OPERATIONS RESEARCH (OR)

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.

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: Project Mid Term End Term 20% - 30% - 50%

Although there may be valid reasons for not attending class, the participant is still responsible for the material covered in the class.

Academic Integrity..
A student is expected to know what constitutes academic integrity (please go through students manual) to avoid committing an academic offence, and to take responsibility for his/her actions. Any kind of academic dishonesty (e.g., plagiarism, cheating) will be dealt very seriously.

Grading Pattern
Range 0- 30- 35of 30 35 40 Marks Grades F D D+ 4045 4550 5060 60- 7070 80 80100

C+

B+

A+

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 nd 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. The goal of the model is `insight, not numbers.

OR Approach
Understanding and describing the system Building a model of the real-life system Using the model as a basis for predicting future situations.

Phases of OR study
Definition of the problem Construction of the model Solution of the model Validation of the model Implementation of the final results.

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 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.

Basic OR Models
- Allocation Models

Linear Programming Models

- Markov Chain Models

- Queuing Models

Integer Linear Programming models

Transportation Problem Assignment Problems Goal Programming

- Simulation Models
- Replacement Models

- 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 Kontorovich (1939) 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.

Problem
An automobile manufacturer makes automobiles and trucks in a factory that is divided into two shops. Shop A which perform the basic assembly operation must work 5 man days on each truck but only 2 man days on each automobile. Shop B which perform finishing operations must work 3 man days for each automobile or truck that it produces. Because of men and machine limitations shop A has 180 man days per week available while shop B has 135 man days per week. If the manufacturer makes a profit of Rs. 300 on each truck and Rs. 250 on each automobile; how many of each should be produced to maximize his profit?

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 Crude A 1 2 6 5 Crude B 4 6 Output Gasoline X 6 5 Gasoline Y 9 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.

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 10-GB hard drive will be 50,000 units in the first quarter followed by 100,000, 50,000 and 200,000 in the second, third and fourth quarters. Because the companys production capacity is 125,000 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 makes the highest sales quarter of the year. The production cost of a hard drive is Rs. 25 per unit and company policy is to charge an inventory holding cost of Rs. 1 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 10,000 units in inventory and wishes to end the last quarter with 20,000 units in inventory. Formulate
a 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
Large Cap Stocks Corporate Bonds Gold Stocks Platinum Stocks Mortgage Securities Construction Loans

Int. earned
19% 10% 18% 12% 8% 15%

Risk Score
1.7 1.2 3.7 2.4 2 2.9

Example (HR)
The MTNL wants to know the minimum number of operators required to meet the daily requirement of the Jamshedpur telephone exchange: Time of day
0200 0600 0600 1000

Minimum no. of operators required

2 8

1000-1400
1400-1800 1800-2200 2200-0200

10
5 4 1

An operator is on duty continuously for eight hours from the time of the duty commences. Formulate the LP model of the problem.

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 Furnitures 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.