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69 views18 pagesOR Intro
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
