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What is Operation research ?

Operation research is a scientific approach to analyzing problems and making

decisions. OR professionals aim to provide rational bases for decision making by

seeking to understand and structure complex situations and to use thisunderstanding to predict system behaviour and improve system performance. Much

of this work is done using analytical and numerical techniques to develop and

manipulate mathematical and computer models of organizational systems composed

of people, machines, and procedures.

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. Originating in military efforts before World War II, its techniques have

grown to concern problems in a variety of industries.

The term Operations Research (OR) describes the discipline that is focused on the

application of information technology for informed decision-making. In other words,

OR represents the study of optimal resource allocation. The goal of OR is to provide

rational bases for decision making by seeking to understand and structure complex

situations, and to utilize this understanding to predict system behaviour and improve

system performance. Much of the actual work is conducted by using analytical and

numerical techniques to develop and manipulate mathematical models of

organizational systems that are composed of people, machines, and procedures.

This article introduces some of the methods and application that are affiliated withOR, and elaborates on some of the benefits that may be gained by incorporating OR

into the actual business framework.

OR Activities

ORs role in both, the public and the private sectors is increasing rapidly. In general,

OR addresses a wide variety of issues in transportation, inventory planning,

production planning, communication operations, computer operations, financial

assets, risk management, revenue management, and many otherfields where improving business productivity is paramount. In the public sector, OR

studies may focus on energy policy, defense, health care, water resource planning,

design and operation of urban emergency systems, or criminal justice. To reiterate,

OR reflects an analytical method of problem solving and decision-making that is

useful in the management of organizations. In OR, problems are decomposed

into basic components and solved via mathematical analysis. Some of the analytical

methods used in OR include mathematical logic, simulation, network analysis,

queuing theory, and game theory.

The actual OR process can in general be described via three steps.


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(1) A set of potential solutions to a problem is identified and developed (the set may

be rather large).

(2) The alternatives derived in the first step are analyzed, and reduced to a smallerset of solutions (the solutions have to be feasible and workable).

(3)The alternatives derived in the second step are subjected to simulated

implementation and, if feasible, exposed to an actual analysis in a real-world

environment. It has to be pointed out that in the final step, psychology and

management sciences often play a rather important role. Generally speaking, OR

improves the effectiveness and the efficiency of an institution, hence some of the

benefits offered by OR include:

Decrease Cost or Investment

Increase Revenue or Return on Investment

Increase Market Share

Manage and Reduce Risk

Improve Quality

Increase Throughput while Decreasing Delays

Achieve Improved Utilization form Limited Resources

Demonstrate Feasibility and Workability

OR Functions and Methods

OR may assist decision-makers in almost any management function. To illustrate,

OR supports the key decision making process, allows to solve urgent problems, can

be utilized to design improved multistep operations (processes), setup policies,

supports the planning and forecasting steps, and measures actual results. OR can

be applied at the non-manager levels as well, as engineers or consumers alike can

benefit from the improved and streamlined decision-making process. When first

encountered, the methods commonly utilized in OR may seem obscure. Technical

labels such as multi-criteria decision analysis, linear and non-linear programming,discrete-simulation, queuing and stochastic process modeling, conjoint analysis, or

neural networking further foster this general impression. Despite the wealth of labels

available in the filled of OR, most projects apply one of

three broad groups of methods, which may be described as:

Simulation methods, where the goal is to develop simulators that provide the

decision-maker with the ability to conduct sensitivity studies to (1) search for

improvements, and (2) to test and benchmark the improvement ideas that are being

made.


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Optimization methods, where the goal is to enable the decision maker to search

among possible choices in an efficient and effective manner, in environments where

thousands or millions of choices may actually be feasible, or where some of the

comparing choices are rather complex. The ultimate goal is to identify and locate the

very best choice based on certain criterias.

Data-analysis methods, where the goal is to aid the decision-maker in detecting

actual patterns and inter-connections in the data set. This method is rather useful in

numerous applications including forecasting and data mining based business

environments. Within each of the three basic groups, many probabilistic methods

provide the ability to assess risk and uncertainty factors.

OR in Manufacturing

As OR has made (over the years) significant contributions in virtually all industries, in

almost all managerial and decision-making functions, and at most organizational

levels, the list of OR applications is prodigious. Hence, this article focuses in the next

few paragraphs on the manufacturing industry, and introduces some of the

application where OR is being used. The term operations in OR may suggests that

the manufacturing application category represents the original home of OR. That is

not quite accurate, as the name originated from military operations, not business

operations. Nevertheless, it is a true statement that ORs successes in contemporary

business pervade manufacturing and service operations, logistics, distribution,transportation, and telecommunication. The myriad applications include scheduling,

routing, workflow improvements, elimination of bottlenecks, inventory control,

business process re-engineering, site selection, or facility and general operational

planning. Revenue and supply chain management reflect two growing applications

that are distinguished by their use of several OR methods to cover several functions.

Revenue management entails first to accurately forecasting the demand, and

secondly to adjust the price structure over time to more profitably allocate fixed

capacity. Supply chain decisions describe the who, what, when, and where

abstraction from purchasing and transporting raw materials and parts, through

manufacturing actual products and goods, and finally distributing and delivering the

items to the customers. The prime management goal here may be to reduce overall

cost while processing customer orders more efficiently

than before. The power of utilizing OR methods allows examining this rather

complex and convoluted chain in a comprehensive manner, and to search among a

vast number of combinations for the resource optimization and allocation strategy

that seem most effective, and hence beneficial to the operation.


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Importance of operation research

Operations research (OR) is a management function that draws extensively from

the divisions of mathematics and science. It makes use of algorithms, statistics and

numerous modeling techniques from mathematics to find the best possible solutions

for complex problems. In OR, the maxima has to be optimized and the minima has to

be reduced for all the objects involved. Maxima are usually the yield, performance

and profit and minima are the losses and risks. There are many reasons to use OR.

Business Operations

OR could be very effective in handling issues of inventory planning and

scheduling, production planning, transportation, financial and revenuemanagement and risk management. Basically, OR could be used in any

situation where improvements in the productivity of the business are of

paramount importance.

Control

With OR, organizations are greatly relieved from the burden of supervision of

all the routine and mundane tasks. The problem areas are identified

analytically and quantitatively. Tasks such as scheduling and replenishmentof inventories benefit immensely from OR.

Decision Making

OR is used for analyzing problems of decision making in a superior fashion.

The organization can decide on factors such as sequencing of jobs,

production scheduling and replacements. Also the organization can take a call

on whether or not to introduce new products or open new factories on the

basis of a good OR plan.

Coordination

Various departments in the organization can be coordinated well with suitable

OR. This facilitates smooth functioning for the entire organization.

Systems

With OR, any organization follows a systematic approach for the conduct of

its business. OR essentially emphasizes the use of computers in decisionmaking; hence the chances of errors are minimum.


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Characteristics of Operations Research

Operations research, an interdisciplinary division of mathematics and science, uses

statistics, algorithms and mathematical modeling techniques to solve complex

problems for the best possible solutions. This science is basically concerned with

optimizing maxima and minima of the objective functions involved. Examples of

maxima could be profit, performance and yield. Minima could be loss and risk. The

management of various companies has benefited immensely from operations

research.

Operations research is also known as OR. It has basic characteristics such as

systems orientation, using interdisciplinary groups, applying scientific methodology,

providing quantitative answers, revelation of newer problems and the consideration

of human factors in relation to the state under which research is being conducted.

Systems Orientation

This approach recognizes the fact that the behavior of any part of the system

has an effect on the system as a whole. This stresses the idea that the

interaction between parts of the system is what determines the functioning of

the system. No single part of the system can have a bearing effect on the

whole .OR attempts appraise the effect the changes of any single part would

have on the performance of the system as a whole. It then searches for thecauses of the problem that has arisen either in one part of the system or in

the international parts.

Interdisciplinary groups

The team performing the operational research is drawn from different

disciplines. The disciplines could include mathematics, psychology, statistics,

physics, economics and engineering. The knowledge of all the people

involved aids the research and preparation of the scientific model.

Application of Scientific Methodology

OR extensively uses scientific means and methods to solve problems. Most

OR studies cannot be conducted in laboratories, and the findings cannot be

applied to natural environments. Therefore, scientific and mathematical

models are used for studies. Simulation of these models is carried out, and

the findings are then studied with respect to the real environment.


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New Problems Revealed

Finding a solution to a problem in OR uncovers additional problems. To obtain

maximum benefits from the study, ongoing and continuous research is

necessary. New problems must be pursued immediately to be resolved. Acompany looking to reduce costs in manufacturing might discover in the

process that it needs to buy one more component to manufacture the end

product. Such a scenario would result in unexpected costs and budget

overruns. Ensuring flexibility for such contingencies is a key characteristic of

OR.

Provides Quantitative Answers

The solutions found by using operations research are always quantitative. OR

considers two or more options and emphasizes the best one. The company

must decide which option is the best alternative for it.

Human Factors

In other forms of quantitative research, human factors are not considered, but

in OR, human factors are a prime consideration. People involved in the

process may become sick, which would affect the company's output.

Typical Applications of Operations Research

Capital budgeting.

Asset allocation.

Portfolio selection.

Fraud prevention, Anti-Money Laundering.

Bench marking.

Marketing channel optimization, Customer segmentation.

Direct marketing campaigns, Predicting customer response, and Campaign optimization.

Supply Chain Planning.

Distribution , Routing, Scheduling, Traffic flow optimization.


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Resource allocation, Staff allocation.

Inventory planning.

Retail planning, Merchandise optimization.

Product mix and blending, Industrial waste reduction

Trends and Opportunities

As operations researchers pursue their careers, a wide variety of industries and

specializations remain open to them. In the United States, the Bureau of Labor

Statistics reports that major employers of operations researchers include air carriers,

computer and data processing services firms, financial institutions, insurancecarriers, engineering and management services firms, telecommunication

companies, and the Federal Government. The Bureau also writes that job

opportunities in O.R. should be good because of interest in improving productivity,

effectiveness, and competitiveness, and because of the extensive availability of

data, computers, and software.

Following is a list of current trends influencing O.R. and opportunity areas for O.R.

professionals. Of course, these are only examples; opportunity is truly everywhere.

1. Opportunities by industry

2. Opportunities in the public sector

3. Trends by application

Opportunities by industry:-

Academia:

Among INFORMS members, positions teaching at universities remain a strong

source of employment. O.R. departments have revitalized themselves at engineering

and business schools such as the University of Alberta, Indiana University, Villanova

University, Georgia Tech, and North western University. For more on O.R.

opportunities and issues in academia, go to Issues & Strategies for Academics.

Agriculture and food are discovering operations research applications for planting,

procurement, and distribution.
http://www.orchampions.org/sell/academics/issues_strats.htmhttp://www.orchampions.org/sell/academics/issues_strats.htm


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Airline industry:

Although experiencing hard times, the airline industry is still a predominant area of

employment, both at airlines and at consultants contracting to airlines. Revenue

management and pricing, airline network planning, crew scheduling, maintenance

planning, parts inventory management, and fuel management offer assignments to

operations researchers.

Energy:

The oil industry was one of the first users of operations research techniques to help

manage their refinery operations, and operations research technologies are heavily

used by all the major oil companies. Electrical and hydro-electric companies use

operations research to determine how to efficiently produce power as well as trade

power among their partners. With the deregulation of the power industry, numerousopportunities for operations research are bound to arise.

Forestry uses O.R. in harvesting and at timber mills. Timber is a strong application

area.

Health care:

Health care continues to offer a variety of uses for operations research, including

quality assurance, the design of medical informatics, emergency room scheduling,

resource modelling, and, in some cases, diagnosis. Emergency services like 9-1-1and air ambulances rely on operations researchers to keep response times quick

and determine fleet levels. A recent application of revenue management by a

hospital for the purpose of contract negotiation with vendors may point to a new way

of containing medical costs. As the health care system and hospitals in particular

seek to reduce costs and make better use of resources, operations researchers can

model better systems as hospital staffers and as consultants.

Manufacturing:

Manufacturing organizations continue to use operations research to optimize factory

operations. One category of manufacturing, semiconductor optimization, is seeing a

vital use of O.R. professionals. O.R. professionals may also offer guidance in

technology adoption. Warehouse optimization, tied to manufacturing, is a potential

growth area. Supply chain planning, a key aspect of any manufacturing operation, is

driven by operations research technologies.

Marketing:

Marketing departments use operations research to determine the best ways totarget their diversified customer bases. Operations researchers can offer guidance


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on what are the right offers to give to the right customers, and when it is no longer

profitable to target certain segments of the market. Mining and similar sectors

working with natural resources may rely on the lessons of the forestry industry,

offering a potential growth area.

Pharmaceuticals:

Pharmaceutical companies continue to use O.R. professionals in the manufacture

and development of products, and in the management of drug portfolios representing

the assortment of different drugs maintained by companies.

Retailing:

Although retailing companies don't currently use O.R. heavily, clothing

manufacturers and stores are exploring O.R. applications to forecast sales, planpurchasing and production, do pricing, and improve supply chain management.

Telecommunications, although experiencing difficult financial times, may again rely

on operations researchers in various areas as the economy and the field stabilize.

Transportation:

Operations researchers perform logistics for air traffic control, trucking, and railroads.

Real-time dispatching and delivery truck routing are important O.R. areas. The

healthy package delivery field is one that continues to rely heavily on the work ofO.R. Another important area for operations researchers is international freight,

including the scheduling and pricing of containers.

Opportunities in the public sector

The public sector has offered opportunities in various areas, including school

location, fire and ambulance station location, police and firefighter deployment, and

policy science. Homeland security: Homeland security and related interstate andfederal systems may represent opportunities for operations researchers, who can

advise planners about where to spend and place resources within the system. O.R.

can help the fight against terror via routing and rerouting traffic in case of terrorist

attack, and the improvement of systems like the electrical grid.

Military:

Conceived during war, operations research remains strong in the military, where the

services use O.R. for personnel force management, logistics, transportation, war

gaming, strategic planning, tactical planning, and war theater optimization.Consultants to the military employ operations researchers, as well. The U.S. Bureau


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of Labour Statistics reports that in the United States, the military remains the largest

employer of operations researchers in the Federal Government, and that many

operations research analysts in private industry work directly or indirectly on national

defence.

Municipalities and states:

These levels of government rely more on operations researchers to deal with

highway traffic delays and the development of intelligent traffic systems.

Public health:

In public health, operations researchers have made important recommendations in

drug treatment, AIDS prevention, and organ donation.

Trends by application

Data mining: With the widespread emergence of very large databases, many

different organizations are finding vital help from O.R. professionals in extracting the

information they really want. O.R.'s data mining methods, whose use is growing

rapidly, give superior solutions in diverse database-plumbing applications such as

predicting purchasing behaviour, segmenting customers, detecting fraud, assessing

credit risk, and anticipating customer attrition.

E-commerce:

Even after the dot.com bust, E-commerce offers opportunities in business-to-

business and consumer areas of online purchasing, vendor purchasing models,

online auctions, and supply procurement. In addition to sellers, bidders are looking to

O.R. models for decision support on how to bid intelligently. Online grocers that

make home delivery are another area of opportunity for operations researchers.

Environmental applications:

Operations researchers offer aid in pollution control and the design of systems to

prevent shipping accidents.

Financial engineering:

Financial engineering and related work is seeing some instances of growth for

operations researchers, with work in portfolio selection, portfolio models, and hedge

fund strategies. Banks rely on risk management modeling, among other applications.

Insurers rely heavily on operations researchers to do risk analysis and pricing. Somecredit card companies use operation researchers to work on credit scoring.


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Marketing:

Direct marketing models, customer segmentation, Customer Relations Management

(CRM) all rely on the service of operations researchers, both at the business-to-

business and consumer level.

Revenue management:

The practice of retail management has extended from the airlines to hotels, cruises,

car rental operations, and even gas pipeline operations.

Scheduling:

Scheduling continues to offer employment for operations researchers, with O.R.

being used for sales forces, call centers , air traffic control, bus crewing, retailstaffing, and hospital nurses.

Strategic planning:

This remains an area where operations researchers offer great potential. Some large

companies rely extensively on operations researchers before introducing new

product lines or services. Some large and mid-size companies use O.R.-based

forecasting systems to plan sales and growth. Operations researchers have also

been instrumental in turning around ailing companies.

Supply chain management:

SCM continues to rely heavily on operations researchers, particularly those

optimizing the supply chain. Operations researchers in the field work for major

software companies and consultants, as well as major manufacturers and mid-sized

companies.

Some other uses of operation management are:-

Oil, Gas & Chemicals

Applications and benefits of Operations Research in Oil, Gas and Chemicals,

such as oil exploration, production, refining & distribution, chemicals.

Energy

Applications and benefits of Operations Research in Energy, such as power

(electricity), gas, water, telecommunications, etc.

Transport & Logistics

Applications and Benefits of Operations Research in Transport and Logistics,

such as transportation, travel, mail, express, supply chain logistics, etc.

ManufacturingApplications and Benefits of Operations Research in Manufacturing, such as
http://www.aimms.com/industries/oil-gas-chemicalshttp://www.aimms.com/industries/energyhttp://www.aimms.com/industries/transport-logisticshttp://www.aimms.com/industries/manufacturinghttp://www.aimms.com/industries/oil-gas-chemicalshttp://www.aimms.com/industries/energyhttp://www.aimms.com/industries/transport-logisticshttp://www.aimms.com/industries/manufacturing


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base materials, automotive, electronics, durable and fast moving consumer

goods.

Services & Government

Applications and Benefits of Operations Research in Services, Government and

Other, such as financial services, consultancy, healthcare, forestry, medicine

Challenges in Operations Research

Due to vast quantities of data and calculation, solving optimization problems is

challenging and time consuming. Thus, such approach towards performance

improvement may or may not be economically feasible for some organizations.

Numerous studies are conducted on development of more effective and efficient

heuristic and exact algorithms that can solve large scale optimization problems.

OR is quantitative problem solving technique; hence, data plays important, if not the

most important, role in producing high quality and executable solutions. With an

organization that has data readily available using information system such as MRP

and ERP should be able to use the required data with certain level of integrity.

However, for a system that is highly manual, data driven decision science

techniques presented her may or may not be the appropriate approach. With

companies moving towards managing business with some form of company-wide

information system; Linear Programming, Discrete Event Simulation and Queueing

Theory will be most suitable and appropriate decision tools.

CONCLUSION

Another name for managers is decision makers. To survive and lead the todays

highly competitive and demand driven market, pressure is on management to make

economical decisions. One of the essential managerial skills is ability to allocate and

utilize resources appropriately in the efforts of achieving the optimal performance

efficiently. In some cases such as small-scale low complexity environment, decision

based on intuition with minimal quantitative basis may be reasonably acceptable and

practical in achieving the goal of the organization. However, for a large-scale

system, both quantitative and qualitative (i.e. intuition, experience, common sense)

analyses are required to make the most economical decisions. Using Operations

Research techniques including Linear Programming, Discrete Event Simulation and

Queueing Theory, organization leaders can make high quality decisions. Operations

managers are not expected to be experts in any decision science tools; however, he

or she must have fundamental knowledge of such tools to acquire right resources

and to make the most economically sounding decisions for the company as a whole.
http://www.aimms.com/industries/services-governmenthttp://www.aimms.com/industries/services-governmenthttp://www.aimms.com/industries/services-government

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