Operations Research

Objective
Operations Research is the science of decision making and the art of
decision modelling. It is a set of quantitative tools used by the
managers to take decisions and formulate their business strategies.
The basic objective of this course is to provide an understanding of
the important techniques used in decision making. A certain level of
mathematical hands-on expertise will be required to ensure
understanding of the tools in operations research. While quantitative
tools will be used to develop the understanding of the complex
business situations, the course will aim to develop the management
decision-making ability. The implementation of these tools has been
facilitated considerably by the development of spreadsheet-based
software package; we will make liberal use of spreadsheet models.
 Course Evaluation
The learning pace in this class is going to be fast and heavy. The following
proportions will be used to estimate your learning from the course:
Quiz-1 – 30% (after 6th session)
Quiz – II - 30% (After 10th Session)
End Term - 40%
Although there may be valid reasons for not attending class, the
participant is still responsible for the material covered in the class.
Missed exams, unless excused in advance by permission, will result in a
zero for that activity. No make-up is given.
 Operations Research
Operations Research (OR) started just before World War II in Britain
with the establishment of teams of scientists to study the strategic
and tactical problems involved in military operations. The objective
was to find the most effective utilization of limited military resources
by the use of quantitative techniques. The result was called
Operations Research.
Operations Research
OR is the discipline of applying advanced analytical methods to help
make better decisions.
Operations Research
• Optimization is everywhere
• Firms want to maximize value to shareholders
• People want to make the best investment decisions
• People want to get the highest quality at the lowest
price.
• It is modeling business situations.
 Goal of Operations Research
The goal of operations research is to find values for n
decision variables X = (x1, x2, …, xn). The decision maker
must choose values for the variables so that he/she is in
a position to optimize his objective which may include
• Maximize profit
• Maximize utilization of equipment
• Minimize cost
• Minimize raw materials or resources
• Minimize traveling time
etc. etc.
Objective..
OR seeks the determination of the best (optimum) course of action of
a decision problem under the restriction of limited resources. The
term operations research quite often is associated almost exclusively
with the use of mathematical techniques to model and analyze
decision problems..
 Basic OR Models
- Allocation Models - Markov Chain Models
• Linear Programming Models - Queuing Models
• Integer Linear Programming models - Simulation Models
• Transportation Problem - Replacement Models
• Assignment Problems
• Goal Programming
- Dynamic Programming Models
- Sequencing Models
- Decision Analysis Models
- Network Models
- Inventory Models
- Game Theory Models
Linear programming
• George B. Dantzig (1947) published “Programming in Linear
Structure”
• Leonid Kontorovich (1939) (to plan expenditures and returns during
WW2) was published in 1959.
• Koopmans coined the term “Linear Programming” (1948).
Problem Formulation
Step 1. Formulate the Objective Function: Determine
the quantity to be optimized and express it as a
mathematical function. Doing so serves to define the
input variables.
Step 2. Formulate the Constraints: Identify all stipulated
requirements, restrictions and limitations, and
express them mathematically.
Step 3. Express any hidden conditions. Such conditions
are not stipulated explicitly in the problem but are
apparent from the physical situation being modeled.
Examples: non-negativity, Integer requirements.
 Flair Furniture Company
The flair furniture company produces inexpensive tables and chairs. The production
process for each is similar in that both require a certain number of hours of carpentry
work and a certain number of labor hours in the painting and varnishing department.
Each table takes 4 hours of carpentry and 2 hours of painting and varnishing shop. Each
chair requires 3 hours of carpentry and 1 hour of painting and varnishing. During the
current production period, 240 hours of carpentry time available and 100 hours of
painting and varnishing time available. Each table sold with a profit of Rs. 7; each chair
produced is sold for a Rs. 5 profit.
Flair Furniture’s problem is to determine the best possible combination of tables and
chairs to manufacture in order to reach the maximum profit. The firm would like this
production mix situation formulated as an LP problem.
United Aluminum Company produces three grades (high, medium, and
low) of aluminum at two mills. Each mill has a different production
capacity (in tons per day) for each grade, as follows:
The company has contracted with a manufacturing firm to supply at least
12 tons of high-grade aluminium, 8 tons of medium-grade aluminium, and
5 tons of low-grade aluminium. It costs United Rs. 6,000 per day to operate
mill 1 and Rs. 7,000 per day to operate mill 2. The company wants to know
the number of days to operate each mill in order to meet the contract at the
minimum cost. Mill
Aluminium 2
Grade 1
High 6 2

Medium 2 2

Low 4 10
 Example 2. Blending..

The manager of an oil refinery must decide on the optimum mix of

two possible blending processes of which the input and output
production runs as follows:

Input Output

Crude A Crude B Gasoline X Gasoline Y

1 6 4 6 9

2 5 6 5 5

The maximum amount available of crudes A and B are 250 units and
200 units respectively. Market demand shows at least 150 units of
gasoline X and 130 units of gasoline Y must be produced. The
profit per production run from process 1 and process 2 are Rs. 5
and Rs. 7 respectively. Formulate the problem to maximize profit.
 Example 3:
Vitahealth wishes to introduce a packaged trail mix of a new product. The
ingredient of trail mix are raisins, flakes and walnuts. Each ingredient contains
certain amounts of vitamins, minerals and calories. The marketing
department specified that the product be designed so that a certain minimum
nutritional profile is met. The objective is to minimize the product cost. The
following data is given:
Components Raisins Flakes Walnuts Nutritional
(grams/Kg) (grams/Kg) (grams/Kg) Requirements
Vitamins 50 75 60 20
minerals 15 10 5 10
calories 1000 400 1200 600
Cost/Kg Rs. 500 Rs. 400 Rs. 600
 Example -4

Hard Drivers Inc. manufactures computer hard drives. Because demand

has seasonal variations it is difficult to schedule production to keep costs
to a minimum. Next year, management estimates that the demand for a 2-
TB hard drive will be 170,000 units in the first quarter followed by 300,000,
180,000 and 500,000 in the second, third and fourth quarters. Because
the company’s production capacity is 350,000 units per quarter, during the
slow seasons the company must produce extra hard drives and store
them in inventory to help meet demand during the high seasons,
particularly during the fourth quarter because Christmas sales make the
highest sales quarter of the year. The production cost of a hard drive is
Rs. 250 per unit and company policy is to charge an inventory holding
cost of Rs. 10 per hard drive per quarter for each unit in inventory at the
beginning of a quarter. Assume the company starts off the first quarter
with 100,000 units in inventory and wishes to end the last quarter with
200,000 units in inventory. Formulate linear programming to determine
how many hard drives should be produced in each quarter in order to
minimize total cost.
Portfolio Selection Problem..
International City Trust (ICT) invests in large cap stocks, corporate
bonds, precious metal stocks, mortgage-backed securities, and
construction loans. ICT has Rs. 5 million available for immediate
investment and wishes to maximize the interest earned on the
investments over the next year.
To encourage a diversified portfolio, the board of directors has
placed several limits on the amount that can be committed to any
one type of investment: (i) no more than 25% of the total amount
invested may be in any single type investments, (ii) at least 30%
of the funds invested must be in precious mode, (iii) at least 45%
invested in large cap stocks and corporate bonds, and (iv) the
average risk score of the total investment must be 2 or less.
For each type of investment, the following table shows the
expected return over the next year as well as a score that
indicates the risk associated with the investment

Investment Int. earned Risk Score

Large Cap Stocks 19% 1.7
Corporate Bonds 10% 1.2
Gold Stocks 18% 3.7
Platinum Stocks 12% 2.4
Mortgage Securities 8% 2

Construction Loans 15% 2.9

 Example (HR)
The XYZ wants to know the minimum number of operators required to
meet the daily requirement of the Jamshedpur BPO Service:

0200 – 0600 20
0600 – 1000 18
1000-1400 8
1400-1800 5
1800-2200 14
2200-0200 11

An operator is on duty continuously for eight hours from the time of

the duty commences. Formulate the LP model of the problem.