Management Science

 Operational research, also known as operations research, is an

interdisciplinary mathematical science that focuses on the effective use of
technology by organizations.

 Employing techniques from other mathematical sciences --- such

as mathematical modeling, statistical analysis, and mathematical
optimization--- operations research arrives at optimal or near-optimal
solutions to complex decision-making problems.

 Operations Research is often concerned with determining the maximum (of

profit, performance, or yield) or minimum (of loss, risk, or cost) of some real-
world objective
 Work in operational research and management science may be characterized
as one of three categories :

 Fundamental or foundational work takes place in three mathematical

disciplines: probability, optimization, and dynamical systems theory.

 Modeling work is concerned with the construction of models, analyzing them

mathematically, implementing them on computers, solving them using
software tools, and assessing their effectiveness with data. This level is
mainly instrumental, and driven mainly by statistics and econometrics.

 Application work in operational research, like

other engineering and economics' disciplines, attempts to use models to make
a practical impact on real-world problems.
The major subdisciplines in modern operational research, as identified by the
journal Operations Research, are:

 Computing and information technologies

 Decision analysis
 Environment, energy, and natural resources
 Financial engineering
 Manufacturing, service sciences, and supply chain management
 Policy modeling and public sector work
 Revenue management
 Simulation
 Stochastic models
 Transportation
History

 As a formal discipline, operational research originated in the efforts

of military planners during World War II. In the decades after the war,
the techniques began to be applied more widely to problems in
business, industry and society.

 Since that time, operational research has expanded into a field widely
used in industries ranging from petrochemicals to airlines, finance,
logistics, and government, moving to a focus on the development of
mathematical models that can be used to analyze and optimize
complex systems, and has become an area of active academic and
industrial research.
Applications of Management Science

The range of problems and issues to which management science has

contributed insights and solutions is vast. It includes :

 scheduling airlines, including both planes and crew.

 deciding the appropriate place to site new facilities such as a warehouse,
factory or fire station.
 managing the flow of water from reservoirs.
 identifying possible future development paths for parts of the
telecommunications industry.
 establishing the information needs and appropriate systems to supply them
within the health service.
 identifying and understanding the strategies adopted by companies for their
information systems.
 Management science is also concerned with so-called ”soft-operational
analysis”, which concerns methods for strategic planning, strategic decision
support, and Problem Structuring Methods (PSM). Therefore, during the past
30 years, a number of non-quantified modelling methods have been
developed. These include:

 stakeholder based approaches including metagame analysis and drama theory

 morphological analysis and various forms of influence diagrams.
 approaches using cognitive mapping
 the Strategic Choice Approach
 robustness analysis
Researchers in Management Science

 Russell L. Ackoff- He was a pioneer in the field of operations research, systems

thinking and management science. He started his career in Operations Research at
the end of the 1940s.

 Anthony Stafford Beer-was a British theorist, consultant and professor at the

Manchester Business School. He is best known for his work in the fields of
operational research and management cybernetics. Stafford Beer worked in the
fields of operational research, cybernetics and management science. He had
become aware of operational research while being in the army, and he was quick to
identify the advantages it could bring to business.

 Alfred Blumstein- He is known as one of the top researchers in criminology and

operations research. Blumstein's research centers around modeling
criminals,careers, deterrence, prison population, transportation analysis, drug-
enforcement policy, and he developed "lambda" in criminologyas a measurement of
an individual's offending frequency.
 West Churchman-Churchman became internationally recognized due to his
then radical concept of incorporating ethical values into operating systems.
He made significant contributions in the fields of management science,
operations research and systems theory.

 George Dantzig-Dantzig is known for his development of the simplex

algorithm, an algorithm for solving linear programming problems.

 Thomas L. Magnanti- Magnanti's teaching and research interests are in

applied and theoretical aspects of large-scale optimization and operations
research, specifically on the theory and application of large-scale
optimization, particularly in the areas of network flows, nonlinear
programming, and combinatorial optimization. He has conducted research on
such topics as production planning and scheduling, transportation planning,
facility location, logistics, and communication systems design.
 Linear Programming (LP) problems can be solved on the computer using
dedicated software such as WhatsBest!, solver (Excel add-on) and many
others.
 There are special classes of LP problems such as the Transshipment Problem
(a special class of TP).
 Efficient solutions methods exist to solve the Transshipment Problem.
Transshipment Problem
 A network model is one which can be represented by a set of nodes, a set of
arcs, and functions (e.g. costs, supplies, demands, etc.) associated with the
arcs and/or nodes.
 Transshipment Problem is an example of a network problem.
Transshipment Problem
 Transshipment problems are transportation problems in which a shipment
may move through intermediate nodes (transshipment nodes) before reaching
a particular destination node.

 Transshipment problems can be converted to larger transportation problems

and solved by a special transportation program.

 Transshipment problems can also be solved by general purpose linear

programming codes.
 The network representation for a transshipment problem with two sources,
three intermediate nodes, and two destinations is shown on the next slide.
Transshipment Problem
 Network Representation
c36
3
c13 c37
s1 1 c14 6 d1

c15 c46
4 c47

c23 c24
c56 7 d2
s2 2
c25
5 c57

SOURCES INTERMEDIATE DESTINATIONS

NODES
Transshipment Problem
 Linear Programming Formulation
xij represents the shipment from node i to node j

Min SScijxij
ij

s.t. Sxij < si for each source (origin) i

j

Sxik - Sxkj = 0 for each intermediate

i j node k (conservation of flow)

Sxij > dj for each destination j

i
xij > 0 for all i and j (nonnegativity)
Useful Excel/Solver Functions: Sumproduct

 SUMPRODUCT
Multiplies corresponding components in the given arrays,
and returns the sum of those products.

 Syntax: SUMPRODUCT(array1,array2,array3, ...)

• Array1, array2, array3, ...   are 2 to 30 arrays whose
components you want to multiply and then add.
Example : Thomas & Washburn

Thomas Industries and Washburn Corporation

supply three firms (Zrox, Hewes, Rockwright) with
customized shelving for its offices. They both
order shelving from the same two manufacturers,
Arnold Manufacturers and Supershelf, Inc.
Currently weekly demands by the users are 50 for
Zrox, 60 for Hewes, and 40 for Rockwright. Both
Arnold and Supershelf can supply at most 75 units
to its customers.
Additional data is shown on the next slide.
 Example : Thomas & Washburn
Because of long standing contracts based on past orders, unit costs from the
manufacturers to the suppliers are:

Thomas Washburn
Arnold 5 8
Supershelf 7 4

The cost to install the shelving at the various locations are:

Zrox Hewes Rockwright

Thomas 1 5 8
Washburn 3 4 4

Find the quantities to be shipped from each source to each destination to minimize the
total shipping cost.
Example 1: Thomas & Washburn
5

 Network Representation ZROX

+50
Zrox
1 3

5 1
ARNOLD
-75 Arnold Thomas 5
6
8 8

Hewes
HEWES +60
2 4
3 4
7
-75 Super Wash-
WASH 7
Shelf Burn
BURN
4 4
Rock-
Supply nodes Transshipment nodes Wright +40

Demand nodes
Example : Thomas & Washburn

 Linear Programming Formulation

 Decision Variables Defined
xij = amount shipped from manufacturer i to supplier j
xjk = amount shipped from supplier j to customer k
where i = 1 (Arnold), 2 (Supershelf)
j = 3 (Thomas), 4 (Washburn)
k = 5 (Zrox), 6 (Hewes), 7 (Rockwright)
 Objective Function Defined
Minimize Overall Shipping Costs:
Min 5x13 + 8x14 + 7x23 + 4x24 + 1x35 + 5x36 + 8x37
+ 3x45 + 4x46 + 4x47
Example: Thomas & Washburn

 Constraints Defined
Amount Out of Arnold: x13 + x14 < 75
Amount Out of Supershelf: x23 + x24 < 75
Amount Through Thomas: x13 + x23 - x35 - x36 - x37 = 0
Amount Through Washburn: x14 + x24 - x45 - x46 - x47 = 0
Amount Into Zrox: x35 + x45 > 50
Amount Into Hewes: x36 + x46 > 60
Amount Into Rockwright: x37 + x47 > 40

Non-negativity of Variables: xij > 0, for all i and j.

 Example: Thomas & Washburn problem
via LP
 The solver formulation is:
The Transshipment Problem

Ship From To Unit Cost

0 1 Arnold 3 Thomas $5
Nodes Net Flow Supply/Demand
0 1 Arnold 4 Washburn $8
1 Arnold 0 -75
0 2 SuperShelf 3 Thomas $7
2 SuperShelf 0 -75
0 2 SuperShelf 4 Washburn $4
0 3 Thomas 5 Zrox $1
3 Thomas 0 0
0 3 Thomas 6 Hewes $5 4 Washburn 0 0
0 3 Thomas 7 Rock-Wright $8 5 Zrox 0 50
0 4 Washburn 5 Zrox $3 6 Hewes 0 60
0 4 Washburn 6 Hewes $4 7 Rock-Wright 0 40
0 4 Washburn 7 Rock-Wright $4

Total Transportation Cost $0

 Example: Thomas & Washburn problem via LP

 The solver solution is:

The Transshipment Problem

Ship From To Unit Cost

75 1 Arnold 3 Thomas $5 Supply (-) or
0 1 Arnold 4 Washburn $8 Nodes Net Flow Demand (+)
0 2 SuperShelf 3 Thomas $7 1 Arnold -75 -75
75 2 SuperShelf 4 Washburn $4 2 SuperShelf -75 -75
50 3 Thomas 5 Zrox $1 3 Thomas 0 0
25 3 Thomas 6 Hewes $5 4 Washburn 0 0
0 3 Thomas 7 Rock-Wright $8 5 Zrox 50 50
0 4 Washburn 5 Zrox $3 6 Hewes 60 60
35 4 Washburn 6 Hewes $4 7 Rock-Wright 40 40
40 4 Washburn 7 Rock-Wright $4

Total Transportation Cost $1,150