Introduction to Optimization

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MIT and James Orlin
 What is Operations Research?
What is Management Science?
World War II : British military leaders asked scientists
and engineers to analyze several military problems
Deployment of radar
Management of convoy, bombing, antisubmarine, and mining
operations.
The result was called Military Operations Research,
later Operations Research

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 What is Management Science
(Operations Research)?

Today: Operations Research and Management

Science mean
the use of mathematical models in providing guidelines
to managers for making effective decisions within the
state of the current information, or in seeking further
information if current knowledge is insufficient to reach a
proper decision.

c.f. Decision science, systems analysis,

operational research, systems dynamics,
operational analysis, engineering systems,
systems engineering, and more.

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MIT and James Orlin
Voices from the past
Waste neither time nor money, but make the
best use of both.
Benjamin Franklin

Obviously, the highest type of efficiency is

that which can utilize existing material to
the best advantage.
Jawaharlal Nehru

It is more probable that the average man

could, with no injury to his health, increase his efficiency fifty
percent.
Walter Scott
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Operations Research Over the Years
1947
Project Scoop (Scientific Computation of Optimum
Programs) with George Dantzig and others. Developed
the simplex method for linear programs.
1950's
Lots of excitement, mathematical developments,
queuing theory, mathematical programming.
cf. A.I. in the 1960's
1960's
More excitement, more development and grand
plans. cf. A.I. in the 1980's.

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 Operations Research Over the Years
1970's
Disappointment, and a settling down. NP-completeness.
More realistic expectations.
1980's
Widespread availability of personal computers.
Increasingly easy access to data. Widespread
willingness of managers to use models.
1990's
Improved use of O.R. systems.
Further inroads of O.R. technology, e.g., optimization
and simulation add-ins to spreadsheets, modeling
languages, large scale optimization. More intermixing of
A.I. and O.R.

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 Operations Research in the 00s
LOTS of opportunities for OR as a field
Data, data, data
E-business data (click stream, purchases, other
transactional data, E-mail and more)
The human genome project and its outgrowth
Need for more automated decision making
Need for increased coordination for efficient use of
resources (Supply chain management)

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 Optimization

As ageless
as time

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 Optimization in Nature
Heron of Alexandria
b
Angle of
c Incidence

Angle of Angle of
Incidence Reflection
b
a

First Century A.D

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 FERMAT

Angle 1 of
Incidence
Angle 2 of
Refraction

1628-29 10
MIT and James Orlin 2003
 Calculus
Maximum

Minimum

Fermat, Newton, Euler, Lagrange,

Gauss, and more
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MIT and James Orlin
 Overview of this Lecture
Course Administration
Background on Operations Research (Management
Science) and Optimization
Course Themes and Goals

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 Themes

Optimization is everywhere
Models, Models, Models
The goal of models is insight not numbers
paraphrase of Richard Hamming
Algorithms, Algorithms, Algorithms

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 Optimization is Everywhere
It is embedded in language, and part of the way
we think.
firms want to maximize value to shareholders
people want to make the best choices
We want the highest quality at the lowest price
When playing games, we want the best strategy
When we have too much to do, we want to optimize the
use of our time
etc.

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 Mathematical Optimization is nearly
everywhere
Finance
Marketing
E-business
Telecommunications
Games
Operations Management
Production Planning
Transportation Planning
System Design

Look for it! You will see opportunities for its use.
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MIT and James Orlin
 Overview of this Lecture
Course Administration
Background on Operations Research (Management
Science) and Optimization
Course Themes and Goals
Linear Programming Examples
MSR Marketing
GTC

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MIT and James Orlin
 Linear Programming (our first tool,
and probably the most important one.)
minimize or maximize a linear objective
subject to linear equalities and inequalities

maximize 3x + 4y
subject to 5x + 8y 24
x, y 0
A feasible solution satisfies all of the constraints.
x = 1, y = 1 is feasible; x = 1, y = 3 is infeasible.
An optimal solution is the best feasible solution.
The optimal solution is x = 4.8, y = 0. 17
MIT and James Orlin
 Terminology
Decision variables: e.g., x and y.
In general, there are quantities you can control to improve your
objective which should completely describe the set of decisions
to be made.

Constraints: e.g., 5x + 8y 24 , x 0 , y 0
Limitations on the values of the decision variables.

Objective Function. e.g., 3x + 4y

Value measure used to rank alternatives
Seek to maximize or minimize this objective
examples: maximize NPV, minimize cost

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 MSR Marketing Inc.
adapted from Frontline Systems

Need to choose ads to reach at least 1.5 million people

Minimize Cost
Upper bound on number of ads of each type

TV Radio Mail Newspaper

Audience Size 50,000 25,000 20,000 15,000

Cost/Impression $500 $200 $250 $125

Max # of ads 20 15 10 15
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 Formulating as a math model
Work with your partner

1. The decisions are how many ads of each type to

choose. Let x1 be the number of TV ads selected. Let
x2, x3, x4 denote the number of radio, mail, and
newspaper ads. These are the decision variables.
2. What is the objective? Express the objective in terms
of the decision variables.
3. What are the constraints? Express these in terms of
the decision variables.
4. If you have time, try to find the best solution.

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 The MSR Marketing Problem

Minimize 500 x1 + 200 x2 + 250 x3 + 125 x4

subject to 50 x1 + 25 x2 + 20 x3 + 15 x4 1,500
0 x1 20
0 x2 15
0 x3 10
0 x4 15

MSR Marketing

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 Gemstone Tool Company
(Thanks to Rob Freund)

Privately-held firm
Consumer and industrial market for construction tools
Headquartered in Seattle
Manufacturing plants in the US, Canada, and Mexico.
Simplifying assumptions, for purposes of illustration:
Winnipeg, Canada plant
Wrenches and pliers.
Made from steel
Injection molding machine
Assembly machine

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 Data for the GTC Problem

Wrenches Pliers Available

Steel 1.5 1.0 15,000 pounds
Molding Machine 1.0 1.0 12,000 hrs
Assembly Machine .4 .5 5,000 hrs
Demand Limit 8,000 10,000
Contribution $.40 $.30
($ per item)
We want to determine the number of wrenches and pliers
to produce given the available raw materials, machine
hours and demand. 23
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 Formulating the GTC Problem

Step 1: Determine Decision Variables

W = number of wrenches manufactured
P = number of pliers manufactured

Step 2: Determine Objective Function

Maximize Profit =

.4 W + .3 P

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 The Formulation Continued

Step 3: Determine Constraints

Steel: 1.5 W + P 15,000

Molding: W + P 12,000
Assembly: 0.4 W + 0.5 P 5,000

Wrench Demand: 0 W 8,000

Plier Demand: 0 P 10,000

We will show how to solve this in the next lecture.

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 Addressing managerial problems: A
management science framework
1. Determine the problem to be solved
2. Observe the system and gather data
3. Formulate a mathematical model of the problem
and any important subproblems
4. Verify the model and use the model for prediction
or analysis
5. Select a suitable alternative
6. Present the results to the organization
7. Implement and evaluate

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 Dealing with very large versions of the
problem
Suppose that there are 10,000 products and 100
raw materials and processes that lead to
constraints.
Old technique used: write a Fortran program that
generates the linear program
New technique used: write an algebraic version
of the model

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 An Algebraic Formulation
n = number of items that are manufactured
e.g., in the previous example, n = 2;
m = number of resource constraints
e.g., m = 2, {molding, and assembly}

Represent data in the previous example, using letters that stand

for the data. In practice, the data is drawn from a table, and the
letters refer to the table, and the subscripts indicate the position
in the table.

pj = unit profit from item j, e.g., p1 = .3;

dj = maximum demand for item j; e.g.,
xj = number of units of item j manufactured

bi = amount of resource i available

aij = amount of resource i used in making item j
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MIT and James Orlin
 An Algebraic formulation
n
Maximize p x
j 1
j j

subject to
a

j
x
1

ibf
o
jjr
i 1
t
om i

x
j d
jf
o
rj
1t
on

xf
j 0
or
j=
1t
on
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MIT and James Orlin
 Linear Programs

A linear function is a function of the form:

f(x1, x2, . . . , xn) = c1x1 + c2x2 + . . . + cnxn
= i=1 to n cixi
E.g., 3x1 + 4x2 - 3x4.
A mathematical program is a linear program (LP) if the
objective is a linear function and the constraints are
linear equalities or inequalities.
E.g. 3x1 + 4x2 - 3x4 7
x1 - 2x5 = 7
Typically, an LP has non-negativity constraints.

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 A non-linear program is permitted to have
a non-linear objective and constraints.

maximize f(x,y) = xy
subject to x - y2/2 10
3x 4y 2
x 0, y 0

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 An integer program is a linear program
plus constraints that some or all of the
variables are integer valued.
Maximize 3x1 + 4x2 - 3x3
3x1 + 2x2 - x3 17
3x2 - x3 = 14
x1 0, x2 0, x3 0 and
x1 , x2, x3 are all integers

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MIT and James Orlin
 An Algebraic formulation with
equality constraints
n
Max or min c x
j 1
j j

n
subject to
a

j1
f
xb
ior
jj
i 1
t
om i

x
j 0
f
or
jt
1o
n
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MIT and James Orlin
 Linear Programming Assumptions

Maximize 4W + 3P
1.5W + P 15
.
Proportionality Assumption Contribution from W is
proportional to W
Additivity Assumption Contribution to objective function from
P is independent of W.
Divisibility Assumption Each variable is allowed to assume
fractional values.
Certainty Assumption. Each linear coefficient of the objective
function and constraints is known (and is not a random
variable).

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MIT and James Orlin
 Overview of this Lecture
Course Administration
Background on Operations Research (Management
Science) and Optimization
Course Themes and Goals
Linear Programming Examples
MSR Marketing
GTC
Some Success Stories (if there is time)

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MIT and James Orlin
 Some Success Stories

Optimal crew scheduling saves American Airlines $20 million/yr.

Improved shipment routing saves Yellow Freight over $17.3
million/yr.
Improved truck dispatching at Reynolds Metals improves on-time
delivery and reduces freight cost by $7 million/yr.
GTE local capacity expansion saves $30 million/yr.

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 Other Success Stories (cont.)

Optimizing global supply chains saves Digital

Equipment over $300 million.
Restructuring North America Operations, Proctor and
Gamble reduces plants by 20%, saving $200
million/yr.
Optimal traffic control of Hanshin Expressway in
Osaka saves 17 million driver hours/yr.
Better scheduling of hydro and thermal generating
units saves southern company $140 million.

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 Success Stories (cont.)

Improved production planning at Sadia (Brazil) saves

$50 million over three years.
Production Optimization at Harris Corporation improves
on-time deliveries from 75% to 90%.
Tata Steel (India) optimizes response to power shortage
contributing $73 million.
Optimizing police patrol officer scheduling saves police
department $11 million/yr.
Gasoline blending at Texaco results in saving of over
$30 million/yr.
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 Summary

Answered the question: What is Operations

Research & Management Science? and provided
some historical perspective.
Introduced the terminology of linear programming
Two Examples:
1. MSR Marketing
2. Gemstone Tool Company
Small (2-dimensional) Linear Program, non-obvious solution

We will discuss this problem in detail in the next lecture

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