STAT 3606
Business Logistics
Dr. Olivia T.K. Choi
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Business Logistics
Operations Research Model
Managerial Decision Making
– Decision Analysis
Monetary Approach
 Utility Theory
Effective use of an organization’s resources
 Machinery, labor, money, time, warehouse space, and raw
materials
Production
 Products: machinery, furniture, food, or clothing
 Services: schedules for airlines, advertising policies or
investment decision
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Quantitative Approach
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Linear Programming
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Graphical method
Simplex method
Computer-aided solver
Project Management
Queuing and Simulation Models
Ex 1. Air ticket model
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5-week business commitment between Hong
Kong (HKG) and Singapore (SG)
Fly out of Hong Kong on Mondays and
returns on Wednesdays
A regular round-trip ticket costs $400, with
20% discount if span over a weekend
A one-way ticket in either direction costs 75%
of regular price
Define the problem
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What is an appropriate objective criterion
for evaluating the alternatives?
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Under what restrictions is the decisions
made?
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What are the decision alternatives?
Objective criterion
The objective of this problem is to reduce the
total cost of different proposed alternatives of
ticket purchased.
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Restriction
The restriction on these options is that you
should be able to leave Hong Kong on
Monday and return on Wednesday of the
same week.
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Alternatives 1
“Route every week”
1st
2nd
3rd
4th
5th
HK – SG – HK – SG – HK – SG – HK – SG – HK– SG – HK
Alternative 1
Buy five regular return tickets
Cost for 5 return tickets
Cost = 5 x 400 = $2,000
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Alternatives 2
“Route every week”
1st
2nd
3rd
4th
5th
HK – SG – HK – SG – HK – SG – HK – SG – HK– SG – HK
Alternative 2
Buy one-way HK-SG, four returns SG-HK-SG that span
weekends, and one-way SGN-HK tickets
Cost for 2 one-way, and 4 return tickets
cost = 0.75 x 400 + 4x (0.8x 400) + 0.75 x 400 = $1,880
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Alternatives 3
“Route every week”
1st
2nd
3rd
4th
5th
HK – SG – HK – SG – HK – SG – HK – SG – HK– SG – HK
Alternative 3
Buy one HK-SG-HK to cover Monday for the 1st week and
Wednesday of the last week and four SG-HK-SG to cover the
remaining legs. All tickets in this alternative span at least one
weekend
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Cost for 5 returns tickets
=5 x (0.8 x 400) = $1,600
Ex. 2 Maximum Area Rectangle
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Objective
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Form a maximum-area rectangle
Restriction
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Out of a piece of wire length L inches
Maximize z = w h
Subject to 2w + 2 h = L
w, h ≥ 0
The optimal solution is w=h=L/4 i.e. square shape
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General Operation Research Model
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Maximize or Minimize
Objective Function
Subject to
Constraints
A solution of the model is feasible if it satisfies
all the constraints. It is optimal if, in addition to
being feasible, it yields the best value of the
objective function.
Solving the model
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Define the problem as Linear Programming
Model
Algorithm and Iteration
Achieving the Optimal solution