Strategic Allocation of Resources

8/4/2019 Strategic Allocation of Resources

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STRATEGIC

ALLOCATIONOF RESOURCES

By

Akanksha .Kulthe

Kiran .Dalvi


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One approach used by many leading companies in recent years to make the

most of their limited resources is OPERATIONS RESEARCH.

Operation research refers to the application of quantitative methods andtechniques to business problems in order to best utilize a companys

resources.

Operation research posses the knowledge and skills to analyze business

problems and apply different quantitative tools to improve operations .

All operation managers must use as few of their resources as necessary to

accomplish as much of their operations strategies as possible.

As operations managers develop operations strategies, they make decision

about Positioning the production system, Focusing the factories, Designing

products and Developing production processes, Determining production

capacity and Facility location, and Facility layout.

They use a variety of computer software packages in these efforts.


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Resources refers to personnel, machines and equipment, cash and capital

funds, materials and supplies, utilities, floor space, time and other resources.

Resource scarcities can cause hectic shifts in operations strategies to meetobjectives; additionally, many resource prices are skyrocketing.

The limited quantity of resources available and their high prices act as a

doublebarreled incentives to use them to the greatest advantage.

Today Operations managers understands that operations strategies must be

accomplished within constraints imposed on their organizations by the

shortage of resources.


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One of the ways that operations managers determine how best to allocate their

Scarce resources is with the use of LINEAR PROGRAMMING (LP).

Five common types of LP problems are encountered by the operations

managers are :

a) Product Mix

b) Ingredient Mix

c) Transportation

d) Production plan

e) Assignment

LP describes each problem type by posing three questions :What is the single management objective? What information do we need to

achieve out objective? What factors restrain us from achieving our objective?

Product Mix and Assignment Problems are integral to the development of long-

run business.

The complexity of constraints decisions like large quantity of data, many

products and services, many time periods, numerous decision alternatives

prompted the development of linear programming methods.

LP is a powerful tool in POM, powerful because of the variety of uses to whichit is put by operations managers.


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Characteristics of LP problems in POM

1. A well defined single objective must be stated.

2. There must be alternative courses of action.

3. The total achievement of the objective must be constrained

by scarce resources or other restraints.

4. The objective and each of the constraints must be

expressed as linear mathematical function.


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Recognizing a product mix LP Problem

Example:

As a part of its strategic planning, Precision Manufacturing Company mustdetermine the mix of its products to be manufactured next year. The company

produces two principle product lines for the commercial construction industry, a

line of powerful portable circular saws and a line of precision table saws. The two

product line shares the same production capacity and are sold through the same

sales channels. Although some product variety exists within each product line, theaverage profit is $900 for each circular saw and $600 for each table saw. The

production capacity constrained in two ways, fabrication and assembly capacity. A

maximum of 4000 Hrs of fabrication is available per month, and each circular saw

requires 2 Hrs and each table saw requires 1 Hr. A maximum of 5000 Hrs of

assembly capacity is available per month, and each circular saw requires ! Hr andeach table saw requires 2 Hrs. The marketing department estimates that there is a

maximum market demand next year of 3,500 saws per month for both product

lines combined. How many circular saws and how many table saws should be

produced monthly next year to maximize the profits ?


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Questions for recognizing a Product Mix LP Problem :

1.Is there a single managerial objective ?

Yes. The objective is to maximize the profit for the year.

2.Are there alternative courses of managerial action ?Yes. Management can decide to produce all circular saws or all table saws or

any mix of the two product lines during the year.

3. Is the total achievement of the objective constrained by scarce resourcesor other restraints ? If so, what is the nature of the constraints ?

Yes. Profits are constrained by the maximum amount of fabrication hrsavailable per month, the maximum amount of assembly hrs available per month,and the maximum amount of market demand per month.

Same questions to be answered for recognizing an Ingredient Mix LP

Problem


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Steps in formulating LP Problems :

1. Define the objective.

2. Define the decision variable.

3. Write the mathematical function for the objective ( objective function).

4. Write a one -or two- word description of each constraints

5. Write the right hand side (RHS) of each constraints, including the unitsof measure.

6. Write , = or for each constraint.

7. Write all the decision variables on the left-hand side of each constraint.

8. Write the coefficient for each decision variable in each constraint.


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Graphical LP solutions :

The Graphical solution approach conceptually demonstrates the process

of LP solutions to those who have no experience in LP.

Graphical solutions are therefore intended as a teaching tool to assistyou in understanding the process of LP solutions.

The simplex transportation and assignment methods are the practical LPsolutions tools.


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Steps in the Graphical Solution Method :

1. Formulate the objective and constraint functions.

2. Draw a graph with one variable on the horizontal axis and one on thevertical axis.

3. Plot each of the constraints as if they were lines or equalities.

4. Outline the feasible solution space.

5. Circle the potential solution points. These are the intersections of theconstraints or axes on the inner (Minimization) Or outer (Maximization)perimeter of the feasible solution space.

6. Substitute each of the potential solution point of the two decisionvariables into the objective function and solve for Z.

7. Select the solution point that optimizes Z.


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Overview of Other LP Solution Methods:

Three other LP solution Methods are1.Simplex2.Transportation3.Assignment


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Strategic Allocation of Resources