Management Science

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Dr.Sourabh Bishnoi

SOURABH BISHNOI

M. Sc.(Statistics). Ph. D.(Operations

Research)
TITLE OF MY THESIS: Time / Cost
Optimization Process Through Goal
Programming
Model
With
Special
Reference
To
Transportation
And
Assignment Problem.
This research work is completed under
the kind guidance of Dr. Sabir Ali
Siddiqui, Head Department of Statistics,
St.
Johns
College,
Agra.
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Management science
An approach to managerial decision making
that is based on the scientific method, makes
extensive use of quantitative analysis.
A variety of names exists for the body of
knowledge involving quantitative approaches
to decision making; in addition to management
science, another widely known and accepted
name is Operations Research.
Today, many use of terms operations research
and management science interchangeably we
shall treat them as synonyms.
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The scientific management

revolution of the early
1900, initiated by Frederic
W. Taylor, provided the
foundation for OR.

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But modern OR is generally considered

to have originated during World War II
period, when some teams of scientists
were formed to deal with strategic and
tactical problems faced by the military.
These teams, comprises of the specialist
from diverse fields, e.g. mathematicians,
engineers, behavioral scientists, etc.,
were joined together to solve a common
problem through the utilization of
scientific method. As the research was
done to optimize the military operations,
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the
name OR evolved.

After the war, many of these team

members continued their research on
quantitative approaches to decision
making
.
The continued
research on quantitative
approaches to decision making resulted in
numerous methodological developments.
Probably the most significant development
was the discovery by American mathematician
George B. Dantzig, in 1947, of the simplex
method for solving Linear Programming
Problems.
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Linear programming was initially

referred to as programming in a
linear structure. In 1948 Tjalling
Koopmans suggested to George
Dantzig that the name was much to
long; Koopmans suggestion was to
shorten it to Linear Programming.
George Dantzig agreed and the field we
now we know as linear programming
was named.
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Many more methodological

developments followed, and in
1957 the first book* on OR was
published by Churchman,
Ackoff and Arnoff.
*(Introduction to OR, New
York: Wiley, 1957)
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Linear Programming
Problem:
A quantitative Approach To
Decision making Of Business
Situations.

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MODEL DEVELOPMENT
Models are representations of real
objects or situations. The
representations, or models, can be
presented in various forms.
For example a scale model of an aero
plane is the representation of the real
aero plane. Similarly, a childs toy
truck is a model of a real truck.
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Types Of Model:
According to the structure, Models
are of three types:
Iconic Or Physical Model
Analog Model
Mathematical Or Symbolic Model

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The model aero plane or toy

truck are examples of
models that are physical
replicas of real object. In
modeling terminology
physical replicas are referred
to as Iconic Models.
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A second classification of
models includes those that
are physical in form but do
not have the same physical
appearance as the object
being modeled. Such models
are referred to as Analog
Models.
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The Speedometer of an
automobile is an analog
model; The position of the
needle
on
the
dial
represents the speed of the
automobile.
A Thermometer is another
analog model representing
temperature.

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A third classification of models

includes those that represent a
problem by a system of symbols
and mathematical relationships
or expressions. Such models are
referred to as Mathematical
models Or Symbolic Model
and are a critical part of any
quantitative approach to decision
making.
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For example the total profit from

the sale of a product can be
determined by multiplying the
profit per unit by the quantity
sold.
If we let x represent the number of
units sold and P the total profit
earned by selling 10 units:
P=10x
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The purpose, or value, of any model is that it enables us

to make inferences about the real situation by studying
and analyzing the model.
For example, an airplane designer might test an iconic
model of a new airplane in a wind tunnel to learn about
the potential flying characteristics of the full size
airplane.
Similarly, a mathematical model may be used to make
inferences about how much profit will be earned if a
specified quantity of a particular product is sold.
According to the mathematical model of equation, we
would expect to obtain a Rs.30 profit by selling three
units of the product.

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MATHEMATICAL MODELLING
Mathematical Modeling is the process of
translating a verbal statement of a
problem into a mathematical statement.
In linear programming, the mathematical
statement of a problem is a linear
program. The problems that are small,
are not particularly difficult to model.
But, as problems become larger and
more complex, some general guidelines
for model formulation are useful.
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LINEAR PROGRAMMING:
Linear programming is a problem solving
approach that has been developed to
help managers to make decisions.
Linear programming is a problem solving
approach that has been developed for
situations involving maximizing or
minimizing a linear function subject to
linear constraints that limit the degree to
which the objective can be pursued.
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Some typical applications of

linear programming are
(i)A manufacturer wants to develop a
production schedule and an inventory
policy that will satisfy sales demand in
future periods. Ideally, the schedule and
policy will enable the company to satisfy
demand and at the same time minimize
the total production and inventory costs.

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(ii) A financial analyst must select an

investment portfolio from a variety of
stock and bond investment
alternatives. The analyst would like to
establish the portfolio that maximizes
the return on investment.

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(iii) A marketing manager wants to wants

to determine how best to allocate a
fixed advertising budget among
alternative advertising media such as
radio, television, newspapers, and
magazines. The manager would like to
determine the media mix that
maximizes the advertising
effectiveness.
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(iv) A company has warehouses in a

number of locations throughout the
United States. Given a set of customer
demands for its products, the company
would like to determine which
warehouse should ship how much
product to which customers so that the
total transportation costs are
minimized.
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These are only a few examples of

situations where linear programming
has been used successfully, but they
illustrate the diversity of linear
programming applications
A close scrutiny reveals one basic
property that all of them have in
common. In each example, we were
concerned with maximizing or
minimizing some quantity.
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We wanted to minimize costs in example 1,

we wanted to maximize return on investment
in example 2,
we wanted to maximize advertising
effectiveness in example 3
we wanted to minimize total transportation
costs in example 4.

In all linear programming problems,

the maximization or minimization of
some quantity is the objective
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GUIDELINES FOR MODEL FORMULATION

The process of formulating linear

programming models is an art that can
only be mastered with practice and
experience.
Although every problem has some
unique features, most problems also
have common features.
As a result, some general guidelines
for model formulation can be helpful,
especially for beginners.
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(1) Understand the problem thoroughly.

(2) Write a verbal statement of the
objective function and each constraint.
(3) Define the decision variables:
(4) Write the objective function in terms
of the decision variables.
(5) Write the constraints in terms of the
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decision
variables

(1)Understand the problem

thoroughly:
Read the problem description to
quickly get a feel for what is
involved. Identify those items that
you feel should be included in the
model. If the problem is especially
complex, take notes; these notes
will help you focus on the key
ideas and facts.

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(2)Write a verbal statement of the

objective function and each
constraint:
Later you will translate these verbal
statements into mathematical statements.
At this step, you might write the objective
function as, for instance, maximize profit or
minimize monthly operating costs. You
might write a constraint limiting funds
borrowed as follows: funds borrowed line
of credit. Even experienced management
scientists find they sometimes make
mistakes when skipping this step.
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(3)Define the decision

variables:

Ask yourself what decisions the

manager must make. What does she
or he control? The decision variables
should be chosen to represent these
decisions. The decision variables
should also be defined in such a
fashion that writing a mathematical
statement of the objective function
and the left hand side of constraints
is facilitated.

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(4)Write the objective function in

terms of the decision variables:
Translate your verbal statement of the
objective function developed in step 2
into a mathematical statement; the
mathematical statement must be a
linear function of the decision
variables.

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(5)Write the constraints in terms

of the decision variables:
Translate your verbal statement of
each constraint developed in step 2
into a mathematical statement; the
left hand side of the resulting
equation or inequality must be a
linear function of the decision
variables.
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THE ELECTRONIC COMMUNICATIONS PROBLEM

Electronic Communications manufactures portable radio systems that can be used for twoway communications. The companys new product, which has a range of up to 25 miles, is
particularly suitable for use in a variety of business and personal applications. The
distribution channels for the new radio are as follows:
Marine equipment distributors
Business equipment distributors
National chain of retail stores
Mail order
Because of differing distribution and promotional costs, the profitability of the product will
vary with the distribution channel. In addition, the advertising cost and the personal sales
effort required will vary with the distribution channels. Table below summarizes the
contribution to profit, advertising cost, and personal sales effort data pertaining to the
Electronic Communications problem. The firm has set the advertising budget at Rs.500000
and there is a maximum of 1800 hours of sales force time available for allocation to the
sales effort. Management has also decided to produce exactly 6000 units for the current
production period. Finally, an ongoing current with the national chain of retail stores
requires that atleast 1500 units be distributed through this distribution channel.
Electronic Communications is now faced with the problem of establishing a strategy that
will provide for the distribution of the radios in such a way that overall profitability of the
new radio production will be maximized. Decisions must be made as to how many units
should be allocated to each of the four distributions channels, as well as how to allocate
the advertising budget and sales force effort to each of the four distribution channels.
Profit, advertising cost, and personal sales time data for the Electronic Communications
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problem

Distribution Profit per

Channel
Unit Sold

Advertising
Personal
Cost per Unit Sales Effort
Sold
per Unit Sold

Marine
Rs. 90
distributors

Rs. 10

2 hours

Business
Rs. 84
distributors

Rs. 8

3 hours

National
Rs. 70
retail stores

Rs. 9

3 hours

Mail order

Rs. 15

None

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FORMULATION OF THE
ELECTRONIC
COMMUNICATIONS
PROBLEM

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A written statement of the

problem has been presented.
Let us now attempt to write a
verbal statement of the
objective function and each
constraint. For the objective
function, we can write

Objective function: Maximize profit

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There appear to be four constraints

necessary for the problem. They are
necessary because of (1) a limiting
advertising budget, (2) limited sales
force availability, (3) a production
requirement, and (4) a retail stores
distribution requirement
Constraint 1: Advertising expenditures Budget
Constraint 2: Sales time used Time available
Constraint 3: Radios produced = Management
requirement
Constraint 4: Retail distribution Contract
requirement
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This provides a verbal

description of the
objective function and
the constraints. We are
now ready to define the
decision variables such
that they represent the
decisions that the
manager must make.

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For the Electronic

Communications problems, we
introduce the following four

Xdecision
variables:
1 = the number
of units produced for the
marine equipment distribution channel
X2 = the number of units produced for the
business equipment distribution channel
X3 = the number of units produced for the
national retail chain distribution channel
X4 = the number of units produced for the
mail-order distribution channel
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Using the data of above table,

the objective function for
maximizing the total
contribution to profit
associated with the radios can
be written as follows:
Max 90 X1 + 84 X2 + 70 X3 + 60 X4
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Let us now develop a

mathematical statement of
the constraints for the
problem. Since the advertising
budget has been set at Rs.
5000, the constraint that
limits the amount of
advertising expenditure can
10 X1 + 8 X2 + 9 X3 + 15 X4 50000
be written as
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Similarly, since the sales

time is limited to 1800
hours, we obtain the
constraint
2 X1 + 3 X2 + 3 X3 1800

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Managements decision to
produce exactly 6000 units
during the current
production period is
expressed as
1 X1 + 1 X2 + 1 X3 + 1 X4 = 6000

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Finally, to account for the

fact that the number of
units distributed by the
national chain of retail
stores must be Atleast 1500,
we add the constraint
1 X3 1500

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