Chapter (1) Introduction to Operations Research The term "operations research" refers to the research of operations. A set of activities required for the achievement of a desired outcome is called an operation. The required activities are inter-related and may be performed by four components such as Man, Machine, Man-machine unit and an organization of men, machines, and man-machine units as a system. DEFINITION Fabrycky and Torgersen define the term ‘operations research’ as ‘the application of scientific methods to problems arising from operations involving integrated systems of men, machines and materials; it normally utilizes the knowledge and skill of an inter-disciplinary research team to provide the managers of such systems with optimum operating solutions’. According to the Journal of Operations Research Society, UK, the term ‘operations research’ is defined as ‘the application of modern methods of mathematical science to complex problems involving maragement of large systems of men, machines, materials and money in industry, business, government and defence; the distinctive approach is to develop a scientific model of the system incorporating measurement of factors such as chance and risk to predict and compare the outcomes of alternative decisions, strategies or controls’. ORIGIN AND HISTORY A brief account of the origin and the history of “Operation Research’, as a discipline of study, is presented below:1.2 Elements of Operations Research Pre-World War Il period (Before 1939) The pre-World War II marks the period of early scientific management era. The roots of. operations research extend to the early 1880s when F.W. ‘aylor, the father of Scientific Management, advocated the use of scientific_methods of production, in 1885. He conducted scientific experiments to show as to how with minimum effort and cost, maximum output can be achieved. Another management thinker, Henry L. Gantt contributed to scientific management by designing a a job > schedule which can result in minimum consumption of time. On similar lines A.K. Erlang, a Danish mathematician developed a model on “waiting time’in 1917 to reduce the congestion~caused by the telephone traffic which was later accepted by the British Post Office for providing better customer service. F.W. Harris developed the well-known EOQ model on inventory control in 1915, During the 1930s, H.C. Levinson. an American astronomer, applied scientific analysis to the problems of merchandising. He undertook scientific study of customers’ buying habits and response to advertising, etc. Much of the impetus to the development of operations research happened during the First Industrial Revolution when machines started replacing man in undertaking and controlling large-scale operations. The division of managerial functions into production, marketing, personnel, finance, etc and the sub- division of the same into various department or sections such as maintenance, quality control, procurement, production planning, etc also gave rise to_the increased use of scientific methods. The ultimate purpose was ‘optimization’ of operations implying maximizing benefit and minimizing cost. During World War Il (1939-1945) {This period marked the development and the use of operations research techniques and models exclusively for achieving success in military operations. During this period, a team of scientists was deputed to study the strategic and tactical problems of air and land defehce by the British Military. The objective was toIntroduction to Operations Research 1.3 find out the most effective allocation of limited resources to the various military operations and to the activities within each operation. )The application included the effective use of newly invented radar, allocation of British Air Force planes to missions and the determination of best patterns for searching submarines. This group of scientists formed the first OR team, Following Britain, many other countries too started making use of the operations research techniques for war purposes. This included USA, France, Canada, etc. Post-World War Il Period (After 1945) The successful use of the operations research techniques attracted the industrial managers to seek solutions to their problems with a view to increasing production efficiency and for creating new markets. This way, the use of operations research spread from military operations to industrial, social and economic operations. This gave a fillip to the development and use of operations research as a strategic technique for solving business and social problems. In the US, for example, the use of operations research technique was spurred by the Second Industrial Revolution which witnessed automation. In 1950, operations research was introduced as a subject of study in American Universities. INDIAN SCENARIO The first operations research unit was commissioned at the Regional Research. Laboratory, Hyderabad in 1949. Another operations research unit came into existence at the Indian Statistical Institute, Calcutta in 1953 under Prof. Mahalonobis. He made the first important application of operations research in India in preparing the draft of the Second Five Year Plan. CHARACTERISTIC FEATURES Following are the features of operations research: System orientation: Operations research attempts to look at the problem in its entirety; it follows a system orientation. Optimum solution is sought to be accomplished by taking into1.4 Elements of Operations Research Consideration all the. inter-connected activities/ parts of an organization. For instance, inventory policy is impacted by * many departments such as production, marketing, personnel and finance. Operations research tries to solve the conflict of interest * to provide an éptimum solution. Use of inter-disciplinary team: Operations research makes use of inter-disciplinary teams consisting of members drawn from diverse fields of activity such as mathematics, statistics, psychology, physics, economics, engineering, etc. The team helps in generating a unique solution for the problem on hand by looking at the problem from different angles. Application of scientific method: Operations research uses Scientific methods to solve the problem under study. This is made possible through ‘model construction’. The three phases of scientific approach to operations research are as follows: *° The judgment phase, which consists in determining the type of operation, duration of operation, measure of effectiveness used, etc. ¢ The research phase, which consists of reviewing the literature, developing hypothesis, collecting data, analyzing the data, verification of hypothesis, prediction and generalization of results. * The action phase, which . consists of making recommendations for remedial action. Other features: Other features of operations research include its ability for uncovering new problems, improvement in quality of decisions, use of computers and arriving at quantitative solutions. NEED The purpose of operations research is to use such strategic and war-like methods to kill the enemy (competitor) and tise victorious in the battle of business. The need for operations research is felt on account of the following reasons: a. Complex business conditions including factors such as customer demand, availability of raw materials, equipment capacity, etc.Introduction to Operations Research 1.5 b. Scattered responsibility and authority ¢. Uncertain business environment a. Knowledge explosion SCOPE Operations research has wide scope in almost all the areas where there is a need for optimality, optimum distribution of available Tesources so as to ensure optimum profits (maximum revenue with minimum cost). Operations research has applicability in the following areas: © Industrial management © Defence operations e Economic planning © Hospital management © Transport management © Business and society STEPS ‘The working of operations research involves the following steps: Formulating the problem: This involves defining the problem to be solved. It is a time consuming process and requires considerable time and effort. While formulating the problem, the major components to be considered are the environment such as social, physical and economic factors and organization content involving men, machines, materials, suppliers, consumers, competitors, government and the public, the decision maker, the objectives and the alternative course of action and constraints. Constructing a model: After formulating the problem, the next step is to construct a mathematical model. A mathematical model consists a set of equations which describe the system or the problem. The equation represents ‘effective function and constraints’. Effective function is the mathematical expression of objectives such as cost, profit, etc. Constraints are mathematical expressions of the limitations on the achievement of the objectives.1.6 Elements of Operations Research The effective function and constraints are the functions of two types of variables, These are controllable and non- controllable variables. A variable over which: the analyst has a control is called: ‘controllable variable’. A variable over which the analyst has no control and is a function of the external environment is called ‘non-controllable variable’. The model aims at making the problem more meaningful by clarifying the important relationships among the variables. A model provides an approximation of the real system or problem. Deriving a solution from the model: This involves extracting solution from a model. This is done by conducting experiments by simulation or mathematical analysis. For this purpose, both analytical and numerical procedures are used. Testing the model: The solution derivéd from the’ model is tested for its usefulness and validity. This is done through ‘sensitivity analysis’. Establishing control over the solution: A solution derived from a model remains valid as long as the uncontrollable variables retain their values and no change occurs between variables. For this purpose adequate control must be exercised over the variables in order to retain their continuous and non-changing character. Implementing the solution: This involves translating the solution to operating procedures. TECHNIQUES _ Following are the various techniques of operations research: a. Linear programming: One of the most important techniques of operations researchis ‘linear programming’. Linear - programming involves selecting optimum combination of factors from a series of interrelated alternatives each subject to constraints. Linear equations are developed to obtain the best possible solution. Linear programming aims at allocation of available resources in such a way as to optimize the effectiveness of final outcome. An important drawback is that models that are developed out of linear programming are deterministicIntroduction to Operations Research 1.7 in nature and hence do not take care of risk and uncertainty. Simplex method is the most popular method which is used to obtain optimal solution. In addition, transportation and assignment models are also used for obtaining optimality. Game theory: Where decision making is done under conflicting situations, game theory is used. In such a situation, there will be one or more opponents, called ‘players’. Players are’in conflict situation because the success of one player comes at the cost of other player. Games theory models a conflict situation and helps in improving the decision process by formulating an appropriate strategy. ‘ Queuing theory: Queuing theory helps in finding solution for queuing problems. Queue is formed where customers wait to receive service. Examples where queue is formed include customers waiting for service, machines waiting for repairmen, aircrafts waiting for landing, etc. Queuing ~ theory aims to optimize the waiting time and the cost of service provided by the service channels. Queuing theory helps in making calculation regarding expected number of people in the queue, expected waiting time, expected idle time, etc, Inventory control models: Inventory control models help the production manager, purchase manager and materials manager to solve problems relating to determining re-order level, EOQ, etc. Inventory models also help in determining optimal order size, optimal order level, etc. Inventory models seek to resolve the Conflicting ordering cost and carrying costs. Replacement models: Replacement problem is encountered where capital assets deteriorate in efficiency with time. Replacement models help in finding out the efficient way of replacing the out-dated and worn- out capital assets. Replacement models are used for deteriorating or failing assets.1.8 Elements of Operations Research f. Network models: Network models help in scheduling and monitoring large projects. Large projects include construction, maintenance, computer system installation, Tesearch and development design, etc. PERT (Program Evaluation and Review Technique) and CPM (Critical Path Method) are the two basic techniques that are employed to study the interrelationship between activities and the estimated optimal cost-and time in completing the projects. Simulation: Simulation is a procedure for conducting experiments through the use of mathematical and logical models. Under simulation, ‘series of repeated trial and error experiments are conducted to predict the behavior of the system over a period of time. For this purpose, alternative courses of action are studied by building model of the system. The four phases of simulation are defining the problem, constructing an appropriate model, experimenting withthe model and evaluating the results of the simulation activity. The two popular techniques used for simulation are Monte-carlo technique and System simulation technique. Decision theory: This helps better decision making under conditions of uncertainty. Markov analysis: This makes analysis of current behavior of some variable to predict the future behavior of,that variable. APPLICATION Operations research is applicable in the following areas of management: Accounting and finance: In the field of accounting, operations research is helpful in cash flow planning and credit policy analysis. Further, operations research is useful in planning strategies for delinquency accounting. Similarly, applications of finance where operations research is helpful include capital budgeting decisions, portfolio decisions, dividend decisions, cash flow analysis, etc.Introduction to Operations Research 1.9 Marketing: Operations research is useful in selection of Product mix, advertising and media planning, travelling salesman decision, etc. Human resources: Operations research plays an important role on various aspects of recruitment and selection of personnel, deciding on the of age and skills, manpower planning, salary administration, assignment of jobs, etc. Logistics: Operations research is useful in various areas of logistics and supply chai. management. These include decisions involving location and size of warehouse, transportation, distribution outlets, etc. Procurement: Operations research is useful in various areas of purchasing and procurement such as vendor analysis, replacement decisions, etc. Manufacturing: Operations research is useful in various areas of manufacturing including production planning, scheduling, inventory control, etc. Project: Operations research helps in the successful project management in various areas of project scheduling, maintenance schedule, allocation of resources, etc. LIMITATIONS Despite the many advantages claimed by operations research as an emerging field of managerial science, it suffers from the following drawbacks: a. Problem in formulation: Operations research is built on the edifice of problem formulation. Formulating problem to find optimal solution poses considerable difficulty. Difficulty in data collection: Operations research Tevolves around the use of information for decision making. In actual practice, collection of quality data at the right time is often difficult, Difficulty of finding solution on time: Due to the complex nature of problem-solving exercise, most often it is difficult to find optimal solution on time.1.10 Elements of Operations Research d. Difficulty of control over the variables: While constructing a model for obtaining optimality under the operations research technique, a number of variables are encountered. There is a practical difficulty in exercising Control over the variables. This debilitates the advantage of operations research as a technique of effective resource management. e. Qualitative factors not considered: In operations research technique, there is only emphasis on quantitative factors either by way of variables or by way of constraints. There is no scope for qualitative factors for decision making involving operations technique. Ignoring various psychological issues involved in the implementation of operations research solution is a major shortcoming of operations research. There is also a problem as regards the gap that persists between the solution developer and the user. f. Resistance from employees: Operations research, although, helps find solution for many of the tough problems faced by the management, theré may be resistance for many of the solutions that emerge out of operations research. g. Use of computers: Many of the problems involving operations research are so complex that they can be solved only with the help of computers. Even after finding optimal solution, it is rather difficult-for the managers to determine the outcome and the result of the optimal solution. This is probably an important reason why many a time the use of operations research technique fails to elicit support from the administration. Review Questions Section A 1. 2. 3: What is operations research? How is-the term operations research defined? How did the First Industrial Revolution contribute to the birth of operations research?