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Introduction to Management Science: Modelling,

Optimisation and Probability

Book · December 2018

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 Contents

I Modelling

1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.1 Aim and Objectives 3
1.2 Grand Example 4
1.3 Disciplines 7
1.4 Structure 8

2 Modelling . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.1 Introduction 9
2.2 The Analysis Process 10
2.3 Break-Even Analysis 13
2.4 Techniques and Applications 15
2.5 Computer Lab – Modelling 18
2.6 Problems 27
2.7 Summary 27
2.8 Annotated Bibliography 28

II Optimisations

3 Mathematical Programming . . . . . . . . . . . . . . . . 31
3.1 Introduction 31
3.2 Problem Formulation 32
3.3 Mathematical Model 33
3.4 Feasible and Infeasible Regions 35
3.5 Optimal Solution 36
3.6 Applications 38
3.7 Computer Lab – Optimisations 43
3.8 Problems 48
3.9 Summary 50
3.10 Annotated Bibliography 50

4 Transportation Models . . . . . . . . . . . . . . . . . . . . . . 53
4.1 Introduction 53
4.2 Transportation Model 54
4.2.1 Data Collection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
4.2.2 Network Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
4.2.3 Linear Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
4.2.4 Feasible and Optimal Solution . . . . . . . . . . . . . . . . . . . . 59
4.3 Transshipment Model 60
4.4 Assignment Model 66
4.5 Applications and Examples 72
4.6 Computer Lab – Transportation 72
4.7 Problems 76
4.8 Summary 80
4.9 Annotated Bibliography 81
5 Network Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83
5.1 Introduction 83
5.2 Graph Theory 84
5.3 Minimum Spanning Tree 86
5.3.1 Examples . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 86
5.3.2 Kruskal’s Algorithm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90
5.3.3 Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 92
5.4 Shortest Path 94
5.4.1 Example . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95
5.4.2 Dijkstra’s Algorithm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
5.4.3 0-1 Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
5.4.4 Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
5.5 Maximum Flow 106
5.5.1 Example . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
5.5.2 Algorithm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
5.5.3 Integer Program . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
5.5.4 Applications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 112
5.6 Computer Lab – SP & MF 113
5.7 Problems 120
5.8 Summary 125
5.9 Annotated Bibliography 126

III Probabilistic Approaches

6 Probability and Statistics . . . . . . . . . . . . . . . . . . . 131

6.1 Introduction 131
6.2 Probability 132
6.2.1 Fundamentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 132
6.2.2 Binomial Distribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . 137
6.2.3 Joint, Conditional and Marginal Probabilities . . . . . . . . 141
6.2.4 Bayesian Networks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145
6.3 Expectation and Standard Deviation 148
6.3.1 Expectation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
6.3.2 Standard Deviation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150
6.4 Normal Distribution 154
6.5 Computer Lab – Probabilities 159
6.6 Problems 165
6.7 Summary 166
6.8 Annotated Bibliography 167

7 Queueing Systems . . . . . . . . . . . . . . . . . . . . . . . . . 169

7.1 Introduction 169
7.2 Fundamentals 171
7.2.1 Terminology . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 171
7.2.2 Characteristics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 174
7.3 Single Server System 176
7.3.1 Birth-Death Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . 176
7.3.2 Probabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177
7.3.3 Customers in System . . . . . . . . . . . . . . . . . . . . . . . . . . . 180
7.3.4 Little’s Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182
7.3.5 Operational Characteristics . . . . . . . . . . . . . . . . . . . . . 183
7.4 Multiple Server System 185
7.5 Computer Lab – Queueing Systems 190
7.6 Problems 194
7.7 Summary 197
7.8 Annotated Bibliography 198

8 Inventory Models . . . . . . . . . . . . . . . . . . . . . . . . . 199

8.1 Introduction 199
8.2 Inventory Management 200
8.2.1 Role, Types and Predictions . . . . . . . . . . . . . . . . . . . . . . 200
8.2.2 Definitions, Classification and Costs . . . . . . . . . . . . . . . . 203
8.3 Economic Order Quantity Models 207
8.3.1 Basic Economic Order Quantity Model . . . . . . . . . . . . . 207
8.3.2 Production Lot Size Model . . . . . . . . . . . . . . . . . . . . . . . 211
8.3.3 Shortage Model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215
8.4 Reorder Point Models 219
8.5 Computer Lab – EOQ 224
8.6 Problems 227
 8.7 Summary 229
8.8 Annotated Bibliography 230

IV Final Part
Solutions to Problems . . . . . . . . . . . . . . . . . . . . . . 233

Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 265

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 269

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 273

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