Professional Documents
Culture Documents
Problm 5.10. A job ordr company has to work out th assignmnt of 5 diffrnt
jobs on fiv diffrnt machins. Th cost of machining pr unit of job and st u
p cost of th job on a machin ar as givn in th matrix A and B givn blow. T
h jobs ar to b mad in bath sizs show against thm. St up cost is indpnd
nt of prvious st up. Matrix A. (Oprating cost in Rs)
Jobs (machining cost in Rs) Machins. P Q R S T Batch siz in units. A 0.80 1.20
2.10 --3.20 100 B 1.10 0.90 2.00 1.60 2.00 100 C 0.70 1 .20 1.00 2.00 2.00 150
D 1.60 0.80 2.20 1.90 2.00 100 E 6.20 5.40 4.90 3.60 2.60 50
Matrix B (St up cost in Rs)
Jobs (cost in Rs) Machins P Q R S T A 60 40 30 --80 B 70 50 40 90 100 C 70 50 4
0 60 80 D 30 20 40 50 60 E 40 80 100 60 60
Linar Programming - III Assignmnt Modl
235
Solution Multiply th Matrix A by 100 and add it to th matrix B w gt th matr
ix givn blow. For th lmnt SA as nothing is givn, w can liminat it for
furthr considration or assign a vry high cost for th lmnt so as to avoid
it from furthr calculations.
Jobs (combind stup and procssing cost in Rs) Machins P Q R S T A 140 160 240
1000 400 B 180 140 240 250 300 C 175 230 190 360 380 D 190 100 260 240 260 E 35
0 350 255 240 190
ROCM:
Machins P Q R S T A 0 60 50 760 210 B 40 40 50 10 110 C 35 130 0 120 190 D 50 0
70 0 70 E 210 250 65 0 0
TOCM:
Machins P Q R S T A 0 60 50 760 210 B 30 30 40 0 100 C 35 130 0 120 190 D 50 0
70 0 70 E 210 250 65 0 0
Assignmnt: P to A, Q to D, R to C, S to B and T to E. Total cost = 140 + 100 +
190 + 250 + 190 = Rs. 870/-
Problm 5.11. Thr ar fiv major projcts namly, Frtilisr plants, Nuclar p
osr plants, Elctronic park, Aircraft complx and Havy machin tools. Ths fi
v plants ar to b assignd to six rgions namly A, B, C, D, E and F, insistin
g on allocation of as many numbr of projcts as possibl in thir rgion. Th s
tat dpartmnt has valuatd th ffctivnss of projcts in diffrnt rgions
for (a) Employmnt potntial, (b) Rsourc utilization potntial, (c) Economic
profitability and (d) Environmntal dgradation indx as givn blow in
236
Oprations Rsarch
Tablau I. (Th ranking is on a 20 point scal). Assign on projct to on rgio
n dpnding on th maximum total ffctivnss. (Plants ar givn srial numbrs
1 to 5)
Tablau I.
Local Employmnt Potntial. Rg. 1 2 3 4 5 long. A 16 10 8 12 11 B 18 15 12 10 7
C 12 16 12 5 8 D 14 10 13 6 8 E 15 17 11 18 11 F 12 18 11 15 1 4 Rsourc Alloc
ation Potntial. 1 2 3 4 5 7 11 16 15 8 17 6 4 5 3 3 5 4 3 4 2 4 2 5 2 3 4 2 1 3
1 2 1 4 3 Economic Profitability Indx. 1 2 3 4 5 11 10 13 7 10 5 13 15 14 10 1
2 10 14 17 16 5 7 12 15 11 12 11 11 13 10 16 11 8 16 12 Environmntal Dgradatio
n indx. 1 2 3 4 5 15 13 12 12 9 6 14 14 11 11 6 3 5 5 5 5 5 5 3 3 4 4 4 5 2 2 2
2 3 2
Solution
In this problm, for maximization of total ffctivnss, th first thr i.. E
mploymnt potntial, Rsourc utilization potntial and conomic profitability i
ndx ar to b addd and th nvironmntal dgradation is to b subtractd from
th sum to gt th total ffctivnss. Onc w gt th ffctivnss matrix, th
n th projcts ar to b assignd to th rgions for maximization of total ff
ctivnss. Th total ffctivnss matrix: (Not: Th matrix is of th ordr 5 × 6
, hnc it is to b balancd by opning a dummy column - DC). Th first lmnt
of th matrix can b workd out as: 16 + 7 + 11 – 15 = 19. Othr lmnts can b w
orkd out similarly. Total ffctivnss matrix:
Plants. Rgions A B C D E F 1 19 26 29 24 24 28 2 15 20 24 12 26 30 3 21 27 27 1
5 17 20 4 29 20 16 17 27 24 5 22 22 19 15 28 27 DC 0 0 0 0 0 0
As thr is a dummy column th sam matrix may b considrd as ROCM. By dducti
ng all th lmnts of a column from th highst lmnt of th column, w gt t
h Total Opportunity Cost Matrix.
Linar Programming - III Assignmnt Modl
237
TOCM:
Plants. Rgions A B C D E F 1 10 3 0 5 5 2 2 15 10 6 18 4 0 3 6 0 0x 12 10 7 4 0
9 13 12 2 5 5 6 6 11 13 0 1 DC 0x 0x 0x 0 0x 0x
Allocation: Frtilizr: C, Nuclar Plant: F, Elctronic Park: B, Aircraft Compl
x: A, Havy Machin Tools: E
5.5. SCHEDULING PROBLEM
Now lt us work schduling problm. This typ of problms w can s in arrangin
g air flights or bus transport or rail transport. Th pculiaritis of this typ
of problm is that on flight / train / bus lavs form a station with som fli
ght numbr / train numbr / bus numbr. Aftr raching th dstination, th sam
plan / train/bus lavs that plac (dstination) and rachs th homtown with
diffrnt numbr. For xampl plan baring flight numbr as 101 lavs Bangalo
r and rachs Bombay and lavs Bombay as flight numbr 202 and rachs Bangalo
r. Our problm hr is how to arrang a limitd numbr of plans with crw / tr
ains with crw / bus with crw btwn two placs to mak th trips without inco
nvninc, by allowing rquird lay ovr tim. Lay ovr tim mans th tim allo
wd for crw to tak rst bfor starting.
Problm 5. 12. (Schduling Problm).
For th following Airlin tim tabl btwn Banglor and Mumbai it is rquird
to pair to and for flights for th sam crw, so as to minimiz th lay ovr tim
of th crw on ground away from Had quartrs. It is possibl to assign Banglo
r or Bombay as th had quartr. Dcid th pairing of flights and had quartr
s of th concrnd crw. It is stipulatd that th sam crw cannot undrtak n
xt flight, within on hour of th arrival. That is on hour is th layovr tim.
Flight No. 101 103 105 107 109 Dpartur Mumbai 6-30 a.m 9.00 a.m. 1.00 p.m. 4.0
0 p.m. 8.00 p.m Arrival Bangalor 7.45 a.m 10.30 a.m 2.15 p.m. 5.30 p.m 9.30 p.m
. Flight No. 102 104 106 108 110 Dpartur Bangalor 7.00 a.m 11.00 a.m. 3.00 p.
m. 5.45 p.m 8.30 p.m. Arrival. Mumbai 8.00 a.m 12.15 p.m 4.15 p.m. 7.15 p.m 9.45
p.m.
238
Oprations Rsarch
Solution
Now lt us considr th layovr tims sparatly for crw basd at Mumbai and cr
w basd at Bangalor. Lt us considr on flight and discuss how to calculat l
ayovr tim. For xampl, flight No. 101 lavs Mumbai at 6.30 a.m and rachs B
angalor at 7.45 a.m. Unlss th crw taks on our rst, thy cannot fly th ai
rplan. So if th crw cannot lav Bangalor until 8.45 a.m. So thr is no cha
nc for th crw to go for flight No. 102. But thy can go as flight Nos. 103, 1
06, 108 and 110. As w hav to minimiz th flyovr tim, w can tak th nars
t flight i.. 103. Th flight 103 lavs Bangalor at 11.00 a.m. By 11.00 a.m th
crw might hav spnt tim at Bangalor from 7.45 a.m to 11.00 a.m. That is it
has spnt 3 hours and 15 minuts. If w convrt 3 hours and 15 minuts in trms
of quartr hours, it will bcom 13-quartr hours. Similarly th flight 102 whi
ch arrivs at Mumbai at 8.00 a.m. wants to lav as flight 101 at 6.30 a.m. it h
as to lav nxt day morning. Hnc th layovr tim will b 22 hours and 30 min
uts. Lik wis, w can workout layovr tim for all flights and w can writ tw
o matrics, on for crw at Mumbai and othr for crw at Bangalor.
Tablau I. Lay ovr tim for Mumbai basd crw:
Flight numbrs. (Quartr hours)
Flight No. 101 103 105 107 109 102 23.25 18.50 16.75 13.50 9.50 104 3.25 24.50 2
0.75 17.50 13.50 106 7.25 4.50 24.75 21.50 17.50 108 10.00 7.25 3.50 24.25 20.25
110 11.75 10.00 5.25 3.00 23.00
Tablau II. Lay ovr tim for Bangalor basd crw:
Layovr tim in quartr hours. Flight No. 101 103 105 107 109 102 23.50 1.00 5.0
0 8.00 12.00 104 18.25 20.75 24.75 3.75 7.75 106 14.25 16.75 20.75 23.75 7.75 10
8 11.75 13.75 17.75 20.75 24.25 110 8.75 13.25 15.25 18.25 22.25
Th matrics can b multiplid by four to convrt dcimals into whol numbrs fo
r convninc of calculations.
Linar Programming - III Assignmnt Modl
239
Tablau II. Bombay basd layovr tims Flight No. 101 103 105 107 109 102 93 74
67 54 38 104 13 98 83 70 54 106 29 14 97 86 70 108 40 29 14 97 81 110 47 40 21 1
2 92
Layovr tim of crw stationd at Bangalor. (*)
Flight No. 101 103 105 107 109 102 90 4 20 32 48 104 73 83 97 15 31 106 57 67 83
95 15 108 67 55 71 83 97 110 35 53 61 73 89
Now lt us slct th minimum lmnts from both th matrics and writ anothr
matrix with ths lmnts. As our objctiv is to minimiz th total layovr ti
m, w ar slcting th lowst lmnt btwn th two matrics. Also, lt us m
ark a * for th ntris of th matrix showing layovr tim of th crw at Bangal
or. Matrix showing th lowst layovr tim (Th lmnts markd with * ar from
Bangalor matrix)
Flight No. 101 103 105 107 109 102 90* 4* 20* 32* 38 104 13 83* 83 15* 31* 106 2
9 14 83* 86 15* 108 40 29 14 83* 81 110 35* 40 21 12 89*
ROCM: As vry column has got a zro, this may b considrd as TOCM and assignm
nt can b mad. Not that all zros in th matrix ar in indpndnt position w
can mak assignmnt.
Flight No. 101 103 105 107 109 102 77* 0* 6* 20* 23 104 0 79* 69 3* 16* 106 16 1
0 69* 74 0* 108 27 25 0 71* 65 110 22* 36 7 0 74*
240
Oprations Rsarch
Assignmnt and pairing: Flight No. 101 103 105 107 109 Lavs as 104 102 108 110
106 Crw basd at. Bombay Bangalor Bombay Bombay Bangalor.
Total Layovr tim is: 3.25 + 1.00 + 3.50 + 3.0 + 17.50 = 28 hours and 15 minut
s.
Problm 5.13. An airlin that oprats svn days a wk has th timtabl shown
blow. Crws must hav a minimum layovr tim 5 hours btwn flights. Obtain t
h pairing of flights that minimiss layovr tim away from hom. For any givn
pairing, th crw will b basd at th city that rsults in th smallr layovr.
For ach pair also mntion th town whr crw should b basd.
Chnnai - Bangalor
FlightNo. 101 102 103 104 Dpartur 7.00 a.m 8.00 a.m 1.00 p.m 6.00 p.m. Arrival
8.00 a.m 9.00 a.m 2.00 p.m 7.00 p.m
Bangalor - Chnnai.
Flight No. 201 202 203 204 Dpartur 8.00 a.m 9.00 a.m 12.00 noon 8.00 p.m Arriv
al 9.00 a.m 10.00 a.m 1.00 p.m. 9.00 p.m
Lt us writ two matrics on for layovr tim of Chnnai basd crw and othr f
or Bangalor basd crw. As xplaind in th xampl 5.11 th dpartur of th c
rw onc it rachs th dstination, should b found aftr taking th minimum la
yovr tim givn, i.. 5 hours. Aftr words, minimum lmnts from both th matr
ics ar to b slctd to gt th matrix showing minimum layovr tims. Finally
, w hav to mak assignmnt for minimum layovr tim. Layovr tim for Chnnai
basd crw in hours. Tablau I.
FlightNo. 101 102 103 104 201 24 23 20 13 202 25 24 19 14 203 28 27 22 17 203 12
11 6 25
Linar Programming - III Assignmnt Modl
241
Layovr tim for Bangalor basd crw in hours. Tablau I.
FlightNo. 101 102 103 104 201 22 23 28 9 202 21 22 27 8 203 18 19 24 5 203 10 11
16 21
Minimum of th two matrics layovr tim. Th Bangalor basd tims ar markd w
ith a (*). Tablau I.
FlightNo. 101 102 103 104 201 22* 23** 20 9* 202 21* 22* 19 8* 203 18* 19* 22 5*
203 10* 11** 6 21*
Th lmnts with two stars (**) appar in both th matrics. ROCM Tablau I.
FlightNo. 101 102 103 104 201 12 12 14 4 202 11 11 13 3 203 8 8 16 0 203 0 0 0 1
6
○
TOCM:
FlightNo. 101 102 103 104
○ ○ ○ ○ ○ ○ ○ ○ ○
8 8 6 0
○ ○ ○ ○ ○
8 8 10 0
○ ○ ○ ○
8 8 16 0
○ ○ ○ ○
0 0 0
○ ○ ○ ○ ○ ○ ○
○
201
202
203
203
○
16
○ ○ ○ ○
FlightNo. 101 102 104
○ ○ ○ ○ ○ ○
201 2 2 0
○
202 2 2 0 4
○
203 2 2 0 10
○ ○ ○
203 0 0 22
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
103
○ ○ ○ ○
0
0
○
○
○
○
○
○
○
○
○
○
○ ○
○
242
Oprations Rsarch
○
FlightNo. 101 102 104 103
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
201 0 0 0
○ ○ ○
○
○
202 0 0 0
○ ○ ○ ○ ○ ○
203 0 0 0
○ ○ ○ ○
203 0 0 24
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
FlightNo. 101
201 0
○
○
202 0
203 0
204 0*
102 103 104 Assignmnt:
Flight No. 101 102 103 104
0 0 0
0* 4 0
0 10 0*
0 2 24
Lavs as 204 202 201 203
Basd at Bangalor Bangalor Chnnai Bangalor.
Total layovr tim: 10 + 22 + 20 + 5 = 67 hours.
5.6. TRAVELING SALESMAN PROBLEM
Just considr how a postman dlivrs th post to th addrss. H arrangs all
th lttrs in an ordr and starts from th post offic and gos from addrss
to addrss and finally back to his post offic. If h dos not arrang th pos
ts in an ordr h may hav to travl a long distanc to clar all th posts. Sim
ilarly, a travling sals man has to plan his visits. Lt us say, h starts from
his had offic and go round th branch offics and com back to his had offic
. Whil travling h will not visit th branch alrady visitd and h will not
com back until h visits all th branchs. Thr ar diffrnt typs of travli
ng salsman s problms. On is cyclic problm. In this problm, h starts from h
is had quartrs and aftr visiting all th branchs, h will b back to his ha
d quartrs. Th scond on is Acyclic problm. In this cas, th travling sals
man lavs his had quartrs and aftr visiting th intrmdiat branchs, final
ly rachs th last branch and stays thr. Th first typ of th problm is sol
vd by Hungarian mthod or Assignmnt tchniqu. Th scond on is solvd by Dyn
amic programming mthod. Point to Not: Th travling salsman s problm, whr
w squnc th citis or branchs h has to visit is a SEQUENCING PROBLEM. But
th solution is got by Assignmnt tchniqu. Hnc basically, th travling sal
sman problm is a SEQUENCING PROBLEM; th objctiv is to minimiz th total dis
tanc travld. Th mathmatical statmnt of th problm is: Dcid variabl xi
j = 1 or 0 for all valus of I and j so as to:
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
0
○
○
○
○
○
4
10
2
○
○ ○
○ ○
○ ○
○ ○
○ ○
○
○ ○
○ ○
○
Linar Programming - III Assignmnt Modl
n n
243
Minimis
Z = ∑ ∑C
i =1 j =1
ij
for all i and j = 1,2…..n Subjct to
∑X
J =1 n
n
ij
= 1 for i = 1,2,….n (Dpart from a city onc only)
∑X
i =1
ij
= 1 for j = 1,2,….n (Arriv at a city onc only)
And all xij ≥ 0 for all i and j This is indd a statmnt of assignmnt problm,
which may giv to or mor disconnctd cycls in optimum solution. This is not p
rmittd. That is salsman is not prmittd to rturn to th origin of his tour
bfor visiting all othr citis in his itinrary. Th mathmatical formulation
abov dos not tak car of this point. A rstriction lik Xab + Xbc + Xca ≤ 2 wil
l prvnt sub-cycls of citis A, B, C and back to A. It is sufficint to stat
at this stag that all sub- cycls can b ruld out by particular spcifications
of linar constraints. This part, it is asy to s that a variabl xij = 1, ha
s no maning. To xclud this from solution, w attribut vry larg cost to it
i.. infinity or big M, which is vry largr than all th lmnts in th matrix
. In our solutions big M is usd.
Problm 5.14.
A salsman stationd at city A has to dcid his tour plan to visit citis B, C,
D, E and back to city A I th ordr of his choic so that total distanc travl
d is minimum. No sub touring is prmittd. H cannot travl from city A to city
A itslf. Th distanc btwn citis in Kilomtrs is givn blow:
Citis A B C D E A M 21 12 11 16 B 16 M 14 18 14 C 18 16 M 19 17 D 13 27 15 M 12
E 20 14 21 21 M
Instad of big M w can us infinity also. Or any lmnt, which is sufficintly
largr than all th lmnts in th matrix, can b usd. Solution COCM:
Citis A B C D E A M 7 0 0 4 B 3 M 2 7 2 C 5 2 M 8 5 D 0 13 3 M 0 E 7 0 9 10 M
244
Oprations Rsarch
TOCM:
A B C D E M 7 0 0 4 1 M 0 5 0 3 0 M 6 3 0 13 3 M 0
○
Citis
A
B
C
D
○
○
E 7 0 9 10 M
W can mak only 4 assignmnts. Hnc modify th matrix. Smallst lmnt in th
uncovrd clls is 3, dduct this from all othr uncovrd clls and add this t
o th lmnts at th crossd clls. Do not altr th lmnts in clls covrd
by th lin. TOCM
○ ○ ○ ○
A B C D E
M 7 0 0 4
1 M 0 5 0
3 0 M 6 3
0 13 3 M 0
○
7 0 9 10 M
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
W can mak only 4 assignmnts. Hnc onc again modify th matrix. Squncing:
A to C, C to B, B to E, E to D, and D to A. As thr is a ti TOCM:
Citis A B C D E A M 10 0x 0 4 B 1 M 0 5 0x C 0 0 x M 3 0 D 0 16 3 M 0 E 4 0 6 7
M
Squncing: A to C, C to B, B to E, E to D and D to A. as thr is a ti btwn
th zro clls, th problm has altrnat solution. Th total distanc travld
by th salsman is: 18 + 14 + 14 + 11 + 12 = 69 Km. A to C to B to E to D to A,
th distanc travld is 69 Km. Not: S that no city is visitd twic by sal
s man.
Problm 5.15.
Givn th st up costs blow, show how to squnc th production so as to minim
iz th total stup cost pr cycl.
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Citis
○ ○
A
B
C
D
○
○
○
○
○
○
○
○
○
○
○
E
○
○
○
○
○
○
Linar Programming - III Assignmnt Modl
245
Jobs A B C D E
A M 6 8 12 1
B 2 M 7 4 3
C 5 3 M 6 2
D 7 8 4 M 8
E 1 2 7 5 M
Solution
COCM:
Jobs A B C D E A M 4 4 8 0 B 1 M 3 0 2 C 4 1 M 2 1 D 6 6 0 M 7 E 0 0 3 1 M
TOCM:
Jobs A B C D E A M 4 4 8 0 B 1 M 3 0 2 C 3 0 M 1 0x D 6 6 0 M 7 E 0 0x 3 1 M
W can draw fiv lins and mak assignmnt. Th assignmnt is: From A to E and F
rom E to A cycling starts, which is not allowd in salsman problm. Hnc what
w hav to do is to slct th nxt highr lmnt than zro and mak assignmnt
with thos lmnts. Aftr assignmnt of nxt highr lmnt is ovr, thn com
to zro for assignmnt. If w cannot finish th assignmnt with that highr l
m nt, thn slct nxt highst lmnt and finish assigning thos lmnts and c
om to nxt lowr lmnt and thn to zro. Lik this w hav to finish all assi
gnmnts. In this problm, th nxt highst lmnt to zro is 1. Hnc first ass
ign all ons and thn considr zro for assignmnt. Now w shall first assign al
l ons and thn com to zro. TOCM:
Jobs A B C D E A M 4 4 8 0 B 1 M 3 0 2 C 3 0 M 1 0x D 6 6 0 M 7 E 0x 0x 3 1 M
246
Oprations Rsarch
Th assignmnt is A to B, B to C, C to D and D to E and E to A. (If w start wit
h th lmnt DC thn cycling starts. Now th total distanc is 5 + 3 + 4 + 5 +
1 = 18 + 1 + 1 = 20 Km. Th ons w hav assignd ar to b addd as pnalty for
violating th assignmnt rul of assignmnt algorithm.
Problm 5.16.
Solv th travling salsman problm by using th data givn blow: C12 = 20, C1
3 = 4, C14 = 10, C23 = 5, C34 = 6, C25 = 10, C35 = 6, C45 = 20 and Cij = Cji . A
nd thr is no rout btwn citis i and j if a valu for Cij is not givn
in th statmnt of th problm. (i and j ar = 1,2,..5)
Solution
Citis 1 2 3 4 5 1 M 20 4 10 M 2 20 M 5 M 10 3 4 5 M 6 6 4 10 M 6 M 20 5 M 10 6
20 M
Now lt us work out COCM/ROCM and TOCM, and thn mak th assignmnt. TOCM:
Citis. 1 2 3 4 5 1 M 11 0x 0 M 2 12 M 1 M 0 3 0 0x M 0x 0x 4 0x M 0 M 8 5 M 0 1
9 M
Th squncing is: 1 to3, 3 to 4, 4 to 1 and 1 to 3 tc., Cycling starts. Hnc
w shall start assigning with 1 th nxt highst lmnt and thn assign zros.
Hr also w will not gt th squncing. Nxt w hav to tak th highst lm
nt 8 thn assign 1 and thn com to zros. TOCM:
Citis. 1 2 3 4 5 1 M 11 0 0 M 2 12 M 1 M 0 3 0 0 M 0 0 4 0 M 0 M 8 5 M 0 1 9 M
Squncing is: 1 to 3, 3 to 2, 2 to 5, 5 to 4 and 4 to 1. Th optimal distanc i
s : 4 + 10 + 5 + 10 + 20 = 49 + 1 + 8 = 58 Km.
Linar Programming - III Assignmnt Modl
247
Problm 5.17.
A tourist organization is planning to arrang a tour to 5 historical placs. Sta
rting from th had offic at A thn going round B, C, D and E and thn com bac
k to A. Thir objctiv is to minimiz th total distanc covrd. Hlp thm in
squncing th citis. A, B, C, D and E as th shown in th figur. Th numbrs
on th arrows show th distancs in Km.
Solution Th distanc matrix is as givn blow:
Placs A B C D E A M 20 M 10 10 B 20 M 30 M 35 C M 30 M 15 20 D 10 M 15 M 20 E 1
0 35 20 20 M
COCM
Placs A B C D E A M 0 M 0 0 B 10 M 15 M 25 C M 10 M 5 10
○
D 0 M 0 M 10
○
E 0 15 5 10 M
TOCM:
Placs B C D E
○ ○ ○ ○
A
○ ○
○
B M 5 M 15
○ ○ ○
C 5 0 5
○ ○ ○ ○
D 0 0
E 15 5 10 M
○ ○ ○
○
○
○
0
M M
○
○
○
M
○ ○
○
M
○
○
0 0
○
○
○
○
○
○
○
○
10
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
A
○
M
○
○
0
M
○
○
0
○
○
○
○
248
Oprations Rsarch
TOCM:
○ ○
Placs A B D E C
○ ○ ○ ○ ○ ○ ○ ○
A M
○
○
B 0 M M 10
○ ○ ○ ○ ○ ○ ○ ○ ○ ○
C
○
○
○
D 5 0 M M 10
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
E 0 10 5 M
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
0
○ ○
○
5 M 0 5
○ ○ ○ ○ ○ ○ ○ ○ ○ ○
0 0
○ ○ ○ ○ ○
TOCM:
Placs A B C D E
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
A
○ ○
○
B 0 M 0 5
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
M 0
○ ○ ○ ○
M 5 M 0
○ ○
5 0
○
0 0
○
M
○
5 0
M 0
○ ○ ○ ○ ○
5
5
Placs A B C D E
A M 0x M 5 0
B 0 M 0x M 0x
C M 0 M 0x 0x
D 5 M 0 M 0x
Th squncing is: A to B, B to C, C to D, D to E and E to A. Th total distanc
is: 20 +30 +15 + 20 + 10 = 95 Km.
5.7. SENSITIVITY ANALYSIS
In fact thr is vry littl scop for snsitivity analysis in Assignmnt Probl
m bcaus of th mathmatical structur of th problm. If w want to avoid high
cost assigning a facility ( i th) to a job (j th), thn w can do it by giving
a cost of assignmat say infinity or Big M to that cll so that it will not ntr
into programm. In cas of maximisaton modl, w can allocat a ngativ lmn
t to that cll to avoid it ntring th solution. Furthr, if on facility (man)
can do two jobs i.. 2 jobs ar to b assignd to th facility, thn this probl
m can b dalt with by rpating th man s or facility s column and introducing
a dummy row to maintain th squar matrix. Similarly, if two similar jobs ar t
h r, writ two idntical rows of th two jobs sparatly and thn solv by maki
ng a squar matrix. Bsids ths, th addition of a constant throughout any row
or column dos not affct th optimal solution of th assignmnt problm.
○
○
○
0
○
○
○
M
M
M
E 0x 0x 0x 0 M
○
○
○
○
○
○
○
○
○
○
○
○
M
○
○
0
○
M
○
C
○
○
○
0
○
○
○
○
○
○
D
E
Linar Programming - III Assignmnt Modl
249
QUESTIONS
1. Four nginrs ar availabl to dsign four projcts. Enginr 2 is not comp
tnt to dsign th projct B. Givn th following tim stimats ndd by ach
nginr to dsign a givn projct, find how should th nginrs b assignd to
projcts so as to minimiz th total dsign tim of four projcts.
Enginrs. A 1 2 3 4 12 14 6 8 B 10 NOT ELIGIBLE 10 10 16 9 4 7 Projcts C 10 15
D 8 11
2. (a) Explain th diffrncs and similaritis btwn Assignmnt problm and T
ransportation problm. (b) Explain why VAM or any othr mthods of gtting basic
fasibl solution to a transportation problm is not usd to gt a solution to
assignmnt problm. What difficultis you com across? 3. Explain brifly th pr
ocdur adoptd in assignmnt algorithm. 4. Is travling salsman problm is an
assignmnt problm? If ys how? If not what ar th diffrncs btwn assignm
nt problm and travling salsman problm. 5. What do you man by balancing an a
ssignmnt problm? What stps you tak to solv maximization cas in assignmnt
problm? Explain. 6. A Computr cntr has got thr xprt programmrs. Th cn
tr nds thr application programms to b dvlopd. Th had of th computr
cntr, aftr studying carfully th programms to b dvlopd stimat th co
mputr tim in minuts rquird by th xprts to th application programms as
givn in th matrix blow. Assign th programmrs to th programms in such a wa
y that th total computr tim is last.
Programmrs. A 1 2 3 120 70 110 Programm. B 100 90 140 C 80 110 120
7. (a). A company is facd with th problm of assigning six diffrnt machins
to fiv diffrnt jobs. Th costs ar stimatd as follows in hundrds of rups
. Assign th jobs to machins to minimiz th total cost.
250
Oprations Rsarch
(b) If th givn matrix happns to b rturns to th company by assigning a part
icular job to a machin, thn what will b th assignmnt? Will th sam assignm
nt hold wll? If not what will you do to gt th nw solution.
Jobs (hundrds of rups)
Machins. 1 2 3 4 5 6
1 2.5 2 3 3.3 4 6
2 5 5 6.5 7 7 9
3 1 1.5 2 2 3 5
4 6 7 8 9 9 10
5 1 3 3 4.5 6 6
8. Miss A, B, C, D, E, F and G ar svn girls in a 15-mmbr collg musical x
travaganza tam. M/S I, II, III, IV, V, VI, VII and VIII ar th mal mmbrs of
th tam and ligibl bachlors xcpt Mr. IV. Th tam dcids thinking in tr
ms of matrimonial bondag amongst thm that th match - making should b such as
to maximiz th happinss of th ntir group. Fortunatly for Mr. IV is alrad
y marrid and h is askd to dvis masur of happinss, collct data and dcid
th pairs. Mr. IV collcts on a 20 - point scal girl s liking for diffrnt b
oys and calls it as X - factor and th boy s liking for diffrnt girls as Y- fa
ctor. Th matrix givn blow shows ths to factors. Th lmnts in th brackt
s ar Y - factors. Mr. IV is baffld by th pattrn of motional linkags and va
riations in thir intnsitis. H dcids on his own without consulting anyon c
oncrnd, to giv mor wightags to X factor on account of intuitional soundns
s of girl s soundnss of judgmnt and thir motional stadfastnss, bsid fl
xibility in adjustmnts. Thrfor, h taks K = 2X + B as th factor of pair s
matrimonial happinss. Thn codd matrix of A, B, C, D, E, F, and G against K, L
, M, N, P, Q, and R is givn to an Oprations Rsarch studnt to solv it as an
assignmnt problm. (Girls form A to G and Boys form K to R). Th solution was
handd ovr to all th concrnd. Mak th assignmnt. Points. Factor Y (Factor
X) Boys
Girls A B C D E F G K 11 (14) 16 (15) 10 (16) 16 (16) 7 (18) 9 (18) 15 (15) L 14
(15) 13 (17) 10 (11) 11 (14) 5 (17) 16 (12) 17 (10) M 15 (10) 18 (11) 10 (12) 1
0 (12) 12 (13) 12 (11) 16 (7) N 13 (18) 15 (18) 10 (18) 10 (18) 14 (10) 13 (18)
17 (18) P 16 (15) 16 (14) 10 (18) 11 (15) 6 (16) 12 (11) 15 (10) Q 17 (14) 17 (1
4) 10 (18) 12 (13) 17 (12) 15 (12) 17 (13) R 12 (10) 14 (12) 10 (13) 14 (15) 15
(16) 16 (15) 16 (14)
Linar Programming - III Assignmnt Modl
251
9. Solv th travling salsman problm givn blow for minimizing th total dis
tanc travld. Distanc in Km.
Citis A B C D E A M 16 6 12 11 B 10 14 3 19 8 C 8 12 17 17 16 D 29 10 14 14 13
E 12 9 12 12 M
10. An airlin that oprats flights btwn Dlhi and Bombay has th following
timtabl. Pair th flights, so as to minimiz th total layovr tim for th cr
w. Th plan, which rachs its dstination, cannot lav that plac bfor 4 h
ours of rst.
Flight No. 101 102 103 104 Dpartur 9.00 a.m 10.00 a.m 4.00 p.m 7.00 p.m Arriva
l 11.00 a.m 12.00 Nn 6.00 p.m 9.00 p.m Flight No. 201 202 203 204 Dpartur 10.0
0 a.m 12.00 Nn 3.00 p.m 8.00 p.m Arrival 12.00 Nn. 2.00 p.m 5.00 p.m 10.p.m.
11. Th productivity of oprators A, B, C, D, and E on diffrnt machins P, Q,
R, S, and T ar givn in th matrix blow. Assign machin to oprators of maximu
m productivity.
Productivity Machins. Oprators A B C D E P 9 8 10 12 13 Q 14 11 10 14 10 R 10
12 8 11 12 S 7 --11 10 13 T 12 13 --7 10
12. In th abov problm, oprating costs of machins / shift ar Rs.6/-, Rs.7/-
Rs.15/-, Rs. 11/ - and Rs. 10/- rspctivly, and Daily wags ar Rs. 25/- , Rs
. 30/- , Rs. 28/-, Rs. 26/- and Rs.20/- rspctivly for machin a, B, c, D and
E. And all th oprators on pic - bonus, so that for vry on pic abov th
basic production pr shift th bonus is paid at th rats ar as shown on nxt
pag on diffrnt machins along with basic production pr shift. Find th cost
of production and th cost pr unit. Assign th machins to oprators for minimu
m cost of production pr pic.
252
Oprations Rsarch
Machins. Particulars. Basic productionPics pr shift. Incntiv bonusPr pic
in Rs. P 8 1.0 Q 10 1.0 R 8 1.6 S 7 2.0 T 7 2.0
Problm 6.15.
Two jobs ar to b procssd on four machins A, B, C and D. Th tchnological o
rdr for ths two jobs is: Job 1 in th ordr ABCD and Job 2 in th ordr DBAC.
Th tim takn for procssing th jobs on machin is:
Machin: Job 1: Job 2: A 4 5 B 6 7 C 7 8 D 3 4
278
Oprations Rsarch
Solution
Procssing tim for jobs ar: Job 1 = 4 + 6 + 7 + 3 = 20 hours. Job 2 = 5 + 7 +
8 + 4 = 24 hours. Th graph is shown in figur 6.3. Th lin at 45 dgrs is dr
awn from origin to opposit cornr.
Figur 6.3.
Th total lapsd tim for job 1 = Procssing tim + idl tim (horizontal trav
l) = 20 + 10 = 30 hours. Th sam for job 2 = Procssing tim + Idl tim (vrti
cal travl) = 24 + 6 = 30 hours. Both ar sam hnc th solution. To find th s
qunc, lt us follow inclind lin. Job 1 first on A and job 2 scond on A, Jo
b 1 first on B and job 2 scond on B Job C first on C and job 2 scond on C, Job
2 first on D and job 1 scond on D.
Problm 6.16.
Find th optimal squnc of two jobs on 4 machins with th data givn blow:
Ordr of machining: Job 1 Tim in hours: Ordr of machining: Job 2 Tim in hours
: 4 3 3 2 2 D 3 C 3 B 4 A A B C D
Solution
Job 1 is scald on X - axis and Job 2 is scald on Y - axis. 45° lin is drawn. Th
total lapsd tim for two jobs is: Job 1: Procssing tim + idl tim = 12 +
2 = 14 hours.
Squncing
279
Job 2: Procssing tim + idl tim = 12 + 2 = 14 hours. Both ar sam and hnc
th solution; Job 1 first on machin A and B and job 2 scond on A and B. Job 2
first on C and job 1 scond on C. Job 2 first on D and job 1 scond on D.
Problm 6.17.
Find th squnc of job 1 and 2 on four machins for th givn tchnological or
dr.
Ordr of machining: Job 1. Tim in hours. Ordr of machining Job2. Tim in hours
. 2 3 3 4 2 A 3 B 3 C 4 D A B C D
Solution
From th graph figur 6.4 th total lapsd tim for job 1 = 12 + 4 = 16 hours.
Elapsd tim for Job 2 = 12 + 4 = 16 hours. Th squnc is Job 1 first on A, B,
C, and D and thn th job 2 is scond on A, B, C and D. OR w can also do Job 2
first on A, B, C, D and job 1 scond on A, B, C, D. Whn tchnological ordr is
sam this is how jobs ar to b procssd.
Figur 6.4
Problm 6.18
Find th optimal squnc for th givn two jobs, which ar to b procssd on f
our machins in th givn tchnological ordr.
280
Oprations Rsarch
Tchnological ordr: Job1 Tim in hours. Tchnological ordr: Job2 Tim in hours
.
A 2 D 2
B 3 C 3
C 3 B 3
D 4 A 4
Solution
Figur 6.5
(Not: Studnts can try ths problms and s how th graph appars:
Tchnological ordr: Job 1: Tim in hours: Tchnological ordr: Job 2: Tim in h
ours: 2 2 2 2 2 A 2 B 2 C 2 D A B C D
AND
Tchnological ordr: Job 1 Tim in hours: Tchnological ordr: Job 2 Tim in hou
rs. 2 2 2 2 2 D 2 C 2 B 2 A A B C D
Squncing
281
6.6. TRAVELING SALESMAN PROBLEM: (RELATED PROBLEMS)
Just considr how a postman dlivrs th post to th addrss. H arrangs all
th lttrs in an ordr and starts from th post offic and gos from addrss
to addrss and finally back to his post offic. If h dos not arrang th pos
ts in an ordr h may hav to travl a long distanc to clar all th posts. Sim
ilarly, a travling sals man has to plan his visits. Lt us say, h starts from
his had offic and go round th branch offics and com back to his had offic
. Whil travling h will not visit th branch alrady visitd and h will not
com back until h visits all th branchs. Thr ar diffrnt typs of travli
ng salsman‘s problms. On is cyclic problm. In this problm, h starts from his
had quartrs and aftr visiting all th branchs, h will b back to his had
quartrs. Th scond on is Acyclic problm. In this cas, th travling salsma
n lavs his had quartrs and aftr visiting th intrmdiat branchs, finally
rachs th last branch and stays thr. Th first typ of th problm is solv
d by Hungarian mthod or Assignmnt tchniqu. Th scond on is solvd by Dynam
ic programming mthod. Point to Not: Th travling salsman‘s problm, whr w s
qunc th citis or branchs h has to visit is a SEQUENCING PROBLEM. But th
solution is got by Assignmnt tchniqu. Hnc basically, th travling salsman
problm is a SEQUENCING PROBLEM; th objctiv is to minimiz th total distanc
travld. Th mathmatical statmnt of th problm is: Dcid variabl xij =
1 or 0 for all valus of I and j so as to: Minimis Z =
∑ ∑C
i =1 n j =1
n
n
ij
for all i and j = 1,2…..n Subjct to
∑x
j =1 n
ij
= 1 for i = 1,2,….n (Dpart from a city onc only) = 1 for j = 1,2,….n (Arriv at a
city onc only)
∑x
i =1
ij
And all xij ≥ 0 for all i and j This is indd a statmnt of assignmnt problm,
which may giv two or mor disconnctd cycls in optimum solution. This is not
prmittd. That is salsman is not prmittd to rturn to th origin of his tour
bfor visiting all othr citis in his itinrary. Th mathmatical formulation
abov dos not tak car of this point. A rstriction lik Xab + Xbc + Xca ≤ 2 wi
ll prvnt sub-cycls of citis A, B, C and back to A. It is sufficint to stat
at this stag that all sub - cycls can b ruld out by particular spcificatio
ns of linar constraints. This part, it is asy to s that a variabl xij = 1,
has no maning. To xclud this from solution, w attribut vry larg cost to i
t i. infinity or big M, which is vry largr than all th lmnts in th matri
x. In our solutions big M is usd.
Problm 6.17. A salsman stationd at city A has to dcid his tour plan to visi
t citis B, C, D, E and back to city A in th ordr of his choic so that total
distanc travld is minimum. No sub touring is prmittd. H cannot travl from
city A to city A itslf. Th distanc btwn citis in Kilomtrs is givn bl
ow:
282
Oprations Rsarch
Citis A B C D E
A M 21 12 11 16
B 16 M 14 18 14
C 18 16 M 19 17
D 13 27 15 M 12
E 20 14 21 21 M
Instad of big M w can us infinity also. Or any lmnt, which is sufficintly
largr than all th lmnts in th matrix, can b usd.
Solution
COCM:
Citis A B C D E A M 7 0 0 4
○ ○
B 3 M 2 7 2
C 5 2 M 8 5
D 0 13 3 M 0
○
E 7 0 9 10 M
TOCM:
○
A B C D E
M
○
○
1 0 5 0
3 0 M 6 3
0
○
7 0 9 10 M
○
○
7
○
○
M
13 3 0 M
○ ○ ○ ○ ○ ○ ○ ○
0
○
○
0
○ ○ ○
○
W can mak only 4 assignmnts. Hnc modify th matrix. Smallst lmnt in th
uncovrd clls is 3, dduct this from all othr uncovrd clls and add this t
o th lmnts at th crossd clls. Do not altr th lmnts in clls covrd
by th lin. TOCM
○ ○ ○ ○
○
○
4
○
○
○
○
○
○
○
A B C D E
M
○ ○
1 0
3 0 M 6 3
0
○
7 0 9 10 M
○
○
7 0 4
M
○ ○ ○
13 M 0
○ ○
○
○
3
○
○
○
0
5
○
○
0
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Citis
○ ○ ○
A
B
C
D
○
○
○
E
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Citis
○ ○
A
○
○
B
C
D
○
E
○ ○
○ ○
○
○
○
Squncing
283
W can mak only 4 assignmnts. Hnc onc again modify th matrix. Squncing:
A to C, C to B, B to E, E to D, and D to A. As thr is a ti TOCM:
Citis A B C D E A M 10 0x 0 4 B 1 M 0 5 0x C 0 0x M 3 0 D 0 16 3 M 0 E 4 0 6 7
M
Squncing: A to C, C to B, B to E, E to D and D to A. as thr is a ti btwn
th zro clls, th problm has altrnat solution. Th total distanc travld
by th salsman is: 18 + 14 + 14 + 11 + 12 = 69 Km. A to C to B to E to D to A,
th distanc travld is 69 Km. Not: S that twic sals man visits no city.
Problm 6.18.
Givn th st up costs blow, show how to squnc th production so as to minim
iz th total stup cost pr cycl.
Jobs A B C D E A M 6 8 12 1 B 2 M 7 4 3 C 5 3 M 6 2 D 7 8 4 M 8 E 1 2 7 5 M
Solution
COCM:
Jobs A B C D E A M 4 4 8 0 B 1 M 3 0 2 C 4 1 M 2 1 D 6 6 0 M 7 E 0 0 3 1 M
284
Oprations Rsarch
TOCM:
Jobs A B C D E A M 4 4 8 0 B 1 M 3 0 2 C 3 0 M 1 0x D 6 6 0 M 7 E 0 0x 3 1 M
W can draw fiv lins and mak assignmnt. Th assignmnt is: From A to E and F
rom E to A cycling starts, which is not allowd in salsman problm. Hnc what
w hav to do is slct th nxt highr lmnt than zro and mak assignmnt wi
th thos lmnts. Aftr assignmnt of nxt highr lmnt is ovr, thn com to
zro for assignmnt. If w cannot finish th assignmnt with that highr lmn
t, thn slct nxt highst lmnt and finish assigning thos lmnts and com
to nxt lowr lmnt and thn to zro. Lik this w hav to finish all assignm
nts. In this problm, th nxt highst lmnt to zro is 1. Hnc first assign
all ons and thn considr zro for assignmnt. Now w shall first assign all o
n s and thn com to zro. TOCM:
Jobs A B C D E A M 4 4 8 0 B 1 M 3 0x 2 C 3 0 M 1x 0x D 6 6 0 M 7 E 0x 0x 3 1 M
Th assignmnt is A to B, B to C, C to D and D to E and E to A. (If w start wit
h th lmnt DC thn cycling starts. Now th total distanc is 5 + 3 + 4 + 5 +
1 = 18 + 1 + 1 = 20 Km. Th ons w hav assignd ar to b addd as pnalty for
violating th assignmnt rul of assignmnt algorithm.
Problm 6.19.
Solv th travling salsman problm by using th data givn blow: C12 = 20, C1
3 = 4, C14 = 10, C23 = 5, C34 = 6, C25 = 10, C35 = 6, C45 = 20 and Cij = Cji . A
nd thr is no rout btwn citis ‘i‘ and ‘j‘ if a valu for Cij is not givn in th s
tatmnt of th problm. (i and j ar = 1,2,..5)
Solution
Citis 1 2 3 4 5 1 M 20 4 10 M 2 20 M 5 M 10 3 4 5 M 6 6 4 10 M 6 M 20 5 M 10 6
20 M
Squncing
285
Now lt us work out COCM/ROCM and TOCM, and thn mak th assignmnt. TOCM:
Citis. 1 2 3 4 5 1 M 11 0x 0 M 2 12 M 1 M 0 3 0 0x M 0x 0x 4 0x M 0 M 8 5 M 0 1
9 M
Th squncing is: 1 to 3, 3 to 4, 4 to 1 and 1 to 3 tc., Cycling starts. Hnc
w shall start assigning with 1 th nxt highst lmnt and thn assign zros.
Hr also w will not gt th squncing. Nxt w hav to tak th highst lm
nt 8 thn assign 1 and thn com to zros. TOCM:
Citis. 1 2 3 4 5 1 M 11 0 0 M 2 12 M 1 M 0 3 0 0 M 0 0 4 0 M 0 M 8 5 M 0 1 9 M
Squncing is: 1 to 3, 3 to 2, 2 to 5, 5 to 4 and 4 to 1. Th optimal distanc i
s: 4 + 10 + 5 + 10 + 20 = 49 + 1 + 8 = 58 Km.
Problm 5.18.
A tourist organization is planning to arrang a tour to 5 historical placs. Sta
rting from th had offic at A thn going round B, C, D and E and thn com bac
k to A. Thir objctiv is to minimiz th total distanc covrd. Hlp thm in
squncing th citis. A, B, C, D and E as shown in figur. Th numbrs on th a
rrows show th distancs in Km.
Solution
Th distanc matrix is as givn blows:
286
Oprations Rsarch
Placs A B C D E
A M 20 M 10 10
B 20 M 30 M 35
C M 30 M 15 20
D 10 M 15 M 20
E 10 35 20 20 M
COCM
Placs A B C D E A M 0 M 0 0
○
B 10 M 15 M 25
C M 10 M 5 10
○
D 0 M 0 M 10
○
E 0 15 5 10 M
TOCM:
○
○
B C D E
0
○
M 5 M 15
○
5 0 5
○
M 0
○
15 5 10 M
○
M
○ ○
○
○
M
○
0 0
○ ○ ○ ○
○
○
M
○
○
TOCM:
○
○
Placs A B D E
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
A M
○
○
B 0 M M 10 0
○ ○ ○ ○ ○ ○
C
○
○
D 5 M M 10
○ ○ ○ ○ ○ ○ ○ ○ ○ ○
○
○
10
○
○
○
○
○
○
○
E 0 10 5 M
○ ○ ○ ○ ○ ○ ○
0
○ ○
○
5 0 5
○ ○ ○ ○ ○ ○ ○ ○ ○
0
○ ○ ○ ○
TOCM:
Placs A B D E
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
○
A M 0
○ ○ ○ ○ ○ ○
○
○
0
○
B 0 M M 5
○ ○ ○ ○ ○ ○ ○
C M 5 0 5
○ ○ ○ ○ ○ ○ ○ ○ ○ ○
D 5 M M 5
○ ○ ○ ○ ○ ○ ○ ○ ○
E 0 5 0 M
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
0 0
○ ○ ○ ○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
C
○ ○ ○
M
○
○
○
0
M
0
0
○
○
○
○
○
○
○
○
○
C
○
M
○
M
○
○
○
○
M
○
0
0
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
A
M
○
0
○
M
0
○
Placs
○ ○
A
○
B
C
D
○
E 0
○
○
○
○ ○ ○
○ ○ ○
○
Squncing
287
Placs A B C D E
A M 0x M 5 0
B 0 M 0x M 0x
C M 0 M 0x 0x
D 5 M 0 M 0x
E 0x 0x 0x 0 M
Th squncing is: A to B, B to C, C to D, D to E and E to A. Th total distanc
is: 20 +30 +15 + 20 + 10 = 95 Km.
QUESTIONS
1. A bookbindr has on printing prss, on binding machin and th manuscripts
of a numbr of diffrnt books. Th tims rquird to prform printing and bindi
ng oprations for ach book ar known. Dtrmin th ordr in which th books sho
uld b procssd in ordr to minimiz th total tim rquird to procss all th
books. Find also th total tim rquird procssing all th books.
Printing tim in minuts. BOOK: Printing tim: Binding Tim: A 40 50 B 90 60 C 8
0 20 D 60 30 E 50 40
Suppos that an additional opration, finishing is addd to th procss dscrib
d abov, and th tim in minuts for finishing opration is as givn blow what
will b th optimal squnc and th lapsd tim.
BOOK: Finishing tim (min): A 80 B 100 C 60 D 70 E 110
(Answr for two procsss: squnc is ABEDCand th lapsd tim is 340 min. For
thr procsss: th optimal squnc is: DAEBC and th total lapsd tim is 5
10 min.) 2. A rady-mad garmnts manufacturr has to procss 7 itms through tw
o stags of production, i.. Cutting and Swing. Th tim takn for ach of ths
itms at diffrnt stags ar givn in hours blow, find th optimal squnc
and total lapsd tim.
Itm: Cutting tim in Hrs.: Swing tim in Hrs: 1 5 2 2 7 6 3 3 7 4 4 5 5 6 9 6
7 5 7 12 8
288
Oprations Rsarch
Suppos a third stag of production is addd, say prssing and packing with proc
ssing tim in hours as givn blow, find th optimal squnc and lapsd tim.
Prssing tim (Hrs) 10 12 11 13 12 10 11
(Answr: For two stags th squnc is 3457261 and th tim is 46 hours. For th
r stags th squnc is 1436257 and th tim is 86 hours.) 3. Find th optima
l squnc for th following squncing problm of four jobs and fiv machins w
hn passing is not allowd. Th procssing tim givn is in hours.
JOBS: A B Machins: C D E 1 6 4 1 2 8 2 5 5 3 4 9 3 4 3 4 5 7 4 7 2 2 1 5 (Ans:
Squnc: 1324, Tim: 43 hours).
4. Find th optimal squnc and total lapsd tim for procssing two jobs on 5
machins by graphical mthod.
Tim in hours: Job 1: Ordr of machining: Tim in hours: Job2: Ordr of machinin
g: B C A D E A 4 B 5 C 3 D 2 E 6 2 3 4 6 2
(Answr: 1,2 for A, 1,2 for B, 2,1, for C, 2,1, for D and 2,1for E and th tim
is 20 hours). 5. Th tourist burau of India wants to find th optima tour polic
y of fiv citis A, B, C, D and E starting from city A and finally rturning to
city A aftr visiting all citis. Th cost of travl in rups is givn blow. F
ind th optimal policy.
(Answr: Squnc: ABCDEA, Th cost is Rs. 95/-
Squncing
289
6. Svn jobs ar to b procssd on thr machins X, Y and Z in th ordr XYZ.
Th tim rquird for procssing in hours is givn blow. Find th optima squ
nc and th tim lapsd. Stat clarly th conditions to b satisfid to convr
t thr machins problm into two-machin problm.
JOBS (Tim in hours) A X MACHINES: Y Z 3 4 6 B 8 3 7 C 7 2 5 D 4 5 11 E 9 1 5 F
8 4 6 G 7 3 10
7. Explain th application of squncing modl. Mntion diffrnt typs of squ
ncing problm you com across. 8. Explain th mthodology of Johnson and Bllman
mthod to solv squncing problm. 9. Explain th assumption mad in solving s
quncing problm. 10. Explain th conditions rquird to satisfy whn you want
to convrt a 3-machin problm into 2- machin problm. 11. Find th optimal sq
unc and th total tim lapsd for squncing 6 jobs on two machins A and B i
n th ordr AB. Tim givn is in hours.
JOBS: Tim in hours: Machin A: Machin B: 2 6 5 8 4 1 3 2 2 3 1 5 1 2 3 4 5 6
(Answr: Squnc: 615243 or 651243 and th tim lapsd is 26 hours.)
MULTIPLE CHOICE QUESTIONS
1. Th objctiv of squncing problm is: (a) To find th ordr in which jobs a
r to b mad (b) To find th tim rquird for complting all th jobs on hand.
(c) To find th squnc in which jobs on hand ar to b procssd to minimiz
th total tim rquird for procssing th jobs. (d) To maximiz th ffctivn
ss. ( )
290
Oprations Rsarch
2. Th tim rquird for printing of four books A, B, C and D is 5, 8, 10 and 7
hours. Whil its data ntry rquirs 7, 4, 3 and 6 hours rspctivly. Th squ
nc tim that minimizs total lapsd tim is (a) ACBD, (b) ABCD (c) ADCB (d) CB
DA ( ) 3. If thr ar ‘n’ jobs and ‘m‘ machins, thr will b ---------------squncs
of doing th jobs. (a) n × m, (b) m × n, (c) n m (d) ( n !) m ( ) 4. In gnral sq
u ncing problm will b solvd by using …………. (a) Hungarian Mthod. (b) Simplx mthod.
(c) Johnson and Bllman mthod, (d) Flood‘s tchniqu. ( ) 5. In solving 2 machin
and ‘n‘ jobs, th following assumption is wrong: (a) No passing is allowd (b) Proc
ssing tims ar known, (c) Handling tim is ngligibl, (d) Th tim of procss
ing dpnds on th ordr of machining. 6. Th following is th assumption mad i
n procssing of ‘n’ jobs on 2 machins: (a) Th procssing tim of jobs is xactly k
nown and is indpndnt of ordr of procssing. (b) Th procssing tims ar kno
wn and thy dpnd on th ordr of procssing th job. (c) Th procssing tim o
f a job is unknown and it is to b workd out aftr finding th squnc. (d) Th
squnc of doing jobs and procssing tims ar invrsly proportional. ( ) 7.
Th following is on of th assumptions mad whil squncing ‘n’ jobs on 2 machin
s. (a) Two jobs must b loadd at a tim on any machin. (b) Jobs ar to b don
altrnativly on ach machin. (c) Th ordr of complting th jobs has high si
gnificanc. (d) Each job onc startd on a machin is to b prformd up to comp
ltion on that machin. ( ) 8. This is not allowd in squncing of ‘n’ jobs on two
machins: (a) Passing, (b) loading (c) Rpating th job (d) Onc loadd on th
machin it should b compltd bfor rmoving from th machin. ( ) 9. Writ th
squnc of prforming th jobs for th problm givn blow:
Jobs: Tim of machining On Machin X: 6 8 5 9 1 A B C D E
Squncing
291
(a) Thy can b procssd in any ordr. (b) As thr is only on machin, squn
cing cannot b don. (c) This is not a squncing problm. (d) Non of th abov
. ( ) 10. Johnson Bllman rul stats that: (a) If smallst procssing tim occu
rs undr first machin, do that job first. (b) If th smallst procssing tim o
ccurs undr th scond machin, do that job first. (c) If th smallst procssin
g tim occurs undr first machin, do that job last. (d) If th smallst procss
ing tim occurs undr scond machin kp th procssing pnding. ( ) 12. To con
vrt ‘n’ jobs and 3-machin problm into ‘n’ jobs and 2-machin problm, th following r
ul must b satisfid. (a) All th procssing tim on scond machin must b sam
. (b) Th maximum procssing tim of 2nd machin must b ≤ to minimum procssing
tims of first and third machin. (c) Th maximum procssing tim of 1st machin
must b ≤ to minimum procssing tim of othr two machins. (d) Th minimum proc
ssing tim of 2nd machin must b ≤ to minimum procssing tims of first and third
machin. ( ) 13. If two jobs J1 and J2 hav sam minimum procss tim undr fir
st machin but procssing tim of J1 is lss than that of J2 undr scond machin
, thn J1 occupis: (a) First availabl plac from th lft. (b) Scond availab
l plac from lft, (c) First availabl plac from right, (d) Scond availabl p
lac from right. () 14. If Job A and B hav sam procssing tims undr machin
I and Machin II, thn prfr (a) Job A, (b) Job B (c) Both A and B (d) Eithr A
or B ( ) 15. Th givn squncing problm will hav multipl optimal solutions
whn th two jobs hav sam procssing tims undr: (a) First Machin, (b) Undr
both machins, (c) Undr scond machin, (d) Non of th abov. ( ) 16. If a jo
b is having minimum procssing tim undr both th machins, thn th job is pla
cd in: (a) Any on (first or last) position, (b) Availabl last position, (c) A
vailabl first position, (d) Both first and last position. ( )
292
Oprations Rsarch
17. FIFO is most applicabl to squncing of (a) On machin and ‘n’ jobs, (b) 2 mac
hins and ‘n’ jobs, (c) 3 machin ‘n’ jobs, (d) ‘n’ machins and 2 jobs.
( )
18. At a ptrol Bunk, whn ‘n’ vhicl ar waiting for srvic thn this srvic rul
is usd: (a) LIFO (b) FIFO (c) Srvic in Random Ordr (d) Srvic by highst
profit rul. ( ) 19. Considr th following squncing problm, and writ th op
timal squnc:
Jobs: Procssing Tim in Hrs. M/C Y 6 2 8 4 9 M/C X 1 1 2 5 3 3 4 10 5 7
(a) 1 2 3 4 5 (c) 5 4 3 2 1
(b) 1 3 5 4 2 (d) 1 4 3 5 2 ( )
20. In a 3 machin and 5 jobs problm, th last of procssing tims on machin
A, B and C ar 5, 1, and 3 hours and th highst procssing tims ar 9, 5, and
7 rspctivly, thn Johnson and Bllman rul is applicabl if ordr of th mach
in is: (a) B-A-C, (b) A-B-C (c) C - B - A (d) Any ordr. ( ) 21. In maximizatio
n cas of squncing problm of 2 machins and ‘n’ jobs, th job is placd at availa
bl lft first position if it has ---------------- procss tim undr machin --
------------. (a) Last, first, (b) highst, first, (c) last, scond, (d) high
st, scond. ( ) 22. Th (a) (b) (c) (d) fundamntal assumption of Johnson‘s mthod
of squncing is: No Passing rul, Passing rul, Sam typ of machins ar to b
usd, Non zro procss tim.
( )
23. If a job has zro procss tim for any machin, th job must b (a) Possss
first position only, (b) Possss last position only, (c) Possss xtrm positio
n, (d) B dltd from th squncing. 24. Th assumption mad in squncing pro
blms i.. No passing rul mans: (a) A job onc loadd on a machin should not
b rmovd until it is compltd,
( )
Squncing
293
(b) A job cannot b procssd on scond machin unlss it is procssd on first
machin (c) A machin should not b startd unlss th othr is rady to start,
(d) No job should b procssd unlss all othr ar kpt rady to start. ( ) 25.
Th tchnological ordr of machin to b opratd is fixd in a problm having:
(a) 1 machin and ‘n’ jobs, (b) 2 machins and ‘n’ jobs, (c) 3 machin and ‘n’ jobs, (d) ‘
chins and 2 jobs. 26. A squncing problm is infasibl in cas of: (a) 1 mach
in and ‘n’ jobs, (b) 2 machins and ‘n’ jobs, (c) 3 machins and ‘n’ jobs, (d) 2 jobs and
achins. 27. In a 2 jobs and ‘n’ machin problm a li at 45° rprsnts: (a) Job 2 is
idl, (b) Job 1 is idl, (c) Both jobs ar idl, (d) both jobs ar undr procs
sing.
( )
( )
( )
28. In a 2 jobs and ‘n’ machin problm, th lapsd tim for job 1 is calculatd as
(Job 1 is rprsntd on X -axis). (a) Procss tim for Job 1 + Total lngth of
vrtical lin on graph. (b) Procss tim for Job 2 + Idl tim for Job 1 (c) Pr
ocss tim for job 1 + Total lngth of horizontal lin on graph, (d) Procss tim
for job 2 – Idl tim for job 1 ( ) 29. In a 2 jobs and ‘n’ machin-squncing probl
m th horizontal lin on a graph indicats: (a) Procssing tim of Job I, (b) I
dl tim of Job I, (c) Idl tim of both jobs, (d) Procssing tim of both jobs.
( ) 30. In a 2 job, ‘n’ machin squncing problm, th vrtical lin on th graph
indicats: (a) Procssing tim of Job 1, (b) Procssing tim of Job 2, (c) Idl
tim of Job 2, (d) Idl tim of both jobs. 31. In a 2 job and ‘n’ machin squncing
problm w find that: (a) Sum of procssing tim of both th jobs is sam, (b)
Sum of idl tim of both th jobs is sam, (c) Sum of procssing tim and idl t
im of both th jobs is sam, (c) Sum of procssing tim and idl tim of both t
h jobs is diffrnt.
( )
( )
294
Oprations Rsarch
ANSWERS
1. (c) 5. (d) 9. (a) 13. (b) 17. (a) 21. (b) 25. (d) 29. (a) 2. (d) 6. (c) 10. (
a) 14. (d) 18. (a) 22. (b) 26. (c) 30. (b) 3. (d) 7. (d) 11. (a) 15. (c) 19. (b)
23. (c) 27. (d) 31. (c) 4. (c) 8. (a) 12. (b) 16. (a) 20. (b) 24. (b) 28. (a)
CHAPTER – 7
Rplacmnt Modl
7.1. INTRODUCTION
Th problm of rplacmnt ariss whn any on of th componnts of productiv r
sourcs, such as machinry, building and mn dtriorats du to tim or usag.
Th xampls ar: (a) A machin, which is purchasd and installd in a producti
on systm, du to usag som of its componnts war out and its fficincy is r
ducd. (b) A building in which production activitis ar carrid out, may lav
cracks in walls, roof tc, and nds rpair. (c) A workr, whn h is young, wil
l work fficintly, as th tim passs bcoms old and his work fficincy falls
down and aftr som tim h will bcom unabl to work. In gnral, whn any pr
oduction facility is nw, it works with full oprating fficincy and du to usa
g or of tim, it may bcom old and som of its componnts war out and th op
rating fficincy of th facility falls down. To rgain th fficincy, a rmdy
by, namly maintnanc is to b attndd. Th act of maintnanc consists of r
placing th worn out part, or oiling or ovrhauling, or rpair tc. In modrn in
dustrial scn, th prsnc of highly sophisticatd machinry in manufacturing
systm will bothr th managr, whn any on of th facilitis gos out of ordr
or brakdown. Bcaus of th brakdown of on of th facility, th ntir produ
ction systm may b affctd. This is particularly tru in batch manufacturing s
ystm and continuous manufacturing systm. Th loss of production hours is mor
xpnsiv factor for th manufacturing unit. Hnc, th managmnt must tak int
rst in maintaing th production facility proprly, so that facility s availabl
tim will b mor than th down tim. All th production facilitis ar subjc
td to dtrioration du to thir us and xposur to th nvironmntal conditio
ns. Th procss of dtrioration, if unchckd or nglctd, it culminats and m
aks th facility uslss. Hnc, th managmnt has to chck th facilitis pr
iodically, and kp all th facilitis in oprating condition. Onc th maintna
nc is attndd, th fficincy may not b rgaind to prvious lvl but a bit
lss than that of prvious lvl. For xampl, if th oprating fficincy is 95
prcnt and du to dtrioration, th fficincy rducs to 90 prcnt, aftr m
aintnanc, it may rgain to th lvl of 93 prcnt. Onc again du to usag th
fficincy falls down and th maintnanc is to b attndd. This is an ongoin
g businss of th managmnt. Aftr som tim, th fficincy rducs to such a
lvl, th maintnanc cost will bcom vry high and du to lss fficincy th
unit production cost will b vry high and this is th tim th managmnt has
to think of rplacing th facility. This may b wll xplaind by mans of a fig
ur. Rfrring to figur 7.1, th oprating fficincy at th bginning is
296
Oprations Rsarch
95%. Whn first maintnanc is attndd, it is rducd to 93%. In th scond mai
ntnanc it is rducd to 80 prcnt. Lik this th facility dtriorats, and f
inally th oprating fficincy rducs to 50 prcnt, whr th it is not cono
mical to us th facility for furthr production, as th maintnanc cost will b
vry high, and th unit production cost also incrass, hnc th rplacmnt
of th facility is du at this stag. In this chaptr, w will discuss th math
matical modls usd for finding th optimal rplacmnt tim of facilitis.
Fig. 7.1
Thus th problm of rplacmnt is xprincd in systms whr machins, indivi
duals or capital assts ar th main production or job prforming units. Th cha
ractristics of ths units is that thir lvl of prformanc or fficincy dc
rass with tim or usag and on has to formulat som suitabl rplacmnt pol
icy rgarding ths units to kp th systm up to som dsird lvl of prform
anc. W may hav to tak diffrnt typ of dcision such as: (a) W may dcid
whthr to wait for complt failur of th itm (which may rsult in som loss
s du to dtrioration or to rplac arlir at th xpns of highr cost of th
itm, (b) Th xpnsiv itm may b considrd individually to dcid whthr
w should rplac now or, if not, whn it should b rconsidrd for rplacmnt
, (c) Whthr th itm is to b rplacd by similar typ of itm or by diffrnt
typ for xampl itm with latst tchnology Th problm of rplacmnt is nco
untrd in th cas of both mn and machins. Using probability, it is possibl
to stimat th chanc of dath or failur at various ags. Th main objctiv o
f rplacmnt is to hlp th organization for maximizing its profit or to minimi
z th cost.
7.2 FAILURE MECHANISIM OF ITEMS
Th word failur has got a widr maning in industrial maintnanc than what it
has in our daily lif. W can catgoriz th failur in two classs. Thy ar (i
) Gradual failur and (ii) Suddn failur. Onc again th suddn failur may b
classifid as: (a) Progrssiv failur, (b) Rtrogrssiv failur and (c) Random
failur.
Rplacmnt Modl
297
(i) Gradual failur: In this class as th lif of th machin incrass or du c
ontinuous usag, du to war and tar of componnts of th facility, its ffici
ncy dtriorats du to which th managmnt can xprinc: (a) Progrssiv Inc
ras in maintnanc xpnditur or oprating costs, (b) Dcrasd productivity
of th quipmnt and (c) dcras in th valu of th quipmnt i.. rsal valu
of th quipmnt/facility dcrass. Exampls of this catgory ar: Automobil
s, Machin tools, tc. (ii) Suddn failur: In this cas, th itms ultimatly f
ail aftr a priod of tim. Th lif of th quipmnt cannot b prdictd and is
som sort of random variabl. Th priod btwn installation and failur is no
t constant for any particular typ of quipmnt but will follow som frquncy d
istribution, which may b: (a) Progrssiv failur: In this cas probability of
failur incrass with th incras in lif of an itm. Th bst xampl is lc
trical bulbs and computr componnts. It can b shown as in figur 7.2 (a). (b)
Rtrogrssiv failur: Som itms will hav highr probability of failur in th
bginning of thir lif, and as th tim passs chancs of failur bcoms lss
. That is th ability of th itm to surviv in th initial priod of lif incr
ass its xpctd lif. Th xampls ar nwly installd machins in production
systms, nw vhicls, and infant baby (Th probability of survival is vry lss
in infant ag, but onc th baby gt accustomd to natur, th probability of f
ailur dcrass). This can b shown as in figur 7.2 (b). (c) Random failur: I
n this class, constant probability of failur is associatd with itms that fail
from random causs such as physical shocks, not rlatd to ag. In such cass a
ll itms fail bfor aging has any ffct. This can b shown as in figur 7.2. (
c). Exampl is vacuum tubs.
Figur 7.2(a) Progrssiv failur Probability of failur incrass with lif of
th itm
Figur 7.2(b) Rtrogrssiv failur Probability of failur is mor in th nor i
n arly lif of th itm and thn chanc of failur dcrass.
298
Oprations Rsarch
Figur 7.2(c) Random failur
Itm fail du to som random caus but not du to ag Th abov may b shown as
in figur 7.3
Figur 7.3
7.2.1. Bathtub Curv
Machin or quipmnt or facility lif can b classifid into thr stags. Thy
ar Infant stag, Youth stag or Youth phas and Old ag stag or Old ag phas.
(a) Infant stag or phas This is also known as arly failur stag. Whn nw
quipmnt is purchasd and installd in th xisting systm, it has to cop up wi
th th oprating fficincy of th xisting systm. Also it has to accustom to o
prating skill of th oprator. Prhaps whn a nw vhicl is purchasd, du to
mchanical conditions of th machin and th oprating skill of th prson, th
vhicl may giv troubl in th arly stags. Th ownr may hav to visit th m
chanic many tims. It is lik a baby, which has com out from mothr s womb. Th
baby until birth, it was in a controlld atmosphr and whn th birth taks pl
ac, it has to gt accustom to outsid atmosphr. Hnc it cris. Somtims th
r is a dangr of failur of lif. Hnc w s mor failurs in infant stag. O
nc an ag of 10 to 15 yars is rachd, th dath rat or failur rats will r
duc. In this stag th safty of machin is covrd by th guarant priod giv
n by th manufacturr. This is rprsntd by a curv on th lft hand sid of
th Bathtub curv.
Rplacmnt Modl
299
(b) Youth stag or random failur stag In this stag th quipmnt or machin i
s accustomd to th systm in which it is installd and works at dsignd oprat
ing fficincy. Rgular maintnanc such as ovrhauling, oiling, grasing, clan
ing kp th machin working. Now and thn du to war and tar of componnts or
havy load or lctrical voltag fluctuations, brakdown may occur, which can b
takn car of by rpair maintnanc. Th machin or quipmnt works for longr
priods without any troubl. This is lik youth stag in human lif that is ful
l of vigor and nrgy and th prson will b halthy and work for longr priods
without any disass. This is shown as a horizontal lin in bathtub curv. Hr
rpair maintnanc; prvntiv maintnanc or othr maintnanc tchniqus ar
usd to kp th machin or quipmnt in working condition. (c) Old ag stag or
Old ag phas or War out failurs Du to continuous usag and ag of th machi
n , thr will b war and tar of various componnts. Not only this, during you
th stag, som of th componnts might hav bn rplacd du to war and tar.
Ths rplacd componnts may not suit wll in th systm if thy ar not from o
riginal manufacturr. As th manufacturrs ar changing th dsign, on has to g
o for spars availabl in th markt. All this may rduc to oprating fficinc
y of th machin or quipmnt and th managmnt has to fac frqunt failurs.
This is vry similar to old ag in human lif. Du to old ag, popl will gt d
isass and old ag waknss and many a tim thy hav to go to hospitals for tr
atmnt bfor th lif fails. This is shown on th right sid of th bath- tub
curv. Hr on will think of rplacmnt of th quipmnt or machin. Whn all
th abov thr curvs ar assmbld, w gt a curv which is in th form of a b
athtub and is known as bathtub curv, figur 7.4.
Figur 7.4 Bathtub curv.
300
Oprations Rsarch
All th abov-discussd points may b summarizd as:
Tabl 7.1. Summary of thr- stags of maintnanc Phas Typ of Failur Infant
phas Early Failurs Failur Rat Trnd. Opration, Installation Errors, nviron
mntal Problms. Youth phas Random or Chancd Failurs or Rar vnt Failurs.
Old ag phas War out or Incrasing War, tar, Crp, Ag failurs du to war
and tar.. High Rconditioning or Rplacmnt. Fatigu tc. Low Oprat to fail
and Corrctiv maintnanc Constant Oprational rrors, Havy load, ovr run Lo
w to mdium Brak down, Prdictiv Prvntiv, Rpair Maintnanc tc. Causs of
failur Cost of Failur Suitabl maintnanc Policy manufacturr.
Dcring Faulty dsign, Erratic Mdium to high Warrant / guarant by
7.2.2. Costs Associatd with Maintnanc Our main aim in this chaptr is to find
optimal rplacmnt priod so as to minimiz th maintnanc cost. Hnc w ar
vry much intrstd in th various cost associatd with maintnanc. Various c
osts to b discussd ar: (a) Purchas cost or Capital cost: ( C ) This cost is
indpndnt of th ag of th machin or usag of th machin. This is incurrd
at th bginning of th lif of th machin, i.. at th tim of purchasing th
machin or quipmnt. But th intrst on th invstd mony is an important fac
tor to b considrd. (b) Salvag valu / Scrap valu / Rsal valu / Dprciat
ion: (S) As th ag of th machin incrass, th rsal valu dcrass as its
oprating fficincy dcrass and th maintnanc costs incrass. It dpnds o
n th oprating conditions of th machin and lif of th machin. (c) Running c
osts including maintnanc, Rpair and Oprating costs: Ths costs ar th func
tions of ag of th machin and usag of th machin. As th usag incrass or
th ag incrass, du to war and tar, many componnts fail to work and thy a
r to b rplacd. As th ag incrass, failurs also incras and th maintna
nc costs gos on incrasing. At som priod th maintnanc costs ar so high,
which will indicat that th rplacmnt of th machin or quipmnt is ssntia
l. Ths costs can b shown by mans of a curv as in figur 7.5.
Rplacmnt Modl
301
Figur 7.5.
7.3. TYPES OF REPLACEMET PROBLEMS
On must rmmbr that th study of Rplacmnt of itms is a fild of applicati
on rathr than a mthod of analysis. Th study involvs, th comparison of altr
nativ rplacmnt policis. Various typs of rplacmnt problms w com acros
s in this chaptr is: (a) Rplacmnt of Capital quipmnt, which looss its op
rating fficincy du to aging (passag of tim), or du to continuous usag (du
to war and tar of componnts). Exampls ar: Machin tools, Transport and ot
hr vhicls, tc., Hr th systm can maintain th lvl of prformanc by ins
talling a nw unit at th bginning of som unit of tim (yar, month or wk) a
nd dcid to kp it up to som suitabl priod so as to minimiz th oprating
and maintnanc costs. In this cas th dtrioration procss is prdictabl and
is rprsntd by an incrasd maintnanc cost and dcrasd in scrap cost and
incrasd production cost pr unit. In such cass th optimum lif of th itm
is dtrmind on th assumption that incrasd ag rducs fficincy. Dtrmini
stic modls xplain th problm and thy ar vry much similar to that of invnt
ory modls whr dtrioration corrsponds to dmand against th dsird lvl o
f fficincy (lvl of invntory). Th cost of nw itm is similar to cost of r
plnishmnt of invntory and maintnanc cost corrsponds to cost of holding inv
ntory. Ths typs of problms ar solvd by two mthods. Thy ar: (i) By calc
ulating th cost pr unit of tim, without considring th mony valu. Hr w
calculat th total cost up to th priod and divid by tim unit (yars, months
, wks tc.,) to find th avrag cost to dcid th priod of rplacmnt. (ii
) By taking th mony valu into considration using prsnt valu concpt to co
mpar on a on numbr basis.
302
Oprations Rsarch
(b) Rplacmnt of itms that fail compltly all in a suddn in a random natur
. W us Group rplacmnt or Prvntiv maintnanc tchniqu for ths itms a
nd ths ar xpnsiv to rplac individually. Exampls ar: Elctric bulbs, Tr
ansistors, Elctronic componnts tc., Hr rplacmnt of itms ar don in ant
icipation of failur, which is known as prvntiv maintnanc. W assum that t
h itms will hav rlativly constant fficincy until thy fail or di. Ths
modls rquir th knowldg of statistics and stochastic procss involving prob
ability of failur. Th rplacmnt policy is formulatd to balanc th wastd l
if of itms rplacd bfor failur against th costs incurrd whn itms fail
in srvic. (c) Rplacmnt of human bings in organizations, known as Staffing
problm, or known as Human rsourc planning or Mortality and Staffing problm.
This problm rquirs th knowldg of lif distribution for srvic of staff in
a systm. (d) Miscllanous problms such as rplacmnt of xisting units du
to availability of mor ffctiv and nw and advancd tchnology. In ths prob
lms rplacmnt will bcom ncssary du to rsarch of nw and advancd and m
or ffctiv tchnology and old tchnology bcoms out of dat.
7.4. GENERAL APPROACH TO SOLUTION TO REPLACEMENT PROBLEM
Though it is not possibl or it is difficult to prdict th tim of failur of a
n itm xactly, likly failur pattrn could b stablishd by obsrvation. Gn
rating th probability distribution for th givn situation and thn using thm
in conjunction with rlvant cost information w can formulat th optimum rpla
cmnt policy. Th information ncssary to formulat optimum rplacmnt policy
is: (i) Objctiv assssmnt of th probability of th itm failing at a partic
ular point of tim (ii) Assssmnts of th cost of rplacmnt in trms of: (a)
Actual cost of th itm, (b) Dirct costs of labour involvd in rplacmnt, (c)
Costs of disruption in trms of lost production, lost ordrs tc.,
7.5. REPLACEMENT OF ITEMS WHOSE EFFICIENCY REDUCES OR MAINTENCNCE COST INCREASES
WITH TIME OR DUE TO AGE AND MONEY VALUE IS NOT CONSIDERED
Costs to b considrd: Various cost itms to b considrd in rplacmnt dcis
ions ar th costs that dpnd upon th choic or ag of itm or quipmnt. Th
costs thos do not chang with th ag of th machin or itm nd not b takn
into considration. Th rplacmnt of itms whos fficincy rducs with tim
is justifid whn th avrag cost pr tim priod gos on rducing longr th r
placmnt is postpond. Howvr, thr will com an ag at which th rat of in
cras of running costs mor than compnsats th saving in avrag capital cost
s. At this ag th rplacmnt is justifid. In th cas of rplacmnt of itms
whos fficincy dtriorats with tim, th most important critria to b cons
idrd is th masurmnt of fficincy. Considr a machin, in this cas, th m
aintnanc cost always incrass with tim and usag and a tim coms whn th m
aintnanc cost bcoms larg nough, which indicats that it is bttr and con
omical to rplac th machin with a nw on. Whn w want to rplac th machin
, w may com across various altrnativ choics, whr w hav to compar th
various cost lmnts such as running costs and maintnanc costs to
Rplacmnt Modl
303
slct optimal choic. Th various tchniqus w may com across to analyz th
situation ar: (a) Rplacmnt of itms whos maintnanc cost incrass with ti
m and valu of mony rmains sam during th priod, (b) Rplacmnt of itms w
hos maintnanc cost incrass with tim and th valu of mony also changs wi
th tim, and (c) To compar altrnativ choics, us of concpt of prsnt valu
.
7.5.1. Rplacmnt of Itms whos Maintnanc Cost Incrass with Tim and th V
alu of Mony Rmains Sam During th Priod
Lt C = Purchas cost or Capital cost of th itm, S = Scrap valu or rsal val
u of th itm, it is assumd that this cost will rmain constant ovr tim. Cas
1: Hr w assum that th tim ‘t’ is a continuous variat. Lt u (t) b th main
tnanc or running cost at th tim ‘t’. If th itm is usd in th systm for a pr
iod ‘y’, thn th total maintnanc cost or cumulativ running cost incurrd during
th priod ‘y’ will b: M (y) =
∫ u (t)
0
y
dt.
...(7.1)
Th total cost incurrd on th itm during priod ‘y’ = Capital cost + total maintn
anc cost in th priod ‘y’ - Scrap valu. = C + M(y) – S Hnc avrag cost pr unit
of tim incurrd during th priod ‘y’ on th itm is givn by: G (y) = {C + M (y) – S
}/y, to find th valu of ‘y’ for which G (y) is minimum th first drivativ of G (
y) with rspct to ‘y’ is quatd to zro. dG / dy = {(C – S) / y2} + {u(y) / y} – (1/y2
)
∫
y o
u (t )dt = 0, substituting from 7.1 w gt,
{(C-S) / y2} + {u (y) / y} - (1/y2) M (y) = 0, OR this is writtn as: u (y) = {C
– S + M (y) } / y = G (y) ...(7.2) So, rplac th itm whn th avrag annual c
ost rachs at th minimum that will always occur at a tim whn th avrag cos
t bcoms qual to th currnt maintnanc cost. Point to not: If tim is masu
rd continuously thn th avrag annual cost will b minimizd by rplacing th
machin or itm whn th avrag cost to dat bcoms qual to th currnt main
t nanc cost. Cas 2. Hr tim ‘t’ is considrd as a discrt variabl. In this ca
s, th tim priod is takn as on yar and ‘t’ can tak th valus of 1, 2, 3 …tc.,
thn, M (y) =
∑u
t =0
y
(t) = Total running cost of ‘y’ yars.
304
Oprations Rsarch
Total cost incurrd on th itm during ‘y’ yars is T (y) = C+ M (y) - S = C - S +
∑u
t =1
y
(t)
Avrag annual cost incurrd during ‘y’ yars is G (y) = {T (y) / y} = {C + M (y) -
S} / y G (y) will b minimum for that valu of ‘y’, for which G (y+1) > G (y) and G
(y – 1) > G (y) or say that G (y+1) – G (y) > 0 and G (y–1) – G (y) > 0 ...(7.3) This wi
ll xist at: G (y+1) – G (y) > 0 if u (y+1) > G (y) and G (y–1) – G (y) > 0 if u (y) <
G (y–1) ...(7.4) This show that do not rplac, if th nxt yars running cost is
lss than th prvious yars avrag total cost but rplac at th nd of ‘y’ yars
if th nxt yar’s {i.. (y + 1) th yar} running cost is mor than th avrag c
ost of ‘y’ th yar. Th abov statmnt shows that whn th tim is masurd in disc
rt units, rplacing th machin whn th nxt priod s maintnanc cost bcom
s gratr than th currnt avrag cost will minimiz thn th avrag annual co
st.
Points to rmmbr
(a) If tim is masurd continuously, thn th avrag annual costs will b mini
mizd by rplacing th machin or itm, whn th avrag cost to dat bcoms q
ual to th currnt maintnanc cost. (b) If tim is masurd in discrt units,
thn th avrag annual cost will b minimizd by rplacing th machin or itm
whn th nxt priod’s maintnanc cost bcoms gratr than th currnt avrag c
ost.
Problm 7.1.
A firm is thinking of rplacing a particular machin whos cost pric is Rs. 12,
200. Th scrap valu of th machin is Rs. 200/-. Th maintnanc costs ar foun
d to b as follows:
Yar Maintnanc Cost in Rs. 1 220 2 500 3 800 4 1200 5 1800 6 2500 7 3200 8 400
0
Dtrmin whn th firm should gt th machin rplacd.
Rplacmnt Modl
305
Solution
Yar (t) Y u (t) Maintnanc Cost. (Rs) 1 1 1 2 3 4 5 6 7 8 2 2 220 500 800 1200
1800 2500 3200 4000 M (y) = y C= Capital Cost in Rs. 4 5 5 12200 12200 12200 12
200 12200 12200 12200 12200 200 200 200 200 200 200 200 200 6 6 = 4-5 +3 12220 1
2720 13520 14720 16520 19020 22220 26220 Scrap Cost (S) In Rs. T (y) = C - S + M
(y) Avrag Cost : G (y) = T (y) / y 7 7 = 6/1 12220 6360 4506.67 3680 3304 317
0 3174.29 3277.5
Σ u (t)
t=1 3 34 220 720 1520 2720 4520 7020 10220 14220
Replace the machine at the end of 6th year when the average annual maintenance c
ost is minimum.
Problem 7.2. The initial cost of a machine is Rs. 6100/- and its scrap value is
Rs.100/-. The maintenance costs found from experience are as follows:
Year: Annual maintenance cost in Rs.: 1 100 2 250 3 400 4 600 5 900 6 1200 7 160
0 8 2000
When should the machine be replaced?
olution The time period is discrete. We have to find the period when the averag
e maintenance cost will be minimum.
306
Operations Research
Years ‘t’ = y
u (t) Rs
M (y) = y
T (y) = C-S + M (y) Rs. 6100 6350 6750 7350 8250 9450 11050 13050
G (y) = T (y) / y Rs.
Σ u (t)
t=1 1 2 3 4 5 6 7 8 100 250 400 600 900 1200 1600 200 100 350 750 1350 2250 3450
5050 7050
6100/1 = 6100 6350 / 2 = 3175 6750 / 3 = 2250 7350 / 4 = 1837.50 8250 / 5 = 1650
6450 / 6 = 1575 11050 / 7 = 1578.57 13050 / 8 = 1631.25
The annual average maintenance cost is minimum at the end of 6th year and it goe
s on increasing from 7th year. Hence the machine is to be replaced at the end of
6th year.
Problem 7.3.
The maintenance cost and resale value per year of a machine whose purchase price
is Rs. 7000/ - is given below:
Year: Maintenance cost in Rs.: Resale value in Rs.: 1 900 4000 2 1200 2000 3 120
0 4 600 5 500 6 400 7 4700 400 8 5900 400 1600 2100 2800 3700
When should the machine be replaced?
olution
Years (t) Running =y 1 2 3 4 5 6 7 8 Cost u (y) In Rs. 900 1200 1600 2100 2800 3
700 4700 5900 Cumulative Running
cost M (Y) in Rs. 900 2100 3700 5800 8600 12300
17000 2 2900 Resale Value (y) In Rs. 4000 2000 1200 600 500 400 400 400 C -
(y) In Rs. C = 7000/3000 5000 5800 6400 6500 6600 6600 6600 T (y) = C – (y) + M
(y) In Rs. 3900 7100 9500 12200 15100 18900 23600 29500 T (y) / y = G (y) Avera
ge cost in Rs. 3900 3550 3166.67 3050 3020 3150 3371.43 3687.50
From the table we can see that the average cost is minimum at the end of the 5th
year. Hence the machine may be replaced at the end of the 5th year.
Replacement Model
307
Problem 7.4
A fleet owner finds form his past records that the cost per year of running a tr
uck and resale values whose purchase price is Rs. 6000/- are given as under. At
what stage the replacement is due?
Year: Running cost in Rs. Resale value in Rs. 1 1000 3000 2 1200 1500 3 1400 750
4 1800 375 5 2300 200 6 2800 200 7 3400 200 8 4000 200
olution
Let C = Capital cost = Rs. 6000/-, (y) = crap value changes yearly, G (y) Ave
rage yearly cost, u (t) = Annual maintenance cost.
Years (t) =y 1 2 3 4 5 6 7 8 Running Cost u (y) In Rs. 1000 1200 1400 1800 2300
2800 3400 4000 Comulative Running
cost M (Y) in Rs. 1000 2200 3600 5400 7700 105
00 13900 17900 Resale Value (y) In Rs. 3000 1500 750 375 200 200
200 200 3000
4500 5250 5625 5800 5800 5800 5800 C - (y) In Rs. T (y) = C - (y) + In Rs. 4
000 6700 8850 11025 13500 16300 19700 23700 T (y) / y = G (y) Average cost in Rs
. 4000 3350 2950 2756 2700 2717 2814 2962
From the table above we can see that the G (y) is minimum at the end of 5th year
. Hence the truck is to be replaced at the end of 5th year.
Problem 7.5.
The initial cost of a vehicle is Rs. 3,800/- and the trade in value drops as tim
e passes until it reaches Rs. 600/-. The maintenance costs are as shown below. F
ind when the replacement is due?
Year of service: Year-end trade - in value in Rs.: Annual operating cost in Rs.:
Annual Maintenance cost in Rs. 1 2000 1600 400 2 1200 1900 500 3 800 2200 700 4
700 2500 900 5 600 2800 1100
olution
C = Capital cost in Rs. = 3800/-, (y) =, crap value or trade in value, u (t)
= Annual maintenance cost in Rs. Here we can add operating cost and annual maint
enance cost and put it together.
308
Operations Research
Years (t) = y 1 2 3 4 5
Running Cost u (y) In Rs. 2000 2400 2900 3400 3900
Cumulative Running cost M (Y) In Rs. 2000 4400 7300 10700 14600
Resale Value (y) In Rs. 20 00 1200 800 700 600
C – (y) In Rs. 1800 2600 3000 3100 3200
T (y) = C – (y) + M (y) In Rs. 3800 7000 10300 13800 17800
T (y) / y = G (y) Average cost in Rs. 3800 3500 3433 3450 3560
The optimal replacement period is at the end of third year. And the minimum annu
al average cost is Rs. 3433/-
Problem 7.6.
A Plant manager is considering the replacement policy for a new machine. He esti
mates the following costs in Rupees. Find an optimal replacement policy and corr
esponding minimum cost.
Year: Replacement cost at the beginning of the year. (Rs) alvage value at the e
nd of the year: (Rs) Operating costs (Rs.) 1 100 60 25 2 110 50 30 3 125 40 40 4
140 25 50 5 160 10 65 6 190 0 80
olution
In this problem Replacement cost at the beginning and the salvage value at the e
nd of the year is given. If we subtract salvage value from the replacement cost
we get the net value, i.e. C (capital cost) - (resale value). Rest of the prob
lem is worked as usual.
Years (t) = y 1 2 3 4 5 6 Running Cost u (y) In Rs. 25 30 40 50 65 80 Cumulative
Running cost M (Y) in Rs. 25 55 95 145 210 290 Resale Value (y) In Rs. 60 50
40 25 10 0 100 – 60 = 40 110 – 50 = 60 125 – 40 = 85 140 – 25 = 115 160 – 10 = 150 190 – 0
190 C – (y) In Rs. T (y) = C – (y) + M (y) In Rs. 65 115 180 260 360 480 T (y)/
y = G (y) Average cost in Rs. 65 57.50 60 65 72 80
From the table we see that the average annual maintenance cost is minimum at the
end of 2nd year and is Rs. 57.50. Hence the machine is to be replaced at the en
d of 2nd year.
Replacement Model
309
Problem 7.7.
A fleet owner finds form his past records that the cost per year of running a ve
hicle whose purchase price is Rs. 50000/- are as under:
Year: Running cost in Rs.: Resale value in Rs.: 1 5000 30000 2 6000 15000 3 7000
7500 4 9000 3750 5 21500 2000 6 18000 2000 7 18000 2000
Thereafter running cost increases by Rs.2000/- per year but resale value remains
constant at Rs. 2000/-. At what stage the replacement is due?
olution
Years (t) = y 1 2 3 4 5 6 7 8 9 Running Cost u (y) In Rs. 5000 6000 7000 9000 21
500 16000 18000 20000 22000 Cumulative Running cost M (Y) In Rs. 5000 11000 1800
0 27000 48500 64500 82500 1,02,500 1,24,500 Resale Value (y) In Rs. 30000 1500
0 7500 3750 2000 2000 2000 2000 2000 20000
35000 42500 46250 48000 48000 48000 4
8000 48000 C – (y) In Rs. T (y) = C – (y) + M (y) In Rs. 25000 46000 60500 73250
96500 1,12,500 1,30,500 1,50,500 1,70,500 T (y) / y = G (y) Average cost in Rs.
25000 23000 20166.50 18312.50 19300 18750 18642.80 18812.50 18944.40
In this problem, the running cost increases from first year (Rs.5000) to Rs. 21,
500 in the 5th year and then it reduces in 6th year and then it increase year w
ise. Hence there are two minimum annual maintenance cost i.e. Rs. 18,312.50 at t
he end of 4th year and Rs. 18,642.80 at the end of 7th year. Hence we can conclu
de that the machine is to be replaced at the end of 4th year. Due to any financi
al constraint if it is not replaced at the end of 4th year, it must be replaced
at the end of 7th year.
Problem 7.8.
Machine A costs Rs. 45,000/- and the operating costs are estimated at Rs. 1000/-
for the first year, increasing by Rs. 10,000/- per year in the second and subse
quent years. Machine B costs Rs.50000/- and operating costs are Rs. 2000/- for t
he first year, increasing by Rs. 4000/- in the second and subsequent years. If w
e now have a machine of type A, should we replace it by B? If so when? Assume bo
th machines have no resale value and future costs are not discounted.
310
Operations Research
olution
Let us now calculate the average annual running cost for machine A and B in the
tales given below: ( = Rs.0/-)
Machine A
Year (y) Running Cost (Rs) u (t) 1 2 3 4 5 6 1000
11000 21000 31000 41000
51,000
Cumulative Running Cost in Rs, Depreciation C– Total cost TC = C – + M (y) 45000
45000 45000 45000 45000 45000 46000 57000 78000 1,09,000 1,50.000 2.01,000 4600
0 28500 26000 27200 30000 33500 Average cost F (y) = TC/ y
Σ u (t) = M (y)
1000 12000 33000 64000 1,05,000 1,56,000
As the annual maintenance cost is minimum at the end of 3rd year, the machine A
is to be replaced at the end of 3rd year.
Machine B
Year (y) Running Cost (Rs) u (t) 1 2 3 4 5 6 2000
6000 10000 14000 18000
22000 C
umulative Running Cost in Rs, Depreciation C– Total cost TC = C – + M (y) 50000 5
0000 50000 50000 50000 50000 52000 58000 68000 82000 1,00,000 1,22,000 52000 290
00 22667 20500 20000 20333 Average cost F (y) = TC/ y
Σ u (t) = M (y)
2000 8000 18000 32000 50000 72000
As the average annual maintenance cost is minimum at the end of 5th year, the ma
chine is to be replaced at the end of 5th year. When we compare machine A and ma
chine B, the average annual maintenance cost of Machine B is less than that of B
, the machine A should be replaced by machine A. Now to find the time of replace
ment of machine A by machine B, the total cost of the machine A in the successiv
e years is computed as given below:
Replacement Model
311
Year: Total cost incurred in Rs.:
1 46000
2 57000 – 46000 = 11000
3 78000 – 57000 = 21000
4 1,09,000 – 78000 = 31000
The criterion is to replace machine A by machine B at the age when its running c
ost for the next year exceeds the lowest average running cost i.e. Rs. 20000 per
year of machine B. From the calculations we can see that running cost of machin
e is in the third year, i.e. Rs. 21000/- is more than the lowest average running
cost per year of machine B i.e. Rs. 20000/- at the end of fifth year. Hence the
machine A should be replaced by machine B after two years.
Problem 7.9.
A taxi owner estimates from his past records that the costs per year for operati
ng taxi whose purchase price when new is Rs.60000/- are as given below:
Age (year): Operating cost in Rs.: 1 10000 2 12000 3 15000 4 18000 5 20000
After 5 years, the operating cost is Rs. 6000 × k Where k = 6, 7, 8, 9, 10, i.e. ‘k’ d
enotes years. If the resale value decreases by 10% of purchase price each year,
what is the best replacement policy? Cost of money is zero.
Solution
Capital cost is C = Rs. 60000/-. Resale value decreases by 10% of capital cost.
Hence it reduces by 60000 × (10/100) = Rs. 6000/This means C – S increase by Rs. 600
0/- every year. Average annual maintenance cost of machine is:
Annual Year 1 2 3 4 5 6 7 8 9 10 Maintenance Cost Rs. u (t) 10000 12000 15000 18
000 20000 36000 42000 48000 54000 60000
Σ u (t)
Rs. M (y) 10000 22000 37000 55000 75000 1,11,000 1,53,000 2,01,000 2,55,000 3,15
,000
= Resale Value Rs. 54000 48000 42000 36000 30000 24000 18000 12000 6000 0
C– Rs. 6000 12000 18000 24000 30000 36000 42000 48000 54000 60000
TC = Total Cost Average annual C – – M (y) 16000 34000 55000 79000 1,05,000 1,47,0
00 1,95,000 2,49,000 3,09,000 3,75,000 Cost G (y) = TC / y 16000 17000 18333 197
50 21000 24500 27857 31125 34333 37500
312
Operations Research
As the average annual cost is minimum in the first year itself, the machine is t
o be replaced every year. We can interpret the situation as: The taxi owner’s esti
mate of operating cost may be wrong or the taxi is of low uality as it is to be
replaced every year.
Problem 7.10
(a) A machine A costs Rs.9000/-. Annual operating costs are Rs. 200/- for the fi
rst year and then increases by Rs.2000/- every year. Determine the best age at w
hich the machine A is to be replaced? If the optimum replacement policy is follo
wed, what will be the average yearly cost of owning and operating the machine? A
ssume machine has no resale value when replaced and that future costs are not di
scounted. (b) Machine B costs Rs. 10000/-. Annual operating costs are Rs. 400/-
for the first year and then increases by Rs. 800/- every year. You have now a ma
chine of type A, which is of one year old. Should you replace it with B, and if
so, when?
Solution
Given that resale value is Rs. zero. Purchase price for machine A is Rs. 9000/-
and purchase price for machine B is Rs. 10,000. Hence for machine A, C –S = Rs. 90
00/- and that for B is Rs. 10000/-.
Years (y) T 1 2 3 4 5 Annual Maintenance Cost Rs. u (t) 200 2200 4200 6200 8200
Σ u (t)
Rs. = M (y) 200 2400 6600 12800 21000
C– Rs. 9000 9000 9000 9000 9000
T.C = C – + M (y) Rs. 9200 11400 15600 21800 30000
G (y) = T.C / y Rs. 9200 5700 5200 5450 6000
The minimum annual maintenance cost occurs at the end of 3 rd year and it is Rs.
5200/-. Hence the machine A is to be replaced at the end of 3 rd year.
Machine B
Years (y) T 1 2 3 4 5 6 Annual Maintenance Cost Rs. u (t) 400 1200 2000 2800 360
0 4400 400 1600 3600 6400 10000 14400 10000 10000 10000 10000 10000 10000
Σ u (t)
Rs. = M (y)
C– Rs.
T.C = C – + M (y) Rs. 10400 11600 13600 16400 20000 24400
G (y) = T.C / y Rs. 10400 5800 4533.33 4100 4000 4066.67
Replacement Model
313
As the average annual maintenance cost is minimum i.e. Rs. 4000/- at the end of
5 th year, the machine B is to be replaced at the end of 5 th year. As the minim
um average yearly maintenance cost of machine B. (Rs. 4000/-) is less than that
of machine A i.e. Rs. 5200, Machine A is replaced by machine B. Now we have to w
orkout as when machine A is to be replaced by machine B? Machine A should be rep
laced when the cost for next year of running this machine becomes more than the
average yearly cost for machine B. Total cost of machine A in the first year is
Rs. 9200/-. Total cost of machine A in the second year is Rs. 11400 – Rs. 9200/-
=
Rs. 4200/-, (= Total cost of present year – Total cost of previous year) imilarl
y, the total cost of machine in third year is Rs. 4200/- and in fourth year is R
s.6200/-. As the cost of running machine A in third year (Rs. 4200/-) is more th
an the average yearly cost for machine B (Rs.4000/-), machine A should be replac
ed at the end of second year. ince machine A is one year old, it should run for
one year more and then it should be replaced.
Problem 7.11.
(a) An auto rickshaw owner finds from his previous records that the cost per yea
r of running an auto rickshaw whose purchase cost is Rs. 7000/- is as given belo
w:
Year: Running Cost in Rs.: Resale value in Rs.: 1 1100 3100 2 1300 1600 3 1500 8
50 4 1900 475 5 2400 300 6 2900 300 7 3500 300 8 4100 300
At what age the replacement is due? (b) Another person has three auto rickshaws
of the same purchase price and cost of running each in part (a). Two of these ri
ckshaws are of two years old and the third one is one year old. He is considerin
g a new type of auto rickshaw with 50% more capacity than one of the old ones an
d at a unit price of Rs. 9000/- He estimates that the running costs and resale p
rice of the new vehicle will be as follows:
Year: Running cost (Rs.): Resale price (Rs.): 1 1300 4100 2 1600 2100 3 1900 110
0 4 2500 600 5 3200 400 6 4100 400 7 5100 400 8 6200 400
Assuming that the loss of flexibility due to fewer vehicles is of no importance,
and that he will continue to have sufficient work for three of the old vehicles
, what should be his policy?
olution
The average annual cost is calculated as under. C = Rs. 7000/-.
314
Operations Research
Years
Annual Rs. u (t)
M (y) =
= Resale Value Rs. 3100 1600 850 475 300 300 300 300
C–
T.C. = C– + M (y)
G (y) = T.C / y 5000 3900 3350 3081 2980 2967 3043 3175
(y) T Maintenance cost 1 2 3 4 5 6 7 8 1100 1300 1500 1900 2400 2900 3500 4100
Σ u (t)
Rs. 1100 2400 3900 5800 8200 11100 14600 18700
3900 5400 6150 6525 6700 6700 6700 6700
5000 7800 10050 12325 14900 17800 21300 25400
The auto rickshaw is to be replaced at the end of 6 th year as the average annua
l maintenance cost is low at the end of 6th year. Average annual maintenance cos
t of larger rickshaw: C = Rs. 9000/-.
Years (y) T 1 2 3 4 5 6 7 8 Annual Maintenance Rs. u (t) 1300 1600 1900 2500 320
0 4100 5100 6200 M (y) = = Resale Value Rs. 4100 2100 1100 600 400 400 400 400
4900 6900 7900 8400 8600 8600 8600 8600 6200 9800 12700 15700
19100 23200 28300
34500 6200 4900 4233 3925 3820 3867 4043 4312 C– T.C. = C– + M (y) G (y) = T.C /
y
Σ u (t)
Rs. 1300 2900 4800 7300 10500 14600 19700 25900
As the auto rickshaw has 50 % more capacity than the old one, the minimum averag
e annual cost of Rs. 3820/- for the former rickshaw is equivalent
to Rs. 3820 × (2
/3) = Rs.2546.66/- (approximately Rs. 2547/-) for the latter. ince this amount
is less than Rs. 2967/- for it, the new auto rickshaw will replace the latter. N
ow we have decided to replace the old vehicle by the new one. Now let us find wh
en it should be replaced? Let us assume that two new larger ones will replace al
l the three old auto rickshaws. The new vehicles will be purchased when the cost
for the next year of running the three old vehicles becomes more than the avera
ge annual cost of the two new ones. Total annual cost of one smaller auto ricksh
aw during the first year: Rs. 5000/-. Annual cost of one smaller auto rickshaw d
uring the second year is: Rs. 7800 – Rs. 5000/- = Rs. 2800/-.(= Present total cost
– previous year total cost). Annual cost of one smaller auto rickshaw during the
third year is: Rs. 10800 – Rs. 7800 = Rs. 2250
Replacement Model
315
Annual cost of one smaller auto rickshaw during the fourth year is: Rs. 12325 – 10
050 = Rs.2275/ Annual cost of one smaller auto rickshaw during the fifth year is
: Rs. 14900 – Rs. 12325/- = Rs. 2575/ Annual cost of one smaller auto rickshaw dur
ing the sixth year is: Rs. 17800/- – Rs. 14900/- = Rs. 2900/Do do do seventh year
is: Rs. 21300 – Rs.17800/- = Rs. 3500 Do do do eighth year is: Rs. 25400 – Rs. 21300
= Rs. 4100/Therefore, total cost during one year hence for two smaller vehicles
aged two years and one vehicle aged one year is: 2 × 2250 + 2800 = Rs. 7300/-. i
milarly for two years the cost is 2 × 2275 + 2250 = Rs. 6800/For three years: Rs.
2 × 2575 + 2275 = Rs. 7425/For four years: Rs. 2 × 2900 + 2575 = Rs. 8375/Here minim
um average cost for two new vehicles is = 2 × 3820 = Rs. 7640/As the total cost of
old vehicles at the end of three years is less than the minimum average cost of
the new vehicles and increases after four years, the old auto rickshaws are to
be replaced at the end of three years by new larger ones.
7.5.2. Replacement of Items whose Maintenance Costs Increases with Time and Valu
e of Money also Changes with Time
7.5.2.1 Present worth factor: Before dealing with this model, it is better to ha
ve the concept of Present value. Consider replacement of items which involve hug
e expenditure, both initial value (Purchase price) and maintenance expenses. For
a decision maker, there may be number of alternatives for replacement. But he a
lways chooses the alternative, which minimizes the annual average cost. Here man
ager uses the concept of present value of money to select the alternatives. The
present value of number of expenditures incurred over different periods of time
represents their value at the current time. It is based on the fact that, one ca
n invest money at an interest rate ‘r’ to produce the same amount of money at the en
d of certain time period or if an amount is to be spent in different years what
is the worth of total expected expenses or its worth today? We can also think in
another way. Suppose a businessman borrows money for his initial investment and
working capital from various sources, he has to pay interest for the money he h
as borrowed. The amount of interest he has to pay depends on the rate of interes
t and the period for which he has borrowed (that is the period in which he has r
epaid the amount borrowed). The borrowed money is known as Principal (P), and th
e excess amount he has paid is known as Interest (i). The sum of both principal
and the interest is known as Amount (A). If P is the principal, ‘i’ is the rate of i
nterest, and A is the amount, then the amount at the end of ‘n’ years with compound
interest is: A = P (1 + i )n OR P = (A) / ( 1 + i )n OR P = A × Pwf ...(7.5) Where
Pwf is Single payment present worth factor. It is represented by ‘v’ and is also kn
own as discount rate. Discount rate is always less than one. In other words we c
an say that ‘v’ or the present worth factor (pwf) is present value of one rupee spen
t after ‘n’ years from now. Hence P is known as the present worth of an amount A pai
d in ‘n’ years at interest rate ‘i’. For calculation purpose present worth factor tables
are available. Similarly, if R denotes the uniform amount spent at the end of e
ach year and S is the total expenditure at the end of ‘n’ years, then
316
Operations Research
S = R { (1 + i ) n – 1} / i OR R = (S × i) / (1 + i ) n – 1 = {P ( 1 + i ) n × i } / { (
1 + i ) n – 1 } OR ...(7.6) P = R × {P (1 + i ) n – 1} / {i ( 1 + i) n } = R × (Pwfs ) P
wfs is known as uniform annual series present worth factor. In other words, supp
ose if we want Rs. 50,000/- for investment after 10 years, how much we save year
ly, so that at the end of 10 years, we will have Rs. 50,000/- ready for investme
nt. The discount rate to find this amount is known as Pwfs.
7.5.3 Replacement of Items whose Maintenance Cost Increases with Time and Money
Value also Changes This problem is complicated as the money value changes with t
ime. This can be dealt under two different conditions: (a) The maintenance cost
goes on increasing with usage or age or time and then we have to find out optimu
m time of replacing the item. Here the value of money decreases with a constant
rate which is known as its depreciation ratio or discounted factor and is repres
ented by‘d’. Here the money value changes can be understood as follows: Suppose a pe
rson borrows Rs. 1000/- at an interest rate of 10 % per year. After one year fro
m now, he has to pay back Rs. 1100/-. That means to say today’s Rs. 1000/- is eui
valent to Rs. 1100/- after one year. OR Rs. 1100/- after one year is euivalent
to Rs. 1000/- today. That is Re.1/- after one-year from now is eual to 1000 / 1
100 = (1.1)–1 at present. This is known as present value. To generalize, if the in
terest on Re.1/- is ‘i’ per year then the present value or present worth of Re. 1/-
after one year from now is 1 / (1 + i), this is the depreciation ratio, represen
ted by ‘d’. Similarly, the present worth of Re.1/- to be spent after ‘n’ years from now
(the rate of interest is ‘i’) is
1 (1 + i) n
(b) If a businessman takes a loan for a certain period at a given interest rate
and agrees to pay it in a number of instalments, then we have to find the most s
uitable period during which the loan would be repaid. Case: I Let the euipment
cost be Rs. A and the maintenance costs be Rs. C1, C2, C3 …….Cn (where Cn+1 is > Cn)
during the first, second and third years respectively up to ‘n’ years. If ‘d’ is the de
preciation value per unit of money during a year then to find the optimum replac
ement policy, which minimizes the total of all future discounted costs. It is as
sumed that the expenditure incurred at the beginning of the year and the resale
value of the item is zero. Finding the total expenditure incurred on the euipme
nt and its maintenance during the desired period and its present value solves th
e problem. The criterion is the period for which the total discounted cost is mi
nimum will be the best period for replacement. Let us assume that the euipment
will be replaced by new euipment after every ‘X’ years of service. We have to calcu
late the expenditure made in different years and their present value, as shown b
elow:
Replacement Model
317
Year (i) 1 2 3 … ….. X X+1
Capital cost A --…. ….. A (item replaced By the same type Of item after X Years.
Maintenance Cost C1 C2 C3 ….. ….. Cx C1
Total cost in the year A + C1 C2 C3 ….. ….. Cx A + C1
Present value of total expenditure. A + C1 dC2 d2C 3 …… ….. d dx
x-1
Cx
(A + C1 )
X+2 … ….. 2X ….
-….. …… -…..
C2 ….. ….. Cx ….
C2 ….. ….. Cx …..
d x+1 C2 …… …… d
2x – 1
Cx
…… and so on
For derivation of the formula students are advised to refer to Operations Resear
ch books with mathematical approach or higher-level mathematics books. The Weigh
ted average expenditure is given by:
G (X) = A +
∑
Ci d i −1 i =1
x
x d i −1 i =1
∑
Where, X is the period, i = year, d = discount factor and A = Capital expenditur
e. The criterion is: (i) Do not replace the item if the operating cost of next p
eriod is less than the weighted average of previous costs, where weights are 1,
d, d2….. dn . (ii) Replace the item if operating costs of next period is greater t
han the weighted average of the previous costs. CX < G (X) < CX+1 Let us underst
and the procedure by working a problem.
Problem 7.12.
The yearly cost of two machines A and B, when money value is neglected is shown
in the table given below. Find their cost pattern if money value is 10% per year
and hence find which machine is more economical.
318
Operations Research
Year Machine A (Rs.): Machine B (Rs.);
1 1800 2800
2 1200 200
3 1400 1400
Solution
When the value of money is 10% per year, the discount rate is: d = (1 / 1 + i =
1 / 1 + 0.10 = 1 / 1.1 = 0.9091 The discounted cost pattern of machines A and B
are as below:
Year Machine A (Rs.) Discounted cost. Machine B (Rs.) Discounted cost. 2800 1 18
00 2 1200 × 0.9091 = 1090.90 200 × 0.9091 = 181.82 3 1400 × 0.90912 = 1157.04 1400 × 0.9
0912 = 1157.04 4138.86 Total Cost (Rs.) 4047.94
The table shows that the total cost of machine A is less than that of machine B.
Hence machine A is more economical when money value is changing.
Problem 7.13
Value of the money is assumed to be 10 % per year and suppose that machine A is
replaced after every three years whereas machine B is replaced every 6 years. Th
eir yearly costs are given as under:
Year: Machine A (Rs.): Machine B (Rs.): 1 1000 1700 2 200 100 3 400 200 4 1000 3
00 5 200 400 6 400 500
Find which machine is to be purchased?
Solution
The present worth of expenditure of machine A for three years:
Year 1 2 3 Cost (Rs.) 1000 200 400 Discount factor (d)At 10% 1.0000 0.9091 0.826
4 Total cost (Rs) Present worth (Rs.) 1000.00 200 × 0.9091 = 181.82 400 × 0.8264 = 3
30.56 Rs. 1512.38
Replacement Model
319
The present worth of expenditure of machine B for 6 years:
Year 1 2 3 4 5 6 Cost (Rs.) 1700 100 200 300 400 500 Discount factor (d)At 10% 1
.0000 0.9091 0.8264 0.7513 0.6830 0.6209 Total cost: Present worth (Rs.) 1700.00
100 × 0.9091 = 90.91 200 × 0.8264 = 165.28 300 × 0.7513 = 225.39 400 × 0.6830 = 273.20
500 × 0.6209 = 310.45 Rs. 2,765.23
To compare the two machines, we have to find the average yearly cost for which t
he total cost is to be divided by the number of years. Average yearly cost of Ma
chine A is Rs. 1512.38 / 3 = Rs. 504.13 Average yearly cost of machine B is Rs.
2765.23 / 6 = Rs. 460.87 This shows that the apparent advantage is with machine
B. But the comparison is unfair since the periods for which the costs are consid
ered are different. So, if we consider 6 years period for both machines then tot
al present worth of Machine A is: Rs.{1000 + 200 × 0.9091 + 400 × 0.8264 +1000 × 0.751
3 + 200 × 0.6830 + 400 × 0.6209} = {1000 + 181.82 + 330.56 + 751.30 + 136.60 + 248.3
6} = Rs. 2,648.64 Average yearly cost is: 2648.64 / 6 = Rs. 441.44 As average ye
arly cost is less than that of B, the machine A is more economical, hence machin
e A is to be purchased.
Problem 7.14
A machine costs Rs.500/ . Operation and maintenance costs are zero for the first
year and increase by Rs. 100/ every year. If money is worth 5 % every year, det
ermine the best age at which the machine should be replaced. The resale value of
the machine is negligibly small. What is the weighted average cost of owning an
d operating the machine?
Solution
Discount rate = d = 1 / 1 + i = 1 / 1 + 0.05 = 0.9524
320
Operations Research
Weighted average cost:
Year of Maintenance Service X Cost Ci (Rs) Discount Factor d i 1 Discounted Main
tenance Cost Ci × di 1 A + Rs. Total cost Cumulative
i −1
Weighted average Annual cost (Rs) G (X) =
X
∑C × d
i i =1
X
Discount Factor.
Rs.
∑d
i =1
X
i −1
A+
∑C × d
i
i −1
∑d
i =1
i =1 X
i −1
1 2 3 4 5
0 100 200 300 400
1.0000 0.9524 0.9070 0.8638 0.8277
0.0000 95.2400 181.4000 259.14 320.08
0.0000 595.24 776.64 1035.78 1364.86
1.0000 1.9524 2.8594 3.7232 4.5459
500.00 304.88 217.61 (Replace) 278.20 300.25
200 < 217.61 < 300 i.e. G3 = Rs. 217.61 > C3 = Rs. 200.00 and G3 = Rs. 217.61 <
C4 = Rs. 300/ Rs. 200 the running cost of 3rd year is less than weighted average
of 3rd year and running cost of 4th year is greater than the weighted average o
f 3rd year, hence the machine is to be replaced at the end of 3rd year. The weig
hted average cost of running the machine is Rs. 217.61.
Problem 7.15.
A machine costs Rs. 10,000. Operating costs are Rs. 500/ for the first five yea
rs. In the sixth and succeeding years operating cost increases by Rs. 100/ per
year. Assuming a 10 % value of money per year find the optimum length of time to
hold the machine before we replace it.
Solution
The value of money is 10 % i.e. 0.1. Hence the discount factor d = 1 / 1 + 0.1 =
1 / 1.1 = 0.9091. The purchase price A = Rs. 10,000/ . The weighted average is
calculated as under:
Replacement Model
321
Year of Service X
Maintenance Discount Cost Ci (Rs) Factor d i 1
Discounted Maintenance Cost Ci × Rs. di 1
Total cost
Cumulative
i −1
Weighted average Annual cost (Rs) G (X) =
A+
∑C × d
i i =1
x
Discount Factor.
A+
∑C × d
i i =1 X i −1 i =1
x
i −1
∑d
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 500 500 500 500 500 600 700 8
00 900 1000 1100 1200 1300 1400 1500 1600 1700 1800 1900 2000 1.0000 0.9091 0.82
64 0.7513 0.6830 0.6209 0.5645 0.5132 0.4665 0.4241 0.3856 0.3506 0.3187 0.2897
0.2637 0.2397 0.2197 0.1983 0.1801 0.1637 500 456 413 376 342 373 395 411 420 42
4 424 421 414 406 396 384 370 357 342 327 10,500 10,956 11,369 11,745 12,087 12,
460 12,855 13,266 13,686 14,110 14,534 14,955 15,369 15,775 16,171 16,555 16,925
17,282 17,624 17,951 1.0000 1.9091 2.7355 3.4868 4.1698 4.7907 5.3552 5.8684 6.
3349 6.7590 7.1446 7.4952 7.8139 8.1036 8.3673 8.6070 8.8249 9.0230 9.2031 9.366
8
10,500 5738.80 4156.30 3368.40 2898.70 2600.80 2400.40 2260.40 2160.40 2087.50 2
034.20 1995.20 1966.80 1946.60 1932.60 1923.40 1917.80 1915.30 1915.00 Replace 1
916.40
322
Operations Research
C20 = Rs.2000/ is greater than C19 = Rs. 1900/C19 = Rs. 1900/ is less than G19
= Rs. 1915.30. G19 = Rs. 1915/ < C20 = Rs. 2000/ . Hence replace the machine at
the end of 19 the year.
Problem 7.16.
Assume that present value of one rupee to be spent in a year’s time is Re.0.90 and
the purchase price A = Rs. 3000/ . The running cost of the equipment is given i
n the table below. When should the machine be replaced?
Year: Running cost in Rs.: 1 500 2 600 3 800 4 1000 5 1300 6 1600 7 2000
Solution
Given that A = Rs. 3000/ , Discount factor = d = 0.9
Year of Service X Maintenance Cost Ci (Rs) Discount Factor d i 1 Discounted Main
tenance Cost Ci × Rs. di 1 Total cost Cumulative Discount Factor. Weighted average
Annual cost (Rs) G (X) =
A+
∑
i =1
x
Ci × d i −1
Rs.
∑d
i =1
X
i −1
A+
∑C × d
i i =1 X
x
i −1
∑d
i =1
i −1
1 2 3 4 5 6 7
500 600 800 1000 1300 1600 2000
1.00 0.90 0.81 0.73 0.66 0.59 0.53
500 540 648 730 858 944 1060
3500 4040 4688 5418 6276 7220 8280
1.0000 1.90 2.71 3.44 4.10 4.69 5.22
3500.00 2126.32 1729.89 1575.00 1530.73 Replace 1539.45 1586.21
C5 = Rs.1300/ < G5 = Rs. 1530.73 < C6 = Rs. 1600/ . The machine is to be replac
ed at the end of 5 th year.
Replacement Model
323
Problem 7.17.
A manufacturer is offered two machines A and B. A has the cost price of Rs. 2,50
0/ its running cost is Rs. 400 for each of the first 5 years and increase by Rs
.100/ every subsequent year. Machine B having the same capacity as A. and costs
Rs. 1250/ , has running cost of Rs.600/ for first 6 years, increasing thereby
Rs. 100/ per year. Which machine should be purchased? Scrap value of both machi
nes is negligible. Money value is 10% per year.
Solution
d = 1 / 1 + i = 1 / 1 + 0.10 = 1 / 1.1 = 0.9091. Present worth of machine A is:
Years Service X Maintenance Cost Ci (Rs) Discount Factor d i 1 Discounted Mainte
nance Cost Ci × di 1 Rs. Total cost Cumulative
i −1
A+
∑ C. × d
i i =1
x
Weighted average Annual cost (Rs) G (X) =
Discount Factor.
x
Rs
∑d
i =1
i −1
A+
∑C × d
i i =1 X
x
i −1
∑d
i =1
i −1
1 2 3 4 5 6 7 8 9 10
400 400 400 400 400 500 600 700 800 900
1.0000 0.9091 0.8264 0.7513 0.6830 0.6209 0.5645 0.5132 0.4665 0.4241
400.00 363.64 330.56 300.52 273.20 310.45 338.70 359.24 372.20 381.69
2900.00 3263.64 3594.20 3894.72 4167.92 4478.37 4817.07 5176.31 5549.51 5931.20
1.0000 1.9091 2.7355 3.4868 4.1698 4.7907 5.3552 58684 6.3349 6.7590
2900.00 1709.45 1313.84 1116.90 999.50 934.80 889.92 881.92 875.86 (Replace) 877
.35
324
Operations Research
As C9 = Rs. 800 < G9 = Rs. 875.86 < C10 = Rs.900, it is replaced at the end of 9
th year. Replacement period for Machine B:
Year of Service X Maintenance Cost Ci (Rs) Discount Factor d i 1 Discounted Main
tenance Rs. Total cost Cumulative Weighted average
i −1
Cost Ci × di 1 A +
∑C × d
i i =1
x
Discount Factor.
Annual cost (Rs) G (X) =
Rs.
∑
i =1
x
d i −1
A+
∑C × d
i i =1 x
x
i −1
∑d
i =1
i −1
1 2 3 4 5 6 7 8 9 10
600 600 600 600 600 600 700 800 900 1000
1.0000 0.9091 0.8264 0.7513 0.6830 0.6209 0.5645 0.5132 0.4665 0.4241
600.00 545.46 495.84 450.78 409.80 372.54 395.15 410.56 419.85 424.10
1850.00 2395.46 2891.30 3342.08 3751.88 4124.42 4519.57 4930.13 5349.98 5774.08
1.0000 1.9091 2.7355 3.4868 4.1698 4.7907 5.3552 5.8684 6.3349 6.7590
1850.00 1254.75 1056.95 958.49 899.77 860.92 843.96 840.11 (Replace) 844.52 854.
28
C8 = Rs. 800 < G8 = Rs. 840.11 < C9 = Rs.900/ . The machine B is to be replaced
at the end of 8 th year.
Problem 7.18.
The cost of a new machine is Rs. 5000/ . The maintenance cost during the n th ye
ar is given by u n = Rs. 500 ( n 1), where n = 1, 2, 3, …., n. If the discount rat
e per year is 0.05, after how many years will it be economical to replace the ma
chine by a new one?
Solution
Since the discount rate is 0.05, d = 1 / 1 + 0.05 = 1 / 1.05 = 0.9523. The repla
cement period for the machine is:
Replacement Model
325
Year of Service X
Maintenance Cost Ci (Rs)
Discount Factor d i 1
Discounted Maintenance Cost Ci × Rs. di 1
Total cost
Cumulative Weighted average Discount Factor. Annual cost (Rs) G (X) =
A+
∑
i =1
x
Ci × d i −1
Rs.
∑
×
d
i −1
A+
i =1
∑C × d
i i =1 ×
x
i −1
∑
1 2 3 4 5 6 0.00 500 1000 1500 2000 2500 1.0000 0.9523 0.9070 0.8638 0.8227 0.78
35 0.00 476 907 1296 1645 1959 5000 5476 6383 7679 9324 11283 1.0000 1.9523 2.85
93 3.7231 4.5458 5.3293
d
i −1
i =1
5000.00 2805.00 2232.00 2063.00 2051.00 (Replace) 2117.00
C5 = Rs. 2000/ < G5 < Rs. 2051.00 < C6 = Rs. 2500.00. Hence the machine is to b
e replaced at the end of 5 th year.
Problem 7.19.
A new vehicle costs Rs. 6000/ . The running cost and the salvage value at the en
d of the year is given below. If the interest rate is 10 % per year and the runn
ing costs are assumed to have occurred at mid of the year, find when the vehicle
is to be replaced by new one.
Year: Running cost (Rs): Salvage value (Rs): 1 1200 4000 2 1400 2666 3 1600 2000
4 1800 1500 5 2000 1000 6 2400 600 7 3000 600
Solution
As interest rate is 10 % the discount factor = d = 1 / 1 + i = 1 / 1 + 0.10 = 1/
1.1 = 0.9091. In this problem it is given that the running costs are assumed to
be occurr in the middle of the year. Hence to discount them at the start of the
year, we have to multiply d ½ = √ 0.9091 = 0.95346. Rest of the calculations is mad
e as we have done in previous problems.
326
Operations Research
Replacement period of the vehicle:
Yr Y(t) Salvage RunnValue (S) Rs. ing cost u(t) Rs. Running Cost at The start of
the Period d ½ u (t) Rs. 1 2 3 4 5 6 4000 2666 2000 1500 1000 600 1200 1400 1600
1800 2000 2400 1144.20 1334.80 1525.60 1716.20 1907.00 2288.40 1.0000 0.9091 0.8
264 0.7513 0.6830 0.6209 0.9091 0.8264 0.7513 0.6830 0.6209 0.5645 1144.20 1211.
60 1260.80 1289.20 1302.40 1420.80 3636.4 2203.20 1502.60 1024.50 620.90 338.70
7144.20 8335.80 9616.60 10905.80 3507.80 6152.60 8114.00 9881.30 0.9091 1.7355 2
.4868 3.1698 3.7907 4.3552 3859.00 3544.20 3262.60 3117.20 3056.60 3051.60 (Repl
ace) 7 600 3000 2860.40 0.6545 0.5132 1614.70 307.9 15243.70 14935.80 4.8684 306
7.90 di 1 d discounted DiscounRunning cost u (t) di 1 Rs. ted Salvage Value S d
= S1 A+ (t)
Σu
di-1
M(y) 1
Σd
Gx
= M (y) Rs.
12208.20 11587.30 13629.00 13290.00
C6 = Rs. 2400/- < G6 = Rs. 3051.60. Here one condition is satisfied. The vehicle
may be replaced at the end of 6th year.
Problem 7.20.
A manufacturer is offered 2 machines A and B. A is priced at Rs. 5000/- and runn
ing costs are estimated at Rs. 800/- for each of the first five years and increa
sing there by Rs. 200/- per year in the sixth and subsequent years. Machine B, w
hich has the same capacity as A with Rs. 2500/- but will have running costs of R
s.1200 per year for 6 years, and increasing by Rs. 200/- per year thereafter. If
money is worth 10 % per year, which machine should be purchased? Assume that th
e scrap value for both machines is negligible.
Replacement Model
327
olution
Machine A: As i = 10%, d = 1/1.1 = 0.9091 and A = Rs. 5000/Year of ervice X Mai
ntenance Cost Ci (Rs) Discount Factor d i-1 Discounted Maintenance Cost Ci × Rs. d
i-1 Total cost Cumulative Weighted average Discount Annual cost (Rs) G (X) = Fac
tor.
A+
∑
i =1
x
Ci × d i −1
Rs.
∑d
i =1
×
i −1
A+
∑C × d
i i =1 ×
x
i −1
∑d
i =1
i −1
1 2 3 4 5 6 7 8 9 10
800 800 800 800 800 1000 1200 1400 1600 1800
1.0000 0.9091 0.8264 0.7513 0.6830 0.6209 0.5645 0.5132 0.4665 0.4241
800 727 661 601 546 621 677 718 746 763
5800 6527 7188 7789 8335 8956 9633 10351 11097 11860
1.0000 1.9091 2.7355 3.4868 4.1698 4.7907 5.3552 5.8684 6.3349 6.7590
5800.00 3418.88 2627.67 2233.85 1998.89 1869.45 1798.81 1763.85 1751.72 (Replace
) 1754.70
C9 = Rs. 1600 < G9 = Rs. 1751.72 < C10 = 1800. The machine A is to be replaced a
t the end of 9th year.
328
Operations Research
Machine B: A = Rs. 2500/ , d = 0.9091
Year of Service X Maintenance Cost Ci (Rs) Discount Factor d i 1 Discounted Main
tenance Cost C × di 1 A + Rs. Total cost Cumulative Weighted average
i −1 x
∑C × d
i i =1
Discount Factor.
×
Annual cost (Rs) G (X) =
x
Rs.
∑
i =1
d i −1
A+
∑C × d
i i =1 ×
i −1
∑d
i =1
i −1
1 2 3 4 5 6 7 8 9 10
1200 1200 1200 1200 1200 1200 1400 1600 1800 2000
1.0000 0.9091 0.8264 0.7513 0.6830 0.6209 0.5645 0.5132 0.4665 0.4241
1200.00 1090.91 991.98 901.56 819.60 745.08 790.30 821.12 839.70 848.20
3700.00 4790.91 5782.59 6684.15 7503.75 8248.83 9039.13 9860.25 10699.95 11548.1
5
1.0000 1.9091 2.7355 3.4868 4.1698 4.7907 5.3552 5.8684 6.3349 6.7590
3700.00 2509.51 2113.91 1916.99 1799.55 1721.84 1687.92 1680.23 (Replace) 1689.2
5 1708.56
C8 = Rs. 1600/ < G8 = Rs. 1680.23 < C9 = Rs. 1800/ Replace the machine B at th
e end of 8 the year. The fixed annual payment for machine A is (1 – d) / (1 – dn) × to
tal cost of 9th year = {(1 – 0.9091) / (1 – 0.90919)} × 11097 = Rs. 1847/The fixed ann
ual payment for machine B is = {(1 0.9091) / 1– 0.9091)8} = Rs. 1680/As annual fi
xed payment for machine B is less than that of A, purchase machine B instead of
machine A. Alternatively weighted average cost I 9 years for machine A is Rs. 17
81.72 and that for B in 8 years is Rs. 1680.23, which is lowest, hence to purcha
se, machine B.
7.6. COMPARING OF REPLACEMENT ALTERNATIVES BY USING CRITERIA OF PRESENT VALUE
Some times a business man may come across a problem, when he want to purchase a
machine or a vehicle for his business. He may have different models with compara
tively equal price and with different maintenance and other expenses. In such ca
ses, he can use present worth concept to select the right type of machine or a v
ehicle. Here the present value of all future expenditures and revenues is calcul
ated for each alternative and the one for which the present value is minimum is
preferred. Let Q = Annual cost or purchase price in Rs. i = Annual interest rate
.
Replacement Model
329
t = Period in years. P = Principal amount in Rs. S = Scrap value or salvage valu
e in Rs. The present value of total cost is given by: P + Q (Pwfs for i % intere
st rate for n years) – S (Pwf for i % interest for n years) Similarly, if the annu
al operating costs vary for different years then the present value of these cost
s will be calculated on the basis of time period for which these expenditures ar
e made. i.e. say for example, if Q1, Q2, Q3…….Qn are the operating costs for differe
nt years, then the present value of the operating cost during n years will be
given by: Q1 (Pwfs at i % interest for 1 year) + Q2 (Pwfs at i % for 2 years) ………..+ Q
n (Pwfs at i % interest for n years). Now present value of total cost will be: P
+ Q1 (Pwfs at i % interest for 1 year) + Q2 (Pwfs at i % interest rate for 2 ye
ars) + Q3 (Pwfs at i % rate of interest for 3 years) + ………… + Qn (Pwfs at i% interest fo
r n years) – S (Pwf at i % interest for n years).
Problem 7.21.
An entrepreneur is considering purchasing a machine for his factory. The related
data for alternative machines are as follows:
Machine A Present investment in Rs.: Total annual cost in Rs.: Life of machine i
n years: Salvage value in Rs.: 10000 2000 10 500 Machine B 12000 1500 10 1000 Ma
chine C 15000 1200 10 1200
As an advisor of the company, you have been asked to select the best machine con
sidering 12 % normal rate of return per year. Given that: Present worth factor s
eries @ 12 % for 10 years is 5.650 Present worth factor @ 12 % for 10 th year is
0.322
Solution
Machine A 1. Present investment in Rs: 2. Total annual cost in Rs. 3. Present va
lues of Salvage value in Rs. 4. Total cost = 1 + 2 – 3 = Rs. 21139.00 10000 500 × 0.
322= 161 Machine B 12000 1000 × 0.322 = 322 10000 + 11300 – 162 12000 + 8475 – 322 = R
s. 20153.00 1200 × 0.322= 386.40 15000 + 6780 – 386.40 = Rs. 21393.60 Machine C 1500
0 1200 × 5.650= 6780
2000 × 5.650= 11300 1500 × 5.650= 8475
Machine B is having less present value of total cost. Hence to purchase the mach
ine B.
330
Operations Research
Problem 7.22.
A company is considering purchasing a new grinder, which will cost Rs. 10000/ .
The economic life of the machine is expected to be 6 years. The salvage value of
the machine will be Rs. 2000/ . The average operating and maintenance costs are
estimated to be Rs. 5000/ per annum. (a) Assuming an interest rate of 10 %, de
termine the present value of future cost of the proposed grinder. (b) Compare th
is grinder with the presently owned grinder that has an annual operating cost of
Rs. 4000/ per annum and expected maintenance cost of Rs. 2000/ in the second y
ear with an annual increase of Rs. 1000/ thereafter.
Solution
(a) Present value of annual operating costs = Rs. 5000 × Pwfs at 10 % interest for
6 years. = Rs. 5000 × 4.355 = Rs. 21775/Present value of the salvage value = Rs.
2000 × Pwf at 10 % for 6 years = 2000 × 0.5646 = Rs. 1129/Present value of total fut
ure costs = Rs. 21775/ – Rs. 1129/ = Rs. 20646/(b) As the annual operating and m
aintenance costs vary with time. The present value is calculated as follows:
Year Operating Cost in Rs. 1 1 2 3 4 5 6 2 4000 4000 4000 4000 4000 4000 Mainten
ance Cost in Rs. 3 2000 3000 4000 5000 6000 Total of Operating And maintenance
Costs. 4 4000 6000 7000 8000 9000 10000 0.9091 0.8264 0.7513 0.6830 0.6209 0.564
5 Total: Rs. 3636 4956 5257 5464 5589 5640 30542 Pwf for single Payment at 10% R
ate. 5 6=4×5 Present value in Rs.
Total present value is Rs. 30542/ . Now we can see that the present value of a n
ew grinder is Rs. 20646/(Refer part a). Hence the cost saving if a new grinder i
s purchased is = Rs. 30542/ – Rs. 20646/ = Rs. 9896/The cost of the grinder is R
s. 10000/ . But the cost savings is only Rs. 9896/ . The management is advised n
ot to purchase the new grinder.
Problem 7.23.
A manual stamping machine currently valued at Rs. 1000/ is expected to last 2 y
ears and costs Rs 4000/ per year to operate. An automatic stamping machine, whi
ch can be purchased for Rs. 3000/ , which last for 4 years and can be operated a
t an annual cost of Rs. 3000/ . If money carries the rate of interest 10 % per a
nnum, determine which stamping machine is to be purchased?
Replacement Model
331
Solution
Present worth factor = d = 100 / (100 + 10) = 0.9091. The given stamping machine
s have different expected lives. So, we shall consider a span of four years duri
ng which we have to purchase either two manual stamping machines (the second one
is purchased after three years, i.e. at the beginning of third year) or one aut
omatic stamping machine. The present worth of investments of the two manual stam
ping machines used in 4 years is approximately, 1000 × (1 + d2) + (1 + d + d2 + d3
) = 1000 {(1 + (0.9091)2} + 4000 + 4000 {0.9091 + 9091)2 + 3} = 9091 = 1000 (1 +
0.8264) + 4000 + 4000 (0.9091 + 0.8264 + 0.7513) = Rs. 1926 + 13947 = Rs. 15773
/And the present worth of investments on the automatic stamping machine for the
next four years = Rs. 3000 + 3000 (1 + d + d2 + d3) = Rs. 3000 + 19469 = Rs. 134
60/Since the present worth of future costs for the automatic stamping machine is
less than that of manual stamping machines, management may be advised to purcha
se an automatic stamping machine.
Problem 7. 24.
A pipeline is due for repairs. It will cost Rs. 10000/ and lasts for 3 years. A
lternatively, a new pipeline can be laid at a cost of Rs. 30000/ and lasts for
10 years. Assuming the cost of capital to be 10 % and ignoring salvage value, wh
ich alternative should be chosen?
Solution
The present worth factor is d = 10 / (10 + 1) = 10 / 11 = 0.9091 Considering the
10 year replacement of new pipeline and 3 year replacement of existing pipeline
, if M1 is discounted value of all future costs associated with a policy of repl
acing the equipment after ‘n’ years then initial outlay is (taking C as annual maint
enance cost) as Tn = C + dn C + d2n C + d3n C + ….. = C (1 + dn + d2n + d3n + ……. = C
/ (1 – dn) Now substituting the values of d, n, and C for two types of pipelines;
the discounted value for the existing pipeline is T3 = 10000 / {1 – (0.9091)3} = R
s. 4021/ . For new pipeline T10 = 30000 / {1 – (0.9091)10 = 30000 / (1 – 0.3855) = R
s. 48820/As T3 is < T10 the existing pipeline may be continued.
7.7. REPLACEMENT OF ITEMS THAT FAIL COMPLETELY AND SUDDENLY AND ARE EXPENSIVE TO
BE REPLACED
There are certain items or systems or products, whose probability of failure inc
reases with time. They may work with designed efficiency throughout their life a
nd if they fail to act they fail suddenly. The nature of these items is they are
costly to replace at the same time and their failure affect the functioning of
entire system. For example, resistors, components of air conditioning unit and c
ertain electrical components. If we do not replace the item immediately, then lo
ss of production, idle labour; idle raw materials, etc are the results. It is ev
ident failure of such items causes heavy losses to the organization. Such situat
ions demand the formulation of a policy, which will help the organization to avo
id losses.
332
Operations Research
sometimes we find it is better to replace the item before it fails so that the e
xpected losses due to failure can be avoided. The following courses of action ca
n be followed: (a) Individual replacement policy This policy states that replace
the item soon after its failure. Here the cost of replacement will be somewhat
greater as the item is to be purchased individually from the seller as and when
it fails. From the time of failure to the replacement, the system remains idle.
More than that, as the item is purchased individually, the cost of the item may
be more. In case, the component or the item is not available in the local market
, we have to get it from other places, where the procurement cost may be higher
for individual purchase. If the management wants to adopt this policy, it may ha
ve to waste its time and money also the losses due to failure. (b) Group replace
ment policy If the organization has got the statistics of failure of the item, i
t can calculate the average life of the item and replace the item before it fail
s, so that the system can work without break. In this case, all the items, even
they are in good working condition, are replaced at a stipulated period as calcu
lated by the organization by using the group replacement policy. One thing we ha
ve to remember is that, in case any item fails, before the calculated group repl
acement period, it is replaced individually immediately after failure. Hence thi
s policy utilizes the strategy of both individual replacement and group replacem
ent. The probability distribution of the failure of the item in a system can be
determined by mortality tables for life testing techniques. Let us try to unders
tand what a mortality table is.
7.7.1. Mortality Tables The mortality theorem states that a large population is
subjected to a given mortality law for a very long period of time. All deaths ar
e immediately replaced by births and there are no other entries or exits. Here a
ge distribution ultimately becomes stable and that the number of deaths per unit
of time becomes constant, which is equal to the size of the total population di
vided by the mean age at death. If we consider the problem of human population,
no group of people ever existed under the conditions that: (a) That all deaths a
re immediately replaced by births. (b) That there are no other entries or exists
. These two assumptions help to analyze the situation more easily, by keeping vi
rtual human population in mind. When we consider an industrial problem, deaths r
efer to item failure of items or components and birth refers to replacement by a
new component. Mortality table for any item can be used to derive the probabili
ty distribution of life span. If M (t) represents the number of survivors at any
time ‘t’ and M (t – 1) is the number of survivors at the time (t – 1), then the probabi
lity that any item will fail in this time interval will be: {M (t – 1) – M (t)} / N,
...(1) where N is the number of items in the system. Conditional probability th
at any item survived up to age (t – 1) will die in next period, will be given by:
{M (t – 1) – M (t)} / M (t – 1) ... (2)
Replacement Model
333
Problem 7.25.
Calculate the probability of failure of an item in good condition in each month
from the following survival table:
Month Number: (t): Original number Of items working At the end of each 0 1 2 820
3 580 4 400 5 280 6 190 7 130 8 70 9 30 10 0
1000 940
Year:
Solution
Here ‘t’ is the number of month; M (t) is the number of items i.e. items in good con
dition at the end of tth month. The probability of failure in each month is calc
ulated as under:
Year (t) 0 1 2 3 4 5 6 7 8 9 10 Items in good Condition M (t) 1000 940 820 580 4
00 280 190 130 70 30 0 Probability of items that fail in t th year = {M (t – 1) – M
(t)}/ N (1000 – 940) / 1000 = 0.06 (940 – 820) / 1000 = 0.12 (820 – 580) / 1000 = 0
.24 (580 – 400) / 1000 = 0.18 (400 – 280) / 1000 = 0.12 (280 – 190) / 1000 = 0.09 (190
– 130) / 1000 = 0.06 (130 – 70) / 1000 = 0.06 (70 – 30) / 1000 = 0.04 (30 – 00) / 1000
= 0.03
7.7.2. Group Replacement of Items
A Group replacement policy consists of two steps. Firstly, it consists of indivi
dual replacement at the time of failure of any item in the system and there is g
roup replacement of existing live units at some suitable time. Here the individu
al replacement at the time of failure ensures running of the system, whereas gro
up replacement after some time interval will reduce the probability of failure o
f the system. The application of such type of policy has to take into considerat
ion the following points: (a) The rate of individual replacement during the peri
od and (b) The total cost incurred due to individual and group replacement durin
g the period chosen. This policy is favors the group replacement, when the total
cost is minimum and the period of replacement is known as optimal period of rep
lacement. The information required to formulate this policy is: (a) Probability
of failure, (b) Losses due to these failures, (c) Cost of individual replacement
, and (d) Cost of group replacement. The procedure is explained in the worked ex
amples.
334
Operations Research
The group replacement policy states that: Group replacement should be made at th
e end of ‘i’ th period, if the cost of individual replacement for ‘i’ th period is great
er than average cost per period by the end of the period ‘t’ and one should not adop
t a group replacement policy if the cost of individual replacement at the end of
(t 1) th period is not less than the average cost per period through time (t –
1).
Problem 7.26.
A system consists of 10000 electric bulbs. When any bulb fails, it is replaced i
mmediately and the cost of replacing a bulb individually is Re.1/ only. If all
the bulbs are replaced at the same time, the cost per bulb will be Rs. 0.35. The
percent surviving i.e. S (t) at the end of month ‘t’ and P (t) the probability of f
ailure during the month ‘t’ are as given below. Find the optimum replacement policy.
t in months: S (t): P (t): 0 100 1 97 0.03 2 90 0.07 3 70 4 30 5 15 0.15 6 0 0
.15
0.20 0.40
Solution
The problem is to be solved in two stages: (i) Policy of individual replacement
and (ii) Policy of group replacement. As per the given data, we can see that no
bulb will survive for more than 6 months. That is a bulb, which has survived for
5 months, is sure to fail during the sixth month. Though we replace the failed
bulb immediately, it is assumed that the bulb fails during the month will be rep
laced just at the end of the month. Let Ni = Number of bulbs replaced at the end
of i th month, then we can calculate different values of Ni N 0 = Number of bul
bs at the beginning = 10000 N1 = Number of bulbs replaced at end of first month
= Number of bulbs at the beginning × Probability that a bulb fails during 1st mont
h of installation = 10000 × 0.03 = 300 N2 = Number of bulbs to be replaced at the
end of second month = (Number of bulbs at the beginning × probability of failure d
uring the second month) + (Number of bulbs replaced at the end of second month × P
robability of failure during the second month) = N0P2 + N 1P 1 = (10000 × 0.07) +
(300 × 0.03) = 709. Similarly, N 3 = N 0 P3 + N 1 P 2 + N2 P1 = 10000 × 0.20 + 300 × 0
.07 + 709 × 0.03 = 2042. N 4 = N 0 P4 + N1 P3 + N2 P2 + N 3 P1 = 10000 × 0.40 + 300 ×
0.20 = 709 × 0.07 + 2042 × 0.03 = 4171. N 5 = N0 P5 + N 1 P4 + N 2 P3 + N3 P2 + N 4
P1 = 10000 × 0.15 + 300 × 0.40 + 709 × 0.20 + 2042 × 0.07 + 4171 × 0.03 = 2030. N 6 = N1 P
5 + N2 P4 + N3 P3 + N4 P2 + N5 P1 = 10000 × 0.15 + 300 × 0.15 + 709 × 0.40 + 2042 × 0.20
+ 4171 × 0.07 + 2030 × 0.03 = 2590.
Replacement Model
335
From the above we can see that the failures increases from 300 to 4171 in 4th mo
nth and then decreases. It is very much common in any system that failure rate i
ncreases and then decreases and finally after certain period, it stabilizes, whe
n the system attains steady state. Now let us work out the expected life of each
bulb which is = Σ xi Pi , where xi is the month and Pi is corresponding probabili
ty of failure. Σ xi Pi = 1 × 0.03 + 2 × 0.07 + 3 × 0.20 × 4 × 0.40 + 5 × 0.15 + 6 × 0.15 =
months. If the average life of a bulb is 4.02 months, the average number of repl
acements every month = Number of bulbs in the system / average life of the bulb.
= 10000 / 4.02 = 2488 bulbs. As the cost of individual replacement cost is Re.1
/- per bulb, on an average, the organization has to spend 2488 × Re.1/- = Rs. 2488
/- per month. Now let us work the cost of group replacement:
End of the Period 1 2 3 4 5 6 Total cost of group replacement in Rs. Individual
replacement cost + group Replacement cost. 300 × 1 + 10000 × 0.35 = 3800 (300 + 709)
× 1 + 10000 × 0.35 = 4509 (300 + 709 + 2042) × 1 + 10000 × 0.35 = 6551 (300 + 709 + 204
2 + 4771) × 1 + 10000 × 0.35 = 10722 (300+ 709 + 2042 + 4771 + 2030) × 1 + 10000 × 0.35
= 12752 (300 + 709 + 2042 + 4771 + 2030 + 2590) × 1 + 10000 × 0.35 = 15342 Cost per
monthTotal cost/period. Rs./ month. 3800 / 1 = 3800 4509 / 2 = 2254.50 6551 / 3
= 2183.66 10722 / 4 = 2680.50 12752 / 5 = 2550.40 15342 / 6 = 2557.00
In the above table in column No. 2 it is shown the cost of individual replacemen
t at the end of month plus group replacement of all the bulbs at the end of mont
h. The minimum cost of group replacement i.e. Rs. 2183.66 is at the end of third
month. This is compared with individual replacement cost per month, which is Rs
. 2488/- per month. Hence replacement of all the bulbs at the end of third month
is more beneficial to the organization. Hence optimal replacement policy is rep
lace all the bulbs at the end of third month.
Problem 7.27.
Truck tyres, which fail in service, can cause expensive accidents. It is estimat
ed that a failure in serviced results in an average cost of Rs.1000/- exclusive
of the cost of replacing the burst tyre. New tyres cost Rs. 400/- each and are s
ubject to mortality as in table on next page. If the tyres are to be replaced af
ter a certain fixed mileage or on failure (which ever occurs first), determine t
he replacement policy that minimizes the average cost per mile. Mention the assu
mptions you made to arrive at the solution.
336
Operations Research
Table showing the Truck Tyre Mortality. Age of tyre at failure (Miles) Proportio
n of tyre. 0.000 0.020 0.035 0.063 0.100 0.220 0.345 0.205 0.012 1.000
≤ 10000
10001 – 12000 12001 – 14000 14001 – 16000 16001 – 18000 18001 – 20000 20001 – 22000 22001 –
000 24001 – 26000 Total
olution
Assumptions: (i) The failure occurs at the midpoint of the range given in the ta
ble i.e. exactly at 11000, 13000, 15000 … etc. (ii) Initially let there be 1000 ty
res. (iii) Up to the age of 10000 miles proportion of tyres fails = 0. The propo
rtion of failure from 11000 to 13000 miles is 0.030. Assume that in this period
the average cost of maintaining is Rs. 1000 /-. If in this period a tyre bursts,
the cost will be Rs. 1400/-. Thus the cost of individual replacement will be Rs
, 1400/-. The cost of group replacement is given as Rs. 400/- per tyre. Hence th
e numbers of tyres fail and are to be replaced is: N0 = 1000. N1 = N0 P1 = 1000 ×
0.020 = 20. N2 = N0 × P2 + N1 P1 = 1000 × 0.035 + 20 × 0.020 = 35 + 0.04 = 35.04 = App
roximately 35. N3 = N0 × P3 + N1 P2 + N2 P1 = 1000 × 0.063 + 20 × 0.035 + 35 × 0.02 = 63
+ 0.7 + 0.7 = 64.4 = 64 N4 = N0 × P4 + N1 × P3 + N2 × P2 + N3 × P1 = 1000 × 0.1 + 20 × 0.0
3 + 35 × 0.035 + 64 × 0.02 = 100 + 1.26 + 1.23 + 1.28 = 103.73 = 104 N5 = N0 × P5 + N1
× P4 + N2 × P3 + N3 P2 + N4 × P1 = 1000 × 0.220 + 20 × 0.100 + 35 × 0.063 + 64 × 0.035 + 1
0.020 = 220 + 2 +2.205 + 2.24 + 2.08 = 224.205 = App 224 N6 = N0 × P6 + N1 × P5 + N2
× P4 + N3 × P3 + N2 + P2 + N1 × P1 = 1000 × 0.345 + 20 × 0.220 + 35 × 0.1 + 64 × 0.063 + 1
0.02 = 345 + 4.4 + 3.5 + 4.032 + 3.64 + 4.48 = 714.45 = App. 714. N7 = N0 × P7 + N
1 × P6 + N2 × P5 + N3 × P4 + N4 × P3 + N5 × P2 + N6 × P1 = 1000 × 0.205 + 20 × 0.345 + 35 ×
+ 64 × 0.1 + 104 × 0.063 + 224 × 0.035 + 714 × 0.02 = 205 + 7.3 + 7.7 + 6.4 + 6.24 + 7.8
4 + 14.28 = 254.76 = App. 255. N8 = N0 × P8 + N1 × P7 + N2 × P6 + N3 × P5 + N4 × P4 + N5 ×
3 + N6 × P2 + N7 × P1 = 1000 × 0.012 + 20 × 0.205 + 35 × 0.345 + 64 × 0.220 + 104 × 0.10 +
× 0.063 + 714 × 0.035 + 255 × 0.02 = 12 + 4.1 + 12.075 + 14.08 + 10.4 + 14.112 + 24.9
9 + 5.1 = 96.857 = App. 97
Replacement Model
i =inf
337
Expected average life of a tyre is:
∑i p
i =1
i
i = time period, p is the probability of failure.
Σ i pi = 1 × 0.020 + 2 × 0.035 + 3 × 0.063 + 4 × 0.100 + 5 × 0.220 + 6 × 0.345 + 7 × 0.205
.012 = = 0.02 + 0.07 + 0.189 + 0.40 + 1.1 + 2.07 + 1.435 + 0.096 = 5.38 Average
number of failures = (1000 / 5.38) = 185.87 = App. 186 tyres. Cost of individual
replacement per period = 186 × 1400 = 260400/Cost of individual replacement per m
ile = (234 × 1400) / 2000 = 260400 / 2000 = Rs. 130.20 Replacement by Group replac
ement policy:
End of the Period in miles 11000 - 13000 (1) 13000 - 15000 (2) 15000 - 17000 (3)
17000 - 19000 (4) 19000 - 21000 (5) 21000 - 23000 (6) 23000 - 25000 (7) 25000 -
27000 (8) Total cost of group replacement = Individual replacement + group repl
acement (Rs) 1000 × 400 + 20 × 1400 = 428000 (1000 + 20) × 400 + 35 × 1400 = 408000 + 49
000 = 457000 (1000 + 20 + 35) × 400 + 64 × 1400 = 422000 + 89600= 511600 (1000 + 20
+ 35 + 64) × 400 + 104 × 1400 = 447600 + 145600 = 593200 (1000 + 20 + 35 + 64 + 104)
× 400 + 224 x 1400 =489200 + 313600 = 802800 (1000 + 20 + 35 + 64 + 104 + 224) × 40
0 + 714 × 1400 = 578800 + 996600 = 1598400 (1000 + 20 + 35 + 64 + 104 + 224 + 714)
× 400 + 255 × 1400 =864400 + 357000 = 1221400 (1000 + 20 + 35 + 64 + 104 + 224 + 71
4 +255) × 400 + 97 × 1400 =966400 + 135800 = 1102200 593200 / 4 = 148300 802800 / 5
= 160560 1598400 / 6 = 263066 1221400 / 7 = 174485.70 1102200 / 8 = 137775 51160
0/3 = 170533 Average cost per Period in miles. (Rs) 428000 457000/2 = 228500
Now we know that the individual replacement cost is Rs. 130.20. Where as even at
the end of 8 the period, the average cost per period in miles is 137775 / 1000
= Rs. 137.775 which is higher than Rs. 130.02. Hence it is better to stick to in
dividual replacement policy.
Problem 7.28.
The following failure rates have been observed for a certain type of light bulb.
Week: Percent failing By the end of The week: 1 2 3 4 5
10
25
50
80
100
338
Operations Research
There are 1000 bulbs in use, and it costs Rs.2/- to replace an individual bulb,
which is burnt out. If all bulbs were replaced simultaneously it would cost 50 p
aise per bulb. It is proposed to replace all bulbs at fixed intervals of time, w
hether or not they burnt out, and to continue replacing burnt out bulbs as and w
hen they fail. At what intervals all the bulbs should be replaced? At what group
replacement price per bulb would a policy of strictly individual replacement be
come preferable to the adopted policy?
olution
Let us first work out the probability of failures. Let pi is the probability tha
t a light bulb which was new when placed in position for use, fails during the i
th period of its life. Then, p1 = 10/100 = 0.01, p2 = (25 – 10) / 100 = 0.15, p3
= (50 - 25) / 100 = 0.25, p4 = (80 – 50) / 100 = 0.30 and p5 = (100 – 80) / 100 = 0.
20. um of probabilities = 0.10 + 0.15 + 0.25 + 0.30 + 0.20 = 1.00 A bulb, which
has worked for four weeks, has to fail in the fifth week. It is assumed that th
e bulbs that fail during the week are replaced just before the end of that week
and the actual percentage of failures during a week for a sub population of bulb
s with the same age is the same as the expected percentage of failures during th
e week for that sub population. (i) Individual replacement policy: Mean age of b
ulbs is = 1 × p1 + 2 × p2 + 3 × p3 + 4 × p4 + 5 × p5 = 1 × 0.10 + 2 × 0.15 + 3 × 0.25 + 4 ×
5 × 0.20 = 3.35 weeks. The number of failures in each week in steady state is giv
en by 1000 / 3.35 = 299 Hence cost of replacing failed bulbs individually is Rs.
2/- × 299 = Rs. 598/- per week. (ii) Group replacement policy: Now we will work t
o find out the cost of replacing all the bulbs at a time (at a cost of Rs.0.50 p
er bulb) and at the same time replacing the individual bulbs (replacing at a cos
t of Rs.2/- per bulb) as and when they fail.
End of The week 1 2 3 4 5 6 7 Cost of Individual Replacement in Rs. 100 × 2 = 200
160 × 2 = 320 281 × 2 = 562 377 × 2 = 754 350 × 2 = 700 230 × 2 = 460 286 × 2 = 572 Cost of
group replacement in Rs. Average cost per week in Rs. 700 / 1 = 700.00 1020 / 2
= 510.00 1582 / 3 = 527.33 2336 / 3 = 778.66 3936 / 4 = 504.00 2810 / 5 = 563.20
4068 / 6 = 678.00
1000 × 2 + 100 × 2 = 500 + 200 = 700.00 1000 × 2 + (100 + 160) × 2 = 500 + 520 = 1020.00
1000 × 0.50 + (100 + 160 + 281) × 2 = 500 + 1082 = 1582.00 1000 × 0.50 + (100 + 160 +
281 + 377) × 2 = 500 + 1836 = 2336.00 1000 × 0.50 + (100 + 160 + 281 + 377 + 350) × 2
= 500 + 2536 = 3036.00 1000 × 0.50 + (100 + 160 + 281 + 377 + 350 + 230) × 2 = 500
+ 2316 = 2816.00 1000 × 0.50 + (100 + 160 + 281 + 377 + 350 + 230 + 286) × 2 = 500 +
3568 = 4068.00
Replacement Model
339
As the weekly average cost is minimum at Rs. 510.00, replace all the bulbs at th
e end of 2-nd week. This is also less than the individual replacement cost i.e.
Rs. 598/-.
Problem 7.29.
Find the cost per period of individual replacement policy of an installation of
300 bulbs, given the following: (i) Cost of individual replacement of bulb is Rs
. 2/- per bulb. (ii) Conditional probability of failure of bulbs is as follows:
Weekend: Probability of failure: 0 0 1 0.1 2 0.3 3 0.7 4 1.0
olution
If pi is the probability of failure of bulbs then: p0 = 0, p1 = 0.1, p2 = 0.3 – 0.
1 = 0.20, p3 = 0.7 – 0.3 = 0.4, and p4 = 1 – 0.7 = 0.3 ince sum of probabilities is
unity, all probability higher than p4 must be zero, i.e. a bulb that has been s
urvived up to 4 th week, is sure to fail at the end of fourth week. Let us find
the average life of a bulb, which is given by
∑ i x pi
i =1
=
1 × 0.1 + 2 × 0.2 + 3 × 0.4 + 4 × 0.3 = 2.9 weeks. Average number of failures per week i
s 300 / 2.9 = 103. 448 = App. 103 Cost of individual replacement is Rs. 2 × 103 =
Rs. 206/Number of bulbs to be replaced at the end of every week is: N0 = 300 N1
= N0 × p1 = 300 × 0.1 = 30. N2 = N0 × p2 + N1 × p1 = 300 × 0.2 + 30 × 0.1 = 60 + 3 = 63 N3
N0 × p3 + N1 × p2 + N2 × p1 = 300 × 0.4 + 30 × 0.2 + 63 × 0.1 = 120 + 6 + 6.3 = 132.3 = Ap
. 132 N4 = N0 × p4 + N1 × p3 + N2 × p2 + N3 × p1 = 300 × 0.3 + 30 × 0.4 + 63 × 0.2 + 132 ×
90 + 12 + 12.6 + 13.2 = 127.8 = App. 128. The number failures increase up to 3
rd week and then it reduces. This is very much common in all the systems that af
ter some time the system reach steady state.
Problem 7.30.
A typing pool of a large organization employs 100-copy typists. The distribution
of length of service is given below:
Duration of employment in years: Proportion of employees that leav in that year
of l employment. 1 30% 2 40% 3 4 5 or more. 0%
20% 10%
340
Operations Research
Assuming that an employee leaving is replaced by another at the end of the year,
determine: (a) The number of staff who leaves in each of the first 8 years of t
he department’s existence, assuming it stared with 100 employees and this total nu
mber does not change. (b) The number leaving each year when the steady state sit
uation is reached, and (c) The total annual cost of recruiting staff in the stea
dy state if replacement of each new copy typist costs Rs. 200/
Solution
Note that there are 100 copy typists in the beginning and no person stays more
than five years. Hence let us calculate the number of persons leaving the organ
ization and new employees employed every year. Year Number of employees leaving
at the end of the year No.of new Employees Employed. N0 = 100 N1 = 30 N2 = 40 +
9 = 49 N3 = 20 +12 + 14.7 = 46.7 N4 = 49.7 N5 = 46.36 = 46.4 N6 = 48
0 1 2 3 4 5
Nil N0 × p1 = 100 × 0.30 = N0 × p2 + n1 × p1 = 100 × 04 + 30 × 0.30 = N0 × p3 + N1 × p2 + n
= 100 × 0.2 + 30 × 0.4 + 49 × 0.3 = N0 × p4 +N1 × p3 + N2 × p2 + N3 × p1 = 100 × 0.1 + 30 ×
49 × 0.4 + 46.7 × 0.3 = 10 +6 + 19.6 + 14.1 N0 × p5 + N1 × p4 + N2 × p3 + N3 × p2 + N4 × p1
100 × 0 + 30 × 0.1 + 49 × 0.2 + 46.7 × 0.4 + 49.6 × 0.3 = 0 + 3 + 9.8 + 18.68 + 14.88 = 46
.36 N0 × p6 + N1 × p5 + N2 × p4 + N3 × p3 + N4 × p2 + N5 × p1 = 100 × 0 + 30 × 0 + 49 × 0.1
× 0.2 + 49.6 × 0.4 + 46.4 × 0.3 = 0 + 0 + 4.9 + 9.34 + 19.84 + 13.92 = 48 N0 × p7 + N1 ×
p6 + N2 × p5 + N3 × p4 + N4 × p3 + N5 × p2 + N6 × p1 = 100 × 0 +30 × 0 + 49 × 0 + 46.7 × 0.
6 × 0.2 + 46.4 × 0.4 + 48 × 0.3 = 0 + 0 + 0 + 4.67 + 9.92 + 18.56 + 14.4 = 47.55 N0 × p8
+ N1 × p7 + N2 × p6 + N3 × p5 + N4 × p4 + N5 × p3 + N6 × p2 + N7 × p1 =100 × 0 + 30 × 0 +
46.7 × 0 + 49.6 × 0.1 + 46.4 × 0.2 + 48 × 0.4 + 47.06 × 0.3 = 0 + 0 + 0 + 0 + 4.96 + 9.28
+ 19.2 + 14.12 = 47.56
6
7
N7 = 47.6
8
N8 = 47.6
Expected length of service of a copy typist in the organization = Σ' xi × pi = 1 × 0.3
+ 2 × 0.4 + 3 × 0.2 + 4 × 0.1 = 0.3 + 0.8 + 0.6 + 0.4 = 2.1 years. Hence average numb
er of employees leaving the organization at the end of the year = 100 / 2.1 = 47
.62 employees. Annual cost of replacing a copy typist in steady state = Cost of
replacement × average number replaced = Rs. 200 × 47.62 = Rs. 9524/-.
Replacement Model
341
Problem 7.30
The following mortality tables have been observed for a certain type of light bu
lbs:
End of the week: Probability of failure due to date: 1 0.09 2 0.25 3 0.49 4 0.85
5 0.97 6 1.00
There are a large number of such bulbs, which are to be kept in working order. I
f a bulb fails in service, it costs Rs. 3/- to replace but if all bulbs are repl
aced in the same operation it can be done for only Rs. 0.70 a bulb. It is propos
ed to replace all bulbs at fixed intervals, whether or not they have burnt out a
nd to continue replacing burnt out bulbs as they fail. (a) What is the best inte
rval between group replacements? (b) At what group replacement price per bulb, w
ould a policy of strictly individual replacement become preferable to the adopte
d policy?
olution
Now the probability of failure of a bulb be pi is as given below: p1 = 0.09, p2
= 0.25 – 0.09 = 0.16, p3 = 0.49 – 0.25 = 0.24, p4 = 0.85 – 0.49 = 0.36, p5 = 0.97 – 0.85
= 0.12 p6 = 1.00 – 0.97 = 0.03. As the sum of the probabilities of failures is un
ity all probabilities > p6 are 0, this says that the bulb survived up to 6 weeks
, will definitely fail at the end of 6th week. As per the conditions given in th
e problem, the bulbs that fail during the week are assumed to be replaced at the
end of the week for simplicity, though they are replaced immediately after fail
ure. Let us take that total bulbs in the system is 1000.
Week 0 1 2 3 4 5 N0 = 1000 N1 = N0 × p1 = 1000 × 0.09 = 90 N2 = N0 × p2 + N1 × p1 = 1000
× 0.16 + 90 × 0.09 = 160 + 8 = 168 N3 = N0 × p3 + N1 × p2 + N2 × p1 = 1000 × 0.24 + 90 × 0
+ 168 × 0.09 = 240 + 14.4 + 15.12 = 269.52 N4 = N0 × p4 + N1 × p3 + N2 × p2 + N3 × p1 = 1
000 × 0.36 + 90 × 0.24 + 168 × 0.16 + 270 × 0.09 = 360 + 21.6 + 26.88 + 24.3 = 432.78 N5
= N0 × p5 + N1 × p4 + N2 × p3 + N3 × p2 + N4 × p1 = 1000 × 0.12 + 90 × 0.36 + 168 × 0.24 +
0.16 + 433 × 0.09 = 120 + 32.4 + 40.32 + 43.20 + 38.97 = 274.89 N6 = N0 × p 6 + N 1 ×
p 5 + N2 × p 4 + N3 × p 3 + N 4 × p 2 + N 5 × p 1 + N 6 × p 0 =1000 × 0.03 + 90 × 0.12 + 16
.36 + 270 × 0.24 + 433 × 0.16 + 275 × 0.09 =30 + 10.8 + 60.48 + 64.8 + 69.28 + 24.75 =
260.11 Number of failures per week Number replaced. N0 = 1000 N1 = 90 N2 = 168
N3 = 270 N4 = 433 N5 = 275
6
N6 = 260
7
Expected life of the bulb is equals to sum of the product of period × probability.
342
Operations Research
= 1 × 0.09 + 2 × 0.16 + 3 × 0.24 + 4 × 0.36 + 5 × 0.12 + 6 × 0.03 = 0.09 + 0.32 + 0.72 + 1.
4 + 0.6 + 0.18 = 3.35 weeks Average number of failure per week = 1000 / 3.35 = 2
99 bulbs. Cost of individual replacement is Rs.3/- × 299 = Rs. 897/Cost of group r
eplacement :
End of The Week 1 2 3 4 5 6 Cost of group replacement in Rs. Average cost per We
ek. 700/1 = 700.00 970 / 2 = 485.00 1474 / 3 = 491.33 2281 / 4 = 570.25 3583 / 5
= 716.60 4408 / 6 = 734.66
1000 × 0.70 = 700 1000 × 0.70 + 90 × 3 = 700 + 270 = 970 1000 × 0.70 + (90 × 168) × 3 = 700
+ 774 = 1474 1000 × 0.70 + (90 + 168 + 270) × 3 = 2281 1000 × 0.70 + (90 + 168 + 270 +
433) × 3 = 3583 1000 × 0.70 + (90 + 168 + 270 + 433 + 275) × 3 = 4408
(a) We see that the group replacement cost at the end of 2econd week is minimum
and is Rs. 485/-. This is also less than the individual replacement cost of Rs.
897/- Hence Group replacement at the end of second week is recommended. (c) Let
Rs. c/- be the group replacement price per bulb. Then the individual replacement
cost of Rs. 897/- must be < (1000 × c + 3 × 90) / 2. By simplifying the value of c
is Rs. 1. 52. At price per bulb R . 1.52 the policy of replacing all the bulbs a
t the end of second week will become strictly individual replacement policy.
Problem 7. 31.
A unit of electrical equipment is subjected to failure. The probability of distr
ibution of the age at failure is as follows:
Age at failure (weeks): Probability: 2 0.2 3 0.4 4 0.3 5 0.1
Initially 10000 new units are installed and a new unit replaces any unit, which
fails, at the end of the week in which it fails. (a) Calculate the expected numb
er of units to be replaced in each of weeks 1 to 7. What rate of failure can be
expected in the long run? (b) Among the 10000 installed units at the start of we
ek 8, how many can be expected to be aged zero week, 1 week, 2 weeks, 3 weeks or
4 weeks? Compare this with the expected frequency distribution in long run. (c)
Replacement of individual units on failure costs Rs. 0.05 each. An alternative
policy is to replace all units after a fixed number of weeks at a cost of Rs. 30
0/- and to replace any unit failing before the replacement week at the individua
l cost of 5 paise each. Would this preventive policy be adopted? If so, after ho
w many weeks should all units be replaced?
Replacement Model
343
olution
End of week 1 2 3 4 5 6 7 — 0.2 × 10000 0.4 × 10000 0.3 × 10000 + 0.2 × 2000 0.1 × 10000 +
.2 × 4000 + 0.4 × 2000 0.2 × 3400 + 0.4 × 4000 + 0.3 × 2000 0.2 × 2600 + 0.4 × 3400 + 0.3 ×
+ 0.1 × 2000 Failures 0 2000 4000 3000 + 400 = 3400 1000 + 800 + 800 = 2600 680 +
1600 + 600 = 2880 520 + 1360 + 1200 + 200 = 3280 Number replaced.
Mean life at failure is given by week × probability = 2 × 0.2 + 3 × 0.4 + 4 × 0.3 + 5 × 0.
1 = 3.3 weeks. Hence average rate of failure in the long run = 10000 / 3.3 = 303
0 units per week. (b) Expected frequency distribution of ages at the beginning o
f 8th week:
Age in weeks 0 1 2 3 4 0.8 × 2600 {1 – (0.2 + 0.4)} × 3400 = {1 – (0.2 + 0.3 + 0.4)} × 400
0 Total = Number of items. 3280 2880 2080 1360 400 10000
Now, as 3030 units are replaced on the average each week, the expected number of
units at any time having age 0 to one week is 3030 each. The long run expected
age distribution is, therefore, given by:
Age in weeks 0 1 2 3 4 (1 – 0.2) × 3030 = {1– (0.2 + 0.4)} × 3030 {1 – (0.2 + 0.3 + 0.4)} ×
3030 Total: Number of items. 3030 3030 2424 1213 303 10000
(d) With individual replacement, the average replacement cost is: Rs. (3030 × 0.05
) = Rs. 151.50 per week.
344
Operations Research
Group replacement policy: If there is a group replacement once every two weeks,
there will be no individual replacements, and the weekly average replacement cos
t is Rs. 300 / 2 = Rs. 150/-. Therefore, it will be worth to adopt a group repla
cement policy as shown below: Once in every three weeks: Individual replacement
cost = 2000 × Rs. 0.05 = Rs. 100/-Average cost = {(Rs. 100 + Rs. 300)} / 3 = Rs. 1
33.33 per week. Once in every 4 weeks: Individual replacement cost = (2000 + 400
0) × Rs. 0.05 = Rs. 300/Average cost = (s. 300 + Rs. 300) / 4 = Rs. 150 /- per wee
k. Therefore, the minimum cost replacement policy is group replacement every thr
ee weeks at a cost of Rs. 133.33 per week.
7.8. TAFFING PROBLEM
The replacement model may be well applied to manpower planning, where one can pl
an well in advance the requirement of different types of staff personnel or skil
led / unskilled personnel. Here personnel are also considered as elements replac
ed for some reason or the other. Any organization requires at various period of
time different types of personnel due to retirement, persons quitting the job in
search of better jobs, vacancies arising due to death of personnel, termination
, resignation etc. Therefore to maintain suitable strength of staff members in a
system there is a need to formulate some useful recruitment policy. In this cas
e we assume that the life distribution for the service of staff in a system is k
nown.
Problem 7.32.
A research team is planed to raise its strength to 50 chemists and then to remai
n at that level. The wastage of recruits depends on their length of service, whi
ch is as follows:
Year Total percentage who have left up to the end of the year. 5 36 56 63 68 Yea
r Total percentage who have left up to the end of the year. 73 79 87 97 100
1 2 3 4 4
6 7 8 9 10
What is the recruitment per year necessary to maintain the strength? There are 8
senior posts for which the length of service is the main criterion for promotio
n. What is the average length of service after which new entrant can expect his
promotion to one of these posts.
Replacement Model
345
olution
Year (1) Number of persons who leave at the end of the year (2) 0 5 36 56 63 73
79 87 97 0 Total Number of persons in service at the end of the year (3) 100 - (
2) 100 95 64 44 37 27 21 13 3 0 436 Probability of leaving at the end of the yea
r (4) (2) / 100 0 0,05 0.36 0.56 0.63 0.73 0.70 0.87 0.97 1.00 Probability at th
e in service at the end of the year (5) 1 - (4) or (3) / 100 1.00 0.95 0.64 0.44
0.37 0.27 0.21 0.13 0.03 0.00
0 1 3 4 5 6 7 8 9 100
From the given data, we can find the probability of a chemist leaving during a c
ertain year. The person who is joining the organization will not continue after
10 years. And we know that mortality table for any item can be used to derive th
e probability distribution of life span by {M (t – 1) – M (t)} N. The required proba
bilities are calculated in the table above. The column (3) shows that a recruitm
ent policy 9 of 100 every year, the total number of chemists serving in the orga
nization would have been 436. Hence, to maintain strength of 50 chemists, then t
he recruitment should be: = (100 × 50) / 436 = 11.5 or approximately 12 chemists p
er year. As per life distribution of service 12 chemists are to be recruited eve
ry year, to maintain strength of 50 chemists. Now referring to column (5) of the
table above, we find that number of survivals after each year. This is given by
multiplying the various values in column (5) by 12 as shown in the table given
below:
Number of years Number of Chemists in service. 0 12 1 11 2 7 3 5 4 4 5 4 6 3 7 2
8 2 9 0 10 0
As there are 8 senior posts, from the table we find that there are 3 persons in
service during the 6th year, 2 in 7th year, and 2 in 8th year. Hence the promoti
on for new recruits will start from the end of fifth year and will continue up t
o sixth year. (OR it can be done in this way: if we recruit 12 persons every yea
r, then we want 8 seniors. uppose we recruit 100 every year, then we shall requ
ire (8 × 100) / 12 = 66.4 or approximately 64 seniors. It is seen from the first t
able above that required number of persons would be available, if we promote the
m at the end of fifth year.)
346
Operations Research
Problem 7.33.
An Automobile unit requires 200 junior engineers, 300 Assistant Engineers and 50
Executives. Trainees are recruited at the age of 21 years, if still in service;
retire at the age of 60. Given the following life table, determine (i) how many
Engineers should be recruited each year? (ii) At what ages promotions should ta
ke place?
Age 21 26 31 36 41 46 51 56 No.
in ervice 1000' 261 173 146 119 87 53 22 Age 22
27 32 37 42 47 52 57 No. in ervice 600 228 167 144 113 80 46 18 Age 23 28 33 3
8 43 48 53 58 No. in ervice 400 206 161 136 106 73 39 14 Age 24 29 34 39 44 49
54 59
No in ervice 384 190 155 131 99 66 33 11 Age 25 30 35 40 45 50 55 60 No.
in ervice 307 181 159 125 93 59 27 0
olution
If a policy of recruiting 1000 Engineers every year is followed, then the total
number of Engineers in service between the age of 21 and 59 years will be equal
to sum of the number in service i.e. = 6480. But we want 200 junior engineers +
300 Assistant engineers + 50 Executives = 550 engineers in all in the organizati
on. To maintain strength of 550 Engineers, we should recruit (1000 × 550) / 6480 =
84.87 = App.85 Engineers every year. If junior engineers are promoted at the ag
e of ‘y’years then up to age (y–1) we require 200 junior engineers. Out of a strength
of 550 there 200 junior engineers. Hence out of strength of 1000 there will be:
(200 ×1000) / 550 = 364 junior engineers. From the given data the strength 364 is
available up to 24 years. Hence the promotion of junior engineers will take plac
e in 25th year. Again out of 550 staff, we require 300 Assistant engineers. If w
e recruit 1000 engineers, then we require: (300 × 1000) / 550 = 545 assistant engi
neers. Hence the number of junior engineers and assistant engineers in a recruit
ment of 1000 will be 364 + 545 = 909. i.e. we require 91 executives, whereas at
the age of 46 only 87 will survive. Hence promotion of assistant engineers will
take place in 46th year.
Problem 7.34.
An airline requires 250 assistant hostesses, 350 hostesses and 50 supervisors. G
irls are recruited at the age of 21 and if in service, they retire at age of the
60 years. The table given below show the life pattern, determine: (a) How many
girls should be recruited each year? (b) At what age promotions should take plac
e?
Replacement Model
347
Age 21 22 23 24 25 26 27 28 29 30
No. in Service 1000 700 500 400 300 260 230 210 195 180
Age 31 32 33 34 35 36 37 38 39 40
No. in Service 170 165 160 155 150 145 140 135 130 125
Age 41 42 43 44 45 46 47 48 49 50
No. in Service 120 112 105 100 92 88 80 72 65 60
Age 51 52 53 54 55 56 57 58 59 60
No. in Service 53 45 40 32 26 20 18 15 10 00
Solution
If 1000 girls are recruited every year for the past 39 years (21 to 59th year),
the total number of them serving up to the age of 59 years is the sum of surviva
ls i.e. 6,603 persons. Total number of girls required in airline is 250 assistan
t hostesses + 350 hostesses +50 supervisors = 650 girls. (i) Number of girls rec
ruited every year in order to maintain strength of 650 = (1000 × 650) / 6603 = 98.
440 = 98 approximately. (ii) Let the assistant hostesses be promoted at the age
of ‘y’. Then up to age (y – 1) year, number of assistant hostesses required = 250 memb
ers. Now out of 650 girls, 250 are assistant hostesses; therefore out of 1000, t
heir number is (1000 × 250) / 650 = 384.615 = 385 approximately. This number occur
s in the given data up to the age of 24th year. Therefore, the promotion assista
nt hostesses is due in the 25th year. Now, out of 650 girls, 350 are hostesses.
Therefore, if we recruit 1000 girls, the number of hostesses will be (350 × 1000)
/ 650 = app. 538 Therefore, total number of assistant hostesses and hostesses in
a recruitment of 1000 = 385 + 538 = 923. Therefore, number of supervisors requi
red is 1000 – 923 = 77 From the given data, this number 77 is available up to the
age of 47 years. Hence promotion is due in the 48th year.
Problem 7.35.
A faculty in a college is planned to rise to strength of 50 staff members and th
en to remain at that level. The wastage of recruits depends upon their length of
service and is as follows:
Year: Total percentage who left up to the end of the year: 1 5 2 35 3 56 4 65 5
70 6 76 7 80 8 86 9 95 10 100
348
Operations Research
(i) Find the number of staff members to be recruited every year. (ii) If there a
re seven posts of Head of Departments for which length of service is the only cr
iterion of promotion, what will be average length of service after which a new e
ntrant should expect promotion?
Solution
Let us assume that the recruitment is 100 per year. Then, the 100 who join in th
e first year will become zero in 10th year, the 100 who join in the 2nd year wil
l become 5 at the end of the 10th year (serve for 9 years), and the 100 who join
in the 3rd year will become 15 at the end of 10th year (serve for 8 years), and
so on. Thus when the equilibrium is attained, the distribution of length of ser
vice of the staff members will be as follows:
Year: No. of Staff Members: 0 100 1 95 2 65 3 44 4 35 5 30 6 24 7 20 8 14 9 5 10
0
(i) Thus if 100 staff members are recruited every year, the total number of staf
f members after 10 years of service is equal to sum of the staff members shown a
bove which is = 432. To maintain strength of 50, the number to be recruited ever
y year = (100 × 50) / 432 = 11.6 or app = 12 members. It is assumed that those sta
ff members who completed ‘x’ years of service but left before x + 1 years of service
, actually left immediately before completing x + 1 years. If it is assumed that
they left immediately after completing x years service, the total number will b
ecome (432 – 100) = 332 and the required intake will be (50 × 100) / 332 = 15. In ac
tual practice they may leave at any time in the year so that reasonable number o
f recruitments per year will be (11.6 + 15) / 2 = app. 13. (ii) If the college r
ecruits 13 persons every year, then the college needs 7 seniors. Hence if the co
llege recruit100 persons every year then the requirement is = (7 × 100) / 13 = App
. 54 seniors. It is seen from the given data that 54 seniors will be available i
f the college promote them during 6th year of their service. i.e. 0 + 5 + 14 + 2
0 + 24 = 63 which is > 54). Therefore, the promotion of a newly recruited staffe
d member will be done after completing 5 years and before putting in 6 years of
service.
EXERCISE
1. What is replacement? Explain by means real world examples. 2. Explain differe
nt types of replacement problems by giving examples. 3. (a) Write a brief note o
n replacement. (c) The cost of maintenance of equipment is given by a function o
f increasing with time and its scrap value is constant. Show that replacing the
equipment when the average cost to date becomes equal to the current maintenance
cost will minimize the average annual cost.
Replacement Model
349
4. A firm is considering when to replace its machine whose price is Rs. 12,200/
. The scrap value of the machine is Rs. 200/ only. From past experience mainten
ance cost of machine is as under.
Year: Maintenance Cost in Rs. 1 200 2 500 3 800 4 1200 5 1800 6 2500 7 3200 8 40
00
Find when the new machine should be installed. (Ans: 7th year) 5. The following
is the cost of running a particular car to date and the forecast into the future
. Assume that a similar car will replace the car, when is the best time to repla
ce it and what will be the average yearly running cost?
Year 0 1 2 3 4 5 6 7 8 Resale value at the end of the year. Rs. 700 625 575 550
500 450 450 350 300 Petrol and Tax during the year. Rs. — 90 90 90 90 90 90 90 90
All other running cost During the year. Rs. — 10 30 50 70 90 110 130 150
(Ans. 3rd year). (6) Machine B costs Rs. 10,000/ . Annual operating costs are Rs
. 400/ for the first year and they increase by Rs. 800/ each year. Machine, A
which is one year old, costs Rs. 9000/and the annual operating costs are Rs. 200
/ for the first year and they increase by Rs. 2000/ every year. Determine at
what time is it profitable to replace machine A with machine B. (Assume that mac
hines have no resale value and the future costs are not discounted). (7) A firm
pays Rs. 10,000/ for its automobiles. Their operating and maintenance costs are
about Rs. 2,500/ per year for the first two years and then go up by Rs. 1500/
approximately per year. When should such vehicles be replaced? The discount rat
e is 0.9. (8) The cost of new machine is Rs. 4000/ . The maintenance cost of ‘n’ th
year is given by Rn = 500 (n – 1) where n = 1,2,3…n. Suppose that the discount rate
per year is 0.05. After how many years will it be economical to replace the mach
ine by a new one? (Ans: After 4 years)
350
Operations Research
(9) If you wish to have a return of 10% per annum on your investment, which of t
he following plans would you prefer?
Plan A 1st Cost in Rs. 2,00,000 1,50,000 25,000 Scrap value after 15 years in Rs
. Excess of annual revenue over annual disbursement in Rs.: Plan B 2,50,000 1,80
,000 30,000
(Ans: Plan A). (10) The following mortality rates have been observed for a certa
in type of light bulbs:
Week: Percent failing by the weekend: 1 10 2 25 3 50 4 80 5 100
There are 1000 bulbs in use and it costs Rs.2/ to replace an individual bulb, w
hich has burnt out. If all bulbs were replaced simultaneously, it would cost 50
paise per bulb. It is proposed to replace all the bulbs at fixed intervals, whet
her or not they have burnt out, and to continue replacing burnt out bulbs as the
y fail. At what intervals should all the bulbs be replaced? (Ans: At the end of
2 weeks). (11) The probability pn of failure just before age ‘n’ years is shown belo
w. If individual replacement cost is Rs.1.25 and group replacement cost is Re. 0
.50 per item, find the optima group replacement policy.
n: pn 1 0.01 2 0.03 3 0.05 4 0.07 5 0.10 6 0.15 7 0.20 8 0.15 9 0.11 10 0.08 11
0.05
(Ans: After every 6 weeks) (11) A fleet owner finds from his past records that t
he costs per year of running a truck whose purchase price is Rs. 6,000/ are as
follows:
Year: Running cost in Rs. Resale value in Rs.: 1 1000 3000 2 1200 1500 3 1400 75
0 4 1800 375 5 2300 200 6 2800 200 7 3400 200
(Ans: At the end of 5th year) 12. The following mortality rates have been found
for a certain type of coal cutter motor:
Weeks: Total % failure up to end of 10 weeks period: 10 5 20 15 30 35 40 65 50 1
00
If the motors are replaced over the week and the total cost is Rs. 200/ . If the
y fail during the week the total cost is Rs. 100/ per failure. Is it better to
replace the motors before failure and if so when? (Ans: Motors should be replace
d every 20 weeks)
Replacement Model
351
MULTIPLE CHOICE QUESTIONS Replacement Model Quiz
1. Contractual maintenance or agreement maintenance with manufacturer is suitabl
e for equipment, which is (a) In its infant state, (b) When machine is old one,
(c) Scrapped, (d) None of the above. ( ) 2. When money value changes with time a
t 10 %, then PWF for first year is : (a) 1. (b) 0.909 (c) 0.852 (d) 0.9 ( ) 3. W
hich of the following maintenance policy is not used in old age stage of a machi
ne: (a) Operate up to failure and do corrective maintenance (b) Reconditioning,
(c) Replacement, (d) Scheduled preventive maintenance. ( ) 4. When money value c
hanges with time at 20%, the discount factor for 2 nd year is: (a) 1 (b) 0.833 (
c) 0 (d) 0.6955 ( ) 5. Which of the following replacement policy is considered t
o be dynamic in nature? (a) Time is continuous variable and the money value does
not change with time. (b) When money value does not changes with time and time
is a discrete variable. (c) When money value changes with time. (d) When money v
alue remains constant for some time and then goes on changing with time. ( ) 6.
When the probability of failure reduces gradually, the failure mode is said to b
e: (a) Regressive, (b) Retrogressive (c) Progressive (d) Recursive. ( ) 7. The f
ollowing replacement model is said to be probabilistic model: (a) When money val
ue does not change with time and time is a continuous variable, (b) When money v
alue changes with time, (c) When money value does not change with time and time
is discrete variable (d) Preventive maintenance policy. ( ) 8. A machine is repl
aced with average running cost (a) Is not equal to current running cost. (b) Til
l current period is greater than that of next period (c) Of current period is gr
eater than that of next period, (d) Of current period is less than that of next
period. ()
352
Operations Research
9. The curve used to interpret machine life cycle is (a) Bath tub curve (b) Time
curve (c) Product life cycle (d) Ogive curve. ( ) 10. Decreasing failure rate i
s usually observed in ………………. stage of the machine (a) Infant (b) Youth (c) Old age (d) Any
time in its life. ( ) 11. Which cost of the following is irrelevant to replaceme
nt analysis? (a) Purchase cost of the machine, (b) Operating cost of the machine
, (c) Maintenance cost of the machine (d) Machine hour rate of the machine. ( )
12. The type of failure that usually occurs in old age of the machine is (a) Ran
dom failure (b) Early failure (c) Chance failure (d) Wear out failure ( ) 13.
Group replacement policy is most suitable for: (a) Trucks (b) Infant machines (c
) Street light bulbs (d) New cars. ( ) 14. The chance failure that occur on a ma
chine are commonly found on a graph of time Vs Failure rate (on X and Y axis res
pectively as (a) Parabolic (b) Hyperbolic (c) Line nearly parallel to X axis (d)
Line nearly parallel to Y axis. ( ) 15. Replacement of an item will become nece
ssary when (a) Old item becomes too expensive to operate or maintain (b) When yo
ur operator desires to work on a new machine. (c) When your opponent changes his
machine in his unit. (d) When company has surplus funds to spend. ( ) 16. The p
roduction manager will not recommend group replacement policy in case of (a) Whe
n large number of identical items is to be replaced (b) Low cost items are to be
replaced, where record keeping is a problem. (c) For items that fail completely
, (d) Repairable items. ( ) 17. In replacement analysis the maintenance cost is
a function of: (a) Time (b) Function (c) Initial investment (c) Resale value ( )
18. Which of the following is the correct assumption for replacement policy whe
n money value does not change with time (a) No Capital cost, (b) No scrap value
(c) Constant scrap value (d) zero maintenance cost. ( )
Replacement Model
353
19. Which one of the following does not match the group. (a) Present Worth Facto
r (PWF) (b) Discounted rate (DR) (c) Depreciation value (DV) (d) Mortality Table
s (MT) ( ) 20. Reliability of an item is (a) Failure Probability. (b) 1 / Failur
e probability (c) 1 failure probability (d) Life period / Failure rate. ( ) 21
. The following is not discussed in group replacement policy: (a) Failure Probab
ility, (b) Cost of individual replacement, (c) Loss due to failure (d) Present w
orth factor series. ( ) 22. It is assumed that maintenance cost mostly depends o
n: (a) Calendar age (b) Manufacturing date (c) Running age (d) User s age ( ) 23
. Group replacement policy applies to: (a) Irreparable items, (b) Repairable ite
ms. (c) Items that fail partially (d) Items that fail completely. ( ) 24. If a m
achine becomes old, then the failure rate expected will be: (a) Constant (b) Inc
reasing (c) decreasing (d) we cannot say. ( ) 25. Replacement is said to be nece
ssary if (a) Failure rate is increasing (b) Failure cost is increasing (c) Failu
re probability is increasing (d) Any of the above. ( ) 26. In this stage, the ma
chine operates at highest efficiency and its production rate will be high. (a) I
nfant stage (b) Youth stage, (c) Old age, (d) None of the above. ( ) 27. Replace
ment decision is very much common in this stage: (a) Infant stage, (b) Old age,
(c) Youth, (d) In all of the above. ( ) 28. The replacement policy that is impos
ed on an item irrespective of its failure is (a) Group replacement (b) Individua
l replacement, (c) Repair spare replacement, (d) Successive replacement. ( ) 29.
When certain symptoms indicate that a machine is going to fail and to avoid fai
lure if maintenance is done it is known as: (a) Symptoms maintenance, (b) Predic
tive maintenance (c) Repair maintenance (d) Scheduled maintenance. ( ) 30. In re
trogressive failures, the failure probability with time. (a)
Increases, (b) Remains constant, (c) Decreases (d) None of the above. ( )
CHAPTER – 8
Inventory Control
8.1. INTRODUCTION
One of the basic functions of management is to employ capital efficiently so as
to yield the maximum returns. This can be done in either of two ways or by both,
i.e. (a) By maximizing the margin of profit; or (b) By maximizing the productio
n with a given amount of capital, i.e. to increase the productivity of capital.
This means that the management should try to make its capital work hard as possi
ble. However, this is all too often neglected and much time and ingenuity are de
voted to make only labour work harder. In the process, the capital turnover and
hence the productivity of capital is often totally neglected. Several new techni
ques have been developed and employed by modern management to remedy this defici
ency. Among these Materials Management has become one of the most effective. In
Materials Management, Inventory Control play vital role in increasing the produc
tivity of capital. Inventory management or Inventory Control is one of the techn
iques of Materials Management which helps the management to improve the producti
vity of capital by reducing the material costs, preventing the large amounts of
capital being locked up for long periods, and improving the capital turn over ra
tio. The techniques of inventory control were evolved and developed during and a
fter the Second World War and have helped the more industrially developed countr
ies to make spectacular progress in improving their productivity. The importance
of materials management/inventory control arises from the fact that materials a
ccount for 60 to 65 percent of the sales value of a product, that is to say, fro
m every rupee of the sales revenue, 65 paise are spent on materials. Hence, smal
l change in material costs can result in large sums of money saved or lost. Inve
ntory control should, therefore, be considered as a function of prime importance
for our industrial economy. Inventory control provides tools and techniques, mo
st of which are very simple to reduce/control the materials cost substantially.
A large portion of revenue (65 percent) is exposed to the techniques, correspond
ingly large savings result when they are applied than when attempts are made to
saver on other items of expenditure like wages and salaries which are about 16 p
ercent or overheads which may be 20 percent. By careful financial analysis, it i
s shown that a 5 percent reduction in material costs will result in increased pr
ofits equivalent to a 36 percent increase in sales.
8.2. DEFINITION OF INVENTORY AND INVENTORY CONTROL
The word inventory means a physical stock of material or goods or commodities or
other economic resources that are stored or reserved or kept in stock or in han
d for smooth and efficient running of future affairs of an organization at the m
inimum cost of funds or capital blocked in the form of materials or goods (Inven
tories).
Inventory Control
355
The function of directing the movement of goods through the entire manufacturing
cycle from the requisitioning of raw materials to the inventory of finished goo
ds in an orderly manner to meet the objectives of maximum customer service with
minimum investment and efficient (low cost) plant operation is termed as invento
ry control.
8.2.1. Classification of Inventories Inventories may be classified as those whic
h play direct role during manufacture or which can be identified on the product
and the second one are those which are required for manufacturing but not as a p
art of production or cannot be identified on the product. The first type is labe
led as direct inventories and the second are labeled as indirect inventories. Fu
rther classification of direct and indirect inventories is as follows: (A) Direc
t inventories (i) Raw material inventories: The inventory of raw materials is th
e materials used in the manufacture of product and can be identified on the prod
uct. In inventory control manager can concentrate on the (a) Bulk purchase of ma
terials to save the investment, (b) To meet the changes in production rate, (c)
To plan for buffer stock or safety stock to serve against the delay in delivery
of inventory against orders placed and also against seasonal fluctuations. (ii)
Work in process inventories or in process inventories: These inventories are of
semi finished type, which are accumulated between operations or facilities. As
far as possible, holding of materials between operations to be minimized if not
avoided. This is because; as we process the materials the economic value (added
labour cost) and use value are added to the raw material, which is drawn from st
ores. Hence if we hold these semi finished material for a long time the inventor
y carrying cost goes on increasing, which is not advisable in inventory control.
These inventories serves the following purpose: (a) Provide economical lot prod
uction, (b) Cater to the variety of products, (c) Replacement of wastages, (d) T
o maintain uniform production even if sales varies. (iii) Finished goods invento
ries: After finishing the production process and packing, the finished products
are stocked in stock room. These are known as finished goods inventory. These ar
e maintained to: (a) To ensure the adequate supply to the customers, (b) To allo
w stabilization of the production level and (c) To help sales promotion programm
e. (iv) Spare parts inventories: Any product sold to the customer, will be subje
cted to wear and tear due to usage and the customer has to replace the worn out
part. Hence the manufacturers always calculate the life of the various component
s of his product and try to supply the spare components to the market to help af
ter sales service. The use of such spare parts inventory is: (a) To provide afte
r sales service to the customer, (b) To utilize the product fully and economical
ly by the customer.
356
Operations Research
(iv) Scrap or waste inventory: While processing the materials, we may come acros
s certain wastages and certain bad components (scrap), which are of no use. Thes
e may be used by some other industries as raw material. These are to be collecte
d and kept in a place away from main stores and are disposed periodically by auc
tioning. (B) Indirect Inventories Inventories or materials like oils, grease, lu
bricants, cotton waste and such other materials are required during the producti
on process. But we cannot identify them on the product. These are known as indir
ect inventories. In our discussion of inventories, in this chapter, we only disc
uss about the direct inventories. Inventories may also be classified depending t
heir nature of use. They are: (i) Fluctuation Inventories: These inventories are
carried out to safeguard the fluctuation in demand, non delivery of material in
time due to extended lead time. These are some times called as Safety stock or
reserves. In real world inventory situations, the material may not be received i
n time as expected due to trouble in transport system or some times, the demand
for a certain material may increase unexpectedly. To safeguard such situations,
safety stocks are maintained. The level of this stock will fluctuate depending o
n the demand and lead time etc. (ii) Anticipation inventory: When there is an in
dication that the demand for company’s product is going to be increased in the com
ing season, a large stock of material is stored in anticipation. Some times in a
nticipation of raising prices, the material is stocked. Such inventories, which
are stocked in anticipation of raising demand or raising rises, are known as ant
icipation inventories. (iii) Lot size inventory or Cycle inventories :This situa
tion happens in batch production system. In this system products are produced in
economic batch quantities. It some time happens that the materials are procured
in quantities larger than the economic quantities to meet the fluctuation in de
mand. In such cases the excess materials are stocked, which are known as lot siz
e or cycle inventories. (iv) Transportation Inventories: When an item is ordered
and purchased they are to be received from the supplier, who is at a far of dis
tance. The materials are shipped or loaded to a transport vehicle and it will be
in the vehicle until it is delivered to the receiver. Similarly, when a finishe
d product is sent to the customer by a transport vehicle it cannot be used by th
e purchaser until he receives it. Such inventories, which are in transit, are kn
own as Transportation inventories. (v) Decoupling inventories: These inventories
are stocked in the manufacturing plant as a precaution, in case the semi finish
ed from one machine does not come to the next machine, this stock is used to con
tinue a production. Such items are known as decoupling inventories.
8.3. COSTS ASSOCIATED WITH INVENTORY
While maintaining the inventories, we will come across certain costs associated
with inventory, which are known as economic parameters. Most important of them a
re discussed below: (A) Inventory Carrying Charges, or Inventory Carrying Cost o
r Holding Cost or Storage Cost (C1) or (i%):
Inventory Control
357
This cost arises due to holding of stock of material in stock. This cost include
s the cost of maintaining the inventory and is proportional to the quantity of m
aterial held in stock and the time for which the material is maintained in stock
. The components of inventory carrying cost are: (i) Rent for the building in wh
ich the stock is maintained if it is a rented building. In case it is own buildi
ng, depreciation cost of the building is taken into consideration. Sometimes for
own buildings, the nominal rent is calculated depending on the local rate of re
nt and is taken into consideration. (ii) It includes the cost of equipment if an
y and cost of racks and any special facilities used in the stores. (iii) Interes
t on the money locked in the form of inventory or on the money invested in purch
asing the inventory. (iv) The cost of stationery used for maintaining the invent
ory. (v) The wages of personnel working in the stores. (vi) Cost of depreciation
, insurance. (vii) Cost of deterioration due to evaporation, spoilage of materia
l etc. (viii) Cost of obsolescence due to change in requirement of material or c
hanged in process or change in design and item stored as a result of becomes old
stock and become useless. (ix) Cost of theft and pilferage i.e. indenting for t
he material in excess of requirement. This is generally represented by C1 rupees
per unit quantity per unit of time for production model. That is manufacturing
of items model. For purchase models it is represented by i% of average inventory
cost. If we take practical situation into consideration, many a time we see tha
t the inventory carrying cost (some of the components of the cost) cannot be tak
en proportional to the quantity of stock on hand. For example, take rent of the
stores building. As and when the stock is consumed, it is very difficult to calc
ulate proportion of rent in proportion to the stock in the stores as the rent wi
ll not vary day to day due to change in inventory level. Another logic is that t
he money invested in inventory may be invested in other business or may be depos
ited in the bank to earn interest. As the money is in the form of inventory, we
cannot earn interest but loosing the expected interest on the money. This cost o
f money invested, is generally compared to the interest rate i% and is taken as
the inventory carrying cost. Hence the value of ‘i’ will be a fraction of a rupee an
d will be 0 < i < 1. In many instances, the bank rate of interest is somewhere b
etween 16 to 20 % and other components like salary, insurance, depreciation etc
may work out to 3 to 5 %. Hence, the total of all components will be around 22 t
o 25 % and this is taken as the cost of inventory carrying cost and is expressed
as i % of average inventory cost. (B) Shortage cost or Stock out cost (C2)
Some times it so happens that the material may not be available when needed or
when the demand arises. In such cases the production has to be stopped until the
procurement of the material, which may lead to miss the delivery dates or delay
ed production. When the organization could not meet the delivery promises, it ha
s to pay penalty to the customer. If the situation of stock out will occur very
often, then the customer may not come to the organization to place orders, that
is the organization is loosing the customers. In other words, the organization i
s loosing the goodwill of the customers. The cost of good will cannot be estimat
ed. In some cases it will be very heavy to such extent that the
358
Operations Research
organization has to forego its business. Here to avoid the stock out situation,
if the organization stocks more material, inventory carrying cost increases and
to take care of inventory cost, if the organization purchase just sufficient or
less quantity, then the stock out position may arise. Hence the inventory manage
r must have sound knowledge of various factors that are related to inventory car
rying cost and stock out cost and estimate the quantity of material to be purcha
sed or else he must have effective strategies to face grave situations. The cost
is generally represented as so many rupees and is represented by C2. (C) Set up
cost or Ordering cost or Replenishment Cost (C3) For purchase models, the cost
is termed as ordering cost or procurement cost and for manufacturing cost it is
termed as set up cost and is represented by C3. (i) Set up cost: The term set up
cost is used for production or manufacturing models. Whenever a job is to be pr
oduced, the machine is to set to produce the job. That is the tool is to be set
and the material is to be fixed in the jobholder. This consumes some time. Durin
g this time the machine will be idle and the labour is working. The cost of idle
machine and cost of labour charges are to be added to the cost of production. I
f we produce only one job in one set up, the entire set up cost is to be charged
to one job only. In case we produce ‘n’ number of jobs in one set up, the set up co
st is shared by ‘n’ jobs. In case of certain machines like N.C machines, or Jig boar
ding machine, the set up time may be 15 to 20 hours. The idle cost of the machin
e and labour charges may work out to few thousands of rupees. Once the machine s
et up is over, the entire production can be completed in few hours. If we produc
e more number of products in one set up the set up cost is allocated to all the
jobs equally. This reduces the production cost of the product. For example let u
s assume that the set up cost is Rs. 1000/ . If we produce 10 jobs in one set up
, each job is charged with Rs. 100/towards the set up cost. In case, if we produ
ce 100 jobs, the set up cost per job will be Rs. 10/ . If we produce, 1000 jobs
in one set up, the set up cost per job will be Re. 1/ only. This can be shown b
y means of a graph as shown in figure 8.1. (ii) Ordering Cost or Replenishment C
ost :The term Ordering cost or Replenishment cost is used in purchase models. Wh
enever any material is to be procured by an organization, it has to place an ord
er with the supplier. The cost of stationary used for placing the order, the cos
t of salary of officials involved in preparing the order and the postal expenses
and after placing the order enquiry charges all put together, is known as Order
ing cost. In Small Scale Units, this may be around Rs. 25/ to Rs. 30/ per orde
r. In Larger Scale Industries, it will be around Rs, 150 to Rs. 200 / per order
. In Government organizations, it may work out to Rs. 500/ and above per order.
If the organization purchases more items per order, all the items share the ord
ering cost. Hence the materials manager must decide how much to purchase per ord
er so as to keep the ordering cost per item at minimum. One point we have to rem
ember here, to reduce the ordering cost per item, if we purchase more items, the
inventory carrying cost increases. To keep inventory carrying cost under contro
l, if we purchase less quantity, the ordering cost increase. Hence one must be c
areful enough to decide how much to purchase? The nature of ordering cost can al
so be shown by a graph as shown in figure 8.1. If the ordering cost is C3 per or
der (can be equally applied to set up cost) and the quantity ordered / produced
is ‘q’ then the ordering cost or set up cost per unit will be C3/q is inversely prop
ortional to the quantity ordered, i.e. decreased with the increase in ‘q’ as shown i
n the graph 8.1.
Inventory Control
359
Figure 8.1 Nature of ordering cost.
(iii) Procurement Cost : These costs are very much similar to the ordering cost
/ set up cost. This cost includes cost of inspection of materials, cost of retur
ning the low quality materials, transportation cost from the source of material
to the purchaser‘s site. This is proportional to the quantity of materials involve
d. This cost is generally represented by ‘b’ and is expressed as so many rupees per
unit of material. For convenience, it always taken as a part of ordering cost an
d many a time it is included in the ordering cost / set up cost. (D) Purchase pr
ice or direct production cost This is the actual purchase price of the material
or the direct production cost of the product. It is represented by ‘p’. i.e. the cos
t of material is Rs. ‘p’ per unit. This may be constant or variable. Say for example
the cost of an item is Rs. 10/ item if we purchase 1 to 10 units. In case we p
urchase more than 10 units, 10 percent discount is allowed. i.e. the cost of ite
m will be Rs.9/ per unit. The purchase manager can take advantage of discount a
llowed by purchasing more. But this will increase the inventory carrying charges
. As we are purchasing more per order, ordering cost is reduced and because of d
iscount, material cost is reduced. Materials manager has to take into considerat
ion these cost – quantity relationship and decide how much to purchase to keep the
inventory cost at low level.
Points to be remembered
(i) Inventory cost increases with the quantity purchased. (ii) If we purchase mo
re items per order or produce more items per set up ordering cost or set up cost
per item decreases, stock out situation reduces and inventory carrying cost inc
reases and if discount is allowed on quantity purchased the material cost also r
educes. (iii) If we purchase less items per order or produce less items per set
up ordering cost per item or set up cost per item increases, stock out position
may increase which increases stock out costs, and inventory carrying cost decrea
ses. Quantity discounts may not be available.
360
Operations Research
8.4. PURPOSE OF MAINTAINING INVENTORY OR OBJECTIVE OF INVENTORY COST CONTROL The
purpose of maintaining the inventory or controlling the cost of inventory is to
use the available capital optimally (efficiently) so that inventory cost per it
em of material will be as minimum as possible. For this the materials manager ha
s to strike a balance between the interrelated inventory costs. In the process o
f balancing the interrelated costs i.e. Inventory carrying cost, ordering cost o
r set up cost, stock out cost and the actual material cost. Hence we can say tha
t the objective of controlling the inventories is to enable the materials manage
r to place and order at right time with the right source at right price to purch
ase right quantity. The benefits derived from efficient inventory control are: (
i) It ensures adequate supply of goods to the customer or adequate of quantity o
f raw materials to the manufacturing department so that the situation of stock o
ut may be reduced or avoided. (ii) By proper inventory cost control, the availab
le capital may be used efficiently or optimally, by avoiding the unnecessary exp
enditure on inventory. (iii) In production models, while estimating the cost of
the product the material cost is to be Added. The manager has to decide whether
he has to take the actual purchase price of the material or the current market p
rice of the material. The current market price may be less than or greater than
the purchase price of the material which has been purchased some period back. Pr
oper inventory control reduces such risks. (iv) It ensures smooth and efficient
running of an organization and provides safety against late delivery times to th
e customer due to uncontrollable factors. (v) A careful materials manager may ta
ke advantage of price discounts and make bulk purchase at the same time he can k
eep the inventory cost at minimum. (vi) It enables a manager to select a proper
transportation mode to reduce the cost of transportation. (vi) Avoids the chance
s of duplicate ordering. (vii) It avoids losses due to deterioration and obsoles
cence etc. (viii) Causes of surplus stock may be controlled or totally avoided.
(ix) Proper inventory control will ensure the availability of the required mater
ial in required quantity at required time with the minimum inventory cost. Thoug
h many managers consider inventory as an enemy as it locks up the available capi
tal, but by proper inventory control they can enjoy the benefits of inventory co
ntrol and then they can realize that the inventory is a real friend of a manager
in utilizing the available capital efficiently. 8.5. OTHER FACTORS TO BE CONSID
ERED IN INVENTORY CONTROL
There are many factors, which have influence on the inventory, which draws the a
ttention of an inventory manager, they are: (i) Demand The demand for raw materi
al or components for production or demand of goods to satisfy the needs of the c
ustomer, can be assessed from the past consumption/supply pattern of material or
goods. We find that the demand may be deterministic in nature i.e., we can spec
ify that the demand for the item is so many units for example say ‘q’ units per unit
of time. Some times we find that the
Inventory Control
361
demand for the item may be probabilistic in nature i.e. we have to express in te
rms of expected quantity of material required for the period. Also the demand ma
y be static, i.e. it means constant for each time period (uniform over equal per
iod of times). Further, the demand may follow several patterns and so why it is
uncontrolled variable, such as it may be uniformly distributed over period or in
stantaneous at the beginning of the period or it may be large in the beginning a
nd less in the end etc. These patterns directly affect the total carrying cost o
f inventory. (ii) Production of goods or Supply of goods to the inventory The su
pply of inventory to the stock may deterministic or probabilistic (stochastic) i
n nature and many a times it is uncontrollable, because, the rate of production
depends on the production, which is once again depends on so many factors which
are uncontrollable / controllable factors. Similarly supply of inventory depends
on the type of supplier, mode of supply, mode of transformation etc. The proper
ties of supply mode have its effect in the level of inventory maintained and inv
entory costs. (iii) Lead time or Delivery Lags or Procurement time Lead time is
the time between placing the order and receipt of material to the stock. In prod
uction models, it is the time between the decision made to take up the order and
starting of production. This time in purchase models depends on many uncontroll
able factors like transport mode, transport route, agitations etc. It may vary f
rom few days to few months depending on the nature of delay. The materials manag
er has to refer to the past records and approximately estimate the lead period a
nd estimate the quantity of safety stock to be maintained. In production models,
it may depend on the labour absenteeism, arrival of material to the stores, pow
er supply, etc. (iv) Type of goods The inventory items may be discrete or contin
uous. Some times the discrete items are to be considered as continuous items for
the sake of convenience. (v) Time horizon The time period for which the optimal
policy is to be formulated or the inventory cost is to be optimized is generall
y termed as the Inventory planning period or Time horizon. This time is represen
ted on X axis while drawing graphs. This time may be finite or infinite. (vi)
Safety stock or Buffer stock Whatever care taken by the materials manager, one c
annot avoid the stock out situation due to many factors. To avoid the stock out
position the manager some times maintains some extra stock, which is generally k
nown as Buffer Stock, or Safety Stock. The level of this stock depends on the de
mand pattern and the lead time. This should be judiciously calculated because, i
f we stock more the inventory carrying cost increases and there is chance of pil
ferage or theft. If we maintain less stock, we may have to face stock out positi
on. The buffer stock or safety stock is generally the consumption at the maximum
rate during the time interval equal to the difference between the maximum lead
time and the normal (average) lead time or say the maximum, demand during lead t
ime minus the average demand during lead time. Depending on the characteristics
above discussed terms, different types of inventory models may be formulated. Th
ese models may be deterministic models or probabilistic model depending on the d
emand pattern. In any inventory model, we try to seek answers for the following
questions: (a) When should the inventory be purchased for replenishment? For exa
mple, the inventory should be replenished after a period ‘t’ or when the level of th
e inventory is qo
362
Operations Research
(b) How much quantity must be purchased or ordered or produced at the time of re
plenishment so as to minimize the inventory costs? For example, the inventory mu
st be purchased with the supplier who is supplying at a cost of Rs. p/ per unit
. In addition to the above depending on the data available, we can also decide f
rom which source we have to purchase and what price we have to purchase? But in
general time and quantity are the two variables, we can control separately or in
combination.
8.6. INVENTORY CONTROL SYSTEMS
There are various methods of controlling inventory. In this section, let us cons
ider some of the important methods of controlling the inventory. They are listed
below: (a) p System or Fixed Period System, (b) q System or Fixed quantity
system, These are also known as perpetual inventory control Systems. (c) pq Sy
stem, (d) ABC Analysis, (e) VED Analysis, (f) XYZ Analysis, (g) FNSD analysis, (
h) Economic Order Quantity. (In manufacturing models, this is known as Economic
Batch Quantity.)
}
(a) p System or Fixed Period System In this system inventory is replenished at
fixed intervals, say for example every first of the month or every15th of the m
onth and so on. The quantity we order depends on rate of consumption in that per
iod. For example if 20 units are consumed in the first period, we place order fo
r 20 pieces, if 40 pieces are consumed in the 2nd cycle, order will be placed fo
r 40 units and so on. Here period of ordering is constant and the quantity order
ed per order will differ. Hence it is known as fixed period system. This is show
n in figure 8.2. (b) q System or Fixed Quantity System Against to p system,
here the quantity ordered per order is constant but the period of placing order
will differ. Every time we place the order for the same quantity. This system is
also known as Two Bin System. A bin means a container. There will be two contai
ners of same capacity; in which the material is stored. Once the material in one
of the bin is consumed completely, then order is placed for the quantity consum
ed (i.e. capacity of the bin). The time required to consume all the material in
the bin depends on the rate of demand. Depending on the demand to empty the bin,
it may take 15 days or 20 days or any number of days. Here the order is placed
for the material as soon as one of the bins becomes empty. This depends on the r
ate of demand. Depending on the rate of consumption, the time of placing will de
fer, but each time the order is placed for the same quantity (i.e. the capacity
of the bin). Many a time we find that there will be no bins, but the order quant
ity is marked on the bin cards. As soon as the level of the inventory reaches th
e order quantity, the order is placed for the material. The principle is shown i
n figure 8.3. In figure, qo is the order quantity and it is placed at periods t1
,t2, and t3 depending on the rate of demand. This system is recommended for high
consumption ‘A’ class
Inventory Control
363
items. The items in this class are few and it is worthwhile to have a continuous
scrutiny of inventory. Continuous monitoring through computer is necessary for
this as orders for replenishment are placed as soon as physical stock reaches th
e re order level. q – system requires a continuous review of the inventory. It req
uires the maintenance of kardex system for stocks and timely entries of receipts
and issues.
Figure 8.2. Fixed Period System.
Figure 8.3 Fixed order quantity.
364
Operations Research
In figure 8.2 q1, q2 and q3 are the different quantities to be ordered at period
to depending on the demand rate r1, r2 and r3. This system is not recommended f
or ‘A’ class items but it is very useful in controlling the inventory of ‘B’ and ‘C’ class
tems.
(c) pq System or / Optional Replenishment System In some situations the cost o
f reviewing the inventory such as stock of certain chemicals where expert survey
ing is necessary to assess the stocks is high. Further, in some other context th
e cost of ordering is very significant. In such cases, the Optimal Replenishment
model can be applied. When the stock on hand and stock on order falls below cer
tain level (say ‘s’) then an order is placed enough to bring the stock up to a level
‘S’. Here ‘s’ represents re order level and ‘S’ denotes the desired inventory level. The r
view time also influences the order level ‘s’. In such situations, we can apply a co
mbination of ‘p’ and ‘q’ system which is known as ‘pq system or Optional Replenishment Sys
tem. This system is useful in case of bulk chemicals, pig iron etc. In fact no c
ompany will follow one particular system. Depending on the type of material, and
need, they use either p – system or q system or a combination of ‘p’ and ‘q’ system. (d)
ABC Analysis of Inventory This is sometimes known as Always Better Control. Thi
s system of control is also known as Selective Approach System. In ABC system of
inventory control, the materials are classified depending on their turnover and
annual consumption cost. A Class Items These items are less in number, but co
nsumes large portion of the total inventory investment. Here annual consumption
cost is important than the unit cost of the material. For example let us conside
r, two materials Material X and material Y. The unit cost of material X is Re.1/
and annual consumption is 1000 units. The unit cost of material Y is Rs.200 an
d the annual consumption is 3 units. Then annual consumption cost of material X
is Rs.1000/ and that of Y is Rs. 600/ . Here Material X is considered as high c
onsumption cost material than Y. Like that in any industry, we may find that the
re will be certain Items which are few in number but they consume nearly 70 % of
inventory cost. Such items are classified as ‘A’ class items. There will be certa
in materials, whose total annual consumption cost will be somewhere inbetween 20
to 25 % of total inventory investment. These items are labeled as ‘B’ class items
. These items will form 60 percent of number of items stored. The last class of
items which are labeled as ‘C’ class items, will be large in number may be 30 to 3
5 % of total number of items stored, but consumes only 5 to 10 % total inventory
investment. Hence we can say that A Class items are less in number and consum
es more money, B Class items are medium in number and consumes 20 to 25 % inve
ntory investment and C Class items are large in number and consumes only 5 to
10 percent of inventory investment. This can be shown by means of a graph as sho
wn in figure 8.4. In fact ABC analysis cannot be restricted to inventory only. T
his ABC analysis is an extension to Pareto’s 80 20 rule. The 80 20 rules state
s that 80 % countries economy is controlled by 20% of people. Let us take for ex
ample the monthly bill of an organization. Let us say it will workout to Rs. 10,
00,000/ If we classify according to ABC rule, we see that 70 percent of the bil
l i.e. 7,00,000/ will be the bill of few people say some 10 percent of the offi
cers. Next 2,00,000/ belongs to 40 percent of the people. And the balance of Rs
. 1,00,000 belongs to rest 50% of the workers.
Inventory Control
365
Similarly all the unrest in any organization or in a county is due to only 20% p
ercent of the staff or population, which once again supports Pareto rule. Hence
this rule i.e. Pareto rule or ABC rule can be applied to any situation where sel
ective classification is possible. The point to remember here is ABC analysis de
pends on annual consumption cost and not on unit cost of material.
Figure 8.3 ABC Graph.
‘A’ class items needs the attention of higher officials and demand extreme control r
egarding the cost. As they consume 70% of money even 10 % saving through bargain
ing or inventory control techniques, the savings will be worthwhile. ‘B’ Class items
require the attention of middle level managers as they consume 20 to 25 % of in
vestment on inventory. Where as ‘C’ class items is left to the control of lower offi
cials. Procedure for ABC analysis 1. List out all items in stores along with the
ir unit price and annual consumption. 2. Calculate the annual consumption cost o
f each item, which is given by multiplying the quantity consumed in the time per
iod and the unit cost. If ‘q’ is the quantity consumed in the time period and ‘p’ is the
unit price then annual consumption value = q × p = qp. 3. Rearrange the list in t
he descending order of the annual consumption cost. i.e. highest cost at the top
and next highest is the second and so on and the last item is the lowest consum
ption value item.
366
Operations Research
4. Calculate the cumulative total of annual consumption value. 5. Find the paren
tage of each cumulative value with respect to the total cost of inventory. 6. Ma
rk a line at 70%, 90% and at 100%. All the items covered by 70% line are ‘A’ class i
tems, those which are covered between 70% line and 90% line are ‘B’ class items and
those are covered by 90% and 100 % are ‘C’ class items.
Problem 8.1.
The details of material stocked in a company are given below with the unit cost
and the annual consumption in Rs. Classify the material in to A class, B class a
nd C class by ABC analysis.
S.No. 1 2 3 4 5 6 7 8 9 10 Item Code No. 501 502 503 504 505 506 507 508 509 510
Annual consumption in pieces 30,000 2,80,000 3,000 1,10,000 4,000 2,20,000 15,0
00 80,000 60,000 8,000 Unit price in Paise. 10 15 10 05 05 10 05 05 15 10
Solution
First let us find the annual usage value for each item (unit price × annual usage)
and rank them in descending order.
S.No. Item Code No. (A) 501 502 503 504 505 506 507 508 509 510 Annual consumpti
on in pieces (B) 30,000 2,80,000 3,000 1,10,000 4,000 2,20,000 15,000 80,000 60,
000 8,000 Unit price in paise (C) 10 15 10 05 05 10 05 05 15 10 Annual usage val
ue D=B×C 3,000 42,000 300 5,500 200 22,000 750 4,000 9,000 800 Rank.
1 2 3 4 5 6 7 8 9 10
6 1 9 4 10 2 8 5 3 7
Inventory Control
367
List the items in their descending order of annual consumption value, find the c
umulative value of annual consumption value and find the percentage of cumulativ
e value with respect to total inventory value. Draw lines at 70%, 90% and at 100
%.
Rank. 1 2 3 4 5 6 7 8 9 10 Item No. 502 506 509 508 504 501 510 507 503 505 Annu
al Usage Rs. 42,000 22,000 9,000 5,500 4,000 3,000 800 750 300 200 Cumulative An
nual usage 42,000 64,000 73,000 78,500 82,500 85,500 86,300 87,050 87,350 87,550
Cumulative Annual usage Percentage. 48 73 83 90 94 98 98.6 99.4 99.6 100 Percen
tage of items. 10 20 30 40 50 60 70 80 90 100 Category. A A B B B B C C C C
Graph for the problem:
Figure 8.4. ABC graph for the problem.
In A class we have 2 items consuming 73% of the amount and in B class, we have 4
items consuming 25% of the amount and in C class, we have 4 items consuming abo
ut 2% of the inventory investment.
368
Operations Research
Problem 8.2
A sample of inventory details is given below. Conduct ABC analysis and classify
them into three categories.
Item A B C D E F G H I J Annual consumption 300 2,800 30 1,100 40 220 1,500 800
600 80 Price per unit in paise. 10 15 10 05 05 100 05 05 15 10
Solution
Usage Value in Descending Order (Unit price × Annual consumption) Rs. 2 420 220 90
75 55 40 30 8 3 2 Cumulative Number of Items 3 1 2 3 4 5 6 7 8 9 10 % of number
or items 4 10 20 30 40 50 60 70 80 90 100
Item
Cumulative Usage value 5 420 640 730 805 860 900 930 938 941 943
% Cumulative value. 6 44.50 67.79 77.41 85.37 91.20 95.44 98.62 99.47 99.79 100.
00
1 B F I G D H A J C E
Inventory Control
369
The above data is plotted on a graph (Figure 8.5).
Figure 8.5 ABC Graph.
Class of items A B C
Name of the item B and F I and G D, B, A, J, C, E.
% of usage value 67.49 17.58 14.63
% of items. 20 20 60
Problem 8.3.
Classify the following materials into A, B, and C groups.
Item No: Annual Usage in Rs. (x 1000) 1 36 2 14 3 75 4 37 5 11 6 16 7 32 8 08 9
95 10 04
Solution
Item No. 9 3 4 1 7 6 2 5 8 10 Annual Usage In Rs. 95,000 75,000 37,000 36,000 32
,000 16,000 14,000 11,000 8,000 4,000 Accumulated Usage in Rs. 95,000 1,70,000 2
,07,000 2,43,000 2,75,000 2,91,000 3,05,000 3,16,000 3,24,000 3,28,000 Cumulativ
e Percentage Usage (%) 28.96 51.82 63.10 74.08 83.84 88.71 92.98 96.34 98.78 100
.00 Cumulative Percentage Of items (%) 10 20 30 40 50 60 70 80 90 100 Group A A
A A B B B B C C
370
Operations Research
Figure 8.6 ABC Graph.
Problem 8.4.
From the data given below classify the items into ABC groups:
Item No. 1 2 3 4 5 6 7 8 9 10 11 12 No. of units 7,000 24,000 1,500 600 38,000 4
0.000 60,000 3,000 300 29,000 11,500 4,100 Unit price in Rs. 5.00 3.00 10.00 22.
00 1.50 0.50 0.20 3.50 8.00 0.40 7.10 6.20 Usage value in Rs. 35,000 72,000 15,0
00 13,200 57,000 20,000 12,000 10,500 2,400 11,600 81,650 25,420
Solution
From the given data, we can work out Annual usage values and Cumulative annual u
sage values of the items and percentage of items and mark in which each item fal
ls.
Inventory Control
371
Item No. 11 2 5 1 12 6 3 4 7 10 8 9
Cumulative % of items 8.3 16.6 25.0 33.3 41.6 50.0 58.3 66.6 75.0 83.3 91.6 100.
0
Usage Value in Rs. 81,650 72,000 57,000 35,000 25,420 20,000 15,000 13,200 12,00
0 11,600 10,500 2,400
Cumulative Usage value In Rs. 81,650 1,53,650 2,10,650 2,45,650 2,71.070 2,91,07
0 3,06,070 3,19,270 3,31,270 3,42,870 3,53,370 3,55,770
Cumulative Percentage 23.0 43.2 59.2 69.0 76.2 81.8 86.0 89.7 93.1 96.4 99.3 100
.00
Group in Which item Falls. A A A A B B B B C C C C
The ABC Graph is shown in Figure 8.7.
Figure 8.7 ABC Graph.
372
Operations Research
( c)
VED analysis (Vital, Essential, Desirable Analysis)
We have seen that ABC Analysis depends on the annual consumption value but not o
n the unit price of the item. In VED analysis the criticality of the item is mos
t important than the cost factor of the item. Here V stands for Vital items, E s
tands for Essential items and D stands for Desirable items. The criticality may
be of two types i.e. (a) Technical criticality and (b) Environmental criticality
. (i) Vital items V items are more critical in nature, that is, without which th
e system cannot run. In absence of critical items the organization has to come t
o stand still and it cannot keep up delivery promises. The idle cost and the pen
alty for not meeting the delivery promises may be a very big loss to the organiz
ation. Say for example in an automobile, a clutch wire, spare tyre, are critical
items. It is because while we are on road, if clutch wire fails, then it is ver
y difficult to drive the vehicle and we have to stop the vehicle until it is rep
laced. Similarly if any one tyre punctures, unless it is repaired we cannot run
the vehicle, hence by replacing the punctured tyre by spare tyre we can drive th
e vehicle. One more example of vital items say for example for an officer who is
working in forest area, the scorpion medicine or medicine for snake bite is mor
e critical and he must have a stock of it for the use in emergency. But for a pe
rson who is living in a multistoried building in a posh locality of a city it is
not vital item. So criticality of item depends on the nature of requirement. An
other example of this is for a man who is suffering from heart problem, the medi
cine required for heart attack is so vital that he must always have it in his po
cket to avoid the casuality due to non availability of the medicine. For a healt
hy man it is not vital to have a stock of the same pills. Hence the Vital situat
ion varies from industry toindustry, person to person and situation to situation
. (ii) Essential items Such items, which when demand arises are not available, t
hey may not stop the operation of the system, but they reduces the efficiency of
the system. Say for example, for a automobile vehicle, horn, head light bulb ar
e essential item. If they are not there, the vehicle still can be run but with r
isk. For a family the pain balms, headache medicine, are essential items. Even w
ithout them they can work but with less efficiency. If they are available, they
can apply the balm or take medicine and get relieved of the pain and work effici
ently. (iii) Desirable items These items are of the nature, if they are not avai
lable, they will not stop the system from working nor they reduce the efficiency
of the system. But it is better to have them in stock to run the system without
any difficulty. The VED analysis as said above depends on the criticality of th
e item and not on the cost – either unit cost or annual consumption value. Dependi
ng on the criticality and demand of the item one has to decide how much the stor
es manager has to stock the material. This is particularly important in capitali
ntensive process industries and in case of stock controlling of spare parts requ
ired for maintenance. This analysis also helpful in stocking of raw materials wh
ich are rarely available and which have demand in manufacturing the products. An
y materials manager has to consider both the cost factor and criticality of item
while deciding how much to stock. Especially while dealing with spare parts for
maintenance, the service level of different class of spares depending on the co
st and criticality can be understood from the matrix given below: The matrix sho
ws that vital and A class items must have 90% service level i.e. 90% of the time
they must be available.
Inventory Control
373
V A B C 90% 95% 99%
E 80% 85% 90%
D 70% 75% 80%
C class and desirable items must be available 80% of time. The other way of pres
enting the same thing is as given below:
V A B C Regular stock with constant control Medium Stock High stock E Medium sto
ck Medium Stock Medium stock D No Stock. Very Low stock Low stock
(d )
XYZ Analysis based on the inventory value
In ABC analysis we have seen the analysis depends on the annual consumption valu
e of the item. In XYZ Analysis classification is made on the closing Inventory
value of the item. By wrong purchase policy there might be an excess stock at t
he year ending stock verification. This shows that unnecessarily inventory is ly
ing in the stores i.e. money is simply locked in the form of inventory, without
any use. If we combine ABC analysis with XYZ analysis, we can get more benefits
and unnecessary stock may be reduced.
X A B C Attempt to reduce the stock Review stock and consumption More often Disp
ose of the surplus items Check and maintain the Control. Review annually. Y Atte
mpt to convert Z items. Items are with in control Z Items are with in control Re
view bi annually.
( e)
FNSD Based on usage rate of items
This classification of items depends on the usage rate of the items or movement
of the items. Here F stands for Fast moving items, N for Normal moving items, S
for slow moving items and D for Dead items. This analysis is useful in optimal u
tilization of storage area or space available for storing the materials. This al
so helps in saving the issue time of material. This analysis is useful to combat
obsolete items. While classifying the items the demand and issue pattern studie
d carefully. The items, which have high demand and frequently indented, are kept
very nearer to storekeeper, so that the handling time is reduced. Slow moving i
tems or item, which have low demand, can be kept at a distance so that they will
not cause inconvenience for the movement of store personnel. D class items are
moved to disposal cell, to dispose by auction. We can combine FNSD analysis with
XYZ analysis to get more benefits. All the above analysis techniques are termed
as selective control technique. On next page, given is the summary of the selec
tive control techniques.
374
Operations Research
S.No 1
Selective control technique ABC
Basis of classification Annual consumption value
Main Use. Controlling raw material components and work in process inventory. Det
ermining the inventory levels of spare parts. Reviewing the inventories and othe
r uses Controlling obsolescence.
2 3 4
VED XYZ FNSD
Criticality of item. Value of items in storage Consumption rate or Movement of i
tems.
Before discussing Economic Order Quantity (EOQ) model let us discuss certain asp
ects, which are important to understand the model. The inventory system may be c
lassified depending on the nature of variables. The variables are various costs,
such as Carrying cost (C1), Shortage cost (C2), Ordering Cost (C3), demand, Lea
d time, Reorder cycle time, Input rate and shortages. The cost elements C1, C2,
and C3 per time period and the unit price of the item may be constant or variabl
e in an inventory system. Demand may be known and constant (static) or known and
variable (dynamic) or it may be estimated one in an inventory system. Lead time
may be zero or it may be known or it may be estimated one. Re order cycle time
may be known constant or known and variable or it may be estimated one. Input ra
te may be instantaneous or it may be finite. Shortages may be allowed or not all
owed. If allowed, it may be back logged, or lost sales. Inventory models may als
o be classified as follows:
Deterministic Models (Known demand) INVENTORY MODELS Stochastic or Probabilistic
demand Profit maximization
Elementary Models
EOQ with EOQ models with EOQ Models Cost with restrictions. Lead time Price brea
k or minimization (Multi item model) Quantity discounts Reorder level models wit
h Shortages Stationary Demand
EOQ Model with Shortages
Non Stationary Discrete Continuous Items Demand Items
Instantaneous Production
Finite Finite Instantaneous Production Production Production rate rate
No setup cost discrete or Continuous items Instantaneous demand Lead zero or Fix
ed
No setup cost discrete or continuous items Uniform demand, Lead time Zero or Fix
ed
Inventory Control
375
Notations used in the models
q = Lot size for one time interval for purchase models and for one run or cycle
for manufacturing model. r = Rate of demand or quantity required for one unit of
time. k = The rate of production or rate of supply of items to the inventory or
rate of replenishment of inventory. S = Level of inventory. z = A level of inve
ntory of short items i.e. unsatisfied demand. t = Time interval between two cons
ecutive replacements of inventory. C (q) = Total inventory cost per unit of time
as a function of level of inventory, q. T = Time period in units for which the
optimal policy is to be determined or Time horizon. R = The total replenishment
for the time T. p (r) = Probability density function for ‘r’, in case of discrete it
ems of quantity. f (r) = Probability density function for ‘r’, in case of continuous
units of quantity. q0, t0 , S0 = Optimal values of q, t, S respectively, i.e. t
he value for which the cost is minimum.
8.7. INVENTORY MODELS: DETERMINISTIC MODELS 8.7.1. Economic Lot Size Models or E
conomic Order Quantity models (EOQ models) with uniform rate of demand
F. Harries first developed the Economic Order Quantity concept in the year 1916.
The idea behind the concept is that the management is confronted with a set of
opposing costs like ordering cost and inventory carrying costs. As the lot size ‘q’
increases, the carrying cost ‘C1’ also increases while the ordering cost ‘C3’ decreases
and vice versa. Hence, Economic Ordering Quantity – EOQ is that size of order th
at minimizes the total annual (or desired time period) cost of carrying inventor
y and cost of ordering under the assumed conditions of certainty and that annual
demands are known.
8.7.2. Economic Order Quantity by Trial and Error Method
Let us try to workout Economic Order Quantity formula by trial and error method
to understand the average inventory concept. The steps involved are: 1. Select t
he number of possible lot sizes to purchase. 2. Determine total cost for each lo
t size chosen. 3. Calculate and select the order quantity that minimizes total c
ost. While working the problems, we will consider Average inventory concept. Thi
s is because, the inventory carrying cost which is the cost of holding the inven
tory in the stock, cannot be calculated day to day as and when the inventory lev
el goes on decreasing due to consumption or increases due to replenishment. For
example, let us say the rent for the storeroom is Rs.500/ and we have an invent
ory worth Rs. 1000/ . Due to daily demand or periodical demand the level may var
y and it is practically difficult to calculate the rent depending on the level o
f inventory of the day. Hence what we do is we use average inventory concept. Th
is means that at the beginning of the cycle the level of inventory is Worth Rs.
1000/ and at the end of the cycle, the level is zero. Hence we can take the ave
rage of this two i.e. (0 + 1000) / 2 = 500. Let us take a simple example and see
how this will work out.
376
Operations Research
Demand for the item: 8000 units. (q) Unit cost is Re.1/ (p) Ordering cost is Rs
. 12.50 per order, (C3) Carrying cost is 20% of average inventory cost. (C1)
Number or Orders Per year 1 2 4 8 12 16 32 Lot size q 8000 4000 2000 1000 667 50
0 50 Average Inventory q/2 4000 2000 1000 500 323 250 125 Carrying Charges C1 =
0.20 (Rs) 800 400 200 100 66 50 25 Ordering Cost C3 (Rs) 12.50 25.00 50.00 100.0
0 150.00 200.00 400.00 Total cost (Rs.) 812.50 425.00 250.00 200.00 216.00 250.0
0 425.00
Observe the last column. The total cost goes on reducing and reaches the minimum
of Rs. 200/and then it increases. Also as lot size goes on decreasing, the carr
ying cost decreases and the ordering cost goes on increasing. Hence we can say t
he optimal order quantity is 1000 units and optima number of orders is 8. See at
the optimal order quantity of 1000 units, both ordering cost and inventory cost
s are same. Hence we can say that the optimal order quantity occurs when orderin
g cost is equal to the inventory carrying cost. This we can prove mathematically
and illustrate by a graph. This will be shown in the coming discussion. It is n
ot always easy to work for economic order quantity by trial and error method as
it is difficult to get exact quantity and hence we may not get that ordering cos
t and inventory carrying costs equal. Hence it is better to go for mathematical
approach.
8.7.3. Economic Lot Size (for manufacturing model) or Economic Order Quantity (E
OQ for purchase models) without shortage and deterministic Uniform demand
When we consider a manufacturing problem, we call the formula as Economic Lot Si
ze (ELS) or Economic Batch Quantity (EBQ). Here the quantity manufactured per ba
tch is lot size (order quantity in manufacturing model), fixed charges or set up
cost per batch, which is shared by all the components manufactured in that batc
h is known as Set up cost (similar to ordering cost, as the cost of order is sha
red by the items purchased in that order), the cost of maintaining the in proces
s inventory is the inventory carrying charges. Here a formula for economic lot s
ize ‘q’ per cycle (production run) of a single product is derived so as to minimize
the total average variable cost per unit time. Assumptions made: 1. Demand is un
iform at a rate of ‘r’ quantity units per unit of time. 2. Lead time or time of repl
enishment is zero (some times known exactly). 3. Production rate is infinite, i.
e. production is instantaneous. 4. Shortages are not allowed. (i.e. stock out co
st is zero). 5. Holding cost is Rs. C1 per quantity unit per unit of time. 6. Se
t up cost is Rs. C3 per run or per set up.
Inventory Control
377
By trial and error method we have seen that economic quantity exists at a point
where both ordering cost and inventory carrying cost are equal. This is the basi
s of algebraic method of derivation of formula.The figure 8.8 shows the lot size
‘q’, uniform demand ‘r’ and the pattern of inventory cycle.
Figure 8.8. Deterministic uniform demand with no shortages.
Total inventory in one cycle i.e. for one unit of time = Area or triangle OAB = ½
the base (t) × altitude (q) = ½ × q × t = ½ qt {This can also be done mathematically by us
ing calculus. At any time ‘t’ from the beginning of the cycle (where ‘t’ does not repres
ent the time of one cycle), the inventory = (q – rt). Hence the total inventoryin
the small time interval t to (t + δt ) is q- rt) × δt . Summing over the perio ‘t’ of on
e cycle, the total inventory in one cycle is: =
∫ (q − rt ) dt == [qt − rt
0
t
2
/ 2]
= [qt − ½ rt 2 ] = qt − ½ t × rt
= As we know q = rt, we can write as qt – ½ qt = ½ qt.} Carrying cost for ‘t’ units of tim
e = ½ qt × C1 Set up cost for one cycle is C3 Hence total cost for one unit of time
= carrying cost + ordering cost = ½ qt C1 + C3 Total cost per unit of time = Cq =
{½ qtC1 + C3} / t = ½ q C1 + C3/t (We know that q = rt hence t = q/r), substituting
this for t in the above equation, we get Cq = ½ q C1 + C3r/q this is known as CO
ST EQUATION. (Note: For any inventory model, first we have to get this cost equa
tion and then we have to optimize)
378
Operations Research
The optimum value of ‘q’, which minimizes Cq, is obtained by equating the first deri
vative of Cq with respect to ‘q’ to zero. dCq/dq = ½ C1 – C3r/q2 = 0 ½ C1 = C3r/q2 or q2C1
/2 = C3r or q2 = 2 C3r / C1 or qo = 2C3 r/C1 This is the formula for economic lo
t size or economic batch size. This is also known as Harri’s formula or Wilson for
mula or square root formula. q0 in manufacturing model is abbreviated as EBQ, Ec
onomic Batch Quantity. Note: Here we can show that EBQ exists at a point where c
arrying charges are equal to ordering cost. From the above derivation we have: ½ C
1 = C3r / q2 This can be written as ½ q C1 = C3 x (r/q). = Average inventory × C1 =
ordering cost x number of orders. Now r is the demand and the q is the lot size.
Hence r/q gives us number of batches in manufacturing model and number of order
s in purchase models. Ordering cost C3 x number of batches or set ups gives us t
otal set up cost in manufacturing model. (In purchase model, number of orders × or
dering cost C3 gives us total ordering cost). ½ q is the average inventory and mul
tiplied by carrying cost C1 gives us total inventory carrying cost. Hence it is
concluded that the Economic Batch Size (or Economic Order Quantity in purchase m
odel) exists at a point where inventory carrying cost is equal to ordering cost.
We know that q = rt, i.e. t = q/r hence q0 = t0 /r or t 0 = q0 × r
Therefore, by multiplying the Squre root formula by ‘r’ we get t0 = 2C3 / C1r To fin
d optimal batch quantity the variable ‘r’ will be in the numerator of EBQ formula an
d when we want to find Optimal time of starting the batch in manufacturing model
or optimal order time in purchase model, the variable ‘r’ will be in denominator of
EBQ formula. Similarly, we can find the optimal cost C0 = {½ 2C3 r / C1} × C1 + rC3
×
{C1 / 2C3 r
= ½ ( 2C1C3 r ) + ½ (2C1C3 r ) = C0 = ( 2C1C3 × r ) give us optimal cost. If we want t
o find the total cost we have to add material cost which is equal to q × unit pric
e (= p) = q × p. Total cost = Inventory carrying cost + material cost. Graphical r
epresentation of Total cost curve: (i) Behaviour of inventory carrying cost: As
the level of inventory goes on increasing, the inventory carrying cost goes on i
ncreasing as it solely depends on the size of the inventoy. (ii) The ordering co
st or set up cost per unit reduces with the increase in the number of orders. (i
ii) Total cost first goes on reducing and after reaching the minimum it goes on
increasing. In the first part, i.e. while it decreases, it has the influence of
ordering cost and in the latter part, i.e. while it is increasing, it has the in
fluence of inventory carrying cost. (iv) When curves are drawn, both carrying co
st curve and ordering cost curve will intersect at a point. This point lies exac
tly where the lowest total cost appears on the graph.This is shown in the figure
8.9.
Inventory Control
379
The figure 8.9 shows the cost curve. It consists of carrying cost curve, which i
s a straight line, ordering cost line, which is hyperbolic, and the total cost c
urve drawn with the sum of carrying cost and ordering cost. We can see that the
curve is not pointed at minima, but it is flat. This shows that optimal order qu
antity varies over the significant range of flat curve (near q = q0). One more p
oint of importance is that changes in carrying and setup costs will give a small
change in optimal lot size ‘q’. Hence, we can conclude that using the approximate c
arrying cost we can obtain the EBQ or EOQ. Because of this fact, one can use app
roximate values of the costs and estimate the order quantity or batch quantity.
Summary of formulae
1. Economic Batch quantity or Economic Order Quantity =
(2 × ordering cost × demand rate) / Carrying cost. (2C3 × r ) / C1 =
Figure 8.9 Cost curves.
2. Optimal inventory cost =
2 × C1 × C3 × r =
( 2 × carrying cost × ordering cost × demand rate.)
3. Optimal order time = (2 × C3 ) / C1 × r = (2 × ordering cost) / (carrying cost × dema
nd rate). 4. Optimum number of orders: N0 = λ / q0 = Annua demand / optima order
quantity. The number of day’s supp y per optimum order is obtained by = d = 365 /
N0 = 365 / optimum number of orders.
380
Operations Research
Prob em 8.5. The demand for an item is 8000 units per annum and the unit cost is
Re.1/-. Inventory carrying charges of 20% of average inventory cost and orderin
g cost is Rs. 12.50 per order. Ca cu ate optima order quantity, optima order t
ime, optima inventory cost and number of orders.
So ution
Data: λ = 8000 units, p = Re.1/-, C1 = 20 % of average inventory or 0.20, Ordering
cost = Rs. 12.50 per order. q0 = units. C 0 = 2 × C1 × C 3 × λ = 2 × 0.02 × 1.00 × 12.50 ×
= 0.04 × 12.50 × 8000 = 4000 = Rs.200/Inventory carrying cost = (q/2) × p × C1 = (1000
/2) × 1.00 × 0.20 = Rs. 100/Tota ordering cost = Number of orders × ordering cost = (
Demand / q0) × C3 = (8000 / 1000) × 12.50 = Rs. 100/Tota inventory cost = Carrying
cost + ordering cost = Rs. 100 + Rs. 100 = Rs. 200/- (This is same as obtained b
y app ication of formu a for tota cost. Optima number of orders = Annua deman
d / optima order quantity = λ / q0 = 8000 / 1000 = 8 orders. Optima order period
= t0 = q0 / r = Optima order quantity / demand rate. = 1000 / 8000 = 1/8 of a
year. = 365 / 8 = 45.6 days = app 46 days. Tota cost inc uding materia cost =
Inventory cost + materia cost = Rs. 200 + Rs. 8000 = Rs. 8200/(2 × 12.50 × 8000) /
(1.00 × 0.20) = (16000 × 12.50) / 0.20 =
2,00,000 / 0.20 = 1000
Prob em 8.6.
For an item the production is instantaneous. The storage cost of one item is Re.
1/- per month and the set up cost is Rs. 25/- per run. If the demand for the ite
m is 200 units per month, find the optima size of the batch and the best time f
or the rep enishment of inventory.
So ution
Here we take one month as one unit of time. (Note: Care must be taken to see tha
t a the data given in the prob em must have same time base i.e. year / month/w
eek etc. If they are different, e.g. the carrying cost is given per year and the
demand is given per month, then both of them shou d be taken on same time base.
). Hence it is better to write date given in the prob em first with units and th
en proceed to so ve. Data: Storage cost: Re.1/- per month = C1, Set up cost per
run = Rs. 25/- per run, Demand = 200 units per month. Optima batch quantity = Ec
onomic Batch Quantity = EBQ = =
(2C3 r ) / C1 = ( 2 × 25 × 200) / 1
10,000
= 100 units. Optima time of rep enishment = T0 = q0 /r or
(2C3 ) / C1 × r = 100 /200 = ½ month = 15 days.
Inventory Contro
381
Optima cost = C0 = 2C1C3 r = 2 × 1× 25 × 200 = Rs. 100/- OR It can a so be found by T
ota cost = Carrying cost + Ordering cost = (q/2) × C1 + C3 × r/q = (100/2) × 1 + 25 × 2
00 / 100 = 50 + 50 = Rs. 100/-
Prob em 8.7.
A producer has to supp y 12,000 units of a product per year to his customer. The
demand is fixed and known and back ogs are not a owed. The inventory ho ding c
ost is Rs.0.20 per unit per month and the set up cost per run is Rs. 350/- per r
un. Determine (a) the optima ot size, (b) Optimum schedu ing period, (c) Minim
um tota expected year y cost.
So ution
Data: λ = Demand per year 12,000 units, C1 Rs. 0.20 per unit per month, C3 = Rs. 3
50/- per run. r = demand per month 12,000/12 = 1000 units. q0 = (2C3 × r ) / C1 =
( 2 × 350 × 1000) / 0.02 = 1870 units per batch. t0 = q0 / r = 1870 / 1000 = 1.87 mo
nth. = 8.1 weeks. C0 =
(2C3C1r )
=
( 2 × 0.20 × 350 × 1000) =
1,40,000 = Rs.374.16 = App Rs. 374/
Prob em 8.8.
A particu ar item has a demand of 9,000 units per year. The cost of one procurem
ent is Rs. 100/and the ho ding cost per unit is Rs. 2.40 per year. The rep aceme
nt is instantaneous and no shortages are a owed. Determine: (a) Economic ot si
ze, (b) The number of orders per year, (c) The time between orders, and (d) the
tota cost per year if the cost of one units is Re.1/-.
So ution
Data: λ = 9,000 units per year, C1 = Rs. 2.40 per year per unit, C3 = Rs. 100/- pe
r procurement. (a) q0 =
(2C 3λ ) / C1 = ( 2 × 100 × 9000) / 2.40 = 866 units per procurement.
(b) N = (1/t0) = (C1 × λ ) / 2 C3 = (2.40 × 9,000) / 2 x 100 = 108 = 10.4 orders per y
ear. This can a so be found by ( λ / q0) = 9000 / 866 = 10.39 = 10.4 orders per ye
ar. (c) t0 = 1 / N = 1 / 10.4 = 0.0962 years between orders. OR t0 = q0 / λ = 866
/ 9000 = 0.0962 year between orders. (= 35.12 days = App. 35 days.) (d) C0 = (2C
1C3 λ ) = (2 × 2.40 × 100 × 9000) = Rs. 2,080/Tota cost inc uding materia cost = 9000 ×
1 + 2,080 = Rs. 11, 080/- per year.
Prob em 8.9.
A precision engineering company consumes 50,000 units of a component per year. T
he ordering, receiving and hand ing costs are Rs.3/- per order, whi e the trucki
ng cost are Rs. 12/- per order. Further detai s are as fo ows: Interest cost Rs
. 0.06 per units per year. Deterioration and obso escence cost Rs.0.004 per unit
382
Operations Research
per year. Storage cost Rs. 1000/- per year for 50,000 units. Ca cu ate the econo
mic order quantity, Tota inventory carrying cost and optima rep acement period
.
So ution
Data: λ = 50,000 units per year. C3 = Rs. 3/- + Rs. 12/- = Rs. 15/- per order. C1
= Rs. 0.06 + 0.004 + 1000 / 50,000 per unit = Rs. 0.084 / unit. Hence, q0 = (2C3λ
) / C1 = 2 × 15 × 50000) / 0.084 = 4226 units. t0 = λ / q0 = 50000 / 4226 = 11.83 year
s. C0 =
2 × C3 × C1 × λ = 2 × 15 × 0.084 × 50,000) =
1,26,000 = Rs. 355/-
Prob em 8.10.
You have to supp y your customer 100 units of certain product every Monday and o
n y on Monday. You obtain the product from a oca supp ier at Rs/ 60/- per unit
s. The cost of ordering and transportation from the supp ier are Rs. 150/- per o
rder. The cost of carrying inventory is estimated at 15% per year of the cost of
the product carried. Determine the economic ot size and the optima cost.
So ution
Data: r = 100 units per week, C3 = Rs. 150/- per order, C1 = (15/100) × 60 per yea
r Rs.9/ year. Hence Rs. 9/52 per week. q0 =
(2C3 × r ) / C1 = (2 × 150 × 100 × 52) / 9 = 416 units.
C0 = (2 × C3 × C1 × r ) = {2 × (9 / 52) × 150 × 100} = Rs. 72/Inc uding materia cost (60 ×
0) + 72 = Rs. 6072 per year.
Prob em 8.11.
A stockiest has to supp y 400 units of a product every Monday to his customers.
He gets the product at Rs. 50/- per unit from the manufacturer. The cost of orde
ring and transportation from the manufacturer is Rs. 75 per order. The cost of c
arrying inventory is 7.5% per year of the cost of the product. Find (i) Economic
ot size, (ii) The tota optima cost (inc uding the capita cost).
So ution
Data: r = 400 units per week, C3 = Rs. 75/- per order, p = Rs. 50 per unit. C1 =
7.5% per year of the cost of the product. = Rs. (7.5 /100) × 50 per unit per year
. = Rs. (7.5/ 100) × (50 / 52) per week. Rs. 3.75 / 52 per week = Rs. 0.072 per we
ek. q0 =
(2C3 × r ) / C1 = ( 2 × 75 × 400) / 0.072 = 912 units per order.
C0 = 2 × C3 × C1 × r = (2 × 75 × 0.072 × 400) = Rs. 65.80 Tota cost inc uding materia cos
= 400 × 50 = 65.80 = 40,000 = 65.80 = Rs. 20,065.80 per week.
Inventory Contro
383
8.7.4 Economic order Quantity for purchase mode
A the assumptions made in the Economic Batch Quantity mode wi remain same b
ut we wi take annua demand ( λ ) and price per unit (i.e. Materia cost) = p an
d inventory carrying charges are expressed is ‘i’ % of average inventory va ue. Henc
e, we take inventory carrying charges C1 = ip. Let us work Economic Order Quanti
ty (EOQ) formu a for purchase mode . Average inventory = q/2 Inventory carrying
charges = ip Therefore inventory carrying charges = (q/2) × ip or = ipq/2 As the a
nnua demand = λ and the order quantity = q, Number of orders = λ / q = N Hence orde
ring cost = C3 × ( λ /q) Tota cost = Cq = (ip) × q/2 + ( λ /q) × C3 The minimum of Cq wi
get when first derivative is equa s to zero. DC/dq = ½ ip – C3 λ / q2 = 0 i.e. ½ ip =
C3 λ / q2, Simp ifying, we get q0 =
(2C 3λ ) / ip, This is known as Economic Order Quantity or EOQ. (2C3 ) / (ip × λ )
Simi ar y, t0 = optima order time =
Optima cost = Cq0 = ( 2C 3 × ip × λ ) Tota cost inc uding materia cost is given by:
Ordering cost + carrying cost + materia cost. = ( λ /q) × C3 + (q /2) × ip + p λ OR =
( 2C 3 × ip × λ ) + λ p
Prob em 8.12.
A stockiest purchases an item at the rate of Rs. 40/- per piece from a manufactu
rer. 2000 units are required per year. What shou d be the order quantity per ord
er if the cost per order is Rs. 15/ and the inventory charges per year are 20 pe
rcent?
So ution
Data: p = Rs. 40/ - per item, Demand = λ = 2000 units per year, C3 = Rs. 15/- per
order, i = 20% = 0.20 q0 = (2C 3λ ) / ip = (2 × 15 × 2000) / (0.20 × 40) = 87 units per
order. t0 = q0 / λ = 87 / 2000 = 0.044 of an year. = 15,87 days = app. 16 days, Cq
= ( 2C3 × ip × λ ) + λ × p = = Rs. 80,693/( 2 × 15 × 40 × 0.02 × 2000) + 2000 × 40 = Rs. 6
,000
Prob em 8. 13.
A shopkeeper has a uniform demand of an item at the rate of 50 units per month.
He buys from supp ier at the cost of Rs. 6/- per item and the cost of ordering i
s Rs. 10/- each time. If the stock ho ding costs are 20% per year of stock va ue
, how frequent y shou d he rep enish his stocks? What is the optima cost of inv
entory and what is the tota cost?
So ution
Data: Month y demand r = 50 units, hence year y demand λ = 600 units. C3 = Rs. 10/
- per order, i = 20% of stock va ue, p = Rs. 6 per item.
384
Operations Research
q0 = (2C 3λ ) / ip = (2 × 10 × 600) / ( 0.20 × 6) = 10000 = 100 items t0 = q0 / λ = 100 /
600 = 1/6 of an year = 2 months. He shou d rep enish every two months. Cq0 = (2 ×
C3 × ip × λ ) = (2 × 10 × 0.20 × 6 × 600) = Rs. 120/Materia cost = 600 × Rs.6/- = Rs. 3600
Hence tota cost = Rs. 3600 + 120 = Rs. 3720/-
Prob em 8.14.
A company uses annua y 24,000 units of raw materia , which costs Rs. 1.25 per u
nits. P acing each order cost Rs. 22.50, and the carrying cost is 5.4%of the ave
rage inventory. Find the economic ot size and the tota inventory cost inc udin
g materia cost.
So ution
Data: λ = 24,000 units. C3 = Rs. 22.50 per order, i = 5.4% of average inventory, p
= Rs. 1.25 per unit. q0 = (2C3 × λ) / ip = (2 × 22.50 × 24,000) / (.054 × 1.25) = 4000 un
its. Tota cost: Tota cost can be found in two ways. (i) C0 = (2 × C3 × ip × λ) = 2 × 2.5
0 × 0.54 × 1.25 × 24,000 = Rs. 270/(ii) Ordering cost = Number of orders × ordering cost
= ( λ / q0) × 22.50 = (24,000 / 4000) × 22.50 = 6 × 22.50 = Rs. 135/Inventory carrying
cost = (q0/2) × 0.054 × 1.25 = (4000/2) × 0.054 × 1.25 = Rs. 135/Hence tota cost = Rs.
135/- + Rs. 135/- = Rs. 270/Materia cost = 24,000 × 1.25 = Rs. 30,000/Tota cost
= Rs. 30,000 + 270 = Rs. 30,270/-
Prob em 8.15.
ABC manufacturing company purchase 9,000 parts of a machine for its annua requi
rement, ordering one month’s usage at a time. Each part costs Rs. 20/-. The orderi
ng cost per order is Rs. 15/ - and the inventory carrying charges are 15% of the
average inventory per year. You have been asked to suggest a more economica pu
rchasing po icy for the company. What advice wou d you offer and how much wou d
it save the company per year.
So ution
Data: λ = 9,000 units, C3 = Rs. 15/- i = 0.15, p = Rs. 20/- per unit. Other data =
purchasing month y requirement. Hence the number of orders = 12. r = λ / number o
f orders = 9000 / 12 = 750 units per order. Carrying cost = (q/2) × ip = (750 / 2)
× 0.15 × 20 = Rs. 1,125/Ordering cost = Number of orders × C3 = 12 × 15 = Rs. 180/Tota
cost = Rs. 1,125 + 180 = Rs. 1,305. Suggestion: To purchase q0 Economic order q
uantity. q0 = Cqo =
2 × C3 × λ ) / ip =
2 × C3 × ip × λ ) =
2 × 15 × 9000) / 0.15 × 20 = 300 Units.
2 × 15 × 0.15 × 20 × 9000) = Rs. 900/-
Inventory Contro
385
Annua savings by the company by purchasing EOQ instead month y requirement is:
= Rs. 1305 – Rs. 900 = Rs. 405/- a year.
Prob em 8.16
Ca cu ate EOQ in units and tota variab e cost for the fo owing items, assuming
an ordering cost of Rs.5/- and a ho ding cost is 10% of average inventory cost.
Compute EOQ in Rupees as we as in years of supp y. A so ca cu ate EOQ frequen
cy for the items.
Item A B C D Annua demand = λ units. 800 400 392 13,800 Unit price in Rs. = p 0.0
2 1.00 8.00 0.20
So ution
Data: C3 = Rs. 5/- per order, i = 0.10, p = Rs. 0.02, 1.00, 8.00, 0.20, λ = 800, 4
00, 392, 13,800 units.
Item
λ
Units.
C3 in Rs.
i
p in Rs.
q0 in units. =
q0 in Rupees = q0 × p
Year of supp y = qo / λ
EOQ frequency = 1/ (years of Supp y) No of orders Per year.
(2C3λ ) / ip
C0 =
2C3 ip.λ
A.
800
5
0.10
0.02
(2 × 5 × 800) /
0. 10 × 0.02 = 2000 units. C0 =
2000 × 0.02 = Rs. 40/-
2000/800 = 2.5 years.
1/2.5 = 0.4
2 × 5 × 0.10 ×
200 × 1 = Rs. 200/200 / 400 = ½ year 1/0.5 = 2 orders.
0.02 × 800 = Rs. 4/B. 400 5 0.10 1.00
(2 × 5 × 400) /0.10
× 1 = 200 units. C0 =
2 × 5 × 0.10
70 ×8 = Rs. 560/70/392 = 0.18 year 1/0.18 = 5.56 orders.
× 1 × 400 = Rs. 20 C. 392 5 0.10 1.00
(2 × 5 × 392 ) /0.10
× 8 = 70 units. C0 =
2 × 5 × 0.10
2,627/ 13800 = 1/0.19 = 5.26 Orders.
× 8 × 392 = Rs. 56/D. 13,800 5 0.10 0.20
( 2 × 5 × 13,800) / 2,627 × 0.20 =
0.10 × 0.20 Rs.525.40
= 2,627 units.
0.19 year
386
Operations Research
Prob em 8.17 (a) Compute the EOQ and the tota variab e cost for the data given
be ow: Annua demand = λ = 25 units, Unit price = p = Rs. 2.50, Cost per order = R
s. 4/-, Storage rate = 1% Interest rate = 12%, Obso escence rate = 7%. (b) Compu
te the order quantity and the tota variab e cost that wou d resu t if an incorr
ect price of Rs. 1.60 were used for the item. So ution (a) C1 = {(1 + 12 + 7)/10
0} × 2.50 = Rs. 0.50 per unit per year.
q0 = Cq0 =
(2 × 4 × 25) / 0.50 = 20 units. (2 × 4 × 25 × 0.50) = Rs. 10/-
(c) q0 = 2 × 4 × 25) / {(20/100) × 1.60 = 25 units. Ordering cost = (C3 × λ ) / q0 = (4 × 2
) / 25 = Rs. 4/Carrying cost = (q0/2) × C1 = {(20/100) × 2.50} × 25 = Rs. 6.25 (Here,
for ca cu ating carrying cost, correct price is used instead incorrect price of
Rs. 1.60). Tota variab e cost per year = Rs. 4/- + Rs. 6.25 = Rs. 10.25.
Prob em 8.18 An aircraft company uses rivets at an approximate customer rate of
2,500 Kg. per year. Each unit costs Rs, 30/- per Kg. The company personne estim
ate that it costs Rs. 130 to p ace an order, and that the carrying costs of inve
ntory is 10% per year. How frequent y shou d orders for rivets be p aced? A so d
etermine the optimum size of each order. So ution Data: λ = 2,500 Kg. per year, C3
= Rs. 130/-, i = 10%, p = Rs. 30/- per unit. (C1 = i × p = 0.10 × 30 = Rs. 3/-)
q0 = (2 × C3 × λ ) / ip. q0 = (2 × 130 × 2500) / 0.10 × 30 = App. 466 units t0 = q0 / λ = 4
/ 2500 = 0.18 year = 0.18 × 12 = 2.16 month. N = Number of orders = λ / q0 = 2500 /
466 = 5 orders per year.
Prob em 8.19 The data given be ow pertains to a component used by Engineering In
dia (P) Ltd. in 20 different assemb ies Purchase price = p = Rs. 15 per 100 unit
s, λ Annu usage = 1,00,000 units, Cost of buying office = Rs. 15,575 per annum, (
fixed), Variab e cost = Rs. 12/- per order, Rent of component = Rs. 3000/- per a
nnum Heating cost = Rs. 700/- per annum Interest = Rs. 25/- per annum, Insurance
= 0.05% per annum based on tota purchases, Depreciation = 1% per annum of a
items purchased.
Inventory Contro
387
(i) Ca cu ate EOQ of the component. (ii) The percentage changes in tota annua
variab e costs re ating to component if the annua usage happens to be (a) 125,0
00 and (b) 75,000.
So ution
λ = 100,000, C3 = Rs. 12/-, C1 = (15/100) × 0.25 + 0.0005 + 0.01) = 0.039075. λ = 1,00
,000, q0 = (2 × 12 × 10,000) / 0.039075 = 7,873, Ordering cost = 100000/ 7873 = Rs.
153.12 Carrying cost = (7873 / 2) × 0.039075 = Rs. 153.12 Tota inventory cost = R
s. 153.12 + Rs. 153.12 = Rs. 306.25 Note that both ordering cost and carrying co
st are same. When λ = 125, 000
q0 = ( 2 × 12 × 1,25,000) / 0.039075 = 8,762. Ordering cost = (125,000/ 8762) = Rs.
171.12, Carrying cost = (8762/2) × 039075 = RS. 171.12 Tota inventory cost = RS.
171.12 + Rs. 171.12 = Rs. 342.31 When λ = 75,000 q0 = ( 2 × 12 × 75000) / 0.039075 = 6
,787 units. Ordering cost = (75,000 / 6787) = Rs. 132.60 Carrying cost = (6787 /
2) × 0.39075 = Rs.132.60 Tota cost = Rs. 132.60 + Rs. 132.60 = Rs. 264.20 Point
to note: In a the three cases, ordering cost = Carrying cost, because they are
at optima order quantity. A so when the annua demand is 1,25,000, the tota v
ariab e cost has increased by 12% (app) and when the demand is 75,000, it is dec
reased by 13%.
8.7.5. Economic ot size with different rates of demand in different periods
Figure 8.10
388
Operations Research
In the previous mode s, we have assumed that the demand is uniform and known and
the time period is uniform. In the present mode , the demand rate is different
and period of the cyc e is different. Suppose the time periods are t1, t2, t3 ……..tn
and
∑t
i =1
N
i
= T and the demand be r1, r2, r3 ….rn and
∑r
i =1
n
i
= R, then,
The inventory carrying cost for the time period T = (q/2)C1t1 + (q/2)C1qt2+ ……..+ (q
/2)Cntn = (q/2) C1 (t1 + t2 + t3 + ………+ tn) = (q/2) C1 T Number of orders = Tota dema
nd for the period T / quantity ordered = R/q Therefore, tota setup cost or orde
ring cost for the period T = C3 (R/q) Hence the tota cost for the period T is g
iven by: Cq = (q/2) C1 T + C3 (R/q). This wi be minimum when, dCq /dq = (1/2)C
1T – C3(R/q2) = 0, Simp ifying, we get C0q = (2C3 R ) / C1. (Remember in a the m
ode s the ratio depending on the demand pattern the va ue of r or R changes. Sim
i ar y, C0q0 =
(2C3 ) / C1 remains constant and
(2C3 / C1 ) (R/T). Here R/T is the average rate of demand.
Prob em 8.20
The demand for an item and the time period of consumption is given be ow. The ca
rrying cost C1 = Rs.2 / per unit and the ordering cost is Rs. 75/- per order. Ca
cu ate economic order quantity and the cost of inventory.
Demand in units. (r): Period in months. (t) 25 1 40 2 30 2 20 1 70 6
So ution
Σ t = 12 months, Σ r = 185 units. C1 = Rs.2/- and C3 = Rs. 75/q0 = {2 × 75 × (185 / 12)}
/ 2 = {2 × 75 × 15.42} / 2 = 2313 / 2 =
C0 =
2 × C 3C1 R/T =
1156.5 = App. 34 units.
2 × 75 × 2 × 185 / 12 =
300× 15.42 =
4626 = App. Rs. 68/-
8.7.6. Quantity Discount Model
ometimes, the seller
may offer discount to the purchaser, if he purchases large
r amount of items. ay for example, if the unit price is Rs. 10/-, when customer
purchase 10 or more than 10 items, he may be given 1% discount on unit price of
the item. That means the purchaser, may get the item at the rate of Rs. 9/- per
item. This may save the material cost. But, as he purchases more than the requi
red quantity his inventory carrying charges will increase, and as he purchases m
ore items per order, his ordering cost will reduce. When he wants to work out th
e optimal order quantity, he has to take above factors into consideration. The s
avings part of discount model is: (a) lower unit price, (b) lower ordering cost.
The losing part of the model is (a) inventory carrying charges. The discount wi
ll be accepted when the savings part is greater than the increase in the carryin
g cost.
Inventory Control
389
There are two types of discounts. They are: (a) All units discount: Here the cus
tomer is offered discount on all the items he purchase irrespective of quantity.
(b) Incremental discount: Here, the discount is offered to the customer on ever
y extra item he purchases beyond some fixed quantity, say ‘q’. Up to ‘q’ units the custo
mer pays usua unit price and over and above ‘q’ he is offered discount on the unit
price.
Prob em 8.21.
A shopkeeper has a uniform demand of an item at the rate of 50 items per month.
He buys from a supp ier at a cost of Rs.6/- per item and the cost of ordering is
Rs. 10/- per order. If the stock ho ding costs are 20% of stock va ue, how freq
uent y shou d he rep enish his stock? Suppose the supp ier offers 5% discount on
orders between 200 and 999 items and a 10% discount on orders exceeding or equa
to 1000 units. Can the shopkeeper reduce his costs by taking advantage of eith
er of these discounts?
So ution
Data: C1 = 20% per year of stock va ue, C3 = Rs. 10/-, r = 50 items per month, λ =
12 × 50 = 600 units per year, p = Rs. 6/- per item. Discounted price a) Rs.6 – 0.05
× 6 = Rs. 5.70, from 200 to 999 items, (c) Rs.6 – 0.10 × 6 = Rs. 5.40, for 1000 units
and above and i = 0.20 q0 = 2C3 λ / ip = (2 × 10 × 600) / (0.20 × 6) = 100 units. t0 =
q0 / λ = 100 / 600 = 1/6 of a year. = 2 months. C0 = λ × p + 2 C3 ip λ = 600 × 6 + 2 × 10 0
20 × 6 × 600 = Rs. 3720. This may be worked out as be ow: Materia cost + carrying c
ost + ordering cost = 600 × 6 + (100/2) × 0.20 × 6 + 600 / 6 × 10 = 3600 + 60 + 60 = Rs.
3720/-. (a) To get a discount of 5% the minimum quantity to be purchased is 200
. Hence, et us take q0 = 200 Savings: Savings in cost of materia . Now the unit
price is Rs. 5.70. Hence the savings is 600 × Rs. 6 – 600 × Rs.5.70 = Rs. 3600 – Rs. 34
20 = Rs.180/Savings in ordering cost. Number of orders = λ / q0 = 600 / 200 = 3 or
ders. Hence ordering cost = 3 × Rs. 10/- = Rs. 30. Hence the savings = Ordering co
st of EOQ – present ordering cost = Rs.60 – Rs. 30 = Rs. 30. Hence Tota savings = R
s. 180 + 30 = Rs. 210/Additiona cost due to increased inventory = present carry
ing cost – Carrying cost of EOQ = (200 / 2) × 0.20 × Rs. 5.70 – (100/2) × 0.20 × Rs.6/- = 1
0 × 1.14 – 50 × Rs.1.2 = 114 – 60 = Rs. 54/Therefore, by accepting 5% discount, the comp
any can save Rs. 210 – Rs. 54 = Rs. 156/per year. (b) 10% discount on q0 ≥ 1000. Sav
ings: Ordering cost: Since 1000 items wi be usefu for 1000 / 600 = 5/3 years,
the number of orders = 1 / (5/3) = 3 / 5 times in a year. Hence number of order
s = 6 – 3/5 = 5.4 orders. Hence ordering cost = 5.4 × 10 = Rs. 54/-. Savings in mate
ria cost: (10/100) × 6 × 600 = Rs. 360/-
390
Operations Research
Hence tota savings = Rs. 360 + Rs. 54 = Rs. 414/Increase in the ho ding cost :
(1000/2) × 0.20 × 0.90 × Rs. 6/- = Rs. 480/- As the savings is ess than the increase
in the tota cost the discount offer of 10% can not be accepted.
Prob em 8.22.
A company uses annua y 24,000 units of raw materia , which costs Rs.1.25 per un
it. P acing each order costs Rs. 22.50 and the carrying cost is 5.4% per year of
the average inventory. Find the economic ot size and the tota inventory cost
inc uding materia cost. Suppose, the company is offered a discount of 5% by the
supp ier on the cost price of sing e order of 24,000 units, shou d the company
accept?
So ution
λ = 24,000, C3 = Rs. 22.5, p = Rs.1.25, i = 5.4%.
q0 =
2C3λ / ip =
( 2 × 22.5 × 24,000) / (0.054 × 1.25 = 4000 units.
Tota cost per year = 24,000 × 1.25 + 2 × 22.5 × 24,000 × 0.054 × 1.25 = Rs. 30,000 + Rs.
270 = Rs. 30270/-. To get the benefit of discount the ot size is 24,000 units.
Savings in the ordering cost: For EOQ 24,000 / 4000 = 6 orders. Hence ordering c
ost is 6 × 22.5 = Rs. 135/For 24,000 units per order, number of orders is one henc
e the ordering cost is Rs. 22.50, Hence savings is Rs. 135 – Rs. 22.50 = Rs. 112.5
0. Savings in materia cost: 0.95 × Rs. 1.25 × 24,000 = Rs. 28,500. Savings in mater
ia cost = Rs. 30,000 – Rs. 28,500 = Rs. 1, 500/Tota savings = Rs. 1,500 + Rs. 11
2.50 = Rs. 1,612.50. Additiona burden in inventory carrying cost = Inventory co
st for 24,00 units – Inventory carrying cost for EOQ =(24,000/2) × 0.054 × 0.95 × 1.25 – (
4000 / 2) × 0.054 × 1.25 = Rs. 769.50 – Rs. 135/= Rs.634.50. Savings is Rs. 1,612.50 a
nd the extra burden is Rs, 634.50. As the savings is more than the extra burden,
the discount offer is accepted.
8.7.7. Economic Lot Size with finite rate of rep enishment or production and uni
form demand rate with no shortages: (Manufacturing mode with no shortages). Ass
umption: Manufacturing rate is greater than the demand rate
In previous discussed mode s we have assumed that the rep enishment time is zero
and the items are procured in one ot. But in rea practice, particu ar y in ma
nufacturing mode , items are produced on a machine at a finite rate per unit of
time; hence we cannot say the rep enishment time as zero. Here we assume that th
e rep enishment rate is finite say at the rate of k units per unit of time. The
economic ot size is q0, carrying cost is C1 and ordering cost is C3. The mode
is given in the figure 8.11.
Inventory Contro
391
Figure. 8.11.
In the figure, we can see that in the first time period t1 inventory bui d up, a
s the demand rate is ess than the production rate (r < k), i.e. the constant ra
te of rep enishment is (k – r). In the second period t2 items are consumed at the
demand rate ‘r’. If we workout the tota cost of inventory per unit of time as usua
, we get: Cq = (q / 2) { (k – r ) / k } C1 + C3 (r/q) By equating the first deriva
tive to zero, we get, 2) = 0 which wi give dCq / dq = (C1 / 2) ( 1 – r/k) – (C3 r
/ q q0 =
(2C3 / C1 ) × {r / 1 – (r/k)} 2C 3 / { rC1 ( 1 – r/k)}
OR q0 = OR t0 = OR C0 =
(k / k / r ) × (k / k − r ) × (k − r ) / k ×
2C 3 r / C1 2C 3 / C1r 2C1 C3 r
t0 = q 0 / r = C0 =
2C3C1
(r / 1 – r/k).
Points to Remember
(a) The carrying cost per unit of time is reduced from cost of first model by a
ratio of [1 – (r / k).] But set up cost remains same. (b) If we substitute a value
of infinity to k in the model shown above, we will get the results of the first
model. (c) If the production rate is very low, then the lot size should be take
n large, because much of the production will be consumed during the production p
eriod and hence the inventory in the second part of the graph will be built at a
very low rate. (d) If r > k then there will be no inventory.
Problem 8.23
An item is produced at the rate of 50 items per day. The demand occurs at the ra
te of 25 units per day. If the set up cost is Rs. 100/ per run and holding cost
is Rs.0.01 per unit of item per day, find the economic lot size for one run, as
suming that the shortages are not permitted.
392
Operations Research
Solution
Data: r = 25 units per day, k = 50 items per day, C3 = Rs. 100/ per run, C1= Rs
. 0.01 per item per day. q0 = 2C3 / C1 ) × {r / 1 – (r/k)} = 2 × 100 × 25 / 0.01 × (1 / 25
/50) = 1000 items. t0 = q0 / r = 1000 / 25 = 40 days. Minimum daily cost = 2C3C
1 r × (k / k − r ) = 2 × 100 × 0.01 × 25 × (25 / 50) = Rs. 5/ Minimum total cost per run =
s.5/ – × 40 = Rs. 200/
Problem 8.24.
A company has a demand of 12,000 units per year for an item and it can produce 2
000 items per month. The cost of one setup is Rs. 400/ and the holding cost per
unit per month is Rs. 0.15. Find the optimum lot size and the total cost per ye
ar, assuming the cost of one unit as Rs.4/ . Also find the maximum inventory, ma
nufacturing time and total time.
Solution
Data: r = 12,000 units per year, k = 2000 units per month, C3 = Rs. 400/ per se
t up, C1 = Rs. 0.15 per unit per month, p = Rs. 4/ per item. Now k = 2000 × 12 =
24,000 units per year and C1 = Rs. 0.05 × 12 = Rs. 1.80 per unit per year. q0 = 2C
3 rk / C1 ( k – r) =
(2 × 400 × 12,000 × 24,000) / (1.8 × 12,000) = 3,264 units.
C0 = 12,000 × 4 + 2C1C3 r (k − r / k ) = Rs. 48,000 + Rs. 2,940 = Rs. 50,940/Maximum
Inventory = qmax = {(k – r ) / k} × q0 = (24,000 – 12,000) 3,264 / 24,000 = 1,632 uni
ts. Manufacturing time = t1 = (q0 / k – r) = 1,632 / 12,000 = 0.136 year. = App 50
days.t0 = q0 / r = 3,264 / 12,000 = 0.272 year. = App. 99 days.
Problem 8.25.
A contractor has to supply 10,000 bearings per day to an automobile manufacturer
. He finds that, when he starts a production run, he can produce 25,000 bearings
per day. The cost of holding a bearing in stock for one year is 20 paise, and s
etup cost of a production run is Rs. 180/ . How frequently should production run
be made?
Solution
Data: r = 10,000 units, k = 25,000 units, C1 = Rs. 0.20 / 365 = 0.00055 per bear
ing per day, C3= Rs. 180/ per run. q0 =
2C3 rk / C1 (k r) = ( 2 × 180 × 10,000 × 25,000) / 0.00055 × (25,000 – 10,000) =
1.09 × 1010 = 1,05,000 bearings.
t0 = 2C3 k / rC1 (k r) = hours of 8 hour shift.
( 2 × 180 × 25000) / ( 10,000 × 0.00055 × 15,000) = 0.3 day = 2.4
Problem 8.26.
In a paints manufacturing unit, each type of paint is to be ground to a specifie
d degree of fineness. The manufacturer uses the same ball mill for a variety of
paints an after completion of each batch, the
Inventory Control
393
mill has to be cleaned and the ball charge properly made up. The change over fro
m one type of paint to another is estimated to cost Rs. 80/ per batch. The annu
al sales of a particular grade of paint are 30,000 liters and the inventory carr
ying cost is Re.1/ per liter. Given that the rate of production is 3 times the
sales rate, determine the economic batch size.
Solution
Data: r = 30,000 liters, C3 = Rs. 80/ , C1 = Re. 1/ , k = 90,000 liters. q0 = 2 ×
C 3 rk / C1 ( k – r) = ( 2 × 30,000 × 80) / 1.00 × { 1 – (30,000 / 90,000) = 2683.28 liter
s. Number of batches per year = r / q0 = 30,000 / 2683.28 = 11.18 batches.
Problem 8.27.
Amit manufactures 50,000 bottles of tomato ketch up in a year. The factory cos
t per bottle is Rs.5/ , the setup cost per production run is estimated to be Rs.
90/ , and the carrying cost on finished goods inventory amounts to 20% of the co
st per annum. The production rate is 600 bottles per day, and sales amount to 15
0 bottles per day. What is the optimal production size and number of production
runs?
Solution
Data: r = 150 bottles per day, k = 600 bottles per day, C3 = Rs. 90 per run, C1
= 0.20 × Rs.5/ = Rs. 1/q0 =
2C3 rk / C1 (k – r) = (2 × 90 × 150 × 600) / 1 × (600 – 150) =
16200000 / 450 =
36000 = 189.73 = 190 bottles. Number of production runs = r / q0 = 150 / 190 = 0
.9 run or app. 1 batch.
8.7.8. Economic Order Quantity Model for Integrality of Items In the previous mo
dels demand is considered to be a continuous variable and a straight line repres
ents withdrawals. When the items are integral, the demand cannot be represented
by straight line but appears to be stepped rectangles as shown in the figure 8.1
2.
Figure. 8.12.
394
Operations Research
λ = Year y demand, i = Inventory carrying rate, p = unit price in Rs. q = ot size
, C3 = ordering
cost. For this mode , tota cost of carrying inventory for one year = C3 ( λ /q) +
(q–1) /2 × ip = Cq Optima va ue of q = q0 is obtained by: C (q+1) – Cq > 0 and C (q-
1) – Cq > 0 by substituting the va ues for Cq and Cq+1 and Cq-1 we wi get: (q – 1)
q < (2C3 λ / ip) < q (q + 1) Hence optima order quantity wi occur when (2C3 λ /
ip) is ess than (q – 1) q and is greater than q (q + 1).
Prob em 8.28.
A arge automobi e repair shop has a very ow demand for certain component i.e.
the demand is 8 items per year. The demand is assumed to be deterministic.The co
st of p acing an order for this part is Re. 1/-. The unit cost is Rs. 30/-. The
inventory carrying cost is 20% of average inventory. Find the optima order quan
tity, by considering the integra ity of items. What wou d be the optima time to
p ace orders? What is the va ue of optima quantity by using square root formu
a?
So ution
Data: C3 = Re.1/-, λ = 8 items per year, i = 0.20, p = Rs. 30/Now 2C3 λ / ip = (2 × 1 ×
8) / (0.20 × 30) = 2.66
q= q (q - 1) = q (q +1) = 1 0 2 2 2 6 3 6 12 4 12 20 5 20 30 6 30 42 7 42 56 8 5
6 72
Now, q (q – 1) < 2C3 λ /ip < q (q + 1) as per given data 2C3 λ / ip = 2.66 ies betwee
n 2 and 6. Taking the higher va ue q0 = 2. If we take units.
2C3λ / ip = ( 2 × 1 × 8 ) / (0.20 × 30) = 1.63 taking the nearest who e number q0 = 2
Prob em 8.29.
The annua demand of an item is 10 units and the ordering cost is Rs.2/- per ord
er and the management has worked out the inventory carrying cost as 25 % of the
average inventory. Assuming the integra ity of items find the economic order qua
ntity for the item. Given that the unit cost is Rs.40/
So ution
Data: λ = 10, C3 = Rs.2/-, i = 0.25, p = Rs. 40/2C3 λ / ip = (2 × 2 × 10) / (0.25 × 40) =
40 / 10 = 4 units.
q q (q – 1) q (q + 1) = = = 1 0 2 2 2 6 3 6 12 4 12 20 5 20 30 6 30 42 7 42 56 8 5
6 72 9 72 90 10 90 110
2C3 λ / ip = 4 ies between q (q – 1) = 2 and q (q + 1) = 6. Hence eve of inventor
y = 2 units. If we take the square root of 4 which is equa to 2. Hence EOQ by s
quare root formu a is a so 2.
Inventory Contro
395
8.7.9. Deterministic Mode s with Shortages Shortages means when the demand for i
tem is exists, the item is not avai ab e in the stores. This situation eads to
the prob em that the organization cannot keep up the de ivery promises. In such
case if the customer accepts, the organization can fu fi his order soon after
the inventory is received. If the customer does not accept, the organization has
to oose the order. The first situation is known as back ogged or back order s
ituation and the second one is known as shortages or ost sa es situation. In ba
ck ogged situation, the company has to oose the customer as we as the profit
. In the first case, if the stock out position occurs frequent y, the customer m
ay get dissatisfied with the services provided by the organization and fina y d
o not turnout to the organization.
(a) Instantaneous Production with back orders permitted
The figure 8.13 shows the mode of instantaneous production, deterministic deman
d and the back orders permitted. Here the carrying cost is C1 and the ordering c
ost is C3. As the shortages are a owed (back ogged), the shortage cost C2 is a
so taken into consideration. As usua , the ot size is ‘q’ and the inventory rep eni
shment time is ‘t’. In addition the eve of inventory in the beginning is shown as ‘S’
and the maximum eve of short items is shown as ‘z’. Hence ot size q = S + z. From
the figure, inventory carrying cost = (S/2) × t1 × C1 = Area of triang e OBD × C1 Sho
rtage cost = Area of triang e DAC × C2 = {(q – S) / 2} × t2 × C2 Ordering cost = C3 Henc
e the tota cost for one run = (S/2) × C1 × t1 + {(q – S) / 2)} t2 × C2 + C3 Tota cost
per unit of time = Cq = {(SC1t1)/ 2} + {(q – S) C2t2 / 2)} + C3 / t With mathemati
ca treatment, we get:
Figure 8.13.
396
Operations Research
q0 = r t0 = OR q0 = t0 = q0 /r =
{( 2C3 r (C1 + C 2 ) / C1C 2 )} (Attention is to be given to see that the EOQ mo
de is mu tip ied by a factor (C1 + C2) / C2 (C1 + C 2 ) / C2 × ( 2C 3 λ / C1) {2C3
(C1 + C 2 )} / C1 r C2 C1 + C 2 ) / C2 × (2C1C3 λ ) [C 2 /(C1 + C 2 )] × (2C 3λ / C1 )
(Here a so the optima time formu a is mu tip ied by (C1 + C2) / C2
OR t0 = q0 / λ = C0 =
(2C3 / C1λ )
(C 2 /(C1 + C 2 ) ×
Imax = Maximum inventory = S0 = [C2 / (C1 + C2)] × q0 = S0 =
{( 2C 3 r C 2 ) / C1 (C1 + C 2 )} this is a so known as Order eve mode .
z0 = q0 – S0 = {( 2C 3 r × C1 ) / C 2 (C1 + C 2 ) (Note: By keeping C2 = ∞ , the above
mode reduces the deterministic demand EOQ mode ).
Prob em 8.30.
The demand for an item is uniform at the rate of 25 units per month. The set up
cost is Rs. 15/per run. The production cost is Re.1/- per item and the inventory
-carrying cost is Rs. 0. 30 per item per month. If the shortage cost is Rs. 1.50
per item per month, determine how often to make a production run and what size
it shou d be?
So ution
Data: r = 25 units per month, C3 = Rs.15/- per run, b = Re. 1/- C1 Rs. 0.30 per
item per month, C2 = Rs. 1.50 per item per month. Where b = production cost, hen
ce Set up cost is to be taken as C3 + bq. In this examp e it wi become Rs. 15.
/- + Re. 1/- = Rs.16/-. This wi be considered when working the tota cost of i
nventory and not the economic order quantity, as the any increase in C3 wi not
have effect on q0. Remember when any thing is added to the setup cost, the opti
ma order quantity wi not change. q0 = {2C 3 r (C1 + C 2 )} / (C1 C2) = {( 2 × 1
5 × 25 × 1.80) / ( 0.30 x 1.50)} = 10 30 = 54 items. And optima time = q0 / r = 54
/ 25 = 2.16 months. Optima cost = C(S, t) = (1/t) × [ (C1S2 / 2r) + C2 (tr – S2) /
2r] + [(C3/t) + br] because (q / t) = r
Prob em 8.31.
A particu ar item has a demand of 9,000 units per year. The cost of one procurem
ent is Rs. 100/and the ho ding cost per unit is Rs. 2.40 per year. The shortages
are a owed are the shortage cost Rs. 5/- per unit per year. (a) Find Economic
ot size, (b) Number of orders per year, (c) The time between two orders, and (d
) Tota cost per year inc uding materia cost, taking unit price as Re.1/- per u
nit.
So ution
Data: λ = 9,000 units per year, C1 = Rs. 2.40 per unit per year, C2 = Rs. 5/- per
unit per year, C3 Rs. 100/- per procurement.
Inventory Contro
397
q0 = (2C 3λ / C1 ) × (C1 + C 2 ) / C2 = = 1,053 units per run.
[( 2 × 100 × 9000 ) / 2.40] ×
(2.40 + 5) / 5 = 11,10,000 2C1C3 λ =
Tota cost inc uding materia cost = C0 = 9000 × 1 +
(C 2 / C1 + C 2 ) ×
Rs. 9000 + (2 × 2.40 × 100 × 9000 ) = Rs. 9,000 + Rs. 1,710 = Rs. 10, 710/- per year.
Number of orders per year = N = λ /q0 = 9,000 / 1,053 = 8.55 orders = App. 9 order
s Time between orders = t0 = 1 / N = 1 / 8.55 = 0.117 year = 64.6 days = App. 65
days.
Prob em 8.32.
A manufacturing firm has to supp y 3,000 units annua y to a customer, who does
not have enough storage capacity. The contract between the supp ier and the cust
omer is if the supp ier fai s to supp y the materia in time a pena ty of Rs. 40
/- per unit per month wi be evied. The inventory ho ding cost amounts to Rs.
20/- per unit per month. The set up cost is Rs. 400/- per run. Find the expected
number of shortages at the end of each schedu ing period.
So ution
Data: C1 = Rs. 20/- per unit per month, C2 = Rs. 40/- per unit per month, C3 = R
s. 400/- per run, λ = 3000 units per year = 3000 / 12 = 250 units per month = r. I
max = S = units. q0 = (C1 + C 2 ) / C2 × (2C 3 r / C1) = [( 20 + 40) / 40] × ( 2 × 400
× 250 ) / 20 = 123 Units. Number of shortages per period = q0 – S0 = 123 – 82 = 41 un
its per period.
[C 2 /(C1 + C 2 )] × 2C3 r / C1 = [ 40 /( 20 + 40) / 40] × ( 2 × 400 × 250) / 20 = 82
Prob em 8.33.
The demand of a chemica is constant and at the rate of 1,00,000 Kg per year. Th
e cost of ordering is Rs. 500/- per order. The cost per Kg of chemica is Rs. 2/
-. The shortage cost is Rs.5/- per Kg per year if the chemica is not avai ab e
for use. Find the optima order quantity and the optima number of back orders.
The inventory carrying cost is 30 % of average inventory.
So ution
Data: λ = 1,00,000 Kg per year, p = Rs. 2/ per Kg., C2 = Rs. 5/- per Kg per year,
C3 = Rs. 500 per order, C1 Rs. 2 × 0.30 = Rs. 0.60 per Kg. per year. q0 = [(C1 + C
2 ) / C 2 ] × (2C3λ / C1 ) = [(0.60 + 5) / 5] × ( 2 × 500 × 1,00,000) / 0.60 = 13,663 Kg.
Imax = S0 = [C2 / (C1 + C2)] × q0 = [5 / (0.60 + 5)] × 13,663 = 12, 199 Kg. Optimum
back order quantity = q0 – S0 = 13,663 – 12, 199 = 1,464 Kg.
Prob em 8.34.
The demand for an item is 18,000 units annua y. The ho ding cost is Rs. 1.20 pe
r unit time and the cost of shortage is Rs. 5.00. The production cost is Rs. 400
/- Assuming that the rep enishment rate is instantaneous determine optimum order
quantity.
398
Operations Research
So ution
Data: λ = 18, 000 units per year, C1 = Rs. 1.20 per unit, C2 = Rs. 5/- and C3 = Rs
. 400/q0 =
(2C3λ / C1 ) × (C1 + C 2 ) / C2 = (2 × 400 × 18,000) / 1.20 × (1.20 + 5) / 5 = 3857 units.
t0 = q0 / λ = 3857 / 18,000 = 0. 214 year = App. 78 days. Number of orders = N = λ /
q0 = 18000 / 3857 = 4.67 orders = App. 5 orders.
Prob em 8.35.
The demand for an item is deterministic and constant over time and it is equa t
o 600 units per year. The per unit cost of the item is Rs. 50/- whi e the cost o
f p acing an order is Rs. 5/-. The inventory carrying cost is 20% of the cost of
inventory per year and the cost of shortage is Re.1/- per unit per month. Find
the optima order quantity when stock outs are permitted. If stock outs are not
permitted what wou d be the oss to the company.
So ution
Data: λ = 600 units, i = 0.20, p = Rs. 50, C1 = ip = 0.20 × 50 = Rs. 10/-, C3 = Rs.
5/-, C2 = Re. 1/per month = Rs. 12/ per unit per year. q0 = units. Maximum numbe
r of back orders = q0 × C2/C1 + C2 = S0 = 12 / (10 + 12) × 104.6 = 0.55 × 105.6 = 57.0
5 units. = App. 57 units. Expected year y cost C0 =
(2C3C1λ ) × C2 / (C1 + C2) = (2 × C 3 × λ ) / C1 = (2 × 5 × 10 × 600) = (2 × 10 × 5 × 600)
12) = (2 × 5 × 600) / 10 = 24. 5 units.
2C3 λ / C1 ) ×
(C1 + C 2 ) / C 2 =
(2 × 5 × 600) / 10 × (10 + 12) / 12 = 77.46 × 1.35 = 104.6
245 × 0.55 = 134.75 = App. Rs. 135/If back orders are not a owed, q0 = Tota cost
C0 =
(2 × C 3 × C1 × λ ) =
60000 = Rs. 245/-
Hence the additiona cost when backordering is not a owed is Rs. 245 - Rs.135 =
Rs. 110/-
Prob em 8.36. The demand for an item is 12,000 units per year and shortages are
a owed. If the unit cost is Rs. 15/- and the ho ding cost is Rs. 20/- per unit
per year. Determine the optimum year y cost. The cost of p acing one order is Rs
. 6000/- and the cost of one shortage is Rs.100/- per year. So ution Data: λ = 12,
000 units, C1 = Rs. 20/- per unit per year, C2 = Rs. 100/- per year, C3 = Rs. 60
00/per order. P = Rs. 15/q 0= units. Number of orders per year = λ / q0 = 12,000 /
2939 = 4.08 = App. 4 orders. Number of shortages = z0 = q0 × [C1/(C1 + C2)] = 293
9 × [20/(20 + 100)] = 489 units.
(2C3λ ) / C1 × (C1 + C 2 ) / C 2 = ( 2 × 6000 × 12,000) / 20 × (20 + 100) / 200 = 2939
Inventory Contro
399
Tota year y cost = p × λ + 15 × 12,000 +
(2C3C1λ) +
[C 2 /(C1 + C 2 )] =
( 2 × 6000 × 20 × 12,000) × (100 / 120) = Rs. 1, 08, 989.79 = App. Rs.1, 08, 990
Prob em 8.37.
A commodity is to be supp ied at the constant rate of 200 units per day. Supp ie
s of any amount can be had at any required time but each ordering costs Rs. 50/-
. Cost of ho ding the commodity in inventory is Rs. 2/- per unit per day whi e t
he de ay in the supp y of the item induces a pena ty of Rs.10/- per unit per de
ay of one day. Find the optima po icy, q and t, where t is the reorder cyc e pe
riod and q is the inventory eve after reorder. What wou d be the best po icy i
f the pena ty cost becomes infinity?
So ution
Data: C1 = Rs. 2/- per unit per day, C2 = Rs. 10/ per unit per day, C3 = Rs. 50/
- per order, r = 200 units per day. q0 =
(2C3 r / C1 ) × (C1 + C 2 ) / C 2 = (2 × 50 × 200) / 2 × (2 + 10) / 2 = 110 units.
t0 = q0 / r = 110 / 200 = 0.55 day. The optima order po icy is q0 = 110 units a
nd the ordering time is 0.55 day. In case the pena ty cost becomes ∞ , then q0 and
t0 are: q0 =
2C3 r / C1 = (2 × 50 × 200) / 2 = 100 units.
t0 = q0 / r = 100 / 200 = 0.5 day.
Prob em 8. 38.
A Contractor supp ies diese engines to a truck manufacturer at the rate of 20 p
er day. He has to pay pena ty of Rs. 10/- per engine per day for missing the sch
edu e de ivery rate. Ho ding cost of a comp ete engine is Rs. 12/- per month. Th
e manufacturing of engines starts with the beginning of the month and is comp et
ed at the end of the month. What shou d be the inventory eve at the beginning
of each month?
So ution
Data: r = 20 engines per day, C1 = Rs. 12 per month = Rs. 12/30 = Rs. 0.40 per e
ngine per day, C2 = Rs. 10/- per engine per day, t = 1 month = 30 days. S0 = Max
. Inventory = [(C2)/(C1 + C2)] q0 = [(C2) / (C1 + C2)] × r × Max inventory = [(10) /
(10 + 0.40)] × 20 × 30 = 577 engines per month.
(b) Lost – Sa es shortages
In the above case, due to shortages, back orders are a owed, i.e. the demand wi
be satisfied after the receipt of the materia . But in the present case the a
ssumption is the sa es wi be ost if there is a shortage. This is shown in fig
ure 8.14. In this case, the unit shortage cost is proportiona to quantity on y
and is independent of time as the shortages of any item is the shortage forever
not for a finite interva of time. The shortage cost C2 inc udes the oss of pro
fit.
400
Operations Research
Figure 8. 14.
h = Stick out period. And 0 ≤ h ≤ ∞ hence t = (q/r) + h = (q + rh) / r, where r = unif
orm rate of demand. Carrying cost = (q /2) q × (1/r) C1 = (q2 / 2) × (1/r) C1 = (C1q
2) / 2r Shortage cost = C2 × rh and set up cost = C3 Tota cost per cyc e = (C1q2)
/2r + C2rh + C3 Average tota cost per unit of time = [(C1q2) / 2 (q + rh)] + [
(C2r2h) / (q + rh)] + [(C3r) / (q + rh) = C(q,k) Equating dC(q,k) / dq = 0 and s
imp ifying we get, q0 = {C2 r [( (C2 r ) 2 − (2C1C3 r )]} / C1 h = {−C2 r [(C2 r ) 2
− (2C1C3 r )]} / C1 r
Problem 8.39.
The demand for an item is continuous and deterministic at 200 units per month. T
he holding cost is Rs. 2/ per unit per month and ordering cost is Rs. 5/ per o
rder. In case of shortage, the loss of sales causes a loss of profit to an exten
t of Rs. 200/ per month. Find the optimal order quantity.
Solution
Data: r = 200 units, C2 = Rs. 20 / month, C1 = Rs.2/ per unit per month.C3 = Rs
. 5 / per order. q0 = {C2 r [( (C2 r 2 − ( 2C1C3 r )]} / C1 = {(200 × 200 [ ( 200 × 2
00) 2 − (2 × 2 × 5 × 200)] / 2} q0 = {(40000) [ 40000) 2 − (4000 / 2)]} = 40000 (160000
0 ) − 2000 )]} = 40000 39999 .9
Inventory Control
401
8.7.10. Economic Order quanity for finite rate of replenishment of inventory wit
h back orders permitted As in the previous finite rate of replenishment model, t
he rate of replenishment is at the rate of ‘k’ units per unit of time and shortages
are allowed. The figure 8.14 shows the graphical representation of the model.
Figure 8.15.
From the figure, total cost per cycle = C = (S/2) × (t1 + t2) × C1 + (z/2) × (t3 + t4)
× C2 + C3 Now, S = t1 (k + r) or t1 = S / (k – r), similarly, t2 = (S / r), t3 = (z
/ r), and t4 = (z / k – r ), Substituting the values and simplifying, The cost fu
nction becomes, C = C3 + (C1S2 + C2 z2) / {2 r [1 – (r / k)]} Hence cost per unit
of time (by substituting t = (q / r) = C0 (s,t) = C3 r / q + (C1S2 + C2 z2) / {[
2q ( 1 – (r / k)] After mathematical treatment, the optimal value of C0 (q0,z0) =
C0 (q0,z0) = C0 (q0,x0) =
{2C 3C1 r [1 − ( r / k )} × (C2 / C1 + C2) OR C 2 /(C1 + C 2 ) × (k − r ) / k × 2C1C3 r
The other models are: q0 = q0 = z0 =
(2C3 r / C1 ) × [(C1 + C2) / C2 {1 – (r/k)}] OR (C1 + C 2 ) / C 2 × k /(k − r ) × (2C3 r )
/ C1
[2C3 r {1 − ( r / k )}C1 / C 2 (C1 + C 2 )] OR z0 = C1 / (C1 + C2) × (k – r) / k × q0 2C
3 (C1 + C 2 ) /C1C2 r [1 – (r/k)] OR
t0 = (q0 / r) =
402
Operations Research
t 0 = q0 / r =
(C1 + C 2 ) / C 2 ×
k /(k − r ) ×
2C3 / C1 r
As we know that S = [q (1 – r/k) – z] we can get, S0 =
2C3 r [1 − (r / k )] × [C2 / C1 (C1 + C2)] OR
Max Inv = S0 = C 2 /(C1 + C 2 ) × (k − r ) / k × (2C3 r ) / C1 (Note: By keeping k = ∞,
C2 = ∞ and k = ∞, the above models reduces to the models without shortages.).
Problem 8.40.
The demand for an item in a company is 18,000 units per year, and the company ca
n produce the item at a rate of 3,000 items per month. The cost of one setup is
Rs. 500/ and holding cost of one unit per month is 15 paise. The shortage cost
of one unit is Rs. 20/ per year. Determine the optimum manufacturing quantity a
nd the number of shortages. Also determine the manufacturing time and the time b
etween setups.
Solution
Data: λ = 18,000 units per year, or r = 1,500 units per month, k = 3000 units per
month, C1 = Rs. 0.15 per unit per month, C2 = Rs. 20 /- per unit per year = Rs.
1.67 per unit per month, C3 = Rs. 500/ - per set up. q0 =
(C1 + C 2 ) / C 2 × k /(k − r ) × 2C3 r / C1 =
(0.15 + 1.67) / 1.67 ×
3000 /(3000 − 1500) × C 2 /(C1 + C 2 ) ×
( 2 × 500 × 1500) / 0.15 = 4,669 units. 2C3 r / C1 =
Max inventory = Imax =
1.67 /(0.15 + 1.67) ×
(k − r ) / k ×
(3000 − 1,500) / 3000 ×
( 2 × 500 × 1500 ) / 0.15 = 2,142 units.
Therefore, number of shortages = q0 – Imax = 4669 – 2142 = 2,527 units. Manufacturin
g time = q0 / k = 4667 / 3000 = 1.56 months. Time between setups = t0 = q0 /r =
4669 / 1500 = 3.12 months. = App. 3 months.
Problem 8.41.
The demand for an item in a company is Rs. 12,000 per year and the company can p
roduce the item at a rate of 2000 units per month. The cost of one setup is Rs.
400/ and the holding cost is 15 paise per unit per month. The shortage cost of
one unit is Rs. 20/ per year. Unit cost of material is Rs. 4/ Determine q0, C0
(q,s), Maximum inventory, Manufacturing time interval, Total time interval.
Solution
Data: λ = 12,000 units per year, k = 2000 units per month or 24000 units per year,
C1 = Rs. 0.15 x
12 = Rs. 1.80 per unit per year, C2 = Rs. 20/- per year, C3 =
Rs. 400/- per set up. P = Rs. 4/- per unit. q0 =
(2C3λ ) / C1 × (C1 + C 2 ) / C 2 × k /(k − r ) 24000 /(24000 − 12000 ) = 3, 410 units.
= ( 2 × 400 × 12000 ) ×
(1.8 + 20) / 20 ×
Inventory Control
403
C0 (q,s) = Material cost + inventory cost = 12,000 × 4 + × = 48,000 + 2 × 1.8 × 400 × 12,0
00 ) + = Rs. 50,815 per year. Imax = Maximum inventory = =
(2 × 400 × 12000 ) / 1.80 × (k − r ) / k
(2 × C1 × C3 × λ ) ×
C 2 / C1 + C 2 )
20 /( 20 + 1.8) ×
(24000 − 12000 ) / 12000 (k − r ) / k
(2C3λ ) / C1 ×
C 2 (C1 + C 2 ) ×
20 /(1.80 + 20) ×
(24,000 − 12,000) /24000
= 1564 units/ per setup. Manufacturing time interval = t1 + t4 = q0 / k = 3410 /
24000 = 0.1421 year = 51.86 days = App. 52 days. Total time interval = t0 = q0/
λ = 3410/12000 = 0.2842 year = 103.73 days = App. 104 days.
8.7.11. Fixed Time Mode In this case, the production is instantaneous and the s
hortages are a owed and the inventory is to be rep aced at a fixed interva , sa
y at time ‘t’. This appears to be simi ar with the mode , where production is instan
taneous and back orders are a owed (8.7.9.1). The difference between the two mo
de s is that in this mode the cyc e time for one period is fixed. The graphica
representation of the mode is given in figure number 8.16. As the period is fi
xed, quantity ‘q’ is known exact y and is equa s to ‘rt’. The decision variab e is eve
of inventory ‘S’ and the eve of shortage. Carrying cost = (S/2) × t1 × C1 Shortage co
st = [(q – S) /2] × t2 × C2
Figure 8.16.
404
Operations Research
From the triang es, OAB and FBD, the re ations are: (t1/t) = (S/q) or t1 = (S/q)
t and t2 = (q – S) t/q Hence we can write the tota cost equation as: C(S) = (C1
S2) 2r + [C2 (rt - S)2] / 2r by differentiating and equating to zero, we get, S0
= rt × [(C2) / (C1 + C2)]
Prob em 8.42.
A contractor has to supp y Diese engines to a Truck manufacturing company at a
rate of 20 per day. The pena ty in the contract is Rs. 10/- per engine per day
ate for missing the schedu ed de ivery date. The cost of ho ding an engine in st
ock for one month is Rs. 15/-. His production process is such that each month (3
0 days) he starts a batch of engines through the agencies and a are avai ab e
for supp y after the end of month. What shou d inventory eve be in the beginni
ng of each month?
So ution
Data: C1 = Rs. 15/- / 30 days (Rs. 15/30 per day), C2 = Rs. 10/- per day, r = 20
engines, t = 30 days. S0 = [rt (C2)] / (C1 + C2) = 20 × 30 × 10 / 10 + (15/30) = 57
1.4 = App. 571 engines.
8.8. MODELS WITH RESTRICTIONS 8.8.1. Mu ti- Item, Deterministic Mode s with one
Linear Constraint Sometimes business may face prob ems of purchasing many items
and storing them when there are some restrictions regarding the capita to be in
vested, or storage space etc., Here the materia s manager has to workout the opt
ima quantity for each materia which minimizes the tota inventory cost under g
iven imitations. Due to imitations, may be space or may be capita to be inves
ted, there exists a re ation among items, hence they cannot be considered separa
te y. To simp ify the procedure, we use Lagrange’s mu tip ier technique as exp ain
ed be ow: Procedure: First neg ect the constraint and so ve the prob em. Then co
nsider the effect of constraint on so ution. Let number of items is ‘n’. The assumed
condition is instantaneous production and no ead-time and the demand is determ
inistic and uniform at the rate of ‘ri’ items per unit of time for ‘i th’ item. Let C1 b
e the inventory carrying cost per unit of quantity per unit of time for ‘i th’ item
and C3 is the set up cost per run for the ‘i th’ item. As the no shortages are a ow
ed C2 = 0. The cost for ‘i th’ item per unit of time is: C0i = (qi / 2) / C1i + (ri
/ qi) C3i here subscript ‘i’ indicates the costs and quantity of ‘i th’ item stocked at
the beginning of the cyc e.
Hence tota cost per unit of time: C = C(q1,q2,…..qn) =
∑ [(q / 2) C
i i =1
n
1i
+ (ri / qi ) C3i
2 ∂C / ∂qi = (C1i / 2) − C3i (ri / qi ), where i = 1,2,3,….n.
By equating ∂C / ∂qi to zero, we get, qi0 = where i = 1, 2, 3, …..n.
(2C3i × ri ) / C1i which gives the optima value of q1
Inventory Control
405
8.8.2. Restriction on the Number of Stocked Units
(Consider a limitation that the average number (of any item is equals to [qi/2]
for any item at any time) of all stocked units should not exceed the number ‘I’, i.e
.
(1 / 2)
∑q
i =1
n
i
≤ 1.
Now we have to minimize C, subject to if
(1 / 2)
∑q
i =1
n
i0
≤ |, then the optimal value qi0 given above are the required values without any pr
oblem. ≤ |, is not satisfied, we use the Lagrange’s multiplier technique. The multip
lier
if, (1 / 2)
∑q
i =1 n i =1
n
i0
function is L =
∑[(q / 2) C
i
1i
+ (C3i ri ) / qi ] + λ [
∑q
i =1
n
i
− 2], where λ is a Lagrange’s mu tip ier.
[( 2C3i ri ) /(C1i + 2λ )]
i
By finding ∂L / ∂qi and ∂L / ∂λ and equating them to zero, we get q0 = gives the optima v
a ue when they satisfy the condition is used to find the va ue of i by tria and
error by interpo ation.
∑
i =1
n
qi − 2 |= 0 OR
∑q
i =1
n
= 2 | This constraint
(a) Limitation on Investment Let us assume that the upper limit of investment to
be invested on inventory in Rs. is M. Let pi be the unit price of ‘i’ th item. Then
:
∑p q
i i =1
n
i
≤M
Now our problem is to minimize the total cost given in the cost equation in 8.8.
1 subject to an additional cost constraint given above. By analyzing carefully,
we can get two cases.
Case1
When
∑p q
i i =1
n
i0
≤ M where qi0 is the optimal quantity given by the equation shown in 8.8.2. This
case does not give any trouble as the optimal order quantity can be found by the
equation q0 =
(2C3 r ) / C1 .
Case 2
When
∑p q
i i =1
n
i0
> M where q0 =
(2C3 r ) / C1. Here suppose qi0 for i = 1,2,3 …n are not the
required optimal values of ‘q’, we have to use Lagrange’s multiplier technique as show
n below:
406
n n
Operations Research
L=
∑ [(q / 2) × C
i i =1
1i
+ (ri / qi ) × C3i ] + λ[
∑p q
i i =1
i
− M ], where λ is Lagrange‘s mu tip ier. By
finding ∂L / ∂λ and equating it to zero we get, qi0 =
n
[(2C3i ri ) /(C1i + 2λ × pi ]
and
∑ p ×q
i i =1
i0
= M , which says that investment constraint must be satisfied.
Prob em 8.43.
A company producing three items has a imited storage space of average y 750 ite
ms of a types. Determine the optima production quantities for each item separ
ate y, when the fo owing information is given.
Products Cost. Carrying cost C1 Rs. Setup cost C3 Rs. Demand = r units. 1 0.05 5
0 100 2 0.02 40 120 3 0.04 60 75
So ution
Let us first ignore the space constraint imposed and find the optima order quan
tities of each item. Data: Product 1: C1 = 0.05, C3 = Rs. 50, Demand r = 100 uni
ts. Product 2. C1 = 0.02, C3 = Rs. 40/-, r = 120 units. Product 3 C1 = 0.04, C3
= Rs. 60/-, r = 75 units. q01 = q02 = q03 =
(2C31 r1 ) / C11 = (2 × 50 × 100) / 0.05 = 100 ×
20 = 447 units. 48 = 693 units. 21.5 = 474 units.
(2C32 r2 ) / C12 =
(2C33 × r3 ) / C13 =
(2 × 40 × 120) / 0.02 = 100
(2 × 60 × 75) / 0.04 = 100
Tota average inventory at any time = (447/2 + 693 /2 + 474 /2) = 802 units. Thi
s exceeds 750 units the given constraint. We have to find the Lagrange’s Mu tip ie
r by tria and error. q01 = ( 2C 3 r ) / C1 + 2λ )] = [2 × 50 × 100 ) /(0.05 + 2 × 0.005
)] = 100 Where va ue of λ is taken as 0.005. Simi ar y, q02 = q03 =
[(2 × 40 × 120) /(0.02 + 2 × 0.005)] = 100
[( 2 × 60 × 75) / 90.04 + 2 × 0.005)] = 100
16.67 = 409 units.
32 = 566 units.
18 = 424 Units.
Average inventory eve = q01 /2 + q02 /2 + q03 /2 = (409 /2 + 566 /2 + 424 / 2)
= (204.5 + 283 + 212) = 699.5 = App. 700 units. This va ue is ess than the giv
e constraint. We can test the above with the va ue of λ = 0.004, 0.003, 0.002 and
0.001 etc. We can construct a graph for va ue of λ against the average inventory
Inventory Contro
407
eve . From this graph we wi be in a position to find the exact va ue of λ . Whe
n we get an arc in the graph, we can connect the two ends of the arc and draw st
raight ine, which wi he p us to find the va ue of λ . Figure 8.17 is the graph
showing the va ue of λ on X – axis and the va ue of average inventory eve on Y - a
xis.
Figure 8.17.
λ
Vs Average inventory.
From the figure
(DB/OC) = (DA/OA) or (DB/0.005) = 52 / 100) or λ = DB = (52 / 100) × 0.005 = 0.00256
. By app ying this va ue of λ we get the inventory eve s as: q01 = q02 = q03 =
( 2 × 50 × 100 ) /(0.05 + 2 × 0.00256 ) = ( 2 × 40 × 120 ) /(0.02 + 2 × 0.00256 ) =
10000 / 0.05512 = 426 units 9600 / 0.02256 = 652 units 9000 / 0.04256 = 460 unit
s
(2 × 60 × 75) /(0.04 + 2 × 0.00256) =
Average inventory eve = (426 /2) +(652 / 2) + (460 / 2) = 213 + 326 + 230 = 76
9 q01 = q02 = q03 =
[( 2 × 50 × 100) /(0.05 + 2 × 0.002)] = 428 units.
[(2 × 40 × 120) /(0.02 + 2 × 0.002)] = 628 units.
[( 2 × 60 × 75) /(0.04 + 2 × 0.002)] = 444 units.
Average eve of inventory = (428 / 2) + 628 / 2) + 444 / 2) = 214 + 314 + 222 =
750 units. Hence optima inventory of three items is: q01 = 428 units, q02 = 62
8 units, q03 = 444 units
408
Operations Research
Prob em 8.44.
For the fo owing data, determine approximate y the economic order quantities, w
hen the tota va ue of average inventory eve of the products is Rs. 1000/Costs
. Ho ding Cost C1 (%) Set up cost C3 in Rs. Cost per unit = p in Rs. Year y dema
nd = r in units. Product 1. 20 50 6 10000 Product 2. 20 40 7 12000 Product 3. 20
60 5 7500
So ution Data: C1 = Rs. 20/-, C3 = Rs. 50/-, p = Rs.6/- per unit, r = 10000 unit
s per year for product 1. C1 = Rs.20/-, C3 = Rs. 40/- p = Rs. 7/- per unit, r =
12,000 units per year for product 2. C1 = RS.20/-, C3 = Rs. 60/-, p = Rs. 5/- pe
r unit, r = 7500 units per year for product 3. Investment imit is Rs. 1000/-. I
gnoring constraint, if we find economic order quantity, we have:
q01 = q02 = q03 =
[(2 × 50 × 10000 ) /( 20)] = 100 5 = App.223 units. [(2 × 40 × 12000 ) /( 20)] = 40 30 =
App. 216 units. [( 2 × 60 × 7500 ) /( 20)] = 150 2 =App. 210 units.
Va ue of inventory = (q0i /2) × pi Corresponding va ue of average inventory at any
time is: [ (223 / 2) × 6 + (216 / 2) × 7 + 210 / 2) × 5 ] = Rs. 1950/-. This va ue is
greater than the given financia imit of Rs. 1000/-. Now et us take the va ue
of λ = 5 and find the va ue of inventory eve s. q01 = q02 = q03 =
[(2 × 50 × 10000 ) /( 20 + 2 × 5 × 6)] = App. 111 units.
[( 2 × 40 × 12000 ) /( 20 + 2 × 5 × 7)] = App. 102 units. [( 2 × 60 × 7500) /( 20 + 2 × 5 ×
= App. 113 units.
Corresponding cost of Average inventory eve = (111/2) × 6 + 102/2) × 7 + 113/2) × 5
= Rs. 972.50 This amount is s ight y ess than the given imit. Now et us try t
he va ue of λ as 4. q01 = q02 = q03 =
[( 2 × 50 × 10000 ) /( 20 + 2 × 4 × 6)] = App. 121 units. [( 2 × 40 × 12000 ) /( 20 + 2 × 4
] = App. 112 units. [( 2 × 60 × 7500) /( 20 + 2 × 4 × 5)] = App. 123 units.
Corresponding cost of Average inventory eve = (121/2) × 6 + 112/2) × 7 + 123/2) × 5
= Rs. 1112.50. This is s ight y greater than the given imit. Hence the va ue of
λ must ie between 4 and 5. A
Inventory Contro
409
graph is drawn for va ues of average inventory cost and λ and a straight ine is d
rawn for the average inventory cost at λ = 4 and 5 and then a horizonta ine from
Rs. 1000/- is drawn to find the va ue of λ . This is shown in the figure 8.18. Fr
om the figure the va ue of λ is 4.7. Using this va ue et us find the va ue of opt
ima inventory. q01 = q02 = q03 =
[(2 × 50 × 10000 ) /( 20 + 2 × 4.7 × 6)] = App. 114 units. [(2 × 40 × 12000 ) /(20 + 2 × 4.
)] = App. 105 units. [( 2 × 60 × 7500 ) /( 20 + 2 × 4.7 × 5)] = App. 116 units.
Figure 8.18.
Corresponding cost of Average inventory eve = (114/2) × 6 + 105/2) × 7 + 116/2) × 5
= Rs. 999.50. This amount is very c ose to the given imit of financia commitme
nt and hence this is accepted. (Note: In the prob ems of the type shown above, w
e are concerned with tota va ue of average inventories of three products. The c
onstraint in the examp e is: ½ Σ pi qi ≤ M OR Σ pi qi ≤ 2M. However, the values of qi is w
orked out by same formula because by taking this constraint ∂L / ∂qi does not change
).
(b) Restrictions on the area available for storage (storage space)
Now let us see when a restriction on storage space in square meters (or square f
eet) is made how to solve the problem. Let us assume that ‘a’ is the imit of f oor
space avai ab e in square meters (or
410
Operations Research
square feet). Let ai square meters (Square feet) of f oor space is required for
one of the materia , say ‘i th’ item, then the required constraint is:
∑a q
i i =1
n
i
≤a
n
This is forma y equiva ent to the investment constraint i.e. Σ pi qi ≤ M, for which
we have already obtained optimal order quantity. Hence in place of ‘pi’, if we subs
titute, ‘ai’ we get: q0 =
[(2C3i ri ) /(C1i + 2λ ai )]
Prob em 8.45.
A sma shop produces three machine parts 1,2,and 3 in ots. The shop has on y 6
50 square feet of storage space. The appropriate data for three items are repres
ented fin the fo owing tab e:
Item Demand rate in units per year Procurement cost in Rs. Cost per unit in Rs.
F oor space required in square feet. Product 1 5000 100 10 0.70 Product 2 2000 2
00 15 0.80 Product 3 10000 75 5 0.40
The carrying cost on each item is 20% of average inventory va uation per year. I
f no stock out are a owed, determine the optima ot size for each item.
So ution
Q01 = Q02 = Q03 =
[( 2C 31 r1 ) /(i pi )] = [( 2 × 5000 × 100) /(0.2 × 10)] = App. 700 units.
[(2C32 r2 ) /(i p2 )] =
[( 2C33 r3 ) /(i p3 )] =
[(2 × 2000 × 200) /(0.2 × 15)] = App. 516 units.
[(2 × 10000 × 75) /(0.2 × 5)] = App./ 1225 units.
Corresponding f oor space required = Σ ai q0i = (0.07 × 707) + 0.8 × 516 + 0.4 × 1225 =
1397.7 square feet. But the given limit is only 650 square feet. Hence the space
we got is more than the required. We can try with Lagrange’s mu tip es λ to get the
right answer. First et us try with the va ue of λ = 4. q0i = q01 = q02 = q03 =
[(2C3i ri ) /(i pi + 2λ ai )]
[( 2 × 5000 × 100 ) /(0.20 × 10 + 2 × 4 × 0.70)] = App. 363 units. [( 2 × 2000 × 200) /(0.2
5 + 2 × 4 × 0.80)] = App 292 units. [( 2 × 10000 × 75) /(0.20 × 5 + 2 × 4 × 0.40)] = App 59
nits.
Corresponding f oor space = (363 × 0.7) + (292 × 0.8) + (598 × 0.4) = 726.9 square fee
t. As this area is a so more than the given imit, et us try with a va ue of λ =
5.
Inventory Contro
411
q01 = q02 = q03 =
[(2 × 5000 × 100) /(0.20 × 10 + 2 × 5 × 0.70)] = App. 333 units.
[( 2 × 2000 × 200 ) /(0.20 × 15 + 2 × 5 × 0.80)] = App 270 units. [( 2 × 10000 × 75) /(0.20
+ 2 × 5 × 0.40)] = App 578 units.
The required f oor space = (333 × 0.7) + (270 × 0.8) + (578 × 0.4) = 668.3 Square feet
. This va ue is s ight y higher than the given imit. Hence by interpo ation we
can se ect a s ight y higher va ue say λ = 5.4. Then the optima quantities are: q
01 = q02 = q03 =
[( 2 × 5000 × 100) /(0.20 × 10 + 2 × 5.4 × 0.70)] = App. 324 units. [(2 × 2000 × 200) /(0.2
5 + 2 × 5.4 × 0.80)] = App 263 units.
[(2 × 10000 × 75) /(0.20 × 5 + 2 × 5.4 × 0.40)] = App 531 units.
The required f oor space = (324 × 0.7) + (263 × 0.8) + (531 × 0.4) = 649.6 Square feet
. This is very c ose to the given f oor space. Hence the optima quantities of p
roducts are: q01 = 324 units, q02 = 263 units, and q03 = 531 units.
Prob em 8.46.
Three items are produced in a company and they are to be stored in the avai ab e
space, which is imited to 25 square meters. The other particu ars are given in
the tab e be ow. Find the optima quantities of the products.
Item Demand in units. C3 Procurement cost in Rs, Carrying cost in Rs. Area requi
red in meter square. 1 2 3 20 40 30 100 50 150 30 10 20 1 1 1
So ution
By neg ecting the constraint et us find optima quantities, given by q0i = q01
= q02 = q03 =
[( 2 × 100 × 20) / 30] = 11.5 units. [( 2 × 50 × 40) / 10] = 20 units. [( 2 × 150 × 30) / 2
] = 21.2 units. [(2C3i ri ) /(C1i )].
Corresponding space required = 11.5 × 1 + 20 × 1 + 21.2 × 1 = 52.7 Sq.mt. This is more
than the required. Hence et us try the va ue of λ = 5,15,20 and 30.
λ = 5. for which q0i =
[(2C3i ri ) / Ci + 2λ ai
q01 = q02 =
[(2 × 100 × 20) /(30 + 2 × 5 × 1)] = 10 units.
[(2 × 50 × 40) /(10 + 2 × 5 × 1)] = 14.1 units.
412
Operations Research
q03 =
[(2 × 150 × 30) /(20 + 2 × 5 × 1)] = 17.3 units.
Corresponding f oor area = 10 × 1 + 14.1 × 1 + 17.3 × 1= 41.4 Sq. Mt. This is a so mor
e than the given imit. Let take the va ue of λ = 15 q01 = q02 = q03 =
[( 2 × 100 × 20) /(30 + 2 × 15 × 1)] = 8.2 units.
[(2 × 50 × 40) /(10 + 2 × 15 × 1)] = 10.2 units.
[( 2 × 150 × 30) /( 20 + 2 × 15 × 1)] = 13.4 units.
Corresponding f oor area = 8.2 × 1 + 10.2 × 1 + 13.4 × 1= 31.8 Sq. Mt. This is a so mo
re than the given imit. Now et try with the va ue of λ = 20. q01 = q02 = q03 =
[(2 × 100 × 20) /(30 + 2 × 20 × 1)] = 7.6 units.
[(2 × 50 × 40) /(10 + 2 × 20 × 1)] = 8.9 units. [( 2 × 150 × 30) /(20 + 2 × 20 × 1)] = 12.2
s.
Corresponding f oor area = 7.6 × 1 + 8.9 × 1 + 12.2 × 1= 28.7 Sq. Mt. This is a so mor
e than the given imit. Now et take the va ue of λ = 30. q01 = q02 = q03 =
[( 2 × 100 × 20) /(30 + 2 × 30 × 1)] = 6.7 units. [(2 × 50 × 40) /(10 + 2 × 30 × 1)] = 7.6
.
[(2 × 150 × 30) /(20 + 2 × 30 × 1)] = 10.6 units.
Corresponding f oor area = 6.7 × 1 + 7.6 × 1 + 10.6 × 1= 24.9 Sq. Mt. This is very c o
se to the given imit. Hence the optima quantities of three items are: q0 = 6.
7 units, q02 = 7.6 units and q03 = 10.6 units.
Prob em 8.47.
A machine shop produces three products 1,2 and 3 in ots. The shop has a warehou
se whose tota f oor area is 4000 square meters. The re evant data for three pro
ducts is given be ow:
Item Annua demand in units per year (r) Cost per unit (p) in Rs. Set up cost pe
r ot C3 in Rs. F oor area required in Sq. mt. Product 1 500 30 800 5 Product 2
400 20 600 4 Product 3. 600 70 1000 10
The inventory carrying chargers for the shop are 20% of the average inventory va
uation per annum for each item. If no stock outs are a owed and at no time can
the warehouse capacity be exceeded, determine the optima ot size of each item
.
Inventory Contro
413
So ution
Optima quantities of each item is given by (ignoring the imitation on f oor ar
ea): [( 2C3i × ri ) /(ip)]. q01 = q02 = q03 =
[(2 × 800 × 500) /(0.20 × 30)] = App. 365 units.
[( 2 × 600 × 400) /(0.20 × 20)] = App 346 units. [( 2 × 1000 × 600) /(0.20 × 70)] = App. 29
units.
F oor
space required = Σ q0i ai = 365 × 5 + 346 × 4 + 292 × 10 = 1825 + 1384 + 2920 = 61
29 q. mt. This is greater than the given limit of 4000 q.mt. Let us use Lagran
ge’s mu tip ier technique to find the required quantities. Let us try with va ues
of λ = 1.0, 0.8.
λ = 1.00, q0i = [(2 × C3i × ri ) /(i × pi × 2 × λ × ai )]
q01 = q02 = q03 = imit.
[( 2 × 800 × 500) /(0.20 × 30 + 2 × 1 × 5)] = 223 units.
[(2 × 600 × 400) /(0.20 × 20 + 2 × 1 × 4)] = 200 units.
[(2 × 1000 × 600) /(0.20 × 70 + 2 × 1 × 10)] = 187 units.
Required f oor area = 223 × 5 + 200 × 4 + 187 × 10 = 3785 Sq. mt. This is a so ess th
an the given
λ = 0.8, q0i =
[(2 × C3i × ri ) /(i × pi × 2 × λ × 1i )]
q01 = q02 = q03 =
[(2 × 800 × 500) /(0.20 × 30 + 2 × 0.8 × 5)] = 239 units. [( 2 × 600 × 400 ) /(0.20 × 20 +
× 4)] = 214 units. [(2 × 1000 × 600) /(0.20 × 70 + 2 × 0.8 × 10)] = 200 units.
Required f oor area = 239 × 5 + 215 × 4 + 200 × 10 = 4051 Sq.mt. This is s ight y high
er than the given imit. Now et us take the va ue of λ = 0.835 and find the optim
a va ues of quantities. q01 = q02 = q03 =
[(2 × 800 × 500) /(0.20 × 30 + 2 × 0.835 × 5)] = 236 units.
[(2 × 600 × 400) /(0.20 × 20 + 2 × 0.835 × 4)] = 211 units. [( 2 × 1000 × 600) /(0.20 × 70
.835 × 10)] = 197 units.
Required f oor area = 236 × 5 + 211 × 4 + 197 × 10 = 3994 Sq mt. This is very nearer t
o given va ue, hence is accepted. Hence q01 = 236 units, q02 = 211 units and q03
= 197 units. (Remember a ways see that the obtained area must be s ight y ess
than or equa to the given imit and it shou d never exceed the given va ue.)
8.9. PROBABILISTIC OR STOCHASTIC MODELS So far we have discussed the prob ems, w
here the demand for an item is known and deterministic in nature and it wi not
vary during the p anning period. If the demand is not known exact y to us or it
414
Operations Research
cannot be pre determined or in case it goes on changing / f uctuate with time in
either way, the situation is known as Mode s with unknown demand or mode s with
probabi istic demand. This means that demand can be known with certain probabi
ity. When the probabi ity of demand ‘r’ is expected, then we cannot minimize the act
ua cost. But the optima quantity of inventory is determined on the basis of mi
nimizing the tota expected cost represented by (TEC) instead of minimizing the
actua cost. In many practica situations or in rea wor d prob ems, it is obser
ved that neither the consumption rate of materia or commodity or the ead time
is constant throughout the year. To face these uncertainties in consumption rate
and ead time, an extra stock is maintained to meet the demand, in case any sho
rtage is there. The extra stock is termed as BUFFER STOCK OR SAFETY STOCK.
8.9.1. Sing e period mode with uniform demand (No set up cost mode ) In this mo
de the fo owing assumptions are made: (a) Reorder time is fixed and known say ‘t’
units of time. Therefore the set up cost C3 is not inc uded in the tota cost. (
b) Demand is uniform y distributed over period. Here the term period refers for
the time of one cyc e. (c) Production is instantaneous, i.e. ead-time is zero.
(d) Shortages are a owed and they are back ogged. The costs inc uded in this mo
de is C1 carrying cost per unit of quantity per unit of time and C2 the shortag
e cost per unit of quantity per unit of time. (e) Units are discrete and p(r) is
the probabi ity of requiring ‘r’ units per period. If ‘S’ is the eve of inventory in
the beginning of each period, and we have to find the optimum va ue of ‘S’. Hence th
e decision variab e is S. In this prob em two situations wi arise: (a) Demand
r ≤ S, (b) demand r > S. The two situations are i ustrated by means of graph in f
igure 8.19. Inventory in one cyc e = ½ (S + S – r) t = ½ (2S – r) t = (S – r/2) t. units.
Hence inventory Carrying cost = C1 × (S – r/2) × t, this is true when r ≤ S. But the dem
and is equa to ‘r’ is with a probabi ity of p (r). Hence the expected carrying cost
= C1 × (S – r/2) × t × p (r). As ‘r’ may have any va ues (because r ≤ S), the tota expect
carrying cost when r ≤ S is given by:
∑ C ct × (S − r/ 2) × p (r )
1 r =0
S
In case r > S, then carrying cost and shortage cost are to be considered. Carryi
ng cost = ½ × S × t × C1 and shortage cost = ½ (r – S) × C2 t2 By mathematical treatment (S
ents are advised to refer for derivation the Operations Research book where math
ematical approach is given), it can be shown that L (S0 – 1) < [(C2) / (C1 + C2)]
< L (S0), where, L (S) =
∑
r =0
S
p (r ) + ( S + ½) ×
r = S +1
∑[ p (r )/r ]
∝
Inventory Control
415
Total expected cost is given by the formula: C(s) = C1
∑
r =0
S
[ S −( r/ 2)] P (r ) + C1 ×
r = S +1
∑
∞
( S 2 / 2r ) × p ( r ) + C 2
r = S +1
∑[(r − S )
∞
2
/ 2r ] × p ( r )
Figure 8.19
416
Operations Research
Problem 8.48.
A contractor of second hand motor trucks uses to maintain a stock of trucks ever
y month. The demand of the trucks occurs at a constant rate but not in constant
size. The probability distribution of the demand is as shown below:
Demand (r): Probability p (r): 0 0.40 1 0.24 2 0.20 3 0.10 4 0.05 5 0.01 6 or mo
re. 0.00
The holding cost of an old truck in stock for one month is /Rs.100/ and penalty
for a truck if not delivered to the demand, is Rs. 1000/ . Determine the optima
l size of the stock for the contractor.
Solution
S 0 1 2 3 4 5 ≥6
R 0 1 2 3 4 5 ≥6
P (r) 0.40 0.24 0.20 0.10 0.05 0.01 0.00
[p (r)/r] ∞ 0.2400 0.1000 0.0330 0.0125 0.0020 0.0000
∑
S +1
∞
[ p (r ) / r
(S+1/2) ×
∑
S +1
∞
[ p (r ) / r ]
∑ p (r )
0
S
L (S) 0.59375 0.86125 0.95874 0.99075 0.99900 1.00000 1.00000
0.3875 0.1475 0.0475 0.0145 0.0020 0.0000 0.0000
0.19375 0.22125 0.11875 0.05075 0.00900 0.00000 0.00000
0.40 0.64 0.84 0.94 0.99 1.00 1.00
Here the ratio [C2 / (C1 + C2)] = [1000 / (1000 + 100) = 1000 / 1100 = 0.9090. T
his figure lies between L (2) and L (1). Hence the optimal stock = 2 trucks.
Problem 8.49.
A manufacturer wants to determine the optimum stock level of a certain part. The
part is used in filling orders, which come in at a constant rate. The delivery
of these parts to him is almost instantaneous. He places his orders for these pa
rts at the start of every month. The requirements per month are associated with
probabilities shown in table below. Holding cost is Re.1/ per part per month an
d shortage cost is Rs. 19/ per part per month. Also find the expected cost asso
ciated with the optimum stock.
Demand in number of parts required per month: Probability: 0 0.10 1 0.15 2 0.25
3 0.30 4 0.15 5 0.05 6 or more.
Inventory Control
417
Solution
S 0 1 2 3 4 5 6 or > 6
R 0 1 2 3 4 5 6 or > 6
P (r) 0.10 0.15 0.25 0.30 0.15 0.05 0.00
[p (r)/r]
∑
S +1
∞
[ p (r ) / r
(S+1/2) ×
∑
S +1
∞
[ p (r ) / r ]
∑ p (r )
0
S
L (S) 0.31125 0.65875 0.86875 0.96625 0.99500 1.00000 1.00000
∞
0.1500 0.1250 0.1000 0.0375 0.0100 0.0000
0.4225 0.2725 0.1475 0.0475 0.0100 0.0000 0.0000
0.21125 0.40875 0.36875 0.16625 0.04500 0.00000 0.00000
0.10 0.25 0.50 0.80 0.95 1.00 1.00
Here the ratio C2 / (C1 + C2) = 19 / (19 + 1) = 19 / 20 = 0.95. This lies betwee
n (L2) and (L3). Hence we can take S = 3 units. The optimal cost is given by:
C(s) = C1
∑ [S −(r/ 2)] P (r ) + C × ∑ (S
1 r =0 r = S +1
S
∞
2
/ 2r ) × p ( r ) + C 2
r = S +1
∑[(r − S )
∞
2
/ 2r ] × p ( r )
= Rs.[ Σ (3 – r/2) × p (r ) + 1 × Σ [(32 / 2 ) × p (r) / r] + 19 3 [ (r–3 )2 / 2r p (r)] =
(3 – 0 ) ( 0.10) + ( 3 – ½ ) ( 0.15)] + [(3 – 1) ( 0.25) + (3 – 3/2) ( 0.30)] + (9/2) [ (0
.15/ 4) + (0.05/4) + 0] + 19 [ (4 – 3)2 / (2 × 4) × ( 0.15) + (5 – 3)2 / (2 × 4) × (0.15) +
0]} = Rs. [ ( 0.30 + 0.375 + 0.50 + 0.45) + 0.21375 + 0.73625] = Rs. 2.58.
Problem 8.50.
The demand for a particular product is continuous and shows the following probab
ility distribution:
Demand: Probability: 0 0.16 1 0.10 2 0.30 3 0.24 4 0.20 5 or more 0.00
Find out the optimum stock level if the cost of shortage is Rs. 40/- per unit an
d the cost of holding is Rs. 10/- per unit. The shortage cost is proportional to
both time and quantity short.
418
Operations Research
olution
0 1 2 3 4
R 0 1 2 3 4
P (r) 0.16 0.10 0.30 0.24 0.20 0.00
[p (r)/r] ∞ 0.10 0.15 0.08 0.05 0.00
∑
+1
∞
[ p (r ) / r
0.38 0.28 0.13 0.05 0.00 0.00
( +1/2) ×
∑
+1
∞
[ p (r ) / r ]
∑ p (r )
0
L( ) 0.350 0.680 0.885 0.975 1.000 1.000
0.190 0.420 0.325 0.175 0.000 0.000
0.16 0.26 0.56 0.80 1.00 1.00
≥5
≥5
Now the ratio C2 / (C1 + C2) = 40 / (40 + 10) = 0.8. 0.685 < 0.8 < 0.885, in thi
s case = 2 satisfies the condition. Hence optimum stock level = 2 units.
Problem 8.51.
The probability distribution of monthly sales of a certain item is as follows:
Monthly sale in units: Probability: 0 0.02 1 0.05 2 0.30 3 0.27 4 0.20 5 0.10 6
0.06
The cost of carrying inventory is Rs. 10/- per unit per month. The current polic
y is to maintain a stock of four items at the beginning of each month. Assuming
that the cost of shortage is proportional to both time and quantity short, obtai
n the imputed cost of a shortage of one item for one unit of time.
olution
As the data given is in discrete values,
the
imputed value will have a range. Da
ta: C1 = Rs. 10/- per unit per month. = tock
level = 4 units. As the demand
i
s uniformly distributed over the month, L ( 0 – 1) < C2 / (C1 + C2) < L( 0) L ( 0 –
1) = L (4 – 1) =
∑
r =0
4
p (r ) + (4 + ½) ×
∑ p ( r ) /r
r =4
6
= 0.84 + (7/2) [ (0.20/4) + (0.10 / 5) +(0.06/ 6)] = 0.92 Thus the least value o
f C2 is given by C2 / (C1 + C2) = 0.92 or (C2 /10) + C2 = 0.92. Which gives that
the value of C2 = Rs. 115/-. imilarly, the highest value of C2 is given by con
sidering the right-hand side of C2 / (C2 + C2), i.e. C2 / (C1 + C2) =
∑
r =0
4
p (r ) + (4 + ½) ×
∑ p (r )/r = 0.84 + (9 / 2) [ (0.10 / 5) + (0.06 / 6) ] = 0.975.
r =5
6
Hence C2 = 0.975 (10 + C2),
because C1 = Rs. 10/-. This gives C2 = Rs. 390/-. Th
erefore imputed cost of hortage is given by Rs. 115/- < C2 < Rs. 390/-
Inventory Control
419
Problem 8.52.
The probability distribution of monthly sales of certain item is as follows:
Monthly sales: Probability: 0 0.01 1 0.04 2 0.25 3 0.30 4 0.23 5 0.08 6 0.05 7 0
.03 8 0.01
The cost of holding inventory is Rs.8/- per unit per month. A stock of 5 items i
s maintained at the start of each month. If the shortage cost is proportional to
both time and quantity short, find the imputed cost of shortage of unit item fo
r unit time.
olution
As the
given data has discrete units the imputed cost will have a range. Given t
hat = 5, C1 = Rs.8/- per unit per month, Range of monthly sales = 0 to 8 and t
he probability of sales are as given below:
p0 0.01 p1 0.04 p2 0.25 p3 0.30 p4 0.23 p5 0.08 p6 0.05 p7 0.03 p8 0.01
The range of is given by: L ( 0 – 1) < C2 / (C1 + C2) < L( 0) i.e. The least val
ue of C2 is given by: L ( 0 – 1) = L ( 0 – 1) =
∑
r =0 4 r =0
4
p (r ) + ( 0 + ½) ×
8
∑ p ( r ) /r
r =5 2
8
L (5 – 1) = L (5 – 1) =
∑ p (r ) + (5 + ½) × ∑ p (r )/r = C
r =5
/(8 + C 2 )
(p0 + p1 + p2 + p3 + p4) × (9/2) [ (p5 / 5) + (p6/6) + (p7 / 7) + (p8 / 8 ) ] = C2
/ (C1 + C2) = (0.01 + 0.04 + 0.25 + 0.30 + 0.23) + (9/2) [(0.08/5) + 0.05 / 6)
+ (0.03 / 7) + (0.01 / 8) = C2 / (8 + C2) = 0.83 + 4.5 (0.016 + 0.0083 + 0.0043
+ 0.00125) = 0.9643 = C2 /(8 + C2), C2 = (.9643 × 8) / 0.0357 = Rs. 216/ imilarly
upper limit of C2 can be obtained by C2/(C1 + C2) < L( 0) = C2 / (C1 + C2) =
∑
r =0
5
p (r ) + (5 + ½) ×
∑ p (r )/r
r =6
8
(p0 + p1 + p2 + p3 + p4 + p5) + (11 / 2) × [ (p6 / 6) + (p7 / 7) + (p8 / 8)] = C2
/ ( 8 + C2) (0.01 + 0.04 + 0.25 + 0.30 + 0.23 + 0.08) + (11 / 2) [ (0.05 / 6) +
(0.03 / 7) + (0.01 / 8)] = C2/(8 + C2) 0.91 + (11/ 2) × (0.01385) = 0.91 + 0.07616
5 = C2 / (8 + C2) (8 + C2) × (0.91 + 0.076165) = C2, Which gives C2 = Rs. 570.25 H
ence the range of C2, i.e. imputed value = Rs. 216 < C2 < Rs. 570.25
420
Operations Research
8.9.2. ingle period problem with instantaneous demand (or discontinuous demand
and time independent costs - no set up cost model) This Model is very much simil
ar to the previous one but here the withdrawal of items form the inventory is no
t uniformly distributed over the period and the cost C1 and C2 are independent o
f time. There are two cases here. Case (a)- Demand ‘r’ is ≤ S: Here the cost is (S – r)
C1. Case (b)- Here the demand ‘r’ is > S: In this case we wi not consider the ho d
ing cost of an item if it is used or interpret that the demand is fu fi ed in t
he beginning of the period. The cost is (r – S) C2. Both the cases are i ustrated
by means of graphs in the figure 8.20.
Here the tota expected cost [TEC(s)] =
∑
r =0
S
( S − r ) p (r ) = C 2
r = S +1
∑ ( r − S ) p (r )
∞
The value of optimal value of S = S0 is given when, TEC (S0 + 1) > TEC (S0) and
TEC (S0 – 1) > TEC (S0) Now TEC (S+1) = C1
∑
r =0
S +1
( S + 1 − r ) p (r ) + C 2
r =S +2
∑ (r − S − 1) p (r )
∞
Figure 8.20
Similarly, TEC (S – 1) – TEC (S) = C 2 − (C1 + C 2 )
∑ p (r ).
r =0
S −1
By mathematical treatment (students are advised to refer to a book on O.R. with
mathematical approach for derivation) we can show that S0 is optimum when,
Inventory Control
S 0 −1 r =0 S0
421
∑ p (r ) < C
S
2
/(C1 + C 2 ) <
∑ p (r )
r =0
If the units are not discrete or ‘r’ is capable of being considered as continuous va
riable, then the optimal value of S i.e. S0 is given by:
∫ f (r ) dr = C
0
2
/(C1 + C 2 )
Problem 8.53.
A newspaper boy buys papers for 0.05 paise each and sells them for 0.06 paise ea
ch. He cannot return unsold newspapers. Daily demand ‘r’ for newspapers follows the
distribution:
Demand ‘r’: Probability p (r): 10 0.05 11 0.15 12 0.40 13 0.20 14 0.10 15 0.05 16 0.
05
If each day’s demand is independent of the previous day’s demand, how many papers sh
ould be ordered each day?
Solution
Let S be the number of newspapers ordered per day and ‘r’ be the demand for it (numb
er of papers sold each day). Given that C1 = Rs. 0.05 and C2 = Rs. 0.06 – 0.05 = R
s. 0.01. Now let us work out the cumulative demand for the newspaper (because th
e demand for units is discrete).
Demand = r Probability p (r) 10 0.05 11 0.15 12 0.40 13 0.20 14 0.10 15 0.05 16
0.05
Cumulative probability =
S 0 −1
∑ p (r )
r =0 S0 r =0
S
0.05
0.20
0.60
0.80
0.90
0.95
1.00
Now,
∑ P (r ) < C
r =0
2
/(C1 + C 2 ) <
∑ p (r ) and C
2
/(C1 + C 2 ) = 0.01 /(0.05 + 0.01) = (1 / 6) = 0.167.
This value lies between demand 10 and 11. Hence the newspaper boy has to purchas
e 11 papers. (0.05 < 0.167 < 0.20).
Problem 8.54
The demand for certain product has a rectangular distribution between 4000 and 5
000 units, find the optimal order quantity if storage cost is ‘Re. 1.00 per unit a
nd shortage cost is Rs. 7/ per unit.
Solution
Data: C1 = Re.1.00 per unit and C2 = Rs. 7/ per unit and the demand is rectangu
lar between 4000 and 5000 units.
422
Operations Research
Since the demand is rectangular between 4000 and 5000, assuming it a continuous
variate, the density function is given by: f (r) = (1 / 1000) Therefore, (Note:
f (x) = 1 / (b – a) where a ≤ x ≤ b)
4000
∑ (1 / 1000) dr = 7/(1+7) = (7/8) or (1/1000) (S– 4000) = (7/8) OR S = 4875 Units.
S
Problem 8.55.
Some of the spare parts of a ship cost Rs. 50,000 each. These spare parts can on
ly be ordered together with the ship. If not ordered at the time the ship is con
structed, these parts cannot be available on need. Suppose that a loss of Rs. 4,
500,000 is suffered for each spare that is needed when none is available in the
stock. Further suppose that the probabilities that the spares will be needed as
replacement during the life term of the class of ship discussed are:
Demand (r) = Probability p (r) 0 0.9000 1 0.040 2 0.025 3 0.020 4 0.010 5 0.005
6 or more. 0.000 Total = 1.000
How many spare parts are to be procured with the ship?
Solution
Data: C1 = Rs. 50,000/ , C2 = Rs. 4,500,000. Now the ratio C2 / (C1 + C2) = 4,50
0,000 / 4,550,000 = 0.989. Now cumulative probability is to be worked out becaus
e units are discrete.
Demand = r 0 1 2 3 4 5 6 or more
Probability p (r) Cumulative Probability:
0.900
0.040 0.940
0.025 0.965
0.020 0.985
0.010 0.995
0.005 1.000
0.000 1.000
∑ p (r )
r =0
S
0.900
Now the ratio 0.989 lies between demand 3 and 4, hence the optimal quantity to b
e purchased along with ship is 4 units.
Problem 8.56.
A company uses to order a new machine after a certain fixed time. It is observed
that one of the parts of the machine is very expensive if it is ordered without
machine and is Rs. 500/ . The cost of down time of machine and the cost of arra
nging the part is Rs. 10000/ . From the previous records it is observed that spa
re part is required with the probabilities as shown below:
Demand = r = Probability p (r) = 0 0.90 1 0.05 2 0.02 3 0.01 4 0.01 5 0.01 6 or
> 6 0.00
Find the optimum number of spare parts, which should be ordered with the order o
f machine.
Inventory Control
423
Solution
Data: C1 = Rs. 500 per part, C2 = Rs. 10000 per part. The ratio C1 / (C1+ C2) =
10000 / 10500 = 0.952. As the demand for units is discrete, the cumulative proba
bility is to be found.
Demand = r 0 1 2 3 4 5 6 or > 6
Probability p (r) Cumulative Probability:
0.90
0.05 0.95
0.02 0.97
0.01 0.98
0.01 0.99
0.01 1.00
0.00 1.00
∑ p (r )
r =0
S
0.90
Since the ratio (= 0.952) lies between 0.95 and 0.97, i.e. demand points 1 and 2
, the optimal order quantity to be placed with machine is 2.
Problem 8.57.
A firm is to order a new lathe. Is power units is an expensive part and can be o
rdered only with the lathe. Each of these units is uniquely built for a particul
ar lathe and cannot be used on other lathe. The firm wants to know how many spar
e units should be incorporated in the order for each lathe. Cost of the unit whe
n ordered with the lathe is Rs. 700/ per units. If a spare unit is needed (beca
use of failure during the service) and is not available, the whole lathe becomes
useless. The cost of the unit made to order and the down time cost of lathe is
Rs. 9,300/ . The analysis of 100 similar lathes yields the following information
given below.
Number of Spared Required. Number of Lathes Requiring Number of Spare parts. Est
imated Probability of occurrence of Indicated number of failures: 0 1 2 3 4 5 6
7 or more.
87
5
3
2
1
1
1
0
0.87
0.05
0.03
0.02
0.01
0.01
0.01
0.00
(b) If in the above problem, the shortage cost of the part is unknown and the fi
rm wants to maintain stock level of 4 parts, find the shortage cost.
424
Operations Research
Solution
Data: C1 = Rs. 700/ per unit, C2 = Rs. 9300 per unit. The ratio C2 / (C1+ C2) =
9300 / (700 + 9300) = 9300 / 10000 = 0.93.
S 0 1 2 3 4 5 6 7 r 0 1 2 3 4 5 6 7 P (r) 0.87 0.05 0.03 0.02 0.01 0.01 0.01 0.0
0
∑ p (r )
r =0
S
0.87 0.92 0.95 0.97 0.98 0.99 1.00 1.00
As 0.92 < 0.93 < 0.95 which falls between demand points 1 and 2. Hence optimal o
rder quantity is 2 units. (b) Here S = 4 that the level of inventory. Now p (r ≤ 3
) < C2 / (700 + C2) < p (r<4) OR 0.97 < C2 / (700 + C2) < 0.98. Therefore the le
ast value of C2 is given by: C2 / (700 + C2) = 0.97 OR C2 = (700 × 0.97) / 0/03 =
Rs. 22, 633. 33 or app: Rs.22,633/The maximum value of C2 is given by: C2 / (700
+ C2) = 0.98 OR C2 = (700 × 0.98) / 0.02 = Rs. 34,300/ . Rs. 22,633 < C2 < Rs. 34
,300.
Problem 8.58.
The cost of holding an item in stock is Rs.2/ per unit and the shortage cost is
Rs. 8/ per unit. If Rs.2/ is the purchasing cost per unit, determine the opti
mal order level of inventory, given the following probability distribution of de
mand.
R = Demand = Probability p (r) = 0 0.05 1 0.25 2 0.20 3 0.15 4 0.20 5 0.15
Solution
Data: C1 = Rs. 2/ per unit, C2 = Rs.8/ per units, p = Rs. 2/ per unit. In thi
s problem as the purchase price is given we have to work out the ratio (C2 – p) /
(C1 + C2) i.e. (8 – 2) / (2 + 8) = 6 / 10 = 0.60. The cumulative probability is: r
= demand = p (r) = 0 0.05 0.05 1 0.25 0.30 2 0.20 0.50 3 0.15 0.65 4 0.20 0.85
5 0.15 1.00
∑ p (r ) =
r =0
S
Inventory Control
425
Now 0.05 < 0.60 < 0.65 Hence the optimal order quantity lies between 2 and 3. Th
e order quantity is 3 units.
8.10. NEWSPAPER BOY PROBLEM: (GENERAL SINGLE PERIOD MODEL OF PROFIT MAXIMIZATION
WITH TIME INDEPENDENT COST)
In newspaper boy problem, he wants to know how many papers he has to purchase an
d sell to maximize his daily profit. The model can be generalized so as to apply
the technique to other type of problem, where the person wants to maximize his
profit. Let us consider an item, which is purchased and sold. The condition here
is once he purchases, he cannot return it and if he does not sell it, he sells
it after the period for lesser price, i.e. the item is to be discarded. Here we
have to find out the expected number of items to be purchased at the beginning o
f the period, so that the businessman can maximize his expected profit. Let a =
Unit price of an item at which it is procured ( independent of number of items p
rocured). b = Unit selling price of the item during the period and b>a. c = Unit
selling price of the item, after the end of the period, in the beginning of whi
ch, items were procured. And c<a. d = Unit cost per item if there is a shortage.
P (x) Probability that the demand is of ‘x’ items during the period under considera
tion. n = Items procured at the beginning of the period. Here we can consider tw
o cases: Case (i) = x ≤ n i.e., no shortages, and (ii) x > n with shortages. Expec
ted return from sales when x ≤ n is:
∑
x =0 ∞
n
b × p ( x) +
∑ c (n − x) p ( x)
x =0
n
Expected return from sales when x > n
x = n +1
∑
∞
b n p ( x) −
x = n +1
∑ d ( x − n) p ( x ) ∑ p ( x)
x =n ∞
∞
By mathematical treatment we can arrive that ‘n’ is the optimal quantity if (demand
is discrete)
x = n +1
∑
p ( x) < (a − c) /(b − c + d ) <
If demand is continuous, we get the optimal value of ‘n’ by:
∞
∫ f ( x) dx = (a − c) /(b = d − c)
n
426
Operations Research
Problem 8.59.
A newspaper boy buys papers for 30 paise each and sells them for 70 paise each.
He cannot return unsold newspapers. Daily demand has the following distribution:
Number of Customers.: Probability p (x): 23 0.01 24 0.03 25 0.06 26 0.10 27 0.20
28 0.25 29 0.15 30 0.10 31 0.05 32 0.05
If each day’s demand is independent of previous day’s demand, how many papers should
be order each day?
Solution
Data: a = Rs. 0.30, b = Rs. 0.70, c = Rs. 0.00 and d = Rs. 0.00 Optimal value of
‘n’ is given by:
x = n +1
∑
32
p ( x) < (30 / 70) <
23 23 0.01 1.00
∑ p ( x)
x=n
32
(30 / 70) = 0.428
25 25 0.06 0.96 26 26 0.10 0.90 27 27 0.20 0.80 28 28 0.25 0.60 29 29 0.15 0.35
30 30 0.10 0.20 31 31 0.05 0.10 32 32 0.05 0.05
x= n= p (x) =
32
24 24 0.03 0.99
∑ p ( x) =
x =n
As 0.428 lies between 0.60 and 0.35, that is demand of 28 and 29. Hence the news
paper boy has to purchase 28 papers.
Problem 8.60.
A baking company sells cake by the pounds. It makes a profit of 50 paise per pou
nd on every pound sold on the day it is baked. It disposes of all cake not sold
on the day it is baked at a loss of 12 paise per pound. If its demand is known t
o be rectangular between 2000 to 3000 pounds, determine the optimal daily amount
to be baked.
Solution
Data: b – a = Rs. 0.50, a – c = Rs. 0.12, d = 0. (a – c) / ( b + d – c) = 12 / (50 + 12)
= 12 / 62 = 0.193. The demand is a continuous variate and it is rectangular dis
tribution between 2000 and 3000. Hence the density function is f (x) = (1 / 1000
). (Note: f (x) = 1 / (b – a), where a ≤ x > b Hence the daily amount to be baked is
given by: 3000
∫ (1 / 1000) dx = 0.193
n
OR (3000 – n) = 193 or n = 2807 pounds.
Inventory Control
427
8.11. INVENTORY PROBLEMS WITH UNCERTAIN DEMAND ( MODELS WITH BUFFER STOCK) Many
a time inventory manager comes across a situation where demand cannot be complet
ely predetermined. The demand fluctuates in either way. In fact in many practica
l situations, we see that both demand for an item or lead time, i.e., the time b
etween placing order and procurement of material will remain constant. In many s
ituations, both demand and lead time are fluctuating due to uncontrollable reaso
ns. They are highly uncertain in nature. To face these uncertainties in consumpt
ion rate and lead time, an extra stock is maintained to meet out the demands, if
any. This extra stock is generally known as Safety stock’ or ‘Buffer stock’. 8.11.1.
To Determine the Buffer Stock and Re order Level (ROL) We must know the maximum
lead time and normal lead time and the demand during these periods to estimate t
he buffer stock or safety stock required. The buffer stock is calculated by mult
iplying the consumption rate during the lead – time by the difference between maxi
mum lead time and normal lead time. Let B = Buffer stock, L = Lead time, Ld = Di
fference between maximum lead time and minimum lead time. r = Demand rate. Tota
l inventory consumption during lead time, if buffer stock is not maintained = L ×
r = Lr. Thus as soon as stock level reaches ‘Lr’, quantity ‘q’ should be ordered. This p
oint where we order is known as reorder level or ROL. However due to uncertainty
in supply, this policy of ordering when stock level reaches ‘Lr’ will create shorta
ges and leads to back orders or lost sales. In order to avoid the shortages, a b
uffer stock is maintained. Hence, ROL = Lr + Buffer stock = Lr + B. = Lr + Ld r
= (L + Ld) × r Now maximum inventory = q + B, Minimum inventory = S Average invent
ory = [(q + B) + B] / 2 = (q / 2) + B. To illustrate the above, let us consider
a simple example. Suppose the demand for an item is 200 units per month, the nor
mal lead time is 15 days and maximum lead time is 2 months, then the buffer stoc
k B = (2 ½ ) × 200 = 300 units. If L is the lead time and ‘r’ is the demand, then the
inventory during the lead time = Lr, which is nothing but the ROL as discussed
above. If we maintain buffer stock, then placed an order when stock level reache
s the level = B + Lr. Say for example, the monthly consumption rate for an item
is 100 units, the normal lead time is 5 days and the buffer stock is 150 units,
then ROL = 150 + (1/2 + 100) = 200 units. Optimum Buffer stock: When buffer stoc
k maintained is very low, the inventory holding cost would be low but the shorta
ges will occur very frequently and the cost of shortages would be very high. As
against this if the buffer stock maintained is rather large, storages would be r
ather rare, resulting into low shortage costs but inventory holding costs would
be high. Hence it becomes necessary to strike balance between the cost of shorta
ges and cost of inventory holding to arrive at an Optimum Buffer Stock.
428
Operations Research
Figure 8.21
Problem 8.61.
The average monthly consumption for an item is 300 units and the normal lead tim
e is one month. If the maximum consumption has been up to 370 units per month an
d maximum lead time is 1 ½ months, what should be the buffer stock for the item.
Solution
Maximum lead – time demand = Maximum lead time × maximum demand rate = (3/2) × 370 = 5
55 units. Normal lead time demand = 1 × 300 = 300 units. Buffer stock = Maximum le
ad time demand – Normal lead time demand = 555 – 300 = 255 units.
Problem 8.62.
For a fixed order quantity system find the various parameters for an item with t
he following data: Annual demand = λ = 10000 units, Unit price = p = Rs. 1.00, i =
Carrying cost = Rs. 0.24 per unit, C3 = Set up cost = Rs. 12/- per production r
un, Past ead times in days are = 15,25,13,14,30, 17 days.
So ution
(a) E.O.Q = q0 =
(2C3λ ) / ip = ( 2 × 10000 × 12) / 0.24 × 1 = 1000 units.
(b) Optimum buffer = (Maximum ead- time – Norma ead time) × month y consumption =
= [(30 – 125) / 30] × 10000 / 12 = 416.66 = App 417 units. (Here the optimum ead-t
ime = 15 days = 15/30 months).
Inventory Contro
429
Note: for more safety some times it is advisab e to round off the buffer stock t
o 450 units. Another way of getting the same is: (Norma ead-time consumption =
Norma ead time × month y consumption = (15/30) × (10000/12) = 416.66 or approximat
e y = 417 units). Hence Re-order eve or ROL = Safety stock + norma ead-time
consumption = 450 + 417 = 867 or App. 870 units. The inventory wou d f uctuate f
rom a maximum, of 1450 to a minimum of 450 units. Hence the average inventory =
(1450 + 450)/2 = 950 units.
Prob em 8.63.
A company uses annua y 50,000 units of an item each costing Rs. 1.20. Each orde
r costs Rs. 45/ - and inventory carrying costs are 15% of the annua average inv
entory va ue. Find EOQ. If the company operates 250 days a year, the procurement
time is 10 days and safety stock is 500 units, find re -order eve , maximum, m
inimum and average inventory.
So ution
Data = λ = 50,000 units, p = Rs. 1.20, i = 15%, C3 = Rs. 45/- L = 10 days, B = 500
units. q0 = day. Lead-time demand = 10 × 200 = 2000 units. Safety stock = 500 uni
ts. Hence ROL = 2000 + 500 = 2500 units. Maximum inventory = 5000 + 500 = 5500 u
nits. Minimum inventory = 5000 units. Average inventory = (5000 / 2) + 500 = 300
0 units.
(2C3λ ) / ip = [( 2 × 45 × 50000) /(0.15 × 1.20)] = 5000 units.
The company operates 50 days a year. Hence requirement per day = 50000 / 250 = 2
00 units per
Prob em 8.64.
A firm uses every year 12000 units of a raw materia costing Rs. 1.25 per units.
Ordering cost is Rs. 15/- per order and the ho ding cost is 5 % per year of ave
rage inventory. (i) Find Economic Order Quantity, (ii) The firm fo ows EOQ purc
hasing po icy. It operates for 300 days per year. Procurement time is 14 days an
d safety stock is 400 units. Find the re-order point, the maximum inventory and
the average inventory.
So ution
Data: λ = 12,000 units, p = Rs. 1.25 per units, C3 Rs. 15/-, i = 0.05, Number of w
orking days = 300, L = 14 days, B = 400 units. E. O. Q = (2C3λ ) / ip = [( 2 × 15 × 12
,000) /(0.05 × 1.25)] = 2,400 units. Re order eve = Buffer stock + Consumption d
uring the ead-time = 400 + (12,000 / 300) × 14 = 960 units.
430
Operations Research
Maximum inventory = q0 + B = 2400 + 400 = 2800 units. Minimum inventory = B = 40
0 units. Average inventory = (q0 / 2) / B = (2800 / 2) + 400 = 1600 units.
Prob em 8.65 Ca cu ate the various parameters when the fo owing data is avai ab
e for an item, which is maintained on EOQ system. Annua consumption = λ = 12000
units, Unit price = Rs. 7.50, Set up cost = Rs. 6.00 per run, Inventory carrying
cost = Rs. 0.12 per unit, Norma ead-time = Ln = 15 days and maximum ead-time
= Lm = 20 days. So ution
E.O.Q = (2C3λ) / C1 = [(2 × 7.50 × 12000) / 0.12] = 1096 units. Optimum buffer stock =
B = (Lm – Ln) × consumption = [(20 – 15) / 30] / (12000 / 12)] = 167 units. Re-order
eve = ROL = B + Norma ead-time consumption = 167 + [(15 / 30 × 12) × 12000] = 16
7 + 500 = 667 units.
Prob em 8.66 In an inventory mode , suppose that the shortages are not a owed a
nd the production rate is infinite and the fo owing data is avai ab e: Year y d
emand λ = 600 units, Carrying chargers = i = 0.20, C3 = Rs. 80/- per order, p = Rs
. 3.00 per unit, Lead-time = L = 1 year. So ution
q0 = (2C3λ) / ip = [(2 × 80 × 600) /(0.20 × 3)] = 400 units. The time of the cyc e = t0
= (q0 / λ ) = 400 / 600 = (2/3) year ROL = B + Norma ead time consumption Buffer
stock = (Maximum ead time – Norma ead-time ) × consumption = ( 1 – 2/3 ) × 600 = ( 1
/3) × 600 = 200 units. Hence ROL = 200 + 1 × 600 = 800 units. The minimum average ye
ar y cost of ordering and ho ding = =
(2 × 80 × 600 × 0.20 × 3) = Rs. 240/-. (2 × C 3 × λ × ip
Prob em 8.67.
The fo owing is the distribution of ead-time and dai y demand during ead-time
:
Lead- time in days: Frequency: Demand per day in units: Frequency: 0 3 1 5 2 4 3
5 4 2 5 3 6 2 7 1 0 0 1 0 2 1 3 2 4 3 5 4 6 4 7 3 8 2 9 2 10 1
What is the buffer stock?
Inventory Contro
431
So ution
First et us find the average ead-time.
Lead - time = L Frequency = f L×f 1 0 0 2 1 2 3 2 6 4 3 12 5 4 20 6 4 24 7 3 21 8
2 16 9 2 18 10 1 10 Tota 22 129
Average ead-time = 129 / 22 = App. 5.86 days. Average demand rate is:
Demand = r Frequency = f F×r= 0 3 0 1 5 5 2 4 8 3 5 15 4 2 8 5 3 15 6 2 12 7 1 7 T
ota 25 70
Average demand rate = (70 / 25) = 2.8 units. Average ead-time demand = 5.86 × 2.8
= 16.4 units. Maximum ead-time demand = Maximum ead-time × maximum demand = 10 ×
7 = 70 units. Therefore Buffer stock = B = (70 – 16.4) = 53.6 units = App. 54 unit
s.
Prob em 8.68.
A company uses annua y 24000 units of a raw materia , which costs Rs. 1.25 per
units. P acing each order costs Rs. 22.50 and the carrying cost is 5.4 percent p
er year of the average inventory. Find the economic order quantity and the tota
inventory costs inc uding cost of materia . Shou d the company accept the offer
made by the supp ier of a discount of 5% on the cost price on a sing e order of
24000 units? Suppose the company works for 300 days a year. If the procurement
time is 12 days and safety stock is 400 units, find the re-order point, the mini
mum, maximum, and average inventory.
So ution
Data: λ = 24000 units, P = Rs. 1.25 per unit, C3 = Rs. 22.50, i = 5.4%, discount =
5% for 24000 units. Number of working days = 300 days, L = 12 days, B = 400 uni
ts. q0 = (2C3λ ) / ip = [( 2 × 22.50 × 24000) / (0.054 × 1.25) = 4000 units. t0 = q0 / λ =
4000 / 24000 = 1/6 of a year = 2 months. Tota inventory cost = (2 × C3 × ip × λ ) + λ × p
= (2 × 22.5 × 0.054 × 1.24 × 24000) + 1.25 × 24000 = Rs. 270 + Rs. 30000 = Rs. 30270/If we
want to use the discount faci ity, we have to purchase 24000 units, then each u
nits cost 0.95 × 1.25 = Rs. 1.1875 say app. = Rs. 1.19. Hence annua materia cost
= Rs. (0.95 × 1.25) × 24000 = Rs. 28500/As the company orders on y once in a year,
the ordering cost = Rs. 22.50 Annua carrying cost = (1.25 × 0.95) × 0.054 × (24000 /
2) = Rs. 769.50 Hence tota cost = 769.50 + Rs. 22.50 + Rs. 28500 = Rs. 29292, t
his is ess than Rs. 30270. Hence the company can accept the offer. As the compa
ny works for 300 days in a year, the dai y demand = 24000 / 300 = 80 units per d
ay. For this optima time t0 = q0 / r = (4000 / 80) = 50 days.
432
Operations Research
As t0 is greater than the ead-time, and the safety stocks 400 units, the re-ord
er eve wi be = Safety stock + Norma ead-time consumption = 400 + 12 × 80 = 1
360 units. Average inventory = B + (q0 / 2) = 400 + 4000 / 2 = 2400 units. Maxim
um inventory = B + q0 = 400 + 4000 = 4400 units. Minimum Inventory = B = 400 uni
ts.
Prob em 8.69.
Consider the inventory system with the fo owing data in usua notations: λ = 1000
units pr year, i = 0.30, p = Rs. 0.50 per unit, C3 = Rs. 10 per order, L = 2 ye
ars, Determine (a) E.O.Q, (b) Re order point, (c) Minimum average cost.
So ution
q0 = (2C3λ ) / ip = [( 2 × 10 × 1000) /(0.30 × 0.50)] = 365 units., t0 = q0 / λ = 365/1000
= 0.365 years. = 0.365 × 12 = 4.38 months. Lead-time is given as 2 years. But opt
ima time = 4.38 months. Hence re-ordering occurs when the eve of inventory is
sufficient to satisfy the demand for (L – t0) = 2 – 0.365 = 1.635 years. Thus optim
um quantity q0 = 365 units is ordered when the re -order of inventory reaches 1.
635 × 1000 = 1635 units. Hence R.O.P = 1635 units. Minimum average cost =
2C3 ip λ =
(2 × 10 × 0.3 × 0.50 × 1000) = Rs. 54.77.
8.12. INVENTORY MODELS WITH VARIABLE PURCHASE PRICE OR PURCHASE INVENTORY MODELS
WITH PRICE BREAKS
Previous y in artic e 8.7.6 we have discussed quantity discount mode s, where, t
he se er wi offer a discount on the quantity purchased between certain quanti
ties. The extension of this mode is the price break mode s. In price break mode
the se er wi offer discounts for the materia purchased in a stepwise manne
r. This means to say that at every stage i.e., quantity eve s, he offers differ
ent prices. For examp e, et us say the price of materia when the quantity purc
hased is from 1 to 100 Rs. 10 per unit, from 101 to 300 the price is Rs. 9/- per
unit and for quantity above 301 the price wi be Rs. 9/per unit. This type of
purchasing is known as price break mode s. Mathematica y the mode is represent
ed as under:
Quantity purchased ‘q’ b0 b1 Unit purchasing price in Rs. p1 p2 ……………… …………...... pi pn
≤ q < b1 ≤ q < b2
……………. ……………. bi –1 ≤ q < bi bn –1 ≤ q < bn
(Note: Physica y b0 is meaning ess as if b = q = 0, then there is no prob em of
inventory. Hence we consider ower bound as b0 = 1.)
Inventory Contro
433
In genera , b0 = 0 and bn = ∞ and p1 > p2 > p3 > ………pn–1 …….. pn. The points b1, b2, b3 …….
e known as price breaks (in units) as price fa s at these points. The prob em h
ere is we have to find out the economic order quantity ‘q0’ which minimizes the tota
cost inc uding the materia cost. Here materia cost is considered because the
price varies at break points. The notations used are: pj = Unit purchasing pric
e in Rs. i = Annua cost of carrying one rupee in the inventory va ue as percent
age of average inventory va ue in Rs. λ = Year y demand in units. C3 = Ordering co
st in Rs. per order. q = Lot size. Associated annua costs are: Ordering cost =
Number of orders × C3 = ( λ / q) × C3 Inventory carrying cost = Average inventory × Carr
ying cost = (q / 2) × ipj Materia cost = λ × pj Tota annua cost = Cj (q) = materia
cost + ordering cost + carrying cost = pj × λ + ( λ / q) × C3 + (q / 2) × ipj If this cos
t is minimum for q = qij, then qi0 is given by: (dCi / dq) = – (C3 λ / q2) + ipj (1/
2) = 0 Hence qj0 =
(2C3 λ) / ip j
Procedure
1. For a the price breaks find the optima order quantity. (Note: Better start
from the ast price break and move towards the first price break.) 2. Verify wh
ether obtained optima order quantity fa s between the inventory range given in
the prob em for that particu ar break. 3. Once the obtained optima order quant
ity fa s between the given ranges, se ect that range for further treatment. 4.
For examp e et us say our se ected range is 100 ≤ q < 200. And the obtained optim
a order quantity is 175. 175 ies between 100 and 200, hence this range is se e
cted for further treatment. 5. Some times the price break may be as shown 100 ≤ q
< 200 = Rs. 12, and 200 ≤ q < 300 = Rs. 10/- In such cases, ca cu ate tota cost f
or 175 units and a so ca cu ate the tota cost for 200 units taking unit price a
s Rs. 10/-. For se ecting required optima order quantity, se ect the owest one
. Let us understand this by working some prob ems. This mode is represented gra
phica y as under:
434
Operations Research
Figure 8.22
Prob em 8.70 (Sing e price break)
Find the optima order quantity for which the price breaks are as fo ows:
Quantity 0 ≤ q < 500 500 ≤ q < ∞ Unit price in Rs. Rs. 10.00 Rs. 9.25
The month y demand for the product is 200 units, the cost of storage is 2% of un
it cost and the ordering cost is Rs. 350 per order.
So ution
Data: b0 = 0, λ = 200, I = 0.02, C3 = Rs. 350/- p1 = Rs. 10/-, p2 = Rs. 9.25 q1 0
= units. This does not fa in the range 0 to 500. Hence we have to take second
range. q20 = [(2 × 350 × 200) /(0.02 × 9.25)] = 870 units. This is in the range 500 to
∞. Let us ca cu ate the tota cost for this quantity. C2q = 9.25 × 200 + 350 × (200 /
870) + 0.02 × 9.25 × (870 / 2) = Rs. 1850 + Rs. 80.45 + Rs.804.75 = Rs. 2735.20
( 2C 3λ ) / ip1 = ( 2 × 350 × 200 ) / 0.02 × 10 = (140000 / 0.20 =
700000 = 836.6 = 837
Inventory Contro
435
Prob em 8.71
Find the optima order quantity for a product for which the price breaks are as
fo ows:
Quantity 0 ≤ q < 100 100 ≤ q < 200 200 ≤ ∞ Price in Rs. per unit. 20 18 16
The month y demand for the product is 400 units. The storage cost is 20% of the
unit cost and the ordering cost is Rs. 25 per order.
So ution
I = 0.20, C3 = Rs. 25/-, λ = 400, q 30 = q20 = q10 =
[(2 × 25 × 400) / 0.20 × 20)] = 82.5 units = 83 units. [( 2 × 25 × 400) / 0.20 × 18)] = 74.
units = 74 units.
[(2 × 25 × 400) / 0.20 × 16)] = 70 units.
From the above q10 = 75 fa s in the given range 0 to 100. Hence we have to find
the tota cost for 75 units at the rate of Rs. 20 per unit and cost of 100 unit
s at the rate of 18 units. Which ever is ess that is taken as the optima order
quantity. C750 = 20 × 400 + 25 × (400 / 70) + 0.20 × 20 × (70 / 2) = Rs. 8282.80 C1000
= 18 × 400 + 25 × (400 / 100) + 0.20 × 18 × (100 / 2) = Rs. 7480. Let us a so find the c
ost 200 units at Rs. 16/- per unit. C2000 = 16 × 400 + (400 / 200) × 25 + 0.02 × 16 × (2
00 / 2) = Rs. 6770/As C2000 is the minimum, the optima order quantity is 200 un
its.
Prob em 8.72
Find the optima order quantity for a product for which the price breaks are as
under:
Quantity 0 ≤ q1 < 500 500 ≤ q2 < 750 750 ≤ q3 < ∞ Unit cost in Rs. per unit. 10.00 9.25
8.75
The month y demand for the product is 200 units. The cost of storage is 2% of th
e unit cost and the cost of ordering is Rs. 350/- per order.
So ution
Data; C3 = Rs. 350 per order, i = 0.02, λ = 200 units. q 10 = q 20 =
[(2 × 350 × 200) /(0.02 × 10)] = 836.6 units. [(2 × 350 × 200) /(0.02 × 9.25)] = 869.9 unit
436
Operations Research
q30 = [( 2 × 350 × 200 ) /(0.02 × 8.75)] = 894 units. From the above q30 = 894 units i
s within the given range. Hence we have to ca cu ate the tota cost of C8940. C8
940 = 200 × 8.75 + 350 × (200 / 984) + 0.02 × 8.75 × (894 / 2) = Rs.1750 + Rs. 78.30 + R
s. 78.22 = Rs. 1906.52 = App. 1907/-
Prob em 8.73
Find the optima order quantity for a product when the annua demand for the pro
duct is 500 units, the cost of storage per unit per year is 10% of the unit cost
and ordering cost per order is Rs. 180/-, the units costs are given be ow:
Quantity 0 ≤ q1 < 500 500 ≤ q2 < 1500 1500 ≤ q3 < 3000 3000 ≤ q4 < ∞ Unit cost in Rs. 25.0
0 24.80 24.60 24.40
So ution
Data: λ = 500 units, I = 0.10, C3 = Rs. 180/4 q0 = (2C3λ) / ip4 = [(2 × 180 × 500) /(0.1
0 × 24.40) = 271.60 units. This is not in the given range. 3 q0 = (2C3 λ) / ip3 = [(
2 × 180 × 500) /(0.10 × 24.60) = 270.5 units. This is not in the given range 2 q0 = (2
C3 λ ) / ip2 = [( 2 × 180 × 500) /(0.10 × 24.80) = 260.4 units. This is not in the given
range.
q1 = ( 2C3λ ) / ip1 = [( 2 × 180 × 500) /(0.10 × 25.00) = 268.3 units. This is within th
e given range. 0 Now we ca cu ate the tota cost for C2680 at Rs. 25/- per unit
and C5000 at Rs. 24.80 and se ect the minimum one as the optima order quantity.
C2680 = 500 × 25 + (500 / 268.3) × 180 + (268.3 / 2) × 0.10 × 25 = Rs. 13,170.82. C5000
= 500 × 24.80 + (500 / 500) × 180 + 0.10 × 24.80 × (500 / 2) = 13200/-. As Rs. 13, 170.
82 is ess than Rs.13, 200/-. The optima order quantity is 268.3 or App. 268 un
its.
EXERCISE PROBLEMS
1 In each of the fo owing cases, stock is rep enished instantaneous y and no sh
ortages are a owed. Find the economic ot size, the associated tota costs and
ength of time between orders and give your comments. (a) C3 = Rs. 100/- per ord
er, C1 = Re. 0.05 per unit and λ = 30 units per year. (b) C3 = Rs. 50/0 /- per ord
er, C1 = Re. 0.05 per unit and λ = 30 units per year. (c) C3 = Rs. 100/- per order
, C1 = 0.01 per unit and λ = 40 units per year. (d) C3 = Rs. 100/- per order, C1 =
Rs. 0.04 per unit and λ = 20 units per year.
Inventory Contro
437
2. The XYZ manufacturing company has determined from an ana ysis of its accounti
ng and production data for part number 625, that its cost to purchase is Rs.36 p
er order and Rs. 2/per part. Its inventory carrying charge is 18% of the average
inventory cost. The demand for this part is 10,000 units per annum. Find (a) Wh
at is the economic order quantity; (b) What is the optima number of days supp y
per optimum order. 3. A manufacturer receives an order for 6890 items to be de
ivered over a period of a year as fo ows: At the end of the first week = 5 item
s. At the end of the second week = 10 items. At the end of the third week = 15 i
tems. etc. The cost of carrying inventory is Rs. 2.60 per item per year and the
cost of set up is Rs. 450/ - per production run. Compute the costs of fo owing
po icies: (a) Make a 6890 at start of the year. (b) Make 3445 now and 3445 in
6 months, (c) Make 1/12 th the order each month. (d) Make 1/52 th order every we
ek. 4. A product is produced at the rate of 50 items per day. The demand occurs
at the rate of 30 items per day. Given that setup cost per order is Rs. 100/-and
ho ding cost per item per unit time is Rs. 0.05, and shortages being a owed, w
hat is the shortage cost per unit under optima conditions if the ot size is of
600 units. 5. The probabi ity distribution of month y sa es of a cretin item is
as fo ows:
Month y sa es: Probabi ity: 0 0.01 1 0.06 2 0.25 3 0.35 4 0.20 5 0.03 6 0.10
The cost of carrying inventory is Rs. 30/- per unit per month and the cost of un
it charges is Rs. 70/- per month. Determine the optimum stock eve , which minim
izes the tota expected cost. 6. Determine the optima order ru e for the fo ow
ing case: r = Demand per month = 5000 units. C3 = Ordering cost = Rs. 50/- per o
rder, i = Carrying charges = Rs. 0.50 per unit per month.
Quantity. 0 100 250 500 1000 5000 Price in Rs. per unit.
≤ ≤ ≤ ≤ ≤ ≤
q1 q2 q3 q4 q5 q6
< < < < < <
100 250 500 1000 5000
Rs. 1.50 Rs. 1.40 Rs. 1.30 Rs. 1.00 Rs. 0.90 Rs. 0.85
∞
438
Operations Research
For a fixed order quantity system, find the Economic order quantity, Safety stoc
k, Re-order eve and average inventory for an item with the fo owing data: Ann
ua demand = 10000 units, Unit Price p = Re. 1/-, Ordering cost = Rs. 12 per ord
er, Carrying charges = i = 24 % of average inventory, Lead - time = 15, 25, 13,
14, 30, and 17 days. 8. From the data given be ow draw a p an for ABC contro :
Item 1 2 3 4 5 6 7 8 9 10 11 12 Units 7000 24000 1500 600 38000 40000 60000 3000
300 29000 11500 4100 Unit cost in Rs. 5.00 3.00 10.00 22.00 1.50 0.50 0.20 3.50
8.00 0.40 7.10 6.20
7.
9. An oi engine manufacturer purchases ubricants at the rate of Rs. 42/- per p
iece from a vendor. The requirement of this ubricant is 1800 per year. What sho
u d be the order quantity per order, if the cost per p acement of an order is Rs
.16/- and inventory-carrying charge per rupee per year is on y 20 paise. 10. A m
anufacturer has to supp y his customer with 24000 units of his product per year.
This demand is fixed and known. Since the customer in an assemb y ine operatio
n uses the unit and the customer has no storage space for the unit, the manufact
urer must supp y a day’s requirement each day. If the manufacturer fai s to supp y
the required units, he wi ose the amount and probab y his business. Hence, t
he cost of a shortage is assumed to be infinite, and consequent y, none wi be
to erated. The inventory ho ding cost amounts to 0.10 per unit per month, and th
e set up cost per unit is Rs. 350/-. Find the optimum ot size, the, ength of o
ptimum production run. 11. The demand for an item in a company is 18000 units pe
r year, and the company can produce the item at a rate of 3000 per month. The co
st of one set up is Rs. 500/- and the ho ding cost of 1 unit per month is 15 pai
se. Determine the optimum manufacturing quantity and the tota cost per year ass
uming the cost of 1 unit is Rs. 2/-. 12. The demand for a purchase item is 1000
units per month, and shortages are a owed. If the unit cost is Rs. 1.50 per uni
t and the cost of making one purchase is Rs.600/-and the ho ding cost for one un
it is Rs. 2/- per year and the cost of one shortage is Rs. 10/- per year, determ
ine: (a) Optimum purchase quantity, (b) The number of orders per year, (c) The o
ptimum year y cost. Represent the mode graphica y.
Inventory Contro
439
13. A company has a demand of 12000 units per year for an item and it can produc
e 2000 such items per month. The cost of one setup is Rs. 400/-and the ho ding c
ost per unit per month is Rs. 0.15. The shortage cost of one unit is Rs. 20/- pe
r year. Find the optimum ot size and the tota cost per year, assuming the cost
of 1 unit is Rs.4/-. A so find the maximum inventory, manufacturing time and to
ta time. 14. A company producing three items has imited storage space of avera
ge 750 items of a types. Determine the optima production quantities for each
item separate y, when the fo owing information is avai ab e:
Item Demand rate units per year Set up cost per unit in Rs. Cost per unit in Rs.
Ho ding cost in Rs. per unit. 1 1000 50 20 20 2 5000 75 100 20 3 2000 100 50 20
15. The fo owing re ations to inventory costs have been estab ished for a compa
ny: Orders must be p aced in mu tip es of 100 units. Requirement for the year =
3,00,000 units. The unit price of the product is Rs.3/Carrying cost is 25% of th
e purchase price of gods. Ordering cost per order is Rs. 20/Desired safety stock
is 10,000 units. This amount on hand initia y. Three days are required for de
ivery of goods. Ca cu ate: EOQ, Number of orders per year, and Re-order eve of
inventory. 16. A contractor of second hand motor trucks uses to maintain a stoc
k of trucks every month. Demand of the truck occurs at a re ative y constant rat
e not in a constant size. The demand fo ows the fo owing probabi ity distribut
ion:
Demand: Probabi ity: 0 0.40 1 0.24 2 0.20 3 0.10 4 0.05 5 0.01 6 or more. 0.00
17. 18. 19. 20. 21. 22. 23.
The ho ding cost of an o d truck in stock for one month is Rs.100/- and the pena
ty for a truck if not supp ied on demand is Rs. 1000/-. Determine the optima s
ize of the stock for the contractor. What is inventory? Describe the types of in
ventory you know. Exp ain the various costs associated with inventory with examp
es. Describe the characteristics of inventory system. Exp ain what is ABC ana y
sis and what is its significance. What is VED ana ysis? How is it usefu to an I
nventory manager? Exp ain p– System and q – system of ordering materia , which one y
ou prefer? Give your reasons. Derive EOQ formu a with usua notations.
440
Operations Research
24. Distinguish between deterministic and stochastic mode s of inventory. 25. Wh
at function does inventory perform? State the two basic inventory decisions mana
gement must make as they attempt to accomp ish the functions of inventory just d
escribed by you. 26. Describe six important components that constitute the stock
ho ding costs. 27. Exp ain the significance of ead - time and safety stock in
inventory contro . 28. Exp ain the fo owing terms with suitab e examp es: (a) S
et up cost (b) Ho ding cost (c) Shortage cost, (d) Lead - time, (e) Re order poi
nt (f) Fixed order quantity (g) Fixed order interva 29. What is se ective inven
tory contro ? 30. Exp ain the basic steps taken in conducting ABC ana ysis.
MULTIPLE CHOICE QUESTIONS Inventory Mode s
1. One of the important basic objective of Inventory management is: (a) To ca cu
ate EOQ for a materia s in the organization. (b) To go in person to the marke
t and purchase the materia s, (c) To emp oy the avai ab e capita efficient y so
as to yie d maximum resu ts, (d) Once materia s are issued to the departments,
persona y check how they are used.( 2. The best way of improving the productivi
ty of capita is: (a) Purchase automatic machines, (b) Effective abour contro ,
(c) To use good financia management, (d) Productivity of capita is to be incr
eased through effective materia s management.( 3. Materia s management is a body
of know edge, which he ps manager to: (a) Study the properties of materia s, (b
) Search for needed materia , (c) Increase the productivity of capita by reduci
ng the cost of materia , (d) None of the above. ( 4. The stock of materia s kept
in the stores in anticipation of future demand is known as: (a) Storage of mate
ria s, (b) Stock of materia s, (c) Inventory, (d) Raw materia s. (
)
)
)
)
Inventory Contro
441
5. The stock of anima s reared in anticipation of future demand is known as: (a)
Live stock Inventory, (b) Anima inventory, (c) F esh inventory, (d) None of th
e above. ( ) 6. The working c ass of human beings is a c ass of inventor known a
s: (a) Live stock, (b) Human inventory (c) Popu ation, (d) Human resource invent
ory. ( ) 7. In genera the percentage of materia s cost in product is approximat
e y equa s to: (a) 40 to 50 % (b) 5 to 10 % (c) 2 to 3 % (d) 90 to 95% ( ) 8. Ma
teria s management bring about increased productivity of capita by: (a) Very st
rict contro over use of materia s, (b) Increasing the efficiency of workers, (c
) Preventing arge amounts of capita ocked up for ong periods in the form of
inventory. (d) To app y the princip es of capita management, ( ) 9. We can redu
ce the materia s cost by: (a) Using systematic inventory contro techniques, (b)
Using the cheap materia , (c) Reducing the use of materia s, (d) Making hand to
mouth purchase. ( ) 10. The basis for ABC ana ysis is (a) Interests of Materia
s manager, (b) Interests of the top management, (c) Pareto’s 80-20 ru e, (d) None
of the above. ( ) 11. ABC ana ysis depends on the: (a) Qua ity of materia s, (b)
Cost of materia s, (c) Quantity of materia s used, (d) Annua consumption va ue
of materia s. ( ) 12. ‘A’ c ass materia s consumes: (a) 10 % of tota annua invent
ory cost, (b) 30% of tota annua inventory cost, (c) 70 to 75% of tota invento
ry cost, ( ) (d) 90 % of tota annua inventory cost.
442
Operations Research
13. ‘B’ c ass of materia s consumes ---------% of annua inventory cost. (a) 60 to 7
0% (b) 20 to 25% (c) 90 to 95% (d) 5 to 8% ( ) 14. ‘C’ c ass materia s consume -----
--% of annua inventory cost. (a) 5 to 10 % (b) 20 to 30% (c) 40 to 50% (d) 70 t
o 80% ( ) 15. The rent for the stores where materia s are stored fa s under: (a
) Inventory carrying cost, (b) Ordering cost, (c) Procurement cost, (d) Stocking
cost. ( ) 16. Insurance charges of materia s cost fa s under: (b) Ordering cos
t, (b) Inventory carrying cost, (c) Stock out cost (d) Procurement cost. ( ) 17.
As the vo ume of inventory increases, the fo owing cost wi increase: (a) Sto
ck out cost, (b) Ordering cost, (c) Procuring cost, (d) Inventory carrying cost.
( ) 18. As the order quantity increases, this cost wi reduce: (a) Ordering co
st, (b) Insurance cost (c) Inventory carrying cost, (d) Stock out cost. ( ) 19.
Procurement cost may be c ubbed with: (a) Inventory carrying charges, (b) Stock
out cost, (c) Loss due to deterioration, (d) Ordering cost. ( ) 20. The pena ty
for not having materia s when needed is: (a) Loss of materia s cost, (b) Loss of
order cost, (c) Stock out cost, (d) Genera osses. ( ) 21. Losses due to deter
ioration, theft and pi ferage comes under, (a) Inventory Carrying charges, (b) L
osses due to theft, (c) Does not come under any cost, (d) Consumption cost. ( )
22. Economic Batch Quantity is given by: (where, C1 = Inventory carrying cost, C
3 = Ordering cost, r = Demand for the product) (a) (2C1 / C3)1/2 , (b) (2 C3 / C
1r )1/2, (c) 2C3r / C1 , (d) (2C3r / C1)1/2. ( ) 23. If λ is the annua demand, C1
= Inventory carrying cost, i = rate of inventory carrying charges, p = unit cos
t of materia in Rs., then EOQ = (b) 2C3 λ / ip, (a) (2C3 λ / ip)1/2, 1/2, (c) (2 C3
/ ip λ ) (d) (2 λ /C3 ip)1/2, ( ) 24. If C1 = Carrying cost, C3 is the ordering cos
t, r = demand for the product, then the optima period for p acing an order is g
iven by: (a) (2 C3/C1r)1/2 (b) (2C1 C3/r )1/2 1/2 (c) ( 2C3r/C1) (d) (2C1C3r)1/2
( )
Inventory Contro
443
25. When C1 = Inventory carrying cost, C3 = ordering cost, r = demand for the pr
oduct, the tota cost of inventory is given by: (a) (2C1C3r) (b) (2C1C3)1/2 1/2
(c) (2C3r/C1) (d) (2C1C3r)1/2 ( ) 26. When λ is the annua demand for the materia
, p = unit price of the materia in Rs., C3 is the ordering cost, q = order quan
tity, then the tota cost inc uding the materia cost is given by: (a) (q/2) ip
+ λ /q C3 + λ p (b) 2C3 λ ip + λ p (c) (q/2) ip + λ p (d) (2C3q λ ip)1/2 ( ) 27. In VED ana
yses, the etter V stands for: (a) Very important materia , (b) Viscous materia
(c) Weighty materia s, (d) Vita materia s. ( ) 28. In VED ana ysis, the etter
D strands for: (a) Dead stock, (b) De ayed materia (c) Deserved materia s, (d)
Di uted materia s. ( ) 29. The VED ana ysis depends on: (a) Annua consumption
cost of materia s, (b) Unit price of materia s, (c) Time of arriva of materia s
, (d) Critica ity of materia s. ( ) 30. In FSN ana ysis the etter S stands for:
(a) S ack materia s, (b) Stocked materia s, (c) S ow moving materia s, (d) Stan
dard materia s. ( ) 31. In FSN ana yses, the etter N stands for: (a) Non moving
materia s, (b) Next issuing materia s, (c) No materia s, (d) None of the above.
( ) 32. FSN ana ysis depends on: (b) Vo ume of materia , (a) Weight of the mate
ria , (c) Consumption pattern, (d) Method of moving materia s. ( ) 33. MRP stand
s for: (a) Materia Requirement P anning, (b) Materia Reordering P anning, (c)
Materia Requisition Procedure, (d) Materia Recording Procedure. ( ) 34. A syst
em where the period of p acing the order is fixed is known as: (a) q - system, (
b) Fixed order system (c) p - system (d) Fixed quantity system. ( ) 35. A system
in which quantity for which order is p aced is constant is known as: (b) p - sy
stem, (a) q - System, (c) Period system, (d) Bin system. ( ) 36. LOB stands for:
(a) Lot of Bi s, (b) Line of Batches (c) Lot of Batches, (d) Line of Ba ance.
( ) 37. High re iabi ity spare parts in inventory are known as: (a) Re iab e spa
res, (b) Insurance spares, (c) Capita spares, (d) High y re iab e spares. ( )
444
Operations Research
38. The property of capita spares is: (a) They have very ow re iabi ity; (b) T
hese can be purchased in arge quantities, as the price is ow, (c) These spares
have re ative y higher purchase cost than the maintenance spares. (d) They are
very much simi ar to breakdown spares. 39. Re-usab e spares are known as: (a) Mu
ti use spares, (b) Repeated useab e stores, (c) Scrap materia s, (d) Rotab e sp
ares. ( ) 40. JIT stands for: (a) Just in time Purchase, (b) Just in time produc
tion, (c) Just in time use of materia s (d) Just in time order the materia . ( )
41. The cyc e time, se ected in ba ancing a ine must be: (a) Must be greater t
han the sma est time e ement given in the prob em, (b) Must be ess than the hi
ghest time e ement given in the prob em, (c) Must be s ight y greater than the h
ighest time e ement given in the prob em, (d) Left to the choice of the prob em
so ver. ( ) 42. The ead-time is the time: (a) To p ace orders for materia s, (b
) Time of receiving materia s, (c) Time between receipt of materia and using ma
teria s (d) Time between p acing the order and receiving the materia s. ( ) 43.
The PQR c assification of inventory depends on: (a) Unit price of the materia ,
(b) Annua consumption va ue of materia , (c) Critica ity of materia , (d) She f
ife of the materia s. ( ) 44. The c assification made on the weight of the mat
eria s is known as: (a) PQR ana ysis, (b) VED ana ysis, (c) XYZ ana ysis, (d) FS
N ana ysis. ( ) 45. At EOQ (a) Annua purchase cost = Annua ordering cost (b) A
nnua ordering cost = Annua carrying cost (c) Annua carrying cost = annua sho
rtage cost (d) Annua shortage cost = Annua purchase cost. ( ) 46. If shortage
cost is infinity, (a) No shortages are a owed; (b) No inventory carrying cost i
s a owed, (c) Ordering cost is zero, (d) Purchase cost = Carrying cost. ( ) 47.
The most suitab e system for a retai shop is (a) FSN Ana ysis, (b) ABC ana ysi
s, (c) VED ana ysis, (d) GOLF ana ysis. ( ) 48. The inventory maintained to meet
unknown demand changes is known as (a) Pipe ine inventory, (b) Anticipatory inv
entory (c) De coup ing inventory, (d) F uctuatory inventory. ( )
Inventory Contro
445
49. The most suitab e inventory system for a Petro bunk is (a) P- System, (b) 2
Bin system, (c) Q- System, (d) Probabi istic mode ( ) 50. The water consumptio
n from a water tank fo ows (a) P - system, (b) PQ -system, (c) Q - System, (d)
EOQ System ( ) 51. Which of the fo owing inventory is maintained to meet expect
ed demand f uctuations: (a) F uctuatory Inventory, (b) Buffer stock (c) De- coup
ing inventory, (d) Anticipatory inventory. ( ) 52. Which of the fo owing incre
ases with quantity ordered per order: (a) Carrying cost, (b) Ordering cost, (c)
Purchase cost, (d) Demand, ( ) 53. The ordering cost per order and average unit
carrying cost are constant, and demand sudden y fa s by 75 % then EOQ wi : (a)
Decreases by 50 %, (b) Does not change (c) Increases by 50 %, (d) Decreases by
40% ( ) 54. In JIT system, the fo owing is assumed to be zero. (b) Transportati
on cost (a) Ordering cost, (c) Carrying cost, (d) Purchase cost. ( ) 55. Which o
f the fo owing ana ysis neither considers cost nor va ue: (a) ABC (b) XYZ (c) H
ML (d) VED ( )
ANSWERS
1. (c) 5. (a) 9. (a) 13. (b) 17. (d) 21. (a) 25. (d) 29. (d) 33. (a) 37. (b) 41.
(c) 45. (b) 49. (c) 53. (c) 2. (d) 6. (d) 10. (c) 14. (a) 18. (a) 22. (b) 26. (
a) 30. (c) 34. (c) 38. (c) 42. (d) 46. (b) 50. (a) 54. (c) 3. (c) 7. (a) 11. (d)
15. (a) 19. (d) 23. (c) 27. (d) 31. (a) 35. (a) 39. (d) 43. (c) 47. (a) 51. (d)
55. (d) 4. (c) 8. (c) 12. (c) 16. (b) 20. (c) 24. (a) 28. (c) 32. (c) 36. (d) 4
0. (b) 44. (d) 48. (d) 52. (a)
CHAPTER – 9
Waiting Line Theory or Queuing Mode
9.1. INTRODUCTION
Before going to waiting ine theory or queuing theory, one has to understand two
things in c ear. They are service and customer or e ement. Here customer or e e
ment represents a person or machine or any other thing, which is in need of some
service from servicing point. Service represents any type of attention to the c
ustomer to satisfy his need. For examp e, 1. Person going to hospita to get med
ica advice from the doctor is an e ement or a customer, 2. A person going to ra
i way station or a bus station to purchase a ticket for the journey is a custome
r or an e ement, 3. A person at ticket counter of a cinema ha is an e ement or
a customer, 4. A person at a grocery shop to purchase consumab es is an e ement
or a customer, 5. A bank pass book tendered to a bank c erk for withdrawa of m
oney is an e ement or a customer, 6. A machine break down and waiting for the at
tention of a maintenance crew is an e ement or a customer. 7. Vehic es waiting a
t traffic signa are e ements or customers, 8. A train waiting at outer signa f
or green signa is an e ement or a customer Like this we can give thousands of e
xamp es. In the above cases, the service means, 1. Doctor is a service faci ity
and medica care is a service, 2. Ticket counter is a service faci ity and issue
of ticket is service. 3. Ticket counter is a service faci ity and issue of tick
et is service. 4. Shop owner is a service faci ity and issue of items is service
. 5. Bank c erk is a service faci ity and passing the cheque is service. 6. Main
tenance crew is service faci ity and repairing the machine is service. 7. Traffi
c signa s are service faci ity and contro of traffic is service. 8. Signa post
is a service faci ity and green signa ing is service. Above we have seen e emen
ts or customer and service faci ity and service. We can see here that a the cu
stomer or e ements (hereafter ca ed as customer on y) wi arrive and waits to
avai the service at service station. When the service station has no desired ca
pacity to serve them a at a time the customer has to wait for his/its chance r
esu ting the formu ation of a waiting ine of customers which is genera y known
as a queue. In genera we can say that a f ow of customers
Waiting Line Theory or Queuing Mode
447
from infinite or finite popu ation towards the service faci ity forms a queue or
waiting ine on account of ack of capabi ity to serve them a at a time. The
above discussion c arifies that the term customer we mean to the arriving unit t
hat requires some service to be performed at the service station. Queues or wait
ing ines stands for a number of customers waiting to be serviced. Queue does no
t inc ude the customer being serviced. The process or system that performs the s
ervices to the customer is termed as service channe or service faci ity. Thus f
rom the above we see that waiting ines or not on y the ines formed by human be
ings but a so the other things ike rai way coaches, vehic es, materia etc. A.K
.Er ang, a Danish te ephone engineer, did origina work on queuing theory. Er an
g started his work in 1905 in an attempt to determine the effects of f uctuating
service demand (arriva s) on the uti ization of automatic dia ing equipment. It
has been on y since the end of Wor d War II that work on waiting ine mode s ha
s been extended to other kinds of prob ems. In today’s scenario a wide variety of
seeming y diverse prob ems situations are recognized as being described by the g
enera waiting ine mode . In any queuing system, we have an input that arrives
at some faci ity for service or processing and the time between the arriva s of
individua inputs at the service faci ity is common y random in nature. Simi ar
y, the time for service or processing is common y a random variab e. Tab e 9.1 s
hows waiting ine mode e ements for some common y known situations. Servers may
be in para e or in service. When it is para e , the arriving customers may f
orm a sing e queue as in the case of post offices, ticket windows in rai way sta
tion and bus station or a cinema theatre etc. shown in figure 9.1. If the serves
are in series, then number of queues is formed in front of service faci ities,
for examp e we can take repair of break down machines. This is i ustrated in fi
gure number 9.2.
S.No
Popu ation
Arriva s
Queue (Channe )
Service Out going Faci ity (Phase) e ement 0
Name of the system Sing e
Remarks.
1
0000000 0000000 0000000 0 00000
0
channe sing e phase.
2
0000000 0000000 0000000 0
00000 00000 00000
0 0 0 0 0 0
0 0 0
Mu ti Channe Sing e Phase
3
0000000 0000000 0000000 0 00000
Sing e Channe 0 Mu ti Phase
4
0000000 0000000 0000000 0
00000 00000 00000
0 0 0
0 0 0
0 0 0
0 0 0
Mu ti channe Mu ti Phase.
Figure 9.1. Four basic structures of waiting ine situations.
448
Operations Research
Tab e 9.1. Waiting ine mode e ements for some common y known situations. S.No.
1 2. 3. Situation. Ship entering a port. Maintenance and repair of machines Non
automatic assemb y ine Arriving e ement. Ships Machine break downs Parts to be
assemb ed. Service faci ity Docks Repair crew. Individua assemb y operations o
r entire ine. Checkout Counter. Service or process Un oading and oading. Repai
ring of machines. Assemb y. Remarks.
4.
Purchase of groceries at super market. Automobi e and other vehic es at an inter
section of roads. Inventory of items in stores or warehouse. Patients arriving a
t an hospita
Customer with oaded grocery carts. Automobi es and vehic es.
Tabu ation of bi , receipt of payment and bagging of groceries. Contro of traf
fic.
5.
Traffic signa ights.
6.
Order for withdrawa . Patients
Store or warehouse. Medica craw
Rep enishment of inventory. Hea th care of the patient.
7.
In figure number 9.2 arrows between service centers indicates possib e routes fo
r jobs processed in the shop. In this particu ar system, we see that the service
center moves to the customer rather than the customer coming to service center
for service. So, it may be understood here that there is no ru e that a ways the
customers has to move to service centers to get the service. Depending on the s
ituation, the service center may a so move to the customer to provide service. I
n this system the departure from one-service center may become input to the othe
r service center. In our everyday activity, we see that there is a f ow of custo
mer to avai some service from service faci ity. The rate of f ow depends on the
nature of service and the serving capacity of the station. In many situations t
here is a congestion of items arriving from service because an item cannot be se
rviced immediate y on arriva and each new arriva has to wait for some time bef
ore it is attended. This situation occurs where the tota number of customers re
quiring service exceeds the number of faci ities. So we can define a queue as “A g
roup of customers / items waiting at some p ace to receive attention / service i
nc uding those receiving the service.” In this situation, if queue ength exceeds
a imit, the customer get frustrated and eave the queue to get the service at s
ome other service station.In this case the organization ooses the customer good
wi . Simi ar y some service faci ity waits for arriva of customers when the to
ta capacity of system is more than the number of customers requiring service. I
n this case service faci ity remains id e for a considerab e time causing a burd
en of exchequer.
Waiting Line Theory or Queuing Mode
449
So, in absence of a perfect ba ance between the service faci ity and the custome
rs, waiting is required either by the customer or by the service faci ity. The i
mba ance between the customer and service faci ity, known as congestion, cannot
be e iminated comp ete y but efforts / techniques can be evo ved and app ied to
reduce the magnitude of congestion or waiting time of a new arriva in the syste
m or the service station. The method of reducing congestion by the expansion of
servicing counter may resu t in an increase in id e time of the service station
and may become uneconomica for the organization. Thus both the situation name y
of unreasonab e ong queue or expansion of servicing counters are uneconomica
to individua or managers of the system.
Figure 9.2. Comp ex queue for a maintenance shop.
As discussed above, if the ength of the queue is onger, the waiting time of th
e customer wi increase causing dissatisfaction of customer and to avoid the o
nger waiting time of customer, if the management increases the service faci itie
s, then many a time we see that the service faci ities wi remain id e causing
burden on the organization. To avoid this situation, the theory of waiting ine
wi he p us to reduce the waiting time of the customer and suggest the organiza
tion to insta optima number of service faci ities, so that customer wi be h
appy and the organization can run the business economica y. The arriva pattern
of the customer and the service time of the faci ity depend on many factors and
they are not under the contro of the management. Both cannot be estimated or a
ssessed in advance and moreover their arriva pattern and service time are rando
m in nature. The waiting ine phenomenon is the direct resu t of randomness in t
he operation of service faci ity and random arriva pattern of the customer. The
customer arriva time cannot be known in advance to schedu e the service time a
nd the time required to serve each customer depends on the magnitude of the serv
ice required by the customer. For examp e, et us consider two customers who com
e to the ticket counter to purchase the counter. One-person tenders exact amount
and purchase one ticket and eaves the queue. Another person purchases 10 ticke
ts and gives a Rs. 500/- currency note. For him after giving the ticket, the cou
nter c erk has to give the remaining amount back. So the time required for both
customers wi vary. The randomness of arriva pattern and service time makes th
e waiting ine theory more comp icated and needs carefu study. The theory tries
to strike a ba ance between the costs associated with waiting and costs of prev
enting waiting and he p us to determine the optima number of service faci ities
required and optima arriva rate of the customers of the system.
450
Operations Research
9.2. HISTORICAL DEVELOPMENT OF THE THEORY
During 1903 Mr. A.K. Er ang, a Swedish engineer has started theoretica ana ysis
of waiting ine prob em in te ephone ca s. In 1927, Mr. Mi ins deve oped the
theory further and then by Mr. Thornton D Fry. But Mr. D.G.Kenda has given a s
ystematic and mathematica approach to waiting ine prob em in 1951. After 1951
significant work has been done in waiting ine theory, so as to enab e it to app
y to varieties of prob ems come across in industries and society. One best exam
p e of this may be quoted as the contro of waiting time of a customer in queue
comp ex of Tirupathi Temp e. The present system of tying a be t with time to the
hands of a customer is the resu ts of app ication of queuing theory. Another ex
amp e is computerized reservation of rai journey.
9.3. QUEUING SYSTEM OR PROCESS One thing we have to remember is that when we spe
ak of queue, we have to dea with two e ements, i.e. Arriva s and Service faci i
ty. Entire queuing system can be comp ete y described by: (a) The input (Arriva
pattern) (b) The service mechanism or service pattern, (c) The queue discip ine
and (d) Customer behavior. Components of the queuing system are arriva s, the e
ement waiting in the queue, the unit being served, the service faci ity and the
unit eaving the queue after service. This is shown in figure 9.3.
Figure 9.3. Components of queuing system.
9.3.1. Input Process
The input describes the way in which the customers arrive and join the system. I
n genera customer arriva wi be in random fashion, which cannot be predicted,
because the customer is an independent individua and the service organization
has no contro over the customer. The characteristics of arriva are shown in fi
gure 9.4.
Waiting Line Theory or Queuing Mode
451
Figure 9.4. Characteristics of Arriva s or input.
Input to the queuing system refers to the pattern of arriva of customers at the
service faci ity. We can see at ticket counters or near petro bunks or any suc
h service faci ity that the customer arrives random y individua y or in batches
. The input process is described by the fo owing characteristics (as shown in t
he figure 9.4) nature of arriva s, capacity of the system and behavior of the cu
stomers. (a) Size of arriva s: The size of arriva s to the service system is gre
at y depends on the nature of size of the popu ation, which may be infinite or f
inite. The arriva pattern can be more c ear y described in terms of probabi iti
es and consequent y the probabi ity distribution for inter- arriva times i.e. t
he time between two successive arriva s or the distribution of number of custome
rs arriving in unit time must be defined. In our discussion in this chapter, it
is dea t with those queuing system in which the customers arrive in Poisson or C
omp ete y random fashion. In fact there are many more arriva patterns are avai
ab e but for simp icity, on y Poisson arriva s are considered. (b) Inter-arriva
time: The period between the arriva of individua customers may be constant or
may be scattered in some distribution fashion. Most queuing mode s assume that
the some inter-arriva time distraction app ies for a customers throughout the
period of study. It is true that in most situations that service time is a rand
om variab e with the same distribution for a arriva s, but cases occur where t
here are c ear y two or more c asses of customers such as a machine waiting for
repair with a different service time distribution. Service time may be constant
or random variab e. In this chapter most y distribution of service time, which a
re important, are considered and they are Negative exponentia distribution and
Er ang or Gamma distribution. The most convenient way is to designate some rando
m variab es corresponding to the time between arriva s. In genera the arriva s
fo ow Poisson distribution when the tota number of arriva s during any given t
ime interva of the number of
452
Operations Research
arriva s that have a ready occurred prior to the beginning of time interva . Fig
ures 9.5 and 9.6 shows the Poisson distribution and negative exponentia distrib
ution curves.
Figure 9.5. Poisson Distribution
Figure 9.6. Negative exponentia dist
Waiting Line Theory or Queuing Mode
453
(c) Capacity of the service system In queuing context the capacity refers to the
space avai ab e for the arriva s to wait before taken to service. The space ava
i ab e may be imited or un imited. When the space is imited, ength of waiting
ine crosses a certain imit; no further units or arriva s are permitted to ent
er the system ti some waiting space becomes vacant. This type of system is kno
wn as system with finite capacity and it has its effect on the arriva pattern o
f the system, for examp e a doctor giving tokens for some customers to arrive at
certain time and the present system of a owing the devotees for darshan at Tir
upathi by using the token be t system. (e) Customer behaviour The ength of the
queue or the waiting time of a customer or the id e time of the service faci ity
most y depends on the behaviour of the customer. Here the behaviour refers to t
he impatience of a customer during the stay in the ine. Customer behaviour can
be c assified as: (i) Ba king: This behaviour signifies that the customer does n
ot ike to join the queue seeing the ong ength of it. This behaviour may effec
t in oosing a customer by the organization. A ways a engthy queue indicates in
sufficient service faci ity and customer may not turn out next time. For examp e
, a customer who wants to go by train to his destination goes to rai way station
and after seeing the ong queue in front of the ticket counter, may not ike to
join the queue and seek other type of transport to reach his destination. (ii)
Reneging: In this case the customer joins the queue and after waiting for certai
n time ooses his patience and eaves the queue. This behaviour of the customer
may a so cause oss of customer to the organization. (iii) Co usion: In this ca
se severa customers may co aborate and on y one of them may stand in the queue
. One customer represents a group of customer. Here the queue ength may be sma
but service time for an individua wi be more. This may break the patience o
f the other customers in the waiting ine and situation may ead to any type of
worst episode. (iv) Jockeying: If there are number of waiting ines depending on
the number of service stations, for examp e Petro bunks, Cinema theaters, etc.
A customer in one of the queue after seeing the other queue ength, which is sh
orter, with a hope of getting the service, may eave the present queue and join
the shorter queue. Perhaps the situation may be that other queue which is shorte
r may be having more number of Co aborated customers. In such case the probabi
ity of getting service to the customer who has changed the queue may be very es
s. Because of this character of the customer, the queue engths may goes on chan
ging from time to time.
9.3.2. Service Mechanism or Service Faci ity Service faci ities are arranged to
serve the arriving customer or a customer in the waiting ine is known as servic
e mechanism. The time required to serve the customer cannot be estimated unti w
e know the need of the customer. Many a time it is statistica variab e and cann
ot be determined by any means such as number of customers served in a given time
or time required to serve the customer, unti a customer is served comp ete y.
Service faci ity design and service discip ine and the channe s of service as sh
own in figure 9.7 may genera y determine the service mechanism.
454
Operations Research
Figure 9.7 Service Mechanisms.
(a) Service faci ity design: Arriving customers maybe asked to form a sing e in
e (Sing e queue) or mu ti ine (mu ti queue) depending on the service need. When
they stand in sing e ine it is known as Sing e channe faci ity when they stan
d in mu ti ines it is known as mu ti channe faci ity. (i) Sing e channe queue
s: If the organization has provided sing e faci ity to serve the customers, on y
one unit can be served at a time, hence arriving customers form a queue near th
e faci ity. The next e ement is drawn into service on y when the service of the
previous customer is over. Here a so depending on the type of service the system
is divided into Sing e phase and Mu ti phase service faci ity. In Sing e channe
Sing e Phase queue, the customer enters the service zone and the faci ity wi
provide the service needed. Once the service is over the customer eaves the sy
stem. For examp e, Petro bunks, the vehic e enters the petro station. If there
is on y one petro pump is there, it joins the queue near the pump and when the
term comes, get the fue fi ed and soon after eaves the queue. Or et us say
there is a sing e ticket counter, where the arriva s wi form a queue and one b
y one purchases the ticket and eaves the queue. In sing e channe mu ti phase s
ervice design, the service needed by the customer is provided in different stage
s, say for examp e, at petro station, the customer wi first get the tank fi
ed with fue , then goes to po ution check point get the exhaust gas checked for
carbon dioxide content and then goes to Air compressor and get the air check an
d eaves the petro station. Here each service faci ity is known as a phase. Hen
ce the system is known as mu ti phase system. Another good examp e is a patient
enters the queue near the doctor’s room, get examined by doctor and take prescript
ion goes to compounder takes medicine and then goes to nurse have the injection
and eaves the hospita . Here doctor, compounder and nurse a are faci ities an
d serve the customer one by one. This is shown in figure 9.1. (ii) Mu ti Channe
queues When the input rates increases, and the demand for the service increases
, the management wi provide additiona service faci ities to reduce the rush o
f customers or waiting time of customers. In such cases, different queues wi b
e formed in front of different
Waiting Line Theory or Queuing Mode
455
service faci ities. If the service is provided to customers at one particu ar se
rvice center, then it is known as Mu ti channe Sing e-phase system. In case ser
vice is provided to customer in different stages or phases, which are in para e
, then it is known as mu ti channe mu ti phase queuing system. This is shown i
n figure 9.1. (b) Queue discip ine or Service discip ine When the customers are
standing in a queue, they are ca ed to serve depending on the nature of the cus
tomer. The order in which they are ca ed is known as Service discip ine. There
are various ways in which the customer ca ed to serve. They are: (i) First In F
irst Out (FIFO) or First Come First Served (FCFS) We are quite aware that when w
e are in a queue, we wish that the e ement which comes shou d be served first, s
o that every e ement has a fair chance of getting service. Moreover it is unders
tood that it gives a good mora e and discip ine in the queue. When the condition
of FIFO is vio ated, there arises the troub e and the management is answerab e
for the situation. (ii) Last in first out (LIFO) or Last Come First Served (LCFS
) In this system, the e ement arrived ast wi have a chance of getting service
first. In genera , this does not happen in a system where human beings are invo
ved. But this is quite common in Inventory system. Let us assume a bin containi
ng some inventory. The present stock is being consumed and suppose the materia
ordered wi arrive that is oaded into the bin. Now the o d materia is at the
bottom of the stock where as fresh arrived materia at the top. Whi e consuming
the top materia (which is arrived ate) is being consumed. This is what we ca
Last come first served). This can a so be written as First In Last Out (FILO).
(iii) Service In Random Order (SIRO) In this case the items are ca ed for servi
ce in a random order. The e ement might have come first or ast does not bother;
the servicing faci ity ca s the e ement in random order without considering th
e order of arriva . This may happen in some re igious organizations but genera
y it does not fo owed in an industria / business system. In re igious organiza
tions, when devotees are waiting for the darshan of the god man / god woman, the
devotees are picked up in random order for b essings. Some times we see that in
government offices, the representations or app ications for various favors are
picked up random y for processing. It is a so seen to a ocate an item whose dem
and is high and supp y is ow, a so seen in the a ocation of shares to the app
icants to the company. (iv) Service By Priority Priority discip ines are those w
here any arriva is chosen for service ahead of some other customers a ready in
queue. In the case of Pre-emptive priority the preference to any arriving unit i
s so high that the unit is a ready in service is removed / disp aced to take it
into service. A non- pre-emptive ru e of priority is one where an arriva with
ow priority is given preference for service than a high priority item. As an exa
mp e, we can quote that in a doctors shop, when the doctor is treating a patient
with stomach pain, sudden y a patient with heart stroke enters the doctors shop
, the doctor asks the patient with stomach pain to wait for some time and give a
ttention to heart patient. This is the ru e of priority.
456
Operations Research
9.4. QUEUING PROBLEMS
The most important information required to so ve a waiting ine prob em is the n
ature and probabi ity distribution of arriva s and service pattern. The answer t
o any waiting ine prob em depending on finding: (a) Queue ength: The probabi i
ty distribution of queue ength or the number of persons in the system at any po
int of time. Further we can estimate the probabi ity that there is no queue. (b)
Waiting time: This is probabi ity distribution of waiting time of customers in
the queue. That is we have to find the time spent by a customer in the queue bef
ore the commencement of his service, which is ca ed his waiting time in the que
ue. The tota time spent in the system is the waiting time in the queue p us the
service time. The waiting time depends on various factors, such as: (i) The num
ber of units a ready waiting in the system, (ii) The number of service stations
in the system, (iii) The schedu e in which units are se ected for service, (iv)
The nature and magnitude of service being given to the e ement being served. (c)
Service time: It is the time taken for serving a particu ar arriva . (d) Averag
e id e time or Busy time distribution: The average time for which the system rem
ains id e. We can estimate the probabi ity distribution of busy periods. If we s
uppose that the server is id e initia y and the customer arrives, he wi be pr
ovided service immediate y. During his service time some more customers wi arr
ive and wi be served in their turn according to the system discip ine. This pr
ocess wi continue in this way unti no customer is eft unserved and the serve
r becomes free again after serving a the customers. At this stage we can conc
ude, that the busy period is over. On the other hand, during the id e periods no
customer is present in the system. A busy period and the id e period fo owing
it together constitute a busy cyc e. The study of busy period is of great intere
st in cases where technica features of the server and its capacity for continuo
us operation must be taken into account.
9.5. STEADY, TRANSIENT AND EXPLOSIVE STATES IN A QUEUE SYSTEM
The distribution of customer’s arriva time and service time are the two constitue
nts, which constitutes of study of waiting ine. Under a fixed condition of cust
omer arriva s and service faci ity a queue ength is a function of time. As such
a queue system can be considered as some sort of random experiment and the vari
ous events of the experiment can be taken to be various changes occurring in the
system at any time. We can identify three states of nature in case of arriva s
in a queue system. They are named as steady state, transient state, and the exp
osive state. (a) Steady State: The system wi sett e down as steady state when
the rate of arriva s of customers is ess than the rate of service and both are
constant. The system not on y becomes steady state but a so becomes independent
of the initia state of the queue. Then the probabi ity of finding a particu ar
ength of the queue at any time wi be same. Though the size of the queue f uct
uates in steady state the statistica behaviour of the queue remains steady. Hen
ce we can say that a steady state condition is said to prevai when the behaviou
r of the system becomes independent of time.
Waiting Line Theory or Queuing Mode
457
A necessary condition for the steady state to be reached is that e apsed time si
nce the start of the operation becomes sufficient y arge i.e. (t → ∞), but this con
dition is not sufficient as the existence of steady state a so depend upon the b
ehaviour of the system i.e. if the rate of arriva is greater than the rate of s
ervice then a steady state cannot be reached. Hence we assume here that the syst
em acquires a steady state as t → ∞ i.e. the number of arriva s during a certain int
erva becomes independent of time. i.e. Lim Pn(t) → Pn t →∞ Hence in the steady state
system, the probabi ity distribution of arriva s, waiting time, and service time
does not depend on time. (b) Transient State Queuing theory ana ysis invo ves t
he study of a system’s behaviour over time. A system is said to be in ‘transient sta
te’ when its operating characteristics or behaviour are dependent on time. This ha
ppens usua y at initia stages of operation of the system, where its behaviour
is sti dependent on the initia conditions. So when the probabi ity distributi
on of arriva s, waiting time and servicing time are dependent on time the system
is said to be in transient state. (b) Exp osive State In a situation, where arr
iva rate of the system is arger than its service rate, a steady state cannot b
e reached regard ess of the ength of the e apsed time. Here queue ength wi i
ncrease with time and theoretica y it cou d bui d up to infinity. Such case is
ca ed the exp osive state. In our further discussion, a the prob ems and situ
ations are dea t with steady state on y.
9.6. DESIGNATION OF QUEUE AND SYMBOLS USED IN QUEUING MODELS
A queue is designated or described as shown be ow: A mode is expressed as A/B/S
: (d / f) where, A: Arriva pattern of the units, given by the probabi ity dist
ribution of inter - arriva time of units. For examp e, Poisson distribution, Er
ang distribution, and inter arriva time is 1 minute or 10 units arrive in 30 m
inutes etc. B: The probabi ity distribution of service time of individua being
actua y served. For examp e the service time fo ows negative exponentia distr
ibution and 10 units are served in 10 minutes or the service time is 3 minutes,
etc. S: The number of service channe s in the system. For examp e the item is se
rved at one service faci ity or the person wi receive service at 3 faci ities
etc. d: Capacity of the system. That is the maximum number of units the system c
an accommodate at any time. For examp e, the system has imited capacity of 40 u
nits or the system has infinite capacity etc. f: The manner or order in which th
e arriving units are taken into service i.e. FIFO / LIFO / SIRO /Priority.
NOTATIONS
X: Inter arriva time between two successive customers (arriva s). Y: The servic
e time required by any customer.
458
Operations Research
w: The waiting time for any customer before it is taken into service. v: Time sp
ent by the customer in the system. n: Number of customers in the system, that is
customers in the waiting ine at any time, inc uding the number of customers be
ing served. Pn (t): Probabi ity that ‘n’customers arrive in the system intime ‘t’. Φ n (
t): Probability that ‘n’ units are serve in time ‘t’. U (T): Probability istribution o
f inter arrival
time P (t ≤ T). V (T): Probability istribution of servicing time
P (t ≤ T). (N): Probability istribution of queue length at any time P (N ≤ n). En
: Some state of the system at a time when there are ‘n’ units in the system. λ n : Ave
rage number of customers arriving per unit of time, when there are a ready ‘n’ units
in the system. : Average number of customers arriving per unit of time. λ µ n : Ave
rage number of customers being served per unit of time when there are a ready ‘n’ un
its in the system. µ : Average number of customers being served per unit of time.
1 / λ : Inter arriva time between two arriva s. 1 / µ : Service time between two un
its or customers. ρ = (λ / µ) :System uti ity o t affic intensity which te s us how
much time the system was uti ized in a given time. Fo examp e given time is 8 h
ou s and if ρ = 3 / 8, it means to say that out of 8 hou s the system is used fo
3 hou s and (8 – 3 = 5) 5 hou s the is id e.
9.7. DISTRIBUTION OF ARRIVAL AND SERVICE TIME 9.7.1. Dist ibution of A iva s
The common basic waiting ine mode s have been deve oped on the assumption that
a iva ate fo ows the Poisson dist ibution and that se vice times fo ow the
negative exponentia dist ibution. This situation is common y efe ed to as the
Poisson a iva and Exponentia ho ding time case. These assumptions a e often
quite va id in ope ating situations. Un ess it is mentioned that a iva and se
vice fo ow diffe ent dist ibution, it is unde stood a ways that a iva fo ows
Poisson dist ibution and se vice time fo ows negative exponentia dist ibution
. Resea ch scho a s wo king on queuing mode s have conducted ca efu study about
va ious ope ating conditions ike - a iva s of custome s at g oce y shops, A
iva patte n of custome s at ticket windows, A iva of b eakdown machines to ma
intenance etc. and confi med a most a a iva patte n fo ows nea y Poisson d
ist ibution. One such cu ve is shown in figu e 9.5. A though we cannot say with
fina ity that dist ibution of a iva ates a e a ways desc ibed adequate y by t
he Poisson, the e is much evidence to indicate that this is often the case. We c
an eason this by saying that a ways Poisson dist ibution co esponds to comp et
e y andom a iva s and it is assumed that a iva s a e comp ete y independent o
f othe a iva s as we as any condition of the waiting ine. The common y used
symbo fo ave age a iva ate in waiting ine mode s is the G eek ette Lamd
a ( λ ), a iva s pe time unit. It can be shown that when the a iva ates fo o
w a Poisson p ocesses with mean a iva ate λ, the time between a iva s fo ow a
negative exponentia dist ibution with mean time between a iva s of 1/ λ . This
e ationship between mean a iva ate and mean time between a iva s does not n
ecessa i y ho d
Waiting Line Theo y o Queuing Mode
459
fo othe dist ibutions. The negative exponentia dist ibution then, is a so ep
esentative of Poisson p ocess, but desc ibes the time between a iva s and spec
ifies that these time inte va s a e comp ete y andom. Negative exponentia cu v
e is shown in figu e 9.6. Let us t y to unde stand the p obabi ity dist ibution
fo time between successive a iva s, which is known as exponentia dist ibution
as desc ibed above. The dist ibution of a iva s in a queuing system can be con
side ed as a pu e bi th p ocess. The te m bi th efe s to the a iva of new ca
ing units in the system the objective is to study the numbe of custome s that
ente the system, i.e. on y a iva s a e counted and no depa tu es takes p ace.
Such p ocess is known as pu e bi th p ocess. An examp e may be taken that the se
vice station ope ato waits unti a minimum-desi ed custome s a ives befo e he
sta ts the se vice.
9.7.2. Exponentia Se vice Times
The common y used symbo fo ave age se vice ate in waiting ine mode s is the
G eek ette ‘mu’ ‘µ’, the numbe of se vices comp eted pe time unit. As with a iva s it
can be shown that when se vice ates fo ow a Poison p ocess with mean se vice
ate µ, the dist ibution of se viced times fo ow the negative exponentia dist ib
ution with mean se vice time 1 / µ. The eason fo the common efe ence to ates i
n the discussion of a iva s and to times in the discussion of se vice is simp y
a matte of p actice. One shou d ho d it c ea y in mind, howeve , fo both a
iva s and se vices, that in the gene a Poison mode s, ates fo ow the Poisson
dist ibution and times fo ow the negative exponentia dist ibution. One must a
ise a doubt at this point why the inte est in estab ishing the va idity of the P
oisson and Negative exponentia dist ibutions. The answe is that whe e the assu
mptions ho d, the esu ting waiting ine fo mu as a e quite simp e. The Poison a
nd Negative exponentia dist ibutions a e sing e pa amete s dist ibutions; that
is, they a e comp ete y desc ibed by one pa amete , the mean. Fo the Poisson di
st ibution the standa d deviation is the squa e oot of the mean, and fo the ne
gative exponentia dist ibution the standa d deviation is equa to the mean. The
esu t is that the mathematica de ivations and esu ting fo mu as a e not comp
ex. Whe e the assumptions do not ho d, the mathematica deve opment may be ath
e comp ex o we may eso t to othe techniques fo so ution, such as simu ation
.
9.8. QUEUE MODELS
Most e ementa y queuing mode s assume that the inputs / a iva s and outputs / d
epa tu es fo ow a bi th and death p ocess. Any queuing mode is cha acte ized b
y situations whe e both a iva s and depa tu es take p ace simu taneous y. Depen
ding upon the natu e of inputs and se vice facu ties, the e can be a numbe of q
ueuing mode s as shown be ow: (i) P obabi istic queuing mode : Both a iva and
se vice ates a e some unknown andom va iab es. (ii) Dete ministic queuing mode
: Both a iva and se vice ates a e known and fixed. (iii) Mixed queuing mode
: Eithe of the a iva and se vice ates is unknown andom va iab e and othe k
nown and fixed. Ea ie we have seen how to designate a queue. A iva patte n /
Se vice patte n / Numbe of channe s / (Capacity / O de of se vicing). (A /B/
S / (d / f). In gene a M is used to denote Poisson dist ibution (Ma kovian) of
a iva s and depa tu es. D is used to constant o Dete ministic dist ibution. Ek
is used to ep esent E angian p obabi ity dist ibution. G is used to show some
gene a p obabi ity dist ibution.
460
Ope ations Resea ch
In gene a queuing mode s a e used to exp ain the desc iptive behavio of a queu
ing system. These quantify the effect of decision va iab es on the expected wait
ing times and waiting engths as we as gene ate waiting cost and se vice cost
info mation. The va ious systems can be eva uated th ough these aspects and the
system, which offe s the minimum tota cost is se ected.
P ocedu e fo So ution
(a) List the a te native queuing system (b) Eva uate the system in te ms of va i
ous times, ength and costs. (c) Se ect the best queuing system. (Note: Students
/ eade s a e advised to efe to the books on Ope ations Resea ch w itten with
mathematica o ientation fo the de ivation of fo mu as fo va ious queuing mod
e s. In this book, the app ication of fo mu a is made.)
9.8.1 Poisson A iva / Poisson output / Numbe of channe s / Infinite capacity
/ FIFO Mode
M / M / 1 / ( ∞ / FIFO): Fo mu ae used 1. Ave age numbe of a iva s pe unit of t
ime = λ 2. Ave age numbe of units se ved pe unit of time = µ 3. T affic intensity
o uti ity atio = ρ =
λ µ
the condition is : (µ > λ)
4. P obabi ity that the system is empty = P0 = (1 – ρ ) 5. P obabi ity that the e a
e ‘n’ units in the system = Pn = ρ n P0 6. Ave age numbe of units in the system = E (
n) =
ρ λ λ (1 − ρ) o = (µ − λ ) = Lq + µ ρ2 λ2 = (1 − ρ) µ (µ − λ)
7. Ave age numbe of units in the waiting ine = EL =
8. Ave age waiting ength (mean time in the system) = E (L / L > 0)
1 1 = µ−λ = − ( ) (1 ρ) 1 L = E ( w) + µ = λ
9. Ave age ength of waiting ine with the condition that it is a ways g eate t
han ze o
λ ρ = 2 (1 − ρ) (µ − λ) 2 Lq λ = = λ µ (µ − λ )
= V ( n) =
Waiting Line Theo y o Queuing Mode
461
1 1 11. Ave age time an a iva spends in the system = E (v) = µ − = µ − λ = E ( w / w > 0
) (1 ρ) ( )
12. P (w > 0) = System is busy = ρ 13. Id e time = (1 − ρ) 14. P obabi ity distibution
of waiting time = P (w) dw =
µ ρ (1 − ρ) e −µ w (1−ρ)
15. P obabi ity that a consume has to wait on a iva = (P (w > 0) = ρ 16. P obab
i ity that a new a iva stays in the system =
P (v) dv = µ (1 − ρ) e −µ v (1−ρ ) dv,
P ob em 9.1.
A T.V. Repai man finds that the time spent on his jobs have an exponentia dist
ibution with mean of 30 minutes. If he epai s sets in the o de in which they c
ome in, and if the a iva of sets is app oximate y Poisson with an ave age ate
of 10 pe 8 hou day, what is epai man’s expected id e time each day? How many j
obs a e ahead of the ave age set just b ought in?
So ution
This p ob em is Poisson a iva /Negative exponentia se vice / sing e channe /i
nfinite capacity/ FIFO type p ob em. Data: λ = 10 sets pe 8 hou day = 10 / 8 = 5
/4 sets pe hou . Given 1 / µ = 30 minutes, hence µ = (1/30) × 60 = 2 sets pe hou . H
ence, Uti ity atio = ρ = (λ / µ) = (5/4) / 2 = = 5 / 8. = 0.625. This means out of 8
hou s 5 hou s the system is busy i.e. epai man is busy. P obabi ity that the e
is no queue = The system is id e = (1 − ρ) = 1 – (5 / 8) = 3 / 8 = That is out of 8 ho
u s the epai man wi be id e fo 3 hou s. Numbe of sets ahead of the set just
ente ed = Ave age numbe of sets in system = λ / (µ − λ ) = = ρ / (1 − ρ) = 0.625 / (1 – 0
= 5 / 3 ahead of jobs just came in.
P ob em 9.2.
The a iva s at a te ephone booth a e conside ed to be fo owing Poisson aw of
dist ibution with an ave age time of 10 minutes between one a iva and the next
. Length of the phone ca is assumed to be dist ibuted exponentia y with a mea
n of 3 minutes. (a) What is the p obabi ity that a pe son a iving at the booth
wi have to wait? (b) What is the ave age ength of queue that fo ms f om time
to time? (c) The te ephone depa tment wi insta a second booth when convinced
that an a iva wou d expect to wait at east thee minutes fo the phone. By ho
w much must the f ow of a iva s be inc eased in o de to justify a second booth
?
462
Ope ations Resea ch
So ution
Data: Time inte va between two a iva s = 10 min. = 1/ λ, Length of phone ca =
3 min. = 1 / µ. Hence λ = 1/10 = 0.1– pe min and µ = 1/3 = 0.33 pe min., and ρ = λ / µ =
0 / 0.33 = 0.3 (a) Any pe son who is coming to booth has to wait when the e is s
omebody in the queue. He need not wait when the e is nobody in the queue i.e. th
e queue is empty. Hence the p obabi ity of that an a iva does not wait = P0 =
(1 − ρ). Hence the p obabi ity that an a iva has to wait = 1 – The p obabi ity that
an a iva does not wait = (1 – P0) = 1 – (1 − ρ) = ρ = 0.3. That means 30% of the time th
e f esh a iva has to wait. That means that 70 % of the time the system is id e
. (b) Ave age ength of non- empty queue f om time to time = (Ave age ength of
the waiting ine with the condition that it is a ways g eate than ze o = 1 (1 − ρ)
i.e. E (L/L > 0) = 1 / (1 – 0.3) = 1.43 pe sons. (c) The insta ation of the secon
d booth is justified if the waiting time is g eate than o equa to th ee. If t
he new a iva ate is λ , then fo µ = 0.33 we can wo k out the ength of the waiti
ng ine. In this case ρ = λ / µ. Length of the waiting ine fo λ and µ = 0.33 = E (w) =
{λ / µ (µ − λ )} ≥ 3 o λ = (3µ 2 − 3ρµλ ) o λ = (3µ 2 ) /(1 + 3µ) = (3 × 0.332) /
16. That is the a iva ate must be at east 0.16 pe sons pe minute o one a
iva in eve y 6 minutes. This can be w itten as 10 a iva s pe hou to justify
the second booth.
P ob em 9.3.
In a depa tmenta sto e one cashie is the e to se ve the custome s. And the cus
tome s pick up thei needs by themse ves. The a iva ate is 9 custome s fo ev
e y 5 minutes and the cashie can se ve 10 custome s in 5 minutes. Assuming Pois
son a iva ate and exponentia dist ibution fo se vice ate, find: (a) Ave ag
e numbe of custome s in the system. (b) Ave age numbe of custome s in the queu
e o ave age queue ength. (c) Ave age time a custome spends in the system. (d)
Ave age time a custome waits befo e being se ved.
So ution
Data: A iva ate is λ = (9 / 5) = 1.8 custome s pe minute. Se vice ate = µ = (10
/ 5) = 2 custome s pe minute. Hence ρ = (λ / µ) = (1.8 / 2 ) = 0.9 (a) Ave age numbe
of custome s in the system = E (n) = ρ / (1 − ρ) = 0.9 / (1 – 0.9) = 0.9 / 0.1 = 9 cus
tome s. (b) Ave age time a custome spends in the system = E (v) = 1 / µ (1 − ρ) = 1 /
(µ − λ) = 1 / (2 – 1.8) = 5 minutes. (c) Ave age numbe of custome s in the queue = E (L
) = ρ 2 /(1 − ρ) = λ2 / µ (µ − λ) = (ρ) × λ /(µ − λ ) = 0.9 × 1.8 / (2 – 1.8) = 8.1 custome
a custome spends in the queue = ρ / µ (1 − ρ) = λ / µ (µ − λ) = 0.9 / 2 ( 1 – 0.9) = 0.9 /
minutes.
Waiting Line Theo y o Queuing Mode
463
P ob em 9.4.
A b anch of a Nationa ized bank has on y one typist. Since typing wo k va ies in
ength (numbe of pages to be typed), the typing ate is andom y dist ibuted a
pp oximating a Poisson dist ibution with a mean se vice ate of 8 ette s pe ho
u . The ette a ives at a ate of 5 pe hou du ing the enti e 8hou wo kday.
If the typist is va ued at Rs. 1.50 pe hou , dete mine: (a) Equipment uti izati
on, (b) The pe cent time an a iving ette has to wait, (c) Ave age system time
, and d) Ave age id e time cost of the typew ite pe day.
So ution
Data = a iva ate = λ = 5, Se vice ate µ = 8 pe hou . Hence ρ = (λ / µ) = 5 / 8 = 0.62
5 (a) Equipment uti ization = Uti ity atio = ρ = 0.625, i.e. 62.5 pe cent of 8 ho
u day the equipment is engaged. (b) Pe cent time that an a iving ette has to
wait = As the machine is busy fo 62.5 % of the day, the a iving ette has to
wait fo 62.5 % of the time. (c) Ave age system time = Expected (ave age) a cus
tome spends in the system = 1 /(µ − λ) = [1 / (8 – 5)] = 1/3 hou . = 20 minutes. d) Ave
age id e time cost of the typew ite pe day = 8 hou s × id e time × id e time cost
= = 8 × (1 – 5 / 8) × Rs. 1.50 = Rs. 4.50.
P ob em 9.5.
A p oduct manufactu ing p ant at a city dist ibutes its p oducts by t ucks, oad
ed at the facto y wa ehouse. It has its own f eet of t ucks p us t ucks of a p i
vate t anspo t company. This t anspo t company has comp ained that sometimes its
t ucks have to wait in ine and thus the company oses money paid fo a t uck a
nd d ive of waiting t uck. The company has asked the p ant manage eithe to go
in fo a second wa ehouse o discount p ices equiva ent to the waiting time. Th
e data avai ab e is: Ave age a iva ate of a t ucks = 3 pe hou . Ave age se
vice ate is = 4 pe hou . The t anspo t company has p ovided 40% of the tota
numbe of t ucks. Assuming that these ates a e andom acco ding to Poisson dist
ibution, dete mine: (a) The p obabi ity that a t uck has to wait? (b) The waiti
ng time of a t uck that has to wait, (c) The expected waiting time of company t
ucks pe day.
So ution
Data: λ = 3 t ucks pe hou , µ = 4 t ucks pe hou . Hence ρ = uti ization facto = (λ / µ)
= 3 / 4 = 0.75. This means that the system is uti ized 75% of the time. Hence 7
5% the time the t uck has to wait. The waiting time of t uck that waits = E (v)
= 1 /(µ − λ) = 1 / (4 – 3) = 1 hou . Tota expected waiting time of company t ucks pe d
ay = (T ucks pe day) × (% company t ucks) × Expected waiting time pe t uck. = (3 × 8
) × (0.40) × [λ / µ (µ − λ)] = 24 × 0.40 × [3 / 4(43) = 24 × 0.40 × 0.75 = 7.2 hou s pe da
464
Ope ations Resea ch
P ob em 9.6. A epai man is to be hi ed to epai machines, which b eak down at
an ave age ate of 3 pe hou . The b eakdown fo ows Poisson dist ibution. Non -
p oductive time of a machine is conside ed to cost Rs. 16/- pe hou . Two epai
men have been inte viewed. One is s ow but cheap whi e the othe is fast but ex
pensive. The s ow wo ke cha ges Rs. 8/- pe hou and the se vices b eakdown mac
hines at the ate of 4 pe hou . The fast epai man demands Rs. 10/- pe hou an
d se vices at an ave age ate of 6 pe hou . Which epai man is to be hi ed? So
ution Data: λ = 3 machines pe hou , Id e time cost of machine is Rs. 16/- pe hou
, S ow epai man cha ges Rs. 8/- pe hou and epai s 4 machines pe hou = µ1 ,
Fast wo ke demands Rs. 10 pe hou and epai s 6 machines pe ou = µ 2
S.No. 1. 2. 3. 4. 5. Pa ticu a s. A iva ate Se vice ate Id e time cost Labou
cha ges. Ave age down time of the machine = Pe hou tota cost of s ow wo ke
. Pe hou Tota cost of fast wo ke = Fo mu a/Symbo S ow wo ke 3 machines pe
hou 4 machines pe hou 16 pe hou Rs. 8/- pe hou 1 / (4 - 3) = 1 hou . Fas
t wo ke 3 machines pe hou 6 machines pe hou 16 pe hou . Rs. 10 pe hou 1
/ (6 – 3) = 1/3 hou . Rema ks.
λ
µ
C L = Ave age time spent by the machine in the system = E (v) =
1/ µ − λ
6. C = 3 machines × 1 hou × Rs. 16 = Rs. 48 C = 1/3 × 3 machines × Rs. 16/- = Rs. 16/L
= Rs. 8 --Rs. 48 + 8 = Rs. 56/Rs. 16 + Rs. 10 = Rs. 26
7.
---
L = Rs. 10/-
As tota cost of fast wo ke is ess than that of s ow wo ke , fast wo kman shou
d be hi ed.
P ob em 9.7.
The e is a congestion of the p atfo m of a ai way station. The t ains a ive at
the ate of 30 t ains pe day. The waiting time fo any t ain to hump is expone
ntia y dist ibuted with an ave age of 36 minutes. Ca cu ate: (a) The mean queue
size, (b) The p obabi ity that the queue size exceeds 9.
So ution
Data: A iva ate 30 t ains pe day, se vice time = 36 minutes.
λ = 30 t ains pe day. Hence inte a iva time = 1 / λ = (60 × 24) / 30 = 1 / 48 minu
tes. Given that the inte se vice time = 1 / µ = 36 minutes. The efo e ρ = (λ / µ) = 36
/ 48 = 0.75.
Waiting Line Theo y o Queuing Mode
465
(a) The mean queue size = E (n) = ρ / (1 − ρ) = 0.75 / (1 – 0.75) = 0.75 / 0.25 = 3 t ai
ns. (b) P obabi ity that queue size exceeds 9 = P obabi ity of queue size ≥ 10 = 1
– P obabi ity of queue size ess than 10 = 1 - (p0 + p1 + p2 …..+ p9) = p0 (1 + ρ + ρ 2
+ ....ρ 9 ) =
1 − {(1 − ρ) [(1 − ρ10 ) /(1 − ρ)]} = 1 − (1 − ρ10 ) = ρ10 = (0.75)10 = 0.06 app oximate y)
P ob em 9.8.
Let on the ave age 96 patients pe 24-hou day equi e the se vice of an eme gen
cy c inic. A so on ave age, a patient equi es 10 minutes of active attention. A
ssume that the faci ities can hand e on y one eme gency at a time. Suppose that
it costs the c inic Rs. 100/- pe patient t eated to obtain an ave age se vicing
time of 10 minutes and that each minute of dec ease in this ave age time wou d
costs Rs. 10/ - pe patient t eated. How much wou d have to be budgeted by the c
inic to dec ease the ave age size of the queue f om one and one thi d patient t
o ha f a patient?
So ution
Data: λ = 96 / 24 = 4 patients pe hou ., µ = (1 / 10) × 60 = 6 patients pe hou . Hen
ce ρ = (λ / µ) = 4 / 6 = 2 / 3. Ave age numbe of patients in waiting ine = E (L) = ρ 2
/(1 − ρ) = (4 / 9) / [1 – (2 / 3)] = 4 / 3 patients. = One and one thi d patients. No
w this is to be educed to 1/2 = E (L). E (L) = (λ / µ ) × (λ / µ − λ) o 1/2 hou . (No
= –4 is not conside ed as it does not convey any meaning.) The efo e, ave age tim
e equi ed by each patient = 1/8 hou = 15 / 2 minutes = 7 ½ minutes. Dec ease in
time equi ed by each patient 10 – (15 / 2) = 5 / 2 minutes o 2 ½ minutes. The budg
et equi ed fo each patient = Rs. [100 + 10 × (5/2)] Rs. 125/Thus dec ease the si
ze of the queue; the budget pe patient shou d be inc eased f om Rs. 100/- to Rs
. 125/-. = (4 / µ ) × (4 / µ − 4) or µ 2 − 4µ – 32 = 0 o (µ − 8) (µ + µ) = 0 o µ =
P ob em 9.9.
A iva ate of te ephone ca s at a te ephone booth is acco ding to Poisson dis
t ibution, with an ave age time of 9 minutes between consecutive a iva s. The
ength of te ephone ca is exponentia y dist ibuted with a man of 3 minutes. Fi
nd: (a) Dete mine the p obabi ity that a pe son a iving at the booth wi have
to wait. (b) Find the ave age queue ength that fo ms f om time to time. (c) The
te ephone company wi insta a second booth when conveniences that an a iva
wou d expect to have to wait at east fou minutes fo the phone. Find the inc
ease in f ow of a iva s, which wi justify a second booth. (d) What is the p o
babi ity that an a iva wi have to wait fo mo e than 10 minutes befo e the p
hone is f ee?
466
Ope ations Resea ch
(e) What is the p obabi ity that they wi have to wait fo mo e than 10 minutes
befo e the phone is avai ab e and the ca is a so comp ete? (f) Find the f act
ion of a day that the phone wi be in use.
So ution
Data: A iva ate λ = 1 / 9 pe minute and se vice ate µ = 1 / 3 pe minute. (a) P
obabi ity that a pe son has to wait (pe son wi wait when the system is busy i
.e. we have to find ρ ) ρ = λ / µ = (1 / 9 ) / ( 1 / 3) = 3 / 9 = 0.33 i.e. 33% of the t
ime the custome has to wait. This means that 67% of the time the custome wi
get the phone soon afte a iva . (b) Ave age queue ength that fo ms f om time
to time = µ /(µ − λ) = (1 / 3) / [ (1 / 3) – ( 1 / 9)] = (1 / 3 ) / ( 2 / 9) = (1 / 3) × (9
/ 2) = 1.5 pe sons. (c) Ave age waiting time in the queue = E (w) = λ1 / µ (µ − λ1 ) = 4 4
= λ1 / (1 /3) × [(1/3) – λ1 ] = (1 / 9) – ( λ1 / 3) = ( λ1 /4) o λ1 × (7 /2) = 1/9 λ1 = 1
= (4 / 21) a iva s pe minute. Hence inc ease in the f ow of a iva s = (4 / 2
1) – (1 / 9) = 5 /63 pe minute. (d) P obabi ity of waiting time ≥ 10 = (λ / µ) (µ − λ ) ×
dt.
10 ∝ = (λ / µ) (µ − λ) × [(e − (µ −λ ) t ) / − (µ − λ )]10 ∝
∫
= (λ / µ) ×[0 − e − (µ −λ )10 ] = (λ / µ) × e −( µ −λ )10
= (1 / 3) × e − (1/ 3−1/ 9) ×10 = (1 / 3) × e − ( 20 / 9) = 1 / 30 (e) Probability that an
lement spends in system ≥ 10 = (µ − λ) e −( µ −λ ) t dt.
10 ∝
∫
= (µ / λ ) (λ / µ) (µ − λ). e − (µ − λ ) t dt = (µ / λ) (1 / 30) = [(1 / 3) /(1 / 9)] × (1
0.1 (g) The expected f action of a day that the phone wi be in use = ρ = (λ / µ) = 0
.33.
10
∝
∫
Problem 9. 10.
In large maintenance epartment fitters raw parts from the parts stores, which
is at present staffe by one storekeeper. The maintenance
foreman is concerne a
bout the time spent by fitters
in getting parts an wants to know if the employm
ent of a stores helper woul be worthwhile.
On investigation it is foun that: (
a) A simple queue situation exists, (b)
itters
cost Rs. 2.50 per hour, (c) The
storekeeper
costs Rs. 2/- per hour an
can eal on an average
with 10 fitters pe
r hour. ( ) A labour can be employe at Rs. 1.75 per hour an woul increase the
capacity of the stores to 12 per hour. (e) On an average 8 fitters visit the st
ores each hour.
Waiting Line Theory or Queuing Mo el
467
Solution
Data: λ = 8 fitte s pe hou , µ = 10 pe hou . Numbe of fitte s in the system = E (
n) = λ /(µ − λ) o ρ /(1 − ρ) = 8 / (10 – 8) = 4 fitte s. With sto es abou λ = 8 pe hou
pe hou . Numbe of fitte s in the system = E (n) = λ /(µ − λ) = 8 / (12 – 8) = 2 fitte s.
Cost pe hou = Cost of fitte pe hou + cost of abou pe hou = 2 × Rs. 2.50
+ Rs. 1.75 = Rs. 6.75. Since the e a net savings of Rs. 3.25 pe hou , it is ec
ommended to emp oy the abou e .
9.8.2. Mode II. Gene a ization of mode (M /M / 1) : (FCFS/ ∝ / ∝ ) : (Birth - Deat
h process) In waiting line system each arrival can be consi ere to be a birth i
.e. if the system is in the state En, i.e. there are n units in the system an t
here is an arrival then the state of the system changes to the state En+1. Simil
arly when there is a eparture from the system the state
of the system becomes E
n-1. Hence whole system is thus viewe as a birth an eath process. When λ is the
a iva ate of the system, wi neve be fixed and dependent on the queue eng
th ‘n’, then it wi mean that some pe son inte ested in joining the queue may not j
oin due to ong queue. Simi a y, if µ is a so dependent on the queue ength it ma
y affect the se vice ate. Hence in this case both λ and µ cannot be taken to be fix
ed. Th ee cases may occu , which a e desc ibed be ow. In this mode , a iva at
e and se vice ate i.e. λ and µ do not emain constant du ing the queuing phenomenon
and va y to λ1 , λ 2 … λ n and µ1 , µ 2 …. µ n espective y. Then: p1 = ( λ 0 / µ 1 ) p0 p
µ 1 ) ( λ 1 / µ 2 ) p0 ………………………….. ………………………….. pn = (λ 0 / µ1 ) (λ1 / µ 2 )...(λ n − 2 /
ases when: 1. λ n = λ and µ n = µ then,
p0 = 1 − (λ / µ), pn = (λ / µ) n × [1 − (λ / µ)] 2. When λ n = λ /( n + 1) and µ n = µ p0 =
)]× e −ρ , whe e ρ = (λ / µ) 3. When λ n = λ and µ n = n × µ then p0 = e − ρ and pn = (ρ n
P ob em 9.11. A t anspo t company has a sing e un oading be th with vehic es a
iving in a Poisson fashion at an ave age ate of th ee pe day. The un oading ti
me dist ibution fo a vehic e with ‘n’ un oading wo ke s is found to be exponentia
y with an ave age un oading time (1/2) xn days. The company has a a ge abou s
upp y without egu a wo king hou s, and to avoid ong waiting ines, the compan
y has a po icy
468
Ope ations Resea ch
of using as many un oading g oup of wo ke s in a vehic e as the e a e vehic es w
aiting in ine o being un oaded. Unde these conditions find (a) What wi be t
he ave age numbe of un oading g oup of wo ke s wo king at any time? (b) What is
the p obabi ity that mo e than 4 g oups of wo ke s a e needed?
So ution
Let us assume that the e a e ‘n’ vehic es waiting in ine at any time. Now se vice
ate is dependent on waiting ength hence µ n = 2n vehic es pe day (when the e a e
‘n’ g oups of wo ke s in the system). Now λ = 3 vehic es pe day and µ = 2 vehic es pe
day. (With one un oading abou g oup) Hence, pn = (ρ n / n!) × e −ρ fo n ≥ 0 The efo e,
expected numbe of g oup of wo ke s wo king any specified instant is E (n) =
∑
n =0
∝
n × pn = Σ n × (ρ n e −ρ ) / n! = ρ × e −ρ ×
∑ (ρ
n =1
∝
n −1
) /( n − 1) = (λ / µ)
= 1.5 abou g oup. The p obabi ity that the vehic e ente ing in se vice wi e
qui e mo e than fou g oups of wo ke s is
∑p
n =5
∝
n
= 1−
∑ (ρ
n =0
4
n
/ n!) e −ρ = 0.019.
9.8.3.
Mode III. Finite Queue
Length Mode : (M / M / 1) : FCFS / N / ∝ This mo el
iffers from the abovemo el in the sense that the maximum numberof customers
in the system
is limite to N. Therefore
the equations of above mo el is vali f
or this mo el as long as n < N an arrivals
will not excee N un er any circumst
ances. The various equations of the mo el is:
1. p0 = (1 − ρ) /(1 − ρ N +1 ), whe e ρ = λ / µ and λ / µ > 1 is a owed. 2. pn = (1 − ρ) ρ
fo a n = 0, 1, 2, ….N 3. Ave age queue ength E (n) = ρ [1 − (1 + N ) ρ N + Nρ N +1 ]
/ (1 − ρ) (1 − ρ N +1 ).
N +1 = [(1 − ρ) /(1 − ρ )] × n N
∑ nρ
n =0
n
= p0 ×
∑n×ρ
n =0
n
4. The ave age ength of the waiting ine = E (L) = [1 − N ρ N +1 + ( N − 1) ρ N ] ρ 2 / (
1 − ρ) (1 − ρ N +1 ) 5. Waiting time in the system = E (v) = E (n) / λ whe e λ = λ (1 − ρ
Waiting time in the queue = E (w) = E (L) / λ = [( E ( n) / λ / (1 / µ)].
P ob em 9.12. In a ai way ma sha ing ya d, good t ain a ives at the ate of 3
0 t ains pe day. Assume that the inte a iva time fo ows an exponentia dist
ibution and the se vice time is a so to be assumed as exponentia with a mean o
f 36 minutes. Ca cu ate: (a) The p obabi ity that the ya d is empty, (b) The ave
age ength assuming that the ine capacity of the ya d is 9 t ains.
Waiting Line Theo y o Queuing Mode
469
So ution Data: λ = 30 / (60 × 24) = 1 / 48 t ains pe minute. And µ = 1 / 16 t ains pe
minute. The efo e ρ = (λ / µ) = 36 / 48 = 0.75. (a) The p obabi ity that the queue i
s empty is given by = p0 = (1 − ρ) / (1 − ρ N +1 ), whe e N = 9. {1 - 0.75) / [1- (0.75)
9+1 = 0.25 / 0.90 = 0.28. i.e. 28 % of the time the ine is empty. Ave age queue
ength is = [(1 − ρ) / (1 − ρ N +1 )] ×
∑n ρ
n=0
N
n
[(1 − 0.75) / (1 − 0.7510 )] ×
∑ n (0.75)
n =0
9
n
= 0.28 × 9.58 = 3 trains.
Problem 9.13.
A barbershop has space to accommodate only 10 customers. He can serve only one p
erson at a time. If a customer comes to his shop and finds it is full he goes to
the next shop. Customers randomly arrive at an average rate λ = 10 pe hou and t
he ba be se vice time is negative exponentia with an ave age of 1 / µ = 5 minute
. Find p0 and pn
So ution
Data: N = 10, λ = 10 / 60, µ = 1 / 5. Hence ρ = (λ / µ) = 5 / 6. p0 = (1 − ρ) / (1 − ρ11 )
5 /6)] / [ 1 – (5 / 6)11 = 0.1667 / 0.8655 = 0.1926 pn = (1 − ρ) ρ N /(1 − ρ N +1 ) = (0.19
6) × (5 / 6)n whe e n = 0, 1, 2, ….10.
P ob em 9.14. A Ca pa k contains 5 ca s. The a iva of ca s is Poisson at a me
an ate of 10 pe hou . The ength of time each ca spends in the ca pa k is ex
ponentia dist ibution with a mean of 5 hou s. How many ca s a e in the ca pa k
on an ave age? So ution Data: N = 5, λ = 10 / 60 = 1/ 6, µ = 1 / 2 × 60 = 1 / 120. He
nce ρ = (λ / µ) = [ (1/6) / (1/120) = 20. p0 = (1 − ρ) / 1 − ρ N +1 = (1 – 20) / (1 – 206)
2 × 10-3 Ave age ca s in ca pa k = ength of the system = E (n) = p0 × = (2.9692 × 10
-3)
∑n×ρ
n =0
N
n
∑ n (0.9692 × 10
n =0
N
−3 n
) = Approximately = 4
470
Operations Research
Problem 9.15.
Trains arrive at the yard every 15 minutes and the service time is 33 minutes. I
f the line capacity of the yard is limited to 4 trains, find (a) the probability
that the yard is empty and (b) The average number of trains in the system.
Solution
Data: λ = 1 /15 pe minute, µ = 1 / 33 pe minute, N = 4. Hence ρ = λ / µ = 33 / 15 = 2.2.
p0 = (1 − ρ) / (1 − ρ N +1 ) = (1 − 2.2) / 1 − 2.25 ) = – 1.2 / – 50.5 = 0.0237. (b) Avera
mber of trains in the system = E (n) =
∑ np
n=0
4
n
= 0 + p1 + 2 p2 + 3 p3 + 4 p4 =
= p0 (ρ + 2 ρ 2 + 3 ρ3 + 4 ρ 4 ) = 0.0237 ( 2 × 2.22 + 3 × 2.23 + 4 × 2.24 ) = 3.26 t ains.
P ob em 9.16.
A ai way station on y one t ain is hand ed at a time. The ai way ya d is suffi
cient fo two t ains to wait whi e othe is given signa to eave the station. T
ains a ive at a station at an ave age ate of 6 pe hou and the ai way stati
on can hand e them on an ave age ate of 12 pe hou . Assuming Poisson a iva s
and exponentia se vice dist ibution, find the steady state p obabi ities of the
va ious numbe of t ains in the system. A so find the ave age numbe of t ains
in the system.
So ution
Data: λ = 6 t ains pe hou , µ = 12 t ains pe hou . As the maximum queue ength is
2, the maximum numbe of t ains in the system is N = 3. Now p0 = (1 − ρ) / (1 − ρ N +1 )
= (1 – 0.5) / (1 – 0.54) = 0.53. p n = ρ n . p0 p 1 = ρ 2 × p0 = 0.5 × 0.53 = 0.256
p 2 = ρ 2 × p0 = 0.52 × 0.53 = 0.132 p 3 = ρ3 × p0 = 0.53 × 0.53 = 0.066. E (n) = Σ np = 0
1 + 2p2 + 3p3 = 0 + 0.265 + 2 × 0.132 + 3 × 0.066 n = 0.727 trains. i.e. 1 train.
3
9.8.4. MODEL IV: (M / M / 1) : FCF / N /N ( Limited Popultion or ource Model)
In this model, we assume that customers are generated by limited pool of potenti
al customers i.e. finite population. The total customer’s popu ation is M and n e
p esents the numbe of custome s a eady in the system (waiting ine), any a iv
a must come f om M - n numbe that is not yet in the system. The fo mu ae fo t
his mode a e:
Waiting Line Theo y o Queuing Mode
471
p0 = 1 /
∑[M !/(M − n)!] (λ / µ)
n =0 M
M
n
M n pn = [ M ! /( M − n)!] × (λ / µ) n × p0 = {[ M ! /( M − n)!] × (λ / µ) n } / M
∑
Ave age numbe of custome s in the system = E (n) =
∑n p
n =0
n
= M − (µ / λ ) (1 − p0 )
Average number in the queue = E (L) = M – [(µ + λ) / λ ] × (1 − p0 )
Problem 9.17.
A mechanic repairs 4 machines. The mean time between service requirements is 5 h
ours for each machine and forms an exponential distribution. The mean repair tim
e is 1 hour and also follows the same distribution pattern. Machine down time co
sts Rs. 25/ per hour and the mechanic costs Rs. 55/per day. Find (a) Expected n
umber of operating machines, (b) the expected down time cost per day, (c) Would
it be economical to engage two mechanics, each repairing only two machines?
Solution
Data: Finite population, λ = A iva ate = (1 / 5) = 0.2, µ = Se vice ate = µ = (1 /
1) = 1 P obabi ity of the empty system = p0 = p0 = 1 /
∑[4!/ (4 − n)!](0.2 /1)
n =0
4
n
=
1 / 1 + (4 × 0.2) + (4 × 3 × 0.22) + (4 × 3 × 2 × 0.23)+ (4 × 3 × 2 × 1 × 0.24) = 0.4 i.e.
t of the time the system is empty and 60 percent of the time the system is busy.
(a) Expected number of breakdown machines I the system = E (n) = M – (µ / λ ) (1 – p0)
= 4 – (1 / 0.2) (1 – 0.4) = 4 – 5 × 0.6 = 4 – 3 = 1. i.e. Expected numbe of ope ating mac
hines in the system = 4 – 1 = 3. (b) Expected down time cost pe day of 8 hou s =
8 × (expected numbe of b eakdown machines × Rs. 25 pe hou ) = 8 × 1 × 25 = Rs. 200 / -
day. (c) When the e a e two mechanics each se ving two machines, M = 2 , p0 = p
0 = 1 /
∑ [2!/ (2 − n)!] (0.2 / 1)
n =0
2
n
= 1 / 1 + (2 × 0.2) + (2 × 1 × 0.22) = 1 / 1.48 = 0.68 i.e. 68
percent of the time the system is idle. It is assumed that each mechanic with hi
s two machines constitutes a separate system with no interplay. Expected number
of machines in the system = M – (µ / λ ) × (1 / p0) = 2 – (1 / 0.2) × (1 – 0.68) = 0.4. The
o e expected down time pe day = 8 × 0.4 × Numbe of mechanics o machine in system
= 8 × 0.4 × 2 = 6.4 hou s pe day. Hence tota cost invo ved = Rs. 55 × 2 + 6.4 × Rs. 25
/- = Rs. (110 + 160) = Rs. 270 pe day. But tota cost with one mechanic is Rs.
(55 + 200) = Rs. 255/- pe day, which is cheape compa ed to the above. Hence us
e of two mechanics is not advisab e.
472
Ope ations Resea ch
9.9. MULTI CHANNEL QUEUING
MODEL: M / M / c: ( ∝ / C S)
The above symbols in icate a system with Poisson input an Poisson output with n
umber of channels = c, where c is > 1, the capacity of line is infinite
an firs
t come first serve iscipline.
Here the length of waiting line epen s on the n
umber of channels engage . In case the number of customers in the system is less
than the number of channels i.e. n < c, then there will be no problem of waitin
g an the rate of servicing will be nµ as on y n channe s a e busy, each se vicing
at the ate m. In case n = c, a the channe s wi be wo king and when n ≥ c, th
en n – c e ements wi be in the waiting ine and the ate of se vice wi be cµ as
a the c channe s a e busy. Va ious fo mu ae we have to use in this type of mod
e s a e: p0 = 1 /
∑[(λ / µ)
n =0
c −1
n
/ n!] + [(λ / µ) c / c!] × [(cµ / cµ − λ)]
c −1 n c OR = 1 / (cρ) / n!] + [(cρ) / c! (1 − ρ) n =0 pn = {[(λ / µ) n / n
1 ≤ n ≤ c
∑
pn = [1 /(c n −c × c!)] (λ / µ) n × p0 when n ≥ c Ave age numbe of units in waiting ine o
the system = E (n) = [ρ pc /(1 − ρ) 2 ] = {[λ.µ. (λ / µ) c ] /[(c − 1)!(cµ − λ ) 2 ]} p0 +
e numbe in the queue = E (L) = [ pcρ /(1 − ρ) 2 ] + cµ = = {[λ.µ. (λ / µ) c ] / [(c − 1)!
p0
Ave age queue ength = Ave age numbe of units in waiting ine + numbe of units
in se vice Ave age waiting time of an a iva = E (w) = (Ave age numbe of unit
s in waiting ine) / λ =
[( pc ρ) / λ(1 − ρ) 2 = [ρ / λ(1 − ρ) 2 × (1 / c!) × (λ / µ) c × p0
= E ( L) / λ = {[µ × (λ / µ) c ] / [(c − 1)!(cµ − λ ) 2 ]} × p0 Ave age time an a iva spe
stem = E (v) = (Ave age numbe of items in the queue) / λ = [( pc ρ) / λ (1 − ρ)] + (Cµ / λ
E (n) / λ = {[µ × (λ / µ) c ] /[(c − 1)!(cµ − λ) 2 ]} × p0 + (1 / µ) P obabi ity that a t
a e occupied = p (n ≥ c ) = [1 /(1 − ρ)] pc = [µ × (λ / µ) c ] p0 / [(c − 1)!(cµ − λ)] P o
at some units has to wait = p (n ≥ c + 1) = [ρ pc /(1 − ρ)] = 1 − p (n ≥ c) = 1 − [µ × (λ /
/[(c − i)!(cµ − λ)]
The ave age numbe of units which actua y wait in the system =
∝ ∝ ( n − c) pn ÷ pn n =c +1 n =c +1 = 1 /(1 − ρ)
∑
∑
Waiting Line Theo y o Queuing Mode
∝
473
Average waiting time in the queue for all arrivals = (1 / λ )
∑ (n − c) p
n =0
n
= pc / cµ (1 − ρ) 2
Ave age waiting time in queue fo those who acute y wait = 1 / (cµ − λ ) Ave age numbe
of items se ved =
∑
n =0
c −1
n pn +
∑p
n =c
∝
n
Average number of idle channels = c – Average number of items served Efficiency of
M/M/c model: = (Average number of items served) / (Total number of channels) Ut
ilization factor = ρ = (λ / cµ)
P ob em 9.18.
A supe ma ket has two gi s inging up sa es at the counte s. If the se vice ti
me f om each custome is exponentia with a mean of 4 minutes, and if peop e a
ive in a Poisson fashion at the ate of 10 an hou , find (a) what is the p obabi
ity of having an a iva has to wait fo se vice? (b) What is the expected pe c
entage of id e time fo each gi ?
So ution
Data: Mode : M/M/c mode , c = 2, µ = se vices pe minute, λ = 1 / (60 / 10) = 1 / 6
pe minute. ρ = (λ / cµ) = (1 / 6) / 2 × (1 / 4) = (1 / 3)
c −1 p0 = 1 / (cρ) n / n! + [(cρ) c / c!(1 − ρ)] n =0
∑
2−1 2 n c = 1 / (2ρ) / n! + [(2ρ) / 2!(1 − ρ)] = 1 / (1 + 2ρ) + [4ρ / 2 (1 − ρ)] n
∑
= 1 / 1 + (2 / 3) + (1 / 2 !) (2 / 3)2 × 1 / [1 – (1 / 3)] = 1/2
(because ρ = 1/3
p1 = (λ / µ) × p0 = (2 / 3) × (1 / 2) = 1/3 The p obabi ity that a custome has to wait
= The p obabi ity that numbe of custome s in the system is g eate than o equa
to 2. = p (n ≥ 2) = 1 – p (n < 2) = 1 – p0 – p1 = 1 (1 /2) – (1 / 3) = 0.167 Expected pe
cent of id e time of gi s o expected numbe of gi s who a e id e = Let X den
otes numbe of id e gi s. X = 2 when the system is empty and both gi s a e f e
e. X=1 when the system contains on y one unit and one of the gi s is f ee. Henc
e X can take two va ues 2 o 1.P obabi ity p0 and p1 espective y. E (X) = X 1p
(X = X1) + X2 p (X = X2) = (2 × p0) + (1 × p1) = (2 × 1 / 2 ) + ( 1 × 1 / 3) =(4 / 3) P
obabi ity of any gi being id e = (Expected numbe of id e gi s) / (Tota numb
e of gi s) = (4 / 3) / 2 = 0.67. Expected pe centage of id e time of each gi
is 67%.
474
Ope ations Resea ch
P ob em 9.19.
A tax-consu ting fi m has 3 counte s in its office to eceive peop e who have p
ob ems conce ning thei income, wea th and sa es taxes. On the ave age 48 pe son
s a ive in an 8- hou day. Each tax advise spends 15 minutes on the ave age on
an a iva . If the a iva s a e Poisson dist ibuted and se vice times a e acco
ding to exponentia dist ibution find: (a) The ave age numbe of custome s in th
e system, (b) Ave age numbe of custome s waiting to be se viced, (c) Ave age ti
me a custome spends in the system (d) Ave age waiting time fo a custome , (e)
The numbe of hou s each week a tax advise spends pe fo ming his job, (f) The p
obabi ity that a custome has to wait befo e he gets se vice, (g) The expected
numbe of id e tax advise s at any specified time.
So ution
Data: c = 3, λ = 48 / 8 = 6 custome s pe hou , µ = (1 / 15) × 60 = 4 custome s pe ho
u , (λ / µ) = (6 / 4 ) = (3 / 2). p0 = 1 /
∑[(λ / µ)
n =0 2
c −1
n
/ n!] + [(λ / µ) c / c!] × [(cµ / cµ − λ)]
p0 = 1 /
∑[(λ / µ)
n =0
n
/ n!] + [(λ / µ) 3 / 3!] × [(3µ / 3µ − λ)]
1 /[1 + (λ / µ) + (1 / 2) (λ / µ) 2 ] + [(λ / µ) 3 / 6] × (3µ) /(3µ − λ ). 1 / [ (1) + (3 /
6)] + (27 / 48) × 12 / (12 – 6) = 1 / [(29 / 8( + (9 / 8) ] = 8 / 38 = 0.21 = 21% (a
) Ave age numbe of custome s in the system = E (n) =
= {[λ.µ.(λ / µ) c ] / [(c − 1)!(cµ − λ ) 2 ]} p0 + (λ + µ) [6 × 4 × (3 / 2)3] / [2! (12 – 6
2) = 1.74 custome s i.e. app oximate y 2 custome s. Ave age numbe of custome s
waiting to be se ved = E (L) = E (n) + (λ / µ) = 1.74 + (3 / 2) = 0.24 custome s. i
.e. one custome app oximate y. Ave age time a custome spends in the system = E
(n) = E (L) / λ = 1.74 / 6 = 0.29 hou s = 17.4 minutes. Ave age waiting time fo
a custome = E (L) / λ = 0.24 / 6 = 0.04 hou s = 2.4 minutes. Uti ization facto =
ρ = (λ / cµ) = (6 / 3 × 4) = 1 / 2 = 50 % of the time. Hence numbe of hou s each day a
tax advise spends doing his job = (1 / 2) × 8 = 4 hou s. P obabi ity that a cust
ome has to wait = p (n > c) =
(b) (c) (d) (e) (f)
= [µ × (λ / µ) c ] p0 /(c − 1)!(cµ − λ )] = {[4 × (3 / 2)3] / 2! X (12 – 6)]} × 0.21 = 0.23
the p obabi ity of no custome s waiting is p0, a the tax advise s a e id e. N
ow we have to find p obabi ity of one tax advise and p obabi ity of two tax adv
ise s a e id e, which
Waiting Line Theo y o Queuing Mode
475
a e ep esented as p1 and p2 espective y. Now we know that pn = {(λ / µ) n / n!} × p0
when 1 ≤ n ≤ c. Hence p1 = {(3 / 2) / 1!} × 0.21 = 0.315 and p2 = {(3 / 2) / 2!} × 0.21
= 0.236. The efo e, expected numbe of id e advise at any specified time = 3p0
+ 2p1 + 1p2 = 3 × 0.21 + 2 × 0.315 + 1 × 0.236 = 1.496 i.e. app oximate y = 1.5
P ob em 9.20. A te ephone exchange has two ong distance ope ato s. The te ephon
e company finds that du ing the peak oad, ong distance ca s a ive in a Poiss
on fashion at an ave age ate of 15 pe hou . The ength of se vice on these ca
s is app oximate y exponentia y dist ibuted with mean ength 5 minutes. What i
s the p obabi ity that a subsc ibe wi have to wait fo his ong distance ca
du ing the peak hou s of the day? If subsc ibe s wait and a e se viced in tu n,
what is the expected waiting time. So ution
Data: λ = 15 ca s pe hou , µ = 60 / 5 = 12 ca s pe hou . The efo e ρ = (15) / (2 × 1
2) = 5 / 8.p0 =
c −1 1 / (cρ) n / n! + [(cρ) c / c!(1 − ρ)] = 1 / 1 + (5 / 4) + (1 / 2) × (25 / 16)
/ 8)] n =0
∑
= (12 / 52) (a) P obabi ity that a subsc ibe has to wait = p (n ≥ 2) = 1 – p0 – p1 =
[1 – (12 / 52) – (15 / 32)] = 25 / 52 – 0.48. i.e. 48 % of the time the subsc ibe has
to wait. Expected waiting time = E (w) = [ρ / λ (1 − ρ) 2 ] × (1 / c!) × (λ / µ) c × pc =
8) / 15 [ 1 – (5 / 8)]2 × (1 / 2!) × (15 / 12)2 × (12 / 32) hou s = 3.2 minutes.
P ob em 9.21.
A bank has two te e s wo king on savings account. The fi st te e hand es with
d awa s on y. The second te e hand es deposits on y. It has been found that th
e se vice time dist ibution fo deposits and withd awa s both a e exponentia y
with a mean se vice time of 3 minutes pe custome . Deposito s a e found to a i
ve in a Poisson fashion th oughout the day with a mean a iva ate of 16 pe ho
u . Withd awa s a so a ive in a Poisson fashion with a mean a iva ate of 14
pe hou . What wou d be the effect on the ave age waiting time fo deposito s an
d withd awe s, if each te e cou d hand e both withd awa s and deposits? What w
ou d be the effect of this cou d on y be accomp ished by inc easing the se vices
time to 3.5 minutes?
So ution Data: Mean se vice ate fo both te e s = µ = (1 / 3) custome s pe hou
, Mean a iva ate of deposito s = λ 1 = 16 custome s pe hou , Rate of a iva o
f withd awa s = λ 2 = 14 withd awa s pe hou . Fi st et us conside that both dep
osito s and withd awe s unde M / M / 1 system with one te e attending deposit
o s and the othe attending withd awa s, we get
476
Ope ations Resea ch
Expected waiting time fo deposito s = E (w1) = λ1 / µ(µ − λ1 ) = 16 / 20 (20 – 16) = (1 /
) hou s = 12 minutes.
Expected waiting time fo withd awa s = E (w2) = λ 2 / µ (µ − λ 2 ) = 14 / 20 (20 – 14) = 0
117 hou s = 7 minutes. If both te e s do se vice fo withd awa s and deposits,
then the p ob em becomes that the two se vice stations with λ = λ1 + λ 2 = 16 + 14 =
30 custome s pe hou . He e as usua µ = 20 pe hou , and c = 2.
p0 = 1 /
∑ [(λ / µ )
n =0
c −1
n
/ n!] + [(λ / µ) c / c!] × [(cµ / cµ − λ)]
−1
1 2 n (1 / n!) (3 / 2) + (1 / 2!) (3 / 2) (40 / 40 − 30) n=0
∑
[1 + (3 /2) + (9 /
2)]–1
= [ (1/0) (3/2)0 + (1/1) (3/2 )1 + (1/2 × 1) (9 / 4) × 40/30]–1 = (1 / 7) ρ = 30 / 2 × 20
= (3 / 4) = 0.75.
E (w) = E (L) / λ = [1 / (c − 1)!× (λ / µ) c ×[µ / (cµ − λ ) 2 × p0 = [1 / (2 – 1)! × (3 /
0)2 × (1/7) = (9/4) × (20/100) × (1/7) = 9/140 hou s = 3.86 minutes.
Combined waiting time with inc eased se vice time when λ = 30 pe hou and 1 / µ =
3.5 minutes o µ = 60 / 3.5 = 120 / 7 hou s and ρ = λ / cµ = 30 / 2 (120 / 7) = 7 /
8 which is ess than 1, and λ / µ = 30 / (120 / 7) = (7 / 4) which is g eate than
1. p0 = {(1 / n!) × (7 / 4)n + (1 / 2!) × (7 / 4)2 × [2 × (120 / 7)] /[2 × (120 / 7) – 30]
= (1 / 0!) (7 / 9)0 + (1 / 1!) (7 / 4)1 + (1 / 2 ×1) × (49 / 16) × [2 × (120 / 7)] / (3
0 / 7)]}–1 = [1 + (7 / 4) + (49 / 4)]-1 = (1 / 15)
Ave age waiting time of a iva s in the queue = E (w) = [1 / (c – 1)!] × (λ / µ ) c × [µ
/ (cµ − λ ) 2 × p0 1 / (2 – 1)! × (7 / 4)2 [(120/7)] / [2 × (120 / 7) – 30]2 × (1/15) = (
(30 × 60) = 11.433 Minutes.
P ob em 9.22. Ships a ive at a po t at the ate of one in eve y 4 hou s with ex
ponentia dist ibution of inte a iva times. The time a ship occupies a be th
fo un oading has exponentia dist ibution with an ave age of 10 hou s. If the a
ve age de ay of ships waiting fo be ths is to be kept be ow 14 hou s, how many
be ths shou d be p ovided at the po t? So ution
Data: λ = ships pe hou , µ = 1 / 10 ships pe hou , λ / µ = 5 / 2. Fo mu ti channe qu
euing system (λ / cµ) < 1, to ensu e that the queue does not exp ode. The efo e,
Waiting Line Theo y o Queuing Mode
477
(1 / 4) / (1 / 10) c < 1 o c = 5 / 2. Let us conside c = 3 and ca cu ate waiti
ng time. p0 = 1 / 0.045 Ave age waiting time fo ship = E (w) = {[µ × (λ / µ) c ] / [(c −
1)!× (cµ − λ ) 2 ]} × p0 = {[(1 / 10) × (5 / 2)3] / 2! × [(3 / 10) – (1 / 4)]2} × 0.045 = 1
u s, this is g eate than 14 hou s. The efo e th ee be ths a e sufficient. Let u
s take c = 4, then p0 = 1 /
∑[(λ / µ)
n −0
c −1
n
/ n!] + [(λ / µ) c / c!] × [(cµ / cµ − λ)]
1 / [1 + (5 / 2) + (1 / 2) × (5 / 2)2] + (125 / 6 × 8) × (3 / 10) × (20 / 1) = 1 / [6.62
5 + 15.625] =
∑[(5 / 2)
n =0
3
2
/ n!] + [(5 / 2)4 / 4] × { (3 / 10) / [(3 / 10) – (1 / 4)]}
1 / [1 + (5 / 2) + (1 / 2) × (5 / 2)2 + (1 / 6) (5 / 2)3] + 625 / (24 × 16) × (3 / 10)
× (20 / 1) = 1 / (9.23 + 9.765) = 0.0526 = 13.7 hou s. This is ess than the a o
wab e time of 14 hou s. Hence 4 be ths must be p ovided at the po t.
P ob em 10.7.
Find the anges of va ues of p and q, which wi ende the ent y (2,2) a sadd e
point fo the game.
B I I A II III 2 10 4 II 4 7 p III 5 q 6
498
Ope ations Ressea ch
So ution
Let us igno e the va ues of p and q and find the ow minimum and co umn maximum.
B I I A II III Co umn maximum: 2 10 4 10 II 4 7 p 7 III 5 q 6 6 Row minimum 2 7
4
Maximin va ue = 7 = Minimax va ue. This means that p ≤ 7 i.e. co umn maximum and q
≥ 7 i.e. ow minimum. Hence the ange of p and q wi be p ≤ 7 and q ≥ 7.
P ob em 10. 8.
Find the so ution of the game whose payoff mat ix is given be ow:
B I I A II III IV –4 1 –6 3 II –2 0 –5 1 III –2 –1 –2 –6 IV 3 0 –4 0 V 1 0 4 –8
So ution
B I I A II III IV Co umn Maximum: –4 1 –6 3 3 II –2 0 –5 1 1 III –2 –1 –2 –6 –1 IV 3 0 -4 0
0 4 –8 4 Row Minimum 4 –1 –6 –8
Optima st ategies fo A = A (0, 1, 0, 0) and fo B = B (0, 0, 1, 0, 0) and the
va ue of the game v = –1. This means that B a ways wins 1 unit of money.
P ob em 10.9.
Find the ange of va ues of p and q which wi ende the ent y (2,2) a sadd e p
oint in the game with the fo owing payoff mat ix.
Theo y of Games o Competitive St atagies
499
B 1 1 A 2 3 1 p 6 2 q 5 2 3 3 10 3
So ution
B 1 1 A 2 3 Co umn maximum 1 p 6 6 2 q 5 2 5 3 3 10 3 10 Row minimum 1 5 2
In o de to have e ement (2,2) as the sadd e point i.e. 5 as the sadd e point, q
shou d be ess than o equa to 5 and p shou d be g eate than o equa s to 5.
Hence ange fo p and q a e p ≥ 5 and q ≤ 5 o q ≤ 5 ≤ p.
10.8.2. P incip e of Dominance in Games
In case the e is no sadd e point the given game mat ix (m × n) may be educed to m
× 2 o 2 × n o 2 × 2 mat ix, which wi he p us to p oceed fu the to so ve the game
. The u timate way is we have to educe the given mat ix to 2 × 2 to so ve mathema
tica y. To discuss the p incip e of dominance, et us conside the mat ix given
be ow:
B I I A II Co umn Maximum 4 4 –3 –3 –4 –3 2 4 –4 2 II –4 III –3 IV 4 Row minimum –4
The ow minimums and co umn maximums show that the p ob em is not having sadd e
point. Hence we have to use method of dominance to educe the size of the mat ix
. (i) Conside the fi st and second st ategies of B. If B p ays the fi st st ate
gy, he ooses 2 units of money when A p ays fi st st ategy and 4 units of money
when A p ays second st ategy. Simi a y, et us conside B’s second st ategy, B ga
ins 4 units of money when A p ays his fi st st ategy and gains 3 units of money
when A p ays second st ategy. I espective of A’s choice, B wi gain money. Hence
fo B his second st ategy is supe io to his fi st
500
Ope ations Ressea ch
st ategy. In othe wo ds, B s second st ategy dominates B s fi st st ategy. O B’f
i st st ategy is dominated by B s second st ategy. Hence we can emove the fi st
st ategy of B f om the game. The educed mat ix is:
B II I A II –3 –4 2 –4 III –3 !V 4
(ii) Conside B’s III and IV st ategy. When B p ays IV st ategy, he oose 4 units
of money when A p ays his fi st st ategy and 2 units of money when A p ays his s
econd st ategy. Whe e as, when B p ays his III st ategy, he gains 3 units of mon
ey and 4 units of money, when A p ays his I and II st ategy espective y. Hence
B’s IV st ategy (pu e st ategy) is dominating the thi d st ategy. Hence we can em
ove the same f om the game. The educed mat ix is:
B II I A II –3 -4 –4 III –3
In the above examp e, if we keen y obse ve, we see that the e ements of second c
o umn a e sma e o ess than the e ements of co umn 4, simi a y e ements of I
II co umn a so sma e o ess than the e ements of I and IV co umn and I. Hence
, we can w ite the dominance u e fo co umns as When e ements of a co umn, say
ith a e ess than o equa s to the co esponding e ements of jth co umn, then jt
h co umn is dominated by ith co umn o ith co umn dominates jth co umn. Conside
the mat ix given be ow
B I I A II 1 2 –2 II –4
Let A p ay his fi st st ategy, then he ooses 2 units of money and ooses 4 unit
s of money when B p ays his second st ategy. But when A p ays his second st ateg
y, he gains 1 unit of money fo B’s fi st st ategy and gains 2 units of money, fo
B’s second st ategy. Hence, A s second st ategy (pu e st ategy) is supe io to A
s fi st st ategy o A s second st ategy dominates A s fi st st ategy o
Theo y of Games o Competitive St atagies
501
A s fi st st ategy is dominated by A s second st ategy. We can c ose y examine a
nd find that e ements of A s second st ategy a e g eate than the e ements of fi
st st ategy. Hence we can fo mu ate gene a u e of dominance fo ows. When th
e e ements of th ow a e g eate than o equa s to e ements of sth ow, then t
h ow dominates sth ow o sth ow is dominated by th ow.
The gene a u es of dominance can be fo mu ated as be ow
1. If a the e ements of a co umn (say ith co umn) a e g eate than o equa to
the co esponding e ements of any othe co umn (say jth co umn), then ith co um
n is dominated by jth co umn. 2. If a the e ements of th ow a e ess than o
equa to the co esponding e ements of any othe ow, say sth ow, then th ow
is dominated by sth ow. 3. A pu e st ategy of a p aye may a so be dominated i
f it is infe io to some convex combinations of two o mo e pu e st ategies, as
a pa ticu a case, infe io to the ave ages of two o mo e pu e st ategies. Note
: At eve y eduction of the mat ix, check fo the existence of sadd e point. If
sadd e point found, the game is so ved. Othe wise continue to educe the mat ix
by method of dominance.
10.8.3. So utions to 2 x 2 games without sadd e point: (Mixed st ategies) In ec
tangu a games, when we have sadd e point, the best st ategies we e the pu e st
ategies. Now et us conside the games, which do not have sadd e points. In such
cases, the best st ategies a e the mixed st ategies. Whi e dea ing with mixed s
t ategies, we have to dete mine the p obabi ities with which each action shou d
be se ected. Let us conside a 2 × 2 game and get the fo mu ae fo finding the p o
babi ities with which each st ategy to be se ected and the va ue of the game. Po
ints to be emembe ed in mixed st ategy games a e
(a) If one of the p aye s adhe es to his optima mixed st ategy and the othe p
aye deviates f om his optima st ategy, then the deviating p aye can on y dec
ease his yie d and cannot inc ease in any case (at most may be equa ). (b) If on
e of the p aye s adhe es to is optima st ategy, then the va ue of the game does
not a te if the opponent uses his suppo ting st ategies on y eithe sing y o
in any combination. (c) If we add (o subt act) a fixed numbe say 1,to (f om) e
ach e ements of the payoff mat ix, then the optima st ategies emain unchanged
whi e the va ue of the game inc eases (o dec eases) by 1.
502
Ope ations Ressea ch
Conside the 2 × 2 game given be ow:
B y1 I x1 A x2 II a 21 a 22 I a 11 y2 II a 12
Let x1 and x2 be the p obabi ity with which A p ays his fi st and second st ateg
ies espective y. Simi a y B p ays his fi st and second st ategies with p obabi
ity of y1 and y2 espective y. Now x1 + x2 = 1, and y1 + y2 = 1. Let us wo k ou
t expected gains of A and B when they p ay the game with p obabi ities of x1, x2
and y1and y2. A’s expected gains when: B p ays his fi st st ategy = a11 x1 + a21
x2 When B p ays his second st ategy = a12 x1 + a22 x2 Simi a y B s gains when:
A p ays his fi st st ategy = a11 y1 + a12 y2 When A p ays his second st ategy =
a21 y1 + a22 y2 Now et us assume that the v is the va ue of the game. As A is t
he miximin p aye , he wants to see that his gains a e ≥ v. As B is the minimax p a
ye , he wants to see that his gains must be a ways ≤ v. The efo e, we have: a11 x1
+ a21 x2 ≥ v a12 x1 + a22 x2 ≥ v and a11 y1 + a12 y2 ≤ v a21 y1 + a22 y2 ≤ v To find th
e va ue of x1, x2 and y1, y2 we have to so ve the above given inequa ities. Fo
convenience, et us conside them to be equations to find the va ues of x1, x2 a
nd y1, y2. The efo e, we have: a11 x1 + a21 x2 = v a12 x1 + a22 x2 = v and a11 y
1 + a12 y2 = v a21 y1 + a22 y2 = v A ways we wo kout a so ution of a 2 × 2 game by
conside ing the above inequa ities as st ict equa ities. Now we can w ite above
as: a11 x1 + a21 x2 = v = a12 x1 + a22 x2 o this can be w itten as x1 (a 11 – a
12 ) = x2 ( a 22 – a 21 ) o (x1 / x2 ) = (a 22 – a 21) / (a 11 – a 12 ), Simi a y we
can w ite: (y1 / y2) = ( a22 – a12) / ( a 11 – a 12 ), by simp ifying, we get: x1 =
( a22 – a21 ) / ( a 11 + a22) – (a12 + a21) o = 1 – x2 x2 = (a11 – a12) / ( a11 + a22)
– (a12 + a21) o = 1 – x1 y1 = (a22 – a12) / (a11 + a22) – (a12 + a21) o = 1 – y2
Theo y of Games o Competitive St atagies
503
y2 = (a 11 – a 21) / (a11 + a22) – (a12 + a21) o = 1 – y1 , and the va ue of the game
is v = (a11 a22 - a 12 a21) / ( a11 + a22) – (a12 + a21) Hints to emembe fo mu
a: The mat ix is
B y1 I x1 A x2 II a 21 a 22 I a 11 y2 II a 12
Fo x1 Nume ato = a22 – a21 i.e. x1 is in the fi st ow, fo nume ato we have to
take the diffe ence of second ow e ements f om ight to eft. Fo x2, which co
mes in second ow, we have to take diffe ence of the fi st ow e ements f om ef
t to ight. Fo y1 which comes in the fi st co umn, we have to take the diffe en
ce of second co umn e ements f om bottom to top. Fo y2, which comes in second c
o umn, we have to take the diffe ence of the e ements of fi st co umn f om top t
o bottom. As fo the denominato is conce ned, it is common fo a fo mu ae. It
is given by sum of diagona e ements f om ight hand top co ne to eft-hand bo
ttom co ne minus the sum of the e ements diagona y f om eft-hand top co ne t
o ight hand bottom co ne . Fo va ue of the game, the nume ato is given by p o
ducts of the e ements in denominato in the fi st b acket minus the p oduct of t
he e ements in the second b acket. When the game does not have sadd e point, the
two a gest e ements of its payoff mat ix must constitute one of the diagona s.
Now, et us conside the 2 × 2 mat ix we got by educing the given mat ix in the
a tic e 10.8.2 and get the answe by app ying the fo mu a. The educed mat ix is
:
B II 1 A II Co umn maximum: –3 –3 –4 –3 –4 –4 III –3 Row minimum. –4
504
Ope ations Ressea ch
x1 = (a22 – a21) / (a11 + a22) – (a12 + a21) o = 1 – x 2 x1 = (–4 – [–3]) / (–4 + [–4]) –
= (–4 + 3) / ( –4 – 4) – (–3 –3) = –1 / (–8) – (–6) = –1 / –8 + 6 = –1 / –2 = 1/2 = 0.5. x
= 0.5. y1 = (a22 – a12) / (a11 + a22) – (a12 + a21) o = 1 – y2 = [–4 + (–3)] / [–4 + ( –3)
+ (–3)] = (–4 + 3) / (–4 – 3) – (–3 –3) = –1 / (–7 + 6) = 1 (i.e. pu e st ategy). Va ue of
me = v = (a11 a22 – a12 a 21) / (a11 + a22) – (a12 + a21) [12 – 12) / [
–4 – 3] – [–3 – 3]
P ob em 10.10.
So ve the game whose payoff mat ix is:
B I I A II III 1 6 5 II 7 2 1 III 2 7 6
So ution
B I I A II III Co umn Maximum. 1 6 5 6 II 7 2 1 7 III 2 7 6 7 Row minimum. 1 2 1
No sadd e point. Hence educe the mat ix by method of dominance. B’s thi d st ateg
y gives him 2,7,6 units of money when A p ays his I, II, and III st ategies. Whe
n we compa e this with the B s fi st st ategy, it c ea y shows that the payoffs
of fi st st ategy a e supe io o bette to that of thi d st ategy. Hence B’s thi
d st ategy is dominated by the B’s fi st st ategy. Hence we emove the thi d of B
st ategy f om the game. The educed mat ix is
B II I A II III Co umn maximum: 1 6 5 6 III 7 2 1 7 Row minimum 1 2 1
Theo y of Games o Competitive St atagies
505
No Sadd e point. Reduce the mat ix by method of dominance. Conside A’s II st ateg
y. The payoffs a e 6 and 2 units of money when B p ays his II and III st ategy.
When we compa e this with A’s III st ategy, which fetches on y 5 and 1 units of mo
ney, which is infe io to payoffs of II st ategy. Hence we can emove A s thi d
st ategy fo m the game. The educed mat ix is:
B II I A II Co umn maximum: 6 6 2 7 2 1 III 7 Row minimum 1
No sadd e point. Hence app y the fo mu a. x1 = (a22 – a21) / (a 11 + a22) – (a12 + a
21) o = 1 – x2 = (2 – 6) / (1 + 2) – (6 + 7) = –4 / –10 = (2/5) o 0.4 Hence x2 (1 – 2/5)
3 / 5 o 0.6. y1 = (a22 – a12) / (a11 + a22) – (a12 + a21) o = 1 – y2 = (2 – 7) / (1 +
2) – (6 + 7) = (–5 / –10) = (1/2) = 0.5 y2 = 1 – y1 = 1 – (1/2) = 1 / 2 = 0.5 Va ue of th
e game = v = (a11 a22 – a12 a21) / (a11 + a22) – ( a12 + a21) = (1 × 2) – (6 × 7) / (1 + 2
) – 6 + 7) = –40 / –10 = 4 So ution to the game is: A (2/5, 3/5, 0) and B (0, ½, ½) and va
ue of the game is v = 4 i.e. A a ays win 4 units of money.
P ob em 10.11.
Use the concept of dominance to so ve the game.
B I I II A III IV Co umn maximum 3 3 4 0 4 II 2 4 2 4 4 III 4 2 4 0 4 IV 0 4 0 8
8 Row minimum 0 2 0 0
No sadd e point. Let us educe the mat ix by method of dominance. Compa e A’s I st
ategy and III st ategy, we find that thi d st ategy is supe io to fi st st ate
gy as the e ements of III ow a e g eate than o equa to that of e ements of f
i st ow. Hence, A’s III st ategy dominates A’s I st ategy. Hence A s fi st st ategy
can be emoved f om the game. The educed mat ix is:
506
Ope ations Ressea ch
B I II A III IV Co umn maximum 3 4 0 4 II 4 2 4 4 III 2 4 0 4 IV 4 0 8 8 Row min
imum 2 0 0
No sadd e point, t y to educe the mat ix by dominance method. Compa e B’s fi st s
t ategy and III st ategy. As the e ements of III st ategy a e ess than o equa
to that of fi st st ategy, the III st ategy dominates the fi st st ategy. Hence
, B’s fi st st ategy is emoved f om the game. The educed mat ix is:
B II II A III IV Co umn Maximum 4 2 4 4 III 2 4 0 4 IV 4 0 8 8 Row minimum 2 0 0
No sadd e point and the e is no dominance among pu e st ategies. Hence et us ta
ke the ave ages of two o mo e pu e st ategies and compa e with othe st ategies
, to know whethe the e is dominance o not. Let take B’s III and IV st ategy and
take the ave age and compa e with e ements of fi st st ategy. Ave age of e ement
s of B’s III and IV st ategy a e: (2 + 4 = 6/2 = 3), (4 + 0 = 4 /2 = 2) and (0 + 8
= 8/2 = 4). Hence the educed mat ix is:
B II II A III IV Co umn maximum 4 2 4 4 Avg. of III & IV 3 2 4 4 Row minimum 3 2
4 (do not conside sadd e point)
As a the e ements of B’s second st ategy a e g eate than o equa to that of av
e ages of III and IV st ategies, B’s second st ategy is infe io to that of III an
d IV st ategies. Hence the mat ix is:
Theo y of Games o Competitive St atagies
507
B III II A III IV Co umn maximum 2 4 0 4 IV 4 0 8 8 Row minimum 2 0 0
No sadd e point. Hence, et us t y the dominance by compa ing the ave ages of tw
o A’s st ategies with e ements of othe st ategy. Ave ages of A’s II and IV pu e st
ategies is: (4 + 2 = 6 / 2 = 3) and (0 + 8 = 8 / 2 = 4). The mat ix is:
B III II A Avg. of III & IV 3 4 2 IV 4
As the e ements of A’s II st ategy a e infe io to ave ages of III and IV st ategy
, II st ategy is emoved f om the mat ix. The educed mat ix is:
B III III A IV Co umn maximum 0 4 8 8 0 4 IV 0 Row minimum 0
No sadd e point. By app ying the fo mu ae: x1 = (a22 – a21) / (a11 + a22) – (a12 + a
21) o = 1 – x 2 = (8 – 0) / (4 + 8) – (0 + 0) = 8 / 12 = 2 / 3. Hence x2 = 1 – (2/3) =
1/3. y1 = (a22 – a12) / (a11 + a22) – (a12 + a21) o = 1 – y2 = (8 – 0) / (4 + 8) – (0 + 0
) = 8 / 12 = 2/ 3. Hence y2 = 1 – (2/3) = 1/3. Va ue of the game = v = (a11 a22 – a
12 a 21) / (a 11 + a22) – (a12 + a21) = (32 – 0 ) / (4 + 8) – (0 + 0) = 32 / 12 = 8/3.
Hence the so ution is A (0, 0, 2/3, 1/3), B (0, 0, 2/3, 1/3) and v = 8/3 A wi
a ways win 8/3 units of money.
508
Ope ations Ressea ch
P ob em 10.12.
Two p aye s P and Q p ay the game. Each of them has to choose one of the th ee c
o ou s: White (W), B ack (B) and Red (R) independent y of the othe . The eafte
the co ou s a e compa ed. If both P and Q has chosen white (W, W), neithe wins
anything If p aye P se ects white and P aye Q b ack (W, B), p aye P oses Rs.
2/- o p aye Q wins the same amount and so on. The comp ete payoff tab e is sho
wn be ow. Find the optimum st ategies fo P and Q and the va ue of the game.
Q W W P B R 0 2 3 B –2 5 –3 R 7 6 8
So ution
The payoff mat ix is:
Q W W P B R Co umn maximum: 0 2 3 3 B –2 5 –3 5 R 7 6 8 8 Row minimum –2 2 –3
No sadd e point. Reduce the mat ix by method of dominance. Compa ing the e ement
s of B’s st ategy R, the e ements of st ategy R a e g eate than the e ements of o
the st ategies; hence it can be emoved f om the mat ix as it is dominated by s
t ategies W and B. Reduced mat ix is:
Q W W P B R Co umn maximum: 0 2 3 3 B –2 5 –3 5 Row minimum –2 2 –3
The e is no sadd e point. Compa ing P’s st ategies, W and B, we see that the e eme
nts of W st ategy a e ess than the e ements of st ategy B. Hence St ategy B dom
inates st ategy W and is emoved f om the mat ix. The educed mat ix is:
Theo y of Games o Competitive St atagies
509
Q W P B R Co umn maximum: 2 3 3 B 5 –3 5 Row minimum 2 –3
The e is no sadd e point. By app ying the fo mu ae: x1 = (a22 – a21) / (a11 + a22)
– ( a12 + a21) o = 1 – x2 = (–3 – 3) / [2 + (–3)] – [3 + 5] = –6 / [(1) – (8) = –6 / –9 =
2 / 3. Hence x2 = (1 – 2/3) = 1/3 y1 = (a22 – a12) / (a11 + a22) – (a12 + a21) o = 1 –
y2 = (–3 – 5) / ( –9 ) = –8 / –9 = (8 / 9). Hence y2 = 1 / (8 / 9) = (1 / 9). Va ue of the
game = v = (a11 a22 – a12 a21) / (a11 + a22) – (a12 + a21) = (–6 – 15) / – 9 = –21 / –9 =
/9). The so ution is: P (0, 2/3, 1/3), Q ( 8/9, 1/9, 0) and v = 21 /9.
P ob em 10.13.
So ve the game whose payoff mat ix is:
B 1 1 A 2 3 4 1 3 6 2 2 3 4 5 0 3 2 1 7 6 4 7 5 6 3 5 4 6 5 1
So ution
B 1 1 A 2 3 4 Co umn maximum: 1 3 6 2 6 2 3 4 5 0 5 3 2 1 7 6 7 4 7 5 6 3 7 5 4
6 5 1 6 Row minimum 1 1 5 0
510
Ope ations Ressea ch
The game has the sadd e point (3, 2). Hence the va ue of the game is v = 5 and t
he optima st ategies of A and B a e: A (0, 0, 1, 0) , B ( 0, 1, 0, 0, 0)
P ob em 10. 14.
So ve the fo owing game whose payoff mat ix is:
B I I II A III IV V 4 4 4 4 4 II 2 3 3 3 3 III 0 1 7 4 3 IV 2 3 –5 –1 –2 V 1 2 1 2 2 V
I 1 2 2 2 2
So ution
B I I II A III IV V Co umn maximum: 4 4 4 4 4 4 II 2 3 3 3 3 3 III 0 1 7 4 3 7 I
V 2 3 –5 –1 –2 3 V 1 2 1 2 2 2 VI Row minimum 1 2 2 2 2 2 0 1 –5 –1 –2
The game has no sadd e point. Let us educe the size of the mat ix by method of
dominance. Compa e A’s I and II st ategies, I st ategy is dominated by II st ategy
. Simi a y, compa e A’s IV and V st ategies, e ements of IV st ategy a e g eate
than that of V st ategy; hence V st ategy is dominated by IV st ategy. Hence A’s I
ad V st ategies can be e iminated and the educed mat ix is:\
B I II A III IV Co umn maximum: 4 4 4 4 II 3 3 3 3 III 1 7 4 7 IV 3 -5 -1 3 V 2
1 2 2 VI 2 2 2 2 Row minimum 1 -5 -1
Theo y of Games o Competitive St atagies
511
The mat ix has no dominance. Compa e B’s I and II st ategies a e dominated by B’s V
and VI st ategy, as the e ements of I and II co umns a e g eate than that of V
and VI co umns. Hence, B’s I and II st ategies can be e iminated. Simi a y, e eme
nts of VI co umn a e g eate than that of V co umn, hence V st ategy dominates V
I st ategy, and hence VI st ategy is e iminated. Reduced mat ix is:
B III II A III IV Co umn maximum: 1 7 4 7 IV 3 –5 –1 3 V 2 1 2 2 Row minimum 1 –5 –1
As the pu e st ategies do not have dominance, et us take the ave age of B’s III a
nd IV st ategies and compa e with V st ategy. The ave ages a e: (1 + 3)/2 = 2, (
7 – 5)/2 = 1, and (4 – 1)/2 = 3/2. These ave age when compa ed with the e ements of
V st ategy, they a e sma e , hence, III and IV st ategies dominates V st ategy
of B. The educed mat ix is:
B III II A III IV Co umn maximum. 1 7 4 7 IV 3 –5 –1 3 Row minimum. 1 –5 –1
No sadd e point. Let us take ave age of A s II and III st ategy and compa e with
IV st ategy. Ave age is: (1 + 7)/2 = 4, and (3 – 5)/2 = –1. II and III st ategies o
f A dominate IV st ategy. Hence is e iminated f om the mat ix. The educed mat i
x is:
B III II A III Co umn maximum. 7 7 –5 3 –5 1 IV 3 Row minimum 1
No dominance. Hence app ying the fo mu ae: x1 = (a22 – a21) / (a11 + a22) – (a12 + a
21) o = 1 – x2 = (–5 – 7) / ([1 + (– 5)] – (3 + 7) = –12 / (–4 – 10) = 12/14 = 6 / 7, henc
= 1 – (6 / 7) = (1 / 7) y1 = (a22 – a12) / (a11 + a22) – (a12 + a21) o = 1 – y2 = (–5 – 3)
/ – 14 = 8 / 14 = (2 / 7) hence, y2 = 1 – 2 / 7 = 5 / 7.
512
Ope ations Ressea ch
Va ue of the game = v = (a11 a22 – a12 a21) / (a11 + a22) – (a12 + a21) = (–5 – 21) / –14
= 26 / 14 = 13 / 7 The answe is: A (0, 6 / 7, 1 / 7, 0, 0), B (0, 0, 2 / 7, 7 /
7, 0, 0) and v = 13 / 7.
P ob em 10.15.
A and B p ay a game in which each has th ee coins, a 5 paise, 10 paise and 20 pa
ise coins. Each p aye se ects a coin without the know edge of the othe ’s choice.
If the sum of the coins is an odd amount, A wins B’s coins. If the sum is even, B
wins A’s coins. Find the optima st ategies fo the p aye s and the va ue of the
game.
So ution
The pay of mat ix fo the given game is: Assume 5 paise as the I st ategy, 10 pa
ise as the II st ategy and the 20 paise as the III st ategy.
5 I 5 A 10 20 I II III –10 15 25 B 10 II 15 –20 –30 20 III 25 –30 –40
In the p ob em it is given when the sum is odd, A wins B’s coins and when the sum
is even, B wi win A’s coins. Hence the actua pay of mat ix is:
5 I 5 A 10 20 Co umn maximum. I II III –5 5 5 5 B 10 II 10 –10 –20 10 20 III 20 –10 –20 20
Row minimum –5 –10 –20
The p ob em has no sadd e point. Co umn I and II a e dominating the co umn III.
Hence it is emoved f om the game. The educed mat ix is:
B 5 I 5 A 10 20 Co umn maximum. I II III –5 5 5 5 10 II 10 –10 –20 10 Row minimum –5 –10 –2
Theo y of Games o Competitive St atagies
513
The p ob em has no sadd e point. Conside ing A, ow III is dominated by ow II,
hence ow III is e iminated f om the mat ix. The educed mat ix is:
B I I A II Co umn maximum. 5 5 –10 10 –10 –5 II 10 Row minimum –5
No sadd e point. By app ication of fo mu ae: x1 = (a22 – a21 ) / (a11 + a22) – (a12
+ a21) o = 1 – x2 = (–10 – 5) / [–5 + (–10)] – (10 – 5) = –15 / (–15 – 5) = (–15 / –20) =
/ 4, hence x2 = 1 – (3 / 4) = 1 / 4 y1 = (a22 – a12) / (a11 + a22) – (a12 + a21) o =
1 – y2 = (–10 – 10) / –20 = 20 / 20 = 1 and y2 = 0 Va ue of the game = v = (a11 a22 – a12
a21) / (a11 + a22) – (a12 + a21) = (50 – 50) / – 20 = 0 Answe is A ( 3/ 4, 1 / 4, 0)
, B ( 1, 0, 0) , v = 0.
10.8.3. Method of Oddments (fo 2 × 2 games)
Once the game mat ix is educed to 2 × 2 the p aye s has to eso t to mixed st ate
gies. We have a eady seen how using fo mu ae can an a geb aic method to find op
tima st ategies and va ue of the game. The e is one mo e method avai ab e fo t
he same that is the method of oddments. Steps invo ved in method of dominance a
e: 1. Subt act the two digits in co umn 1 and w ite them unde co umn 2, igno in
g sign. 2. Subt act the two digits in co umn 2 and w ite them unde co umn 1 ign
o ing sign. 3. Simi a y p oceed fo the two ows. These va ues a e ca ed oddme
nts. They a e the f equencies with which the p aye s must use thei cou ses of a
ction in thei optimum st ategies. Let us take a simp e examp e and get the answ
e fo a game.
P ob em 10.16. In a game of matching coins, p aye A wins Rs.2/-, if the e a e t
wo heads, wins nothing if the e a e two tai s and oses Re.1/- when the e a e on
e head and one tai . Dete mine the pay off mat ix and best st ategies and va ue
of the game. So ution: (by using method of oddments) The payoff mat ix is:
B IH I H A Co umn maximum. II T 2 –1 2 II T –1 0 0 Row minimum –1 –1
514
Ope ations Ressea ch
The e is no sadd e point. Let us app y method of oddments. The given mat ix is:
B H H A T –1 0 (2 – (–1) = 3 3 / (1 = 3) = 3/4 2 T –1 Oddments of A ( –1– 0) = 1 P obabi it
1 / (1 + 3) = 1/4
Oddments of B (–1–0) = 1 (2 – (–1)) = 3 P obabi ity: 1/ (1 + 3) = 1 /4 3 / (3 + 1) = 3/4
Hence optima st ategies fo A and B a e: A (1/4, 3/4), B (1/4, 3/4), Va ue of
the game can be w itten if the sum of oddments of both the p aye s is equa . Oth
e wise we have to app y the fo mu a of 2 × 2 games and get the va ue. In this cas
e the sum of oddments of both p aye s is 4. Hence, we can find the va ue of the
game. Using A’s oddments: When B ays his I st ategy (H), v = [1 × 2 + (3 × –1)] / (3 +
1) = (2 – 3) / 4 = – (1 / 4), When B p ays his II st ategy, (T) = v = (1 × –1 + 3 × 0) / (
3 + 1) = – (1 / 4) Using B’s Oddments: When A p ays his I st ategy (H): v = (1 × 2 + 3
× –1) / (3 + 1) = – (1 / 4), When A p ays his II st ategy (T) v = ( –1 ×1 + 3 × 0) / (3 +
) = – (1 / 4). Va ue of the game is – 1 / 4.
P ob em 10.17.
By using the oddments of A and B so ve the game.
B I I A II 0 8 4 II 0
The e is no sadd e point. The oddments a e:
B I I A II 0 8 (4 – 0) = 4 = 1 (1/3) 4 II 0 Oddments of A (0 – 8) = 8 = 2 P obabi it
y (2/3)
Theo y of Games o Competitive St atagies
515
= 8 (4 – 0 ) = 4 =2 =1 P obabi ity = 2 / 3 1 / 3. Va ue of the game:( The sums of
two oddments is same) v = Fo B p aying I st ategy: v = 2 × 4 + 1 × 0 / (2 + 1) = (8
/ 3) Answe is A ( 2 / 3, 1 / 3,), B ( 2 / 3, 1 / 3) and v = 8 / 3
Oddments of B (0 – 8)
P ob em 10.18.
Two a mies a e at wa . A my A has two ai bases, one of which is th ice as va ua
b e as the othe . A my B can dest oy an undefended ai base, but it can dest oy
on y one of them. A my A can a so defend on y one of them. Find the st ategy fo
A to minimize the osses.
So ution
B (attacke ) I (attack sma e ) (Defend sma e ) I Defende : A Sma e dest oyed
: –1 0 Both su vive: 0 0 –1 Both su vive: 0 II (attack a ge ) The a ge dest oyed:
–3 Row min. –3
(Defend a ge ) II Co umn Max:
No sadd e point.
By method of oddments:
B I I 0 II –3 Oddments of A (–1 – 0) = 1 P obabi ity 1/4
A II –1 0 (0 – (–3) = 3 3/4
Oddments of B (0 – (–3) = 3 (–1–0) = 1 P obabi ities: 3/4 1/4 Va ue of the game is: (Not
e the sum of oddments is same: Taking the oddments of A, When B p ays his I st a
tegy, A’s expected winning fo a my A = (3/4) [(0) × (1 / 4) + (–1) × (3 / 4)] + (1 / 4)
[( –3) × (1 / 4) + (0) × (3 / 4)] = –(9 / 16) – (3 / 16) = – (12 / 16) = –(3 / 4)
10.8.4.1. So utions to 2 × n o m × 2 games
When we can educe the given payoff mat ix to 2 × 3 o 3 × 2 we can get the so ution
by method of sub games. If we can educe the given mat ix to 2 × n o m × 2 sizes,
then we can get the so ution by g aphica method. A game in which one of the p a
ye s has two st ategies and othe p aye has
516
Ope ations Ressea ch
numbe of st ategies is known as 2 × n o m × 2 games. If the game has sadd e point
it is so ved. If no sadd e point, if it can be educed to 2 × 2 by method of domin
ance, it can be so ved. When no mo e eduction by dominance is possib e, we can
go fo Method of Sub games o G aphica method. We have to identify 2 × 2 sub game
s within 2 × n o m × 2 games and so ve the game.
P ob em 10.19.
So ve the game whose payoff mat ix is:
B I I A II 6 –4 –2 –4 II 3 III –1
So ution
Given pay of mat ix is 2 × 3 mat ix.
B I I A II Co umn maximum. 6 6 –4 3 –1 –1 –4 –4 II 3 III –1 Row minimum –4
No sadd e point. The sub games a e: Sub game I:
B I I A II Co umn Maximum. 6 6 –4 3 –4 –4 II 3 Row minimum –4
No sadd e point. Fi st et us find the va ue of the sub games by app ying the fo
mu a. Then compa e the va ues of the sub games; which eve is favo ab e fo the
candidate, that sub game is to be se ected. Now he e as A has on y two st ategi
es and B has th ee st ategies, the game, which is favo ab e to B, is to be se ec
ted. Va ue of the game = v1 = (a11 a22 – a12 a21) / (a11 + a22) – (a12 + a21) = (–4 × –4) –
(3 × 6) / [(–4 + –4] – (3 + 6) = 2 / 17
Theo y of Games o Competitive St atagies
517
Sub game II:
B I I A II Co umn maximum. 6 6 –2 –1 –2 –4 III –1 Row minimum –4
No sadd e point, hence va ue of the game = v2 = (a11 a22 – a12 a21) / (a11 + a22) –
(a12 + a21) = [(–4) × (–2)] – [(–1) × 6] / [(–4) + (–2) – (6 – 1) = – (14 / 11) Sub game II
B II I A II Co umn Maximum. –4 3 –2 –1 –4 3 III –1 Row minimum –1
The game has sadd e point (1,3), the e ement is (–1). Hence the va ue of the game
v3 =-1. Compa ing the two va ues v1 and v2, v2, and v3, both v2 and v3 have nega
tive va ues, which a e favo ab e to p aye B. But v2 is mo e p efe ed by B as i
t gives him good etu ns. Hence B p efe s to p ay st ategies I and III. Hence su
b game II is se ected. Fo this game we have to find the p obabi ities of st ate
gies. Fo sub game II the p obabi ities of st ategies a e: x1 = (a22 – a21) / (a11
+ a22) – (a12 + a21) o = 1 – x2 = [(–2) – 6] / (– 11) = ( 8 / 11), hence x2 = 1 – (8 / 11
= 3 / 11 y1 = (a22 – a12) / (a11 + a22) – (a12 + a21) o = 1 – y2 = [(–2) – (–1)] / –11 =
/ 11), Hence y2 = 1 / (1 / 11) = (10 / 11). Hence optima st ategies fo the p a
ye s a e: A (8/11, 3 / 11), B (1 / 11, 0, 10 / 11) and the va ue of the game is –
(14 / 11).
P ob em 10.20.
So ve the fo owing 2 × n sub game:
B I I A II III 1 3 11 II 8 5 2
518
Ope ations Ressea ch
So ution
The given game is m × 2 game.
B I I A II III Co umn maximum. 1 3 11 11 II 8 5 2 8 Row minimum 1 3 2
No sadd e point. Hence A’s Sub games a e: A’s sub game No.1.
B I I A II Co umn Maximum. 3 3 5 8 3 1 II 8 Row minimum 1
The game has sadd e point and hence va ue of the game is v1 = 3 A s sub game No.
2.
B I I A III Co umn maximum. 11 11 2 8 2 1 II 8 Row minimum 1
No sadd e point. Hence the va ue of the game v2 = (a11 a22 – a12 a21) / (a11 + a22
) – (a12 + a21) = [(1) × (2) – (8) × (11)] / (3) – (19) = (3 – 88) / (– 16) = (85 / 16) A’s
game No. 3:
B I II A Co umn maximum. III 3 11 11 II 5 2 5 Row minimum 3 2
Theo y of Games o Competitive St atagies
519
No sadd e point. Hence the va ue of the game v3 = (a11 a22 – a12 a21) / (a11 + a22
) – (a12 + a21) (3 × 2) – (11 × 5) / (3 + 2) – (5 + 11) = (6 – 55) / (5 – 16) = – (49 / 11)
v1 = 3, v2 = 85 / 16 = 5.31, and v3 = 49 / 11 = 4.45. Compa ing the va ues, as f
a as A is conce ned, v2 gives him good etu ns. Hence A p efe s to p ay the sub
game No. 2. Fo this game we have to find out the p obabi ities of p aying the
st ategies. Fo sub game No.2: x1 = (a22 – a21 ) / (a11 + a22) – (a12 + a21) o = 1 –
x2 = (2 – 11) / (– 16) = (9 / 16) , x2 = 1 – (9 / 16) = (7/16) y1 = (a22 – a12) / (a11 +
a22) – (a12 + a21) o = 1 – y2 = (2 – 8) / (– 16) = (6 / 16) y2 = 1 – (6 / 16) = ( 10 / 1
6) . The efo e optima st ategies fo A and B a e: A (9 / 16, 0, 7 / 16), B (6 /
16, 10 / 16) and va ue of the game v = (85 / 16) = 5.31.
P ob em 10.21.
So ve the game by method of sub games whose payoff mat ix is:
B I I A II III 6 3 8 II 5 6 4
So ution
The given payoff mat ix is
B I I A II III Co umn maximum: 6 3 8 8 II 5 6 4 6 Row minimum 5 3 4
No sadd e point. Let us fo m sub games of A and find the optima st ategies. Sub
game No. 1.
B I I A II Co umn maximum. 3 6 6 6 3 6 II 5 Row minimum 5
520
Ope ations Ressea ch
No sadd e point. The va ue of the game = v1 = (a11 a22 – a12 a21) / (a11 + a22) – (a
12 + a21) = (5 × 6) – (5 × 3) / (6 + 6) – (5 + 3) = (36 – 15) / (12 – 8) = 21 / 4. Sub game
No. 2:
B I I A III Co umn maximum. 8 8 4 5 4 6 II 5 Row minimum. 5
The game has sadd e point (1,2) and the e ement is 5. Hence the va ue of the gam
e is v2 = 5. Sub game No. 3.
B I II A III Co umn maximum. 8 8 4 6 4 3 II 6 Row minimum. 3
No sadd e point. Let us find the va ue of the game. Va ue of the game = v3 = (a1
1 a22 – a12 a21) / (a11 + a22) – (a12 + a21) = (12 – 48) / (7 – 14) = (36 / 7). Now v1 =
(21 / 4) = 5.25, v2 = 5, and v3 = (36 / 7) = 5.14. Among a the th ee v1 = 5.2
5 is good etu n to A. Hence he se ects sub game No.1. Let us find the p obabi i
ties of st ategies fo this game. x1 = (a22 – a21) / (a11 + a22) – (a12 + a21) o =
1 – x2 = (6 – 3) / 4 = 3 / 4. The efo e x2 = 1/4. y1 = (a22 – a12) / (a11 + a22) – (a12
+ a21) o = 1 – y2 = (6 – 5) / 4 = 1/4, The efo e, y2 = 3 / 4. Answe : A (3 / 4, 1 /
4, 0), B (1 / 4, 3 / 4) and the va ue of the game = v = 36 / 7 = 5.25.
P ob em 10. 22.
So ve the game whose payoff mat ix is given be ow by method of sub games.
B I I A II 8 –4 –1 –5 II 5 III 0
Theo y of Games o Competitive St atagies
521
So ution
Given mat ix is
B I I A II Co umn maximum. 8 8 –4 5 –1 0 –4 –5 II 5 III 0 Row minimum –5
No sadd e point. Sub game No. 1 of B:
B I I A II Co umn maximum 8 8 –4 5 -4 –5 II 5 Row minimum –5
No sadd e point. Hence, Va ue of the game = v1 = (a11 a22 – a12 a21) / (a11 + a22)
– (a12 + a21) [(–5 × –4) – (5 × 8) / [(–5) + (–4)] – [5 + 8] = (20 – 40) / (–9 – 13) = –20
) Sub game 2 of B:
B I I A II Co umn maximum. 8 8 –1 0 –1 –5 III 0 Row minimum –5
No sadd e point. Hence, va ue of the game = v2 = (a11 a22 – a12 a21) / (a11 + a22)
– (a12 + a21) = [(–5 × –1) – (0)] / [(–5 + (–1)] – (0 + 8) = (5 – 0) / (–6 – 8) = – (5 / 1
No.3 of B:
B II I A II Co umn maximum. –4 5 –1 0 –4 5 II 0 Row minimum. 0
522
Ope ations Ressea ch
The game has sadd e point. V3 = 0 Compa ing a the th ee va ues, v1 = (20 / 21)
, v2 = – (5 / 14) and v3 = 0. The sub game 2 wi give good etu ns to B. Hence, B
p efe s to p ay the sub game 2. Now et us find the p obabi ities of the st ate
gies. x1 = (a22 – a21 ) / (a11 + a22) – (a12 + a21) o = 1 – x2 = (–1 – 8) / (– 14) = –9 /
9/14 x2 = 1 – (9 / 14) = 5 / 14, y1 = (a22 – a12) / (a11 + a22) – (a12 + a21) o = 1 –
y2 = (–1 – 0) / (–14) =( – 1 / – 15) = 1/15 y2 = 1 – (1 / 15) = 14 / 15. Answe : A (9 / 14,
5 / 14), B (1 / 15, 0, 14 / 15) and the va ue of the game v = – (5 / 14).
10.8.4.2. G aphica Method
When a m × n pay of mat ix can be educed to m × 2 o n × 2 pay off mat ix, we can app
y the sub game method. But too many sub games wi be the e it is time consumin
g. Hence, it is bette to go fo G aphica method to so ve the game when we have
m × 2 o n × 2 mat ixes.
P ob em 10.23.
So ve the game whose pay of mat ix is:
B I I A II 2 1 4 5 1 II 4 III –2 IV –3
So ution
Given payoff mat ix is: So ve the game whose pay of mat ix is:
B I x A (1-x) Co umn maximum II 2 2 1 4 4 4 5 5 1 I 1 II 4 III –2 IV –3 Row minimum –3
Theo y of Games o Competitive St atagies
523
No sadd e point. If sub game method is to be fo owed, the e wi be many sub ga
mes. Hence, g aphica method is used. Let A p ay his fi st st ategy with a p oba
bi ity of x, and then he has to p ay his second st ategy with a p obabi ity of (
1 – x). Let us find the payoffs of A when B p ays his va ious st ategies.
Step 1
Find the payoffs of A when B p ays his va ious st ategies and A p ays his fi st
st ategy with a p obabi ity x and second st ategy with a p obabi ity (1 – x). Let
pay off be ep esented by P. Then A’s payoffs, when B p ays his fi st st ategy: P1
= 1 x (x) + 2 (1 – x) = 1x + 2 – 2x = 2 – x. B p ays his second st ategy: P2 = 4x + 1
(1 – x) = 4x + 1 – x = 1 + 3x. B p ays his thi d st ategy: P3 = –2x + 4 (1 – x) = – 2x +
4 –4x = 4 – 6x. B P ays his fou th st ategy: P4 = -3x + 5 (1 – x) = –3x + 5 – 5x = 5 – 8x.
Step 2
A the above payoff equations a e in the fo m of y = mx + c. Hence we can d aw
st aight ines by giving va ious va ues to x. To do this et us w ite two ve tic
a ines, keeping the distance between ines at east fou centimete s. Then w i
te a ho izonta ine to ep esent the p obabi ities. Let the eft side ve tica
ine ep esents, A’s fi st st ategy and the p obabi ity of x = 1 and ight side ve
tica ine ep esents A’s second st ategy and the p obabi ity of 1 – x. Ma k points
1, 2, 3 etc on ve tica ines above the ho izonta ine and –1, –2, –3 etc, be ow the
ho izonta ines, to show the payoffs.
Step 3
By substituting x = 0 and x = 1 in payoff equations, ma k the points on the ine
s d awn in step 2 above and joining the points to get the payoff ines.
Step 4
These ines inte sect and fo m open po ygon. These a e known as uppe bound abov
e the ho izonta ine d awn and the open po ygon be ow ho izonta ine is known
as owe bound. The uppe bound (open po ygon above the ho izonta ine is used
to find the decision of p aye B and the open po ygon be ow the ine is used to
find the decision of p aye A. This we can i ust ate by so ving the nume ica e
xamp e given above.
Step 5
Remembe that the objective of g aphica method is a so to educe the given mat
ix to 2 × 2 mat ix, so that we can app y the fo mu a di ect y to get the optima s
t ategies of the p aye s. Fo P1 = 2 – x, when × = 0, P1 = 2 and when × = 1, P1 = 1> M
a k these points on the g aph and join the points to get the ine P1. Simi a y,
we can w ite othe p ofit ines. P2 = 1 + 3x, when x = 0, P2 = 1, x = 1, P2 = 4
. P3 = 4 – 6x. When x = 0, P3 = 4 and When x = 1, P3 = – 2. P4 = 5 – 8x, When x = 0, P
4 = 5 and When x = 1, P4 = –3.
524
Ope ations Ressea ch
Afte d awing the g aph, the owe bound is ma ked, and the highest point of the
owe bound is point Q, ies on the ines P1 and P2. Hence B p ays the st ategi
es II, and I so that he can minimize his osses. Now the game is educed to 2 × 2
mat ix. Fo this payoff mat ix, we have to find optima st ategies of A and B. T
he educed game is:
B I I A II Co umn Maximum: 2 2 1 4 1 1 II 4 Row minimum 1
No sadd e point. Hence we have to app y fo mu a to get optima st ategies. x1 =
(a22 – a21 ) / (a11 + a22) – (a12 + a21) o = 1 – x2 = x1 = (1 – 2) / (1 + 1) – (4 + 2) = –
/ (2 – 6) = (–1 / –4) = 1 / 4. and x2 = 1 – (1 / 4) = 3 / 4 y1 = (a22 – a12) / (a11 + a22
) – (a12 + a21) o = 1 – y2 y1 = (1 – 4) / (– 4) = (3 / 4), y2 = 1 – (3 / 4) = (1 / 4)
Theo y of Games o Competitive St atagies
525
Va ue of the game = v = (a11 a22 – a12 a21) / (a11 + a22) – (a12 + a21) = (1 × 1) – (4 × 2
) / –4 = (1 – 8) / –4 = –4 / –4 = (7 / 4) Answe : A (1 / 4, 3 / 4), B ( 3 / 4, 1 / 4, 0, 0
) , v = 7 /4. A a ways wins 7/4 units of money.
P ob em 10.24.
So ve the given payoff mat ix by G aphica method and state optima st ategies o
f p aye s A and B.
B 1 1 A 2 8 –4 –1 6 –5 –5 2 5 3 0 4 –1 5 8
So ution
Given Payoff Mat ix is
B 1 x A (1 – x) Co umn Max: 2 8 8 –4 5 –1 0 6 6 –5 8 –5 1 –5 2 5 3 0 4 –1 5 8 Row minimum –
No sadd e point. Reduce the given mat ix by using g aphica method. Let us w ite
the payoff equations of B when he p ays diffe ent st ategies. A has on y two st
ategies to use. Let us assume that A p ays his fi st st ategy with a p obabi it
y x and his second st ategy with a p obabi ity (1 – x). The B’s payoffs a e: P1 fo
B’s fi st st ategy = –5x + 8 (1 – x) , i.e. P1 = –5x + 8 – 8x = 8 – 13x. When, x = 0, P1 =
, x = 1, P1 = – 5. P2 fo B’s second St ategy = 5x – 4 (1 – x), i.e. P2 = 5x – 4 + 4x = 9x
– 4, When x = 0, P2 = – 4. When x = 1, P2 = 5. P3 fo B’s thi d st ategy = 0x – 1 (1 – x)
= x – 1, When x = 0, P3 = –1, and When x = 1, P3 = 0. P4 fo B’s fou th st ategy = – 1x
+ 6 (1 – x) = x + 6 – 6x = 6 – 5x. When x = 0, P4 = 6 and when x = 1, P4 = 1 P5 fo B’s
fifth st ategy = 8 x – 5 (1 – x) = 8x – 5 + 5x = 13x – 5. When x = 0, P5 = – 5, when x =
1, P5 = 8.
526
Ope ations Ressea ch
If we p ot the above payoffs on the g aph:
Now, p aye B has to se ect the st ategies, as p aye A has on y two st ategies.
To make A to get his minimum gains, B has to se ect the point B in the owe bo
und, which ies on both the st ategies B –1 and B – 3. Hence now the 2 × 2 game is:
B 1 1 A 2 Co umn maximum. 8 8 –1 0 –1 –5 3 0 Row minimum –5
No sadd e point. Hence app y the fo mu a to get the optima st ategies. x1 = (a2
2 – a21 ) / (a11 + a22) – (a12 + a21) o = 1 – x2 = x1 = [–1 – 8]/( –5 – 1) – (0 + 8) = (–9
= (–9/ –14) = ( 9/14) and x2 = [1 – (9/14) = (5/14)
Theo y of Games o Competitive St atagies
527
y1 = (a22 – a12) / (a11 + a22) – (a12 + a21) o = 1 – y2 y1 = [ –1 – 0] / – (14) = – ( –1 /
(1 / 14) and y2 = 1 – (1 / 14) = (13 / 14) Va ue of the game = v = (a11 a22 – a 12
a 21) / (a 11 + a22) – (a12 + a21) = [(–1 × –5) – ( 0 × 8)] / (–14) = (–5 / –14) = (5 / 14)
: v = (5 / 14), A (9 / 14, 5 / 14), B (1/14, 0, 13 / 14, 0, 0). A a ways wins a
sum of 5/14. Note: Whi e ca cu ating the p ofits to d aw g aph, it is shown tha
t fi st to w ite the equation and then substituting the va ues of 0 and 1 to x w
e can get the p ofits fo each st ategy. Students as we can di ect y w ite the
p ofit points, without w iting the equation. Fo examp e, in the given p ob em,
we know that A p ays his fi st st ategy with x and then the second st ategy wit
h (1– x) p obabi ity. When x = 0, the va ue is 8, i.e. the e ement a21 in the mat
ix. Simi a y, when x = 1, the va ues is –5 i.e. the e ement a11. We can w ite oth
e va ues simi a y. But it is advised it is not a hea thy p actice to w ite the
va ues di ect y. At east show one equation and ca cu ate the va ues and then w
ite the othe va ues di ect y. This is on y a measu e fo eme gency and not fo
egu a p actice.
P ob em 10.25.
So ve the game g aphica y, whose pay off mat ix is:
B I 1 2 A 3 4 5 –6 4 –1 –2 7 II 7 –5 –2 5 –6
So ution
The given pay off mat ix is:
B I 1 2 A 3 4 5 Co umn maximum: –6 4 –1 –2 7 7 II 7 –5 –2 5 –6 7 Row minimum –6 –5 –2 –2 –6
528
Ope ations Ressea ch
No sadd e point. Fo g aphica method, et us assume that B p ays his fi st st a
tegy with a p obabi ity of ‘y’ and the second st ategy with a p obabi ity of (1 – y).
Then the equations of va ious pay offs when A p ays his diffe ent st ategies a e
: A’s pay off when he p ays his st ategy 1 is P1 = –6y + 7 (1 – y) = –6y + 7 – 7y = 7 – 13y
When y = = 0, P1 = 7 and when y = 1, P1 = –6. A’s pay off when he p ays his st ateg
y 2 is P2 = 4y – 5 (1– y) = 4y – 5 + 5y = –5 + 9y, When y = 0, P2 = –5, When y = 1, P2 = 4
. A’s pay off when he p ays his st ategy 3 is P3 = –1y –2 (1 – y) = – 1y – 2 + 2y = y – 2,
n y = 0, P3 = – 2, When y = 1, P3 = –1. A’s pay off when he p ays his st ategy 4 is P4
= – 2y + 5 (1 – y) = –2y + 5 – 5y = 5 – 7y, When y = 0, P4 = 5 When y = 1, P4 = –2 A’s pay
f when he p ays his st ategy 5 is P5 = 7y – 6 (1 – y) = 7y – 6 + 6y = 13y – 6, When y =
0, P5 = –6 When y = 1, P5 = 7.
Theo y of Games o Competitive St atagies
529
In the figu e, point B ies on the st ategies 4 and 5 of p aye A. Now B has to
se ect owest point in the owe bound (Thick ines) i.e. point B. The educed 2
× 2 game is
B I 4 A 5 Co umn maximum 7 7 –6 5 –6 –2 II 5 Row minimum. –2
No sadd e point. To find the optima st ategies of A and B and the va ue of the
game the fo mu a is used. x1 = (a22 – a21 ) / (a11 + a22) – (a12 + a21) o = 1 – x2 =
x1 = ( – 6 – 7) / (–2 – 6) – ( 5 + 7) = (– 13) / ( – 8) – (12) = 13 / 20, hence x2 = 7 / 20
= (a22 – a12) / (a11 + a22) – (a12 + a21) o = 1 – y2 y1 = (– 6 – 5) / (–20) = 11 / 20, y2
9 / 20. Va ue of the game = v = (a11 a22 – a12 a21) / (a11 + a22) – (a12 + a21) = (–2
× –6 – 5 × 7) / (– 20) = (12 – 35) / (–20) = 23 / 20. = 1.15. Answe : A ( 0, 0, 0, 13 / 20
/ 20), B (11 / 20, 9 / 20), and v = 1.15.
P ob em 10.26.
So ve the game whose pay off mat ix is:
B I I A II 8 4 3 2 3 II 4 III 10 IV 12
So ution
The pay of mat ix is:
B I I A II Co umn maximum. 8 8 4 4 3 10 2 12 2 3 II 4 III 10 IV 12 Row minimum 3
530
Ope ations Ressea ch
No Sadd e point. Hence educe the mat ix by g aphica method. Let A p ay his I s
t ategy with a p obabi ity of x and the II st ategy with a p obabi ity of (1 – x).
The pay offs of B when he p ays diffe ent st ategies is as fo ows:
B’s St ategy I II III 1V Pay off Equation (Pi) 3x + 8 (1 – x) = 3x + 8 – 8x = 8 – 5x. 4x
+ 4 (1 – x) = 4x + 4 – 4x = 4 10x + 3 (1 – x) = 10x + 3 – 3x = 3 + 7x 12x + 2 (1 – x) = 1
2x + 2 – 2x = 2 + 10x When x = 0 Pi = 8 4 3 2 When x = 1 Pi = 3 4 10 12
In the figu e points C and D ies on a ho izonta ine and point C ies on P2 an
d P1, simi a y, point D ies on P2 and P3. Hence we have two 2 × 2 games. If we s
o ve by app ying the fo mu a, the pay offs o the va ue of the game is same fo
both games.
Theo y of Games o Competitive St atagies
531
The games a e:
B I I A II 8 4 4 4 Co umn maximum 3 II 4 Row minimum 3 A II 4 4 2 12 2 I II 4 B
IV 12 Row minimum 4
Co umn maximum 8
Both the games have sadd e point and the va ue of the game in both cases is v =
4. Optima st ategies a e: x1 = (a22 – a21) / (a11 + a22) – (a12 + a21) o = 1 – x2 =
(4 – 8) / (7 – 11) = 1, Then x2 = 0. y1 = (a22 – a12) / (a11 + a22) – (a12 + a21) o = 1
– y2 = (0) / –4 = 0, then y2 = 1. (This means they a e p aying pu e st ategy game.
Answe : A (1, 0), B (0, 1, 0, 0) and v = 4.
10.8.4.3. A geb aic Method
When the given pay off mat ix of a game cannot be educed to 2 × 2, o 2 × 3 o m × 2
o 2 × n, then, we can so ve the game by using the a geb aic method. This is a st
aightfo wa d and engthy and time-consuming method. He e we have to w ite a syst
em of inequa ities and conside them as equations and so ve the simu taneous equ
ations as usua . To i ust ate the method, et us take a nume ica examp e and s
o ve by using A geb aic method.
P ob em 10.27.
So ve the game whose pay off mat ix is as given:
B I I A II III –1 1 3 II 2 –2 4 III 1 2 –3
So ution Given mat ix is:
B I I A II III Co umn maximum –1 1 3 3 II 2 –2 4 4 III 1 2 –3 2 Row minimum –1 –2 –3
532
Ope ations Ressea ch
No sadd e point. Let us so ve the game by A geb aic method. Let A p ay his st at
egies with a p obabi ity of x1, x2 and x3 and B p ay his st ategies with a p oba
bi ity of y1, y2 and y3. Now we know x1 + x2 + x3 = 1 and y1 + y2 + y3 = 1. Let
us w ite the inequa ities, which show the pay offs of both p aye s. A is a maxim
izing (maximin) p aye and he expects his pay off shou d be ≥ v and B is the minim
izing p aye (minimax) he expects his pay off must be ≤ v. The inequa ities a e: –1x
1 + 1x2 + 3x3 ≥ v 2x1 – 2x2 + 4x3 ≥ v 1x1 + 2x2 – 3x3 ≥ v –1y1 + 2y2 + 1y3 ≤ v 1y1 – 2y2 +
3y1 + 4y2 – 3y3 ≤ v x1 + x2 + x3 = 1 y1 + y2 + y3 = 1 and x1, x2, x3, y1, y2, y3 a
≥ 0 Now et us conside a the above inequa ities into equations so that we can
go ahead to so ve the equations. The equations a e: ...1 –1x1 + 1x2 + 3x3 = v ...
2 2x1 – 2x2 + 4x3 = v 1x1 + 2x2 – 3x3 = v ...3 –1y1 + 2y2 + 1y3 = v ...4 ...5 1y1 – 2y2
+ 2y3 = v 3y1 + 4y2 – 3y3 = v …6 x 1 + x2 + x 3 = 1 ...7 …8 y 1 + y2 + y 3 = 1 And x1,
x2, x3, y1, y2, y3 a ≥ 0 ...9 Add equations 1 and 3: …1 –1x1 + 1x2 + 3x3 = v ...3 1
x1 + 2x2 – 3x3 = v 3x2 = 2v o x2 = (2 / 3) v Add two times of equation 1 to equat
ion 2: –2x1 + 2x2 + 6x3 = 2v 2x1 – 2x2 + 4x3 = v ...1 …2
10x3 = 3v o x3 = (3 / 10) v Substituting the va ues of x2 and x3 in equations 1
to 3 we get x1 = (17 / 30) v. Substituting the va ues of x1, x2 and x3 in equat
ion numbe 7 we get v = (15 /23). Substituting the va ue of v we get x1 = (17 /
46), x2 = ( 10 / 23) and x3 = (9 / 46). As we know the va ue of v, we can substi
tute this va ue in equations 4, 5 and 6 and so ving fo y1, y2, y3 we get the va
ues as: y1 = (7 / 23), y2 = (6 / 23) and y3 = (10 / 23). Answe : A (17 / 46, 10
/ 23, 9 / 46), B (7 / 23, 6 / 23, 10 / 23) and v = 15 / 23.
Theo y of Games o Competitive St atagies
533
10.8.4.4. Method of oddments fo so ving the games P ob em 10.29.
So ve the given game by method of oddments:
B I I A II III 3 –3 –4 II –1 3 –3 III –3 –1 3
So ution
The mat ix given is:
B I I A II III Co umn maximum 3 –3 –4 3 II –1 3 –3 3 III –3 –1 3 3 Row minimum –3 –3 –4
The game has no sadd e point. Let us app y method of oddments. Step.1: Subt act
each ow f om the ow above it. That is subt act second ow f om fi st ow and t
hi d ow f om second ow etc. W ite the diffe ence of these ows in the fo m of
two-succssie ows be ow the ows of the mat ix. Step 2: Subt act each co umn f o
m the co umn to its eft i.e. subt act second co umn f om the fi st and the thi
d co umn f om the second and so on and w ite the diffe ence in the fo m of two s
uccessive co umns to the ight of the given mat ix. This is shown be ow:
B I I A II III 3 –3 –4 6 1 II –1 3 –3 –4 6 III –3 –1 3 –2 –4 4 –6 –1 2 4 –6
Step 3: Ca cu ate the oddments fo A’s I, II, and III st ategies and B’s I, II, and
III st ategies. Oddment fo A’s fi st st ategy = Dete minant
534
Ope ations Ressea ch
–6
4
=
–1 –6
= (–6 × –6) – (4 × –1) = 40
Oddment fo A’s Second st ategy = Dete minant
4 2
=
–1 –6
= (4 × –6) – (2 × –1) = –24 + 2 = – 22
Oddment fo A’s thi d st ategy = Dete minant
4 2
=
−6
= (4 × 4) – ( 2 × –6) = 16 + 12 = 28
4 −2
Oddment for B’s First strategy = Determinant
–4
=
6 –4 −2 −4 −4
= (–4 × –4) – (–2 × 6) = 16 + 12 = 28
Oddment for B’s second strategy = Determinant
6
=
1
= (6 × –4) – ( –2 × 1) = –24 + 2 = –22
Oddment for B s third strategy = Determinant
6
=
1 6
= (6 × 6) – (–4 × 1) = 36 + 4 = 40.
Step 4: Write these oddments, neglecting the signs as shown below:
B I I A II III 3 –3 –4 28 II –1 3 –3 22 III –3 –1 3 40 40 22 28 Col total = 90 Row total =
0
Step 5: Now verify the sums of oddments of A and B. They must be same to solve t
he game by matrix method. In this example both sums are equal to 90. This means
that both players use their pure strategies and hence the game is conformable fo
r matrix method. The necessary condition for solving the game is the sums of two
oddments must be same. In case the sums of oddments are different, then both th
e players do not use their all pure strategies and hence matrix method fails.
Theory of Games or Competitive Stratagies
535
Step.6: Divide the oddments by the sum of the oddments to get the optimal strate
gies of players. A (40 / 90, 22 / 90, 28. 90), B (28 / 90, 22 / 90, 40 / 90) OR
A (20 / 45, 11 / 45, 14 / 45), B (14 / 45, 11 / 45, 20 / 45). Value of the game
is given by: v = [40 × 3 + 22 × (–3) + 28 × (–4)] / (40 + 22 + 28) = (–58 / 90) = (–29 / 45
R v = [40 × (–1) + 22 × 3 + 28 × (–3)] / 90 = –58 / 90 OR v = [ 40 × (–3) + 22 × (–1) + 28
– 58 / 90 OR v = [ 28 × 3 + 22 × (–1) +40 × (–3)] / 90 = – 58 / 90 OR v = [28 × ( –3) + 22
× (–1)] / 90 = – 58 / 90 OR v = [ 28 × (–4) + 22 × (–3) + 40 × 3] / 90 = –58 / 90 The valu
e found by any one of the above.
Problem 10.30.
Solve the given game by method of matrices:
B I I A II III 1 –1 –1 II –1 –1 2 III –1 3 –1
Solution
The given pay of matrix is:
B I I A II III Column Maximum: 1 –1 –1 1 II –1 –1 2 2 III –1 3 –1 3 Row minimum –1 –1 –1
No Saddle point. To solve by method of oddments:
B I I A II III 1 –1 –1 2 0 II –1 –1 2 0 –3 III –1 3 –1 4 4 2 0 –3 0 –4 3
536
Operations Ressearch
0
−4
Oddment for AI = Determinant =
–3 2 3 0
= 0 – 12 = – 12
Oddment for A II = Determinant =
–3 3
=0 – 6 = – 6
Oddment for A III = Determinant =
0 = –8 – 0 = – 8 0 −4
0 −4 −4
2
Oddment for B I = Determinant
=
−3
= 0 – 12 = – 12
2 −4 Oddment for B II = Determinant = 0 − 4 = 0 – 8 = – 8
2 0
Oddment for B III = Determinant =
0 −3
= –6 – 0 = – 6
Now neglecting the signs of oddments, we write as below:
B I I A II III 1 –1 –1 12 12 / 26 6 / 13 II –1 –1 2 8 8 / 26 4 / 13 III –1 3 –1 6 6 / 26 3
13 12 6 8 12 / 23 6 / 26 8 / 26 6 / 13 3 / 13 4 / 13
26 = Total of oddments.
Value of the game v = [12 × 1 – 6 × 1 – 8 × 1] / (12 + 6 + 8) = 2 / 26 = 1 / 13. Answer =
A (6 / 13, 3 / 13, 4 / 13), B (6 / 13, 4 / 13, 3 / 13) and v = 1 / 13.
Theory of Games or Competitive Stratagies
537
Problem 10.31.
Solve the game by using oddments:
B 1 1 A 2 3 4 5 2 1
Solution
Given matrix is
B 1 1 A 2 Column maximum: 3 5 4 4 3 5 2 1 Row minimum 1
No saddle point. To find the oddment it is easy as it is 2 × 2 matrix.
B 1 1 A 2 3 3 4 2 4 5 5 2 1 1
Sum of both oddments is 5. Hence optimal strategies for A = (1 / 5, 4 / 5) and t
hat for B = (3 / 5, 2 / 5) And the value of the game is v = (1 × 1 + 4 × 4) / 5 = 17
/ 5. Answer: A (1/5, 4/5), B (3 / 5, 2 / 5) and v = 17 / 5.
10.8.4.5. Method of Linear Programming
When the given pay of matrix cannot be reduced into lesser degree, (in case it d
oes not have pure strategy for players), the mixed strategy game can easily be s
olved by applying the principles of linear programming. If the problem of maximi
zing player is primal one, the problem of minimizing player will be the dual of
the primal. Hence by solving either primal or dual, we can get the answer of the
problem. As the linear programming problem insists on non negativity constraint
, we must take care to see that all the elements in the given matrix are positiv
e elements. In case, there are negative elements in the
538
Operations Ressearch
given matrix, we can add a suitable, large and positive number to the matrix, so
that all the elements in the matrix will become positive elements. Or by writin
g the row minimums and column maximums, we can know that the range of the value
of ‘v’ and to keep the v as positive, a positive, sufficiently large number is added
to the all elements of the matrix, so that we can satisfy the non negativity
constraint of the linear programming inequalities.
Problem 10.32.
Two oil companies; Indian oil Company and Caltex Company operating in a city are
trying to increase their market at the expense of the other. The Indian Oil Com
pany is considering possibilities of decreasing price; giving free soft drinks o
n Rs. 40/ purchases of oil or giving away a drinking glass with each 40 liter p
urchase. Obviously, Caltex cannot ignore this and comes out with its own program
me to increase its share in the market. The payoff matrix from the viewpoints of
increasing or decreasing market shares is given in the matrix below:
Decrease Price. Decrease Price. (I) Indian Oil Co., Free soft Drink on Rs.40 / P
urchase. (II) 4% 3 Caltex Oil Company Free soft drink on Rs. 40/ purchase.(II)
1% 1 4 Free drinking glass On 40 liters or more.(III) –3% 6 –2
Free drinking –3 Glass on 40 Lts or more. (III)
Find the optimal strategies and the value of the game.
Solution Given pay off matrix is:
Caltex Company I I Indian Oil Company. II III Column maximum 4 3 –3 4 II 1 1 4 4 I
II –3 6 –2 6 Row minimum –3 1 –3
The game has no saddle point. Moreover, the value of the game lies between 1 (be
st out of the worst or maximum of minimum gains for (A) and 4 i.e. minimum of ma
ximum losses for B (minimax). As both are positive numbers, we can proceed furth
er for linear programming method. If, in any way the value of the game lies betw
een a negative element and a positive element, then we have to add suitable posi
tive element to the matrix to see that the value lies between two positive eleme
nts. (Some times to make the things easy, we can make all the elements of matrix
positive by adding a suitable
Theory of Games or Competitive Stratagies
539
positive element). Let us assume that A plays his strategies with probabilities
of x1, x2, and x3. Similarly B plays his strategies with probabilities of y1, y2
and y3. The inequalities are: For B: 1y1 + 1y2 – 1y3 = 1 4y1 + 1y2 – 3y3 ≤ v 3y1 + 1y
2 + 6y3 ≤ v –3y1 + 4y2 – 2y3 ≤ v For A: 1x1 + 1x2 +1x3 = 1 4x1 + 3x2 –3x3 ≥ v 1x1 + 1x2 + 4
3 ≥ v –3x1 +6x2 – 2x3 ≥ v Now divide all the inequalities and equations by ‘v’ and keep (xi
/ v) = Xi and (yj / v) = Yj and write the inequalities and equations. (Note: Div
iding the above relations by ‘v’ is valid only if v > 0. If however, V < 0, the dire
ction of inequality constraints must be reversed and if v = 0, division is meani
ng less). However, both these cases can be easily solved by adding a positive co
nstant ‘L’ (Where L ≥ the negative game value) to all the elements of the matrix, thus
ensuring that the game value for the revised matrix is greater than zero. After
obtaining the optimal solution, the true value of the game can be obtained by s
ubtracting L from the game value so obtained. In general, if the maxmin value of
the game is non negative, then the value of the game is greater than zero, prov
ided the game does not have a saddle point. If we keenly observe the above inequ
alities, and recollect the knowledge of linear programming, particularly the dua
lity in linear programming, we understand that the B’s constraints are primal then
the A’s constraints are that of dual. After dividing by ‘v’ the inequalities and equa
tions are: (y1 / v) + (y2 /v) + (y3 / v) = 1 (4y1 / v) + (1y2 / v) – (3y3 / v) ≤ 1 (
3y1 /v) + (1y2 / v) + (6y3 / v) ≤ 1 (–3y1 / v) + (4y2 / v) – (2y3 / v) ≤ 1 Similarly we
can write for A also. For A the inequalities are: (x1 / v) + (x2 / v) + (x3 / v)
= 1 (4x1 / v) + (3x2 / v) – (3x3 / v) ≥ 1 (1x1 / v) + (1x2 / v) + (4x3 / v ) ≥ 1 (–3x1
/ v) + (6x2 / v) – (2x3 / v) ≥ 1 Now putting xi / v = X i and yj / v = Yj the above
inequalities will become: X1 + X2 + X3 = 1/ v 4X1 + 3X2 – 3X3 ≥ 1
540
Operations Ressearch
1X1 + 1 X2 + 4X3 ≥ 1 –3 X1 + 6X2 – 2X3 ≥ 1 For B Y1 + Y2 + Y3 = 1/ v 4Y1 + 1Y2 – 3Y3 ≤ 1 3Y
+ 1Y2 + 6Y3 ≤ 1 –3Y1 + 4Y2 – 2Y3 ≤ 1 If B want to minimize ‘v’ he has to maximize (1 / v),
This means he has to maximize Y1 + Y2 + Y3 which is the objective function for B
. Maximize Z = Y1 + Y2 + Y3 = 1/ v S.T. 4Y1 + 1Y2 – 3Y3 ≤ 1 3Y1 + 1Y2 + 6Y3 ≤ 1 –3Y1 + 4
Y2 – 2Y3 ≤ 1 and all Y1, Y2 and Y3 are ≥ 0. Writing this in Simplex format: Maximize Z
= Y1 + Y2 + Y3 + 0S1 + 0S2 + 0S3 S.T. 4Y1 + 1Y2 – 3Y3 + 1S1 + 0S2 + 0S3 = 1 3Y1 +
1Y2 + 6Y3 + 0S1 + 1S2 + 0S3 = 1 –3Y1 + 4Y2 – 2Y3 + 0S1 + 0S2 + 1S3 = 1 and all Y1,
Y2 and Y3 are ≥ 0. Initial basic feasible solution is:
Table I Y1 = 0, Y2 = 0, Y3 = 0, S1 = 1, S2 = 1 , S3 = 1 and Z = Rs. 0. Problem V
ariable S1 S2 S3 Profit in Rs. 0 0 0 1 1 1 Net Ev. Capacity 1 Y1 4 3 –3 1 1 Y2 1 1
4 1 1 Y3 –3 6 –2 1 0 S1 1 0 0 0 0 S2 0 1 0 0 0 S3 0 0 1 0 Replacement Ratio. 1/4 1/
3 1 / –3
Table II : Y1 = 1 / 4, Y2 = 0. Y3 = 0, S1 = 0, S2 = , S3 = 7 / 4 and Z = Rs. 1 × (1
/ 4) Problem Profit in Capacity Variable Y1 S2 S3 Rs. 1 0 0 1/4 1/4 7/4 N.E 1 Y
1 1 0 0 0 1 Y2 1/4 1/4 19 / 4 3/4 1 Y3 –3/4 33 / 4 – 17 / 4 7/4 0 S1 1/4 –3 / 4 3/4 –1/4
0 S2 0 1 0 0 0 S3 0 0 1 0 Replacement Ratio. –1/3 1 / 33 –7 / 17
Theory of Games or Competitive Stratagies
541
Table III: Y1 = 3 / 11, Y2 = 0. Y3 = 1 / 33, S1 = 0, S2 =0, S3 = 66 / 33 and Z =
Rs. 1 × (3 / 11) + 1 × (1 / 33) Problem Profit in Capacity Variable Y1 Y3 S3 Rs. 1
1 0 3 / 11 1 / 33 62 / 33 N.E. 1 Y1 1 0 0 0 1 Y2 3 / 11 1 / 33 161 / 33 23 / 33
1 Y3 0 1 0 0 0 S1 2 / 11 –1 / 11 4 / 11 0 S2 1 / 11 4 / 33 17 / 33 0 S3 0 0 1 0 Re
placement Ratio. 1 1 62 / 161
– 1 / 11 – 7 / 33
Table III: Y1 = 27 / 161, Y2 = 62 / 161. Y3 = 3 / 161, S1 = 0, S2 =0, S3 = 0 and
Z = Rs. 4 / 7 Problem Variable Y1 Y3 Y2 Profit in Rs. 1 1 1 27 / 161 3 / 161 62
/ 161 N.E. Capacity 1 Y1 1 0 0 0 1 Y2 0 0 1 0 1 Y3 0 1 0 0 0 S1 26 / 161 – 15 / 1
61 12 / 161 0 S2 10 / 161 19 / 161 17 / 161 0 S3 –9 / 161 –1 / 161 33 / 161 –23 / 161
Replacement Ratio.
–23 / 161 –46 / 161
Now the value of (1 / v) = (4 / 7) As, yj / v = Yj y1 = Y1 × v = (27 / 161) × (7 / 4
) = (27 / 92) y2 = Y2 × v = (62 / 161) × ((7 / 4) = (62 / 92) y3 = Y3 × v = ( 3 / 161)
× ( 7 / 4) = (3 / 92). A’s best strategies we can get from net evaluation row and t
he elements under slack variables column. We have: X1 = (23 / 161), X2 = (46 / 1
61), and X3 = 23 / 161. x1 = X1 × v = (23 / 161) × (7 / 4) = (1 / 4) x2 = X2 × v = (46
/ 161 ) × ( 7 / 4) = (1 / 2) x3 = X3 × v = ( 23 / 161) × (7 / 4) = (1 / 4) Therefore
the optimal strategies of A and B are: Indian Oil Company = A (1/4, 1/2 , 1/4) C
altex Company = B ( 27 / 92, 62 / 92, 3 / 92) and value of the game is (7 / 4) f
or A.
Problem 10.33.
Solve the game given in the pay off matrix below:
B 1 2 3 1 3 1 –2 2 –4 –3 4 3 2 –7 7
A
542
Operations Ressearch
Solution
The given matrix is:
1 A Column maximum: 1 2 3 3 1 –2 3 B 2 –4 –3 4 4 3 2 –7 7 7 Row minimum –4 –7 –2
The game has no saddle point. The value lies between –2 and 3. Hence a constant L
= ≥ 2 (i.e. L = 3) is added to all the elements of the matrix, so that the value o
f the game will be positive. Let x1, x2 and x3 be the probabilities with which A
plays his strategies and y1, y2 and y3 be the probabilities with which B plays
his strategies. As the player B is the minimizing player, let us write his inequ
alities and solve by Linear Programming method. A’s strategies can be found from t
he net evaluation row of the final table of B. Modified matrix is:
y1 1 A x1 x2 x3 1 2 3 6 4 1 B y2 2 –1 0 7 y3 3 5 –4 10
The inequalities of B when A plays his different strategies are: 6y1 – 1y2 + 5y3 ≤ v
4y1 + 0y2 – 4y3 ≤ v 1y1 + 7y2 + 10y3 ≤ v and y1 + y2 + y3 = 1. Dividing by v and keep
ing yi / v = Yi we get, 6Y1 – 1Y2 + 5Y3 ≤ 1 4Y1 + 0Y2 – 4Y3 ≤ 1 1Y1 + 7Y2 + 10Y3 ≤ 1 and Y
1 + Y2 + Y3 = (1 / v) and all Y1, Y2, Y3 all ≥ 0. Writing the same in Simplex form
at, we have: As B has to minimize v, he has to maximize (1 / v). Therefore, Maxi
mize Z = 1 / v = Y1 + Y2 + Y3 + 0S1 + 0S2 + 0S3 S.t. 6Y1 – 1Y2 + 5Y3 + 1S1 + 0S2 +
0S3 = 1 4Y1 + 0Y2 4Y3 + 0S1 + 1S2 + 0S3 = 1 1Y1 + 7Y2 + 10Y3 + 0S1 + 0S2 + 1S
3 = 1 and Y1, Y2, and Y3 all ≥ 0
Table I: S1 = 1, S2 = 1, S3 = 1 and Y1 = 0, Y2 = 0, Y3 = 0 and Z = Rs.0/Problem
Variable S1 S2 S3 Profit in Rs. 0 0 0 1 1 1 N.E Capacity 1 Y1 6 4 1 1 1 Y2 –1 0 7
1 1 Y3 5 –4 10 1 0 S1 1 0 0 0 0 S2 0 1 0 0 0 S3 0 0 1 0 Replacement Ratio. 1/6 1/4
1
Theory of Games or Competitive Stratagies
543
Table II: S1 = 0, S2 = 1 / 3, S3 = 5 / 43 and Y1 = 1 / 6, Y2 = 0, Y3 = 0 and Z =
Rs.1 × (1 / 6) Problem Variable Y1 S2 S3 Profit in Rs. 1 0 0 Capacity 1 Y1 1 0 0
0 1 Y2 –1 / 6 2/3 43 / 6 7/6 1 Y3 5/6 0 S1 1/6 0 S2 0 1 0 0 0 S3 0 0 1 0 Replaceme
nt Ratio. –1 1/2 5 / 43
1/6 1/3 5 / 43 N.E.
– 22 / 3 – 2 / 3 55 / 6 1/6 –1/6 –1/6
Table III: S1 = 0, S2 = 11 / 43, S3 = 0,and Y1 = 8 / 43, Y2 = 5 / 43, Y3 = 0 and
Z = Rs.1 × (8 / 43) + 1 × (5 / 43) = 13 / 43.
Problem Variable Y1 S2 Y2
Profit in Rs. 1 0 1
Capacity
1 Y1 1 0 0 0
1 Y2 0 0 1 0
1 Y3 45 / 43 – 352 /43 55 / 43 – 57 / 43
0 S1 7 / 43 – 28 / 43 – 1 / 43 – 6 / 43
0 S2 0 1 0 0
0 S3 1 / 43 – 4 / 43 6 / 43 – 7 / 43
Replacement Ratio.
8 / 43 11 / 43 5 / 43 N.E.
Y1 = (8 / 43), Y2 = (5 / 43), Y3 = 0 and v = (13 / 43). Now we know that Yj = (y
j / v), therefore, y1 = Y1 × v = (8 / 43) × 43 / 13) = (8 / 13) y2 = Y2 × v = ( 5 / 43
) × (43 / 13) = (5 / 13) and y3 = 0 X1 = 6 / 43, X2 = 0, X3 = 7 / 43. x1 = (6 / 43
) × (43 / 13) = (6 / 13) x2 = 0 and x3 = (7 / 43) × ( 43 / 13) = (7 / 13). Optimal s
trategies for A = A (6 / 13, 0, 7 / 13),
For B = (8 / 13, 5 / 13, 0) and value of the game = v = (43 / 13) – 3 = 4 / 13. (T
he element 3 was added to get the value of the v as positive).
544
Operations Ressearch
Problem 10.34.
Solve the game by L.P.P. method whose pay off matrix is:
B I I A II III IV 3 3 4 0 II 2 4 2 4 III 4 2 4 0 IV 0 4 0 8
Solution: The given matrix is:
B I I A II III IV Column Maximum 3 3 4 0 4 II 2 4 2 4 4 III 4 2 4 0 4 IV 0 4 0 8
8 Row minimum 0 2 0 0
The game has no saddle point and the value of the game falls between 2 and 4. He
nce we can write the inequalities directly, without adding any positive number t
o the matrix. As the player is minimizing player let us write his inequalities a
nd apply Linear Programming approach. Let yj, where j = 1, 2, 3, and 4 be the pr
obabilities with which player B plays his strategies and x1, where, i = 1, 2, 3,
and 4 with which player A plays his strategies. Then the inequalities of B are:
3y1 + 2y2 +4y3 + 0y4 ≤ 1 3y1 + 4y2 + 2y3 + 4y4 ≤ 1 4y1 + 2y2 + 4y3 + 0y4 ≤ 1 0y1 + 4y
2 + 0y3 + 8y4 ≤ 1 and y1 + y 2 + y 3 + y 4 = 1 Dividing all the above inequalities
by v and keeping yj / v = Yj and writing entire thing in simplex model, we get:
Maximize Z = (I / v)= Y1 + Y2 + Y3 + 0S1 + 0S2 + 0S3 + 0S4 s.t. 3Y1 + 2Y2 +4Y3
+ 0Y4 + 1S1 + 0S2 +0S3 + 0S4 = 1 3Y1 + 4Y2 + 2Y3 + 4Y4 + 0S1 + 1S2 +0S3 + 0S4 =
1 4y1 + 2y2 + 4y3 + 0y4 + 0S1 + 0S2 +1S3 + 0S4 = 1 0y1 + 4y2 + 0y3 + 8y4 + 0S1 +
0S2 +0S3 + 1S4 = 1 And all Yj are ≥ 0 where j = 1, 2, 3 and 4.
Theory of Games or Competitive Stratagies
545
Table I: Y1 = 0, Y2 = 0, Y3 = 0, Y4 = 0, S1 = 1, S2 = 1, S3 = 1, S4 = 1 and Z =
Rs. 0 Problem Variable S1 S2 S3 S4 Profit in Rs. 0 0 0 0 1 1 1 1 N.E. Capacity 1
Y1 3 3 4 0 1 1 Y2 2 4 2 4 1 1 Y3 4 2 4 0 1 1 Y4 0 4 0 8 1 0 S1 1 0 0 0 0 0 S2 0
1 0 0 0 0 S3 0 0 1 0 0 0 S4 0 0 0 1 0 Replacement Ratio. ∝ 1/4 ∝ 1/8
Table II: Y1 = 0, Y2 = 0, Y3 = 0, Y4 = 1 / 8, S1 = 1, S2 = 1 / 2 S3 = 1, S4 = 0
and Z = Rs. 1 x (1 / 8) Problem Variable S1 S2 S3 Y4 Profit in Rs. 0 0 0 1 Capac
ity in Units 1 1/2 1 1/8 N.E. 1 Y1 3 3 4 0 1 1 Y2 2 2 2 1/2 1/2 1 Y3 4 2 4 0 1 1
Y4 0 0 0 1 0 0 S1 1 0 0 0 0 0 S2 0 1 0 0 0 0 S3 0 0 1 0 0 0 S4 0 –1 / 2 0 1/8 – 1/
8 Replacement Ratio. 1/4 1/4 1/4 1
Table III: Y1 = 0, Y2 = 0, Y3 = 1 / 4, Y4 = 1 / 8, S1 = 0, S2 = 0, S3 = 0, S4 =
0 and
Z = Rs. 1 × (1 / 8) + 1 × (1 / 4) = 3 / 8
Problem Variable S1 S2 Y3 Y4
Profit in Rs. 0 0 1 1
Capacity 0 0 1/4 1/8 N.E.
1 Y1 –1 1 1 0 0
1 Y2 0 1 1/2 1/2 0
1 Y3 0 0 1 0 0
1 Y4 0 0 0 1 0
0 S1 1 0 0 0 0
0 S2 0 1 0 0 0
0 S3 –1 –1 / 2 1/4 0 –1 / 4
0 S4 0 –1 / 2 0 1/8 –1 / 8
Replacement Ratio.
1 / v = (3 / 8), Hence the value of the game = v = (8 / 3). As yj = Yj × v y1 = 0 ×
(8 / 3) = 0, y2 = 0 × (8 / 3) = 0, y3 = (1 / 4) × (8 / 3) = (2 / 3), y4 = (1 / 8) × (8
/ 3) = ( 1 / 3). Therefore, B’s optimal policy = (0, 0, 2 / 3, 1 / 3)
546
Operations Ressearch
From simplex table, X1 = 0, X2 = 0, X3 = (1 / 4), X4 = (1 / 8) and xi = Xi × v X1
= 0 × (8 / 3) = 0, x2 = 0 × (8 / 3) = 0, x3 = (1 / 4) × (8 / 3) = (2 / 3), and x4 = (1
/ 8) × (8 / 3) = (1 / 3) Answer: A (0, 0, 2 / 3, 1 / 3), B (0, 0, 2 / 3, 1 / 3) a
nd v = 8 / 3
10.8.4.6. Iterative Method for Approximate Solution
Many a times the operations research manager is satisfied with an approximate an
swer, nearer to the optimal answer for making quick decisions. It is well known
fact that, to get an accurate solution for the problem on hand by using well pro
grammed methods will take time and by the time one get the correct answer, the s
ituation or variables of the may change due to change in the conditions of marke
t or environment. Hence, the manager, who has to take quick decision to solve th
e problem on hand, will be more satisfied with an approximate answer rather than
the correct answer. The same applies to game theory also. One of the methods of
determining the approximate solution is the method of iteration. The principle
of the approximate method is: The two players are supposed to play the plays of
the game iteratively and at each play the players choose a strategy which is bes
t to himself or say worst to opponent, in view of what the opponent has done up
to the iteration. In the given game, one of the players starts the game by selec
ting one of his strategies. The second player looking to the out comes of the st
rategy selected by the first player, the second player selects his strategy, whi
ch is best to him or worst to the opponent. Then the pay offs are written as sho
wn. The first player selects the strategy best to him in the same way and writes
his outcomes. Every time the out comes are added and written as shown. More num
ber of iterations they play, they get answer very close to the optimal answer. B
ut it is time consuming. Hence, the students can write up to 10 iterations while
dealing with the problem. Generally the approximate method or method iteration
is selected, when the game has no saddle point, cannot be reduced due to dominat
ion, and when we need to get the solution quickly. But students are advised not
to use this method directly, without trying Saddle point, Domination, Sub game
s, Graphical method etc. Let us try to understand by taking a numerical example.
Problem 10.35.
Solve the following game by using method of iteration.
B I I A II III –1 1 3 II 2 –2 4 III 1 2 –3
Theory of Games or Competitive Stratagies
547
Solution
Given pay off matrix is:
B I I A II III 1 2 3 4 5 6 7 8 9 10 1 3 1 4 3 2 4 3 2 5 6 7 (2) –2 4 –2 8 10 12 14 1
6 18 22 20 18 (1) 2 –3 2 –1 0 1 2 3 4 1 3 5 (7) –2 4 –4 1 –2 –2 0 –5 2 –8 4 4 5 7 7 4 9 1 1
3) (2) –1 II 2 III 1 1 2 2 3 3 4 4 5 5 6 6 5 7 4 8 5 9 6 10 7 (5)
1. Let A select his second strategy. Write this below the last row of the matrix
. Now, B looks at the out comes and selects the best strategy to him i.e. second
strategy, because he gets 2 units of money. Write the outcomes B’s second strateg
y beside the third column of the matrix. 2. Now, A examines his out come for var
ious strategies and selects the strategy which is most advantageous to him, that
is third strategy, which gives him four units of money. The selected strategy i
s generally encircled or the element is written in thick letter. 3. Now, the out
comes of A’s third strategy is added to the elements written in the first row belo
w the given matrix and the out come is written against S.No. 2, below the matrix
. Once again in this B selects the best one for him, i.e. (–1) for third strategy.
The elements of third strategy is added and added to the first column written r
ight to the matrix and written against S.No. 2. 4. Continue the procedure until
all the 10 plays are completed. 5. Look at the 6 th play of B (below the matrix)
, we have two elements having the same numerical value i.e. 3. As B is already p
layed third strategy many times, we can give chance to his first strategy. i.e.
Game is to be played judiciously. 6. To find the optimal strategies, let us see
how many times each player has played each of his strategies.Now take A. A has p
layed his first strategy 5 times, second strategy 3 times and his third strategy
2 times. Hence, the optimal strategy is A (5 / 10, 3 / 10, 2 / 10). Similarly,
for B the optimal strategy is B (2 / 10, 1/ 10, 7 / 10).
548
Operations Ressearch
7. To find the values of the game, we can fix the higher and lower limits of val
ue. Take the highest element in the last column i.e. 11 and lowest element, in t
he last row, i.e. 5. Divide these two by 10, i.e. the number of times the game i
s played. Then the value of the game lies between v = 5 / 10 ≤ v ≤ 11 / 10.
Problem 10.36.
Solve the game given below by method of iteration.
B 1 1 A 2 3 5 1 4 3 2 8 –2 2 2 2 3 3 –1 4 0
Solution Given matrix is:
B 1 1 A 2 3 1 2 3 4 5 6 7 8 9 2 5 1 5 6 (7) (8) (9) 14 15 16 17 2 3 4 3 4 7 10 1
3 16 20 23 26 29 3 –1 2 8 (2) 10 18 26 34 36 44 52 60 4 0 –2 2 3 (5) (7) 9 11 (9) (1
1) (13) (15) 1 –1 2 (8) 2 –1 0 (10) 3 1 5 (11) 10 5 5 (23) 0 1 9 4 3 10 (12) 5 5 (15
) 13 Total 6 5 13 (15) 7 5 11 (17) 8 5 9 (19 9 5 7 (21)
10
Total
18
3
32
0
68
0
(17)
7
Optimal strategies: A (0, 1 / 10, 9 / 10), B ( 3 / 10, 0, 0, 7 / 10). Value of t
he game lies between: 0 ≤ v ≤ 23 / 10.
Typical Problems
So far we have solved the problems, where the pay off matrix is given. Sometimes
, we have to construct the payoff matrix, which is a very difficult job. Once th
e pay off matrix is written, solving
Theory of Games or Competitive Stratagies
549
can be done by any one of the suitable methods discussed so far. In the followin
g problems, the pay off matrix is constructed and the students have to solve the
game to get the optimal strategies of the players and the value of the game.
Problem 10.37.
A and B each take out one or two matches and guess how many matches the opponent
has taken. If one of the players guesses correctly then the opponent has to pay
him as many rupees as the sum of the numbers of matches had by both the players
, otherwise the pay out is zero. Write down the pay off matrix and obtain the op
timal strategies for both the players.
Solution
Let A be the guessing fellow or the winner and the player B is the loser. They h
ave two strategies; one to take one matches and the second is to take two matche
s. If both have taken one matches and winning player guesses correctly, then the
opponent has to pay him the sum of rupees equal to the sum of matches. If he gu
esses wrongly the pay out is zero. The pay off matrix is as shown.
B 1 matches 1 matches A 2 matches 0 4 2 2 matches 0
By solving with the formulae of 2 × 2 game, we get, v = 4 / 3, A ( 2 / 3, 1 / 3),
B (2 / 3, 1 / 3)
Problem 10.38.
Two players A and B, without showing each other put on a table a coin of Re.1/
with head or tail up. If the coin shows the same side (both head or both tail),
the player A takes both the coins, otherwise B get them Construct the game and s
olve it.
Solution
If both are heads or tails, A will win the game and he gets Re.1/ + Re.1/ = Rs
.2 / . If the one is head and the other is tail, then B will get Rs.2/ . Therefo
re, the pay of matrix is:
B Head Head A Tail –2 2 2 Tail –2
As the pay of matrix of A is written, A’s outcomes are positive and B’s outcomes are
negative, because B is winning and A is losing. Optimal strategies are: A ( 1 /
2, 1 / 2), B ( 1 / 2, 1 / 2) and value of the game is = 0
550
Operations Ressearch
Problem 10.39.
In a game of matching coins with two players, suppose A wins one unit of vale wh
en there are two heads; wins nothing when there are two tails and loses 1 / 2, u
nit of value when there is one head and one tail. Determine the pay off matrix,
and the optimal strategies for the players.
Solution
A wins one unit of money when there are two heads (H, H), Wins nothing when ther
e are two tails (T, T), loses ½ unit of money when there are two tails (H, T). The
pay of matrix is:
B H H A T –1 / 2 0 1 T –1 / 2
The optimal strategies are: A (1 / 4, 3 / 4), B (1 / 4, 3 / 4), Value of the gam
e is – (1 / 8). B gets always 1 / 8 units of money.
Problem 10.40. Consider a modified form of ‘‘matching coins’’ game. The matching player
is paid Rs. 8/ if the two coins are both heads, and Re.1/ if both are tails. T
he non matching player is paid Rs.3 /when the coins do not match. Given the choi
ce of being the matching or non matching player both, which would you choose and
what would be your strategy. Solution Let A be the matching player. He gets Rs.
8/ when both are heads (H, H), he gets Re. 1 /when both are tails (T, T). The n
on matching player gets Rs. 3/ when there is (H, T) or (T, H). Hence the pay o
ff matrix is:
B H H A T –3 1 8 T 3
The optimal strategies are: A (4 / 15, 11 / 15), B (4 / 15, 11 / 15), and value
of the game is – (1 / 15). Because the non matching player is getting the money,
it is better to be a non matching player.
Problem 10.41.
Consider the two person zero sum game in which each player selects independently
an integer from the set of integers: 1, 2, and 3. The player with the smaller n
umber wins one point unless his
Theory of Games or Competitive Stratagies
551
number is less than his opponents by one unit. When the numbers are equal, there
is no score. Find the optimal strategies of the players.
Solution
B 1 1 A 2 3 0 –1 1 2 1 0 –1 3 1 1 0
Value of the game is v = 0, Optimal strategies of A and B are A (1/3, 1/3, 1/3),
B (1/3, 1/3, 1/3). This type of games is known as symmetric games.
Problem 10.42.
Two children play the following game, named as ‘Scissors, Paper, and Stone’ (S, P, S
t.). Both players simultaneously call one of the three: Scissors, Paper or Stone
. Scissors beat paper as paper can be cut by scissor, Paper beats stone as stone
can be wrapped in paper, and stone beats scissors as stone can blunt the scisso
rs. If both players name the same item, then there is a tie. If there is one poi
nt for win, zero for the tie and –1 for the loss. Form the pay of matrix and write
the optimal strategies.
Solution
If both call same (S, S) or (P, P) or (St, St) the pay out is zero. There is one
point for winning (S, P), (P, St) and (St, S) and –1 point for (S, St), (P, S) an
d (St., P). the pay off matrix is:
B S S A P St 0 –1 1 P 1 0 –1 St –1 1 0
This is also symmetric game. Hence Value = v = 0. Strategies are: A (1/3, 1/3, 1
/3), B (1 / 3, 1 / 3, 1/ 3).
Problem 10. 43.
Party A attacks an object party B defends it. A has two airplanes B has three an
ti aircraft guns. To attack the object, it is enough that one airplane of A brea
ks through B’s defenses. The planes of A can choose any one of the three regions I
, II, and III of space for approaching the object as shown in figure. The party
B can place his guns to defend in any of the regions of space. A gun can only de
fend one particular region and is incapable of engaging a plane approaching the
object form a different region of approach. Each gun is capable of shooting down
only one plane with a probability 1. Party A does not know where the guns are p
laced, party B also does not know how the airplanes approach the object. The pro
blem of A is to attack. The problem of party B is to defend this. Construct the
game and determine best strategies for both the parties.
552
Operations Ressearch
Solution
Strategies of party A are: A1: Send airplanes in two different regions and A2: S
end both airplanes in one region. Strategies of B are: B1 To place three guns in
three different regions. B2To place one gun in one region, two guns in other re
gion, and keep one region undefended. B3 To place all the three guns in only one
region. To analyze the situation: The pay of matrix is of the order 2 × 3 as A ha
s only two strategies and B has three strategies. Now: A1 B1 = a11 = 0, because
the three regions are defended by one gun and hence, probability of hitting the
object = 0. A2 B1 = a21 since one of the two airplanes, which attack the same re
gion is shot down and the other hits the object, hence the probability of attack
ing the object = 1. A1 B2 = a12 = Probability of attacking the object is probabi
lity of the airplanes selecting the undefended region is equals to (1 / 3) + (1
/ 3) = (2 / 3), as in an undefended region, the airplane definitely hit the obje
ct. A2 B2 = a 22 = Probability of sending the airplanes to undefended region or
the region defended by one gun, is (1 / 3) + (1 / 3) = (2 / 3). A1 B3 = a13 = As
all the guns are placed in one region and the two airplanes are sent in two dif
ferent regions, at least one of the planes will definitely go to one of the unde
fended regions. Hence the probability of striking the object is 1. A2 B3 = a23 =
Probability of sending both the planes to any one of the two undefended regions
is (1 / 3) + (1 / 3) = (2 / 3). Hence the required pay off matrix is given by:
B B1 A1 A A2 1 2/3 2/3 0 B2 2/3 B3 1
Theory of Games or Competitive Stratagies
553
B2 is dominating B3 hence the game is reduced to 2 × 2 game.
B B1 A1 A A2 Column Maximum 1 1 2/3 2/3 2/3 0 B2 2/3 Row minimum 0
Optimal strategies are A ( 0, 1), B ( 0, 1, 0) and the value of the game is (2 /
3).
Problem 10.44.
A has two ammunition stores, one of which is twice as valuable as the other. B i
s an attacker, who can destroy an undefended store, but he can only attack one o
f them. A knows that B is about to attack one of the stores but does not know wh
ich one? What should he do? Note that A can successfully defend only one store a
t a time.
Solution
Let us assume the value of the smaller store is 1, and then the value of the big
ger store is 2. By analysis, If both stores survive, A loses nothing i.e. 0 (a11
). If the smaller survives, i.e. larger is destroyed, then A loses 2 (a12). If t
he larger store survives and the smaller is destroyed, A losses 1. Therefore the
pay off matrix of A is
B B1 attack smaller Store A1 defend small Store. A A2 defend larger Store. –1 0 0
B2 Attack larger store –2
Solving the game by formulae, we get A (1 / 3, 2 / 3), v = – (2 / 3)
Problem 10.45.
The game known as ‘The prisoner’s dilemma’. The district authority has two prisoners i
n different cells and knows that both are guilty. To provide the sufficient evid
ence to convict them, he plays a game. He offers them a chance of confessing and
declares that if one confesses and the other refuses to confess, the penalty wi
ll be great particularly for the one who denies the charge say 10 years, whilst
the one who confesses will go free for giving the testimony against the other. B
oth prisoners know that if neither confesses they will both receive at most a mi
nor sentence say 1 year for a technical offence. Also if both confess, they will
get 8 years. What the prisoners do?
554
Operations Ressearch
Solution
Each prisoner’s sentence ( in years) may be represented by the matrix given below:
II Prisoner Denies Denies I Prisoner Confesses 0 go free 8 1 Confesses 10
The game is not a zero sum game as the II prisoner’s matrix is not the negative of
the above matrix as usual the case may be. The following matrix may also repres
ent this sentenced of the two prisoners in order.
II Prisoner Denies Denies I Prisoner Confesses (0, 10) (8, 8) (1, 1) confesses (
10, 0)
We can analyze the game as follows: No doubt when both will study the situation
both will decide to play the first strategy (I, I). But however, with some refle
ction first prisoner may give reasons as follows: If second prisoner plays his f
irst strategy, then he should play second because he can go free. But when the f
irst prisoner plays his second strategy, another prisoner also decided to play h
is second strategy. If both prisoners play their second strategy, both get a sen
tence of 8 years. The pair of strategies (II, II) forms an equilibrium point, be
cause departing from this, neither, without the other doing so, can do better fo
r himself. Therefore, both play the game (II, II)
Bidding Problems
Bidding problems are of two types. They are Open or Auction bids in which two or
more bidders bid on an item of certain value until none is willing to increase
the bid. The last bid is then the winner of the bid. The second one is Closed bi
ds in which each bidder submits his bid in a closed envelop and the envelopes ar
e opened all at one time and the highest (or lowest) bid is accepted. In this ca
se none knows his opponent’s bid.
Problem 10.46.
Two items of worth Rs. 100/ and Rs. 150/ are to be auctioned at a public sale.
There are only two bidders A and B. Bidder A has Rs. 125/ and the bidder B has
Rs. 155/ with him. If each bidder wants to maximize his own return, what shoul
d be his strategy?
Solution
Let each bidder increase the bid successively by λ . At any bid, each p aye has t
he option to inc ease the bid o to eave the opponent s bid stand. If B bids Rs
. x on the fi st item (Rs. 100/- va ue), then A has the fo owing options.
Theo y of Games o Competitive St atagies
555
If A ets B win the fi st item, fo Rs. x/-, then B wi be eft with Rs. (155 – x
) on y fo bidding the second item i.e. he cannot make a bid mo e than Rs. (155 –
x) fo the second item. Thus A wi be positive y ab e to win the second item fo
Rs. (155 – x + λ ). The efo e, A’s gain by a owing B to win the fi st item fo Rs.
x/- wi be Rs. [150 – (155 – x + λ )] = (x – λ – 5). On the othe hand, if A bids Rs. (x +
), fo the fi st item and B ets him to win the bid, then A’s gain wi be Rs. ([1
00 – (x + λ )] = (100 – x – λ ). Now since A wants to maximize his etu n, he shou d bid R
s. (x + λ ) fo the fi st item p ovided (100 – x – λ ) ≥ (x – λ – 5) o x ≤ Rs. 52.50 Thus
d bid fo fi st item unti x ≤ Rs. 52.50. In case x > Rs. 5.50, he shou d a ow B
to win the fi st item. Simi a y, B’s gains in the two a te natives a e: Rs. [150 –
(125 – y) – λ ] and Rs. (100 – y – λ ), whe e y denote A’s bid fo the fi s item. Thus B sh
d bid Rs. (y + λ ) fo the fi st item p ovided: (100 – y – λ ) ≥ [150 – (125 – y) – λ ] o
7.50 Obvious y, A wi win the fist item fo Rs. 37.50 because he can inc ease h
is bid without any oss up to Rs. 52.50, and B wi get the second item fo Rs.
125 – Rs. 37.50 = Rs. 87.50 because a, afte winning the fi st item in Rs. 37.50 c
annot inc ease his bid fo the second item beyond Rs. 87.50. Thus B wi get the
second item fo Rs. 87.50. The efo e A’s gain is Rs. 100 – Rs.37.50 = Rs. 62.50 and
B’s gain is Rs. 250 – Rs. 87.50 = Rs. 62.50.
P ob em 10.47.
Two items of va ues Rs.100/- and Rs. 120 espective y a e to be bid simu taneous
y by two bidde s A and B. Both p aye s intend to devote a ot of sum of Rs. 130
to the two bids. If each uses a minimax c ite ion, find the esu ting bids.
So ution He e the bids a e c osed since they a e to be made simu taneous y. Let
A1 and A2 a e the A’s optimum bids fo the fi st and second items espective y. Ob
vious y, A’s optimum bids a e the ones that fetch the same p ofit to A on both the
items. If p denote the p ofit ea ned by the successfu bid, then, 2p = (100 – A1)
+ (120 – A2) o 2p = 220 – A1 – A2 Since both A and B intend to devote on y Rs. 130/-
fo both the bids, A1 + A2 = Rs. 130/The efo e, 2p = Rs.(220 – 130) = Rs. 90/- o
p = Rs. 45/Now p = 100 – A1 o A1 = 100 – p = 100 – 45 = Rs. 55/A so, p = 120 – A2 o A
2 = 120 – p = 120 – 45 = RS. 75/Thus optimum bids fo A a e Rs. 55/- and Rs. 75/- fo
the fi st and second items espective y. Likewise, optimum bids fo B can be d
ete mined and wi be Rs 55/- and Rs. 75/- espective y fo the two items.
556
Ope ations Ressea ch
n- Pe son Ze o sum games
Wheneve mo e than two pe sons a e invo ved in the game, they a e t eated as if
two coa itions a e fo med by n - pe sons invo ved. The p ope ties of such games
a e va ues of the va ious games between eve y possib e pai of coa itions. Fo e
xamp e, fo a p aye A, B, C, and D the fo owing coa itions can be fo med: A ag
ainst B, C, D; B against A, C, D; C against A, B, D; D against A, B, C; A, B aga
inst C, D; A, C against B, D; A, D against B, C. If the va ue of the games fo B
, C, D coa ition is V, then the va ue of the game fo A is – V, since it is ze o s
um game. Thus in a fou pe son ze o sum game, the e wi be seven va ues o cha
acte istics fo the game, which a e obtained f om the seven diffe ent coa itions
.
P ob em 10. 48.
Find the va ue of the th ee pe son ze o sum game in which p aye A has two choic
es, X1 and X2; p aye B has two choices, Y1, and Y2 and p aye C has two choices
, Z1 and Z2. They pay offs a e as shown be ow:
Choices A X1 X1 X1 X1 X2 X2 X2 X2 B Y1 Y1 Y2 Y2 Y1 Y1 Y2 Y2 C Z1 Z2 Z1 Z2 Z1 Z2
Z1 Z2 A 3 0 0 1 4 –1 1 0 Pay offs. B 2 2 –1 3 –1 1 0 2 C –2 1 4 –1 0 3 2 1
So ution
The e a e th ee possib e coa itions: (1). A against B and C; (2). B against A an
d C and (3). C against A and B. Now we sha so ve the esu ting games.
Theo y of Games o Competitive St atagies
557
1. A against B and C:
B and C Y1 Z1 X1 A X2 Co umn maximum: 4 4 –1 0 1 1 0 1 –1 3 Y1 Z2 0 Y2 Z1 0 Y2 Z2 1
Row minimum 0
The game has sadd e point. Hence A’s best st ategy is X1 and B and C s best combin
ation is Y1 Z2. Va ue of the game fo A = 0, and that of B and C a so equa s to
ze o. 2. B against A and C:
A and C X1 Z 1 Y1 B Y2 Co umn maximum: –1 2 3 3 0 0 2 2 –1 2 X1 Z2 2 X 2 Z1 –1 X2 Z2 1
Row minimum –1
Game has no sadd e point. Fi st and thi d co umns dominate second and fou th co
umns espective y hence dominated co umns a e cance ed. The educed mat ix is:
A and C X1 Z 1 Y1 B Y2 Oddments: P obabi ity –1 1 1/4 0 3 3/4 3 3/4 2 X 2 Z1 –1 Oddm
ents. 1 P obabi ities. 1/4
By so ving the method of oddments, B’s best st ategy is Y1 with a p obabi ity of 1
/ 4 and choice Y2 with a p obabi ity of 3 / 4. Now A and C has to p ay X1 and Z
1 with a p obabi ity of 1 / 4 and X2 and Z1 with a p obabi ity of 3 / 4.
558
Ope ations Ressea ch
Va ue of game fo B = [(2 / 4) – (3 / 4)] / [(1 / 4 + (3 / 4)] = – (1 / 4) Va ue of
game fo A and C is (1 / 4) 3. C against A and B. Pay of mat ix is:
A and B X 1 Y1 Z1 C Z2 Co umn Maximum: 1 1 –1 4 3 3 1 2 –1 –2 X1 Y 2 4 X 2 Y1 0 X2 Y 2
2 Row minimum –2
The game has no sadd e point. Fi st co umn dominates thi d and fou th co umn. He
nce the educed mat ix is:
A and B X 1 Y1 Z1 C Z2 Oddment P obabi ity. 1 5 5/8 –1 3 3/8 6 6/8 –2 X 1 Y2 4 oddme
nt 2 P obabi ity 2/8
C s best st ategy is to p ay (Z1, Z2) = [(2 / 8), (6 / 8)] Fo A and B = (X1 Y1,
X1 Y2) = [(5 / 8), (3 / 8)] Va ue of the game fo C = [–(10 / 8) + (12 / 8)] / [(
5 / 8) + (3 / 8)] = (2 / 8) / 1 = (1 / 4) Va ue of the game fo A and B is – (1 /
4) as this is a ze o sum game. The efo e, the cha acte istics of the game a e: V
(A) = 0, V (B) = – (1 / 4), V (C) = (1 / 4) and V (B, C) = 0, V (A, C) = (1 / 4).
V (A, B) = – (1 / 4)
QUESTIONS
1. What a e competitive situations? Exp ain with the he p of an examp e. 2. What
is a business game? En ist the p ope ties of the game. What assumptions a e mad
e in game theo y? 3. Exp ain Maximin and Minimax p incip e with espect to game
theo y. 4. By means of an examp e, exp ain what do you mean by Two Pe son Ze o S
um game. 5. So ve the fo owing game, whose pay of mat ix is:
Theo y of Games o Competitive St atagies
559
B I I A II III –2 –5 –5 II 15 –6 20 III –2 –4 –8
6. So ve the game whose pay of mat ix is:
B I I A II III IV 3 2 4 0 II 2 4 2 4 III 4 2 4 0 IV 0 4 0 8
7. Exp ain the theo y of Dominance in so ving a given game.
8. Exp ain the g aphica method of so ving a game. 9. So ve the fo owing game:
B 1 1 A 2 –2 4 –3 1 0 2 2 –1 3 5 4 –2 5 6
10. In a sma town, the e a e two discount sto es ABC and XYZ. They a e the on
y sto es that hand e Sunday goods. The tota numbe of custome s is equa y divi
ded between the two; because the p ice and qua ity a e equa . Both sto es have g
ood eputations in the community, and they ende equa y good custome se vice.
Assume that a gain custome by ABC is a oss to XYZ and vice ve sa. Both sto es
p an to un annua p e Diwa i sa es du ing the fi st week of the month in which
Diwa i fa s. Sa es a e adve tised th ough oca newspape , adio and te evisio
n media. With aid of an adve tising fi m ABC Sto e const ucted the game mat ix g
iven be ow, which gives the gain and oss to each custome . Find the optima st
ategies of the sto es.
560
Ope ations Ressea ch
XYZ Newspape Newspape ABC Radio Te evision. 30 0 90 Radio 40 15 20 te evision.
–80 –20 50
11. P aye s A and B p ay the fo owing game. A has a bag containing th ee coins,
one wo th 4 units, one 6 units and the est 9 units of money. A takes one coin
f om the bag and befo e exposu e B guesses. If B is ight he takes the coin and
if w ong he pays to A the same wo th money to A. Find the optima st ategies of A
and B and the va ue of the game.
Game Theo y: MULTIPLE CHOICE QUESTIONS
1. If the va ue of the game is ze o, then the game is known as: (a) Fai st ateg
y (b) Pu e st ategy (c) Pu e game (d) Mixed st ategy. ( ) 2. The games with sadd
e points a e: (a) P obabi istic in natu e, (b) No mative in natu e (c) Stochast
ic in natu e, (d) Dete ministic in natu e. ( ) 3. When Minimax and Maximin c ite
ia matches, then (a) Fai game is exists. (b) Unfai game is exists, (c) Mixed
st ategy exists (d) Sadd e point exists. ( ) 4. When the game is p ayed on a p e
dete mined cou se of action, which does not change th oughout game, then the gam
e is said to be (a) Pu e st ategy game, (b) Fai st ategy game (c) Mixed st ateg
y game (d) Unsteady game. ( ) 5. If the osses of p aye A a e the gins of the p
aye B, then the game is known as: (a) Fai game (b) Unfai game (c) Non- ze o
sum game (d) Ze o sum game. ( ) 6. Identify the w ong statement: (a) Game withou
t sadd e point is p obabi istic (b) Game with sadd e point wi have pu e st ate
gies (c) Game with sadd e point cannot be so ved by dominance u e. (d) Game wit
hout sadd e point uses mixed st ategies, ( ) 7. In a two pe son ze o sum game, t
he fo owing does not ho d co ect: (a) Row p aye is a ways a ose ; (b) Co umn
P aye is a ways a winne . (c) Co umn p aye a ways minimizes osses (d) If one
oses, the othe gains. ( ) 8. If a two pe son ze o sum game is conve ted to a
Linea P og amming P ob em, (a) Numbe of va iab es must be two on y, (b) The e
wi be no objective function, (c) If ow p aye ep esents P ima p ob em, Co u
mn p aye ep esent Dua p ob em, (d) Numbe of const aints is two on y. ( )
Theo y of Games o Competitive St atagies
561
9. In case, the e is no sadd e point in a game then the game is (a) Dete ministi
c game, (b) Fai game, (c) Mixed st ategy game, (d) Mu ti p aye game. ( ) 10. W
hen the e is dominance in a game then (a) Least of the ow ≥ highest of anothe o
w (b) Least of the ow ≤ highest of anothe ow (c) Eve y e ement of a ow ≥ co esp
onding e ement of anothe ow. (d) Eve y e ement of the ow ≤ co esponding e emen
t of anothe ow. ( ) 11. When the game is not having a sadd e point, then the f
o owing method is used to so ve the game: (a) Linea P og amming method, (b) Mi
nimax and maximin c ite ia (c) A geb aic method (d) G aphica method. ( ) 12. Co
nside the mat ix given, which is a pay off mat ix of a game. Identify the domin
ance in it.
B X P A Q R 1 5 7 Y 7 6 2 Z 3 4 0
(a) P dominates Q (b) Y dominates Z (c) Q dominates R (d) Z dominates Y 13. Iden
tify the unfai game: C D C D (a) A 0 0 (b) A 1 –1 B 0 0 B –1 1 C D C D (c) A –5 +5 (d
) A 1 0 B + 10 – 10 B 0 1 14. If the e a e mo e than two pe sons in a game then th
e game is known as: (a) Non ze o sum game (b) Open game (c) Mu tip aye game (d)
Big game 15. Fo the pay of mat ix the p aye A a ways uses:
B I I A II 10 5 –5 II –2
( )
( )
( )
(a) Fi st st ategy (c) Does not p ay game
(b) Mixed st ategy of both II and I (d) Second st ategy.
( )
562
Ope ations Ressea ch
16. Fo the pay off mat ix the p aye p efe s to p ay
B I I A II –10 8 –7 II 6
(a) Second st ategy (c) Keep quite 17. Fo the game given the va ue is:
B I 1 A II –5 2
(b) Fi st st ategy (c) Mixed st ategy.
( )
II 3
5
(a) 3, (c) 5 19. In the game given the sadd e point is:
B I I A II III 2 0 3 II –4 –3 –5
(b) –5 (d) 2
( )
III 6 –2 4
(a) –2
(b) 0 ( )
(c) –3 (d) 2 20. A competitive situation is known as: (a) Competition (b) Ma ketin
g (c) Game (d) None of the above. 21. One of the assumptions in the game theo y
is: (a) A p aye s act ationa y and inte igent y, (b) Winne a one acts ati
ona y (c) Lose acts inte igent y, (d) Both the p aye s be ieve uck
( )
( )
Theo y of Games o Competitive St atagies
563
22. A p ay is p ayed when: (a) The manage gives g een signa (b) Each p aye ch
ooses one of his cou ses of action simu taneous y (c) The p aye who comes to th
e p ace fi st says that he wi sta t the game (d) When the atecome says that
he sta ts the game. 23. The ist of cou ses of action with each p aye …………… (a) Is finite
(b) Numbe of st ategies with each p aye must be same (c) Numbe of st ategies
with each p aye need not be same (d) None of the above. 24. A game invo ving ‘n’ p
e sons is known as: (a) Mu ti membe game (b) Mu ti p aye game (c) n - pe son g
ame (d) not a game. 25. Theo y of games and economic behavio is pub ished by: (
a) John Von Neumann and Mo genste n (b) John F ood (c) Be man and Neumann (d) M
. E ang, 26. In the mat ix of a game given be ow the negative ent ies a e: B
I I A II –1 1 1 II –1
( )
( )
( )
( )
(a) Payments f om A to B (c) Payment f om p aye s to o ganize s
(b) Payments f om B to A (d) Payment to p aye s f om o ganize s. (
)
ANSWERS
1. (c) 5. (d) 9. (c) 13. (d) 17. (d) 21. (a) 25. (a) 2. (d) 6. (c) 10. (d) 14. (
c) 18. (c) 22. (b) 26. (a) 3. (d) 7. (a) 11. (b) 15. (d) 19. (c) 23. (c) 4. (a)
8. (c) 12. (d) 16. (b) 20. (c) 24. (c)
CHAPTER – 11
Dynamic P og amming
11.1. INTRODUCTION
In p evious chapte s, we have seen how to so ve the p ob ems, whe e decision is
made in sing e stage, i.e. one time pe iod. But we may come ac oss situations, w
he e we may have to make decision in mu tistage, i.e. optimization of mu tistage
decision p ob ems. Dynamic p og amming is a technique fo getting so utions fo
mu tistage decision p ob ems. A p ob em, in which the decision has to be made a
t successive stages, is ca ed a mu tistage decision p ob em. In this case, the
p ob em so ve wi take decision at eve y stage, so that the tota effectivenes
s defined ove a the stages is optima . He e the o igina p ob em is b oken do
wn o decomposed into sma p ob ems, which a e known as sub p ob ems o stages
which is much convenient to hand e and to find the optima stage. Fo examp e, c
onside the p ob em of a sa es manage , who wants to sta t f om his head office
and tou va ious b anches of the company and each the ast b anch. He has to p
an his tou in such a way that he has to visit mo e numbe of b anches and cove
ess distance as fa as possib e. He has to divide the netwo k of the oute con
necting a the b anches into va ious stages and wo kout, which is the best out
e, which wi he p him to cove mo e b anches and ess distance. We can give p e
nty of business examp es, which a e mu tistage decision p ob ems. The technique
of Dynamic p og amming was deve oped by Richa d Be man in the ea y 1950. The c
omputationa technique used is known as Dynamic P og amming o Recu sive Optimiz
ation. We do not have a standa d mathematica fo mu ation of the Dynamic P og am
ming P ob em (D.P.P). Fo each p ob em, depending on the va iab es given, and ob
jective of the p ob em, one has to deve op a pa ticu a equation to fit fo situ
ation. Though we have quite good numbe of dynamic p og amming p ob ems, sometim
es to take advantage of dynamic p og amming, we int oduce mu tistage natu e in t
he p ob em and so ve it by dynamic p og amming technique. Nowadays, app ication
of Dynamic P og amming is done in a most a day to day manage ia p ob ems, suc
h as, invento y p ob ems, waiting ine p ob ems, esou ce a ocation p ob ems et
c. Dynamic p og amming p ob em may be c assified depending on the fo owing cond
itions. (i) Dynamic p og amming p ob ems may be c assified depending on the natu
e of data avai ab e as Dete ministic and Stochastic o P obabi istic mode s. In
dete ministic mode s, the outcome at any decision stage is unique, dete mined a
nd known. In P obabi istic mode s, the e is a set of possib e outcomes with some
p obabi ity dist ibution. (ii) The possib e decisions at any stage, f om which
we a e to choose one, a e ca ed ‘states’. These may be finite o infinite. States a
e the possib e situations in which the system may be at any stage.
Dynamic P og amming
565
(iii) Tota numbe of stages in the p ocess may be finite o infinite and may be
known o unknown. Now et us t y to unde stand ce tain te ms, which we come ac
oss ve y often in this chapte . Stage: A stage signifies a po tion of the tota
p ob em fo which a decision can be taken. At each stage the e a e a numbe of a
te natives, and the best out of those is ca ed stage decision, which may be op
tima fo that stage, but cont ibutes to obtain the optima decision po icy. Sta
te: The condition of the decision p ocess at a stage is ca ed its state. The va
iab es, which specify the condition of the decision p ocess, i.e. desc ibes the
status of the system at a pa ticu a stage a e ca ed state va iab es. The numb
e of state va iab es shou d be as sma as possib e, since a ge the numbe of
the state va iab es, mo e comp icated is the decision p ocess. Po icy: A u e,
which dete mines the decision at each stage, is known as Po icy. A po icy is opt
ima one, if the decision is made at each stage in a way that the esu t of the
decision is optima ove a the stages and not on y fo the cu ent stage. P in
cip e of Optima ity: Be man’s P incip e of optima ity states that ‘‘An optima po icy
(a sequence of decisions) has the p ope ty that whateve the initia state and
decision a e, the emaining decisions must constitute an optima po icy with eg
a d to the state esu ting f om the fi st decision.’’ This p incip e imp ies that a
w ong decision taken at a stage does not p event f om taking optima decision fo
the eaming stages. This p incip e is the fi m base fo dynamic p og amming te
chnique. In the ight of this, we can w ite a ecu ence e ation, which enab es
us to take the optima decision at each stage. Steps in getting the so ution fo
dynamic p og amming p ob em: • Mathematica fo mu ation of the p ob em and to w
ite the ecu sive equation ( ecu sive e ation connecting the optima decision f
unction fo the ‘n’ stage p ob em with the optima decision function fo the (n – 1) s
tage subp ob ems). • To w ite the e ation giving the optima decision function fo
one stage subp ob em and so ve it. • To so ve the optima decision function fo
2-stage, 3-stage ……….. (n – 1) stage and then n-stage p ob em.
11.2. COMPUTATIONAL PROCEDURE IN DYNAMIC PROGRAMMING
Disc ete o Continuous systems: The e a e two ways of so ving (computationa p o
cedu e) ecu sive equations depending on the type of the system. If the system i
s continuous one the p ocedu e is diffe ent and if the system is disc ete, we us
e a diffe ent method of computation. If the system is disc ete, a tabu a comput
ationa scheme is fo owed at each stage. The numbe of ows in each tab e is eq
ua to the numbe of co esponding feasib e state va ues and the numbe of co um
ns is equa to the numbe of possib e decisions. In case of continuous system, t
he optima decision at each stage is obtained by using the usua c assica techn
ique such as diffe entiation etc. • Fo wa d and Backwa d Equations: If the e a e ‘n’ s
tages, and ecu sive equations fo each stage is f1, f2 ……fn and if they a e so ved
in the o de f1 to fn and optima etu n fo f1 is 1 and that of f2 is 2 and s
o on, then the method of ca cu ation is known as fo wa d computationa p ocedu e
.
566
Ope ations Resea ch
• On the othe hand, if they a e so ved in the o de f om fn, fn-1, ….. f1, then the
method is te med as backwa d computationa p ocedu e. (e.g. So ution to L.P.P.
by dynamic p og amming).
The A go ithm
• Identify the decision va iab es and specify objective function to be optimized u
nde ce tain imitations, if any. • Decompose o divide the given p ob em into a n
umbe of sma e sub-p ob ems o stages. Identify the state va iab es at each st
age and w ite down the t ansfo mation function as a function of the state va iab
e and decision va iab es at the next stage. • W ite down the gene a ecu sive e
ationship fo computing the optima po icy. Decide whethe fo wa d o backwa d
method is to fo ow to so ve the p ob em. • Const uct app op iate stage to show th
e equi ed va ues of the etu n function at each stage. • Dete mine the ove a op
tima po icy o decisions and its va ue at each stage. The e may be mo e than on
e such optima po icy.
11.3. CHARACTERISTICS OF DYNAMIC PROGRAMMING
The basic featu es, which cha acte ize the dynamic p og amming p ob em, a e as f
o ows: (i) P ob em can be sub-divided into stages with a po icy decision equi
ed at each stage. A stage is a device to sequence the decisions. That is, it dec
omposes a p ob em into sub-p ob ems such that an optima so ution to the p ob em
can be obtained f om the optima so ution to the sub-p ob em. (ii) Eve y stage
consists of a numbe of states associated with it. The states a e the diffe ent
possib e conditions in which the system may find itse f at that stage of the p o
b em. (iii) Decision at each stage conve ts the cu ent stage into state associa
ted with the next stage. (iv) The state of the system at a stage is desc ibed by
a set of va iab es, ca ed state va iab es. (v) When the cu ent state is known
, an optima po icy fo the emaining stages is independent of the po icy of the
p evious ones. (vi) To identify the optimum po icy fo each state of the system
, a ecu sive equation is fo mu ated with ‘n’ stages emaining, given the optima po
icy fo each stage with (n – 1) stages eft. (vii) Using ecu sive equation app o
ach each time the so ution p ocedu e moves backwa d, stage by stage fo obtainin
g the optimum po icy of each stage fo that pa ticu a stage, sti it attains t
he optimum po icy beginning at the initia stage.
11.4. PROBLEMS P ob em 11.1. (P oduct a ocation p ob em)
A company has 8 sa esmen, who have to be a ocated to fou ma keting zones. The
etu n of p ofit f om each zone depends upon the numbe of sa esmen wo king that
zone. The expected etu ns fo diffe ent numbe of sa esmen in diffe ent zones,
as estimated f om the past eco ds, a e given be ow. Dete mine the optima a o
cation po icy.
Dynamic P og amming
567
SALES No. of . Sa esmen 0 1 2 3 4 Zone 1 45 58 70 82 93
MARKETING IN Zone 2 30 45 60 70 79
ZONES Rs. X 000 Zone 3 35 45 52 64 72 Zone 4 42 54 60 70 82
5 6 7 8
101 108 113 118
90 98 105 110
82 93 98 100
95 102 110 110
So ution
The p ob em he e is how many sa esmen a e to be a ocated to each zone to maximi
ze the tota etu n. In this p ob em each zone can be conside ed as a stage, num
be of sa esmen in each stage as decision va iab es. Numbe of sa esmen avai ab
e fo a ocation at a stage is the state va iab e of the p ob em.
He e et us conside the fi st stage (zone 1) and add to it the second stage (zo
ne 2) and see what wi be the optima etu n and optima a ocation. Remembe ,
that a ocation of sa esmen fo each zone may be 0, 1, 2, …and 8. See the tab e be
ow to unde stand how we can a ocate sa esmen between zones 1 and 2. In this p
ob em, decision po icy equi es making fou inte e ated decisions. What shou d
be the numbe of sa esmen in each of the fou ma keting zones? If x1, x2, x3 and
x4 a e the numbe of sa esmen a ocated to the fou zones and f1 (x1),……..f4 (x4) a
e espective y the etu ns f om the fou zones, then the objective function is
Maximize Z = f1 (x1) + f2 (x2) + f3 (x3) + f4 (x4) Subject to: x1 + x2 + x3 + x4
≤ 8 and x1, x2, x3 and x4 a e non-negative intege s.
O can be w itten as: Maximize Z =
No. of Sa esmen in zone 1. No. of Sa esmen in zone 2. 0 8
∑
i =1
4
f i ( xi ) s.t.
2 6
∑x
i =1
4
i
= 8 whe e a xi a e nonnegative intege s.
4 4 5 3 6 2 7 1 8 0
1 7
3 5
568
Ope ations Resea ch
Const uct a tab e to ca cu ate the etu n f om the above combination.
○ ○ ○ ○ ○ ○ ○ ○
Zon 1 Salsmn Rturn Zon 2 Salsmn Rturn 0 1 2 3 4 5 6 7 8
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
○
○
○
○
○
○
○
○
0 45
1 58
2 70
3 82
4 93
5 101
6 108
7 113
8 118
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○ ○ ○ ○ ○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
30 45 60 70 79 90 98 105 110
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
75 90 105 115 124 135 143 150 155
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
88 103 118 128 137 148 156 163
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
100 115 130 140 149 160 168
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
112 127 142 152 161 172
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
123 138 153 163 172
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
141 146 161 171
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
138 153 168
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
143 158
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
148
○ ○ ○ ○ ○ ○ ○ ○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Procdur: If w want to allocat zro salsmn, thn zro to zon 1 and zro to
zon 2 and th total outcom is 30 + 45 = Rs. 75 × 1000. This is writtn in th t
abl whr lins from zro from zon 1 and zon 2 intrsct. As this is th only
ntry in th diagonal lin it is mad bold. Whn company wants to allocat 1 sa
lsman to two zons, th allocation is zro to zon 1 and 1 to zon 2 or 1 to zo
n 1 and zro to zon 2. Th outcoms ar ntrd whr th horizontals from zon
2 and vrticals from zon 1 intrsct. Highr numbr is writtn in bold numbr
s. In this xampl, th outcoms ar 90 and 88, 90 is writtn in bold. Similarly
w hav to allocat 8 salsmn and writ th outcoms and bold th highst outc
om in th diagonal. Somtims, it may happn that thr may b two or mor sam
numbrs indicating highst outcom. All ths ar writtn in bold lttr. (Not
: Instad on writing highst in bold lttr, w can ncircl th lmnt or ncl
os it in a squar or suprscrib with a star.) Now lt us writ th outcoms b
low:
Numbr of salsmn. Zon 1 Zon 2 Outcom in Rs. × 1000 0 0 0 75 1 0 1 90 2 0 2 10
5 3 1 2 118 4 2 2 130 5 3 2 142 6 4 2
153 7 4 3 162 8 4 4 172 3 5 172
Now in th scond stag, lt us combin zon 3 and zon 4 and gt th total mark
t rturns.
○
○
○
○ ○ ○ ○ ○ ○ ○ ○ ○
○ ○ ○ ○ ○ ○ ○ ○ ○
○ ○ ○ ○ ○ ○ ○ ○ ○
○ ○ ○ ○ ○ ○ ○ ○ ○
○ ○ ○ ○ ○ ○ ○ ○ ○
○ ○ ○ ○ ○ ○ ○ ○ ○
○ ○ ○ ○ ○ ○ ○ ○ ○
○ ○ ○ ○ ○ ○ ○ ○ ○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○ ○ ○ ○ ○ ○
○ ○ ○ ○ ○ ○
○ ○ ○ ○ ○ ○
○ ○ ○ ○ ○ ○
○ ○ ○ ○ ○
○ ○ ○ ○ ○
○ ○ ○ ○ ○
○ ○ ○ ○ ○
○ ○ ○ ○
○ ○ ○ ○
○ ○ ○ ○
○ ○ ○ ○
○ ○ ○
○ ○ ○
○ ○ ○
○ ○ ○
○ ○
○ ○
○ ○
○ ○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○ ○ ○ ○ ○
○
○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○
○ ○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○ ○
○
○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○
○ ○
○
○
○
○
○
○
○
○
○
○
○
○
○
○ ○
○
○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○
○ ○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○ ○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
○
Dynamic Programming
8
7
6
5
4
3
2
8( 3,5)
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
7(1,6)
6(1,5)
5(5,0)
4 (3,1)
3(2,1)
2(1,1)
1(1,0)
0(0,0)
Zons 3 & 4 Salsmn Rturn.
Rturn.
Zons 1& 2 Salsmn
Zons 1 and 2 and zons 3 and 4 combind.
1
0
Salsmn Rturn.
Zon 4
Rturn.
Zon 3 Salsmn
( 2,5)
○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○
In third stag w combin both zons 1 & 2 outcoms and zons 3 and 4 outcoms.
Rturn in Rs. × 1000
Zon 4
Zon 3
Numbr of Salsmn
Now th tabl blow shows th allocation and th outcoms for zon 3 and zon 4.
Solution Lt th four stors b considrd as four stags in dynamic programming
formulation. Th dcision variabls xi (i = 1, 2, 3 and 4) dnot th numbr of
crats allocatd to th i th stag. Lt f (xi) b th xpctd profit from allo
cation of xi crats to th stor ‘i’, thn th problm is: Maximiz Z = f1 (x1) + f2
(x2) + f3 (x3) + f4 (x4) subjct to x1 + x2 + x3 + x4 = 6 and all xi ≥ 0
Dynamic Programming
571
Stor 3 Stor 4
No. of crats Profit. No. of crats 0 1 2 3 4 5 6 Profit. 0 2 3 4 4 4 4 0 2 3 4
4 4 4 6 3 9 10 10 10 8 10 11 12 12 8 10 11 12 8 10 11 8 10 8 0 0 1 6 2 8 3 8 4 8
5 8 6 8
Allocation for th first stag:
No. of crats Stor 3 Stor 4 Profit 0 0 0 0 1 1 0 6 2 2 0 8 3 2 1 10 4 2 2 11 5
2 3 12 6 3 3 12 2 4
Stor 2
Stor 1
No. of crats Profit No. of crats 0 1 2 3 4 5 6 No. of crats 0 Stor 1 Stor 2
Profit. 0 0 0 Profit 0 2 4 6 8 9 10 1 1 0 4 0 2 4 6 8 9 10 2 2 0 6 1 1 6 3 2 1
8 1 2 8 4 2 2 10 1 3 10 5 2 3 12 1 4 12 6 2 4 14 4 6 8 10 12 13 6 8 10 12 14 7 9
11 12 7 9 11 7 9 7 0 0 1 4 2 6 3 7 4 7 5 7 6 7
572
Oprations Rsarch
Stors 3 & 4 Stors 1 & 2
No. of crats Profit No. of crats 0 (0, 0) 1 (1, 0) 2 (2, 0), (1, 1) 3 (2, 1),
(1, 2) 4 (2,2), (1, 3) 5(2, 3), (1, 4) 6 (2, 4) Profit 0 4 6 8 10 12 14 0 4 6 8
10 12 14 6 10 12 14 16 18 8 12 14 16 18 10 14 16 18 11 15 17 12 16 12 0 0, 0 0 1
1, 0 6 2 2, 0 8 3 2, 1 10 4 2,2 11 5 2, 3 12 6 3 12 2
All th four stors combind at 3 rd stag.
No. of crats Stor 1 Stor 2 Stor 3 Stor 4 Profit. 0 0 1 2 3 2 0 1 0 6 10 12
1 1 1 0 1 0 2 0 4 2 1 1 0 14 1 2 1 0 2 0 2 0 1 1 2 0 1 0 2 1 5 2 2 1 0 16 1 3 1
0 2 1 2 0 1 2 2 0 2 0 2 1 1 1 2 1 6 2 3 1 0 18 1 4 1 0 2 2 2 0 1 3 2 0 2 1 2 1 1
2 2 1
Maximum profit is Rs. 18/-
Problm 11.3. (Cargo load problm)
A vssl is to b loadd with stocks of 3 itms. Each itm ‘i’ has a wight of wi an
d a valu of vi. Th maximum cargo wight th vssl can tak is 5 and th dtai
ls of th thr itms art as follows:
j 1 2 3 wj 1 3 2 vj 30 80 65
Dvlop th rcursiv quation for th abov cas and find th most valuabl car
go load without xcding th maximum cargo wight by using dynamic programming.
Solution
Lt us rprsnt th thr itms as xj ( j = 1, 2, 3) and w hav to tak dcisi
on how much of ach itm is to b loadd into th vssl to fulfil th objctiv
. Lt fj (xj) is th valu of optimal allocation for
Dynamic Programming
573
th thr itms, and if fj (s, xj) is th valu associatd with th optimum solu
tion f j* (s) for (j = 1, 2 and 3) thn th objctiv function is:
f j* (s) = Max f1 (s, xj) and
0 ≤ xj ≤ s
f j* (s) = Max [pj(xj) + f j*−1 (s – xj), for j = 1, 2, 3 and pj (xj) is the expecte
d value obtained form
allocation of xj units of weight to the item ‘j’. As there are three items this is a
three stage problem. First let us allocate the item number 1 and see what is th
e outcome. For the first stage, i.e. loading one item in the cargo we have: f1*
(s) =
Max [30x1]
Now as the weight value of item number 1 is 1 (= w1) only and the maximum load (
W) that can be loaded is 5 the largest value of item number one that can be load
ed is = W/w1 = 5/1 = 5. The tabular computation for stage 1 is: Optimum Soln.
x1 s 0 1 2 3 4 5 0 0 0 0 0 0 0 30 30 30 30 30 60 60 60 60 90 90 90 120 120 150 1
2 3 4 5
x1
f1* (s)
0 30 60 90 120 150
* x1
0 1 2 3 4 5
The entries in the above table are obtained as follows: As the five items can be
loaded as W/w1 = 5, when load is zero the value is 30 × 0 = 0, when load is 1, va
lue 30 × 1 = 30 and so on. The maximum in the row is written in 8th column, i.e. 0
, 30, 60, ….., 150. And the load for that weight is written in the last column. Si
milarly we can write for item number 2.
f2* (s) = Max [80 x2 + f1 (s – 3 x2) as the weight of item 2 is 3.
x2
Specimen calculations: For zero load: [80 × 0 + f1 (0 + 3 × 0) = 0 For load 1: [80 +
0] = 80 The load of item 2 that can be loaded is W/w2 = 5/3 = 1. Hence in the t
able for x2 only 0 and 1 are shown.
574
Operations Research
Value of 80 x2 + f1* (s – 3x2) Optimum
x2 s 0 1 2 3 4 5 0 0+0=0 0 + 30 = 30 0 + 60 = 60 0 + 90 = 90 0 + 120 = 120 0 = 1
50 = 150 80 + 0 = 80 80 + 30 = 110 80 + 60 = 140 1
Soln.
* x2
f2* (s)
0 30 60 90 120 150
0 0 0 0 0 0
As all the maximum values are due to item number 1, the item number 2 is not loa
ded into the cargo. Hence here x2 = 0. For stage 3, the items that can be loaded
into cargo is S/w3 = 5/2 = 2. Hence 0, 1, 2 are shown in the table.
f3* = Max [65x3 + f2* (s – 2x3)
Optimum Solution.
x3 s 0 1 2 3 4 5 0+0=0 0 + 30 = 30 0 + 60 = 60 0 + 90 = 90 0 + 120 = 120 0 + 150
= 150 65 + 0 = 65 65 + 35 = 95 65 + 60 = 125 65 + 90 = 155 130 + 0 = 130 130 +
30 = 160 0 1 2
f3* (s)
0 30 65 95 130 160
* x3
0 0 1 1 2 2
In the above table, x1 = 1, x2 = 0 and x3 = 2 and the maximum value is 160, ther
efore answer is: x*1 = 1, x*3 = 2 and f *3 = 160. This problem may be done in an
other way as shown below:
Method 2
Maximize 30x1 + 80x2 + 65x3 s.t. 1x1 + 3x2 + 2x3 ≤ 5 and all xis are ≥ 0. And maximu
m number (= W/w) of each item is x1 = 5/1 = 5, x2 = 5/3 = 1 and x3 = 5/2 = 2 whe
re 5 = maximum load (W) and denominators are item load (w).
Dynamic Programming
575
First let us load item x1 and item x2
w2 x2 v2 w1 x1 v1 0 3 0 1 0 80 0 0 0 (0) 0 80 (3) 1 1 30 (1) 30 110 (4) 2 2 60 6
0 140 (5) 3 3 90 (3) 90 4 4 120 120 (4) 5 5 150 150 (5)
Now we have maximum value for combination of x1 and x2. For this let us add x3.
In the above table, for x1 = 0 and x2 = 0 the weight is zero and value is zero s
hown in block letter. When x1 = 1 and x2 = 0, the value is 30 shown in block let
ter. Similarly for weights 3, 4, and 5 are shown in brackets and the maximum of
the value is shown in block letter. Combination of x1, x2 with x3.
w 12 x1 x2 v 12 w3 0 2 4 x3 0 1 2 v3 0 65 130 0(0) 65 (2) 130 (4) 30 160 (5) 60
90 155 (5) 120 150 95 (3) 125 (4) 0 0 0 1 1 30 2 2 60 3 3 90 4 4 120 5 5 150
From the table, x1 = 1, x2 = 0 and x3 = 2 substituting in inequalities, we get 3
0 × 1 + 80 × 0 + 65 × 2 = 160 and 1 × 1 + 3 × 0 + 2 × 2 = 5. The condition required is sati
fied.
Problem 11.4
In a cargo loading problem, there are four items of different weight per unit an
d value as shown below. The maximum cargo load is restricted to 17 units. How ma
ny units of each item is loaded to maximize the value?
Item (i) 1 2 3 4 Weight (w 1) 1 3 4 6 Value (v 1 ) 1 5 7 11
Solution
Let x1, x2, x3 and x4 be the items loaded then we have to maximize sum of xi vi,
i.e. Maximize Z = a1 x1 + a2 x2 + a2 x3 + a4 x4 s.t. a1 x1 + a2 x2 + a2 x3 + a4
x4 ≤ 17 and all ai are ≥ 0. For item number 1f1 (x1) = Max [a1 v1] where the value
of a1 may be anything between maximum weight (W) allowed divided by item weight
(w). Here W/w = 17/1 = 17. For item number 2, f2 (x2) = Max [a2 v2 + f1 (x2 – a2 w
2)] For item number 3, f3 (x3) = Max [a3 v 3 + f2 ( x3 – a3 w3)] For item number 4
, f4 (x4) = Max [ a4 v4 + f3 ( x4 – a4 w4)]
576
Operations Research
In general, for item ‘i’ fi (xi) = Max. [av + fi – 1 (xi – ai wi) is the recursive equat
ion. In the given problem the recursive equations are: 1. x1v1 2. 5x2 + f 1 (x2 –
3x2) 3. 7x3 + f 2 (x3 – 4x3 ) 4. 11x4 + f3 (x4 – 6x4) Substituting the value stage b
y stage, the values are tabulated in the table given below: (Remember as there a
re 4 items, this is a 4 stage problem.
xi Stage 1 w1 = 1 x1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 0 1 2 3 4 5 6 7
8 9 10 11 12 13 14 15 16 17 = x 1v v1 = 1 f1 (x1) 0 1 2 3 4 5 6 7 8 9 10 11 12
13 14 15 16 17 Stage 2 w2 = 3 x
2
= 5 x2 + f 1(x 2–3x 2 ) v2 = 5 f2 (x2)
Stage 3 w3 = 4 x3 0 0 0
= 7x3 + f2(x3 – 4x3) v3 = 7 f (x3)
Stage 4 w4 = 6 x4 0 0 0 0
= 11x4 + f3(x4 – 6x4) v4 = 11 f4 (x4) 0 1 2 5 7 8 11 + 0 = 11 11 + 1 = 12 11 + 2 =
13 11 + 5 = 16 11 + 7 = 18 11 + 8 = 19 22 + 0 = 22 22 + 1 = 23 22 + 2 = 24 22 +
5 = 27 22 + 7 = 29 22 + 8 = 30 11 12 14 16 18 19 22 23 24 27 29 30
FI* (xI)
0 0 0 1 1 1
2 2 2 3 3 3 4 4 4 5 5 5 5+0=5 5+1=6 5+2=7 10 + 0 = 10 1 0 + 1 = 11
10 + 2 = 12 15 + 0 = 15 15 + 1 = 16 15 + 2 = 17 20 + 0 = 20 20 + 1 = 21 20 + 2 =
22 25 + 0 = 25 25 + 1 = 26 25 + 2 = 27
0 1 1 1 1 2 2 2 2 3 3 3 3 4 4 7+0=7 7+1=8 7+2=9 7 + 5 = 12 14 + 0 = 14 14 = 1 =
15 14 + 2 = 16 14 + 5 = 19 21 + 0 = 21 21 + 1 = 22 21 + 2 = 23 21 + 5 = 26 28 +
0 = 28 28 + 1 = 29
0 0 1 1 1 1 1 1 2 2 2 2 2 2
For x4 = 17, Optimal return = f 4* (17) = 30 for x * = 2 4 For x3 = 17 – 2 × 6 = 5,
Optimal return = f3* (5) = 8
* for x3 = 1
For x2 = 5 – (1 × 4) = 1, Optimal return = f2* (1) = 0 for x2 = 0 For x1 = 1 – 0 = 1,
Optimal return = f1* (1) = 1 for x 1 = 1. Answer: To maximize the value of the c
argo load 1 unit of item 1, 1 unit of item 3 and 2 units of item 4. The maximum
value of the cargo is 30.
Dynamic Programming
577
This problem can also be done in the same manner as the previous one. The only d
ifficulty here is that the maximum weight is 17, we will get a very big table. T
he above method is more easy when the given maximum weight is more.
Problem 11.5.
In a cargo loading problem, there are four items of different unit weight and va
lue. The maximum cargo load is 6 units. How many units of each item are loaded t
o maximize the value?
Item 1 2 3 4 Weight (wi) 1 3 4 4 Value per unit. 1 3 5 4
Solution The model is: Maximize Z = 1a + 3b + 5c + 4d subject to 1a + 3b + 4c +
4d ≤ 6 units. And a, b, c, d all ≥ 0. Number of units of ‘a’ = W /w = 6 / 1 = 6 ‘b’ = 6 / 3
= 2 ‘c’ = 6 / 4 = 1 ‘d’ = 6 / 4 = 1 Let us combine weights c and d first.
W C Z 0 0 0 0 4, 4 8, 8 4 1 5 0, 5 4, 5 8 2 10 8, 10 12 3 15 16 4 20
W 0 4 8
d 0 1 2
Z 0 4 8
Here for c = 1 and d = 1 the element (4, 5) has selected instead of (8, 8) and (
8, 10) because it is within the given limit of maximum load 6 units.
C D W Z 0 0 0 0 1 0 4 5 1 1 4 5
For Table 2 let us combine ‘a’ and ‘b’
W a W 0 3 6 b 0 1 2 Z 0 3 6 Z 0 0 0 0 3, 3 6, 6 1 1 1 1, 1 3, 3 2 2 2 2, 2 3 3 3
3, 3 4 4 4 4, 4 5 5 5 5, 5 6 6 6 6, 6
578
Operations Research
A B W Z
0 0 0 0
0 1 3 3
1 0 3 3
0 2 6 6
6 0 6 6
Now combining, a and b with c and d we get.
W c d W 0 3 3 6 6 a 0 0 1 0 6 b 0 1 0 2 0 Z 0 3 3 6 6 Z 0 0 0 0 0 3, 3(0,1,0,0)
(1, 0,0,0,) 6, 6(0, 2, 0, 0) (6, 1,0,0) 4 1 0 5 4, 5(0,0,1,0) 1, 5(0, 1, 1, 0) (
1, 0, 1, 0) 4 1 1 5 4, 5(0, 0, 1, 1)
Maximum weight = 6 units, a = 6, b = 0, c = 0 and d = 0 or a = 0, b = 2 , c = 0
and d = 0 Substituting the values in the model we get, Maximize Z = 1a + 3b + 5c
+ 4d and 1a + 3b + 4c + 4d ≤ 6 1 × 6 + 0 × 0 + 0 × 0 + 0 × 0 = 6 or 0 × 0 + 3 × 2 + 0 × 0
= 6 and 1×6+3×0+4×0+4×0=6
Problem 11.6
Determine the value of u1 , u2, and u3 so as to Maximize u1. u2. u3 subject to u
1 + u2 + u3 = 10 and u1, u2 and u3 all ≥ 0.
Solution
This can be treated as a 3 stage problem, with the state variable xi and the ret
urn fi (xi), such that At stage 3, x3 = u1 + u2 + u3 = 10, at stage 2, x2 = x3 – u
3 = u1 + u2, at stage 1, x1 = x2 – u2 = u1 and the returns are: f3 (x3) = max [u3
f2 (x2)]
u3
f2 (x2) = max [ u2 f1(x1)]
u2
f1 (x1) = u1 Since u1 = (x2 – u2) f2 (x2) = max [ u2 ( x2 – u2)] = max [ u2 x2 – u22]
u2 u2
Dynamic Programming
579
Differentiating [u2 x2 – u22] w.r.t. u2 and equating to zero (to find the maximum
value) u2 – 2 u2 = 0 or u2 = (x2/2), therefore, f2 (x2) = (x2/2) . x2 – (x2/2)2 = (x
22/4) Now, f3 (x3) = max [u3 . f2 (x2)] = max [u3 . (x22/4)] = max [ u3 . (x3 – u3
)2/4]
u3 u3 u3
Differentiating [u3 . (x3 – u3 / 4] w.r.t. u3 and equating to zero, (1/4) [u3 . 2
(x3 – u2) (–1) + (x3 – u3)2] = 0 or (x3 – u3) (– 2 u3 + x3 – u3) = 0 or (x3 – u3) (x3 – 3u3
Now, either u3 = x3, which is trivial as u1 + u2 + u3 = x3 or u3 = (x3/3) = (10
/3) Therefore, u2 (x2/2) = (x3 – u3)/2 = (1/2) [10 – (10/3)] = (10/3) u1 = x2 – u2 = (
20/3) – (10/3) = (10/3) Therefore, u1 = u2 = u3 = (10/3) and maximum (u1 . u2. u3)
= (1000/27)
)2
Problem 11.7.
Minimize Z = a2 + b2 + c2 subject to a + b + c ≥ 15 and all a, b, c are ≥ 0
Solution
This is a three stage problem and let the state variables for each stage be x, y
and z respectively, such that, z = a + b + c, y = z – c = a + b and x = y – b = a.
For this recursive equations are: f (z) = min [c2 + f (y)] c f (y) = min [b2 + f
(a)] and f *(a) = min (a2) = a2 b Since, x = y – b and f (x) = a2 f (y) = min [b2
+ b2 + (y – b)2] b Differentiating [b2 + b2 + (y – b)2] with respect to b and equat
ing to zero, d f(y)/db = 2b + 2( y – b) (–1) = 0 or –2y + 4b = 0 or b = (y/2) Therefor
e, f * (y) = (y/2)2 + [y – (y/2)]2 = (y2/2). Now f (z) = min [z2 + f(y)] z Since y
= z – c and f (y) = (y 2/2) , f (z) = min [c2 + (z – c)2/2], differentiating, [c2 +
(z – c )2/2] with respect to c and equating to c zero, d f (z)/dc = 2c – (c – z) = 0
or c = (z/3). Therefore, f *(z) = (z/3)2 + {[z – (z/3)]2}/2 = (z2/3)
580
Operations Research
Since a + b + c ≥ 15, for minimization of f (z) , a + b + c = 15 or z = 15, Theref
ore, f * (z) = (152/3) = 75 and c = z/3 = 13/3 = 5 b = (y/2 ) = (z – c )/2 = ( 15 –
5)/2 = 5, a = y – b = 10 – 5 = 5 Thus minimum value of a + b + c = 75 and a = b = c
= 5.
Problem 11.8.
Minimize a2 + b2 + c2, subject to a + b + c = 10 when (i) a, b, c are non negati
ve, (ii) a, b, c are non negative integers.
Solution
When a, b, c are continuous non negative variables the solution can be obtained
in the same way as in the example 11.7 above and the minimum value of: a2 + b2 +
c2 = (102/3) = 100/3 and a = b = c = (10 / 3) When the variables a, b, c are no
n negative integers, the problem can be easily solved by the tabular or enumerat
ion method treating it as a three stage problem, with state variables x, y, z re
spectively for 3 stages. At stage 1, the state variable x can take any integer v
alue from 0 to 10, with return f (x) =
Minimum (a2) = a2 f 0
0 ≤ a < 10
At stage 2, f (y) = Minimum [b2 + f * (y – b) 2]
0 ≤ b ≤ 10
At stage 3, f (z) = Minimum [c + f * (b)] = minimum [c 2 + f * (z – c) 2]
0 ≤ c ≤ 10 0 ≤ c ≤ 10
first combining a2 and b2 and entering elements in the table as usual and markin
g (block letters) the minimum value for each combination, we get the following t
able.
a b 0 1 2 3 4 5 6 7 8 9 b2 0 1 4 9 16 25 36 49 64 81 a2 0 0 0 1 4 9 16 25 36 49
64 81 1 1 1 2 5 10 17 26 37 50 65 82 2 4 4 5 8 13 20 29 40 53 68 3 9 9 10 13 18
25 34 45 58 4 16 16 17 20 25 32 41 52 5 25 25 26 29 34 41 61 6 36 36 37 40 45 50
7 49 49 50 50 58 8 64 64 65 68 9 81 81 82 10 100 100
10
100
100
Dynamic Programming
581
Optimal values of the above table are:
y = 0 1 1 2 2 3 5 4 8 5 13 6 18 7 25 8 32 9 41 10 50 f * (y) = 0
Now combining the out come of a2 and b2, shown above with c2, we get the followi
ng table.
a, b = y f * (y) c 0 1 2 3 4 5 6 7 8 9 10 c2 0 1 4 9 16 25 36 41 64 81 100 0 1 4
9 16 25 36 41 64 81 100 1 2 5 10 17 26 37 42 65 82 2 3 6 11 18 27 38 43 66 5 6
9 14 21 30 41 41 8 9 12 17 24 33 44 13 14 17 22 29 38 18 19 22 27 34 25 26 29 34
32 33 36 41 42 50 0 0 1 1 2 2 3 5 4 8 5 13 6 18 7 25 8 32 9 41 10 50
Now f * (z) = 34 for which the optimal value of c * = 3 or 4 If c = 3, f * (b) =
25, for which a = 3 and b = 4, or a = 4 and b = 3 If c = 4, f * (b) = 18, for w
hich a = 3, and b = 3. Therefore minimum value of 34 corresponds to (a, b, c) =
(3, 3, 4) or (3, 4, 3) or (4, 3, 3).
Problem 11.9.
A manufacturing firm has a contract to supply lathe chucks as per the following
schedule. The product made during a month will be supplied at the end of the mon
th. The setup cost is Rs. 1000/ , while the inventory carrying cost is Re. 1/ p
er piece per month. In which month should the batches be produced and of what si
ze, so that the total of setup and inventory carrying cost are minimized?
Month January February March April May June Number of items 100 200 300 400 400
3 00
Solution
This problem is considered as six stage problem and scheduling of inventory is d
one in 6 stages by using dynamic programming technique, we can start from the la
st month.
582
Operations Research
6th Stage: Month of June: To save the carrying cost, nothing should have been le
ft at the end of the month of May and also nothing should be left at the end of
6th month, i.e. June, as this is the last month. Produce 300 units for which the
setup cost is Rs. 1000/ and no inventory carrying cost. Hence the total cost i
s Rs. 1000/ . 5th stage: Month of May: There are two alternatives. First alterna
tive: Produce 700 units in 5th month and send 400 units and 300 parts will remai
n as inventory for one month. Hence the total cost = Set up cost + inventory car
rying cost for one month = Rs. 1000 + Rs. 300/ = Rs. 1300/Second alternative :
Produce 400 units in 5th month and 300 units in 6th month when the total cost is
and send the goods in the respective month so that there will be no inventory c
arrying cost. We have only two setup costs i.e. Rs. 1000 + Rs. 1000 = Rs. 2000/T
he first alternative is cheaper, hence instead of producing 400 units in 5th mon
th and 300 units month produce 700 units in 5th month and send 400 units to mark
et and maintain an inventory of in 300 units. Stage 4: 4th month: There are thre
e alternatives. 6th (a) Produce 1100 units in 4th month and send 400 units in Ap
ril to market and maintain an inventory of 700 units for one month and another 3
00 units for a period of 2 months. For which total cost is Setup cost for 1100 u
nits + 2 months’ inventory carrying cost for 300 units + 1 month inventory cost fo
r 400 units = Rs. 1000 + Rs. 700 + Rs. 300 = Rs. 2000. (b) Produce 300 units in
6th month and 800 units in 4th month at a cost of setup cost of 6th month and se
tup cost of 4th month + inventory of 400 units for one month. = Rs. 1000 + Rs. 1
000 + Rs. 400 = Rs. 2400. (c) Produce 700 units in 5th month and 400 units in 4t
h month at a cost of setup cost of 5th and 4th months and inventory carrying cos
t for one month for 300 units for 6th month. = Rs. 1000/ + Rs. 1000/ + Rs. 300
/ = Rs. 2300/Out of all the three decisions, the first decision (a) is optimal.
The firm has to produce 1100 units in the 4th month at the cost of Rs. 2000/ .
Stage 3: 3rd month: There are four alternatives. (a) Produce 1400 units in the
third month at a cost of Setup cost of Rs. 1000/ + Inventory carrying charges o
f Rs. 1100/ + 700/ + 300/ = Rs. 3100/ . (b) Produce 300 units in 6th month an
d 1100 units in 3rd month at a cost of Setup cost of Rs. 1000 + Rs. 1000/ ) + in
ventory carrying cost of Rs. 800/ + Rs. 400/ = Total Rs. 3200/(c) Produce 700
units in 5th month and 700 units in 3rd month at cost of Setup cost of Rs. 1000
+ Rs. 1000) + (inventory carrying cost of RS. 300/ + RS. 400/ ) = Total Rs. 270
0/ . (d) Produce 1100 units in 5th month and 300 units in the 3rd month at cost
of (Setup cost of Rs. 1000/ + Rs. 1000/ + Inventory carrying charges of Rs. 7
00/ + Rs. 300/ = Rs. 3000/ . The optimal decision at this stage is to produce
700 units in 5th month and the cost of production and inventory maintenance is R
s. 2700/ .
Dynamic Programming
583
Stage 2: At 2nd month. There are 5 alternatives and they are: (a) Produce 1600 u
nits in 2nd month at a cost of Setup cost of Rs. 1000/ + inventory carrying cha
rges of Rs. 1400 + 1100 + 700 + 300 = Total Rs. 4500/ . (b) Produce 300 in 6th m
onth and 1300 units in 2nd month at cost of Rs. 1000 + 1000 + 1100 + 800 + 400 =
Total Rs. 4300/ . (c) Produce 700 units in 5th month and 900 units in 2nd month
at cost of Rs. 1300 + 1000 + 700 + 400 = Rs. 3400/ . (d) Produce 1100 units in
4th month, 500 units in 2nd month at cost of Rs. 2000/ + 1000 + 300 = Rs. 3300/
. (e) Produce 700 units in 3rd month, 700 in 5th month and 200 in 2nd month at
cost of Rs. 3000/ + Rs. 700/ = Total Rs. 3700/ . The optimal decision rule is
Produce 500 units in 2nd month and 1100 units in 4th month at cost of Rs. 3300/1
st stage: Month 1: There are k6 atternatives. They are: (a) Produce 1700 units a
t cost of Rs.1000/ 1600 + 1400 + 1100 + 700 + 300 = Rs. 6100/ . (b) Produce 300
units in 6th month and 1400 units in 1st month and the cost is: Rs. 100/ + 100
0/ + Rs. 1300/ + 1100/ + 800/ + 400/ = Total Rs. 5600/(c) Produce 700 units
in 5th month and 1000 units in the 1st month and the cost is Rs. 1300 + 1000/
+ 900/ + 700 + 400 = Total Rs. 4300/ . (e) Produce 1100 units in 4th month and
600 units in 1st month and the cost is : Rs. 2000/ + 1000 + 500 + 300 = Total R
s. 3800/(f) Produce 700 units in 3rd month, and 700 in 5th month and 300 units i
n the 1st month at a cost of Rs. 2700/ + 1000 + 200 = Rs. 3900/ . (g) Produce 5
00 units in the 2nd month and 1100 units in the 4th month and 100 units in the 1
st month at a cost of Rs. 3300/ + Rs. 1000/ = Total Rs. 4300/The optimal decis
ion rule is to Produce 600 units in 1st month and 1100 units in 4th month at a t
otal cost of Rs. 3800/ . Hence the minimum cost policy is to produce a batch of
600 units in January and a batch of 1100 units in April, which gives a minimum o
f setup and inventory carrying cost of Rs. 3800/ .
Problem 11.10.
Solve the following Linear Programming (L.P.) problem using Dynamic Programming
(D.P.) technique. Maximize 5x + 9y subject to –x + 3y ≤ 3, 5x + 3y ≤ 27 and both x and
y are ≥ 0.
Solution
Problem 11.8 is an integer programming problem, which was solved by using dynami
c programming method. The present problem is a linear programming problem, where
we are concerned with non negative integers, i.e. it allows for continuous valu
es of variables.
584
Operations Research
Let us represent the given problem in L.P. way. We want to decide two items of p
roducts A and B (in the problem variable ‘x’ represents product A and ‘y’ represents pro
duct B. The profit per unit of A is Rs. 5/ and that of B is Rs. 9/ . The time r
equired (in D.P. terms: it is weight of A and B) to produce are 5 hours and 3 ho
urs respectively. The total time of producing A and B is 27 hours. It is also se
en from the inequalities given that each unit of B requires 5 units of material
and A does not require the material and for every unit we produce, we get one un
it of material free. And the material on hand is 3 units. Products are represent
ed by variables x and y. The first constraint, –1x + 5y ≤ 3 describes that for every
one unit of B we require 5 units of material and for every one unit of x we pro
duce, we get one unit of material free. The inequality may be written as: 5y ≤ 3 +
1x. As there are two variables, this may be considered as 2 stage problem. To s
olve the problem, let us start from the last stage. One more stage to go implies
that we are deciding on y. Let the R.H.S, i.e. capacities available for allocat
ion at the beginning this stage be b1 and b2. (Remember, in L.P.P the R.H.S. cap
acities are generally represented by bi s in general format.) Let b1 and b2 are
associated with the first and second constraints respectively. The maximum value
of capacities is specified in the R.H.S. of the two constraints as 3 and 27. It
is evident from first constraint that we are taking a decision on y alone and t
he R.H.S. capacity available is b1. Then 5y has to be less than or equal to b1 i
.e. y ≤ 5. Similarly from inequality –x + 5y ≤ 3, we have y ≤ b2/3. Both together would
mean that y has to be less than or equal to the minimum of (b1/5) and (b2/3). Ex
pressing these two mathematically, f1 (b1, b2) = Maximum 9 [y] = 9 Minimum [b1/5
, b2 /3] i.e. y ≤ minimum [b1/5, b2/3] ... (1) Now let us go backwards by one stag
e. Two more stages to go implies that we have at our disposal the whole capaciti
es as indicated by the right hand sides of the two constraints. We want to decid
e on the x that will maximize the overall objective function. Given that we star
t this stage with 3 and 27 capacities or two different things, if we decide on a
value of x, then we will be left with (3 + x) and (27 – 5x) respectively for allo
cation in the subsequent stages. This is because the coefficients of x in first
and second constraints are –1 and 5 respectively. Thus with N = 2 for second stage
(N = 1 for the first stage, N denotes the number of stage) our starting state c
an be represented by the pair (3, 27), and the decision of x leaves us with the
ending state represented by (3 + x, 27 – 5x). The effect corresponding to the stat
e, as given by the objective function is 5x. Finally from the two constraints, p
utting y = 0, we found that x can lie between –3 and 27/5, as negative values are
not allowed, x can take the value between 0 and 27/5 (both inclusive). Expressin
g this in the usual notations, we have: f2 (3, 27) = Minimum [5x + f1 (3 + x, 27
– 5x]
0 ≤ x ≤ 27 / 5
…(2)
From (1) above, we know that f1 (b1, b2) = 9 minimum [b1/5, b2/3], Therefore, f1
(3 + x, 27 – 5x) = 9 minimum [(3 + x) / 5, (27 – 5x)/3] , …(3) Thus, if (3 + x)/5 is ≤
27 – 5x)/3, then, f1 (3 + x, 27 – 5x) = 9 (3 + x) / 5 ...(4) Otherwise, f 1 (3 + x,
27 – 5x) = 9 (27– 5x)/3 We now find the range of x for which (3 + x)/5, < (27 – 5x) /
3. Verify that to satisfy the condition, x should be less than 4.5. Replacing (3
) and (4) in (2), we have: f 2 (3, 27) = Maximum [5x + 9 (3 + x)/5], if x ≤ 4.5 =
Maximum [5x + 9 (27 – 5x)/3] if x > 4.5 From the above, it is easy to verify that
the maximum occurs at x = 4.5. The corresponding value of f2 (3, 27) is the valu
e of the objective function. The value of y may be obtained by working backwards
.
Dynamic Programming
585
X = 4.5 implies f1 (3 + x, 27 – 5x) = f1 (7.5, 4.5). From (1) we know that the opt
imal of y = Minimum [(7.5/5), (4.5/3)] = 1.5 Hence the required answer is x = 4.
5, y = 1.5. These problems can be solved more simply without involving mathemati
cal complications as shown below:
Problem 11.11.
Solve the given L.P. Model by using dynamic programming technique. Max Z = a = 9
b s.t. 2a + 1b ≤ 25, 0a + 1b ≤ 11 and both a and b are ≥ 0.
Solution
Given that 0a + 1b ≤ 11 and 2a + 1b ≤ 25. Let us assume these inequalities as equati
ons as we do in graphical method, i.e. 1b = 11 and 1b = 25 – 2a as both are equal
to 1b, we can write as 11 = 25 – 2a or 2a = 25 – 11 = 14, or a = 14 / 2 = 7. Substit
uting this in the above we can write, 25 – 2 × 7 = b or 25 – 14 = b = 11. Hence a = 7,
and b = 11
Problem 11.12.
Maximize 3a + 5b s.t. A ≤ 4, b ≤ 6, 3a + 2b ≤ 18 and both a and b are
0
Solution
Given that b ≤ 6 2b ≤ 18 – 3a or b ≤ (18 – 3a) / 9 or b ≤ 9 – (3/2) a Solving these two b =
= (18 – 3a)/2. 18 – 3a = 12 or 3a = 18 – 12 = 6 or a = (6/3) = 2 Checking this with co
ndition a ≤ 4, this holds good. Substituting a = 2 in b = 9 – (3/2) a = 9 – (3/2) × 2 =
6 Therefore, a = 2 and b = 6 and the maximum value = 2 × 3 + 5 × 6 = 36.
Problem 11.13.
Maximize Z = 50x + 80y s.t. X ≤ 80, y ≤ 60 and 5x + 6y ≤ 600, x + 2y ≤ 160 and both x an
d y are ≥ 0.
Solution
Select the inequalities 5x + 6y ≤ 600 and x + 2y ≤ 160, this will give us x ≤ (600 – 6y)
/5 and x ≤ 160 – 2y, equating the two: (600 – y)/5 = 160 – 2y or 600 – 6y = 800 – 10y or 4
= 200 or y = 50. Substituting the value of y we get x = 60 Answer : x = 60, y =
50.
586
Operations Research
Problem 11.14
Mr. Banerjee, a sales manager, has decided to travel from city 1 to city 10. He
wants to plan for minimum distance programme and visit maximum number of branch
offices as possible on the route. The route map of the various ways of reaching
city 10 from city 1 is shown below. The numbers on the arrow indicates the dista
nce in km. (× 100). Suggest a feasible minimum path plan to Mr. Banerjee.
Solution
The problem may be considered as 4 stage problem. In stage 1 the manager leaves
from station 1 (node number 1) and can reach stations 2, 3, and 4 directly. Let
us consider the distances 1 to 2 is 200 km, 1 to 3 is 500 km and 1 to 4 is 200 k
m. As this is minimization problem and the manager wants to visit more number of
branch offices and travel less distance, we can show the routes which show the
minimum distance in full line and the rest of the lines we can neglect or we can
show in dotted lines. In this problem, lines 1 – 2 and 1 – 3 will be in full line a
nd line 2 – 5 in dotted line. The distance covered up to that stage is written jus
t above the node.
Figure 11.1
Dynamic Programming
587
In the second stage, he can reach station 5 directly from 2 and 3, station 6 dir
ectly from 2 and 4 and station 4 from 4. The distance from 2 to 5 is previous di
stance covered + present distance = 200 + 1000 = 1200, Similarly, from 3 to 5 is
500 + 500 = 1000 km. The distance from 2 to 6 = 200 + 1200 = 1400 km. The dista
nce from 4 to 6 = 200 + 1500 = 1700 km. The distance from 4 to 7 is 200 + 1900 =
2100 km. The minimum of all these is 100 km. i.e. the manager travels from 1 to
3 and from 3 to 5 covering 100 Km. (Remember, in maximization problem, we consi
der the maximum distance.) In third stage, the manager may be at station 5 or at
station 6 or at station 7. From there he can directly go to station 8 or statio
n 9. Let us workout the minimum distance from 5, 6 and 7 to 8 and 9. From 5 to 8
the distance = 1000 + 700 = 1700 km. From 6 to 8 the distance is 1400 + 300 = 1
700 km. From 6 to 9 the distance is 1400 + 400 = 1800 km. From 7 to 9 the distan
ce is 2100 + 400 = 2500 km. The minimum of all these is 1700 km. i.e. the manage
r can go from 5 to 8 or 6 to 8 the distance is 1700 km only. In the 4th stage he
can reach station 10 from station 8 or 9. The minimum distance from 8 and 9 to
10 is: From 8 to 10 the distance is 1700 + 300 = 2000 km. From 9 to 10 the dista
nce is 1800 + 400 = 2200 km. Hence the minimum distance from stations 1 to 10 on
the path is 2000 km on routes 1 – 3 – 5 – 8 – 10 and 1 – 2 – 6 – 8 – 10. This is shown in
e 11.3.
Figure 11.2
588
Operations Research
Figure 11.3
Problem 11.15.
The following figure (11.4) shows the route map of various branch offices of a c
ompany. The marketing executive of the company should like to start from Head of
fice at A and reach the branch office at B by traveling shortest path and visiti
ng as many as branch offices. Help him to plan his journey by using dynamic prog
ramming technique.
Figure 11. 4
Dynamic Programming
589
Solution
First let us identify the stages and then plan for the journey of executive from
stage to stage.
Figure 11.5
Let us renumber the branch offices from 1 to 11. Let the executive start from he
ad office 1; from there he can reach the branch offices 2, 3 and 4 directly in s
tage 1. Let us workout the minimum distance. From 1 to 2 minimum distance is 7 k
m. From 1 to 3 the minimum distance is 6 km and that from 1 to 4 is 5 km. Hence
the executive travels from 1 to 4 first. Now he is at 4.
Figure 11.6
590
Operations Research
Figure 11.7
Figure. 11.8
In figure 11.6, the executive has to reach the branch office 5, 6, or 7 from 2,
3 and four. When we work out the minimum distance we find that route 1 – 2 – 6 will
give 11 km, i.e. the executive travels to station 6. In figure 11.7, we find tha
t the executive travels to branch office 8 where the minimum distance is 18 km.
From there he can reach the last office, i.e. 11, and the total distance is 21 k
m. The optimal route is 1– 2 – 6 – 8 – 11 and the optimal distance is 21 km. The optimal
route is shown in thick lines.
QUESTIONS
1. A company has 9 salesmen, who have to be allocated to 3 marketing zones. The
return from each zone depends on the number of salesmen working in that zone. Th
e expected returns for different number of salesmen in different zones, as estim
ated from the past records are given below. Find the optimal allocation to maxim
ize the return.
Dynamic Programming
591
No. of salesmen 0 1 2 3 4 5 6 7 8 9
Zone1 Return in Rs. 42 54 60 65 70 80 82 90 100 110
Zone 2 Return in Rs. 30 45 64 68 75 79 85 92 99 105
Zone 3 Return in Rs. 45 58 60 65 72 75 84 90 100 120
2. In a cargo loading problem, there are four items of different per unit weight
and value as given below. The minimum cargo load is restricted to 10 units. How
many units of each item are loaded to maximize the value.
Item 1 2 3 5 Weight wi 2 3 4 5 Value per unit vi 2 5 7 9
3. Minimize Z = a2 + b2 + c2 subject to a + b + c ≥ 10 and a, b, c, all ≥ 0 4. Maxim
ize Z = 3a + 5b subject to a ≤ 4 b ≤ 6 3a + 2b ≤ 18 and a, b both ≥ 0
MULTIPLE CHOICE QUESTIONS
1. In Dynamic Programming Problems, the decisions are made in (a) Single stage (
b) 2 stages (c) Multi stages (d) No decision making process ( ) 2. In dynamic pr
ogramming problems, the main problem is divided into subproblems. Each sub probl
em is known as: (a) Part (b) Stage (c) State (d) Mini problem ( )
592
Operations Research
3. The technique of Dynamic Programming problem is developed by: (a) Taylor (b)
Gilberth (c) Richard Bellman (d) Bellman and Clarke ( ) 4. Another name used to
Dynamic Programming is: (a) Multistage problem (b) Recursive optimization (c) St
ate problems (d) No second name. ( ) 5 If the outcome at any decision stage is u
nique and known for the problem, then the Dynamic programming problem is known a
s: (a) Probabilistic dynamic programming problem (b) Stochastic dynamic programm
ing problem (c) Static dynamic programming problem (d) Deterministic dynamic pro
gramming problem. ( ) 6. The possible decisions at any stage are known as: (a) S
tates (b) Steps (c) Parts (d) None ( ) 7. The rule which determines the decision
at each stage is known as (a) State (b) Stage (d) Decision. ( ) (c) Policy
ANSWERS
1. (c) 5. (d) 2. (b) 6. (a) 3. (c) 7. (c) 4. (b)
CHAPTER – 12
Decision Theory
12.1. INTRODUCTION
The decisions are classified according to the degree of certainty as determinist
ic models, where the manager assumes complete certainty and each strategy result
s in a unique payoff, and Probabilistic models, where each strategy leads to mor
e than one payofs and the manager attaches a probability measure to these payoff
s. The scale of assumed certainty can range from complete certainty to complete
uncertainty hence one can think of decision making under certainty (DMUC) and de
cision making under uncertainty (DMUU) on the two extreme points on a scale. The
region that falls between these extreme points corresponds to the concept of pr
obabilistic models, and referred as decision making under risk (DMUR). Hence we
can say that most of the decision making problems fall in the category of decisi
on making under risk and the assumed degree of certainty is only one aspect of a
decision problem. The other way of classifying is: Linear or non linear behavio
ur, static or dynamic conditions, single or multiple objectives. One has to cons
ider all these aspects before building a model. Decision theory deals with decis
ion making under conditions of risk and uncertainty. For our purpose, we shall c
onsider all types of decision models including deterministic models to be under
the domain of decision theory. In management literature, we have several quantit
ative decision models that help managers identify optima or best courses of acti
on.
Complete uncertainty Decision making Under uncertainty Degree of uncertainty Dec
ision making Under risk Complete certainty Decision making Under certainty.
Before we go to decision theory, let us just discuss the issues, such as (i) Wha
t is a decision? (ii) Why must decisions be made? (iii) What is involved in the
process of decision making? (iv) What are some of the ways of classifying decisi
ons? This will help us to have clear concept of decision models.
12.2. WHAT IS A DECISION?
A decision is the conclusion of a process designed to weigh the relative utiliti
es or merits of a set of available alternatives so that the most preferred cours
e of action can be selected for implementation. Decision making involves all tha
t is necessary to identify the most preferred choice to satisfy the desired goal
or objective. Hence decision making process must involve a set of goals or obje
ctives, a system of priorities, methods of enumerating the alternative courses o
f feasible and viable courses and
594
Operations Ressearch
a system of identifying the most favourable alternative. One must remember that
the decisions are sequential in nature. It means to say that once we select an a
lternative, immediately another question arises. For example if you take a decis
ion to purchase a particular material, the next question is how much. The next q
uestion is at what price. The next question is from whom… Like that there is no en
d.
12.3. WHY MUST DECISIONS BE MADE?
In management theory we study that the essence of management is to make decision
s that commit resources in the pursuit of organizational objectives. Resources a
re limited and wants and needs of human beings are unlimited and diversified and
each wants to satisfy his needs in an atmosphere, where resources are limited.
Here the decision theory helps to take a certain decision to have most satisfact
ory way of satisfying their needs. Decisions are made to achieve these goals and
objectives.
12.4. DECISION AND CONFLICT
When a group of people is working together in an organization, due to individual
behaviour and mentality, there exists a conflict between two individuals. Not o
nly that in an organization, each department has its own objective, which is sub
ordinate to organizational goal, and in fulfilling departmental goals, there exi
sts a conflict between the departments. Hence, any decision maker has to take al
l these factors into consideration, while dealing with a decision process, so th
at the effect of conflicts between departments or between subordinate goals is k
ept at minimum in the interest of achieving the overall objective of the organiz
ation.
12.5. TWO PHASES OF THE PROCESS OF DECISION MAKING
The decision theory has assumed an important position, because of contribution o
f such diverse disciplines as philosophy, economics, psychology, sociology, stat
istics, political science and operations research to the area decision theory. I
n decision making process we recognize two phases: (1) How to formulate goals an
d objectives, enumerate environmental constraints, identify alternative strategi
es and project relevant payoffs. (2) Concentration on the question of how to cho
ose the optimal strategy when we are given a set of objectives, strategies, payo
ffs. We concentrate more on the second aspect in our discussion.
12.6. CLASSIFICATIONS OF DECISIONS
In general, decisions are classified as Strategic decision, which is related to
the organization s outside environment, administrative decisions dealing with st
ructuring resources and operational decisions dealing with day to day problems.
Depending on the nature of the problem there are Programmed decisions, to solve
repetitive and well structured problems, and Non programmed decisions, designed
to solve non routine, novel, illstructured problems. Depending on the scope, com
plexity and the number of people employed decision can be divided as individual
and managerial decisions. Depending on the sphere of interest, as political, eco
nomic, or scientific etc. decision can be divided as static decision requiring o
nly one decision for the planning horizon and dynamic decision requiring a serie
s of decisions for the planning horizon.
Decision Theory
595
12.7. STEPS IN DECISION THEORY APPROACH
1. List the viable alternatives (strategies) that can be considered in the decis
ion. 2. List all future events that can occur. These future events (not in the c
ontrol of decision maker) are called as states of nature. 3. Construct a payoff
table for each possible combination of alternative course of action and state of
nature. 4. Choose the criterion that results in the largest payoff.
12.8. DECISION MAKING UNDER CERTAINTY (DMUC)
Decision making under certainty assumes that all relevant information required t
o make decision is certain in nature and is well known. It uses a deterministic
model, with complete knowledge, stability and no ambiguity. To make decision, th
e manager will have to be quite aware of the strategies available and their payo
ffs and each strategy will have unique payoff resulting in certainty. The decisi
on making may be of single objective or of multiple objectives.
Problem 12.1.
ABC Corporation wants to launch one of its mega campaigns to promote a special p
roduct. The promotion budgets not yet finalized, but they know that some Rs. 55,
00,000 is available for advertising and promotion. Management wants to know how
much they should spend for television spots, which is the most appropriate mediu
m for their product. They have created five ‘T.V. campaign strategies’ with their pr
ojected outcome in terms of increase in sales. Find which one they have to selec
t to yield maximum utility. The data required is given below.
Strategy A B C D E Cost in lakhs of Rs. 1.80 2.00 2.25 2.75 3.20 Increased in sa
les in lakhs of Rs. 1.78 2.02 2.42 2.68 3.24
Solution
The criteria for selecting the strategy (for maximum utility) is to select the s
trategy that yields for maximum utility i.e. highest ratio of outcome i.e. incre
ase in sales to cost.
Strategy A B C D E Cost in Lakhs of Rs. Increase in Sales in Lakhs of Rs. Utilit
y or Payoffs 1.80 2.00 2.25 2.75 3.20 1.78 2.02 2.42 2.68 3.24 1.78 / 1.80 = 0.9
88 2.02 / 2.00 = 1.010 2.42 / 2.25 = 1.075 2.68 / 2.75 = 0.974 3.24 / 3.20 = 1.0
12 Maximum Utility Remarks.
596
Operations Ressearch
The company will select the third strategy, C, which yields highest utility. Now
let us consider the problem of making decision with multiple objectives.
Problem 12.2.
Consider a M/s XYZ company, which is developing its annual plans in terms of thr
ee objectives: (1) Increased profits, (2) Increased market share and (3) increas
ed sales. M/S XYZ has formulated three different strategies for achieving the st
ated objectives. The table below gives relative weightage of objectives and scor
es project the strategy. Find the optimal strategy that yields maximum weighted
or composite utility.
Measure of Performance of Three objectives Weights Strategy S1 S2 S3 7 3 5 4 6 5
9 7 10 ROI (Profit) 0.2 % Increase (Market share) 0.5 % Increase (Sales growth)
0.3
Solution
(The profit objective could be stated in and measured by absolute Rupee volume,
or percentage increase, or return on investment (ROI). The market share is to be
measured in terms of percentage of total market, while sales growth could be me
asured either in Rupees or in percentage terms. Now, in order to formulate the p
ayoff matrix of this problem, we need two things. (i) We must assign relative we
ights to each of the three objectives. (ii) For each strategy we will have to pr
oject a score in each of the three dimensions, one for each objective and expres
s these scores in terms of utilities. The Optimal strategy is the one that yield
s the maximum weighted or composite utility.) Multiplying the utilities under ea
ch objective by their respective weights and then summing the products calculate
the weighted composite utility for a given strategy. For example: For strategy
S1 = 7 × 0.2 + 5 × 0.5 + 9 × 0.3 = 6.1
Measure of Performance of Three objectives Weights Strategy S1 S2 S3 7 3 5 4 6 5
9 7 10 0.2 × 7 + 0.5 × 4 + 0.3 × 9 = 6.1 0.2 × 3 + 0.5 × 6 + 0.3 × 7 = 5.7 0.2 × 5 + 0.5 ×
0.3 × 10 = 6.6 Maximum utility ROI % Increase % Increase (Profit) (Market share) (
Sales growth) 0.2 0.5 0.3 Weighted or Composite Utility (CU)
Decision Theory
597
12.9. DECISION MAKING UNDER RISK (DMUR)
Decision making under risk (DMUR) describes a situation in which each strategy r
esults in more than one outcomes or payoffs and the manager attaches a probabili
ty measure to these payoffs. This model covers the case when the manager project
s two or more outcomes for each strategy and he or she knows, or is willing to a
ssume, the relevant probability distribution of the outcomes. The following assu
mptions are to be made: (1) Availability of more than one strategies, (2) The ex
istence of more than one states of nature, (3) The relevant outcomes and (4) The
probability distribution of outcomes associated with each strategy. The optimal
strategy in decision making under risk is identified by the strategy with highe
st expected utility (or highest expected value).
Problem 12.3.
In a game of head and tail of coins the player A will get Rs. 4/ when a coin is
tossed and head appears; and will lose Rs. 5/ each time when tail appears. Fin
d the optimal strategy of the player.
Solution
Let us apply the expected value criterion before a decision is made. Here the tw
o monetary outcomes are + Rs. 4/ and – Rs. 5/ and their probabilities are ½ and ½. H
ence the expected monetary value = EMV = u1 p1 + u2 p2 = + 4 × 0.5 + (–5) × 0.5 = – 0.50
. This means to say on the average the player will loose Rs. 0.50 per game.
Problem 12.4.
A marketing manager of an insurance company has kept complete records of the sal
es effort of the sales personnel. These records contain data regarding the numbe
r of insurance policies sold and net revenues received by the company as a funct
ion of four different sales strategies. The manager has constructed the conditio
nal payoff matrix given below, based on his records. (The state of nature refers
to the number of policies sold). The number within the table represents utiliti
es. Suppose you are a new salesperson and that you have access to the original r
ecords as well as the payoff matrix. Which strategy would you follow?
State of nature Probability Strategy S1 (1 call, 0 follow up) S2 (1 call, one fo
llow up) S3 (1 call, two follow ups) S4 (1 call, three follow ups) N1 0.2 Utilit
y 4 6 2 10 N2 0.5 Utility 6 5 10 3 N3 0.3 Utility 10 9 8 7
Solution
As the decision is to be made under risk, multiplying the probability and utilit
y and summing them up give the expected utility for the strategy.
598
Operations Ressearch
State of Nature Probability Strategy S1 S2 S3 S4
N1 0.2
N2 0.5
N3 0.3
Expected utility or expected payoffs
Utility Utility Utility 4 6 2 10 6 5 10 3 10 9 8 7 0.2 × 4 + 0.5 × 6 + 0.3 × 10 = 6.8
0.2 × 6 + 0.5 × 5 + 0.3 × 9 = 6.4 0.2 × 2 + 0.5 × 10 + 0.3 × 8 = 7.8 0.2 × 10 + 0.5 × 3 + 0
= 5.6
As the third strategy gives highest expected utility 1 call and 2 follow up yiel
d highest utility.
Problem 12.5.
A company is planning for its sales targets and the strategies to achieve these
targets. The data in terms of three sales targets, their respective utilities, v
arious strategies and appropriate probability distribution are given in the tabl
e given below. What is the optimal strategy?
Sales targets (× lakhs) Utility Strategies S1 S2 S3 0.6 0.2 0.5 0.3 0.5 0.3 0.1 0.
3 0.2 50 4 Prob. 75 7 Prob. 100 9 Prob.
Solution
Expected monetary value of a strategy = ∑ Sales target × Probability Expected utilit
y of a strategy = ∑ Utility × Probability.
Sales targets (× lakhs) Utility Strategies. S1 S2 S3 0.6 0.2 0.5 0.3 0.5 0.3 0.1 0
.3 0.2 50 × 0.6 + 75 × 0.3 + 100 × 0.1 4 × 0.6 + 7 × 0.3 + 9 × 0.1 = 62.5 50 × 0.2 + 75 × 0
100 × 0.3 = 77.5 = 67.5 = 5.4 4 × 0.2 + 7 × 0.5 + 9 × 0.3 = 7.0 = 5.9 50 4 Prob. 75 7 Pr
ob. 100 9 Prob. Expected Monetary Value Expected Utility
50 × 0.5 + 75 × 0.3 + 100 × 0.2 4 × 0.5 + 7 × 0.3 + 9 × 0.2
As both expected money value and expected utility of second strategy are higher
than the other two, strategy two is optimal.
Decision Theory
599
12.10. DECISION MAKING UNDER UNCERTAINTY
Decision making under uncertainty is formulated exactly in the same way as decis
ion making under risk, only difference is that no probability to each strategy i
s attached. Let us make a comparative table to compare the three, i.e. decision
making under certainty, risk, and uncertainty.
Decision making under certainty State of Nature N Strategy S1 S2 S3 * One state
of nature * Single column matrix * Deterministic outcomes Utility or Payoff u1 u
2 u3 Strategy S1 S2 S3 Decision making under risk State of Nature N1 Probability
p1 N2 p2 u 11 u 21 u 31 N3 p3 Strategy S1 S2 S3 Utility or Payoff. u 11 u 21 u
31 u 12 u 22 u 32 u 13 u 23 u 33 u 12 u 22 u 32 u 13 u 23 u 33 Decision making u
nder Uncertainty. State of Nature N1 N2 N3
Utility or Payoff
* More than one states of nature * Multiple column matrix * Probabilistic outcom
es (i.e. Probabilities are attached to Various states of nature) * Optimal strat
egy is identified by the use of expected value criterian.
*More than one states of nature. *Multiple column matrix. * Uncertain outcomes (
i.e. probabilities are not attached to various states of nature). * Optimal stra
tegy is identified using a number of different criterian.
* Optimal strategy is the one with the highest utility.
In decision making under uncertainty, remember that no probabilities are attache
d to set of the states of nature. Sometimes we may have only positive elements i
n the given matrix, indicating that the company under any circumstances will hav
e profit only. Sometimes, we may have negative elements, indicating potential lo
ss. While solving the problem of decision making under uncertainty, we have two
approaches, the first one is pessimistic approach and the second one is optimist
ic approach. Let us examine this by solving a problem.
Problem 12.6.
The management of XYZ company is considering the use of a newly discovered chemi
cal which, when added to detergents, will make the washing stet, thus eliminatin
g the necessity of adding softeners. The management is considering at present ti
me, these three alternative strategies. S1 = Add the new chemical to the current
ly marketed detergent DETER and sell it under label ‘NEW IMPROVED DETER’. S2 = Intro
duce a brand new detergent under the name of ‘SUPER SOFT’ S3 = Develop a new product
and enter the softener market under the name ‘EXTRA WASH’. The management has decid
ed for the time being that only one of the three strategies is economically feas
ible (under given market condition). The marketing research department is reques
ted to develop a conditional payoff matrix for this problem. After conducting su
fficient research, based on personal interviews and anticipating the possible re
action of the competitors, the marketing research department submits the payoff
matrix given below. Select the optimal strategy.
600
Operations Ressearch
State of nature. Strategies. S1 S2 S3 N1 15 9 13 N2 12 14 4 N3 18 10 26 Utility
of Payoffs.
Solution
When no probability is given, depending upon risk, subjective values, experience
etc., each individual may choose different strategies. These are selected depen
ding on the choice criterion. That is why sometimes the decision making under un
certainty problems are labeled as choice creation models. Two criterians may be
considered here. One is Criterion of Optimism and the other is Criterion of Pess
imism.
12.11. CRITERION OF OPTIMISM
Here we determine the best possible outcome in each strategy, and then identify
the best of the best outcome in order to select the optimal strategy. In the tab
le given below the best of the best is written in the left hand side margin.
State of nature. Strategies. S1 S2 S3 N1 15 9 13 N2 12 14 4 N3 18 10 26 Best or
Maximum outcome (Row maximum) 18 14 26 Maximax. Utility of Payoffs.
While applying the criterion of optimism, the idea is to choose the maximum of t
he maximum values; the choice process is also known as Maximax.
12.12. CRITERION OF PESSIMISM
When criterion of pessimism is applied to solve the problem under uncertainty, f
irst determine worst possible outcome in each strategy (row minimums), and selec
t the best of the worst outcome in order to select the optimal strategy. The wor
st outcomes are shown in the left hand side margin.
State of nature. Strategies. S1 S2 S3 N1 15 9 13 N2 12 14 4 N Worst or minimum o
ut come
3
Utility of Payoffs. 18 10 26
(Row minimums) 12 Maximin 9 4
Best among the worst outcome is 12, hence the manager selects the first strategy
. Maximin assumes complete pessimism. Maximax assumes complete optimism. To esta
blish a degree of optimism
Decision Theory
601
or pessimism, the manager may attach some weights to the best and the worst outc
omes in order to reflect in degree of optimism or pessimism. Let us assume that
manager attaches a coefficient of optimism of 0.6 and then obviously the coeffic
ient of pessimism is 0.4. The matrix shown below shows how to select the best st
rategy when weights are given.
Strategy. Weights. S1 S2 S3 Best or maximum Payoffs 0.6 18 14 26 Worst or minimu
m Payoffs 0.4 12 9 4 0.6 × 18 + 0.4 × 12 = 15.6 0.6 × 14 + 0.4 × 9 = 12.0 0.6 × 26 + 0.4 ×
= 17.2 Maximum. Weighted Payoffs.
12.13. CRITERION OF REGRET
In this case, we have to determine the regret matrix or opportunity loss matrix.
To find the opportunity loss matrix (column opportunity loss matrix), subtract
all the elements of a column from the highest element of that column. The obtain
ed matrix is known as regret matrix. While selecting the best strategy, we have
to select such a strategy, whose opportunity loss is zero, i.e. zero regret. If
we select any other strategy, then the regret is the element at that strategy. F
or the matrix given in problem 12.6 the regret matrix is
Strategies . State of nature. N1 0 6 2 N2 2 0 10 N3 8 16 0 Utility of Payoffs. S
1 S2 S3
Rule for getting the regret matrix: In each column, identify the highest element
and then subtract all the individual elements of that column, cell by cell, fro
m the highest element to obtain the corresponding column of the regret matrix. T
o select the optimal strategy we first determine the maximum regret that the dec
ision maker can experience for each strategy and then identify the maximum of th
e maximum regret values. This is shown in the table below:
State of nature. Strategies. S1 S2 S3 N1 0 6 2 N2 2 0 10 N3 Maximum regret. 8 mi
nimax. 16 10 8 16 0 Regret or Opportunity loss.
Select the minimum of the maximum regret (Minimax regret). The choice process ca
n be known as minimax regret. Suppose two strategies have same minimax element,
then the manager needs additional factors that influence his selection.
602
Operations Ressearch
12.14. EQUAL PROBABILITY CRITERION
As we do not have any objective evidence of a probability distribution for the s
tates of nature, one can use subjective criterion. Not only this, as there is no
objective evidence, we can assign equal probabilities to each of the state of n
ature. This subjective assumption of equal probabilities is known as Laplace cri
terion, or criterion of insufficient reason in management literature. Once equal
probabilities are attached to each state of nature, we revert to decision makin
g under risk and hence can use the expected value criterion as shown in the tabl
e below:
State of nature N1 Probabilities→ 1/3 → Strategy S1 S2 S3 9 13 15 N2 1/3 12 14 4 N3
1/3 18 10 26 15 × 1/3 + 12 × 1/3 + 18 × 1/3 =15 Maximum 9 × 1/3 + 14 × 1/3 + 10 × 1/3 = 11
3 × /3 + 4 × 1/3 + 26 × 1/3 = 14 1/3 Expected monetary value (EMV)
Utility or Payoffs.
As S1 is having highest EMV it is the optimal strategy.
12.15. DECISION MAKING UNDER CONFLICT AND COMPETITION
In the problems discussed above, we have assumed that the manager has a finite s
et of strategies and he has to identify the optimal strategy depending on the co
ndition of complete certainty to complete uncertainty. In all the models, the as
sumptions made are (1) Various possible future environments that the decision ma
ker will face can be enumerated in a finite set of states of nature and (2) The
complete payoff matrix is known. Now, let us consider that two rationale competi
tors or opponents are required to select optimal strategies, given a series of a
ssumptions, including: (1) The strategies of each party are known to both oppone
nts, (2) Both opponents choose their strategies simultaneously, (3) the loss of
one party equals exactly to gain of the other party, (4) Decision conditions rem
ain the same, and (5) It is a repetitive decision making problem (refer to Game
theory). Two opponents are considered as two players, and we adopt the conventio
n that a positive payoff will mean a gain to the row player A or maximizing play
er, and a loss to the column player B or minimizing player. (Refer to 2 person z
ero sum game). Consider the matrix given: maximin identifies outcome for player
A and Minimax identifies the optimal strategy outcome for player B. This is beca
use each player can adopt the policy, which is best to him. A wants to maximize
his minimum outcomes and B wants to minimize his maximum loses.
Player B B1 A1 Player A Column maximum A2 A3 8 9 7 9 B2 12 14 4 14 B3 7 10 26 26
B4 3 16 5 16 Row minimum 3 9 4
A selects the second strategy as it guaranties him a minimum of 9 units of money
and B chooses strategy 2 as it assures him a minimum loss of 9 units of money.
This type of games is known as pure strategy game.The alement where minimax poin
t and maximin point are same known as saddle point.
Decision Theory
603
12.16. HURWICZ CRITERION (CRITERION OF REALISM)
This is also known as weighted average criterion, it is a compromise between the
maximax and maximin decisions criteria. It takes both of them into account by a
ssigning them weights in accordance with the degree of optimism or pessimism. Th
e alternative that maximizes the sum of these weighted payoffs is then selected.
Problem 12.7.
The following matrix gives the payoff of different strategies (alternatives) A,
B, and C against conditions (events) W, X, Y and Z. Identify the decision taken
under the following approaches: (i) Pessimistic, (ii) Optimistic, (iii) Equal pr
obability, (iv) Regret, (v) Hurwicz criterion. The decision maker’s degree of opti
mism (α) being 0.7.
Events W Rs. A B C 4000 20000 20000 X Rs. –100 5000 15000 Y Rs. 6000 400 – 2000 Z Rs
. 18000 0 1000
Solution (for i, ii, nd iii)
W Regret Rs. A B C 16000 0 0 X 15100 10000 0 Y 0 5600 8000 Z 0 18000 17000 M xim
um regret. Rs. — 16000 18000 17000
Regret Rs. Regret Rs Regret Rs
Pessimistic M ximin v lue A B C – Rs. 100/Rs. 0/– Rs. 2000
Optimistic M xim x v lue Rs. 18000 Rs. 20000 Rs. 20000
Equ l Prob bility v lue Rs. ¼ (4000 – 100 + 6000 + 18000) = Rs. 6975/Rs. ¼ (20000 + 50
00 + 400 + 0) = Rs. 6350/Rs. ¼ (20000 + 15000 – 2000 + 1000) = Rs. 8,500/-
Under pessimistic ppro ch, B is the optim l str tegy, under optimistic ppro ch
B or C re optim l str tegies, nd under equ l prob bility ppro ch C is the op
tim l str tegy. (iv) Given t ble represents the regrets for every event nd for
e ch ltern tive c lcul ted by: = ith regret = (m ximum p yoff – ith p yoff) for t
he jth event. As str tegy A shows minim l of the m ximum possible regrets, it is
selected s the optim l str t egy. (v) For given p yoff m trix the minimum n
d the m ximum p yoffs for e ch ltern tive is given in the t ble below:
604
Oper tions Resse rch
Altern tive A B C
M ximum p yoff Rs 18000 20000 20000
Minimum p yoff. Rs – 100 0 –2000
P yoff = α × m ximum p yoff + (1–α) minimum p yoff , where α = 0.7 (Rs) 0.7 × 18000 – 0.3 ×
= 12570 0.7 × 20000 + 0.3 × 0 = 14000 0.7 × 20000 – 0.3 × 2000 = 13400
Under Hurwicz rule, ltern tive B is the optim l str tegy s it gives highest p
yoff.
Problem 12.8.
A newsp per boy h s the following prob bilities of selling m g zine. Cost of t
he copy is Rs. 0.30 nd s le price is Rs. 50. He c nnot return unsold copies. Ho
w m ny copies c n he order?
No. of copies sold 10 11 12 13 15 Tot l Prob bility 0.10 0.15 0.20 0.25 0.30 1.0
0
Solution
The s les m gnitude of newsp per boy is 10, 11, 12, 13, 14 p pers. There is no r
e son for him to buy less th n 10 or more th n 14 copies. The t ble below shows
condition l profit t ble, i.e. the profit resulting from ny possible combin tio
n of supply nd dem nd. For ex mple, even if the dem nd on some d y is 13 copies
, he c n sell only 10 nd hence his condition l profit is 200 p ise. When stocks
11 copies, his profit is 220 p ise on d ys when buyers request 11, 12, 13, nd
14 copies. But on the d y when he h s 11 copies, nd the buyers buy only 10 copi
es, his profit is 170 p is , bec use one copy is unsold. Hence p yoff = 20 × copie
s sold – 30 × copies unsold. Hence condition l profit t ble is:
Condition l Profit T ble (p is ) Possible Stock Action Possible dem nd Prob bili
ty (number of copies) 10 11 12 13 14 0.10 0.15 0.20 0.25 0.30 10 copies 11 copie
s 200 200 200 200 200 170 220 220 220 220 12 copies 140 190 240 240 240 13 copie
s 110 160 210 260 260 14 copies 80 130 180 230 280
Decision Theory
605
Expected Profit T ble Expected Profit from Stocking in P is Possible dem nd 10
11 12 13 14 Tot l Expected Profit in P is Prob bility 10 copies 0.10 0.15 0.20
0.25 0.30 20 30 40 50 60 200 11 copies 17 33 44 55 66 215 12 copies 14 28.5 48 6
0 72 222.5 13 copies 14 copies 11 24 42 65 78 220 8 19.5 36 57.5 84 205
The newsboy must therefore order 12 copies to e rn the highest possible ver ge
d ily profit of 222.5 p ise. Hence optim l stock is 12 p pers. This stocking wil
l m ximize the tot l profits over period of time. Of course there is no gu r n
tee th t he will m ke profit of 222.5 p ise tomorrow. However, if he stocks 12
copies e ch d y under the condition given, he will h ve ver ge profit of 222.5
p is per d y. This is the best be c n do bec use the choice of ny of the othe
r four possible stock ctions will result in lower d ily profit. (Note: The s
me problem m y be solved by Expected Opportunity Loss concept s shown below) EO
L (Expected Opportunity Loss) c n be computed by multiplying the prob bility of
e ch of st te of n ture with the ppropri te loss v lue nd dding the resulting
products. For ex mple: 0.10 × 0 + 0.15 × 20 + 0.20 × 40 + 0.25 × 60 + 0.30 × 80 = 0 + 3 +
15 + 24 = 50 p ise.
Condition l Loss T ble in P is Possible Stock Action (Altern tive)
Possible dem nd Number of copies (event) 10 11 12 13 14
Prob bility 10 copies 0.10 0.15 0.20 0.25 0.30 0 20 40 60 80
11 copies 30 0 20 40 60
12 copies 60 30 0 20 40
13 copies 14 copies 90 60 30 0 20 120 90 60 30 0
606
Oper tions Resse rch
If the newsp per boy stocks 12 p pers, his expected loss is less.
Possible dem nd Number of copies (event) 10 11 12 13 14 EOL (P is ) Prob bility
10 copies 0.10 0.15 0.20 0.25 0.30 0 3 8 15 24 50 11 copies 3 0 4 10 18 35 12 co
pies 6 4.5 0 5 12 27.5 13 copies 14 copies 9 9 6 0 6 30 12 13.5 12 7.5 0 45
12.17. DECISION TREES All the decision-m king problems discussed bove re singl
e st ge decision-m king problems. It is bec use in ll the problems, n ssumpti
on is m de th t the v il ble d t reg rding p yoffs, str tegies, st tes of n tu
re, competitor's ctions nd prob bility distribution is not subject to revision
nd th t the entire decision horizon is considered s single st ge. Only one
decision is m de nd these single st ge models re st tic decision models, bec u
se v il ble d t is not revised under the ssumption th t time does not ch nge
ny b sic f cts, nd th t no new inform tion is sought. There re, however, busi
ness situ tions where the m n ger needs to m ke not one, but sequence of decis
ions. These problems then become multist ge problems; bec use the outcome of one
decision ffects subsequent decisions. In situ tions, th t require sequence o
f decisions, the m n ger c n utilize simple but useful schem tic device known
s decision tree. A decision tree is schem tic represent tion of decision pr
oblem. A decision tree consists of nodes, br nches, prob bility estim tes, nd p
yoffs. There re two types of nodes, one is decision node nd other is ch nce n
ode. A decision node is gener lly represented by squ re, requires th t consc
ious decision be m de to choose one of the br nches th t em n te from the node (
i.e. one of the v iled str tegies must be chosen). The br nches em n te from n
d connect v rious nodes. We sh ll identify two types of br nches: decision br nc
h nd ch nce br nch. A decision br nch denoted by p r llel lines ( ) represents
str tegy or course of ction. Another type of br nch is ch nce br nch, represe
nted by single line (—) represents ch nce determined event. Indic ted longside
the ch nce br nches re their respective prob bilities. When br nch m rks the
end of decision tree i.e. it is not followed by decision or ch nce node will
be c lled s termin l br nch. A termin l br nch c n represent decision ltern
tive or ch nce outcome. The p yoffs c n be positive (profit or s les) or neg ti
ve (expenditure or cost) nd they c n be ssoci ted with decision br nch or
ch nce br nch. The p yoffs re pl ced longside ppropri te br nch except th t t
he p yoffs ssoci ted with the termin l br nches of the decision tree will be sh
own t the end of these br nches. The decision tree c n be deterministic or prob
bilistic (stoch stic), nd it c n he represent single-st ge (one decision) or
multist ge ( sequence of decisions) problem.
Decision Theory
607
Decision tree Deterministic Single st ge Multist ge Prob bilistic Single st ge M
ultist ge
The cl ssific tion of decision tree is shown bove.
12.17.1
A deterministic decision tree represents problem in which e ch possible ltern
tive nd its outcome re known with cert inty. Th t is, deterministic tree do
es not cont in ny ch nce node. A single st ge deterministic decision tree is on
e th t cont ins no ch nce nodes nd involves the m king of only one decision.
Problem 12.9.
A business m n ger w nts to decide whether to repl ce cert in equipment in the f
irst ye r or in the second ye r or not repl ce t ll. The p yoffs re shown bel
ow. Dr w decision tree to decide the str tegy.
Profits or P yoffs in Rupees Str tegy A Repl ce now B Repl ce fter one ye r C D
o not repl ce First ye r 4000 5000 5000 Second ye r 6000 4000 3000 Tot l 10000 9
000 8000
Solution: (Figure 12.1)
Figure 12.1
608
Oper tions Resse rch
The optim l str tegy is to repl ce the equipment now.
12.17.2. Stoch stic Decision Trees These re ch r cterized by the presence of ch
nce nodes. A single-st ge stoch stic decision tree is one th t cont ins t le s
t one ch nce node nd involves the m king of only one decision. Conceptu lly, n
y condition l p yoff m trix c n be represented s single- st ge stoch stic dec
ision tree, nd vice vers . However, such problems (involving one decision) re
best formul ted nd solved by the p yoff m trix ppro ch. A multist ge stoch sti
c decision tree is one th t cont ins t le st one ch nce node nd involves the m
king of sequence of decisions. The decision tree ppro ch is most useful in
n lyzing nd solving the multist ge stoch stic decision problems. Problem 12.10.
B sing on the recommend tions of the str tegic dvisory committee of M/S Zing m
nuf cturing comp ny it h s decided to enter the m rket with new consumer prod
uct. The comp ny h s just est blished corpor te m n gement science group with
members dr wn from rese rch nd development, m nuf cturing, fin nce nd m rketin
g dep rtments. The group w s sked to prep re nd present n investment n lysis
th t will consider expenditures for building pl nt, s les forec sts for the n
ew product, nd net c sh flows covering the expected life of the pl nt. After h
ving considered sever l ltern tives, the following str tegies were presented to
top m n gement. Str tegy A: Build l rge pl nt with n estim ted cost of Rs. 2
00 crores. This ltern tive c n f ce two st tes of n ture or m rket conditions:
High dem nd with prob bility of 0.70, or low dem nd with prob bility of 0.
30. If the dem nd is high, the comp ny c n expect to receive n nnu l c sh flow
of Rs. 50,00,000 for 7 ye rs. If the dem nd were low the nnu l c sh flow would
be only Rs. 10,00,000, bec use of l rge fixed costs nd inefficiencies c used b
y sm ll volume. As shown in figure, str tegy A ultim tely br nches into two poss
ibilities depending on whether the dem nd is high or low. These re identified
s decision tree termin l points A1 nd A2 (Figure 12.2). Str tegy B: Build sm
ll pl nt with n estim ted cost of Rs. 1 crore. This ltern tive lso f ces two
st tes of n ture: High dem nd with prob bility of 0.70, or low dem nd with
prob bility of 0.30. If the dem nd is low nd rem ins low for 2 ye rs, the pl n
t is not exp nded. However, if initi l dem nd is high nd rem ins high for two y
e rs, we f ce nother decision of whether or not to exp nd the pl nt. If it is
ssumed th t the cost of exp nding the pl nt t th t time is Rs. 1.5 crore. Furth
er, it is ssumed th t fter this second decision the prob bilities of high nd
low dem nd rem ins the s me. As shown in the figure 12.2 str tegy B eventu lly b
r nches into five possibilities. Identified by termin l points B1 to B5. Estim t
e of the nnu l c sh flow nd prob bilities of high dem nd nd low dem nd re sh
own in figure 12.2. Wh t str tegy should be selected?
Decision Theory
609
Figure 12.2. Multist ge decision tree
610
Oper tions Resse rch
Solution
The decision tree shown in figure 12.2 is dr wn in such m nner th t the st rti
ng point is decision node nd the progression is from left to right. The numbe
r of br nches, nd the m nner, in which v rious decision nd ch nce nodes re co
nnected by me ns of br nches, indic tes v rious p ths through the tree. Along th
e br ches stemming from decision nodes, we write down the decision ltern tives
nd/ or their monet ry p yoffs or costs, long the br nches prob bilities, nd m
onet ry p yoff fin lly, t the extreme right h nd side of the decision tree (ter
min l br nches, fter which no decision is m de or ch nce node is ppe red) th
e relev nt p yoffs re shown. At the end of e ch termin l the rel ted p yoff is
shown. Once the relev nt inform tion reg rding decision nodes, ch nce nodes, dec
ision nd ch nce br nches, rew rds or costs of decision br nches prob bilities
nd p yoffs ssoci ted with ch nce br ches re known, we c n n lyze the tree.
An lysis
The n lysis of decision tree consists of c lcul ting the position v lue of e ch
node through the process or roll b ck. The concept of roll b ck implies th t we
st rt from the end of the tree, where the p yoff is ssoci ted with the termin
l br nches s indic ted nd go b ck tow rds the first decision node (DN # 1) i.e
. we proceed from right to left. As we roll b ck, we c n f ce either ch nce no
de or decision node. The position v lue of the ch nce node is simply the expec
ted v lue of the p yoffs represented by v rious br nches th t stem from the node
. For ex mple, the position v lue of Ch nce node 1 (CN # 1) is = 0.7 (7 × 500,000)
+ 03 × (7 × 100,000) = Rs. 2,660,000 Position v lue of ch nce nodes 3 nd 4 (CN # 3
, CN # 4) re: Position v lue of CN # 3 = 0.7 (5 × 600,000) + 0.3 (5 × 100,000) = Rs
. 2, 250, 000. Position v lue of CN # 4 = 0.7 (5 × 300,000) + 0.3 (5 × 150,000) = Rs
. 1, 275, 000. The position v lue of decision node is the highest ( ssuming po
sitive p yoffs) of the position v lue of nodes, or the node, to which it is conn
ected, less the cost involved in the specific br nch le ding to th t node. For e
x mple, s we roll b ck to decision node 2 (DN # 2), we note th t Rs. 150, 000 (
cost of exp nsion) must be subtr cted from the position v lue of ch nce node 3 (
CN # 3) i.e. Rs. 225,000. Th t is the br nch yields Rs. 2,250,000 – Rs. 1,750,000
=, Rs. 750,000. And this must be comp red with the CN # 4 position v lue of Rs.
1,275,000. The higher of the two v lues i.e. Rs. 1, 275,000 is the position v lu
e of DN # 2. The position v lue of node will be pl ced inside the symbol for t
he node. Next, let us rollb ck to CN # 2, s in CN # 3 nd CN # 4, the position
v lue of CN # 2 is lso c lcul ted by the expected v lue concept. However, in th
e c se of CN # 2, one of the br nches em n ting from it le ds with prob bility
0.7 to decision node (the p yoff for this br nch is tot l c sh flow of Rs.
5,600,000 plus the position v lue of DN # 2) while the other is the termin l br
nch, h ving prob bility of 0.3, with its own p y of Rs. 1,050, 000. Hence the
position v lue of CN # 2 is: 0.7 (Rs. 600,000+ Rs. 1,275,000) + 0.3 (7 × 150,000)
= Rs. 1,627,500. We re now re dy to roll b ck to DN # 1. As shown in figure 12.
2, the position v lues of CN # 1 nd CN # 2 th t re connected to decision node
1 re lre dy c lcul ted. From the position v lue of
Decision Theory
611
CN # 1, we subtr ct Rs. 2,000,000 (cost of building l rge pl nt) nd obt in 2,
660, 000 – 2,000,000 = Rs. 660,000. From the position v lue of CN # 2, we subtr ct
1, 000,000, the cost of building sm ll pl nt nd get 1, 627, 500 – 1, 000, 000
= Rs. 627, 500. Thus, when we comp re the two decisions br nches em n ting from
DN #1, we find th t the str tegy A, to build l rge pl nt, yields the higher p
yoff. Hence the position v lue of DN # 1 is Rs. 660, 000. Th t the str tegy A is
the optim l str tegy nd its expected v lue is Rs. 660, 000. When we summ rize,
the elements nd concepts needed to consider decision re: • All decisions nd
ch nce nodes. • Br nches th t connect v rious decision nd ch nce nodes. • P yoff (r
ew rd or cost) ssoci ted with br nches em n ting from decision nodes. • Prob bili
ty v lues ssoci ted with br ches em n ting from ch nce nodes. • P yoffs ssoci te
d with e ch of ch nce br nches. • P yoffs ssoci ted with e ch termin l br nch t
the no conclusion of e ch p th th t c n be tr ced through v rious combin tions t
h t form the tree. • Position v lues of Ch nce nd Decision nodes. • The process of
roll b ck. Our decision tree problem described bove involves sequence of only
two decisions, nd ch nce node h d only two br nches. This is obviously sim
plified ex mple, designed only to show the concept, structure, nd mech nics of
the decision-tree ppro ch. The following re only some of the refinements th t
c n be introduced in order to get more re lity. • The sequence of decision c n inv
olve l rger number of decisions. • At e ch decision node, we c n consider l rg
er number of str tegies. • At e ch ch nce node, we c n consider l rger number of
ch nce br nches. Actu lly, we c n even ssume continuous prob bility distributi
on t e ch ch nce node. • We c n introduce more sophistic ted nd more det iled pr
ojections of c sh flows. • We c n use the concept discount th t would t ke into c
count the f ct th t present rupee v lue worth more future v lue. • We c n lso obt
in n ide of the qu lity of the risk ssoci ted with relev nt decision-tree p
ths. Th t is, in ddition to c lcul ting the expected v lue, we c n c lcul te su
ch p r meters s r nge nd st nd rd devi tion of the p yoff distribution ssoci
ted with e ch relev nt p th. • We c n conduct B yesi n n lysis th t permits intro
duction of new inform tion nd revision of prob bilities. Admittedly, neither th
e problems nor the decisions re th t simple in re l world. However, the ttempt
s to n lyze decision problems in qu ntit tive f shion yield not only some ‘‘b ll
p rk’’ figu e, but a so va uab e qua itative insights into the enti e decision envi
onment.
P ob em 12.11.
A c ient has an estate agent to se th ee p ope ties A, B and C fo him and ag
ees to pay him 5% commission on each sa e. He specifies ce tain conditions. The
estate agent must se p ope ty A fi st, and this he must do within 60 days. If
and when A is so d the agent eceives his 5% commission on that sa e. He
612
Ope ations Ressea ch
can then eithe back out at this stage o nominate and t y to se one of the e
maining two p ope ties within 60 days. If he does not succeed in se ing the nom
inated p ope ty in that pe iod, he is not given oppo tunity to se the thi d p
ope ty on the same conditions. The p ices, se ing costs (incu ed by the estate
agent wheneve a sa e is made) and the estate agent s estimated p obabi ity of
making a sa e a e given be ow:
P ope ty A B C P ice of P ope ty in Rs. 12,000 25,000 50,000 Se ing Costs in Rs
. 400 225 450 P obabi ity of Sa es 0.70 0.60 0.50
(1) D aw up an app op iate decision t ee fo the estate agent. (2) What is the e
state agent s best st ategy unde Expected monito y va ue app oach (EMV)?
So ution
The estate agent gets 5% commission if he se s the p ope ties and satisfies the
specified condition. The amount he eceives as commission on the sa e of p ope
ties A, B and C wi be Rs. 600/-, RS. 1250/- and Rs. 2500 espective y. Since s
e ing costs incu ed by him a e Rs. 400/-, Rs. 225/- and Rs. 450/-, his conditi
ona p ofits f om sa e of p ope ties A, B and C a e Rs. 200/-, Rs. 1025/- and Rs
. 2050/- espective y. The decision t ee is shown in figu e 12.3.
EMV of node D = Rs. (0.5 × 2050 + 0.5 × 0) = Rs. 1025. EMV of node E = Rs. (0.6 × 1025
+ 0.4 × 0) = Rs. 615. EMV of node 3 = Maximum of Rs. (1025, 0) = Rs. 1025. EMV of
node 4 = Maximum of Rs. (615, 0) = Rs. 615. EMV of node B = Rs. [0.6 (1025 + 10
25) + 0.4 × 0] = Rs. 1230. EMV of node C = Rs. [0.5 (2050 + 615) + 0.5 × 0] = RS. 13
32.50. The efo e, EMV of node 2 = Rs. 1332.50, highe among EMV at B and C. The
efo e, EMV of node A = Rs. [0.7(200 + 1332.50) + 0.3 × 0] = Rs. 1072.75 The efo e,
EMV of node 1 = Rs. 1072.75. The optima st ategy path is d awn in bo d ines.
Thus, the optimum st ategy fo the estate agent is to se A; if he se s A then
t y to se C and if he se s C then t y to se B to get an optimum, expected
amount of Rs. 1072.50.
Decision Theo y
613
Figu e 12.3 shows Decision t ee fo p ob em 12.11.
Figu e 12. 3.
P ob em 12.12.
M . Sinha has to decide whethe o not to d i a we on his fa m. In his vi a
ge, on y 40% of the we s d i ed we e successfu at 200 feet of depth. Some of
the fa me s who did not get wate at 200 feet d i ed fu the up to 250 feet but
on y 20% st uck wate at 250 feet. Cost of d i ings is Rs. 50/- pe foot. M .
Sinha estimated that he wou d pay Rs. 18000/- du ing a 5-yea pe iod in the p es
ent va ue te ms, if he continues to buy wate f om the neighbou athe than go
fo the we which wou d have ife of 5 yea s. M . Sinha has th ee decisions to
make: (a) Shou d he d i up to 200 feet? (b) If no wate is found at 200 feet,
shou d he d i up to 250 feet? (c) Shou d he continue to buy wate f om his nei
ghbou ? D aw up an app op iate decision t ee and dete mine its optima decision.
614
Ope ations Ressea ch
So ution
Decision t ee is shown in figu e 12.4. The cost associated with each outcome is
w itten on the decision t ee. EMV of node B = Rs. [0.2 × 0 + 0.8 × 18000] = Rs. 14,4
00/The efo e EMV of node 2 = Rs. 16,900/- esse of the two va ues of Rs. 16900
and Rs. 18000/The efo e EMV of node A = Rs. [0.40 × 0 + 0.6 × 16900/-] = Rs. 10,140/
EMV of node 1 = Rs. 18000/- esse of the two va ues Rs. 20,140/- and Rs. 18000/
The optima east cost cou se of action fo M . Sinha is not to d i the we a
nd pay Rs. 18000/fo wate to his neighbou fo five yea s. Figu e 12.4 shows De
cision t ee fo p ob em No. 12.12.
Figu e 12.4.
QUESTIONS
1. What is a decision? Diffe entiate between p og ammed and non-p og ammed decis
ions. 2. Define the te m Decision theo y. Desc ibe decision mode s based on the
c ite ion of deg ee of ce tainty. 3. Exp ain the concept of expected va ue. Give
gene a fo mu a fo ca cu ating the expected va ue when we a e a finite numbe
of outcomes.
Decision Theo y
615
4. Th ee st ategies and th ee states of natu e a e given and payoffs ep esent p
ofits. (i) What is the optima st ategy if we app y the c ite ion of pessimism?
(ii) Deve op a eg et mat ix and app y the minimax eg et c ite ion to identify
the optima st ategy. State of natu e.
St ategy S1 S2 S3 N1 47 32 51 N2 49 25 30 N3 33 41 14
5. A comp ex ai bo ne navigating system inco po ates a sub-assemb y, which un o
s a map of the f ight, p an synch onous y with the movement of the ae op ane. T
his subassemb y is bought on ve y good te ms f om a subcont acto , but is not a
ways in pe fect adjustment on de ive y. The subassemb ies can be eadjusted on d
e ive y to gua antee accu acy at a cost of Rs. 50/- pe subassemb y. It is not, h
oweve , possib e to distinguish visua y those sub-assemb ies that need adjustme
nt. A te native y, the sub-assemb ies can each be tested e ect onica y at a cos
t of Rs. 10/pe subassemb y tested. Past expe ience shows that about 30 % of tho
se supp ied a e defective; the p obabi ity of the test indicating a bad test ind
icates a good adjustment when the sub-assemb y is found to be fau ty when the sy
stem has its fina check, the cost of subsequent ectification wi be Rs. 140/-
. D aw up an app op iate decision t ee to show the a te natives open to the pu c
hase and use it to dete mine its app op iate cou se of action. 7. A a ge stee
manufactu ing company has th ee options with ega d to p oduction (a) P oduce c
omme cia y (b) Bui d pi ot p ant and (c) Stop p oducing stee . The management h
as estimated that thei pi ot p ant, if bui t, has 0.8 chance of high yie d and
0.2 chance of ow yie d. If the pi ot p ant does show a high yie d, management a
ssigns a p obabi ity of 0.75 that the comme cia p ant wi a so have a high yie
d. If the pi ot p ant shows a ow yie d, the e is on y a 0.1 chance that the co
mme cia p ant wi show a high yie d. Fina y, management s best assessment of
the yie d on a comme cia -size p ant without bui ding a pi ot p ant fi st has a
0.6 chance of high yie d. A pi ot p ant wi cost Rs. 3,00,000/. The p ofits ea
ned unde high and ow yie d conditions a e Rs. 1,20,00,000/- and – Rs. 12,00,000/
- espective y. Find the optimum decision fo the company.
MULTIPLE-CHOICE QUESTIONS
1. The conc usion of a p ocess designed to weigh the e ative uti ities of a set
of avai ab e a te natives to se ect most p efe ed one is known as: (a) Conc ud
ing session, (b) Conc usion, (c) End of the p ocess, (d) Decision. ( ) 2. The bo
dy of know edge that dea s with the ana ysis of making of decisions is known as
(a) Decisions (b) Know edge base (c) Decision theo y (d) Decision ana ysis. ( )
616
Ope ations Ressea ch
3. Decisions that a e meant to so ve epetitive and we st uctu ed p ob ems a e
known as: (a) Repetitive decisions, (b) St uctu ed decisions, (c) P og ammed de
cisions, (d) Linea p og amming. ( ) 4. Decisions that hand e non- outine, nove
, and i st uctu ed p ob ems a e known as: (a) Non-p og ammed decisions, (b) P
og ammed decisions, (c) I -st uctu ed decisions (d) Non- inea p og amming. ( )
ANSWERS
1. (d) 2. (c) 3. (c) 4. (a)
CHAPTER – 13
Simu ation
13.1. INTRODUCTION
Simu ation is the most impo tant technique used in ana yzing a numbe of comp ex
systems whe e the methods discussed in p evious chapte s a e not adequate. The
e a e many ea wo d p ob ems which cannot be ep esented by a mathematica mod
e due to stochastic natu e of the p ob em, the comp exity in p ob em fo mu atio
n and many va ues of the va iab es a e not known in advance and the e is no easy
way to find these va ues. Simu ation has become an impo tant too fo tack ing
the comp icated p ob em of manage ia decision-making. Simu ation dete mines the
effect of a numbe of a te nate po icies without distu bing the ea system. Re
cent advances in simu ation methodo ogies, technica deve opment and softwa e av
ai abi ity have made simu ation as one of the most wide y and popu a y accepted
too in Ope ation Resea ch. Simu ation is a quantitative technique that uti ize
s a compute ized mathematica mode in o de to ep esent actua decision-making
unde conditions of unce tainty fo eva uating a te native cou ses of action ba
sed upon facts and assumptions. John Von Newmann and Stains aw U am made fi st i
mpo tant app ication of simu ation fo dete mining the comp icated behaviou of
neut ons in a nuc ea shie ding p ob em, being too comp icated fo mathematica
ana ysis. Afte the ema kab e success of this technique on neut on p ob em, it
has become mo e popu a and has many app ications in business and indust y. The
deve opment of digita compute s has fu the inc eased the apid p og ess in the
simu ation technique. Designe s and ana ysts have ong used the techniques of s
imu ation by physica sciences. Simu ation is the ep esentative mode of ea s
ituation. Fo e examp e, in a city, a chi d en s pa k with va ious signa s and c
ossing is a simu ated mode of city t affic. A p aneta ium is a simu ated mode
of the so a system. In abo ato ies we pe fo m a numbe of expe iments on simu
ated mode to p edict the behaviou s of the ea system unde t ue envi onment.
Fo t aining a pi ot, f ight simu ato s a e used. The simu ato unde the cont o
of compute s gives the same eadings as the pi ot gets in ea f ight. The t a
inee can inte vene when the e is signa , ike engine fai u e etc. Simu ation is
the p ocess of gene ating va ues using andom numbe without ea y conducting e
xpe iment. Wheneve the expe iments a e cost y o infeasib e o time-consuming s
imu ation is used to gene ate the equi ed data.
13.2. DEFINITION
1. Simu ation is a ep esentation of ea ity th ough the use of mode o othe d
evice, which wi eact in the same manne as ea ity unde a given set of condi
tions.
618
Ope ations Ressea ch
2. Simu ation is the use of system mode that has the designed cha acte istic of
ea ity in o de to p oduce the essence of actua ope ation. 3. Acco ding to Do
na d G. Ma co m, simu ation mode may be defined as one which depicts the wo kin
g of a a ge sca e system of men, machines, mate ia s and info mation ope ating
ove a pe iod of time in a simu ated envi onment of the actua ea wo d condit
ions. 4. Acco ding to Nay o , et a . simu ation is a nume ica technique fo con
ducting expe iments on a digita compute , which invo ves ce tain types of mathe
matica and ogica e ationships necessa y to desc ibe the behaviou and st uct
u e of a comp ex ea wo d system ove extended pe iod of time. The e a e two t
ypes of simu ation, they a e: 1. Ana og Simu ation: Simu ating the ea ity in ph
ysica fo m (e.g.: Chi d en s pa k, p aneta ium, etc.) is known as ana og simu a
tion. 2. Compute Simu ation: Fo p ob ems of comp ex manage ia decision-making
, the ana ogue simu ation may not be app icab e. In such situation, the comp ex
system is fo mu ated into a mathematica mode fo which a compute p og amme is
deve oped. Using high-speed compute s then so ves the p ob em. Such type of sim
u ation is known as compute simu ation o system simu ation.
13.3. CLASSIFICATION OF SIMULATION MODELS
Simu ation mode s a e c assified as: (a) Simu ation of Dete ministic mode s: In
the case of these mode s, the input and output va iab es a e not pe mitted to be
andom va iab es and mode s a e desc ibed by exact functiona e ationship. (b)
Simu ation of P obabi istic mode s: In such cases method of andom samp ing is
used. The techniques used fo so ving these mode s a e te med as Monte-Ca o tec
hnique. (c) Simu ation of Static Mode s: These mode s do not take va iab e time
into conside ation. (d) Simu ation of Dynamic Mode s: These mode s dea with tim
e va ying inte action.
13.4. ADVANTAGES OF SIMULATION
Simu ation is a wide y accepted technique of ope ations esea ch due to the fo
owing easons: * It is st aightfo wa d and f exib e. * It can be used to ana yze
a ge and comp ex ea wo d situations that cannot be so ved by conventiona q
uantitative ana ysis mode s. * It is the on y method sometimes avai ab e. * It s
tudies the inte active effect of individua components o va iab es in o de to
dete mine which ones a e impo tant. * Simu ation mode , once const ucted, may be
used ove and again to ana yze a kinds of diffe ent situations.
Simu ation
619
* It is the va uab e and convenient method of b eaking down a comp icated system
into subsystems and thei study. Each of these subsystems wo ks individua y o
joint y with othe s.
13.5. LIMITATIONS OF SIMULATION TECHNIQUE
* Since simu ation mode most y dea s with unce tainties, the esu ts of simu at
ion a e on y e iab e app oximations invo ving statistica e o s, optimum esu
ts cannot be p oduced by simu ation. * In many situations, it is not possib e to
identify a the va iab es, which affect the behaviou of the system. * In ve y
a ge and comp ex p ob ems, it is ve y difficu t to make the compute p og am i
n view of the a ge numbe of va iab es and the invo ved inte – e ationship among
them. * Fo p ob ems equi ing the use of compute , simu ation may be compa ativ
e y cost ie and time consuming in many cases. * Each so ution mode is unique a
nd its so utions and infe ences a e not usua y t ansfe ab e to othe p ob ems,
which can be so ved by othe techniques.
13.6. MONTE-CARLO SIMULATION
The Monte-Ca o method is a simu ation technique in which statistica dist ibuti
on functions a e c eated using a se ies of andom numbe s. Wo king on the digita
compute fo a few minutes we can c eate data fo months o yea s. The method
is gene a y used to so ve p ob ems which cannot be adequate y ep esented by ma
thematica mode s o whe e so ution of the mode is not possib e by ana ytica m
ethod. Monte-Ca o simu ation yie ds a so ution, which shou d be ve y c ose to t
he optima , but not necessa i y the exact so ution. But this technique yie ds a
so ution, which conve ges to the optima so ution as the numbe of simu ated t i
a s tends to infinity. The Monte-Ca o simu ation p ocedu e can be summa ized in
the fo owing steps: Step 1: C ea y define the p ob em: (a) Identify the objec
tives of the p ob em. (b) Identify the main facto s, which have the g eatest eff
ect on the objective of the p ob em. Step 2: Const uct an app oximate mode : (a)
Specify the va iab es and pa amete s of the mode. (b) Fo mu ate the app op iate
decision u es, i.e. state the conditions unde which the expe iment is to be p
e fo med. (c) Identify the type of dist ibution that wi be used. Mode s use ei
the theo etica dist ibutions o empi ica dist ibutions to state the patte ns
of the occu ence associated with the va iab es. (d) Specify the manne in which
time wi change.
P ob em 13.1.
With the he p of a sing e se ve queuing mode having inte -a iva and se vice
times constant y 1.4 minutes and 3 minutes espective y, exp ain disc ete simu a
tion technique taking 10 minutes as the simu ation pe iod. Find f om this ave ag
e waiting time and pe centage of id e time of the faci ity of a custome . Assume
that initia y the system is empty and the fi st custome a ives at time t = 0
.
620
Ope ations Ressea ch
So ution
Data: System is initia y empty. Se vice sta ts as soon as fi st custome a ive
s. Fi st custome a ives at t = 0. The depa tu e time of fi st custome = 0 + 3
i.e. a iva time + se vice time = 3 minutes (Dep) in the tab e. The second cus
tome a ives at 1.4 minutes and thi d a ives at 2.8 minutes (A ). Unti the f
i st custome eaves the system, second and thi d custome s have to wait fo se
vice. We can ca cu ate waiting time fo second custome by taking the diffe ence
of time of depa tu e of fi st custome and the time of a iva of second custom
e i.e. 3 – 1.4 = 1.6 minutes. The p ocedu e is shown in the tab e be ow:
Time 0.0 1.4 2.8 3.0 4.2 5.6 6.00 7.00 8.4 9.00 9.80 10.00 Event A = a iva D
ep = depa tu e A . A . A . Dep A . A . Dep A . A . Dep. A . End of given
time Custome Numbe 1 2 3 1 4 5 2 6 7 3 8 10.00 – 5.60 = 4.4 min. fo custome 5
10.00 – 7.00 = 3.0 min. fo custome 6 10.00 – 8.4 = 1.6 min. fo custome 7 10.00 –
9.80 = 0.2 min. fo custome 8. 9.00 – 4.20 = 4.8 min. fo custome 4 6.00 – 2.80 =
3.2 min. fo custome 3. Waiting time. --3.00 – 1.40 = 1.6 min. fo custome 2.
Ave age waiting time pe custome fo those who must wait = Sum of waiting time
of a custome s / numbe of waiting times taken = (1.4 + 2.8 + 4.2 + 5.6 + 7.0
+ 8.4 + 9.8) / 7 = 18.8 / 7 = 2.7 minutes. Pe centage of id e time of se ve = S
um of id e time of se ve / tota time = 0%.
Simu ation
621
13.7. RANDOM NUMBERS
Random numbe is a numbe in a sequence of numbe s whose p obabi ity of occu en
ce is the same as that of any othe numbe in that sequence.
13.7.1. Pseudo-Random Numbe s
Random numbe s which a e gene ated by some dete ministic p ocess but which satis
fy statistica test fo andomness a e ca ed Pseudo- andom numbe s.
13.7.2. Gene ation of Random Numbe s
Using some a ithmetic ope ation one can gene ate Pseudo- andom numbe s. These me
thods most common y specify a p ocedu e, whe e sta ting with an initia numbe c
a ed seed is gene ates the second numbe and f om that a thi d numbe and so on
. A numbe of ecu sive p ocedu e a e avai ab e, the most common being the cong
uence method o the esidue method. This method is desc ibed by the exp ession:
i + 1 = (a i + b) (modu o m), Whe e a, b and m a e constants, i and i +1 a e
the ith and (i + 1)th andom numbe s. The exp ession imp ies mu tip ication of a
by i and addition of b and then division by m. Then i +1 is the emainde o
esidue. To begin the p ocess of andom numbe gene ation, in addition to a, b a
nd m, the va ue of 0 is a so equi ed. It may be any andom numbe and is ca e
d seed.
P ob em 13.2
With the he p of an examp e exp ain the additive mu tip icative and mixed types
of the cong uence andom numbe gene ato s.
So ution
The ong uence andom numbe gene ato is desc ibed by the ecu sive exp ession
i + 1 = (a i + b) (modu o m), Whe e a, b and m a e constants. The se ection of t
hese constants is ve y impo tant as it dete mines the sta ting of andom numbe ,
which can be obtained by this method. The above exp ession is fo a mixed type
cong uentia method as it comp ises both mu tip ication of a and i and addition
of a i and b. If a = 1, the exp ession educes to i + 1 = ( i + b) (modu o m).
This is known as additive type exp ession. When b = 0, the exp ession obtained
is I + 1 = (a I) (modu o m), this is known as mu tip icative method. To i ust
ate the diffe ent types of the cong uence methods, et us take a = 16, b = 18 a
nd m = 23 and et the sta ting andom numbe o seed be 0 = 1. (a) Mixed Cong u
entia method: i + 1 = (a i + b) (modu o m), the efo e,
622
Ope ations Ressea ch
i 1 2 3 4 5 6 7 8 9 10 11
i + 1 = (a i + b) (modu o m), (16 × 1 + 18) / 23 (16 × 11 + 18) /23 (16 × 10 + 18)
/ 23 (16 × 17 + 18) / 23 (16 × 14 + 18) / 23 (16 × 12 + 18) / 23 (16 × 3 + 18) / 23 (16 ×
20 + 18) / 23 (16 × 16 + 18) / 23 (16 × 21 + 18) / 23 (16 × 9 + 18) / 23
= 34 / 23 194 / 23 178 / 23 290 / 23 242 / 23 210 / 23 66 / 23 338 / 23 274 / 23
354 / 23 162 / 23
Residue 1 esidue 11 8 + esidue 10 7 + esidue 17 12 + esidue 14 10 + esidue
12 9 + esidue 3 2 + esidue 20 14 + esidue 16 11 + esidue 21 15 + esidue 9 7
+ esidue 1
The andom numbe s gene ated by this method a e: 1, 11, 10, 17, 14, 12, 3, 20, 1
6, 21, and 9. (b) Mu tip icative Cong uentia Method: i + 1 = a i (modu o m)
i 1 2 3 4 5 6 7 8 9 10 11 i + 1 = a i (modu o m) (16 × 1) / 23 (16 × 1
6) / 23 (16 × 3) / 23 (16 × 2) / 23 (16 × 9) / 23 (16 × 6) / 23 (16 × 4) / 23 (16 × 18) / 2
(16 × 12) / 23 (16 × 8) / 23 (16 × 13) / 23 Random Numbe 0 + Residue 16 11 + Residue
3 2 + Residue 2 1 + Residue 9 6 + Residue 6 4 + Residue 4 2 + Residue 18 12 + R
esidue 12 8 + Residue 8 5 + Residue 13 9 + esidue 1
The st ing of andom numbe s obtained by mu tip icative cong uentia method is 1
, 16, 3, 2, 9, 6, 4, 18, 12, 8, and 13.
Simu ation
623
(c) Additive Cong uentia Method: i + 1 = ( i + b) (modu o m).
i 1 2 3 4 5 6 7 8 9 10 11 i + 1 = ( i + b) (modu o m) (1 + 18) / 23
(19 + 18) / 23 (14 + 18) / 23 (9 + 18) / 23 (4 + 18) / 23 (22 + 18) / 23 (17 +
18) / 23 (12 + 18) / 23 (7 + 18) / 23 (2 + 18) / 23 (20 + 18) / 23 Random Numbe
0 + esidue 19 1 + esidue 14 1 + esidue 9 1 + esidue 4 0 + esidue 22 1 + e
sidue 17 1 + esidue 12 1 + esidue 7 1 + esidue 2 0 + esidue 20 1 + esidue 1
5
The andom numbe s gene ated a e: 1, 19, 14, 19, 4, 22, 17, 12, 7, 2, 20, and 15
.
P ob em 13.3.
The dist ibution of inte -a iva timein a sing e se ve mode
is And
the dist
ibution of se vice time is T=1 f(T) = S=1 F (S) = ½ 2 ½ 2 3 3
Comp ete the fo owing tab e using the two digit andom numbe s as 12, 40, 48, 9
3, 61, 17, 55, 21, 85, 68 to gene ate a iva s and 54, 90, 18, 38, 16, 87, 91, 4
1, 54, 11 to gene ate the co esponding se vice times.
A iva Numbe Random Numbe A iva Time Time Se vice Begins Random numbe Time
Waiting time Se vic in Queue ends
So ution
The dist ibution of inte -a iva times and the two-digit andom numbe s assigne
d to diffe ent va ues of T is as be ow:
624
Ope ations Ressea ch
T 1 2 3
f(T) 0.25 0.50 0.25
∑ f (T ) 0.25 0.75 1.00
Random numbe s 00 to 24 25 to 74 75 to 99
Inte -a iva times co esponding to andom numbe s 12, 40, 48, 93, 61, 17, 55,
21, 85 and 68 a e Given 1, 2, 2, 3, 2, 1, 2, 1, 3, 2 espective y. Simi a y, th
e dist ibution of se vice times and two-digit andom numbe s assigned to diffe e
nt va ues of S a e as fo ows:
S 1 2 3 f (s) 0.50 0.25 0.25 ∑ f (s) 0.50 0.75 1.00 Random numbe 00 to 49 25 to 7
4 75 to 99
The simu ation is done as fo ows:
Time Se vice Begins in Mins. 1 3 6 8 10 11 14 17 18 20 Time Se vice Ends in Mins
. 3 6 7 9 11 14 17 18 20 21
A iva numbe 1 2 3 4 5 6 7 8 9 10
Random numbe 12 40 48 93 61 17 55 21 85 68
A iva time 1 3 5 8 10 11 13 14 17 19
Random numbe 54 90 18 38 16 87 91 41 54 11
Waiting Time in Queue. 1 1 3 1 1
The wo king of the above tab e is as be ow: The simu ation of the sing e-se ve
system sta ts at ze o time. Fi st custome a ives at 1 time unit afte that and
the se vice immediate y begins. Since the se vice time fo the fi st custome i
s 2 time units, se vice ends at 3 time units. The second custome a ives afte
an inte -a iva time of 2 time units and goes to se vice immediate y at 3 time
units. The thi d custome who a ives at 5 time units has to wait ti the se vi
ce of 2nd custome ends at 6 units of time. The othe ent ies a e a so fi ed on
the same ogic.
Simu ation
625
P ob em 13.4. A coffee house in a busy ma ket ope ates counte se vice. The p op
ieto of the coffee house has app oached you with the p ob em of dete mining th
e numbe of bea e s he shou d emp oy at the counte . He wants that the ave age w
aiting time of the custome shou d not exceed 2 minutes. Afte eco ding the dat
a fo a numbe of days, the fo owing f equency dist ibution of inte -a iva ti
me of custome s and the se vice time at the counte a e estab ished. Simu ate th
e system fo 10 a iva s of va ious a te native numbe of bea e s and dete mine
the suitab e answe to the p ob em.
Inte -a iva time in mins. 0 0.5 1.0 1.5 2.0 2.5 3.0 F equency (%) 5 35 25 15 1
0 7 3 Se vice time in mins. 1.0 2.0 3.0 4.0 5.0 F equency (%) 5 25 35 20 15
So ution It is queuing situation whe e custome s a ive at counte fo taking co
ffee. Depending upon the numbe of bea e s, the waiting time of the custome s wi
va y. It is ike a sing e queue mu ti-channe system and waiting custome can
ente any of the se vice channe as and when one becomes avai ab e. By taking t
wo-digit andom numbe inte a iva and inte se vice times a e as fo ows: Rando
m numbe fo a iva s:
Inte-a iva time in minutes 0 0.5 1.0 1.5 2.0 2.5 3.0
F equency 5 35 25 15
10
7 3 Cumu ative f equency 5 40 65 80 90 97 100 Random numbe s 00 to 04 05 to 39
40 to 64 65 to 79 80 to 89 90 to 96 97 to 100
Random numbe fo Se vice:
Se vice time in minutes 1.0 2.0 3.0 4.0 5.0 F equency 5 25 35 20 15 Cumu ative f
equency 5 30 65 85 100 Random numbe 00 to 04 05 to 29 30 to 64 65 to 84 85 to
99
626 Bea e One Se vice Ends 3.0 1.00 3.0 5.0 4.00 5.0 8.00 7.00 8.0 11.00 11.00
11.0 14.00 13.00
Ope ations Ressea ch
A iva Numbe 1 2 3 4 5 6 7 8 9 10
Random Numbe – 48 51 06 22 80 56 06 92 51
Inte A iva Time – 1.0 1.0 0.5 0.5 2.01 1.0 0.5 2.5 1.0
Random Numbe 31 46 24 54 63 82 32 14 63 18
Se vice Time 3 3 2 3 3 4 3 2 3 2
A iva Time 0 1.0 2.0 2.5 3.0 5.0 6.0 6.5 9.0 10.0
Bea e One Se vice Begins 0.0
Bea e Two Se vice Begins
Bea e Two Se vice Ends
Custome Waiting Time 0
4.00
0 1.0
7.00
1.5 2.0
11.00
2.0 2.0
13.00
4.5 2.0
15.00
3.0
The custome waiting time with two se ve s is sometimes g eate than 2 minutes.
Hence et us t y with one mo e bea e s. The tab e be ow shows the waiting time o
f custome s with th ee bea e s. With two bea e s, tota waiting time is 18 minut
es. Hence ave age waiting time is 18 / 10 = 1.8 minutes.
A iva Numbe 1 2 3 4 5 6 7 8 9 10 10.0 12.0 6.0 9.0 7.0 9.0 9.0 12.0 3.0 6.0 4
.0 7.0 5.0 9.0 Se ve One Se vice Begins 0.0 Se ve One Se vice Ends 3.0 1.0 4.0
2.0 4.0 Se ve Two Se vice Begins Se ve Two Se vice Ends Se ve Th ee Se vice
Begins Se vice Th ee Se vice Ends Custome Waiting Time 0 0 0 0.5 1.0 0 0 0 0 0
With th ee bea e s, the tota waiting time is 1.5 minutes. Ave age waiting time
is 0.15 minutes. Simi a y, we can a so ca cu ate the ave age waiting time of th
e bea e s.
CHAPTER – 14
Int oduction to Non- inea P og amming
14.1. INTRODUCTION
Non-Linea P og amming is a mathematica technique fo dete mining the optima s
o ution to many business p ob ems. Know edge of diffe entia ca cu us is essenti
a to do computationa wo k in so ving the p ob ems. In inea p og amming p ob
ems, we use to dea with inea objective functions and const aints to find the
optima so ution. The const aints we have used in inea p og amming technique i
s of ≤ o ≥ type o a combination of these two. It is a so assumed in inea p og am
ming that the cost of p oduction, o unit p ofit cont ibution o p ob em const a
ints do not va y fo the p anning pe iod and a so at diffe ent eve s of p oduct
ion. But it is on y an assumption to simp ify the matte . But in ea wo d p ob
em the p ofit, equi ement of esou ces by competing candidate a wi va y at
diffe ent eve s of p oduction. A so due to many economic behaviou s of demand,
cost etc. the objective function tends to be non- inea many a time.
14.2. GENERAL NON-LINEAR PROGRAMMING PROBLEM Let z be a ea va ued function of
n va iab es defined by: (a) z = f (x1, x2, …… xn) Objective function. Let (b1, b2, …… bm
) be a set of const aints, such that: (b) g1 (x1, x2, ……. xn) [ ≤ o ≥ o =] b1 g2 (x1,
x2, ……. xn) [ ≤ o ≥ o =] b2 St uctu a const aints. g3 (x1, x2, ……. xn) [ ≤ o ≥ o =] b3
x1, x2, ……. xn) [ ≤ o ≥ o =] bm Whe e g1 s a e ea va ued functions of n va iab es, x
1, x2, ……. xn . Fina y, et (c) x j ≥ 0 whe e j = 1, 2, …. n. Non-negativity const aint
. If eithe f (x1, x2, ……, xn) o some g1 (x1, x2, …… xn) o both a e non- inea , then t
he p ob em of dete mining the n-type (x1, x2, …. xn) which makes z a minimum o ma
ximum and satisfies both (b) and (c), above is ca ed a gene a non- inea p og
amming p ob em (GNLPP). Gene a Non-Linea P og amming P ob em can be so ved by
a method ve y simi a to Simp ex a go ithm. A so the e a e many methods have bee
n deve oped to get the so ution since the appea ance of the fundamenta theo eti
ca pape by Kuhn and Tucke (1915). In the coming discussion some methods of so
ution to gene a non- inea p og amming p ob em a e discussed.
628
Ope ations Resea ch
In Linea P og amming, the objective function and a so the const aints we e ine
a in decision va iab e. Though this inea ity is justified in many ea ife si
tuations, the e do a ise such p ob ems in business and indust y that the e atio
nship between the decision va iab es and the objective function itse f may conta
in non- inea exp ession of the decision va iab es. One way seems to be to app o
ximate the non- inea e ationship is by ep acing app oximated inea e ations
hips and view the given p ob em as a pe tu bed ve sion of the idea p ob em. But
the conc usion in such a situation may not be va id fo the given p ob em o p
esent so utions which may not give the equi ed optima ity. Unfo tunate y, the e
is no known a go ithm to effective y and efficient y so ve a given gene a non-
inea p og amming p ob em. A method that is found to be usefu in one p ob em m
ay not be usefu in anothe . This is one of the easons why a the non- inea p
og amming p ob ems cannot be g ouped unde the same tit e. To app oximate the d
ifficu ty in the app oach et us distinguish between the facto s that make Linea
P og amming P ob em (LPP) mo e att active and a Non-Linea P og amming P ob em
(NLPP) as mo e comp ex. * The a go ithm fo so ving LPP is based on the p ope t
y that optima so utions a e to be found at the ext eme points of the convex po
yhed on. This imp ieds that we imit ou sea ch to co ne points and this cou d
be comp eted in a finite numbe of ite ations. But in NLPP the optima so ution
can be anywhe e a ong the bounda ies of the feasib e egion o anywhe e within t
he feasib e egion. * Linea e ationship between the decision va iab es is ve y
easi y amendab e to inea a geb aic t ansfo mation but non- inea e ationship
shou d be dea t with ext eme ca e esu ting in comp ex situations. * The non- i
nea natu e of e ationship esu ts in distinction between oca so utions and g
oba so utions. This means that any so ution that is oca y optima has to be
tested fo its optima ity ove the enti e feasib e egion and not on y at the ex
t eme points as has been possib e in an LPP. This a so means that Simp ex type a
go ithms do not suffice to so ve NLPPs. Let us take a sma nume ica examp e a
nd t y to unde stand the diffe ence between LPP and NLPP.
Examp e
Minimize Subject to Z = [(x1 – 8)2 + (x 2 – 4)2]1 / 2 x1+x2 ≤ 8 – 3x1 + 2x2 ≤ 6 and
Both x1 and x2 ≥ 0 So ving g aphica y, we have to find a feasib e point that ies
at the sho test distance away f om the points (8,4). The optima so ution x1 =
6 and x2 = 2 whe e the indiffe ence ci c e Z = 2.828 is tangent to the bounda y
of the feasib e egion. The optimum so ution does not ie at an ext eme point an
d thus a simp ex type a go ithm cou d not so ve the p ob em. The feasib e existe
nce of oca optima might not give an optima so ution fo the same egion. It m
ay a so be possib e in some NLPPs that the feasib e egion may consist of two o
mo e enti e y disconnected sets of points.
Int oduction to Non- inea P og amming
629
Figu e 14.1.
14.3. MATHEMATICAL FORMULATION OF THE PROBLEM
Let us take a nume ica examp e to unde stand the fo mu ation of the p ob em.
P ob em 14.1. A company manufactu es two p oducts A and B on two machines. Whate
ve is manufactu ed is so d in the ma ket, as the ma ket fo the p oduct is good
. The capacities of the machines a e imited to p oduce dai y 80 units of p oduc
t A and 60 units of p oduct B. The aw mate ia supp y equi ed fo the p oduct
is imited to p oduce 600 units pe day. The abou equi ed is 160 man-days and
the o ganization has 160 men on the o . The p oduction of A equi es one man
day hou of abou and that of p oduct B is 2 man day hou . The company s object
ive is to maximize the tota p ofit if the sa es–p ice e ationships a e as given
be ow.
P oduct A B Unit p ice P1 P2 Quantity demand 1500 – 5P1 3800 – 10P2 Cost function 20
0 a + 0.1 a2 300 b + 0.1 b2
In the above tab e a and b a e the numbe of units of A and B p oduced, especti
ve y. This can a so be w itten as: a = 1500 – 5 P1 and b = 3800 – 10 P2
So ution
Let R be the evenue on sa es and C the cost of p oduction, so that P ofit = Rev
enue – Cost. R = P1 a + P2 b = (300 – 0.2 a) a + (380 – 0.1b) b = 300a – 0.2a2 + 380b – 0.
1b2 and C = (200a + 0.1a2) + (300b + 0.1b2) The efo e, Maximize Z = R – C = 100a +
0.3a2 + 80b - 0.2b2
630
Ope ations Resea ch
To check P1 and P2, computed in the p ob em et us const uct A ≤ 80, b < 60, 5a +
6b ≤ 600, a + 2b ≤ 160 and both a and b a e ≥ 0. The mathematica fo m of NLPP is show
n in Fig. 14.2.
14.4. GLOBAL MINIMA AND LOCAL MINIMA OF A FUNCTION
One of the majo difficu ties one has to face in so ving an NLPP is the dete min
ation of the so ution point, which gives not on y optima so ution fo the objec
tive function at the point but a so optimizes the function ove the comp ete so
ution space. Definition of G oba Minimum: A function f (x) has a g oba minimum
at a point x of a set of points K if an on y if f(x°) ≤ f(x) fo a x in K. Definit
ion of Loca Minimum: A function f (x) has the oca minimum point x of a set of
points K if and on y if the e exists a positive numbe such that f (x ) ≤ f (x) fo
a x in K at which || x0 – x || < ⊂Remarks: In case of functions of a single variab
le, a necessary condition for a particular solution x = x* to be either a minimu
m or maximum is that d/dx f(x) = 0 at x = x*. That is x* must be local minimum (
local maximum) if f (x) is strictly convex ( strictly concave) within a neighbou
rhood of x*. That is, second derivative of x* is positive (negative). If second
derivatives are zero then we move to higher derivatives, to find the global mini
mum (global maximum) and identify that one of them yields the smallest (largest)
value of f (x).
Figure 14.2.
For functions involving several variables we carry out the analysis using partia
l derivatives. Though non linear optimization problems require determination of
a global minimum, the computational procedures will, in general, lead to a solut
ion which is only a local minimum. There is no general procedure to determine wh
ether the local minimum is really a global minimum. In contrast the simplex proc
edure of an LPP gives a local minimum, which is also a global minimum. This is t
he reason why we have to develop some new mathematical concepts to deal with NLP
P.
14.5. LAGRANGE MULTIPLIERS
Here the optimization problem of continuous functions is discussed. As the non l
inear programming problem is composed of some differentiable objective function
and equality side constraints, the optimization may be achieved by the use of La
grange multipliers (a way of generating the necessary condition for a stationary
point).
Introduction to Non linear Programming
631
A Lagrange multiplier measures the sensitivity of the optimal value of the objec
tive function to change in the given constraints bi in the problem. Consider the
problem of determining the global optimum of Z = f (x1, x2,…. xn) subject to the ‘m’
constraints gi (x1, x2,…xn) = bi , i = 1, 2, …m. Let us first formulate the Lagrange
function L defined by: L (x1, x2, ……xn, λ1 , λ 2 , …. λ n ) – Σ λ i [gi (x1, x2, ….xn) = b
= 1, 2, …m and λ1 , λ 2 , … λ n a e ca ed as Lag ange Mu tip ie s. The optima so ution
to the Lag ange function is dete mined by taking pa tia de ivatives of the func
tion L with espect to each va iab e (inc uding Lag ange mu tip ie s and setting
each pa tia de ivative to ze o and finding the va ues that make the pa tia de
ivatives ze o. Then the so ution wi tu n out to be the so ution to the o igin
a p ob em.
P ob em 14.2
Find the ext eme va ue of Z = f (x1, x2) = 2 x1x2 Subject to x1 2 + x2 2 = 1
So ution
Let L ( x1 , x2 , λ) = 2 x1 x2 + λ(1 − x12 + x2 2 ). Then 0= 0= 0=
∂L = 2 x2 − 2 x1λ ∂x1
∂L = 2 x1 − 2 x2 λ ∂x2
∂L 2 2 = 1 − x1 − x2 ∂λ
By so ving, we get, x2 = x1λ, x1 = x2 λ and the efo e, x2 = x1λ = x2 λ2 . The efo e, eit
he x2 = 0 o λ 1. But if x2 = 0, then the x1 = 0 and the const aint x12 + x22 = 1
, is not satisfied. Thus x2 is not equa to 0 and eithe λ = 1 o λ = –1. Case 1: λ = 1,
x1 = x2, then 2x12 = 1 and x1 = ( 2 / 2) Case 2: λ = –1, x2 = – x1 and x1 = ( 2 / 2)
. Hence the so utions fo the p ob em a e: {[ ( 2 / 2) , ( 2 / 2) , 1], [ – 2 /2, –
2 /2, 1], [ 2 /2, – 2 /2, –1], [– 2 /2, @2/2, –1]} fo [x1, x2, λ] (he e denotes t anspose
). Since the set K = [x / (x12 + x22) = 1] is c osed and bounded and f (x) = 2x1
x2 is continuous, f has both maxima and minima ove K. Thus Max f ove K is 1 a
nd occu s at both [ 2 /2, 2 /2] and [– 2 /2,– 2 /2]. The minimum va ue of f is –1 and
occu s at both [– 2 /2,
2 /2] and [ 2 /2, – 2 /2].
14.6. KUHN – TUCKER CONDITIONS If the const aints of a Non- inea P og amming P ob
em a e of inequa ity fo m, we can so ve them by using Lag ange mu tip ie s, whi
ch a e s ight y modified. Let us conside a p ob em.
632
Ope ations Resea ch
Maximize Z = f (x1, x2, x3, ….. xn), subject to the const aints G (x1, x2, x3,…..xn)
≤ c and x1, x2, ….xn ≥ 0 and c is a constant. The const aints can be modified to the
fo m h(x1, x2, ….xn) ≤ 0 by int oducing a function h (x1, x2, ….xn = g (x1, x2,….xn) – c M
aximize Z = f (x) Subject to h (x) ≤ 0 and x ≥ 0 whe e, x ∈ R n . This p ob em can be
s ight y modified by int oducing a new va iab e S. Define S = – h(x) o h (x) 2 =
0, S can be inte p eted as s ack va iab e. It appea s as its squa e in the cons
t aint equation so as +S to ensu e its being non-negative. The p ob em can be e
stated as Optimize Z = f (x). x ∈ R n Subject to const aints h (x) + S2 = 0 and x ≥
0 which is the p ob em of const ained optimization in (n + 1) va iab es with a s
ing e equation const aint and can be so ved by Lag ange mu tip ie method. To de
te mine the stationa y points, conside the Lag ange function as L (x, S, λ ) = f
(x) – λ [h (x) + S2], whe e λ is Lag ange mu tip ie . Necessa y conditions fo station
a y points a e:
∂L ∂f ∂h −λ = 0 fo j = 1 to n = ∂x j ∂x j ∂x j ∂L 2 = − [ h ( x) + S ] = 0 . ∂λ ∂L = −2 S
Equation 3 gives
…1 …2 …3
∂L = 0 which eceives eithe λ = 0 o S = 0. If S = 0 equation 2 imp ies h (x) ∂S = 0,
thus 2 and 3 togethe imp y …4 λ h(x) = 0 of S = 0
The s ack va iab e was int oduced to conve t the unequa const aints to an equa
one, so it may be disca ded and as S2 ≥ 0, equation 2 gives: …5 h (x) ≤ 0 wheneve h
(x), 0 f om equation 4, we get λ = 0, wheneve λ > 0 h (x) = 0. λ is un est icted in s
ign wheneve h (x) ≤ 0 and the p ob em educes to the p ob em of equation const ai
nt. The necessa y conditions fo the point x to be a point of maximum a e stated
as: f j – λ hj = 0 (j = 1, 2, 3, …n)
λ h = 0 maximum f h ≤ 0 subject to the const aint λ ≥ 0 and h ≤ 0. (a) Gene a case of the
const ained optimization of non inea function in n va iab es unde m (< n) ine
qua ity const aint:
Conside NLPP Maximize Z = f (x) x ∈ R n Subject to const aint gi (x) ≤ ci i = 1, 2,
….m and x ≥ 0 Int oducing the function hi (x) = gi (x) – ci fo a i = 1, 2, ….m the i
nequa ity const aint can be w itten as
Int oduction to Non- inea P og amming
633
hi (x) ≤ 0 fo i = 1, 2, …m. By int oducing the s ack va iab es Stt = 1, 2, …m defined
by hi (x) + S i2 = 0, i = 1, 2, …m. The inequa ity const aints a e conve ted to e
qua ity ones. The stationa y va ue of x can thus be obtained by Lag angian mu ti
p ie method. The Lag angian function is L (x, S, λ ) = f (x) – Σ λ i [hi (x) + S ic ] w
he e λ = ( λ1 , λ 2 …. λ m ) Lag angian mu tip ie s. Necessa y conditions fo f (x) to be
the maximum a e: 1.
∂L ∂f = − ∂x j ∂x j
∑λ
j =1
m
j
∂hi fo j = 1, 2, ...n ∂x j
2.
∂L = hi + Si =02 fo a i = 1, 2,...m ∂λi
∂L = –2 Si λi = 0 fo i = 1, 2,...m ∂si
3.
L = L ( x, S, λ ) f = f (x) hi = hi (x) f om equation 3 eithe λ i = 0 o Si = 0. Us
ing the same a gument as in the sing e in equa ity case, conditions (3) and (2)
togethe a e ep aced by the conditions (5), (6) and (7) be ow: (5) λ i hi = 0 fo
i = 1, 2, …m (6) h i ≤ 0 fo i = 1, 2, …m (7) λ i ≥ 0 fo i = 1, 2, …..m Kuhn – Tucke con
ions fo maximum a e estated as: fi =
∑λ h
i =1
m
i
j j
( j = 1, 2, ....m)
λ i h i ≤ 0 (i = 1, 2, ... m)
λ i ≥ 0 (i = 1, 2, .....m)
whe e h i j =
∂h i ∂x j
Maximize f subject to hi ≤ 0 , i = 1, 2, …., m
14.7. SUFFICIENCY OF KUHN – TUCKER CONDITION
The Kuhn – Tucke conditions fo a maximization NLPP of maximizing f (x) subject t
o the const aints h (x) ≤ 0 and x ≥ 0 a e sufficient conditions fo a maximum of f (
x) , if f (x) and h (x) a e convex.
P oof Let us conside function L (x, S, λ ) = f (x) – λ [h (x) + S2] whe e S is define
d by h (x) + S 2 = 0 is concave in X unde the given conditions. In that case th
e stationa y point obtained f om Kuhn -
634
Ope ations Resea ch
Tucke conditions must be g oba maximum point. Since h (x) + S 2 = 0 and f om t
he necessa y conditions λ S 2 = 0. Since h (x) is convex and λ ≥ 0 , it fo ows that λ h
(x) is a so convex and –h (x) λ is concave. So we can conc ude f (x) – λ h (x) and henc
e f(x) – λ [h (x) + S 2] = L (x, S, λ ) is concave in x.
P ob em 14.1. Maximize Z = 3.6 x1 – 0.4 x12 + 1.6x2 – 0.2 x22 subject to const aints
2x1 + x2 ≤ 10 and both x1 and x2 a e ≥ 0. So ution He e f (x) = 3.6 x1 – 0.4 x1 2 + 1
.6 x2 – 0.2 x22 g (x) 2x1 + x2, c = 10 h (x) = g (x) – c = 2x1 + x2 – 10 The Kuhn – Tuck
e conditions a e: ∂ ( x) ∂h( x) −λ =0 ∂x1 ∂x1 ∂f ( x) ∂h( x) −λ =0 ∂x2 ∂x2 λ h (x) = 0 h (
is Lag angian mu tip ie s. i.e. 3.6 – 0.8 x1 = 2 λ
1.6 – 0.4 x2 = λ λ [2x1 + x2 – 10] = 0 2x1 + x2 – 10 ≤ 0
λ ≥ 0
…(1) …(2) …(3) …(4) …(5)
F om equation (3) eithe λ = 0 o 2x1 + x2 – 10 = 0 Let λ = 0, then (2) and (5) yie d
x1 = 4.5 and x2 = 4, with these va ues of x1 and x2, equation (4) cannot be sati
sfied. The optima so ution cannot be obtained fo λ = 0. Let λ is not equa to ze o,
which imp ies that 2x1 + x2 – 10 = 0. This togethe with (1) and (2) yie ds the s
tationa y va ue. x0 = (x1, x2) = (3.5, 3.0) The efo e, h (x) is convex in x and
f (x) is concave in x. Thus, Kuhn–Tucke conditions a e sufficient conditions fo
maximum. The efo e, x0 = (3.5, 3.0) is so ution to given NLPP. The maximum va ue
of Z = 10.
CHAPTER – 15
P og amme Eva uation and Review Technique and C itica Path Method (PERT and CPM
)
15.1. INTRODUCTION
P og amme Eva uation and Review Technique (PERT) and C itica Path Method (CPM)
a e two techniques that a e wide y used in p anning and schedu ing the a ge p o
jects. A p oject is a combination of va ious activities. Fo examp e, Const ucti
on of a house can be conside ed as a p oject. Simi a y, conducting a pub ic mee
ting may a so be conside ed as a p oject. In the above examp es, const uction of
a house inc udes va ious activities such as sea ching fo a suitab e site, a a
nging the finance, pu chase of mate ia s, digging the foundation, const uction o
f supe st uctu e etc. Conducting a meeting inc udes, p inting of invitation ca d
s, dist ibution of ca ds, a angement of p atfo m, chai s fo audience etc. In p
anning and schedu ing the activities of a ge sized p ojects, the two netwo k t
echniques — PERT and CPM — a e used convenient y to estimate and eva uate the p ojec
t comp etion time and cont o the esou ces to see that the p oject is comp eted
within the stipu ated time and at minimum possib e cost. Many manage s, who use
the PERT and CPM techniques, have c aimed that these techniques d astica y ed
uce the p oject comp etion time. But it is w ong to think that netwo k ana ysis
is a so ution to a bad management p ob ems. In the p esent chapte , et us dis
cuss how PERT and CPM a e used to schedu e the p ojects. Initia y, p ojects we
e ep esented by mi estone cha t and ba cha t. But they had itt e use in cont
o ing the p oject activities. Ba cha t simp y ep esents each activity by ba s
of ength equa to the time taken on a common time sca e as shown in figu e 15.
. This cha t does not show inte e ationship between activities. It is ve y di
fficu t to show the p og ess of wo k in these cha ts. An imp ovement in ba cha
ts is mi estone cha t. In mi estone cha t, key events of activities a e identifi
ed and each activity is connected to its p eceding and succeeding activities to
show the ogica e ationship between activities. He e each key event is ep ese
nted by a node (a ci c e) and a ows instead of ba s ep esent activities, as sh
own in figu e 15.2. The extension of mi estone cha t is PERT and CPM netwo k met
hods.
636
Ope ations Ressea ch
Figu e 15. . Ba cha t.
Figu e 15.2. Mi estone cha t.
15.2. PERT AND CPM
In PERT and CPM the mi estones a e ep esented as events. Event o node is eithe
sta ting of an activity o ending of an activity. Activity is ep esented by m
eans of an a ow, which is esou ce consuming. Activity consumes esou ces ike
time, money and mate ia s. Event wi not consume any esou ce, but it simp y e
p esents eithe sta ting o ending of an activity. Event can a so be ep esented
by ectang es o t iang es. When a activities and events in a p oject a e con
nected ogica y and sequentia y, they fo m a netwo k, which is the basic docum
ent in netwo k-based management. The basic steps fo w iting a netwo k a e: (a)
List out a the activities invo ved in a p oject. Say, fo examp e, in bui ding
const uction, the activities a e: (i) Site se ection, (ii) A angement of Finan
ce, (iii) P epa ation of bui ding p an, (iv) App ova of p an by municipa autho
ities, (v) Pu chase of mate ia s, (vi) Digging of foundation, (vii) Fi ing up
of foundation, (viii) Bui ding supe st uctu e, (ix) Fixing up of doo f ames and
window f ames, (x) Roofing, (xi) P aste ing, (xii) F oo ing, (xiii) E ect icity
and wate fittings, (xiv) Finishing. (b) Once the activities a e isted, they a
e a anged in sequentia manne and in ogica o de . Fo examp e, foundation di
gging shou d come befo e foundation fi ing and so on.
P og amme Eva uation and Review Technique and C itica Path Method (PERT and CPM
)
637
(c) Afte a anging the activities in a ogica sequence, thei time is estimate
d and w itten against each activity. Fo examp e: Foundation digging: 10 days, o
1½ weeks. (d) Some of the activities do not have any ogica e ationship, in su
ch cases; we can sta t those activities simu taneous y. Fo examp e, foundation
digging and pu chase of mate ia s do not have any ogica e ationship. Hence bo
th of them can be sta ted simu taneous y. Suppose foundation digging takes 10 da
ys and pu chase of mate ia s takes 7 days, both of them can be finished in 10 da
ys. And the successive activity, say foundation fi ing, which has ogica e at
ionship with both of the above, can be sta ted afte 10 days. Othe wise, foundat
ion digging and pu chase of mate ia s a e done one afte the othe ; fi ing of f
oundation shou d be sta ted afte 17 days. (e) Activities a e added to the netwo
k, depending upon the ogica e ationship to comp ete the p oject netwo k. Som
e of the points to be emembe ed whi e d awing the netwo k a e (a) The e must be
on y one beginning and one end fo the netwo k, as shown in figu e 15.3.
Figu e 15. 3. W iting the netwo k.
(b) Event numbe shou d be w itten inside the ci c e o node (o t iang e/squa e
/ ectang e etc). Activity name shou d be capita a phabetica ette s and wou d
be w itten above the a ow. The time equi ed fo the activity shou d be w itten
be ow the a ow as in figu e 15. 4
Figu e 15.4. Numbe ing and naming the activities.
638
Ope ations Ressea ch
(c) Whi e w iting netwo k, see that activities shou d not c oss each othe . And
a cs o oops as in figu e 15.5 shou d not join Activities.
Figu e 15.5. C ossing of activities not a owed.
(d) Whi e w iting netwo k, ooping shou d be avoided. This is to say that the ne
two k a ows shou d move in one di ection, i.e. sta ting f om the beginning shou
d move towa ds the end, as in figu e 15.6.
( )
( )
( )
Quiz Pape s
697
30. In FSN ana ysis the ette S stands fo : (a) S ack mate ia s, (b) Stocked ma
te ia s, (c) S ow moving mate ia s, (d) Standa d mate ia s. 31. In FSN ana ysis,
the ette N stands fo : (a) Nonmoving mate ia s, (b) Next issuing mate ia s, (
c) No mate ia s, (d) None of the above. 32. FSN ana ysis depends on: (a) Weight
of the mate ia , (b) Vo ume of the mate ia , (c) Consumption patte n, (d) Method
of moving mate ia s. 33. MRP stands fo : (a) Mate ia Requi ement P anning, (b)
Mate ia Reo de ing P anning, (c) Mate ia Requisition P ocedu e, (d) Mate ia
Reco ding P ocedu e. 34. A system whe e the pe iod of p acing the o de is fixed
is known as: (a) q-system, (b) Fixed o de system, (c) p-system, (d) Fixed quan
tity system. 35. A system in which quantity fo which o de is p aced is constan
t is known as: (a) q-System, (b) p-system, (c) Pe iod system, (d) Bin system. 36
. LOB stands fo : (a) Lot of Bi s, (b) Line of Batches, (c) Lot of Batches, (d)
Line of Ba ance. 37. High e iabi ity spa e pa ts in invento y a e known as: (a
) Re iab e spa es, (b) Insu ance spa es, (c) Capita spa es, (d) High y e iab e
spa es. 38. The p ope ty of capita spa es is: (a) They have ve y ow e iabi i
ty; (b) These can be pu chased in a ge quantities, as the p ice is ow, (c) The
se spa es have e ative y highe pu chase cost than the maintenance spa es, (d)
They a e ve y much simi a to b eakdown spa es. 39. Re-usab e spa es a e known a
s: (a) Mu ti use spa es, (b) Repeated useab e sto es, (c) Sc ap mate ia s, (d) R
otab e spa es. 40. JIT stands fo : (a) Just In Time Pu chase, (b) Just In Time p
oduction, (c) Just In Time use of mate ia s, (d) Just In Time o de the mate ia
. 41. The cyc e time, se ected in ba ancing a ine must be: (a) G eate than th
e sma est time e ement given in the p ob em, (b) Less than the highest time e e
ment given in the p ob em, (c) S ight y g eate than the highest time e ement gi
ven in the p ob em, (d) Left to the choice of the p ob em so ve .
( )
( )
( )
( )
( )
( )
( )
( )
( )
( )
( )
( )
698
Ope ations Resea ch
42. The ead-time is the time: (a) To p ace o de s fo mate ia s, (b) Of eceivi
ng mate ia s, (c) Between eceipt of mate ia and using mate ia s, (d) Between p
acing the o de and eceiving the mate ia s. ( ) 43. The PQR c assification of
invento y depends on: (a) Unit p ice of the mate ia , (b) Annua consumption va
ue of the mate ia , (c) C itica ity of the mate ia , (d) She f ife of the mate
ia s. ( ) 44. The c assification made on the weight of the mate ia s is known as
: (a) PQR ana ysis, (b) VED ana ysis, (c) XYZ ana ysis, (d) FSN ana ysis. ( ) 45
. At EOQ (a) Annua pu chase cost = Annua o de ing cost, (b) Annua o de ing co
st = Annua ca ying cost, (c) Annua ca ying cost = Annua sho tage cost, (d)
Annua sho tage cost = Annua pu chase cost. ( ) 46. If sho tage cost is infinit
y, (a) No sho tages a e a owed; (b) No invento y ca ying cost is a owed, (c)
O de ing cost is ze o, (d) Pu chase cost = Ca ying cost. ( ) 47. The most suita
b e system fo a etai shop is (a) FSN Ana ysis, (b) ABC ana ysis, (c) VED ana
ysis, (d) GOLF ana ysis. ( ) 48. The invento y maintained to meet unknown demand
changes is known as (a) Pipe ine invento y, (b) Anticipato y invento y, (c) De
coup ing invento y, (d) F uctuato y invento y. ( ) 49. The most suitab e invento
y system fo a Pet o bunk is (a) P-System, (b) 2 Bin system, (c) Q-System, (d)
P obabi istic mode . ( ) 50. The wate consumption f om a wate tank fo ows (a
) P-system, (b) PQ-system (c) Q-System, (d) EOQ System. ( ) 51. Which of the fo
owing invento ies is maintained to meet expected demand f uctuations? (a) F uct
uato y Invento y, (b) Buffe stock, (c) De-coup ing invento y, (d) Anticipato y
invento y. ( ) 52. Which of the fo owing inc eases with quantity o de ed pe o
de ? (a) Ca ying cost, (b) O de ing cost, (c) Pu chase cost, (d) Demand. ( ) 53
. The o de ing cost pe o de and ave age unit ca ying cost a e constant, and d
emand sudden y fa s by 75% then EOQ wi : (a) Dec ease by 50% (b) Not change (c
) Inc ease by 50% (d) Dec ease by 40% ( )
Quiz Pape s
699
54. In JIT system, the fo owing is assumed to be ze o. (a) O de ing cost, (b) T
anspo tation cost, (c) Ca ying cost, (d) Pu chase cost. 55. Which of the fo o
wing ana yses neithe conside s cost no va ue? (a) ABC, (b) XYZ, (c) HML, (d) V
ED.
( )
( )
ANSWERS
1. (c) 5. (a) 9. (a) 13. (b) 17. (d) 21. (a) 25. (d) 29. (d) 33. (a) 37. (b) 41.
(c) 45. (b) 49. (c) 53. (c) 2. (d) 6. (d) 10. (c) 14. (a) 18. (a) 22. (b) 26. (
a) 30. (c) 34. (c) 38. (c) 42. (d) 46. (b) 50. (a) 54. (c) 3. (c) 7. (a) 11. (d)
15. (a) 19. (d) 23. (c) 27. (d) 31. (a) 35. (a) 39. (d) 43. (c) 47. (a) 51. (d)
55. (d) 4. (c) 8. (c) 12. (c) 16. (b) 20. (c) 24. (a) 28. (c) 32. (c) 36. (d) 4
0. (b) 44. (d) 48. (d) 52. (a)
WAITING LINE MODELS OR QUEUING THEORY
As pe queue discip ine the fo owing is not a negative behavio of a custome :
(a) Ba king, (b) Reneging, (c) Boa ding, (d) Co usion. 2. The expediting o fo
ow up function in p oduction cont o is an examp e of (a) LIFO, (b) FIFO, (c) S
IRO, (d) P eemptive. 3. In M/M/S N/FIFO the fo owing does not app y (a) Poisson
a iva , (b) Limited se vice, (c) Exponentia se vice, (d) Sing e se ve . 4. Th
e dead bodies coming to a bu ia g ound is an examp e of: (a) Pu e Bi th P ocess
, (b) Pu e Death P ocess, (c) Bi th and Death P ocess, (d) Constant Rate of A i
va . 1.
( )
( )
( )
( )
700
Ope ations Resea ch
5. The system of oading and un oading of goods usua y fo ows: (a) LIFO, (b) F
IFO, (c) SIORO, (d) SBP. 6. A steady state exists in a queue if: (a) λ > µ, (b) λ < µ, (
c) λ = µ, (d) λ = µ. 7. If the ope ating cha acte istics of a queue a e dependent on tim
e, then it is said to be: (a) T ansient state, (b) Busy state, (c) Steady state,
(d) Exp osive state. 8. A pe son who eaves the queue by osing his patience to
wait is said to be: (a) Reneging, (b) Ba king, (c) Jockeying, (d) Co usion. 9.
The cha acte istics of a queuing mode is independent of: (a) Numbe of se vice
stations, (b) Limit of ength of queue, (c) Se vice Patte n, (d) Queue discip i
ne. 10. The unit of t affic intensity is: (a) Poisson, (b) Ma kow, (c) E ang, (
d) Kenda . 11. In (M /M /1) : (∞ / FCFS) mode , the ength of the system Ls is gi
ven by: (a) p2/1/p (b) p/1– λ 12.
( )
( )
( )
( )
( )
( )
13.
14.
15.
16.
(c) λ 2/(µ – λ ) (d) λ 2/µ(µ – λ ) ( ) In (M/M/1) : (∞/ FIFO) mode , 1/(µ – λ ) ep esents:
of the system, (b) Lq ength of the queue, (c) Wq Waiting time in queue, (d) Ws
Waiting time in system. ( ) The queue discip ine in stack of p ates is: (a) SIR
O, (b) Non-P e-emptive, (c) FIFO, (d) LIFO. ( ) Office fi ing system fo ows: (a
) LIFO, (b) FIFO, (c) SIRO, (d) SBP. ( ) SIRO discip ine is gene a y found in:
(a) Loading and un oading, (b) Office fi ing, (c) Lotte y d aw, (d) T ain a iva
s at p atfo m. ( ) The designation of Poisson a iva , Exponentia se vice, sin
g e se ve and imited queue se ected andom y a e ep esented by: (a) (M/E/S) :
( ∞ /SIRO), (b) (M/M/1) : ( ∞ /SIRO), (c) (M/M/S) : (N/SIRO), (d) (M/M/1) : ( N/SIR
O). ( )
Quiz Pape s
701
17.
18.
19.
20.
21.
Fo a simp e queue (M/M/1) , ρ = λ /µ is known as: (a) Poisson busy pe iod, (b) Random
facto , (c) T affic intensity, (d) Exponentia se vice facto . With espect to
simp e queuing mode which on of the given be ow is w ong: (a) Lq = λ Wq (b) λ = µ β (d)
Ls = Lq + β (c) Ws = Wq + µ When a doctorattends to an emergency case leaving his
regular service is called: (a) Reneging, ( ) Balking, (c) Pre-emptive queue disc
ipline, (d) Non-Pre-Emptive queue discipline. A service system, where customer i
s stationary and server is moving is found with: (a) Buffet Meals, ( ) Outpatien
t at a clinic, (c) Person attending the reakdowns of heavy machines, (d) Vehicl
e atpetrol unk. In a simple queuing model the waiting time in the system is gi
ven y: (a) (Lq/ λ ) + (1/µ) (b) 1/(µ – λ )
( )
( )
( )
( )
22.
23.
24.
25.
26.
(c) µ/(µ – λ ) (d) Wq + µ ( ) This depa tment is esponsib e fo the deve opment of queuin
g theo y: (a) Rai way station, (b) Municipa office, (c) Te ephone depa tment, (
d) Hea th depa tment. ( ) If the numbe of a iva s du ing a given time pe iod i
s independent of the numbe of a iva s that have a eady occu ed p io to the
beginning of time inte va , then the new a iva s fo ow ----------- dist ibutio
n. (a) E ang, (b) Poisson, (c) Exponentia , (d) No ma , ( ) A iva → Se vice → Se
vice → Se vice → Out The figu e given ep esents: (a) Sing e channe sing e phase sy
stem, (b) Mu tichanne sing e-phase system, (c) Sing echanne mu tiphase system,
(d) Mu tichanne mu tiphase system. ( ) In queue designation A/B/S : (d/f), wha
t does S ep esent? (a) A iva Patte n, (b) Se vice Patte n (c) Numbe of se vi
ce channe s, (d) Capacity of the system. ( ) When the ope ating cha acte istics
of the queue system is dependent on time, the it is said to be: (a) Steady state
, (b) Exp osive state, (c) T ansient state, (d) Any one of the above ( )
702
Ope ations Resea ch
27. The dist ibution of a iva s in a queuing system can be conside ed as a: (a)
Death P ocess, (b) Pu e bi th P ocess, (c) Pu e ive p ocess, (d) Sick p ocess.
28. Queuing mode s measu e the effect of: (a) Random a iva s, (b) Random se vi
ce, (c) Effect of unce tainty on the behaviou of the queuing system, (d) Length
of queue. 29. T affic intensity is given by: (a) Mean a iva ate / Mean se vi
ce ate, (b) λ × µ, (c) µ/ λ , (d) Numbe p esent in the queue/Numbe se ved. 30. Va iance
of queue ength is : (a) (c)
( )
( )
( )
ρ = λ /µ,
λ /µ – λ ,
(b) ρ 2 /1 – ρ , (d) ρ /(1 – ρ )2. ( )
ANSWERS
1. (c) 6. (c) 11. (b) 16. (d) 21. (a) 26. (c) 2. (d) 7. (a) 12. (c) 17. (c) 22.
(c) 27. (b) 3. (d) 8. (a) 13. (d) 18. (c) 23. (b) 28. (c) 4. (a) 9. (d) 14. (a)
19. (d) 24. (c) 29. (a) 5. (a) 10. (c) 15. (c) 20. (c) 25. (a) 30. (d)
Index
Abc ana ysis of invento y 364 Administ ative decisions 594 Annua consumption co
st 364 Anticipation invento y 356 Assignment a go ithm 216 Assignment mode 212
Assumptions made in sequencing p ob ems 256 Ba king 453 Ba cha t 635 Basic assu
mptions 23 Basic feasib e so ution 145 Bathtub cu ve 298 Business games 485 Capi
ta cost 300 Co usion 453 Competitive st ategies 485 Comp ete y andom 451 Cond
itions of isk 486 Cost s ope 660 Costs associated 300 Costs associated with inv
ento y 356 C ite ion of eg et 601 C itica path 643 C itica Path Method (CPM)
635 Custome behaviou 453 Cyc e invento ies 356 Decision 4 Decision 593 Decisio
n Making Unde Risk (DMUR) 597 Decision making unde unce tainty 599 Decision th
eo y 486 Decision theo y 593 Decoup ing invento ies 356 Definition of invento y
354 Degene acy in t anspo tation p ob em 165 Deg ee of ce tainty 593 Demand 360
Desi ab e items 372 Dete ministic and stochastic 564 Di ect cost 658 Di ect inve
nto ies 355 Di ect p oduction cost 359 Discount ate 315 Disc ete 565 Disc ete o
continuous systems 565 Dominance in games 499 Dua p ob em 105 Dua simp ex me
thod 122 Dua ity in inea p og amming 105 Dummy activity 638 Dynamic p og ammin
g 564 Ea iest event time 654 Economic ot size with finite ate of ep enishmen
390 Economic o de quantity mode s 375 Essentia items 372 Events 636 Exp osive
state 457 Finished goods invento ies 355 Fixed time mode 403 F ood’s technique 2
16
704
Ope ations Ressea ch
F uctuation invento ies 356 FSND ana ysis 373 G aphica method in L.P.P. 28 G ou
p ep acement 302 G oup ep acement po icy 332 Histo ica deve opment 450 Hunga
ian method 216 Imp ied cost 157 Imputed va ue 107 In p ocess invento ies 355 Inc
ementa discount 389 Indi ect cost 659 Indi ect invento ies 355 Individua ep
acement po icy 332 Input p ocess 450 Integ a ity of items 393 Inte -a iva time
451 Invento y ca ying cha ges 356 Invento y cont o 354 Invento y cont o 354
Isocost ine 34 Isop ofit ine 32 Jockeying 453 Latest a owab e occu ence 656
Lead time 361 Least cost ce (o inspection) method 147 Like y time 641 Linea
p og amming 22 Linea p og amming 4 Lost-sa es sho tages 299 Maintenance 295 Man
powe p anning 344 Mate ia s management 354 Maximin 486 Maximisation p ob em 179
Maximization case of t anspo tation p ob em 161
Mi estone cha t 635 Minimax 486 Minimax p incip e 486 Minimization of the maximu
m osses 486 Mixed st ategies 501 Mixed st ategy games 490 Mode s with sho tages
395 Modified dist ibution method of optima ity test 156 Monte-ca o simu ation
619 Mo ta ity tab es 333 Mo ta ity theo em 333 Mu ti channe faci ity 454 N- job
s and two machines 257 N- pe son game 488 Negative exponentia dist ibution 451
Non - negativity const aint 14 Non- inea p og amming 627 No th- west co ne met
hod 146 Numbe ing of events 641 Objective function 14 Objective of invento y 360
Oddments 513 Ope ations esea ch Histo y 3 Objectives 7 Cha acte istics 10 Mode
15 Scope 10 Steps in so ving 12 Ope ating costs 300 Oppo tunity cost 148 Optim
istic time 640 O de ing cost 358 P - system 362 Pessimistic time 640 Poisson an
dom 451 Po icy 565 Pq - system 364
Index
705
P esent wo th facto 315 P eventive maintenance technique 302 P ima p ob em 105
P obabi istic 413 P obabi istic mode s 564 P oduction of goods 361 P og amme Ev
a uation and Review Technique (PERT) 635 P ope ties of inea p og amming mode
22 Pu chase p ice 359 Pu e st ategy 490 Q - system 362 Quantity discount mode 3
88 Queuing theo y 446 Random numbe s 621 Redundancy in t anspo tation p ob ems 1
98 Reneging 453 Rep acement mode 295 Safety stock 361 Schedu ing p ob em 237 Sc
ap va ue 300 Se ective app oach system 364 Sensitivity ana ysis 117 Sequencing
p ob em 255 Se vice channe 447 Se vice discip ine 455 Se vice mechanism 453 Set
up cost 358 Shadow p ice 51 Sho tage cost o stock 357 Simu ation mode s 618 Si
mu ation technique 619 Sing e channe faci ity 454
Skip numbe ing 641 S ack time 656 Spa e pa ts invento ies 355 Stages 564 Standa
d deviation 641 State 565 Steady state 456 Stochastic mode s 413 St ategic decis
ion 594 Symmet ica dua simp ex 108 T ade p ob em 175 T ansient state 457 T an
spo tation invento ies 356 T anspo tation mode 142 T ansshipment p ob em 192 T
ave ing sa esman p ob em 281 Two phase method 84 Two-bin system 362 Two-pe son g
ame 488 Types of sequencing p ob ems 257 Unbound so utions 96 Un est icted va ia
b es 99 Va iance 641 Ved ana ysis 372 Vita items 372 Voge ’s app oximation method
148 Waiting ine theo y 446 Waste invento y 356 XYZ ana ysis 373 Ze o sum game
488