UNIT-4

INTRODUCTION TO OR AND LPP

Overview
• Introduction to Operation Research: Introduction,
Nature
• Managerial applications and limitations of OR
• Types of Operation Research Models.
• Linear Programming: Mathematical model,
Formulation of LPP, assumptions underlying LPP,
• Solution by Graphical Method.
MEANING AND DEFINITION
Operations research refers to the applications of scientific method to the
solution of business problems. It is a techniques which enables the executives
to take correct and prompt decisions.

“Quantitative study of an organization in action carried out in order to find

the ways in which its functioning can be improved”.
C.C.Hermann and J.F.Magec

“Operations research is the application of scientific methods, techniques and

tools to problems involving the operation of a system so as to provide those
in control of the system with optimum solution to the problem”
C.W.Churchman
DEVELOPMENT OF OR
• Developed in military context during world war II, pioneered by the British
scientists
–Research on military operations
• US military management was motivated by
–Development of new flight pattern
–Planning sea mining
–Effective utilization of electronic equipment
• Similar operations in Canada and France
• Till 50’s: use of O.R. confined to military purposes
• After World War II: success attracted industrial managers to solve complex
managerial problems
• 1950: O.R. began to develop in industrial field in US
• 1953: Operations Research Society of America was formed
• 1957:International Federation of OperationalResearch Society
OBJECTIVES OF OPERATIONS RESEARCH
The operations research analysis follow a scientific procedure to solve the
problems for executive management as outlined.
• They reduce the various factors of a problem into quantitative terms for
mathematical measurement and analysis
• They estimate effects of these chosen factors or situations by assigning
quantitative values
• They construct models from the quantifying values, in terms of
mathematical equations
• They clearly reveal the possibilites of all alternatives with the help of such
equations
• They look upon entire enterprise as a group of related activities with
common objectives for applying operations research for analysis of
business problems.
STEPS INVOLVED IN USE OF OR

To be successful in his endeavour the operations research analyst is expected

to
• Formulating the problem
• Constructing the model
• Deriving the solution
– Analytical methods
– Heuristic methods
– Simulation method
• Testing the validity
• Implementing the solution
• Modifying the model
OR APPROACH
CHARACTERISTICS OF OR
Operations research which aims at a practical approach is , in fact prescriptive
and not descriptive in nature since it chiefly aims at developing concrete
strategies and decisions and preparing management for action.
• Inter-disciplinary team approach
• Systems approach
• Helpful in improving the quality of solution
• Scientific method
• Goal oriented optimum solution
• Use of models
• Require willing executives
• Reduces complexity by use of computers
SCOPE OF OPERATIONS RESEARCH

Operations research has been proving invaluable in almost all functions of

management, viz. Planning, organizing , staffing , forecasting , co-ordinating,
communicating and controlling , its important benefits are as follows

• Finance Budgeting and Investment

• Purchasing Procurement and Exploration
• Production Management
• Marketing Management
• Personal Management
LIMITATIONS OF OR
OR has been proving extremely useful from different standpoints, we should not
conclude that it is a penacea for every business ill nor should we regard, it as a
source of automatic decisions. This is because of number of Limitations from
which it suffers.
• The inherent limitations concerning mathematical expressions
• High costs are involved in the use of O.R. techniques
• O.R. does not take into consideration the intangible factors
• O.R. is only a tool of analysis and not the complete decision-making process
• Bias
• Inadequate objective functions
• Internal resistance
• Competence
• Reliability of the prepared solution
TOOLS OF OPERATIONS RESEARCH
The quantitative analysis of business problem is made with help of number of
tools(techniques) of OR. Some of the tools of OR are :
• Linear Programming
• Theory of Probability
• Queuing Problems
• Simulation Methods
• Network Methods
• Correlation Theory
• Inventory Theory
• Servo-Mechanisms
• Information Theory
• Transportation Problems
LINEAR PROGRAMMING
• Linear programming is a widely used mathematical modeling technique to
determine the optimum allocation of scarce resources among competing
demands. Resources typically include raw materials, manpower, machinery,
time, money and space.
 
• The technique is very powerful and found especially useful because of its
application to many different types of real business problems in areas like
finance, production, sales and distribution, personnel, marketing and many
more areas of management.
 
• As its name implies, the linear programming model consists of linear
objectives and linear constraints, which means that the variables in a model
have a proportionate relationship. For example, an increase in manpower
resource will result in an increase in work output.
HISTORY AND DEFINITION OF LP

Founders of the subject are Leonid Kantorvich, a Russian Mathematician who

developed Linear Programming Problems (LPP) in 1939, George B.Dantzia,
who Published the simplex method in 1947, John Von Neumann who
developed the theory of duility in the same year.

Samuelson and slow defines Linear Programming as “The Analysis of

problems in which a linear function of a number of variables is to be
maximised (or minimised) when these variables are subject to number of
restraints in the form of linear inequalities”.
ESSENTIALS OF LINEAR PROGRAMMING MODEL
For a given problem situation, thereare certain essential conditions that need to be
solved by using linear programming.
•Limited resources : limited number of labour, material equipment and
finance
 
•Objective : refers to the aim to optimize (maximize the profits or minimize the costs).
 
•Linearity : increase in labour input will have a proportionate
increase in output.

•Homogeneity : the products, workers' efficiency, and machines are assumed to be

identical.
 
• Divisibility : it is assumed that resources and products can be
divided into fractions. (in case the fractions are not possible, like production of one-
third of a computer, a modification of linear programming called integer programming
can be used).
PROPERTIES OF LINEAR PROGRAMMING MODEL

The following properties form the linear programming

model:
• Relationship among decision variables must be linear in nature.
• A model must have an objective function.
• Resource constraints are essential.
• A model must have a non-negativity constraint.
FORMULATION OF LINEAR PROGRAMMING
Let us define some terminologies used in Linear Programming using the above
example.
• Decision Variables: The decision variables are the variables which will decide my
output. They represent my ultimate solution. To solve any problem, we first
need to identify the decision variables. For the above example, the total number
of units for A and B denoted by X & Y respectively are my decision variables.
• Objective Function: It is defined as the objective of making decisions. In the
above example, the company wishes to increase the total profit represented by
Z. So, profit is my objective function.
• Constraints: The constraints are the restrictions or limitations on the decision
variables. They usually limit the value of the decision variables. In the
above example, the limit on the availability of resources Milk and Choco are my
constraints.
• Non-negativity restriction: For all linear programs, the decision variables should
always take non-negative values. Which means the values for decision variables
should be greater than or equal to 0.
GENERAL FORM LINEAR PROGRAMMING PROBLEM

A general representation of LP model is given as follows: Maximize or

Minimize, Z = p1 x1 + p2 x2 ………………pn xn Subject to constraints,
w11 x1 + w12 x2 + ………………w1N xn ≤ or = or ≥ w1 (i)
w21 x1 + w22 x2 ………………w2n xn ≤ or = or ≥ w2 (ii)
....
....
....
wM1 x1 + wm2 x2 +………………wmn xn ≤ or = ≥ wm (iii)
Non-negativity constraint,
xi ≥ o (where i = 1,2,3 n)
APPLICATIONS OF LINEAR PROGRAMMING METHODS

Linear programming is a technique for optimization or making most effective

use of given conditions. During last 40 yrs applications have been developed
in some situations:
• Product Mix
• The Diet Problem
• The Portfolio Selection Problem
• Transportation Problem
• Travelling salesman Problem
• Farm Planning
• Airline Routine
FORMULATION OF LINEAR PROGRAMMING PROBLEM
Example: Consider a chocolate manufacturing company which
produces only two types of chocolate – A and B. Both the chocolates
require Milk and Choco only.  To manufacture each unit of A and B,
following quantities are required:
•Each unit of A requires 1 unit of Milk and 3 units of Choco
•Each unit of B requires 1 unit of Milk and 2 units of Choco
The company kitchen has a total of 5 units of Milk and 12 units of
Choco.
On each sale, the company makes a profit of
•Rs 6 per unit A sold
•Rs 5 per unit B sold.
Now, the company wishes to maximize its profit. How many units of
A and B should it produce respectively?
Solution: The first thing I’m gonna do is represent the problem in a
tabular form for better understanding.
SOLUTION:
  MILK CHOCO PROFIT PER UNIT

A 1 3 RS 6
B 1 2 RS 5
TOTAL 5 12

• Let the total number of units produced of A be = X

• Let the total number of units produced of B be = Y
• Now, the total profit is represented by Z
• The total profit the company makes is given by the total number of units
of A and B produced multiplied by its per unit profit Rs 6 and Rs 5
respectively.
• Profit: Max Z = 6X+5Y
• which means we have to maximize Z.
• The company will try to produce as many units of A and B to maximize the
profit. But the resources Milk and Choco are available in limited amount.
• As per the above table, each unit of A and B requires 1 unit of Milk. The
total amount of Milk available is 5 units. To represent this mathematically,
• X+Y ≤ 5
• Also, each unit of A and B requires 3 units & 2 units of Choco respectively.
The total amount of Choco available is 12 units. To represent this
mathematically,
• 3X+2Y ≤ 12
• Also, the values for units of A can only be integers.
• So we have two more constraints, X ≥ 0  &  Y ≥ 0
• For the company to make maximum profit, the above inequalities have to
be satisfied.
• This is called formulating a real-world problem into a mathematical
model.
LINEAR PROGRAMMING BY GRAPHICAL METHOD

•A linear program can be solved by multiple methods. In this section,

we are going to look at the Graphical method for solving a linear
program. This method is used to solve a two variable linear program.
If you have only two decision variables, you should use the graphical
method to find the optimal solution.

•A graphical method involves formulating a set of linear inequalities

subject to the constraints. Then the inequalities are plotted on a X-Y
plane. Once we have plotted all the inequalities on a graph the
intersecting region gives us a feasible region. The feasible region
explains what all values our model can take. And it also gives us the
optimal solution.

•Let’s understand this with the help of an example.

Example:
 A farmer has recently acquired an 110 hectares piece of land. He has decided
to grow Wheat and barley on that land. Due to the quality of the sun and the
region’s excellent climate, the entire production of Wheat and Barley can be
sold. He wants to know how to plant each variety in the 110 hectares, given
the costs, net profits and labor requirements according to the data shown
below:

VARIETY COST NET MAN-DAYS

(PRICE/HEC) PROFIT(PRICE/ /HEC
HEC)
WHEAT 100 50 10
BARLEY 200 120 30
       
SOLUTION:
• The farmer has a budget of US$10,000 and an availability of 1,200 man-
days during the planning horizon. Find the optimal solution and the
optimal value.
• Solution: To solve this problem, first we will formulate our linear program.

Formulation of Linear Problem

Step 1: Identify the decision variables
The total area for growing Wheat=X(in hectares)
The total area for growing Barley =Y(in hectares)
X and Y are decision variables.
Step 2: Write the objective function
Since the production from the entire land can be sold in the market. The
farmer would want to maximize the profit for his total produce. We are given
net profit for both Wheat and Barley. The farmer earns a net profit of US$50
for each hectare of Wheat and US$120 for each Barley.
Our objective function (given by Z) is, Max Z = 50X + 120Y
Step 3: Writing the constraints 

• It is given that the farmer has a total budget of US$10,000. The cost of

producing Wheat and Barley per hectare is also given to us. We have an
upper cap on the total cost spent by the farmer. So our equation becomes:
100X + 200Y ≤ 10,000 

• The next constraint is, the upper cap on the availability on the total
number of man-days for planning horizon. The total number of man-days
available are 1200. As per the table, we are given the man-days per
hectare for Wheat and Barley.
10X + 30Y ≤ 1200

• The third constraint is the total area present for plantation. The total
available area is 110 hectares. So the equation becomes,
X + Y ≤ 110
Step 4:
• The non-negativity restriction
The values of X and Y will be greater than or equal to 0. This goes without
saying.
X ≥ 0, Y ≥ 0
We have formulated our linear program. It’s time to solve it.
• Solving a LP through Graphical method
Since we know that X, Y ≥ 0. We will consider only the first quadrant.
To plot for the graph for the above equations, first I will simplify all the
equations.
100X + 200Y ≤ 10,000 can be simplified to X + 2Y ≤ 100 by dividing by 100.
10X + 30Y ≤ 1200 can be simplified to X + 3Y ≤ 120 by dividing by 10.
The third equation is in its simplified form, X + Y ≤ 110.
Plot the first 2 lines on a graph in first quadrant (like shown below)
GRAPHICAL REPRESENTATION OF LP
MERITS OF LINEAR PROGRAMMING

Following are the merits of LPP:

• Scientific Approach
• Number of Possible Solution
• Cost-Benefit Analysis
• Flexibility
• Removing Bottlenecks
• Optimum use of Scare Resources
• Allocation of Scare Resources
LIMITATIONS OF LPP METHOD
Inspite of number of uses of LP in the various fields of the study this method
suffers from number of limitations:

• Divisibility of Resources
• Linear Relationship
• Certainity
• Conflicting multiple Goals
• Time Effect
• Complexity
• Constant Parameters
• Unused Capacities
• Optimality
• Single Objective
THANK YOU