O p e r a tio n s R e s e a r c h

(O R )
C h a p te r 1 : I n tr o d u c tio n

o r O p e r a tio n s R e s e a r c h (B r itis h )
or M an agem en t S c ie n c e (so m e w h a t m ore m o d el-
o r ie n te d a s o p p o s e d to m e th o d -o r ie n te d O R )

O p e r a tio n s R esea rch is con cern ed w ith s c ie n tific a lly

d e c id in g h o w to b e s t d e s ig n a n d o p e r a t e m a n m a c h in e
sy ste m s u su a lly u n d er c o n d itio n s r e q u i r in g th e
a llo c a t io n o f s c a r c e r e s o u r c e s .
O p e r a tio n s R e s e a r c h S o c ie ty o f A m e r ic a , 1 9 7 6 )

T h e S c ie n c e o f B e tte r
IN F O R M S , 2 0 0 0 s

O p e r a tio n s R e se a r c h is a lo g ic a l c o n tin u a tio n o f sc ie n tific

m a n a g e m e n t s t a r t e d b y F .W . T a y lo r ( 1 8 5 6 1 9 1 5 ) .

T h e m a in d r iv in g fo r c e w e r e in d u s tr ia liz a tio n a n d w ith it

th e need fo r th e c o o r d in a tio n and o p tim iz a tio n of
 in d u s tr ia l a n d c o m m e r c ia l a c tiv itie s .

S o m e o t h e r m a in c o n t r ib u t o r s :

H e n r y L . G a n tt (C h a r ts fo r tim e m a n a g e m e n t)
F .W . H a r r is ( I n v e n t o r y P la n n in g )
A g n e r K . E r la n g (W a itin g L in e s )

J o h n v o n N eu m a n n (1 9 2 0 s o n w a rd s) G a m e T h eo r y
K a n to r o v ic h (1 9 3 0 s , in p u t -o u tp u t m o d e ls b a s e d o n lin e a r
a lg e b r a )
H itc h c o c k 1 9 4 1 (tr a n sp o r ta tio n p r o b le m )
D a n tz ig 1947 on w ard s (L in e a r p r o g r a m m in g & th e
s im p le x m e th o d )
R ic h a r d B e llm a n (1 9 5 0 ): D y n a m ic P r o g r a m m in g
J o h n N a sh (1 9 5 1 ) G a m e T h e o r y
K uhn and T u ck er (1 9 5 1 , r e in v e n tin g K a r u sh , 1 9 3 9 ):
N o n lin e a r O p tim iz a tio n
F o r d a n d F u lk e r s o n 1 9 5 0 s (F lo w p r o b le m s )

A v ib r a n t & liv e ly fie ld :

J o u r n a ls
o N a t io n a l j o u r n a ls : O p e r a t io n s R e s e a r c h ( U .S .)
IN F O R (C a n a d a )
J o u r n a l o f th e O p e r a tio n a l R e s e a r c h
S o c ie ty (U K )
O R S p e c tru m (G e r m a n y )
 4 O R (I ta ly , B e lg iu m , F r a n c e )
E u r o p e a n J o u r n a l o f O p e r a tio n a l R e s e a r c h

Y u g o s la v J o u r n a l o f O p e r a tio n s R e s e a r c h

o I n te r n a tio n a l jo u r n a ls :
C o m p u te r s & O p e r a t io n s R e s e a r c h
M a n a g e m e n t S c ie n c e
O m ega

o J o u r n a ls d e v o te d to a s p e c ia l to p ic
M a th e m a tic a l P r o g r a m m in g
N e tw o r k s
R e g io n a l S c ie n c e

T h e m a in e le m e n ts o f o p e r a tio n s r e se a r c h :

B u ild in g a m o d e l a s a s im p lifie d v e r s io n o f r e a lity

W h a t is th e le v e l o f a g g r e g a tio n ?

W h a t d o w e w a n t t o d o ( o b je c t iv e )
a n d w h a t d o w e h a v e t o d o ( c o n s t r a in t s )?

F in d m e a s u r a b le p r o x ie s fo r th e o b je c tiv e .
 E x a m p le 1 : C u s to m e r s a t is f a c t io n m a y b e
m e a s u r e d b y s e le c tio n in s to r e , in v e n to r y a t h a n d ,
tim e r e q u ir e d to b a ck o rd er u n a v a ila b le ite m s ,
w a r r a n tie s , e tc .
E x a m p le 2 : Q u a lity e m e r g e n c y fa c ilitie s m a y b e
m ea su red by r e sp o n se tim e (a v e r a g e ? w o rst
c a s e ? ), fa c ilitie s in th e a m b u la n c e , p r o b a b ility o f
s u r v iv a l, e tc .

V a r ia b le s v s . p a r a m e te r s .
V a r ia b le s are num bers w e w o u ld lik e to know but
d o n t, w h ile p a r a m e te r s a r e n u m b e r s w e k n o w (so r t
o f).

S o lu tio n = S e t o f in s tr u c tio n s .

E x a m p le 1 : W h ic h tr u c k is s c h e d u le d to g o w h e r e ?
E x a m p le 2 : H o w to c u t fa b r ic to m a k e s u its .
E x a m p le 3 : H o w to p u t to g e th e r a m e a l p la n in a
n u r s in g h o m e , s c h o o l, o r p r is o n .
E x a m p le 4 : H o w to b e s t s c h e d u le a c tiv itie s w h e n
b u ild in g a h o u se .

T y p e s o f s o lu tio n s :
( 1 ) C lo s e d - f o r m s o lu t io n s ( f o r m u la , e .g ., s q u a r e r o o t )
(2 ) I te r a tiv e a lg o r ith m s (s e q u e n tia l im p r o v e m e n ts , e .g .,
N e w t o n m e t h o d f o r f i n d in g r o o t s o f p o l y n o m i a l s ) .
H is to r ic a l n o te : T he nam e d e r iv e s fr o m th e P e r s ia n
 m a th e m a tic ia n A l-K h w a r iz m i, a b o u t 8 0 0 A D .

0
S ta r t w ith o r ig in a l s o lu tio n x an d g en e ra te im p r o v e d
1 2
s o lu tio n s x , x ,

S o lu tio n
0
x

k
D oes x s a tis f y Y es
S to p
th e d e s ir e d
p r o p e r ty ?

N o

D e te r m in e
k+ 1 k
x = f( x ) &

set
k := k + 1

F o u r m a jo r c o n c e r n s in o p e r a tio n s r e s e a r c h :

(1 ) fe a s ib ility
(2 ) o p tim a lity
(3 ) s e n s itiv ity
(4 ) im p le m e n ta b ility

E x a m p le fo r th e fir s t th r e e p h a s e s :

P r ic e p , q u a n tity q . H e r e , p = 1 0 0 .0 1 q .

U n it p r o d u c tio n c o s ts (v a r ia b le c o s ts ) a r e $ 5 , fix e d c o sts

are $500.
F o r p r o fit fu n c tio n , u s e th e d e c o m p o s itio n p r in c ip le :

P r o fit = R e v e n u e C o sts,

R e v e n u e = p r i c e * q u a n t i t y s o ld
C o s ts = F ix e d c o s ts + v a r ia b le c o s ts

V a r ia b le c o s ts = u n it p r o d u c tio n c o s t * q u a n tity m a d e

H e r e : P r o fit = (1 0 0 .0 1 q )q 5q 500

(1 ) F e a s ib ility : For in s ta n c e (b u t not n e c e s sa r ily ), no

lo s s e s . B r e a k -e v e n p o in ts . H e r e : P r o fit 0 r e s u lts in q

1 3 8 .1 9 6 6 a n d q 3 6 1 .8 0 3 4 a n d t h e p r ic e s a r e b e t w e e n
6 .3 8 2 0 a n d 8 .6 1 8 0 .
(2 ) O p tim a lity : H e r e : h ig h e s t p o in t o f p r o fit c u r v e a t q =
2 5 0 , w it h p r ic e p = $ 7 .5 0 a n d P r o f it = $ 1 2 5 .

(3 ) S e n s itiv ity A n a ly s is : W hat if? H e r e : L e t th e fix e d

co st b e o n ly $ 4 0 0 . T h e o p tim a l q u a n tity is s till a t q =
250.

G e n e r a l o b s e r v a t i o n : C h a n g in g a n o b j e c t i v e f u n c t i o n b y
a c o n s ta n t d o e s n o t c h a n g e th e o p t i m a l s o l u t i o n , o n l y i t s
v a lu e .

H o w e v e r : T h e b r e a k -e v e n p o in ts a r e n o w a t q = 1 0 0 a n d
q = 4 0 0 w ith a s s o c ia te d p r ic e s p = 9 a n d p = 6 .

D iffe r e n t q u e s tio n : W h a t if th e u n it p r o d u c tio n c o s ts is $ 6

in s te a d of $5? A n sw er: N o p o in t of th e in v e r te d
p a r a b o la w ill be ab ove th e a b s c is s a , i.e ., t h e r e is no
q u a n tity th a t g iv e s a n o n n e g a tiv e p r o fit. T h e o p tim a l
q u a n tity is n o w q = 2 0 0 w ith a P r o fit = 100.

O b s e r v a tio n : A s o lu tio n m a y v e r y w e ll b e o p tim a l a n d s till

r e s u lt in a lo s s . (T h e r e a r e n o g o o d c h o ic e s ).
T h e M o d e lin g P r o c e s s :

S te p 1: P r o b le m R e c o g n itio n . T h e d e c is io n m ak er m u st
r e a liz e th a t s o m e t h in g needs to be im p r o v e d an d
id e n t if y th e a r e a o f im p r o v e m e n t ( in v e n t o r y , s c h e d u le ,
s h ip p in g , e tc ).

S te p 2 : A u th o r iz a tio n to m o d e l. S e llin g th e m o d e lin g ta s k

to th e d e c is io n m a k ers. N o te th a t m o d e lin g r e q u ir e s
s ig n ific a n t r e s o u r c e s (p e r s o n n e l, s o ftw a r e , p e r m is s io n ,
)

S te p 3: M o d e l B u ild in g an d D a ta C o lle c tio n : D e c id e on

s c o p e , le v e l o f a g g r e g a tio n , s ta k e h o ld e r s , o b je c tiv e s o f
s ta k e h o ld e r s , c o n s tr a in ts . L is t a s s u m p tio n s a n d d is c u s s
w ith th e d e c is io n m a k e r s to a v o id c o s tly d e a d e n d s .

S te p 4: M odel S o lu tio n : U se p ro p er so ftw a r e , co rrect

e r r o r s in p r e lim in a r y m o d e l, m o d ify th e s c o p e . F o r e c a s t
fu tu r e p a r a m e ter s and c o lle c t r e a s o n a b ly u n b ia s e d
d a ta .

S te p 5: M odel V a lid a tio n : E n su r e th a t so lu tio n s are

m e a n in g fu l, p o s s ib ly s h u ttle b e tw e en S te p s 3 -5 .
D e te r m in e if th e p rop o sed s o lu tio n is s im ila r to th e
p r e s e n t m o d e l o r r a d ic a lly d iffe r e n t.
S te p 6: P r e s e n ta tio n of th e S o lu tio n : T h is is w a lk on a
tig h tr o p e : P r e s e n tin g th e fin d in g s a s th e s o lu t i o n does

not le a v e th e d e c is io n m a k er an y ro o m fo r d e c is io n
m a k in g (w h o m ay h ave to c o n s id e r fe a tu r e s not
in c lu d e d in th e m o d e l). O n th e o th e r h a n d , p r e s e n t in g
th e fin d in g s as you ca n do th a t, to o renders th e
fin d in g s in c o n s e q u e n tia l a n d b e little s th e w o r k d o n e .

S te p 7 : I m p le m e n ta tio n : T r a n s la te th e s o lu tio n on p ap er
in to r e a lity . O vercom e r e s is ta n c e by in d iv id u a ls &
g ro u p s, e .g ., u n io n s . A g a in , th e s o lu tio n needs to be
s o ld .

S te p 8 : M o n ito r in g a n d C o n tr o l: E n s u r e th a t th e s o lu tio n
th a t w a s a g r e e d u p o n is a c tu a lly a p p lie d . E a r ly c o n tr o ls
are c r u c ia l: D e te c tin g erro rs so o n m ak es th e m m uch
e a s ie r to c o r r e c t.