WHAT IS OPERATIONS RESARCH?
A branch of applied mathematics where in the application is to the decision making
process.
[By: - Gross]
Optimal decision-making in, and modeling of, deterministic and probabilistic
systems that originate from real life. These applications, which occur in
government, business, engineering, economics, and the natural and social sciences,
are largely characterized by the need to allocate limited resources. In these
situations, considerable insight can be obtained from scientific analysis, such as
that provided by Operations Research.
MODEL & Its TYPES
MODEL: A model is a representation of the structure of a real life system.
In general, models can be classified as fellows:
Iconic models
Analogue models
Symbolic models
SYMBOLIC MODELS: Symbolic (i.e., algebraic, numerical, logical) models
represent the properties of the real life system through the means of
symbols, mathematical equations, computer programs and simulation models
are also symbolic models.
DETERMINISTIC MODELS: Deterministic models are models which do
not contain the element of probability. Deterministic models involve
optimization.
Examples are: Linear programming, Non linear programming,
Integer programming, Network optimization, and Dynamic
programming.
STOCHASTIC MODELS: stochastic models are models which contain
the element of probability. Stochastic models characterize/estimate
system performance.
Examples are: Queuing theory, Stochastic processes, Reliability
theory, and Simulation techniques.
O.R. TECHNIQUES
One of the first attempts of classification was devised by Rivett and Ackoff
(1963). This classification is not complete because still more and more
techniques can be added in the following list.
Linear Programming
Assignment Problems
Transportation Problems
Integer Programming
Network Analysis
Queuing Theory
Inventory Control Models
Decision Theory and Game Theory
Simulation
Dynamic Programming
Goal Programming
LINEAR PROGRAMMING:
AN INTRODUCTION
First conceived by George B. Dantzig around 1947.
The work of Kantorovich Russian Mathematician (1939) was published in
1959.
Dantzigs first paper was titled Programming in Linear Structure
Koopmans Coined the term Linear Programming in 1948.
Simplex Method was published in 1949 by Dantzig.
WHAT IS LINEAR PROGRAMMING?
A linear programming problem (LP) is an optimization problem for which:
We attempt to maximize (or minimize) a linear function of the decision
variables. (Objective Function)
The values of the decision variables must satisfy a set of constraints,
each of which must be a linear inequality or linear equality.
A sign restriction on each variable. For each variable X i the sign
restriction can either say
Xi 0,
Xi 0,
Xi unrestricted.
ASSUMPTIONS IN LP MODEL
LINEARITY OR PROPORTIONALITY:
DIVISIBILITY:
CERTAINTY:
ADDITIVITY:
NONNEGATIVITY:
ASSUMPTIONS IN LP MODEL
LINEARITY OR PROPORTIONALITY:
DIVISIBILITY:
Divisibility means that non integer (fractional) values of the decision
variables are acceptable. (e.g., LP allows a production program which
uses 400 units of electronic component and 68.33 man hours of labor
time to produce 40 units of black and white television sets and 25.7
units of colored television sets per week. If a fraction of a product
cannot be produced, Integer Programming is a special technique
which can be used for finding non-fractional values of resource usage
and decision variables).
CERTAINTY:
Proportionality means that the objective function and constraint
coefficients are strictly proportional to the decision variable (e.g., If the
first unit of production requires 2 hours of labor so it must the 50 th
and 100th unit also requires 2 hours of labor).
Certainty means that the values of the parameters are known and
constant
ADDITIVITY:
Additivity means the total effect of each decision variable (Profit, Cost,
etc.) must equal the sum of the effects contributed by each decision
variable and terms of each constraint must be additive (Total amount
of resource consumed or provided) must equal the sum of the
resources used (or provided) by each decision variable.
(e.g., if an objective is to maximize profit equal to Rs. 10 per unit of the
first product made plus Rs. 5 per unit of the second product made, and
if one unit of each product is actually produced, then the profit
contributions of Rs. 10 and Rs. 5 must be added up to produce a sum
of Rs. 15).
NONNEGATIVITY:
Non negativity means that the decision variables are permitted to
have only the values which are greater than or equal to zero.
DEVELOPMENT (FORMULATION) OF LP MODEL
PRODUCT (PRODUCTION) MIX PROBLEM # 1:
A firm is engaged in producing two products A and B. Each unit of product A
requires 3Kg of raw material and 5 labor hour for processing, where as each unit of
product B requires 6Kg of raw material and 4 labor hours of the same type. Every
month the firm has the availability of 60Kg of raw material and 70 Labor hours. One
unit of product A sold earns profit Rs. 30 and one unit of product B sold gives Rs.
40 as profit.
Formulate this problem as linear programming problem to determine as to how
many units of each of the products should be produced per month so that the firm
can earn maximum profit, assume all unit produced can be sold in the market.
Decision Variables: Let X1 and X2 be the number of products A and B
respectively.
Objective Function:
Product A: As, X1 are the units of product A, So, Product A contributes a profit
of Rs. 30X1 from one unit of product.
Product B: As, X2 are the units of product B, So, Product B contributes a profit of
Rs. 40X2 from one unit of product.
Maximize
Z = 30X1 + 40X2
CONSTRAINTS:
Material Constraint:
Labor Constraint:
3X1 + 6X2 60
5X1 + 4X2 70
Nonnegativity Constraint: As X1 and X2, being the number of units produced of
products A and B cannot have negative values thus, X 10 and X20. i.e. X1,X2
0.
The Complete LP problem model is:
Maximize: Z = 30X1 + 40X2
Subject to:
3X1 + 6X2 60
5X1 + 4X2 70
X1 , X 2 0
PRODUCT (PRODUCTION) MIX PROBLEM # 2: Four varieties of ties produced:
1. one is an expensive, all-silk tie,
2. one is an all-polyester tie, and
3. two are blends of polyester and cotton.
The table on the following slide illustrates the cost and availability (per monthly
production planning period) of the three materials used in the production process
LINEAR PROGRAMMING: MODEL FORMULATION
DECISION VARIABLES: Let X1 = # of all-silk ties; X2 = # polyester ties; X3 = # of
blend 1 poly-cotton ties; X4 = # of blend 2 poly-cotton ties produced per month
Calculate profit for each tie: Profit = Sales price Cost per yard X Yards per tie
Silk ties = $6.70 $21 x 0.125 = $4.08
Polyester = $3.55 $6 x 0.08 = $3.07
Poly-blend 1 = $4.31 ($6 x 0.05 + $9 x 0.05) = $3.56
Poly-blend 2 = $4.81 ($6 x 0.03 + $9 x 0.07) = $4.00
Objective function: maximize profit = $4.08X1 + $3.07X2 + $3.56X3 + $4.00X4
Subject to:
0.125X1
800 (Total Silk Availability Constraint)
0.08X2 + 0.05X3 + 0.03X4 3,000 (Total Polyester Availability Constraint)
0.05X3 + 0.07X4
1,600 (Total Cotton Availability Constraint)
X1
6,000 (Contract Constraint 1)
X1
7,000 (Demand Constraint 1)
X2
10,000 (Contract Constraint 2)
X2
14,000 (Demand Constraint 2)
X3
13,000 (Contract Constraint 3)
X3
16,000 (Demand Constraint 3)
X4 6,000 (Contract Constraint 4)
X4 8,500 (Demand Constraint 4)
X1, X2, X3, X4 0
PORTFOLIO SELECTION PROBLEM:
Mr. Ali has Rs. 70, 000 to investment in several alternatives. The alternative
investments are national certificates with an 8.5% return, Defense Savings
Certificates with a 10% return, NIT with a 6.5% return, and khas deposit with a
return of 13%. Each alternative has the same time until maturity. In addition, each
investment alternative has a different perceived risk thus creating a desire to
diversify. Ali wants to know how much to invest in each alternative in order to
maximize the return.
The following guidelines have been established for diversifying the
investments and lessening the risk;
No more than 20% of the total investment should be in khas deposit.
The amount invested in Defense Savings Certificates should not exceed the
amount invested in the other three alternatives.
At least 30% of the investment should be in NIT and Defense Savings
Certificates.
The ratio of the amount invested in national certificates to the amount
invested in NIT should not exceed one to three.
Formulate the problem as a LP model.
Monthly cost &
availability
of
material
The following table summarizes the contract demand for each of
o the four styles of ties,
o the selling price per tie, and
o the fabric requirements of each variety.
Fifth Avenues goal is to maximize its monthly profit. It must decide upon a policy for
product mix.
