UNIVERSITY OF MAKATI

J. P. Rizal Ext., West Rembo, Makati City

COLLEGE OF BUSINESS AND FINANCIAL SCIENCE

Course Title Title

Module No. 1 Introduction to Operations Research/Management
Science and Linear Programming
Quantitative Techniques
in Business

Timeframe: You are expected to finish all the activities, assignments, and
Week 1 -2 assessments of this module in one week.
Introduction/Overview
INTRODUCTION

This module aims to develop knowledge, skills, and attitude of the student in Operations
Research and its importance to business . This includes the origin of operations research and its
importance to business, introduction to linear programming and transportation problems and
development of mathematical model/s to provide analytical and software solutions . This module
is designed to make the students realize the essence of the scientific approach to decision
making.
LEARNING OUTCOMES

 Module Learning Outcomes

At the end of the sections of the module, the student must be able to
1. discuss the role of operations research/management science in day-to-day business
operations
2. explain management process of arriving at a decision
3. formulate objective function and constraints in a linear programming problem
4. provide solutions to LP problems using graphical and simplex methods.
5. provide solutions to Transportation problem using the Stepping-stone and
MODI(optional) methods.
 Section 1 Origin of Operations Research
Operations Research, Management Science are the most common terms commonly used to
mean quantitative approaches to management, specifically in decision making. The modern
operations research, was in general, originated during WW II. Teams were formed to deal with
tactical and strategic problems faced by military men. Some members of the teams continued
their research in quantitative methods in non-military applications to decision making after the
war. With the help of digital computers, modern day practitioners are able to solve a huge variety
of problems.
Decision making involves (1)defining the problem, (2)identifying the alternatives, (3)determining
the criteria in evaluating each alternative, (4)evaluating , and (5)choosing the (best) alternative.
Operations Research
Developing a model to represent the problem can be in the form of iconic, analog and
mathematical. The use of mathematical model to solve a problem is the central focus of decision
making in business when data involved are quantitative in nature.

Section 2 Introduction to Linear Programming

Linear Programming attempts to determine how best to allocate (limited) resources in order to
arrive at a decision. In business, not only gaining profit and minimizing cost are the objective, but
to develop models that will maximize profit and minimize cost.
Every linear programming problem has objective(s) which relates variables in the problem to
the goal of the firm and constraints which represents limits on resources available to the firm. A
linear programming problem can either be solved using graphical or simplex methods.
Sample Problem 1. The recent covid-19 pandemic undeniably crippled work operations due to
community quarantine. Amidst threat of virus spread, service to the public is still the primary
concern of Barangay Chairman M .In giving free meals daily, the barangay council unanimously
agreed to hire factory-worker and restaurant-crew volunteers who will each work for 6 hours and
10 hours respectively. For an approved daily budget of no more than P50,000 per day, each
factory worker is to be paid P300 per day and each restaurant-worker, P500 per day. The number
of volunteers must be at least 120.How many volunteer-factory and restaurant workers must be
CONTENT

hired to maximize the time?

Step 1 Determine if the LP problem is maximization or minimization

Objective : maximize manpower hours
Step 2 Formulate the Objective Function, OF
OF : Z(manpower hours) = 6X1 + 10 X2 (the letter Z is used to represent the function
manpower hours; X 1 , the number of factory workers;
X2 , the number of restaurant workers)
Step 3 Identify the constraints involved
Subject to the following constraints :
300X1 + 500X2 ≤ 50,000 constraint on budget
X1 + X2 ≥ 120 constraint on the number of volunteers
X1 ≥ 0
X2 ≥ 0 non-negativity constraints

Graphical solution to the problem

Convert inequalities to equations and graph using the intercept method
X1-intercept X2-intercept
300X1 + 500X2 = 50,000 (500/3 ,0) (0 ,100)
X1 + X2 = 120 (120,0) (0, 120)

Figure a.) Figure b.) Figure c.)

 The graph of 300X1 + 500X2 ≤ 50,000 and X1 + X2 ≥ 120 is shown in Figure a.) and Figure
b.) respectively. The non-negativity constraints X1 ≥ 0 and X2 ≥ 0 represent the regions above
the X1 axis and to the right of X2 axis respectively(in this case, all positive and zero values).All four
(4) constraints meet at the point bounded by the triangle ABC.This region is called the Feasibility
Region (shown in Figure c.) ), and every point in this region is a solution to the problem.
Since the problem is to determine the maximum value(maximize manpower hours), each
corner point of the feasible region is where the maximum(or minimum ) value can be obtained.
Point A has coordinates (120,0);Point B (500/3,0).Since the coordinates of Point C cannot
precisely be identified, algebraic method is to be used. Using elimination method of solving
unknowns for a system of linear equations, Point C has coordinates (50,70).The solution to the
system of equations is shown below, Point C being the intersection of equation 1 and equation 2.
Equation 1 : 300X1 + 500X2 = 50,000  300X1 + 500X2 = 50000
Equation 2 : X1 + X2 = 120  300X1 + 300X2 = 36000 (multiplying by 300)
200X 2 = 14000
X 2= 70
And substituting this value of X2 to equation 1, X1 = 50
To determine the answer to this LP problem, substitute values of X 1 and X2 in the Objective
Function using the coordinates of the corner points.
@ A(120,0), Z = 6X1 + 10 X2 = 6(120) + 10(0) =720
@ B(500/3,0), Z = 6X1 + 10 X2 = 6(500/3) + 10(0) = 1000 (500/3 is not an integer)
@ C(50,70), Z = 6X1 + 10 X2 = 6(50) + 10(70) = 1000  maximum

To maximize manpower hours (equivalent to 1000 hours) , Chairman M must hire 50 factory
workers and 70 restaurant workers .

Simplex Method
The simplex method gives an alternate solution to a LP problem. The method makes use of
iterative process; an algorithm. Whenever a LP problem involves more than 2 variables , solution
does not involve a simple process and graphical solution might become difficult to apply.
Summary of the algorithm
1. Convert any inequalities to equations by adding slack variables to ≤ constraints and
subtracting surplus variables from ≥ constraints .
2. Add artificial variables to all constraints that were originally ≥ inequalities or equations. Give
the artificial variables objective coefficients of +M in minimization problems and –M for
maximization problems.
3. Enter the resulting equations in the simplex tableau.
4. Calculate the Zj and Cj-Zj values for this solution.
5. Determine the entering variable(optimum column)by choosing the one with the largest
positive Cj-Zj value in maximization problems and the most negative Cj-Zj value in minimization
problem.
6. Determine the row to be replaced by dividing quantity-column values by their corresponding
optimal column values and choosing the smallest nonnegative quotient(only compute the ratios
for rows whose element in the optimal column are greater than zero; omit ratios such as 5/0 and
12/- 5)
7. Compute the values for the replacing row.
8.Compute the values for the remaining rows (new element= old element- intersectional element
of the old row X corresponding elements of the replacing row).
9. Calculate the Zj and Cj-Zj values for this solution.
10. If there is still a negative Cj-Zj in a minimization problem or positive Cj-Zj in a maximization
problem. return to step 5
11. If there is no more negative Cj-Zj in a minimization problem or positive Cj-Zj in a
maximization problem. The optimal solution has been obtained.
Sample Problem 2. To help his parents augment his financial needs this quarantine
period, Matthew started online selling of Face Masks and Vitamin C. Due to limited time , he allots
no more than 60 minutes selling these items on weekends and at most 48 minutes on weekdays.
On the average, it takes him 4 minutes to transact orders of each box of face masks and 2
minutes for each box of vitamin C during weekends .On weekdays, it takes him an average of 2
minutes for each box of face mask and 4 minutes for each box of Vitamin C to transact. If he
earns a profit of P80 per box of Face masks and P60 for each box of Vitamin C, how many boxes
of each kind must he sell every week to maximize his profit?

Objective : Maximize Profit

Objective Function : Z = P80 X1+ P60 X2 +P0 SWE +P0 SWD
Let : X1= no. of boxes of Face Mask , X2 = no. of boxes of Vitamins
Subject to the ff. costraints :
4X1 + 2X2 ≤ 60 (transaction time during weekends)
2X1 + 4X2 ≤ 48 (transaction time during weekdays)
X1,X2 ≥ 0
Step1 Convert inequalities to equations
Let : SWE = Slack variable(time) for Weekend; SWD = Slack variable(time) for Weekday
OF : Z = P80 X1+ P60 X2 +P0 SWE +P0 SWD
Constraints: 4X1 + 2X2 + SWE + 0SWD = 60
2X1 + 4X2 +0SWE + SWD = 48
Step 2. No atificial variables were added since no ≥ are involved
Step 3. Enter the coefficients in the Tableau

Step 4. Calculate the Zj and Cj- Zj values

Step 5. Determine the entering variable(optimum column)by choosing the one with the largest
positive Cj-Zj value in maximization problems and the most negative Cj-Zj value in minimization
problem.
Step 6. Determine the row to be replaced by dividing quantity-column values by their
corresponding optimal column values and choosing the smallest nonnegative quotient(only
compute the ratios for rows whose element in the optimal column are greater than zero; omit
ratios such as 5/0 and 12/- 5)

Step 7. Compute the values for the replacing row.

Step 8.Compute the values for the remaining rows (new element= old element- intersectional
element of the old row x corresponding elements of the replacing row).

Step 9. Calculate the Zj and Cj-Zj values for this solution.

Step 10. If there is still a negative Cj-Zj in a minimization problem or positive Cj-Zj in a
maximization problem. return to step 5
Step 9. Calculate the Zj and Cj-Zj values for this solution.
Step 10. If there is still a negative Cj-Zj in a minimization problem or positive Cj-Zj in a
maximization problem. return to step 5

Return to step 6

Return to step 7

Return to Steps 8 and 9 and 10

Software Solution provides Sensitivity Analysis of the problem but is not discussed here.

Section 3. The Transportation Problem (Special-Purpose Algorithm)

The transportation problem was developed to find a minimum cost program for distributing
homogenous product supplied from several points (sources) to several points of
demand(destinations).This special-purpose algorithm is concerned with selecting routes in a product-
distribution network among manufacturing plants and distribution warehouses .
Sample Problem 1* (sourced from the book Quantitative Approaches to Management by Levin,et.al.)
A company has received a contract to supply gravel for 3 new road projects .The amount of gravel
which will be needed for these road projects and the amount of gravel which can be supplied by these
plants are shown in the table below:
 Plant Amount available per week Project Weekly requirement
(truckload) (truckload)
W 56 A 72
X 82 B 102
Y 77 C 41
Total available 215 Total needed 215
The company has computed the delivery costs from each plant to each project site as shown
Cost per Truckload (in thousand pesos )
To Project A to Project B to Project C
From Plant W 4 8 8
X 16 24 16
Y 8 16 24
Minimize total transportation cost within the constraints imposed by plant capacities and project
requirements.
Step 1 : Formulate the Linear model
Objective : Minimize Transportation Cost
Objective Function : TC = P4X1+P8X2+ P8X3+16X4+P24X5+P16X6+P8X7+P16X8+P24X9
Subject to the ff. constraints:
X1+X2+X3 ≤ 56
X4+X5+X6 ≤ 82 constraint for plant capacities
X7+X8+X9 ≤ 77
X1+X4+X7 ≥72
X2+X5+X8 ≥102 constraint for project requirements
X3+X6+X9≥41
All variables ≥ 0
Step 2 Set-up the tableau
A B C WA is X1,WB is X2,WC is X3
4 8 8
W 56 XA is X4,XB is X5,XC is X6

16 24 16
X 82 YA is X7,YB is X8,YC is X9
8 16 24
Y 77

72 102 41

Step 3 Develop an initial solution

Using the Stepping -stone method following the Northwest -corner rule
A B C
4 8 8
56 W 56
16 24 16
X 82 TC= 4(56)+16(16)+24(66)+16(36)+24(41)
16 66 = P 3624
8 16 24
36 41 Y 77

72 102 41
Step 4 Evaluate unused cells for improvement
To determine if the present solution can be improved, unused cells(blank squares) have to be
evaluated. Each time a value occupies a cell, other cells are affected by this change; either an increase in
cost or a decrease in cost and is represented by a + for an increase and a - for a decrease. Unused cell
and cells affected by the change form a ‘close loop’. Only one cell must be empty in the loop.
 A B
WB : +8 -24+16-4= -4 ( a reduction of 4 in unit cost)
W 4 8 WC : +8-4+16-24+16-24=-12 ( a reduction of 12 in unit cost)
XC : +16-24+16-24=-16 ( a reduction of 16 in
16 24 unit cost) YA : +8-16+24-16=0 (no reduction in unit
cost)
X

When WB is given a unit value of 1, cost is increased by 8 (+8) ,hence, WA is decreased by 4 (-4) which will
make XA increase cost by 16(+16) and reduce cost by 8 (-8) in XB.
For simplicity, loop for WC,XC and YA is each presented below while the computations are shown above.
WA WC XB XC XA XB

XA XB YB YC YA YB

YB YC
Step 5 Develop the improved solution
Since XC is to be improved, its adjacent cell having the smallest value must be plugged into it and
corresponding increase or decrease in the value of the cells must be computed.
B C B C

24 16 24 16
X X
66 25 41
16 24 16 24
Y Y 77
36 41

Step 6 Set up the new solution and compute the total cost

A B C
4 8 8
56 W 56
16 24 16
16 25 41 X 82 TC= 4(56)+ 16(16)+24(25)+16(41)+16(77)
= P 2968
8 16 24
77 Y 77

72 102 41
Step 7 Go back to Step 4 , evaluate unused cells and when computation for improvement does not yield
negative values, optimal solution has been reached. Otherwise, proceed to Step 5.

A B
WB : +8 -24+16-4= -4 ( a reduction of 4 in unit cost)
4 8
W WC :+8-4+16-16= 4 ( an increase of 4 in unit cost)
YA :+8-16+24-16=0 ( no reduction in unit cost)
16 24 YC : +24-16+24-16=16 ( an increase of 16 in unit cost)
X

For simplicity, loop for WC,YC and YA is each presented below while the computations are shown above.
WA WC XB XC XA XB

XA XC YB YC YA YB

Step 5 Develop the improved solution

Since WB is to be improved, its adjacent cell having the smallest value must be plugged into it and
corresponding increase or decrease in the value of the cells must be computed.
 24 16
56
16 24
16 25
A B A B
24 16
W X
31 25
16 24
X Y 41

Step 6 Set up the new solution and compute the total cost

A B C
4 8 8
W 31 25 56
16 24 16
X 41 41 82 TC= 4(31)+ 8(25)+16(41)+16(41)+16(77)
= P 2868
Y 8 16 24 77
77

72 102 41
Step 7 Go back to Step 4 , evaluate unused cells and when computation for improvement does not yield
negative values, optimal solution has been reached. Otherwise, proceed to Step 5.

A C
4 8 WC : +8-16+16-4= +4 ( a increase of 4 in unit cost)
W XB :+24-16+4-8= +4 ( an increase of 4 in unit cost)
YA :+8-4+8-16= -4( a reduction of 4 in unit cost)
16 16 YC : +24-16+8-4+16-16=12 ( an increase of 12 in unit cost)
X

For simplicity, loop for YA,XB and YC is each presented below while the computations are shown above.
WA WB WA WB WA XB

XA XB XA XC
YA YB
YB YC

Step 5 Develop the improved solution

Since YA is to be improved, its adjacent cell having the smallest value must be plugged into it and
corresponding increase or decrease in the value of the cells must be computed.
A B A B
24 16 24 16
W 31 25 W
56
16 24 16 24
Y 77 Y 31 46

Step 6 Set up the new solution and compute the total cost
A B C
4 8 8
56 W 56
16 24 16
X 82 TC= 8(56)+16(41)+16(41)+8(31)+16(46)
41 41 = P 2744
8 16 24
Step 7 Go back to Step 4 , evaluate unused cells and when computation for improvement does not yield
negative values, optimal solution has been reached. Otherwise, proceed to Step 5.

WA : +4-8+16-8= +4 ( an increase of 4 in unit cost)

WC :+8-16+16-8+16-8= +8(an increase of 4 in unit cost)
XB :+24-16+8-16= 0( no reduction in unit cost)
YC : +24-8+16-16=16 ( an increase of 12 in unit cost)
Since there is no more negative in the computation for developing an improved solution, the optimal
solution has been reached.
X1 =0 X4 = 41 X7 = 31
X2 =56 X5 =0 X8 = 46
X3 = 0 X6 = 41 X9 = 0
Total Transportation Cost = P2744 (thousand pesos) =P2,744,000

The distribution network is shown below:

56 W 41 A 72
31
56
82 X B 102
46

77 Y 41 41
C
 Practice Exercises
(Sourced from the book Quantitative Methods in Business by Anderson et.al.)
1. Kelson Sporting Equipment Inc.,makes two different types of baseball gloves: a regular model and
a catcher’s model. The firm has 900 hours of production time available in its cutting and sewing
department,300 hours available in its finishing department, and 100 hours available in its
packaging and shipping department. The production time requirements and the profit contribution
per glove are given in the following table:
Production Time (hours)
Model Cutting&Sewing Finishing Packaging&Shipping Profit/Glove
Regular model 1 ½ 1/8 $5
Catcher’s model 3/2 1/3 ¼ $8
Assuming that the company is interested in maximizing the total profit contribution ,answer the
following:
LEARNING ACTIVITIES

a.)What is the linear programming model for this problem?

b.)Find the optimal solution using the simplex method. How many gloves of each model should
Kelson manufacture?
c.)What is the total profit contribution Kelson can earn with the given production quantities?
Ans. Kelson Inc. must produce 500 Regular gloves and 150 Catcher’s gloves to maximize profit of $3700
( the student is referred to the power point slide presentation as guide)

2. Rryter picks-up and delivers items ordered from online shops to buyers who lives in nearby
cities.He has received deliveries for 500 items with destinations and costs shown below
Online shop available stock Destination Demand
Lalana 160 Marikina City 120
Shoopee 240 Quezon City 200
Olecs 100 Pasig City 180
Cost Information
To Marikina City to Quezon City to Pasig City
From shop Lalana P 120 P 80 P50
Shoopee 110 50 100
Olecs 20 70 60
Minimize total transportation cost within the constraints imposed by stock availability and
demand. Answer. Total transportation cost = P24,200
 Solve each word problem(sourced from the book Quantitative Approaches to Management by Levin
et.al.):
1. The Central City Manufacturing Company produces two types of toy model cars,the Stanley
Steamer and the Model T. Three machines are required to produce each type; these machines are
classified as X,Y and Z. Each Stanley Steamer requires 7 minutes of process time on machine X, 4
minutes on machine Y, and 10 minutes on machine Z. Model T requires 4 minutes on X,15 minutes
on Y, and 16 minutes on Z.Each day,there are 420 minutes available on machine X,600 minutes on
machine Y, and 840 minutes on machine Z.The variable costs are $10 per unit for the Stanley
Steamer and $14 per unit for the Model T.Stanley Steamer sells at a price of $18 per
model,whereas Model T sells for $24 per model.The company’s fixed cost are $180 per
day.Determine the daily production rates for the models which will maximize the profit.
2. Central Construction Company moves materials between three plants and three projects. Project A
requires 140 truckloads each week, Project B requires 200,and Project C requires 80. Plant W can
supply 120 loads, Plant X can supply 160, and Plant Y can supply 140.Using the cost information
given in the following table, compute the optimal transportation cost using the stepping-stone
method.
Cost Information
to Project A to Project B to Project C
From Plant W $5 $4 $9
X 4 3 5
Y 7 4 2
Case Problem (Sourced from the book Quantitative Methods for Business by Anderson,et.al.)
ABC Computers has hired a marketing service firm to develop an advertising strategy for promoting ABC’s
computer software sales. The marketing firm has recommended that ABC use spot announcements on
both television and radio as the advertising media for the proposed promotional campaign. Advertising
strategy guidelines are expressed as follows:
ASSESSMENT

1. Use at least 30 announcements for combined television and radio coverage.

2. Do not use more than 25 radio announcements.
3. The number of radio announcements cannot be less than the number of television
announcements.
The television station has quoted a cost of P2400 per announcement, and the radio station has quoted a
cost of P600 per spot announcement. ABC’s advertising budget has been set at P51000. The marketing
services firm has rated the various advertising media in terms of audio coverage and recall power of the
advertisement. For ABC’s media alternatives, the television announcement is rated at 600, and the radio
announcement is rated at 200. ABC’s president would like to know how many television and how many
radio spot announcements should be used to maximize the overall rating of the advertising campaign.
ABC’s president believes the television station will consider running the ABC spot announcement on its
highly rated evening news program (at the same cost) if ABC will consider using additional television
announcements.
Managerial Report
Perform an analysis of advertising strategy for ABC Computers and prepare a report to ABC’s president
presenting your findings and recommendations. Include ( but do not limit your discussion to) a
consideration of the following:
1. The recommended number of television and radio spot announcements
2. The relative merits of each advertising medium
3. The news program rating that would be necessary before it would make sense to increase the
number of television spots
4. The number of television spots that should be purchased if the news program is rated highly
enough to make increasing the number of television spots advisable
5. The restrictions placed on the advertising strategy that ABC might want to consider relaxing or
altering
6. The best use of any possible increase in the advertising budget
7. Any other information that may help ABC’s president make the advertising strategy decision.
Include a copy of your linear programming model and the solution using the provided software (STORM)
SUMMARY
CONTENT

OR/MS rely on mathematical models to represent, quantify and provide solution and answer to problems
where sound decisions are to be made.Algorithms and use of software make solutions to complex
problems more efficient.

 Book
REFERENCES

San Pedro,L.,(2017), Operations Research for Business Management,Unlimited Books Publishing

Anderson,D.,(2015), Quantitative Methods for Business13th Ed.,Cengage Learning
Levin,R. et.al.,(2001),Quantitative Approaches to Management 8thEd.McGraw-Hill Publishing
 Link
Retrieved from:
Origin of Operational Research, https://www.youtube.com/watch?v=ILWbaWrjgU4
What is Operational Research?, https://www.youtube.com/watch?v=0oMVVx81kCs