Lecture Day 1

 Introduction to Management Science

 Linear Programming
 Introduction to
Management Science
Management Science is . . .
. . . the discipline devoted to studying and developing
procedures to help in the process of making
decisions.
. . . the use of the scientific method for decision
making.
. . . an interdisciplinary field comprising elements of
mathematics, economics, computer science, and
engineering.
. . . an experimental and applied science devoted to
observing, understanding, and predicting the
behavior of purposeful human/machine systems.
- Operations Research Society of America
 Historical Overview
 Venetian shipbuilders of the fifteenth century are
known to have used an assembly line in outfitting
ships
 Adam Smith and his study on the merits of
division of labor in 1776
 Charles Babbage wrote “On Economy of
Machines and Manufactures” (1832) which
discussed issues relevant to management science
such as skill differential in wages
 Historical Overview

 Frederick W. Taylor is known as the father of scientific

management
 he formally advocated a scientific approach
to the problems of manufacturing which led
to the development of industrial engineering
as a profession
 he worked under the philosophy that there was
one “best way” or most efficient way to
accomplish a given task
 Henry L. Gantt refined the content of early scientific
management by bringing into consideration the
human aspect of management’s attitude toward labor
 Historical Overview

 Frederick W. Lanchester attempted in 1914 to

predict the outcome of military battles based on
the numerical strength of personnel and weaponry,
which represented the first attempt to model an
organizational decision problem mathematically.
 Horace C. Levinson was one of the first to apply
sophisticated mathematical models to business
problems. In the 1930s, he studied the relationship
between advertising and sales as well as the effect
of income and residential location on customer
purchases.
 Historical Overview
 World War II developments:
 Investigation on the effective use of radar,
anti-submarine warfare, civilian defense, and
the optimal deployment of convoy vessels
to accompany supply ships
 British P.M.S. Blackett and his Blackett Circus
which exemplify the multidiscipline team
approach in using MS/OR models
 John von Neumann developed game theory and
utility theory
 George Dantzig developed the simplex method
of linear programming which uses linear algebra
to determine the optimal allocation of scarce
resources
 Management Science
follows the
Scientific Method

 Observation
 Definition of the problem
 Formulation of a hypothesis
 Experimentation
 Verification
 Management Science
follows the
Systems Approach
 Consider an organization as a human/machine
system comprising components such as
machinery, departments, and individual people.
 Viewing the organization as a system permits
the management scientist to consider
the individual components in relation to
the entire organization.
 Characteristics of the
Management Science Approach

 Viewing the problem within a systems

perspective
 Applying the scientific method to develop
the solution methodology
 Using a team, or interdisciplinary, approach
 Using a mathematical model
 Using a high-speed electronic computer
 Models in Management Science

 A model is a representation or an abstraction

of an object or a particular real-world
phenomenon.
 The purpose of the model is to gain specific
information about, and general insight into,
the phenomenon that it represents.
 A good model accurately displays the key
properties of the entity it represents.
 Types of Models

 Iconic model - a physical representation that

actually looks like the object it represents
 Analog model - substitutes one property for
another; it can represent dynamic situations
statically
 Symbolic or Mathematical model - attempts
to represent non-mathematical reality by
means of equations and other mathematical
statements
 A mathematical model must be detailed enough
to represent the essential realities of the
problem and yet manageable in terms of
computation and implementation.
 No mathematical model can capture all the
characteristics, properties, and uncertainties
of a real situation.
 Most models created for Management Science
applications consist of the following system of
equations:

 Objective Function - a single equation used

to measure the effectiveness of proposed
solutions
 Constraints - equations which ensure that
the solution satisfies certain requirements
dictated by the nature of the problem
 Consider the following “knapsack”
or cargo-loading problem:

Item Weight (lbs.) Value

1. Water 3.00 60
2. Tent 5.00 60
3. Food 4.00 40
4. Matches 0.01 10
5. Fishing Tackle 4.00 20
6. Sleeping Bag 3.00 10
7. Snake Bite Kit 0.50 3

Maximum capacity of knapsack = 10 lbs.

 Steps in Applying Management Science Techniques

Available Data Possible Education,

quantitative preparation future publicity,
models changes etc.

1 2 3 4 5 6
Facts Formulate Choose Solve the Test Establish Generate
the a proposed the controls acceptance
problem model model solution & implement

Problem Satisfactory Useful

definition Satis- technique technique
(a verbal Proposed Proposed factory for further
model) model solution solution solutions

Unsatisfactory solution Report

generation
 MS / OR Applications
 Public Sector:
 Urban-Social  Health
 City planning  Health care delivery
 Courtroom congestion system evaluation
 Air-water pollution control  Hospital admissions
 Solid waste disposal  Disease control
 Air & highway traffic  Dietary planning
patterns  Blood inventory policy
 Mass transit systems
 Population planning
 Municipal zoning
 Political campaign strategies
 MS / OR Applications
 Private Sector:
 Service
 Portfolio management
 Location of retail facility
 Insurance and risk
management
 Actuarial science
 Advertising media mix
 Airplane scheduling
 Telephone switching
 Transportation scheduling
 Industrial
 Production scheduling
 Optimal inventory
policies
 Distribution of
products
 Working capital
management
 Plant layouts
 Quality control
 Queuing analysis of
facilities
Linear Programming
Linear Programming (LP) is . . .

. . . primarily concerned with the determination of

the best allocation of scarce resources.
. . . a component of the more general field of
mathematical programming that is concerned
with the development of modeling and solution
procedures for the purpose of maximizing
the extent to which the goals and objectives
of the decision maker are realized.
 Despite the implication of its name, LP has little
to do with computer programming. In LP, the
word programming is related to planning.
 Specifically, it refers to modeling a problem and
subsequently solving it by mathematical
techniques.
 General Problem Situations To Which
Linear Programming Can Be Applied :
 Blending. In such problems, several raw ingredients
are mixed into a final product that must fulfill certain
specifications. The objective is to determine the blend
of ingredients that does not exceed available supply,
meets all technical specifications, and minimizes costs.
 Determining Product Mix. In these problems, it is
necessary to determine the kinds and quantities
of products to be manufactured to maximize profits.
The final product mix must take into consideration
the limited resources, expected demand for each
product, and various management policies.
 General Problem Situations To Which
Linear Programming Can Be Applied :
 Purchasing. LP can be used to help confront the kind
of purchasing decisions in which products are
available at different quantities, qualities, and prices.
The purchase decision must take into consideration
the output requirements and specifications as well as
budget limitations. LP can also be used in “make-or-
buy” situations.
 General Problem Situations To Which
Linear Programming Can Be Applied :
 Physical Distribution and Assignment. In these
problems, it is necessary to ship/transfer goods from
supply points or production facilities to warehouses
or centers of customer demand. The problem is to
determine the shipping pattern that minimizes
shipping costs, meets all demand, and does not
exceed available supply. In assignment problems,
the objective is to assign facilities or people to
specified jobs to maximize performance or minimize
costs or time.
 Canonical Form of a
Linear Programming Model
Maximize: c1x1 + c2x2 + . . . + cnxn
Subject to: a11x1 + a12x2 + . . . + a1nxn < b1
a21x1 + a22x2 + . . . + a2nxn < b2
.
.
.
am1x1 + am2x2 + . . . + amnxn < bm
and x1 > 0, x2 > 0, . . ., xn > 0
where: xj - decision variables
- they are the variables whose value is
determined when the LP model is solved
aij, cj, bi - parameters
- input data
 Product Mix Example
The Cordoba Company is a manufacturer of power
amplifiers and preamplifiers. It has the facilities to produce only
power amplifiers, only preamplifiers, or a combination of both.
Production resources are limited, and it is critical that the firm
produce the appropriate number of power amplifiers and/or
preamplifiers to maximize profit. Currently, the power amplifier
is selling for P799.95 and is contributing P200 toward profit.
The preamplifier sells for P1,000 and contributes P500 profit.
The production process is limited by scarcity of high-
quality transistors for the preamplifiers, assembly worker hours,
as well as testing and inspection working hours. Because of a
shortage of high-quality transistors, at most 40 preamplifiers
can be manufactured on a daily basis; all other electronic
components are in adequate supply. There are only 240 hrs. of
assembly worker time available each day with each power
amplifier requiring 1.2 hrs. and 4 hrs. for each preamplifier.
There are 81 worker hours available for inspection and testing
each day, and the two components require 0.5 and 1 hour,
respectively.
Let: X1 = number of power
amplifiers
X2 = number of
preamplifiers

Max. Z = 200X1 + 500X2

Subject to:
X2 < 40
1.2X1 + 4X2 < 240
0.5X1 + X2 < 81
Xi > 0
End of Lecture Day 1