Advanced

Operations Research

Faculty: P.N. Ram Kumar

E-mail: ram@iimk.ac.in
Phone:0495-2809426

What is Operations Research?

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Operations Research (OR) is the discipline of applying

advanced analytical methods to help make better
decisions.

It uses mathematical modeling, analysis, and

optimization in a holistic approach to improving our
knowledge of systems and designing useful, efficient
systems.

What is Operations Research?

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As the name implies, OR involves research on

operations

Nature of the organization is essentially immaterial

OR has been applied extensively in diverse areas

such as manufacturing, transportation,
construction, telecommunications, financial
planning, health care, military and public services,
to name just a few.

Why should you learn OR?

Manager Dealing with resources

Scarce resources Labor, materials, machinery, money

Quest for best combination of inputs

Minimizing costs or Maximizing profits

Linear Programming (LP) problems

- Linear objective function
- Linear constraints

Why only LP?

- Majority of real-life problems can be approximated
- Efficient solution procedures
- Easy Sensitivity Analysis

What would you learn in AOR?

Class 1: Recall linear Programming problems :

Formulations Graphical method, Sensitivity Analysis and
Duality

Class 2: Network optimization models

Class 3: Integer programming problems

Classes 4,5: Heuristics/Meta-heuristics

Class 6: Multi-objective decision problems, Simulation

Scheme of Evaluation
A. End term exam: 50%
B. Surprise Quizzes: 30%
C. Class Participation: 20%

What would you learn in AOR?

Class 1: Recall linear Programming problems :

Formulations and Graphical method

Class 2: Network optimization models

Class 3: Integer programming problems

Classes 4,5: Heuristics/Meta-heuristics

Class 6: Multi-objective decision problems, Simulation

Example Problem No. 1

There are 1000 hours of labor and 500 hours of testing

available.

In addition, a marketing forecast has shown that the

demand for the Super Deluxe is no more than 50
machines, demand for the Silver Ball Special no more
than 80, and demand for Bumper King no more than
150.

The manufacturer wants to determine the optimal

production quantities that will maximize his total profit

Formulate this as a linear programming problem

Machine

Labor

Testing

Profit / Unit

Super
Deluxe
Machine

17

$300

Silver Ball
Special

10

$200

Bumper
King

$100

Availability

1000 hrs

500 hrs

Solution to Example Problem

No.1
1. Decision Variables???

2. Let X1, X2, and X3 be the production quantities

of machines 1, 2, and 3 respectively.

3. Constraints???
4. Hours of Labor and Testing, Upper limit on

production quantities
5. Last, the objective function is to maximize the

profit

Maximize
Z = 300X1 +200X2 + 100X3

Subject to

17X1 + 10X2 + 2X3 < 1000

8X1 + 4X2 + 2X3 < 500

X1 50, X2 80, X3 150

X1 > 0, X2 > 0, X3 > 0

X1, X2 , X3

Objective Function

Constraints
Non-Negativity
Constraints

Decision Variables

Example Problem No.2

A financial advisor who recently graduated from

IIMK received a call from a client who wanted to
invest a portion of a $ 150,000 inheritance

The client wanted to realize an annual income, but

also wanted to spend some of the money

After discussing the matter, the client and the

adviser agreed that a mutual fund, corporate
bonds, and a money market account would make
suitable investments.

The client was willing to leave allocation of the funds among

these investment vehicles to the financial adviser, but with
the following conditions:
At least 25 percent of the amount invested should be in the money
market account
A maximum of only 35% should be invested in corporate bonds
The investment must produce at least $ 12,000 annually (ROI)
The un-invested portion should be as large as possible

The annual returns would be 11 percent for the mutual fund,

8 percent for the bonds, and 7 percent for the money market

Formulate an LP model that will achieve the clients

requests. Ignore transaction costs, the advisers fee and so
on.

Solution to Example Problem No.2

Let X1, X2, X3 be the amounts to be invested in mutual
fund, corporate bonds and money market
Non-negativity condition: X1, X2, X3 0
At least 25 percent of the amount invested should be in
the money market account
X3 / (X1+X2+X3) 0.25
A maximum of only 35% should be invested in corporate
bonds
X2 / (X1+X2+X3) 0.35
The investment must produce at least $12,000 annually
(ROI)
0.11X1 + 0.08X2 + 0.07X3 12000
Objective Function: Maximize Z = 150,000 (X 1 + X2 + X3)

Example Problem No. 3

A hospital administrator has the following minimal daily requirements for

nursing personnel:

Period

Clock Time

Minimal No. of
nurses

6 AM to 10 AM

60

10 AM to 2 PM

70

2 PM to 6 PM

60

6 PM to 10 PM

50

10 PM to 2 AM

20

2 AM to 6 AM

30

Nurses report to the hospital wards at the beginning of each period and
work for 8 consecutive hours. The hospital wants to determine the
minimal number of nurses to employ so that there will be a sufficient
number of personnel available for each period.

Problem No. 4 Quality Control

A company has two grades of inspectors, 1 and 2,

who are to be assigned for a quality control
inspection. It is required that at least 1800 pieces
be inspected per 8-hour day.

Grade 1 inspectors can check pieces at the rate of

25 per hour, with an accuracy of 98%. Grade 2
inspectors check at the rate of 15 pieces per hour,
with an accuracy of 95%.

Problem No. 4 Quality

Control

The wage rate of a Grade 1 inspector is $4 per hour,

while that of a Grade 2 inspector is $3 per hour.
Each time an error is made by an inspector, the cost
to the company is $2.

The company has available for the inspection job

eight Grade 1 inspectors and ten Grade 2 inspectors.

The company wants to determine the optimal

assignment of inspectors, which will minimize the
total cost of the inspection

Problem No. 4 - Solution

Minimize Z 40 x1 36 x2
Subject to
5x1 3 x2 45
x1 8
x2 10
x1 , x2 0

Problem No. 5 - Blending

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Bharat oil manufactures three grades of gasoline (Regular,

Premium, Super). Each grade is produced by blending
three types of crude oil.

Super
Premium
Regular

Sales price
per barrel
$70
$60
$50

Maximum
demand / day
1500
3000
2500

Crude 1
Crude 2
Crude 3

Purchase price
per barrel
$45
$35
$25

Availability of crude oil is limited to 5000 barrels of each

type of crude oil per day.

Example Problem No. 5

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The three types of gasoline differ in their octane rating

and sulphur content as follows:
Product

Specifications

Super

Average Octane rating of at least 10

At most 1% Sulphur

Premium

Average Octane rating of at least 8

At most 2% Sulphur

Regular

Average Octane rating of at least 6

At most 2.5% Sulphur

Example Problem No. 5

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The octane rating and the sulphur content of the three

types of crude oil are as follows:

Octane Rating

Sulphur content

Crude Oil
1

12

0.5%

Crude Oil
2

2.0%

Crude
8
3.0%and the refinery
Refining
costOil
is $4 per barrel
of gasoline
3

can produce up to 14,000 barrels of gasoline daily.

Formulate an LP that will enable Bharat Oil to maximize its

daily profits