QUEUEING THEORY

Queuing theory is the mathematical study of waiting lines, or queues.In queuing theory, a model
is constructed so that queue lengths and waiting time can be predicted. Queuing theory is generally
considered a branch of operations research because the results are often used when making business
decisions about the resources needed to provide a service.

Queueing theory has its origins in research by Agner Krarup Erlang when he created models to
describe the Copenhagen telephone exchange. The ideas have since seen applications
including telecommunication, traffic engineering, computing and the design of factories, shops, offices
and hospitals.

EXAMPLE 1

Restaurants would avoid losing their customers due to a long wait on the line. Some restaurants
initially provide more waiting chairs than they actually need to put them in the safe side, and reducing
the chairs as the time goes on safe space. However, waiting chairs alone would not solve a problem
when customers withdraw and go to the competitor’s door; the service time may need to be improved.
This shows a need of a numerical model for the restaurant management to understand the situation
better. This paper aims to show that queuing theory satisfies the model when tested with a real-case
scenario. We obtained the data from a restaurant in Jakarta. We then derive the arrival rate, service
rate, utilization rate, waiting time in queue and the probability of potential customers to balk based on
the data using Little’s Theorem and M/M/1 queuing model. The arrival rate at Sushi Tei during its
busiest period of the day is 2.22 customers per minute (cpm) while the service rate is 2.24 cpm. The
average number of customers in the restaurant is 122 and the utilization period is 0.991. We conclude
the paper by discussing the benefits of performing queuing analysis to a busy restaurant.

EXAMPLE 2

Standing in line can cause extreme boredom, annoyance and even rage to customers.
Customers are often forced to wait in line whenever the service facility is busy. Although, automatic
teller machines (ATM) have been designed to provide efficient and improve services to customers at the
shortest time possible, yet customers wait too long before they are finally serviced by the facility. This is
principally due to variation in arrival and service time, which eventually leads to the formation of queue.
Therefore, a systematic study of waiting line system will assist the management of the Bank in taking
certain decisions that may minimize the length of time a customer spends in a service facility. Against
this background that queuing process is employed with emphasis to Poisson distribution to assess the
utility function of service delivery. The data for this study was collected from primary source and is
limited to ATM service point of Fidelity Bank Plc located in WestEnd, Maiduguri. Data was collected by
observation, in which the number of customers arriving at the facility was recorded, as well as each
customer’s arrival and service time respectively. The assistance of a colleague was sought in recording
the service time while the researcher records arrival time. The period for the data collection was during
busy working hours (i.e. 8:00am to 4:00pm) and for a period of ten (10) working days. The study reveals
that the traffic intensity (ρ) is 0.96. Since we obtained the value of the traffic intensity, otherwise known
as the utilization factor to be less the one (i.e. ρ>1) it could be concluded that the system operates
under steady-state condition. Thus, the value of the traffic intensity, which is the probability that the
system is busy, implies that 95% of the time period considered during data collection the system was
busy as against 4% idle time. This indicates high utilization of the system

EXAMPLE 3

Bank ATMs would avoid losing their customers due to a long wait on the line. The bank initially provides
one ATM. However, one ATM would not serve a purpose when customers withdraw to use ATM and try
to use other bank ATM. Thus, to maintain the customers, the service time needs to be improved. This
paper shows that the queuing theory may be used to solve this problem. We obtained the data from a
bank ATM in a city. We used Little’s Theorem and M/M/1 queuing model. The arrival rate at a bank ATM
on Monday during banking time is 1 customer per minute (cpm) while the service rate is 1.66 cpm. The
average number of customers in the ATM is 1.5 and the utilization period is 0.6. We discuss the benefits
of applying queuing theory to a busy ATM in conclusion.

NETWORK THEORY
In computer and network science, network theory is the study of graphs as a representation of
either symmetric relations or, more generally, of asymmetric relations between discrete objects.
Network theory is a part of graph theory: a network can be defined as a graph in which nodes and/or
edges have attributes (e.g. names).

Network theory has applications in many disciplines including statistical physics, particle physics,
computer science, electrical engineering, biology, economics, operations
research, climatology and sociology. Applications of network theory include logistical networks,
the World Wide Web, Internet, gene regulatory networks, metabolic networks, social
networks, epistemological networks, etc.; see List of network theory topics for more examples.

Euler's solution of the Seven Bridges of Königsberg problem is considered to be the first true proof in the
theory of networks.

EXAMPLE 1

If one steps down from the tip of the iceberg and inspects the underwater properties of case
study research and network theory a common core is found: the recognition of complexity. The
methodologies supplement each other, case study research primarily using verbal language and
qualitative data, while network theory uses a nodes‐and‐links language that opens up for verbal, graphic
and mathematical treatment. Case study research is primarily associated with qualitative research in
social sciences and network theory with quantitative research in both social and natural sciences. By
abolishing the unfortunate categories of qualitative/quantitative and natural sciences/social sciences
that have been set against each other, and letting them join forces for a common goal – to learn about
life – people open up for methodological creativity.

EXAMPLE 2

Twenty first century systems toxicology approaches enable the discovery of biological pathways
affected in response to active substances. Here, we briefly summarize current network approaches that
facilitate the detailed mechanistic understanding of the impact of a given stimulus on a biological
system. We also introduce our network-based method with two use cases and show how causal
biological network models combined with computational methods provide quantitative mechanistic
insights. Our approach provides a robust comparison of the transcriptional responses in different
experimental systems and enables the identification of network-based biomarkers modulated in
response to exposure. These advances can also be applied to pharmacology, where the understanding
of disease mechanisms and adverse drug effects is imperative for the development of efficient and safe
treatment options.

EXAMPLE 3

Water utilities worldwide face increasing challenges to preserve the hydraulic and water quality
integrity of their water distribution networks. These challenges stem from burgeoning populations and
migration to urban cities that continue to increase the load on aging, inefficient, and already strained
infrastructures. This has created a pressing need for integrating supervisory control and acquisition
systems with network simulation models for proactive management of these networks. Such an
integrated platform is the basis for the real-time smart water network decision support system
(SWNDSS) described here. The proposed system has the power to transform a water utility’s routine
network modeling functions from planning and design to full-spectrum engagement that drives more
efficient operations—including managing water quality and energy, developing daily operating plans,
addressing planned and emergency outages, and diagnosing and resolving field issues. Aspects of the
SWNDSS ar described in a case study from the Las Vegas Valley Water District in Las Vegas, Nev.

FORECASTING MODELS
A time series is a sequence of observations of a periodic random variable. Examples are the monthly
demand for a product, the annual freshman enrollment in a department of the university and the daily
flows in a river. Time series are important for operations research because they are often the drivers of
decision models. An inventory model requires estimates of future demands, a course scheduling and
staffing model for a university department requires estimates of future student inflow, and a model for
providing warnings to the population in a river basin requires estimates of river flows for the immediate
future.

Time series analysis provides tools for selecting a model that describes the time series and using the
model to forecast future events. Modeling the time series is a statistical problem because observed data
is used in computational procedures to estimate the coefficients of a supposed model. Models assume
that observations vary randomly about an underlying mean value that is a function of time.

On these pages we restrict attention to using historical time series data to estimate a time dependent
model. The methods are appropriate for automatic, short term forecasting of frequently used
information where the underlying causes of time variation are not changing markedly in time. In
practice, the forecasts derived by these methods are subsequently modified by human analysts who
incorporate information not available from the historical data.

EXAMPLE 1

This is a case study of a closely managed product. Its purpose is to determine whether time-
series methods can be appropriate for business planning. By appropriate, we mean two things: whether
these methods can model and estimate the special events or features that are often present in sales
data; and whether they can forecast accurately enough one, two and four quarters ahead to be useful
for business planning. We use two time-series methods, Box-Jenkins modeling and Holt-Winters
adaptive forecasting, to obtain forecasts of shipments of a closely managed product. We show how Box-
Jenkins transfer-function models can account for the special events in the data. We develop criteria for
choosing a final model which differ from the usual methods and are specifically directed towards
maximizing the accuracy of next-quarter, next-half-year and next-full-year forecasts. We find that the
best Box-Jenkins models give forecasts which are clearly better than those obtained from Holt-Winters
forecast functions, and are also better than the judgmental forecasts of IBM's own planners. In
conclusion, we judge that Box-Jenkins models can be appropriate for business planning, in particular for
determining at the end of the year baseline business-as-usual annual and monthly forecasts for the next
year, and in mid-year for resetting the remaining monthly forecasts.

EXAMPLE 2

Beets’ cultivation and sugar production represent one of the most important parts of Greek
agricultural economy. A careful and well-organized planning of the production as well as the
determination of an accurate safety stock is important for sugar industry, as for many other companies
and organizations, in order to define the production quantity which leads to maximum revenues and
profits. Forecasting, and especially widely used statistical forecasting techniques, is the best way for
policymakers to organize their activities and company’s production and make the appropriate
adjustments. Apparently, management information systems and forecasting support packages play a
leading role in this area, since the amount of data under process is usually quite large and demands an
automated procedure to effectively produce and evaluate forecasts. In this case study, “Pythia”, an
expert forecasting platform developed by the Forecasting and Strategy Unit of the National Technical
University of Athens, was implemented on a monthly data series regarding sugar sales of a Greek sugar
factory for the years 2000- 2005, bringing theory and practice together. Additionally, the methods or
combinations of methods which are well suited for this time series are highlighted based on three error
indices. Finally, the results of the study are contemplated
EXAMPLE 3

To date, little research has been done on managing the organizational and political dimensions
of generating and improving forecasts in corporate settings. We examine the implementation of a
supply chain planning process at a consumer electronics company, concentrating on the forecasting
approach around which the process revolves. Our analysis focuses on the forecasting process and how it
mediates and accommodates the functional biases that can impair the forecast accuracy. We categorize
the sources of functional bias into intentional, driven by misalignment of incentives and the disposition
of power within the organization, and unintentional, resulting from informational and procedural blind
spots. We show that the forecasting process, together with the supporting mechanisms of information
exchange and elicitation of assumptions, is capable of managing the potential political conflict and the
informational and procedural shortcomings. We also show that the creation of an independent group
responsible for managing the forecasting process, an approach that we distinguish from generating
forecasts directly, can stabilize the political dimension sufficiently to enable process improvement to be
steered. Finally, we find that while a coordination system—the relevant processes, roles and
responsibilities, and structure—can be designed to address existing individual and functional biases in
the organization, the new coordination system will in turn generate new individual and functional
biases. The introduced framework of functional biases (whether those biases are intentional or not), the
analysis of the political dimension of the forecasting process, and the idea of a coordination system are
new constructs to better understand the interface between operations management and other
functions.

LINEAR PROGRAMMING
Linear Programming (LP) is a mathematical modelling technique useful for allocation of limited
resources such as material, machines etc to several competing activities such as projects, services etc. A
typical linear programming problem consists of a linear objective function which is to be maximized or
minimized subject to a finite number of linear constraints. (By a linear function we mean a function of
the form a1x1+a2x2.. where x1, x2.. are all variables.)

The founders of LP are George B. Dantzig, who published the simplex method in 1947, John von
Neumann, who developed the theory of the duality in the same year, and Leonid Kantorovich, a Russian
mathematician who used similar techniques in economics before Dantzig and won the Nobel prize in
1975 in economics. The linear programming problem was first shown to be solvable in polynomial time
by Leonid Khachiyan in 1979, but a larger major theoretical and practical breakthrough in the field came
in 1984 when Narendra Karmarkar introduced a new interior point method for solving linear
programming problems.

EXAMPLE 1

Linear Programming based Effective Maintenance and Manpower Planning Strategy: In this
study, maintenance related data of a cocoa processing industry in Akure, Ondo State of Nigeria were
collected, classified and analysed statistically. Linear Programming (LP) model was formulated based on
the outcomes of the analysed data. The data analysed includes maintenance budget, maintenance cycle,
production capacity and waiting time of production facilities in case of failure. Data were analysed based
on manpower cost, machine depreciation cost and the spare part cost, which were assumed to be
proportion to the number/magnitude of the breakdowns. The generated LP model was solved using
software named “the Quantitative System for Business- QSB (Version 3.0). The results of the model
showed that four maintenance crews were needed to effectively carryout maintenance jobs in the
industry. The sensitivity analysis showed that the results have a wide range of feasibility.

EXAMPLE 2

Linear Programming model of production process optimization: This paper focuses on a current
topic of production management and operations research which serves as a tool for small and medium
enterprises to cope with pressure put on the by continuously changing market conditions and global
economy itself. Firstly the paper presents a linear programming model developed in order to achieve a
complex optimization of production process. Created model is general in its nature and therefore it can
be applied on any kind of production process with just a few modifications. Therefore it is suitable for
production enterprise with any type of process orientation. Model stresses the importance of cost
minimization, which is also its main objective. Resource procurement costs, fixed and variable
production costs, inventory costs and transportation costs are included. Proposed model also take into
account market conditions. In the second part of the paper this general model is applied on a real-life
production process in practice of selected production enterprise.

EXAMPLE 3

Profit Optimization Using Linear Programming Model: This paper aims for profit optimization of
an Ethiopian chemical company located in Adama (Ethiopia) using linear programming model.
Particularly, our present study brings out clearly the necessity of using quantitative techniques for
utilization in Ethiopian company; a factory situated within Adama about 90 kms. from Addis Ababa
(Capital of Ethiopia). The first step comprises data generation. A questionnaire is prepared and
circulated amongst company staff both executive and technical to determine the production, sales and
profit during a few months of 2014. The profits varied considerably owing to subjective approach. It was
established that the decisions are undertaken by experienced people without use of quantitative people
and quantitative method. Whole approach applied here is seemingly subjective. A theoretical
perspective undertaken for the present study is review of various different applications of linear
programming. The characteristics of base assumptions of linear programming and its advantages and
disadvantages towards establishing its need for optimization are briefly outlined in terms of its
application to the factory. Survey data is analyzed to determine the style of decision making and the
problem is defined. An objective function is created in terms of decision variables of production, sales
and profit over a period of time using the quantitatively available data of these parameters. A linear
programming model for company is developed for profit optimization. The model equations with
adequate restraints taking into account manufacturing limitations are solved using MS-Excel solver.
Finally, some conclusive observations have been drawn and recommendations have been suggested.
 SAMPLING THEORY
Theoretical sampling is a process of data collection for generating theory whereby the analyst
jointly collects codes and analyses data and decides what data to collect next and where to find them, in
order to develop a theory as it emerges. The initial stage of data collection depends largely on a general
subject or problem area, which is based on the analyst’s general perspective of the subject area. The
initial decisions are not based on a preconceived theoretical framework. The researcher begins by
identifying some key concepts and features which he/she will research about. This gives a foundation for
the research. A researcher must be theoretically sensitive so that a theory can be conceptualized and
formulated as it emerges from the data being collected. Caution must be taken so as to not limit oneself
to specific aspects of a theory; this will make a researcher blind towards other concepts and aspects of
the theory. The main question in this method of sampling is this: what groups should the researcher
turn to next in the data collection process, and why?

REGRESSION ANALYSIS MODEL

SIMULATION MODEL
Computer-assisted simulation modeling has become more common as a method of inquiry for
operations management and the service industry since the 1990’s. Many technology driven managers
now rely on extensive use of simulation to test new ideas and options before actual implementation of
their ideas. Instead of building extensive mathematical models by experts, the readily available
simulation software has made it possible to model and analyze the operation of a real system by
managers who are not well versed in programming languages. Simulation allows the manager to both
quantify and observe the system’s behavior. Whether the system is a production line, a distribution
network or a communications system, simulation can be used to study and compare alternative designs
or troubleshoot existing operations. With simulation models, the manager can explicitly visualize how an
existing operation might perform under varied inputs, and how a new or proposed operation might
behave under same or different inputs [2,13]. The ability to easily construct and execute models and to
generate statistics and animations about results has been the main attractions of simulation. The
windows based simulation software such as ARENA, have made simulation modeling not only affordable
but relatively easy for managers to initiate simulation studies of a variety of situations including
operations and processes, feasibility studies, business processes, human resource deployment, call
center staffing, capacity planning and others.

In manufacturing and service industries, companies are looking for ways to improve their
systems performance and increase their competitiveness in order to survive in the market place.
Simulation modeling is a practical tool that can be used by those companies to generate data and
simulations to be used for better and faster decision-making and forecasts of their business models and
approaches. Simulation also makes the task of “what-if” analysis very easy as most simulation software
come equipped with scenario managers which are designed for the purposes of “what-if” analysis and
can be run with minimal programming involved. “What-if” analysis includes the ability to show how a
system would behave under varying input parameters and/or constraints
 Application areas for simulation are practically unlimited. Today simulation can be used for
decision-support with supply chain management, workflow and throughput analysis, facility layout
design, resource usage and allocation, resource management and process change. Whether
contemplating a new office building, planning a new factory design, assessing predictive and reliability
maintenance, anticipating new or radical procedures, deploying new staff, or planning a day’s activities,
simulation can play a crucial role in finding the right and timely solutions. The progressive and
technology driven organizations, in pursuit of winning and/or maintaining their market share, have
taken different approaches to their success. In their pursuit, some have focused on “customer service”,
many have embraced the “productivity” theme, and yet others have pursued the important issue of
“quality and reliability”. In recent times, simulation has been very successfully used as a modeling and
analysis tool in the first two cases.

EXAMPLE 1

INVENTORY MODEL
“Sorry, we’re out of that item.” How often have you heard that during shopping trips? In many
of these cases, what you have encountered are stores that aren’t doing a very good job of managing
their inventories (stocks of goods being held for future use or sale). They aren’t placing orders to
replenish inventories soon enough to avoid shortages. These stores could benefit from the kinds of
techniques of scientific inventory management that are described in this chapter.

It isn’t just retail stores that must manage inventories. In fact, inventories pervade the business
world. Maintaining inventories is necessary for any company dealing with physical products, including
manufacturers, wholesalers, and retailers. For example, manufacturers need inventories of the
materials required to make their products. They also need inventories of the finished products awaiting
shipment. Similarly, both wholesalers and retailers need to maintain inventories of goods to be available
for purchase by customers.

The total value of all inventory—including finished goods, partially finished goods, and raw
materials—in the United States is more than a trillion dollars. This is more than $4,000 each for every
man, woman, and child in the country.

The costs associated with storing (“carrying”) inventory are also very large, perhaps a quarter of
the value of the inventory. Therefore, the costs being incurred for the storage of inventory in the United
States run into the hundreds of billions of dollars annually. Reducing storage costs by avoiding
unnecessarily large inventories can enhance any firm’s competitiveness.

Some Japanese companies were pioneers in introducing the just-in-time inventory system—a
system that emphasizes planning and scheduling so that the needed materials arrive “just-in-time” for
their use. Huge savings are thereby achieved by reducing inventory levels to a bare minimum.
 Many companies in other parts of the world also have been revamping the way in which they
manage their inventories. The application of operations research techniques in this area (sometimes
called scientific inventory management) is providing a powerful tool for gaining a competitive edge.

How do companies use operations research to improve their inventory policy for when and how
much to replenish their inventory?

They use scientific inventory management comprising the following steps:

1. Formulate a mathematical model describing the behavior of the inventory system.

2. Seek an optimal inventory policy with respect to this model.
3. Use a computerized information processing system to maintain a record of the current
inventory levels.
4. Using this record of current inventory levels, apply the optimal inventory policy to signal
when and how much to replenish inventory.

The mathematical inventory models used with this approach can be divided into two broad
categories—deterministic models and stochastic models—according to the predictability of demand
involved. The demand for a product in inventory is the number of units that will need to be withdrawn
from inventory for some use (e.g., sales) during a specific period. If the demand in future periods can be
forecast with considerable precision, it is reasonable to use an inventory policy that assumes that all
forecasts will always be completely accurate. This is the case of known demand where a deterministic
inventory model would be used. However, when demand cannot be predicted very well, it becomes
necessary to use a stochastic inventory model where the demand in any period is a random variable
rather than a known constant.

There are several basic considerations involved in determining an inventory policy that must be
reflected in the mathematical inventory model. These are illustrated in the examples presented in the
first section and then are described in general terms in Sec. 19.2. Section 19.3 develops and analyzes
deterministic inventory models for situations where the inventory level is under continuous review.
Section 19.4 does the same for situations where the planning is being done for a series of periods rather
than continuously. The following three sections present stochastic models, first under continuous
review, then for a single period, and finally for a series of periods. The chapter concludes with a
discussion of how scientific inventory management is being used in practice to deal with very large
inventory systems, as illustrated by case studies at IBM and Hewlett-Packard

EXAMPLE 1 Manufacturing Speakers for TV Sets

A television manufacturing company produces its own speakers, which are used in the
production of its television sets. The television sets are assembled on a continuous production line at a
rate of 8,000 per month, with one speaker needed per set. The speakers are produced in batches
because they do not warrant setting up a continuous production line, and relatively large quantities can
be produced in a short time. Therefore, the speakers are placed into inventory until they are needed for
assembly into television sets on the production line. The company is interested in determining when to
produce a batch of speakers and how many speakers to produce in each batch. Several costs must be
considered:

1. Each time a batch is produced, a setup cost of $12,000 is incurred. This cost includes the cost of
“tooling up,” administrative costs, record keeping, and so forth. Note that the existence of this
cost argues for producing speakers in large batches.
2. The unit production cost of a single speaker (excluding the setup cost) is $10, independent of
the batch size produced. (In general, however, the unit production cost need not be constant
and may decrease with batch size.)
3. The production of speakers in large batches leads to a large inventory. The estimated holding
cost of keeping a speaker in stock is $0.30 per month. This cost includes the cost of capital tied
up in inventory. Since the money invested in inventory cannot be used in other productive ways,
this cost of capital consists of the lost return (referred to as the opportunity cost) because
alternative uses of the money must be forgone. Other components of the holding cost include
the cost of leasing the storage space, the cost of insurance against loss of inventory by fire,
theft, or vandalism, taxes based on the value of the inventory, and the cost of personnel who
oversee and protect the inventory.
4. Company policy prohibits deliberately planning for shortages of any of its components.
However, a shortage of speakers occasionally crops up, and it has been estimated that each
speaker that is not available when required costs $1.10 per month. This shortage cost includes
the extra cost of installing speakers after the television set is fully assembled otherwise, the
interest lost because of the delay in receiving sales revenue, the cost of extra record keeping,
and so forth.

EXAMPLE 2 Wholesale Distribution of Bicycles

A wholesale distributor of bicycles is having trouble with shortages of a popular model (a small,
one-speed girl’s bicycle) and is currently reviewing the inventory policy for this model. The distributor
purchases this model bicycle from the manufacturer monthly and then supplies it to various bicycle
shops in the western United States in response to purchase orders. What the total demand from bicycle
shops will be in any given month is quite uncertain. Therefore, the question is, How many bicycles
should be ordered from the manufacturer for any given month, given the stock level leading into that
month? The distributor has analyzed her costs and has determined that the following are important:

1. The ordering cost, i.e., the cost of placing an order plus the cost of the bicycles being purchased,
has two components: The administrative cost involved in placing an order is estimated as $200,
and the actual cost of each bicycle is $35 for this wholesaler.
2. The holding cost, i.e., the cost of maintaining an inventory, is $1 per bicycle remaining at the end
of the month. This cost represents the costs of capital tied up, warehouse space, insurance,
taxes, and so on.
3. The shortage cost is the cost of not having a bicycle on hand when needed. This particular model
is easily reordered from the manufacturer, and stores usually accept a delay in delivery. Still,
although shortages are permissible, the distributor feels that she incurs a loss, which she
estimates to be $15 per bicycle per month of shortage. This estimated cost takes into account
the possible loss of future sales because of the loss of customer goodwill. Other components of
this cost include lost interest on delayed sales revenue, and additional administrative costs
associated with shortages. If some stores were to cancel orders because of delays, the lost
revenues from these lost sales would need to be included in the shortage cost. Fortunately, such
cancellations normally do not occur for this model.