Management Notes

# Management Notes

Reference Notes for Management

# Models of Operations Research – 10 Major Models in Detail | Operations Management

## Models of Operations Research

An Operations Research discipline combines mathematical and analytical methods in order to optimize decision-making processes in complex systems through the application of quantitative methods.

It involves the application of quantitative techniques to improve the effectiveness of various operations in business, industry, and other fields. Various types of models can be found in the field of Operations Research, each of which is tailored to address specific types of problems.

Some of the models of operations research are as follows: ### 1. Linear Programming (LP):

A linear mathematical model is optimized using linear programming to find the best possible outcome. In the model, there is a linear constraint that controls the objective function, with decision variables representing the quantities to be determined. The objective function and constraints are subject to linear constraints.

Typically, an objective function represents a quantity that needs to be optimized, such as profit, cost, or time, by combining a linear combination of decision variables. Constraints are linear inequalities or equations that represent limitations or restrictions on the decision variables, such as availability of resources or capacity limitations.

In order to solve LP problems, the Simplex method is often used. The interior point method can also be used to solve large-scale LP problems efficiently. It moves along the edges of the feasible region (defined by the constraints) until it reaches the optimal solution.

### 2. Integer Programming (IP):

Integer programming extends linear programming by requiring some or all decision variables to take integer values. It introduces discrete decision options and makes this problem much more challenging.

Among the applications of IP are project scheduling, capital budgeting, production planning, and network design, among others. MILP (Mixed Integer Linear Programming) is a variation of IP with some variables restricted to integers and others having continuous values.

A discrete decision variable has a combinatorial nature, so solving IP problems is more computationally demanding than solving LP problems. To find optimal or near-optimal solutions efficiently, advanced methods like branch-and-bound, branch-and-cut, and cutting plane are commonly employed.

### 3. Non-Linear Programming (NLP):

During non-linear programming, the objective function or constraints have non-linear relationships, making it challenging to find the global optimum when nonlinearities are present. Nonlinearities often produce multiple local optima, making it more challenging to find the global optimum.

The Newton-Raphson method and steepest descent are two gradient-based methods for finding local optima, which have a lot of applications in engineering design, financial planning, and statistic modeling.

When finding the global optimum is important, genetic algorithms, simulated annealing, and particle swarm optimization are used. By using these methods, the search space is explored more effectively and the chances of finding the best solution are increased.

### 4. Network Optimization:

A network optimization model is used to reduce costs, maximize efficiency, and optimize flow through a network. There are nodes and arcs/edges in a network, where nodes represent entities (e.g., cities, facilities, or computers) and arcs represent connections or routes between nodes.

Network optimization problems such as the shortest path problem seek to find the shortest path between two nodes. Using the minimum spanning tree problem, all nodes in the network can be connected in the most cost-effective way. Based on arc capacity constraints, the maximum flow problem determines how much flow can flow through a network.

Network optimization models are widely used in transport, logistics, telecommunications, and urban planning. The traveling salesman problem (TSP) is one of the most widely studied optimization problems.

### 5. Dynamic Programming:

Dynamic programming consists of breaking complex problems down into simpler overlapping subproblems, thus optimizing sequential decision-making processes where changes made at one stage influence those at the next.

Dynamic programming relies on the idea of storing and reusing intermediate results, which can greatly reduce the computational effort required for certain problems. A wide variety of applications use this technique, such as inventory control, project scheduling, and resource allocation.

There is a classic example of this problem, where a knapsack has a limited capacity and items with specific weights and values need to be selected to maximize the value while staying within the capacity.

### 6. Queuing Theory:

The queueing theory examines waiting lines or queues and aims to optimize their performance in various fields such as telecommunications, healthcare, transportation, and service.

In order to make informed decisions about resource allocation and system design, queuing models analyze factors such as arrival rates, service rates, queue lengths, and waiting times. Efforts are being made to minimize wait times, maximize resource utilization, and increase customer satisfaction.

Queueing models include the M/M/1 queue (exponential arrival and service times with one server), the M/M/c queue (multiple servers), and the M/G/1 queue (general distribution of service times).

### 7. Inventory Models:

Organizations use inventory models to determine optimal inventory levels, order quantities, reorder points, and safety stocks. They help adjust inventory levels according to demand and supply.

EOQ calculates the optimal order quantity that minimizes the total inventory holding cost and ordering cost. Periodic Review Model (s, S) calculates the optimal order quantity that minimizes the total inventory holding cost. In the Periodic Review Model, inventory levels are checked at fixed intervals and orders are placed whenever they fall below a reorder point (s).

The role of inventory models in supply chain management and production planning is crucial, ensuring that there is sufficient stock on hand to meet customer demands while minimizing holding costs.

### 8. Markov Chains:

A Markov chain is a stochastic model used to analyze systems with probabilistic transitions between different states. Each state is associated with a probability distribution describing the likelihood of transitioning to another state.

Among the many applications of Markov chains are predicting customer behavior in marketing, analyzing system reliability, forecasting weather, and modeling disease spread.

It is possible to determine the steady-state probabilities, expected time spent in each state, and other important characteristics of a system by analyzing its state transition probabilities.

### 9. Game Theory:

A game theory is a method for analyzing how individuals interact with each other in order to determine the best strategies they should employ. It is used in fields such as economics, business, politics, and other fields where strategic interactions occur frequently.

According to game theory, games are modeled as matrices or trees, in which players choose their strategies, and the outcome is determined by the collective decisions they make. As a result, no player can unilaterally change their strategy to improve their outcome.

A variety of applications of game theory are found in marketing, international relations, and conflict resolution.

### 10. Simulation:

In simulation, a computer-based model of a real system is constructed and different scenarios are tested to observe how it behaves. When real-world experimentation is impractical or expensive or when the mathematical model of a system is too complex, this method is particularly helpful.

Manufacturing processes, healthcare systems, transportation networks, and financial markets are examples of systems that can be studied with simulations. In order to evaluate the impact of changes or improvements, analysts can run simulations to identify bottlenecks, analyze system performance, and identify system performance issues.

It is crucial for Operations Researchers to have these models, among others, in order to optimize processes, minimize costs, maximize efficiency, and make informed decisions in a variety of real-world situations. Operations Research continues to contribute to the improvement of decision-making processes and systems across a wide range of industries by combining mathematical rigor with practical applicability.

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