, the
inequalities f(x1, x2, …, xn)  b and f(x1, x2, …, xn)  b are linear
inequalities.

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Convex sets and Extreme Points

A set of points S is a convex set if the line segment joining

any two pairs of points in S is wholly contained in S.

For any convex set S, a point P in S is an extreme point if

each line segment that lies completely in S and contains
the point P has P as an endpoint of the line segment.

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Convex sets

Which sets are convex?

A E B A B

A B

C D
(
a) (
b) (
c) (
d)

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Extreme Points
Which points are extreme?

A E B A B

A B

C D
(
a) (
b) (
c) (
d)

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Extreme Points

Extreme points are sometimes called corner

points, because if the set S is a polygon, the
extreme points will be the vertices, or corners, of
the polygon.

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LP: Basic Concepts and Terminology

 Parameters (assumed to be constant and known,

uncontrollable variables, needed to be estimated)
eg. Availabilities of resources
levels of requirements of the resources by each unit
of activity

 Decision variables (controllable variables)

Levels of activities are unknown quantities.

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LP: Basic Concepts and Terminology

 Objective Function In any linear programming model,

we maximize (usually revenue or profit) or minimize
(usually costs) some function of the decision variables.
This function to be maximized or minimized is called the
objective function.

 Constraints or restrictions
Relationships between the availability of a resource and
requirements of the activities (of the resource)

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LP: Basic Concepts and Terminology

 Linear programming model

A linear objective function of the decision variables is
either maximized or minimized subject to a set of
constraints composed of linear equations and/or
inequalities

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Guidelines for Model Formulation

 Describe the objective.

 Describe each constraint.
 Define the decision variables.
 Write the objective in terms of the decision
variables.
 Write the constraints in terms of the decision
variables.

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General LP Model

Max c1 x1  c2 x2   cn xn
s.t. a11x1  a12 x2    a1n xn  b1
a21x1  a22 x2    a2 n xn  b2

  
am1 x1  am 2 x2    amn xn  bm
x1  0, x2  0, , xn  0
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Other Forms
Other LP forms are as follows:
1. Minimizing the objective function:
Minimize Z  c1 x1  c2 x2    cn xn .

2. Greater-than-or-equal-to type constraints:

ai1 x1  ai 2 x2    ain xn  bi

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3. Equality constraints:
ai1 x1  ai 2 x2    ain xn  bi
4. Allowing all real values for some decision
variables:

x j : unrestricted in sign

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Assumptions of LP
 Proportionality: The contribution of each decision
variable to the objective function and each
constraint is proportional to the value of the decision
variable regardless of what that value is.

 Additivity: The contribution of each decision

variable to the objective function and each
constraint does not depend on the values of the
other decision variables.

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Assumptions of LP

 Divisibility: Decision variables can take

fractional (non-integer) values.

 Certainty: All parameters are known with

certainty.

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Example

Giapetto’s, Inc., manufactures wooden

soldiers and trains.
Each soldier built:
• Sells for $27 and uses $10 worth of raw materials.
• Increase Giapetto’s variable labor/overhead costs by $14.
• Requires 1 hour of carpentry labor.
• Requires 2 hours of finishing labor.
Each train built:
• Sells for $21 and uses $9 worth of raw materials.
• Increases Giapetto’s variable labor/overhead costs by $10.
• Requires 1 hour of carpentry labor.
• Requires 1 hour of finishing labor.

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 Each week Giapetto can obtain:
• All needed raw material.
• Only 100 finishing labor hours.
• Only 80 carpentry labor hours.
Also:
• Demand for the trains is unlimited.
• At most 40 soldiers can be sold each week.

Giapetto wants to maximize weekly profit (revenues – expenses).

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 Objective: Maximize weekly profit
 Decision variables (controllable variables):
number of soldiers and number of trains produced
per week
 Parameters (uncontrolable variables): selling
price, cost, capacity, demand, labor hours required
per product
 Constraints: Available carpentry and finishing
labor hours per week and an upper bound on the
demand for soldiers

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 Decision Variables

Weekly profit = weekly revenue – weekly raw material costs – weekly

variable costs
Weekly revenue =
Weekly raw material costs =
Weekly variable costs =

Weekly profit =

Objective function

Maximize z =
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 Decision Variables
x1 = number of soldiers produced each week
x2 = number of trains produced each week

Weekly profit = weekly revenue – weekly raw material costs – weekly

variable costs

Weekly revenue = 27x1 + 21x2

Weekly raw material costs = 10x1 + 9x2
Weekly variable costs = 14x1 + 10x2

Weekly profit =
(27x1 + 21x2) – (10x1 + 9x2) – (14x1 + 10x2 ) = 3x1 + 2x2

Objective function

Maximize z = 3x1 + 2x2

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For Giapetto, the values of x1 and x2 are limited by the following
three restrictions (constraints):

 Constraint 1 Each week, no more than 100 hours of finishing

time may be used.

 Constraint 2 Each week, no more than 80 hours of carpentry

time may be used.

 Constraint 3 Because of limited demand, at most 40 soldiers

should be produced.

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For Giapetto, the values of x1 and x2 are limited by the following
three restrictions (constraints):

 Constraint 1 Each week, no more than 100 hours of finishing

time may be used.

 Constraint 2 Each week, no more than 80 hours of carpentry

time may be used.

 Constraint 3 Because of limited demand, at most 40 soldiers

should be produced.

Constraint 1: 2 x1 + x2 ≤ 100
Constraint 2: x1 + x2 ≤ 80
Constraint 3: x1 ≤ 40
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Sign Restrictions

If the decision variable can assume only nonnegative values, the sign
restriction xi ≥ 0 is added.
If the variable can assume both positive and negative values, the
decision variable xi is unrestricted in sign (urs).

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The complete model:

Max z = 3x1 + 2x2 (objective function)

Subject to (s.t.)
2 x1 + x2 ≤ 100 (finishing constraint)
x1 + x2 ≤ 80 (carpentry constraint)
x1 ≤ 40 (constraint on demand for soldiers)
x1 ≥0 (sign restriction)
x2 ≥ 0 (sign restriction)

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Proportionality Assumption

For example, the contribution to the objective

function for 4 soldiers is exactly four times the
contribution of 1 soldier.

For example, it takes exactly 3 times as many

finishing hours to manufacture 3 soldiers as it does 1
soldier.

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Additivity Assumption

For example, no matter what the value of x2 is, the

manufacture of x1 soldiers will always contribute 3x1
dollars to the objective function.

For example, no matter what the value of x1 is, the

manufacture of x2 trains uses x2 finishing hours and
x2 carpentry hours

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Divisibility Assumption
This assumption implies it is acceptable to produce a
fractional number of trains. Is this meaningful?
Might be okay as an approximation if numbers are big
or if production continues week after week (work-in
process inventory)

Certainty Assumption
The certainty assumption is that each parameter
(objective function coefficients, right-hand side, and
technological coefficients) are known with certainty.

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