S. G. M.

English Medium College of Commerce and Management (SEMCOM)

(A Constituent College of Charutar Vidya Mandal University)
Vallabh Vidyanagar

STUDY NOTES

Class SYBBA / SYITM (A & B) – 4th Semester

Course Operations Research
Unit 01– Introduction to OR
Course Facilitator Dr Ajayraj Vyas
Academic Year 2022 - 2023

Introduction to OR
The activity “Operations Research” (OR) has become increasingly important in the face of fast moving
technology and increasing complexities in business and industry.

The word “operation” means some action that we apply to some problems and word “research” indicates
an organized process of seeking out facts about the same.

The Historical Development

The main origin of Operations Research was during the Second World-War. At that time, the military
management in England called upon a team of scientists to study the strategic and tactical problems
related to air and land defense of the country. Since they were having very limited military resources, it
was necessary to decide upon the most effective utilization of them, e.g. the efficient ocean transport,
effective bombing, etc.

During World-War II, the Military Commands of U.K. and U.S.A. engaged several interdisciplinary teams of
scientists to undertake scientific research into strategic and tactical military operations. Their mission was
to formulate specific proposals and plans for aiding the Military Commands to arrive at the decisions on
optional utilization of scarce military resources and efforts, and also to implement the decisions
effectively.

The OR teams were not actually engaged in military operations and in fighting the war. But, they were
only advisors and significantly instrumental in winning the war to the extent that the scientific and
systematic approaches involved in OR provided a good intellectual support to the strategic initiatives of
the military commands. Hence OR can be associated with “an art of winning the war without actually
fighting it”.

As the name implies, ‘Operations Research’ (sometimes abbreviated OR) was apparently invented
because the team was dealing with research on (military) operations. The work of this team of scientists
was named as Operational Research in England.

The work of OR team was given various names in the United States:
Operational Analysis, Operations Evaluation, Operations Research, Systems Analysis, Systems
Evaluation, Systems Research, Systems Analysis, Systems Evaluation, Systems Research, and
Management Science.

Following the end of war, the success of military teams attracted the attention of Industrial managers
who were seeking solutions to their complex executive-type problems. The most common problem was:
what methods should be adopted so that the total cost is minimum or total profits maximum?
The first mathematical technique in this field (called the Simplex Method of linear programming) was
developed in 1947 by American mathematician, George B. Dantzig. Since then, new techniques and
applications have been developed through the efforts and cooperation of interested individuals in
academic institutions and industry both.
Today, the impact of OR can be felt in many areas. A large number of management consulting firms are
currently engaged in OR activities.

Apart from military and business applications, the OR activities include transportation system, libraries,
hospitals, city planning, financial institutions, etc.
Many of the Indian industries making use of OR activities are: Delhi Cloth Mills, Indian Railways, Indian
Airlines, Defense Organizations, Hindustan Lever, Tata Iron & Steel Co., Fertilizer Corporation of India.
etc.

While making use of the techniques of OR, a mathematical model of the problem is formulated.
This model is actually a simplified representation of the problems in which only the most important
features are considered for reasons of simplicity. Then, an optional or most favorable solution is found.
Since the model is an idealized instead of exact representation of real problem, the optimal solution thus
obtained many not prove to be the best solution to the actual problem. Thus, the apparent weaknesses in
the initial solution are used to suggest improvements in the model, its input-data, and the solution
procedure. A new solution is thus obtained and the process is repeated until the further improvements in
the succeeding solutions become so small that it does not seem economical to make further
improvements.

If the model is carefully formulated and tested, the resulting solution should reach to be good
approximation to the ideal course of action for the real problem. Although, we may not get the best
answers, but definitely we are able to find the bad answers where worse exist. The operations research
techniques are always able to save us from worse situations of practical life.

The Meaning and Concept of ‘OR’

Definitions:

Many definitions of O.R. have been suggested from time to time. Some of the different definitions are:

1. O.R. is an experimental and applied science developed to observing, understanding and predicting the
behavior of purposeful man-machine systems and O.R. workers are actively engaged in applying this
knowledge to practical problems in business, government and society.
O.R. Society of America
2. O.R. is a scientific method of providing executive departments with a quantitative basis for decision
regarding the operations under their control.
Morse and Kimbal (1946)
3. O.R. is a management activity pursued in two complementary ways – one half by the free and bold
exercise of commonsense untrammeled by any routine, and other half by the application of a repertoire
of well-established procreated methods and techniques.

Jagjit Singh (1968)

4. O.R. is the application of scientific methods, techniques and tools to problems involving the operations
of systems so as to provide these in control of the operations with optimum solutions to the problem.
Churchman, Acoff, Arnoff (1957)
5. O.R. is a scientific approach to problem solving for executive management.
H.M. Wagner
6. O.R. may be described as a scientific approach to decision making that involves the operations of
organizational system.
Hiller and Lieberman
Meaning of OR

Operations research (OR) are an analytical method of problem-solving and decision-making that is useful
in the management of organizations. In operations research, problems are broken down into basic
components and then solved in defined steps by mathematical analysis.

 OR means to apply scientific and mathematical methods for decision making and problem solving.

 OR does not provide decisions else it provides quantitative data to the managers. The managers
use this data for making decisions.

 OR tries to find better solutions to different problems. Hence, it is used to solve

complex management problems.

 OR helps to take decisions about operations and production.

Characteristics of OR
From the definitions of OR following characteristics can be extracted out.

1. Use of Interdisciplinary Teams

OR involves many number of variables and constraints. For a single person it is not possible to understand
and analyze justifiably. Hence people from various disciplines are required to understand the OR problem,
who applies their special knowledge acquired through experience to get a better view of cause and
effects of the events in the problem and to get a better solution to the problem. This type of team
approach will reduce the risk of making wrong decisions.

2. Complete System Orientation

A business may be considered as a system having various sub-systems. The decision made by any sub-
system will have its effect on other sub-systems. When dealing with OR problems, one has to consider the
entire system, and characteristics or sub- systems, the inter-relationship between sub-systems and then
analyze the problem, search for a suitable model and get the solution for the problem. Hence it can be
concluded that OR is a Systems Approach rather, than individual approach.

3. Involvement of Scientific Method

Various scientific methods are involved in OR to solve different kinds of problems. Scientific methods are
based on derived logics and empirical relations from the past experiences. So, application of scientific
methods leads to logical and sequential results, which are not depending on irrelevant assumptions.

4. Improvement in Quality of Decisions

OR provides various alternatives and let the user to select an optimal choice. This will definitely help him
in making better and quick decisions. Hence, quality of decision can be improved.

5. Uncovering Hidden Problems

Sometimes, during solving the adopted problem, new problems are uncovered. These problems are
mostly overlooked. For example, excess inventory provides flexibilities in managing the orders but on
other hand it hides many problems related to manufacturing, human, finance etc. As uncovered problem
can also affect the existing problem, it is very essential to solve these problem using different OR
techniques.

Management Applications Of Operations Research

It can be used to find the best solution to any problem be it simple or complex. It is useful in every field of
human activities, where optimization of resources is required in the best way.

The main fields where OR is extensively used are given below, however, this list is not exhaustive but only
illustrative.

1. Finance-Budgeting and Investments

i. Cash-flow analysis, long range capital requirements, dividend policies, investment portfolios.
ii. Credit policies, credit risks and delinquent account procedures.
iii. Claim and complaint procedures.

2. Purchasing, Procurement and Exploration

i. Rules for buying, supplies and stable or varying prices.
ii. Determination of quantities and timing of purchases.
iii. Bidding policies.
iv. Strategies for exploration and exploitation of raw material sources.
v. Replacement policies.

3. Production Management
i. Physical Distribution
a. Location and size of warehouses, distribution centres and retail outlets.
b. Distribution policy.
ii. Facilities Planning
a. Numbers and location of factories, warehouses, hospitals etc.
b. Loading and unloading facilities for railroads and trucks determining the transport
schedule.
iii. Manufacturing
a. Production scheduling and sequencing.
b. Stabilization of production and employment training, layoffs and optimum product mix.
iv. Maintenance and Project Scheduling
a. Maintenance policies and preventive maintenance.
b. Maintenance crew sizes.
c. Project scheduling and allocation of resources.
4. Marketing
i. Product selection, timing, competitive actions.
ii. Number of salesman, frequency of calling on accounts per cent of time spent on prospects.
iii. Advertising media with respect to cost and time.

5. Personnel Management
i. Selection of suitable personnel on minimum salary.
ii. Mixes of age and skills.
iii. Recruitment policies and assignment of jobs.

6. Research and Development

i. Determination of the areas of concentration of research and development.
ii. Project selection.
iii. Determination of time cost trade-off and control of development projects.
iv. Reliability and alternative design.
From all above areas of applications, we may conclude that OR can be widely used in taking timely
management decisions and also used as a corrective measure.

Scope of Operations Research

OR has entered successfully many different areas of research for military, government and industry.
The basic problem in most of the developing countries in Asia and Africa is to remove “poverty” and
“hunger” as quickly as possible. So there is a great scope for economists, statisticians, administrators,
politicians and the technicians working in a team to solve this problem by an OR approach.
Besides this, OR is useful in the following various important fields.

1. In Industry
In the field of industrial management there is of chain of problems starting from the purchase of raw
materials to the dispatch of finished goods. The management is interested in having an overall view of the
method of optimizing profits. In order to take decision on scientific basis, OR team will have to consider
various alternative methods of producing the goods and the return in each case. OR study should also
point out the possible changes in the overall structure like installation of a new machine, introduction of
more automation, etc. OR has been successfully applied in industry in the fields of production, blending,
product mix, inventory control, demand forecast, sale and purchase, transportation, repair and
maintenance, scheduling and sequencing, planning, scheduling and control of projects and scores of other
associated areas.

2. In Defense
OR has a wide scope for application in defense operations. In modern warfare the defense operations are
carried out by a number of different agencies, namely air force, army and navy. The activities performed
by each of them can be further divided into sub-activities viz. operations, intelligence, administration,
training and the like. There is thus a need to coordinate the various activities involved in order to arrive at
optimum strategy and to achieve consistent goals. Operations research, conducted by team of experts
from all the associated fields, can be quite helpful to achieve the desired results.

3. In Planning and Development

In both developing and developed economies, OR approach is equally applicable. In developing
economies, there is a great scope of developing an OR approach towards planning. The basic problem is
to orient the planning so that there is maximum growth of per capita income in the shortest possible
time, by taking into consideration the national goals and restrictions imposed by the country. The basic
problem in most of the countries in Asia and Africa is to remove poverty and hunger as quickly as
possible. There is, therefore, a great scope for economists, statisticians, administrators, technicians,
politicians and agriculture experts working together to solve this problem with an OR approach.

4. In Agriculture
OR approach needs to be equally developed in agriculture sector on national or international basis. With
population explosion and consequent shortage of food, every country is facing the problem of optimum
allocation of land to various crops in accordance with climatic conditions and available facilities. The
problem of optimal distribution of water from the various water resources is faced by each developing
country and a good amount of scientific work can be done in this direction.

5. In R & D (Research & Development) and Engineering:

Research and development being the heart of technological growth, OR has wide scope for it. OR can be
applied in:
i. Technology forecasting and evaluation
ii. Technology and project management
iii. Preparation of tender and negotiation etc.
 6. In Marketing:
With the help of OR techniques, Marketing Administrator (Manager) can decide:
i. Where to distribute products for sale so that the total cost of transportation etc. is minimum
ii. Size of the stock to meet future demand
iii. How to select best ad media to save time, cost etc.
iv. How, when and what to purchase at the minimum possible cost?

7. In Personnel Management:
A personnel manager can use OR techniques:
i. To appoint most suitable persons on minimum salary
ii. Find best age of retirement for employee
iii. To find number of full time persons required when workload is seasonal

8. In Production management:
A production manager can use OR techniques:
i. To find number and size of the items to be produced
ii. In Scheduling and sequencing the production run by proper allocation of machines
iii. In calculating the optimum product mix
iv. To select, locate and design the sites for the production plants

9. Business Management and Competition:

OR can help in:
i. Taking business decisions under risk and uncertainty
ii. Capital investment and returns
iii. Business strategy formation
iv. Optimum advertisement cost etc.

Main Phases of Operations Research Study

The procedure for an OR study generally involves the following major phases:

Phase – I: Formulating the problem

First of all one must be able to formulate the problem in the form of an appropriate model. To do so, the
following information will be required.
1. Who has to take the decision?
2. What are the objectives?
3. What are the ranges of controlled variables?
4. What are the uncontrolled variables that may affect the possible solutions?
5. What are the restrictions or constraints on the variables?
Since wrong formulation cannot yield a right decision (solution), one must be considerably careful while
execution this phase.

Phase – II: Constructing a mathematical model

The second phase of the investigations is concerned with the reformulation of the problem in an
appropriate form which is convenient for analysis. The most suitable form for this purpose is to construct
a mathematical model representing the system under study. It requires the identification of both static
and dynamic structural elements. A mathematical model should include the following three important
basic factors:
i. Decision variables and parameters
ii. Constraints or Restrictions
iii. Objective function
Phase – III: Deriving the solutions from the model
This phase is devote to the computation of those values of decision variables that maximize (or minimize)
the objective function. Such solution is called an optimal solution which is always in the best interest of
the problem under consideration.

Phase – IV: Testing the model and its solution (updating the model)
After completing the model, it is once again tested as a whole for the errors if any. A model may be said
to be valid if it can provide a reliable prediction of the system’s performance. A good practitioner of
Operations Research realizes that his model be applicable for a longer time and thus he updates the
model time to time by taking into account the past, present and future specifications of the problem.

Phase – V: Controlling the solution

This phase establishes controls over the solution with any degree of satisfaction. The model requires
immediate modification as soon as the controlled variables (one or more) change significantly, otherwise
the model goes out of control. As the conditions are constantly changing in the world, the model and the
solution may not remain valid for a long time.

Phase – VI: Implementing the solution

Finally, the tested results of the model are implemented to work. This phase is primarily executed with
the cooperation of Operations Research experts and those who are responsible for managing and
operating the systems.

Brief outlines of OR-models:

1. Distribution (Allocation) Models

Distribution models are concerned with the allotment of available resources so as to minimize cost or
maximize profit subject to prescribed restrictions. Methods for solving such type of problems are known
as mathematical programming techniques.
We distinguish between linear and non-linear programming problems on the basis of linearity and
non-linearity of the objective function and/or constraints respectively. In linear programming problems,
the objective function is linear and constraints are also linear inequalities/equations.
Transportation and Assignment models can be viewed as special cases of linear programming.
These can be solved by specially devised procedures called Transportation and Assignment Techniques.
In case the decision variables in a linear programming problem are restricted to either integer or
zero-one value, it is known as Integer and Zero-One programming problems, respectively.
The problems having multiple, conflicting and incommensurable objective functions (goals)
subject to linear constraints are called linear goal programming problems.
If the decision variables in a linear programming problem depend on chance, then such problems
are called stochastic linear programming problems.

2. Production / Inventory Models

Inventory / Production models are concerned with the determination of the optimal (economic) order
quantity and ordering (production) intervals considering the factors such as – demand per unit time, cost
of placing orders, costs associated with goods held up in the inventory and the cost due to shortage of
goods, etc. Such models are also useful in dealing with quantity discounts and multiple products.

3. Waiting Line (or Queuing) Models

In queuing models an attempt is made to predict:
i. How much average time will be spent by the customer in a queue?
ii. What will be an average length of waiting line or queue?
iii. What will be the traffic intensity of a queuing system? etc.
The study of waiting line problems provides us methods to minimize the sum of costs of providing service
and cost of obtaining service which are primarily associated with the value of time spent by the customer
in a queue.

4. Markovian Models
These models are applicable in such situations where the state of the system can be defined by some
descriptive measure of numerical value and where the system moves from one state to another on a
probability basis. Brand-switching problems considered in marketing studies is an example of such
models.

5. Competitive Strategy Models (Games Theory)

These models are used to determine the behavior of decision-making under competition or conflict.
Methods for solving such models have not been found suitable for industrial applications, mainly because
they are referred to an idealistic world neglecting many essential features of reality.

6. Network Models
These models are applicable in large projects involving complexities and inter-dependencies of activities.
Project Evaluation and Review Techniques (PERT) and Critical Path Method (CPM) are used for planning,
scheduling and controlling complex project which can be characterized as net-works.

7. Job Sequencing Models

These models involve the selection of such a sequence of performing a series of jobs to be done on
service facilities (machines) that optimize the efficiency measure of performance of the system. In other
words, sequencing is concerned with such a problem in which efficiency measure depends upon the order
or sequence of performing a series of jobs.

8. Replacement Models
These models deal with the determination of optimum replacement policy in situations that arise when
some items or machinery need replacement by a new one. Individual and group replacement policies can
be used in the case of such equipments that fail completely and instantaneously.

9. Simulation Models
Simulation is a very powerful technique for solving much complex models which cannot be solved
otherwise and thus it is being extensively applied to solve a variety of problems. This technique is more
useful when following two types of difficulties may arise:
i. The number of variables and constraint relationships may be so large that it is not
computationally feasible to pursue such analysis.
ii. Secondly, the model may e much away from the reality that no confidence can be placed on the
computational results.
In fact, such models are solved by simulation techniques where no other method is available for its
solution.

Advantages & Limitations of Operations Research

Advantages

1. Better Control
The management of large organizations recognizes that it is a difficult and costly affair to provide
continuous executive supervision to every routine work. An O.R. approach may provide the executive
with an analytical and quantitative basis to identify the problem area.
The most frequently adopted applications in this category deal with production scheduling and inventory
replenishment.
2. Better Systems
Often, an O.R. approach is initiated to analyze a particular problem of decision making such as best
location for factories, whether to open a new warehouse, etc. It also helps in selecting economical means
of transportation, jobs sequencing, production scheduling, replacement of old machinery, etc.

3. Better Decisions
O.R. models help in improved decision making and reduce the risk of making wrong decisions. O.R.
approach gives the executive an improved insight into how he makes his decisions.

4. Better Co-ordination
An operations-research-oriented planning model helps in coordinating different divisions of a Company

Limitations
OR has some limitations however, these are related to the problem of model building and the time and
money factors involved in application rather than its practical utility. Some of them are as follows:

1. Magnitude of Computation
Operations research models try to find out optimal solution taking into account all the factors.
These factors are enormous and expressing them in quantity and establishing relationships among these
require voluminous calculations which can be handled by computers.

2. Non-Quantifiable Factors
OR provides solution only when all elements related to a problem can be quantified. All relevant variables
do not lend themselves to quantification. Factors which cannot be quantified find no place in OR study.
Models in OR do not take into account qualitative factors or emotional factors which may be quite
important.

3. Distance between User and Analyst

OR being specialist’s job requires a mathematician or statistician, who might not be aware of the business
problems. Similarly, a manager fails to understand the complex working of OR. Thus there is a gap
between the two. Management itself may offer a lot of resistance due to conventional thinking.

4. Time and Money Costs

When basic data are subjected to frequent changes, incorporating them into the OR models is a costly
proposition. Moreover, a fairly good solution at present may be more desirable than a perfect OR solution
available after sometime. The computational time increases depending upon the size of the problem and
accuracy of results desired.

5. Implementation
Implementation of any decision is a delicate task. It must take into account the complexities of human
relations and behavior. Sometimes, resistance is offered due to psychological factors which may not have
any bearing on the problem as well as its solution.