Operations Research

Management Science
Meaning of Operations Research
Operations research is the research of operations. An
operation may be called a set of acts required for the
achievement of a desired outcome.
Such complex, inter-related acts can be performed by
four types of systems :
 Man
 Machine
 Man-machine
 Men, machine, man-machine
Definition of Operations Research
Morse & Kimball – “OR is a scientific method of
providing executive departments with a quantitative
basis for decisions regarding the operations under
their control.”
H. M. Wagner – “Operations research is a scientific
approach to problem solving for executive
management.”
Characteristics of Operations Research
Its system (or executive) orientation
The use of interdisciplinary teams
Application of scientific method
Uncovering of new problems
Improvement in the quality of decisions
Use of computer
Quantitative solutions
Human factors
Scientific method in Operations Research
The scientific method in operations research consists
of the following three phases :
The judgment phase
The research phase
The action phase
The Judgement phase
Determination of the operation
Determination of objectives and values associated
with the operation
Determination of effectiveness measures
Formulation of the problem relative to the objectives
The Research phase
Observation and data collection for better
understanding of the problem
Formulation of relevant hypotheses and models
Analysis of available information and verification of
hypotheses
Prediction and generalization of results and
consideration of alternative methods
The Action phase
Complexity
Scattered responsibility and authority
Uncertainty
Knowledge explosion
Scope of Operations Research
Industry
Defence
Planning
Agriculture
Public utilities
Scope of Operations research in
Management
Allocation and distribution
Production and facility planning
Procurement
Marketing
Finance
Personnnel
Research and development
Allocation and distribution
Optimal allocation of limited resources such as men,
machines, materials, time and money
Location and size of warehouses, distribution centres,
retail depots etc
Distribution policy
Production and facility planning
Selection, location and design of production plants,
distribution centres and retail outlets
Project scheduling and allocation of resources
Preparation of forecasts for the various inventory items
and computing economic order quantities and reorder
levels
Determination of the number and size of the items to be
produced
Maintenance policy and preventive maintenance
Scheduling and sequencing of production runs by proper
allocation of machines
Procurement
What, how and when to purchase at the minimum
procurement cost
Bidding and replacement policies
Transportation planning and vendor analysis
Marketing
Product selection, timing and competitive actions
Selection of advertising media
Demand forecasts and stock levels
Customer’s preference for size, colour and packaging
of various products
Best time to launch a new product
Finance
Capital requirements, cash-flow analysis
Credit policies, credit risks etc
Profit plan for the company
Determination of optimum replacement policies
Financial planning, dividend policies, investment and
portfolio management, auditing etc
Personnel
Selection of personnel, determination of retirement
age and skills
Recruitment policies and assignment of jobs
Wage/ salary administration
Research and development
Determination of areas for research and development
Reliability and control of development projects
Selection of projects and preparation of their budgets
Applications of various OR techniques
Linear programming – has been used to solve
problems involving assignment of jobs to machines,
blending, product mix, advertising media selection,
least cost diet, distribution, transportation,
investment portfolio selection and many others.
Dynamic programming – has been applied to capital
budgeting, selection of advertising media,
employment smoothening, cargo loading and optimal
routing problems.
Applications of various OR techniques
Inventory control – models have been used to
determine economic order quantities, safety stocks,
reorder levels, minimum and maximum stock levels.
Queuing theory – has been helpful to solve problems
of traffic congestion, repair and maintenance of
broken – down machines, number of service facilities,
scheduling and control of air traffic, hospital
operations, counters in banks and railway booking
agencies.
Applications of various OR techniques
Decision theory – has been helpful in controlling
hurricanes, water pollution, medicine, space
exploration, research and development projects
Network techniques of PERT and CPM – have been
used in planning, scheduling and controlling
construction of dams, bridges, roads, highways and
development and production of aircrafts, ships,
computers etc.
Applications of various OR techniques
Simulation – has been helpful in a wide variety of
probabilistic marketing simulations. It has been, for
example, used to find NPV (Net Present Value)
distribution for the venture of market introduction of a
new product
Replacement theory – has been extensively employed to
determine the optimum replacement interval for three
types of replacement problems :
Replacement of items that deteriorate with time
Replacement of items that do not deteriorate with time
but fail suddenly
Staff replacement and recruitment
Phases of OR or Methodology of OR
Formulating the problem
Constructing a model to represent the system under
study
Deriving a solution from the model
Testing the model and the solution derived from it
Establishing controls over the solution
Putting the solution to work i.e. implementation
Formulating the problem
In formulating a problem for OR study, analysis must
be made of the four major components :
a) The environment
b) The decision maker
c) The objectives
d) Alternative courses of action and constraints
Constructing a model to represent the
system under study
A mathematical model consists of a set of equations
which describe the system or problem. These equations
represent :
(i) the effectiveness function
(ii) constraints
The effectiveness function, usually called the objective
function is the operation.
Constraints or restrictions are mathematical expressions of
the limitations on the fulfilment of the objectives.
Deriving a solution from the model
A solution may be extracted from a model either by
conducting experiments on it i.e. by simulation or by
mathematical analysis. Some cases may require the
use of a combination of simulation and mathematical
analysis. This depends upon the nature and
complexity of the system under study.
Testing the model and the solution derived
from it
The usefulness of a model is tested by determining
how well it predicts the effect of these changes. Such
an analysis is usually called sensitivity analysis. The
utility or validity of the solution can be checked by
comparing the results obtained without applying the
solution with the results obtained when it is used.
Establishing controls over the solution
A solution derived from a model remains a solution
only so long as the uncontrolled (uncontrollable)
variables retain their values and the relationship
between the variables does not change.
Putting the solution to work i.e.
implementation
The success of an OR study depends upon the
cooperation received from the management at the
implementation stage. One way of getting this
cooperation is to make management an active
participant in all phases of OR study. The importance
of this phase cannot be overemphasized since it is
from this phase that the benefits of an OR study will
be realized.