Operations Research (OR, Course Code: IE 401)

Desta Ashebir
[email protected]
+251-914-725775
Office: 309, EIT Building

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1 Introduction to Operations Research

Operations Research (OR)

A Scientific Approach to decision making that seeks to design and operate
a system, usually under conditions requiring the allocation of scarce
resources.

A System
an organization of interdependent components that work together to
accomplish the goal of the system.
e.g. A company; a department; a distribution network

A Scientific Approach usually involves the use of one or more mathematical

models.
A mathematical model
a mathematical representation of an actual situation that may be used to
make better decisions or simply to understand the actual situation better.
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Objective of the course

Given a large complex problem from practice, with quantifiable aspects, to be

able to develop a structured solution approach, with the following elements:
Problem analysis: what are the parameters, objective, constraints, decision
variables, what is the problem complexity
Modeling: to formulate a model of the problem (if necessary by decomposition
into several manageable models)
Optimization: to use existing (or develop suitable) algorithms to solve the
problem to optimality, or to a satisfactory solution.
Interpretation: to interpret and use the solutions found by the algorithm(s).
Determine algorithm performance.

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CO examples from logistics:
1 Transport & distribution
•Traveling salesman problem (TSP)
- company salesman
- distribution of goods to shops
- supply of gas stations
• Pickup-and-delivery problem
fleet of trucks: => routing problem
=> truck loading and unloading problem
• City bus problem:
- determine bus routes in such a way that every bus stop
is on a given number of city bus routes

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OR Application Areas:
2 Production planning and scheduling

• Scheduling / machine sequencing

Operational
- planning drawn in 1-dim. Gantt-charts
planning
• Lot sizing
- trade-off between setup costs and inventory costs
• Capacity planning / resource capacity loading
Tactical
- planning drawn in 2-dim. Gantt-charts planning
• Order acceptance, due date quotation
Strategic
• Aggregate planning / workforce planning planning

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OR Application Areas:
2 Production planning and scheduling

•cyclic staff planning

• days off planning

• crew scheduling (e.g. airline industry, nurses)

• revenue management (e.g. airline/theatre tickets, hotel rooms)

• reservation systems (hotels, car rental, video in hotel room)

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OR Application Areas:
3 Allocation / Location Problems

•Uncapacitated Plant Location Problem:

place depots in cities in such a way that transportation costs

and depot building & maintenance costs are minimized
• Product allocation problem:

- determine what to produce in which plant

(for example in chemical / oil industry)

• Facility Layout problem

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OR Application Areas:
4 Allocation / Location Problems

•Order batching & picking

- order picking in a warehouse

• Warehouse design

• Control of Automated Guided Vehicles (AGV)

• Allocation of goods in a warehouse

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Operation Research Models

Static and Dynamic Models

A static model is one in which the decision variables do not involve sequences of
decisions over multiple periods. A dynamic model is a model in which the
decision variables do involve sequences of decisions over multiple periods.
 
Linear and Nonlinear Models
Suppose that whenever decision variables appear in the objective function and in
the constraints of an optimization model, the decision variables are always
multiplied by constants and added together. Such a model is a linear model. If an
optimization model is not linear, then it is a nonlinear model.
 
Deterministic and Stochastic Models
Suppose that for any value of the decision variables, the value of the objective
function and whether or not the constraints are satisfied is known with certainty.
We then have a deterministic model. If this is not the case, then we have a
stochastic model.
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The Model Building Process
Step 1: Formulate the Problem Defining the problem includes specifying the organization’s
objectives and the parts of the organization that must be studied before the problem can be
solved. Specify the constraints.
 
Step 2: Observe the System Next, the operations researcher collects data to estimate the
value of parameters that affect the organization’s problem. These estimates are used to
develop (in step 3) and evaluate (in step 4) a mathematical model of the organization’s
problem.
 
Step 3: Formulate a Mathematical Model of the Problem In this step, the operations
researcher develops a mathematical model of the problem. In this book, we will describe
many mathematical techniques that can be used to model systems.
 
Step 4: Verify the Model and Use the Model for Prediction The operations researcher now
tries to determine if the mathematical model developed in step 3 is an accurate representation
of reality.
 
Step 5: Select a Suitable Alternative Given a model and a set of alternatives, the operations
researcher now chooses the alternative that best meets the organization’s objectives.
Step 6: Present the Results and Conclusion of the Study to the Organization
Step 7: Implement and Evaluate Recommendations 10
 Chapter-2
Linear Programming (LP) Problems
ChomA Woodcarving, Inc. manufactures two types of wooden
products: X and Y. X sells for $27 and uses $10 worth of raw materials.
Each X that is manufactured increases ChomA’s variable labour and
overhead costs by $14. Y sells for $21 and uses $9 worth of raw
materials. Each Y built increases ChomA’s variable labour and overhead
costs by $10. The manufacture of X and Y requires two types of skilled
labour: carpentry and finishing. X requires 2 hours of finishing labour
and 1 hour of carpentry labour. Y requires 1 hour of finishing and 1 hour
of carpentry labour. Each week, ChomA can obtain all the needed raw
material but only 100 finishing hours and 80 carpentry hours. Demand
for Y is unlimited, but at most 40 X are bought each week. ChomA
wants to maximize weekly profit (revenues costs). Formulate a
mathematical model of ChomA’s situation that can be used to maximize
its weekly profit.
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Modeling the problem (1)

Decision variables
must decide how many soldiers and trains should be manufactured each week
Define
X1= number of soldiers produced each week
X2= number of trains produced each week
Objective function
maximize weekly profit
Weekly profit =weekly revenues – raw material purchase costs – other variable
costs
Contribution to profit = 27 – 10 – 14 = 3
Contribution to profit = 21 – 9 – 10 = 2
Maximize z = 3X1 + 2X2
•The coefficient of a variable in the objective function is called the objective
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function coefficient of the variable
Modeling the problem (2)

Constraints
Constraint 1: Each week, no more than 100 hours of finishing time may be used.
Constraint 2: Each week, no more than 80 hours of carpentry time may be used.
Constraint 3: Because of limited demand, at most 40 X’s should be produced each
week.
Total finishing hours = 2(X1) + 1(X2) = 2X1 + X2 ≤ 100
Total carpentry hours = 1(X1) + 1(X2) = X1 + X2 ≤ 80
X1 ≤ 80
•The coefficients of the decision variables in the constraints
are called technological coefficients.

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Modeling the problem (4)

Complete Formulation
Maximize z = 3X1 + 2X2 (Objective function)
Subject to (s.t)
2X1 + X2 ≤ 100 (finishing constraint)
X1 + X2 ≤ 80 (carpentry constraint)
X1 ≤ 40 (constraint to demand of X’s)
X1 ≥ 0 (sign restriction)
X2 ≥ 0 (sign restriction)

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Linear Programming Problem – definition
A linear programming problem (LP) is an optimization problem for which we do
the following:
1.We attempt to maximize (or minimize) a linear function of the decision variables.
The function that is to be maximized or minimized is called the objective function.
2.The values of the decision variables must satisfy a set of constraints. Each
constraint must be a linear equation or linear inequality.
3.A sign restriction is associated with each variable. For any variable xi, the sign
restriction specifies that xi must be either nonnegative (xi ≥0) or unrestricted in sign
(urs).
Maximize z = 3X1 + 2X2
(s.t)
2X1 + X2 ≤ 100
X1 + X2 ≤ 80
X1 ≤ 40
X1 ≥ 0
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X2 ≥ 0
Some LP Assumptions

Proportionality and Additive Assumptions

1.The contribution of the objective function (or to the left-side of each constraint)
from each decision variable is proportional to the value of the decision variable.

2.The contribution to the objective function (or to the left-side of each constraint)
for any variable is independent of the values of the other decision variables.

Divisibility Assumption
Each decision variable be allowed to assume fractional values.
The Certainty Assumption
Each parameter is known for certainty

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Work Scheduling Problem (the Post Office Problem)
A post office requires different numbers of full-time employees on different
days of the week. The number of full-time employees required on each day is
given in the Table below. Union rules state that each full-time employee must
work five consecutive days and then receive two days off. For example, an
employee who works Monday to Friday must be off on Saturday and Sunday.
The post office wants to meet its daily requirements using only full-time
employees. Formulate an LP that the post office can use to minimize the
number of full-time employees who must be hired.

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The Post Office Problem (Cont…)
Let:
xi = the number of employees working on day i

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The Post Office Problem (Cont…)
Let:

Complete Formulation of the Post Office Problem

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Graphical Solutions Two-Variable LP Problems

An LP with only two variables can be solved graphically.

Maximize z = 3X1 + 2X2
(s.t)
2X1 + X2 ≤ 100
X1 + X2 ≤ 80
X1 ≤ 40
X1 ≥ 0
X2 ≥ 0

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 Chapter-3
The Simplex Algorithm
Before the simplex algorithm can be used to solve an LP, the LP must
be converted into an equivalent problem in which all constraints are
equations and all variables are nonnegative.

Maximization LP Problem

We define for each ≤ constraint a slack variable si (si slack variable

for ith constraint), which is the amount of the resource unused in the
ith constraint

If constraint i of an LP is a ≤ constraint, then we convert it to an

equality constraint by adding a slack variable si to the ith constraint
and adding the sign restriction si ≥ 0. 21
The Simplex Algorithm

Max z = 60X1 + 30X2 + 20X3

(s.t)
8X1 +6 X2 + X3 ≤ 48
4X1 + 2X2 + 1.5X3 ≤ 20
2X1 + 1.5X2 + 0.5X3 ≤ 8
X2 ≤5
X1, X2, X3 ≥ 0
The equivalent standard form
z -60X1 - 30X2 - 20X3 =0
8X1 + 6 X2 + X3 + s 1 = 48

4X1 + 2X2 + 1.5X3 + S2 = 20

2X1 + 1.5X2 + 0.5X3 + s3 =8

X2 + s4 = 5
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The Simplex Algorithm

Minimization LP Problem
To convert the ith ≥ constraint to an equality constraint, we define
an excess variable ei to be the amount by which the ith constraint is
oversatisfied.

If the ith constraint of an LP is a ≥ constraint, then it can be

converted to an equality constraint by subtracting an excess variable ei
from the ith constraint and adding the sign restriction ei ≥ 0.

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The Simplex Algorithm

Suppose we have converted an LP with m constraints into standard form. Assuming

that the standard form contains n variables (labeled for convenience x1, x2, . . . , xn),
the standard form for such an LP is

If we define

and
 Ax=b
The Simplex Algorithm

A basic solution to Ax=b is obtained by setting n-m variables (the non-basic

variables) equal to 0 and solving for the values of the remaining m variables (the
basic variables).

Any basic solution to a standard LP in which all variables are nonnegative is a basic
feasible solution (or bfs).

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The Simplex Algorithm

If we set X1 = X2 = X3 = 0 we can solve for the values of s1, s2, s3, and s4 by setting si
equal to the right-hand side of row i.

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 The Simplex Algorithm Procedure Summarized
Step 1 Convert the LP to standard form.
Step 2 Obtain a bfs (if possible) from the standard form.
Step 3 Determine whether the current bfs is optimal.
Step 4 If the current bfs is not optimal, then determine which non-
basic variable should become a basic variable and which basic
variable should become a non-basic variable to find a new bfs
with a better objective function value.
Step 5 Use EROs to find the new bfs with the better objective
function value. Go back to step 3.

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 The Simplex Algorithm (Cont…)
Is the Current Basic Feasible Solution Optimal?
• try to determine whether there is any way that z can be increased
by increasing some non-basic variable from its current value of
zero while holding all other non-basic variables at their current
values of zero.

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 The Simplex Algorithm (Cont…)
Determine the Entering Variable
• Choose the entering variable (in a max problem) to be the non-basic
variable with the most negative coefficient in row 0 (ties may be
broken in an arbitrary fashion).
How large can the value of the Entering Variable be?
• look at how increasing the value of the entering variable changes the
values of the current set of basic variables

• to keep all the basic variables nonnegative, the largest that we can
make x1 is 29
 The Simplex Algorithm (Cont…)
The Ratio Test
• Compute
Right-hand side of row w
Coefficient of entering variable in row

• The smallest ratio is the largest value of the entering variable that
will keep all the current basic variables nonnegative.
 The Simplex Algorithm (Cont…)
In which row does the entering variable become basic?
• Always make the entering variable a basic variable in a row that
wins the ratio test (ties may be broken arbitrarily).

• To make the entering variable a basic variable in the pivot row,

we use EROs to make the entering variable have a coefficient of
1 in the pivot row and a coefficient of 0 in all other rows.
 The Simplex Algorithm (Cont…)

Because x1 does not appear in row 4, we don’t need to perform an

ERO to eliminate x1 from row 4. Thus,
 The Simplex Algorithm (Cont…)
Result of the first iteration
The Simplex Algorithm (Cont…)
 The Simplex Algorithm (Cont…)

Is a Canonical Form Optimal (Max Problem)?

A canonical form is optimal (for a max problem) if each non-
basic variable has a nonnegative coefficient in the canonical
form’s row 0.