Document 2:

Operations Research
Notes
Title: Introduction to
Linear Programming
and the Simplex
Method
Linear Programming
(LP) is a mathematical
modeling technique in
which a linear function
is maximized or
minimized when
subjected to various
constraints.
Components of an LP
Model:
 Decision Variables:
Mathematical
symbols
 representing levels
of activity of a firm.
 Objective Function:
A linear
mathematical
relationship
describing the
objective of the firm,
in terms of decision
variables.
Constraints:
Requirements or
restrictions placed
on the firm by the
operating
environment, stated
in linear
relationships.
The Simplex Method:
Developed by George
Dantzig, the Simplex
Method is a
systematic, iterative
procedure for solving
linear programming
models. It works by
evaluating the corner
points of the feasible
region mathematically,
moving from one
vertex to an adjacent
vertex that improves
the objective function,
until the optimal
solution is reached.
Slack and surplus
variables are
introduced to convert
inequalities into
standard equations.
27.1. INTRODUCTION
It is the method of
analysis by which
management receives
aid for their decisions.
Though the name of
this method,
Operation Research
(O.R.) is relatively new,
but the method used
for this is not a new
one. Operation
Research is concerned
with the application of
the principles and the
methods of science to
the problems of
strategy. The subject of
operation research
was born during
Second World War in
U.K., and was used for
military strategy.
During World War II, a
group of scientists,
having representatives
from mathematics,
statistics, physical and
social sciences were
entrusted the study of
various military
operations. This team
was very successful
and greatly
contributed to the
meticulous handling of
entire operation and
related problems of
the operation. The
need for assigning
such studies for
operations arose
because military
strategies and their
decisions become
important and costly
and therefore, the best
scientists, under the
sponsership of military
organs were grouped
together to provide
quantitative
informations by
adopting scientific
techniques and
methods for
facilitating in taking
decisions. After the
World War II, it was
started applying in the
fields of industry,
trade, agriculture,
planning and various
other fields of
economy. The
operation research can
be defined in the
following paragraphs.
Definitions (i)
Operation Research is
the application of
scientific methods,
techniques and tools
to problems involving
the operations of a
system so as to
provide those in the
control of the system
with optimum
solutions to the
problems. (ii)
Operation Research is
a tool for taking
decisions which
searches for the
optimum result in
parity with the overall
objectives and
constraints of the
organisation. (iii) O.R.
is a scientific method
of providing with a
quantitative basis of
decisions regarding the
operations under the
control of executive
department. (iv) O.R. is
a scientific approach to
problem solving for
the management. (v)
O.R. is an aid for
executive in making his
decisions by providing
him with t employed
for the analysis and
also for studying the
current or future
problems. Thus,
Operation Research
offers alternative plans
for a problem to the
management for
decisions. Although it
is very clear that
operation research
never make decisions
for the management,
instead the method
presents management
with a careful scientific
and quantitative
analysis of problem so
that the management
will be in a better
position to make
sound decisions. It can
be used for solving
different types of
problems, such as :
Problems dealing with
the waiting line, the
arrival of units or
persons requiring
service. Problems
dealing with the
allocation of material
or activities among
limited facilities.
Equipment
replacement
problems. Problems
dealing with
production processing
i.e. production control
and material
shipment. But it may
be remembered that
operation research
never replaces a
manager as decision
maker. The ultimate
and full responsibility
for analysing all factors
and making decision
will be of the manager.
In the more wide
sense, operation
research does not deal
with the everyday
problems such as
output by the one
worker or machine,
instead it is concerned
with the overall aspect
of business operation
such as something as
the relationship
between inventory,
sales, production and
scheduling. It may also
deal with the overall
flow of goods and
services from plants to
consumers. The team
doing operation
research may have
statisticians,
psychologists, labour
specialists,
mathematicians and
others depending
upon the requirement
for the problems. 27.2.
PHASES IN OPERATION
RESEARCH STUDY
Since, the main
objective of operation
research is to provide
better quantitative
informations for
making decision. Now
our aim is to learn how
we can have better
decisions. The
procedure for making
decisions with the OR
study generally
involves the following
phases : 1. Judgement
Phase Determination
of operation.
Determination of
objectives.
Determination of
effectiveness of
measures.
Determination of type
of problem, its origin
and causes.
OPERATION
RESEARCHAN
INTRODUCTION 701 2.
Research Phase
Observation and data
collection for better
understanding of the
problem. Formulation
of relevant hypothesis
and models. Analysis
of available
information and
verification of
hypothesis. Production
and generation of
results and
consideration of
alternatives. 3. Action
Phase
Recommendations for
remedial action to
those who first posed
the problem, this
includes the
assumptions made,
scope and limitations,
alternative courses of
action and their effect.
Putting the solution to
work :
implementation.
Without O.R, in many
cases, we follow these
phases in full, but in
other cases, we leave
important steps out.
Judgement and
subjective decision-
making are not good
enough. Thus
industries looks to
operation research for
more objective way to
make decisions. It is
found that method
used should consider
the emotional and
subjective factors also.
For example, the skill
and creative labour are
important factors in
our business and if
management wants to
have a new location,
the management has
to consider the
personal feeling of the
employees for the
location which it
chooses. 27.3. SCOPE
OF OPERATION
RESEARCH In recent
years of organised
development, O.R. has
solved successfully
many cases of
research for military,
the government and
industry. The basic
problem in most of the
developing countries
in Asia and Africa is to
remove poverty and
hunger as quickly as
possible. So there is a
great scope for
economist,
statisticians,
administrators,
politicians and
technicians working in
a team to solve this
problem by an O.R.
approach. On the
other hand, with the
explosion of
population and
consequent shortage
of food, every country
is facing the problem
of optimum allocation
of land for various
crops in accordance
with climatic
conditions and
available facilities. The
problem of optimal
distribution of water
from a resource like a
canal for irrigation
purposes is faced by
developing country.
Hence a good amount
of scientific work can
be done in this
direction. In the field
of Industrial
Engineering, there is a
chain of problems,
starting from the
procurement of
material to the
despatch of finished
products.
Management is always
interested in
optimizing profits.
Hence in order to
provide decision on
scientific basis, O.R.
study team considers
various alternative
methods and their
effects on existing
system. The O.R.
approach is equally
useful for the
economists,
administrators,
planners, irrigation or
agricultural experts
and statisticians etc.
Operation research
approach helps in
operation
management.
Operation
management can be
defined as the
management of
systems for providing
goods or services, and
is concerned with the
design and operation
of systems for the
manufacture,
transport, supply or
service. The operating
systems convert the
inputs to the
satisfaction of
customers need. Thus
the operation
management is
concerned with the
optimum utilisation of
resources i.e., effective
utilisation of resources
with minimum loss,
under-utilisation or
waste. In other words,
it is concerned with
the satisfactory
customer service and
optimum resource
utilisation. Inputs for
an operating system
may be material,
machine and human
resource. O.R. study is
completed only when
we also consider
human factors to the
alternatives made
available. Operation
Research is done by a
team of scientists or
experts from different
related INDUSTRIAL
MANAGEMENT 702
disciplines. For
example, for solving a
problem related to the
inventory
management, O.R.
team must include an
engineer who knows
about stores and
material management,
a cost accountant a
mathematician-cum-
statistician. For large
and complicated
problems, the team
must include a
mathematician, a
statistician, one or two
engineers, an
economist, computer
programmer,
psychologist etc. Some
of the problems which
can be analysed by
operations research
are given hereunder :
1. Finance, Budgeting
and Investment Cash
flow analysis, long
range capital
requirement,
investment portfolios,
dividend policies.
Claim procedure.
Credit policies. 2.
Marketing Product
selection, competitive
actions. Number of
salesman, frequencies
of calling on.
Advertising strategies
with respect to cost
and time. 3.
Purchasing Buying
policies, varying prices.
Determination of
quantities and timing
of purchases. Bidding
policies. Replacement
policies. Exploitation
of new material
resources. 4.
Production
Management Physical
distribution. Location
and size of
warehouses,
distribution centres
and retail outlets.
Distribution policies.
Facilities planning.
Numbers and location
of factories,
warehouses etc.
loading and unloading
facilities.
Manufacturing.
Production scheduling
and sequencing,
stabilisation of
production,
employment, layoffs,
and optimum product
mix. Maintenance
policies, crew size.
Project scheduling and
allocation of
resources. 5.
Personnel
Management Mixes of
age and skills
Recruiting policies Job
assignments. 6.
Research and
Development Areas of
concentration for R&D
Reliability and
alternate design 2.
Wholistic approach to
the system. While
evaluating any
decision, the
important interactions
and their impact on
the whole organisation
against the functions
originally involved are
reviewed. 3. Objective
Approach. O.R.
attempts to find the
best or optimal
solution to the
problem under
consideration, taking
into account the goals
of the organisation. 4.
Scientific Approach.
Operation Research
employs scientific
methods for the
purpose of solving
problems. It is a
formalized process of
reasoning and consists
of following steps: 1.
The problem to be
analyzed is defined
clearly. 2. Observations
are made under
varying conditions to
determine the
behaviour of the
system. 3. On the bass
of the observations, a
hypothesis describing
how the various
factors involved are
believed to interact
and the best solution
to the problem is
formulated. 4. To test
the hypothesis, an
experiment is designed
and executed.
Observations are made
and measurements are
recorded. 5. The
results of the
experiments so
obtained are analyzed
and the hypothesis is
either accepted or
rejected. If the
hypothesis is accepted,
the best solution to
the problem is
obtained. 27.5.
METHODOLOGY OF
OPERATION RESEARCH
Operation Research, as
explained earlier, is a
scientific approach for
decision-making, and
therefore must follow
following steps : 1.
Formulating the
Problem. The problem
must be first clearly
defined. It is common
to start the O.R. study
with tentative
formulation of the
problem, which is
reformulated over and
again during the study.
The study must also
consider economical
aspects. While
formulating the O.R.
study, analysists must
analyse following
major components : (i)
The environment :
Environment involves
physical, social and
economical factors
which are likely to
affect the problem
under consideration.
O.R. team or analysts
must study the
organisation contents
including men,
materials, machines,
suppliers, consumers,
competitors, the
government and the
public. (ii) Decision-
makers : Operation
analyst must study the
decision-maker and his
relationship to the
problem at hand. (iii)
Objectives :
Considering the
problem as a whole,
objectives should be
defined. (iv)
Alternatives : The O.R.
study determines as to
which alternative
course of action is
most effective to
achieve the desired
objectives. Expected
reactions of the
competitors to the
alternative must also
be considered. 2.
Model Building. Once
a problem is defined,
the next step is to
build a suitable model.
A model is a
theoretical abstraction
of a real-life problem
in fact, many real-life
situations tend to be
very complex because
there are literally
innumerable inherent
factors in any given
situation. Having
selected the critical
factors, decision-
maker combines them
in some logical
manner so that they
form a model of the
actual problem.
Various types of
mathematical models
are used in operation
research. Two broad
categories of
methmatical models
are : (a) deterministic,
and (b) probabilistic
models. (a) A
deterministic model is
the one in which all
parameters in the
mathematical
formulation are fixed
at predetermined
values so that no
uncertainty exists.
INDUSTRIAL
MANAGEMENT 704 (b)
In a probabilistic
model, some or all the
basic characteristics
may be random
variables (capable of
assuming different
values with given
probabilities). In such
models, uncertainty
and errors are
required to be given
explicit consideration.
The probabilistic
models are also known
as stochastic or chance
models. 3. Deriving
Solution. Models are
used to determine the
solution either by
simulation or by
mathematical analysis.
Mathematical analysis
for deriving optimum
solution includes
analytical or numerical
procedure, and uses
various branches of
mathematics. 4.
Testing the Model and
Solution. A properly
formulated and
correctly manipulated
model is useful in
predicting the effect of
changes in control
variables on the
overall system
effectiveness. The
validity of the solution
is checked by
comparing the results
with those obtained
without using the
model. 5. Establishing
Controls over the
Solution. The solution
derived from a model
remains effective so
long as the
uncontrolled variables
retain their values and
the relationship. The
solutoin goes out of
control, if the values of
one or more variables
vary or relationship
between them
undergoes a change. In
such circumstances
the models need to be
modified to take the
changes into account.
6. Implementing the
Solution. Solution so
obtained should be
translated into
operating procedure to
make it easily
understandable and
applied by the
concerned persons.
After applying the
solution to the system,
O.R. group must study
the response of the
system to the changes
made. 27.6.
OPERATION RESEARCH
MODELS Operation
Research model is a
simplified
representation of the
real life situation and
represents one or
more aspects of
reality. Examples of
operation research
models are : a map,
activity charts, balance
sheets, PERT network,
break-even equation,
economic ordering
quantity equation etc.
Objective of the model
is to provide a means
for analysing the
behaviour of the
system for improving
its performance.
Classification of
Models Models can be
classified on the basis
of following factors : 1.
By degree of
Abstraction
Mathematical models
Language models. 2.
By Function
Descriptive models
Predictive models
Normative models for
repetitive problems. 3.
By Structure Physical
models Analogue
(graphical) models
Symbolic or
mathematical models.
4. By Nature of
Environment
Deterministic models.
Probabilistic models. 5.
By the Time Horizontal
Static models Dynamic
models. OPERATION
RESEARCHAN
INTRODUCTION 705
Characteristics of a
Good Model
Assumptions should
be simple and few
Variables should be as
less as possible It
should be able to
ascimilate the system
environmental
changes without
change in its
framework. It should
be easy to construct.
Constructing the
Model In this section,
we shall discuss the
mathematical models.
A mathematical model
is a set of equations in
which the system or
problem is described.
The equations
represent objective
function and
constraints. Objective
function is a
mathematical
expressions of
objectives (cost or
profit of the
operation), while
constraints are
mathematical
expressions of the
limitations on the
fulfillment of the
objectives. These
expressions consists of
controllable, and
uncontrollable
variables. The general
form of a
mathematical model is
: O = f (xi, yi) where, O
= Objective function xi
= Controllable
variables yi =
Uncontrollable
variables f =
Relationship between
O, and xi, yi. Since
model is only an
approximation of the
real situation, hence it
may not include all the
variables.
Simplification in
Operation Research
Models While
constructing the
model, efforts should
be made to simplify th
sts against one or
more of the following
costs : Shortage costs
Ordering costs Storage
costs Interest costs.
This study helps in
taking decisions about
How much to purchase
When to order
Whether to
manufacture or to
purchase i.e., make
and buy-decisions. The
most well known use is
in the form of
Economic Order
Quantity equation for
finding economic lot
size. 2. Waiting Line
Models. These models
are used for
minimising the waiting
time and idle time
together with the costs
associated therewith.
Waiting line models
are of two types (a)
Queuing theory, which
is applicable for
determining the
number of service
facilities and/or the
timing of arrivals for
servicing. (b)
Sequencing theory
which is applicable for
determining the
sequence of the
servicing. 3.
Replacement Models.
These models are used
for determining the
time of replacement or
maintenance of item,
which may either (i)
become obsolete, or
(ii) become inefficient
for use, or (iii) become
beyond economical to
repair or maintain. 4.
Allocation Models.
These models are used
to solve the problems
arising when (a) there
are number of
activities which are to
be performed and
there are number of
alternative ways of
doing them, (b) the
resources or facilities
are limited, which do
not allow each activity
to be performed in
best possible way.
Thus these models
help to combine
activities and available
resources so as to
optimise and get a
solution to obtain an
overall effectiveness.
5. Competitive
Strategies. Such type
of strategies are
adopted where,
efficiency of decision
of one agency is
dependent on the
decision of another
agency. Examples of
such strategies are
game of cards or
chess, fixing of prices
in a competitive
market where these
strategies are termed
as theory. 6. Linear
Programming
Techniques. These
techniques are used
for solving operation
problems having many
variables subject to
certain restrictions. In
such problems,
objectives are-profit,
costs, quantities
manufactured etc.
whereas restrictions
may be policies of
government, capacity
of the plant, demand
of the product,
availability of raw
materials, water or
power and storage
capacity etc. These
techniques are applied
to a very wide range of
problems. Here only
some of the common
applications are being
mentioned : (a)
Distribution or
Transportation
Problems. In such
problems, various
centres with their
demands are given
and various
warehouses with their
stock positions are also
known, then by using
linear programming
technique, we can find
out most economical
distribution of the
products to various
centres from various
warehouses. (b)
Product Mix. This
technique can be
applied to determine
best mix of the
products for a plant
with available
resources, so as to get
maximum profit or
minimum cost of
production. (c)
Production Planning.
This technique can
also be applied to
allocate various jobs to
different machines so
as to get maximum
profit or to maximise
production or to
minimise total
production time.
OPERATION
RESEARCHAN
INTRODUCTION 707
(d) Assignment of
Personnel. Similarly,
this technique can be
applied for assignment
of different personnel
with different aptitude
to different jobs so as
to complete the task
within a maximum
allowable time. (e)
Agricultural
Production. We can
also apply this
technique to maximise
cultivators profit,
involving cultivation of
number of items with
different returns and
cropping time in
different type of lands
having variable
fertility. (f) Financial
Applications. Many
financial decision
making problems can
be solved by using
linear programming
technique. Some of
them are : (i) To select
best portfolio in order
to maximise return on
investment out of
alternative investment
opportunities like
bonds, stocks etc. Such
problems are generally
faced by the managers
of mutual funds, banks
and insurance
companies. (ii) In
deciding financial mix
strategies, involving
the selection of means
for financing firm,
projects, inventories
etc. 7. Sequencing
Models. These are
concerned with the
selection of an
appropriate sequence
of performing a series
of jobs to be done on a
service facility or
machine so as to
optimise some
efficiency measure of
performance of the
system. 8. Simulation
Models. Simulation is
an experimental
method used to study
behaviour over time.
9. Network Models.
This is an approach to
planning, scheduling
and controlling
complex projects.
27.8. METHODS USED
IN OPERATION
RESEARCH Various
methods have been
derived by applying
various type of O.R.
models. These
methods can roughly
be divided in following
two categories : (A)
Deterministic models.
(B) Probabilistic
models. (A)
Deterministic Models.
The theories related
with applied
mathematics are kept
in this category and
are used in following :
(1) Linear
Programming (2)
Game theory (3)
Assignment problems
(4) Transportation
problems (5)
Sequencing (6)
Dynamic
Programming. (B)
Probabilistic Models.
These methods are
related with the
statistics and listed
below: 1. Queuing or
waiting line theory. 2.
Monte Carlo method.
3. Replacement
theory. These have
been discussed in
subsequent chapters
of the book.
QUESTIONS 1. Explain
how the operation
research help in
decision making
problems ? 2. What is
Operation Research ?
Define and explain
briefly its application.
3. Explain Decision-
Making and describe
its impact in
administration. 4.
Define Decision-
Making and give its
characteristics. 5.
Write short notes on :
(a) Current trends in
decision- making. (b)
Decision-making and
administration.
INDUSTRIAL
MANAGEMENT 708 6.
Distinguish the
following : (a) Major
and minor decisions.
(b) Policy and
operating decisions. (c)
Routine and strategic
decisions. (d)
Organisational and
personal decisions. 7.
Describe in detail
procedure of Decision-
Making. 8. Give
examples of Decision-
Making under : (a)
Certainty (b)
Uncertainty. 9. If a
seller is dealing in wax
candles in Deepawali
season. The
uncertainty is about
the demand, the seller
does not know how
many packets he will
be able to sale during
this season. This
problem is of
inventory decision.
Following assumptions
are made : (a) No
additional packets
should be ordered
after the selling season
starts. (b) Unsold
candles will involve
50% loss. (c) The cost
of each packet to the
seller is Rs. 3.00 and
profit earned by him
on each packet is Re.
1. The sellers estimate
of sales are as follows :
100% chance, if he has
10,000 Packets 75%
chance, if he has
16,000 Packets 50%
chance, if he has
18,000 Packets 25%
chance, if he has
25,000 Packets 0%
chance, if he has
28,000 Packets Now
the question is, how
many packets the
seller should stock ?
10. Give role and
significance of O.R in
business and industry
for scientific decisions.
11. Comment: O.R.
advocates a system
approach and is
concerned with
optimisation. It
provides quantitative
analysis for decision-
making. 12. What are
the situations where
O.R techniques will be
applicable ? 13. What
is a model? Discuss in
brief the role of O.R.
models in decision-
maki