Professional Documents
Culture Documents
This article may be used only for the purposes of research, teaching, and/or private study. Commercial use
or systematic downloading (by robots or other automatic processes) is prohibited without explicit Publisher
approval, unless otherwise noted. For more information, contact permissions@informs.org.
The Publisher does not warrant or guarantee the article’s accuracy, completeness, merchantability, fitness
for a particular purpose, or non-infringement. Descriptions of, or references to, products or publications, or
inclusion of an advertisement in this article, neither constitutes nor implies a guarantee, endorsement, or
support of claims made of that product, publication, or service.
With 12,500 members from nearly 90 countries, INFORMS is the largest international association of operations research (O.R.)
and analytics professionals and students. INFORMS provides unique networking and learning opportunities for individual
professionals, and organizations of all types and sizes, to better understand and use O.R. and analytics tools and methods to
transform strategic visions and achieve better outcomes.
For more information on INFORMS, its publications, membership, or meetings visit http://www.informs.org
K.E. STECKE
Using Mathematics to Solve Some Problems in Industry
kstecke@utdallas.edu
Abstract
This paper describes how some industrial problems can be solved using relatively simple mathematical models.
Models can be used also to provide insight into how industrial system components interact. This paper is useful
for master's level students in that it describes what a model is as well as the modeling function. Master's students
in engineering and MBAs and Ph.D. students who are interested in solving real industry problems should find
this overview of models useful. Different types of industrial problems are discussed. Finally, some models that
address industrial problems, such as inventory models, linear programming, network flow, decision analysis,
queueing models, and simulation are examined. Future industrial modeling situations are described.
Editor's note: This is a pdf copy of an html document which resides at http://ite.pubs.informs.org/Vo5No2/
Stecke/ (Volume 5, Number 2, January 2005)
considered. The production of every product type (i.e., placed for Q units of the product. These costs include
an automobile) requires many components (e.g., to telephone calls, faxes, stamps, i.e., all costs involved
assemble). The production of every component may in placing an order. The portion of time that the clerks
require many operations of different types (i.e., milling, spend in placing the orders needs to be considered.
drilling, forming, and tapping). Each operation re- Other costs per order may include expediting costs
quires some time to process it, some workstation to per order or setup costs per batch.
process it on, and somebody to perform the operation.
There is a partial precedence among the operations: Let S be the ordering or setup cost per order. If Q items
some operations have to be finished before others can are ordered every time an order is placed, D/Q is the
begin; for some operations, it doesn't matter which are number of orders per year and SD/Q is the total annual
performed first. ordering cost. With Q/2 = average inventory, for any
Various raw materials have to be on hand to begin order quantity Q, the total annual cost is:
some operations. These are inventory problems, dis-
cussed in the next section. The problem difficulties TC(Q) = SD/Q + iCQ/2+CD.
increase when the due dates for the different products
(or customer orders) need to be considered. Many Graphically, we can see this relationship in Figure 1.
different mathematical models have been used to solve If the total annual cost includes the sum of the annual
both the variety of industrial scheduling problems and ordering cost and annual inventory carrying cost, we
to evaluate the goodness of proposed solutions. Of can see the following tradeoff. If Q is large, the annual
course a wide variety of performance measures exist. inventory carrying cost is high, but the annual ordering
Each is appropriate under different circumstances and cost is low. Conversely, if Q is small, the annual inven-
for different types of scheduling problems. tory carrying cost is low, but the annual ordering cost
is high. Calculus can be used to determine the optimal
Q, the amount to order (every time an order is placed)
9. Inventory Problems to minimize the sum of the total, relevant, annual costs.
By differentiating TC(Q) with respect to Q, setting the
Another large category of problems, for which many equation equal to zero, and solving for Q, we get the
mathematical models have been proposed to address EOQ, which is
various types of issues, is inventory. Inventories cost
money and are subject to obsolescence. Much is written
about just in time inventory systems; often no invento-
ry is a goal. Yet some inventory is necessary to allow
production operations to run smoothly. Examining this relationship more closely, we can see
some problems one might run into when trying to
To present some basic inventory issues, let's start with operate just in time (JIT). JIT aims to reduce inventory
the most simple inventory problem. Suppose that there and inventory costs by ordering exactly the right
is a constant demand for an expensive product ($C) amount when it is required, usually by ordering small
that is part of an assembly. Given an annual demand amounts. We see from the above discussion that order-
D for this product, calculus can be used to find the ing a small amount each time does decrease inventory
optimal amounts of inventory, Q, to order every time carrying costs. But then orders are placed more often,
an order is placed. We can see the cost tradeoffs in the so total ordering costs increase. JIT only makes econom-
following. ic sense when the cost per order is small.
INFORMS Transactions on Education 5:2(1-8) 3 © INFORMS ISSN: 1532-0545
K.E. STECKE
Using Mathematics to Solve Some Problems in Industry
models, while considering deteriorating efficiencies
of existing models. The model uses dynamic program-
ming. Input parameters include material use, energy,
emission factors, and fuel economy over a 36-year time
horizon.
This very basic, simple, inventory model can be gener- 11. Network Flow Models
alized in many ways. Including quantity discounts for
items or transportation costs can increase the complex- 1974 (and 1975) Nobel Prize winners Tjalling Koop-
ity of the equation describing the total annual cost of mans (and L.V. Kantorovich) were the first to propose
dealing with inventory. Another cost component (an- network flow models. In the early days of World War
nual purchase cost) now depends on Q. But quantify- II, Koopmans modeled the problem of moving people,
ing these cost components has many useful purposes. supplies, and equipment from various U.S. bases to
It is important for a firm to know how much it is foreign bases. The goal was to optimize one or more
spending on inventory; the firm has to set reasonable, of: minimizing total transportation cost, minimizing
competitive prices for its items. More important, by total transit time, and/or maximizing defensive effec-
knowing these costs, the firm can make intelligent tiveness. A few years earlier, the Russian mathemati-
decisions concerning its inventory policies to decrease cian and economist Kantorovich used network flow
the total annual cost of dealing with inventories. models to address some important problems in the
Soviet economy. In particular, he investigated the
Other complications of such simple inventory models problems of allocating production levels among facto-
include consideration of the lead time required be- ries and distributing the resulting products among the
tween when an order is placed and when the shipment markets. They seem to be the first to structure and
arrives. Even more complicating is the situation when analyze complex decision problems as network flow
the exact lead time is uncertain. Many additional cost problems.
components often should be considered, such as
transportation or warehouse costs. Glover, Klingman, and Phillips (1992) provide many
examples of network flow model applications. Some
Considering inventory requirements at every stage of applications that they mention include electrical circuit
a complex supply chain is important. Inventory prob- board design, telecommunications, water management,
lems occur when considering an appropriate number the design of transportation systems, metalworking,
of spares to have on hand to be able to cope with dis- chemical processing, aircraft design, fluid dynamic
ruptions of various kinds. analysis, computer job processing, production, market-
ing, distribution, financial planning, project selection,
facility location, and accounting. They also provide
10. Mathematical Programming other, non-industrial applications of network flow
analysis, in the arts, sociology, archaeology, and more.
Mathematical programming has been used often to
provide solutions to many industrial problems. Linear Still other applications of network flow models dis-
and nonlinear programming problems have been de- cussed in Glover et al. (1992) include airline revenue
scribed in earlier sections. A good example can be management, employee shift scheduling, and best use
found in Kim et al. (2003). They develop a life cycle of energy resources. They also provide references for
optimization model to determine optimal vehicle life- actual applications.
times, accounting for technology improvement of new
INFORMS Transactions on Education 5:2(1-8) 4 © INFORMS ISSN: 1532-0545
K.E. STECKE
Using Mathematics to Solve Some Problems in Industry
For example, a large automobile manufacturer uses such models to determine optimal flight training
many computer hours every week running a network schedules for pilots. Timing and classroom availabili-
model that determines how many cars of each model ties are considered. An automobile manufacturer uses
type to produce at various plants and after, how many a network flow model to determine optimal batch sizes
automobiles of each type to ship to various cities. See for various plastic components required for car assem-
Figures 2 and 3. bly.
Keeney and Raiffa (1976) provide many examples of • Safety of landing aircraft;
decision-making problems under uncertainty. There
• Strategic and operational policy concerning frozen
are often preferences for possible consequences or
blood;
outcomes. Some of their examples are:
• Sewage sludge disposal in the metropolitan Boston
• Electrical power versus air quality; area;
• Airport location; • Selecting a job or profession;
• Heroin addiction treatment; • Transporting hazardous substances;
• Medical diagnostics and treatment; • Development of water quality indices;
• Business problems (profit versus ethics); • Airport development for Mexico City.
• Hospital blood bank inventory control;
Details as well as complete references concerning these
• Air pollution control; examples can be found in Keeney and Raiffa (1976).
• Fire department operations;
• Siting and licensing of nuclear power facilities;