Preface i
1Management Science 1
The Management Science Approach to Problem Solving 2
Time Out: for Pioneers in Management Science 5
Management Science Application:
Room Pricing with Management Science at Marriott 6
Management Science and Business Analytics 7 Model Building: Break-Even Analysis 8 Computer Solution 12
Management Science Modeling Techniques 15
Management Science Application: The Application of Management Science with Spreadsheets 16
Business Usage of Management Science Techniques 18
Management Science Application:
Management Science in Health Care 19
Management Science Application:
Allocating Seat Capacity on Indian Railways Using Linear Programming 32
Graphical Solutions of Linear Programming Models 32
Management Science Application:
Renewable Energy Investment Decisions at GE Energy 44
A Minimization Model Example 44
Management Science Application:
Determining Optimal Fertilizer Mixes at Soquimich (South America) 48
Irregular Types of Linear Programming Problems 50
Characteristics of Linear Programming Problems 53
Summary 54 • Example Problem Solutions 54 • Problems 58 • Case Problems 60
3Linear Programming: Computer Solution and Sensitivity Analysis 63
Management Science Models in Decision Support
Systems 20
Summary 21 • Problems 22 • Case Problems 24
2Linear Programming: Model Formulation and Graphical Solution 27
Model Formulation 28
A Maximization Model Example 28
Time Out: for George B. Dantzig 29
Computer Solution 64
Management Science Application:
Scheduling Air Ambulance Service in Ontario (Canada) 69
Management Science Application:
Improving Profitability at Norske Skog with Linear Programming 70
Sensitivity Analysis 71
Summary 82 • Example Problem Solution 82 • Problems 85 • Case Problems 89
i
iiCONTENTS
4Linear Programming: Modeling Examples 92
A Product Mix Example 93
Time Out: for George B. Dantzig 98
A Diet Example 98
An Investment Example 101
Management Science Application: A Linear Programming Model for Optimal Portfolio Selection at GE Asset Management 106
A Marketing Example 107
A Transportation Example 111 A Blend Example 114
A Multiperiod Scheduling Example 118
Management Science Application: Linear Programming Blending Applications in the Petroleum Industry 119
Management Science Application: Employee Scheduling with Management Science121
A Data Envelopment Analysis Example 123
Management Science Application:
Evaluating American Red Cross Chapters Using DEA 125
Summary 127 • Example Problem Solution 128 • Problems 130 • Case Problems 141
5Integer Programming 146
Integer Programming Models 147
Management Science Application: Selecting Volunteer Teams at Eli Lilly to Serve
in Impoverished Communities 150
Integer Programming Graphical Solution 150 Computer Solution of Integer Programming Problems
with Excel and QM for Windows 152
Time Out: for Ralph E. Gomory 153
Management Science Application:
Scheduling Appeals Court Sessions in Virginia with Integer Programming 156
Management Science Application: Forming Business Case Student Teams at Indiana University 161
0–1 Integer Programming Modeling Examples 161
Management Science Application: A Set Covering Model for Determining Fire Station Locations in Istanbul 170
Summary 170 • Example Problem Solution 171• Problems 171 • Case Problems 175
6Transportaion, Transshipment, and Assignment Problems 185
The Transportation Model 186
Time Out: for Frank L. Hitchcock and Tjalling
C. Koopmans 188
Management Science Application: Reducing Transportation Costs in the California Cut Flower Industry 189
Computer Solution of a Transportation Problem 189
Management Science Application: Analyzing Container Traffic Potential at the Port of Davisville (RI) 195
Management Science Application:
Transporting Mail at the U.S. Postal Service 199
The Assignment Model 199 Computer Solution of an Assignment
Problem 200
Management Science Application:
Supplying Empty Freight Cars at Union Pacific Railroad 203
Management Science Application:
Assigning Umpire Crews at Professional Tennis Tournaments 204
Summary 205 • Example Problem Solution 205 • Problems 206 • Case Problems 213
7Network Flow Models 222
Network Components 223
The Shortest Route Problem 224
The Minimal Spanning Tree Problem 232
Management Science Application:
Determining Optimal Milk Collection Routes in Italy 235
The Maximal Flow Problem 236
Time Out: for E. W. Dijkstra, L. R. Ford, Jr., and D. R. Fulkerson 237
Management Science Application:
Distributing Railway Cars to Customers at CSX 238
Summary 243 • Example Problem Solution 243 • Problems 245 • Case Problems 251
8Project Management 258
The Elements of Project Management 259
Management Science Application: Google, Facebook, and Apple “Cloud” Projects261
Time Out: for Henry Gantt 265
Management Science Application: An Interstate Highway Construction Project in Virginia 267
CPM/PERT 268
Time Out: for Morgan R. Walker, James
E. Kelley, Jr., and D. G. Malcolm 270
Probabilistic Activity Times 277
Management Science Application: Global Construction Mega-Projects 283
Microsoft Project 284
Project Crashing and Time–Cost Trade-Off 288
Management Science Application:
Reconstructing the Pentagon After 9/11 292
Formulating the CPM/PERT Network as a Linear Programming Model 293
Summary 300 • Example Problem Solution 301 • Problems 303 • Case Problems 308
9Multicriteria Decision Making 312
Goal Programming 313
Graphical Interpretation of Goal Programming 317 Computer Solution of Goal Programming Problems
with QM for Windows and Excel 320
Management Science Application:
Developing Television Advertising Sales Plans at NBC 320
CONTENTS iii
Time Out: for Abraham Charnes and William W. Cooper 324
The Analytical Hierarchy Process 327
Management Science Application: Selecting Sustainable Transportation Routes Across the Pyrenees Using AHP 327
Management Science Application: Ranking Twentieth-Century Army Generals Using AHP 334
Scoring Models 337
Management Science Application: A Scoring Model for Determining U.S. Army Installation Regions 339
Summary 339 • Example Problem Solutions 340 • Problems 343 • Case Problems 353
10Nonlinear
Programming 357
Nonlinear Profit Analysis 358
Constrained Optimization 361
Solution of Nonlinear Programming Problems with Excel 363
A Nonlinear Programming Model with Multiple Constraints 367
Management Science Application: Making Solar Power Decisions at Lockheed Martin with Nonlinear Programming 368
Nonlinear Model Examples 369
Summary 374 • Example Problem Solution 375 • Problems 375 • Case Problems 377
11Decision Analysis 379
Components of Decision Making 380
Decision Making without Probabilities 381
Management Science Application: Planning for Terrorist Attacks and Epidemics in Los Angeles County with Decision Analysis 388
Decision Making with Probabilities 388
Decision Analysis With Additional Information 402
Management Science Application:
Scheduling Refueling at the Indian Point 3 Nuclear Power Plant 408
iv CONTENTS
Utility 409
Summary 410 • Example Problem Solution 411 • Problems 414 • Case Problems 420
12Queuing Analysis 425
Elements of Waiting Line Analysis 426
The Single-Server Waiting Line System 427
Time Out: for Agner Krarup Erlang 428
Management Science Application: Using Queuing Analysis to Design Health Centers in Abu Dhabi 435
Undefined and Constant Service Times 436 Finite Queue Length 439
Management Science Application: Providing Telephone Order Service in the Retail Catalog Business 442
Finite Calling Population 442
The Multiple-Server Waiting Line 445
Management Science Application: Making Sure 911 Calls Get Through at AT&T448
Additional Types of Queuing Systems 450
Summary 451 • Example Problem Solution 451 • Problems 453 • Case Problems 456
13Simulation 459
The Monte Carlo Process 460
Time Out: for John Von Neumann 465
Computer Simulation with Excel Spreadsheets 465
Simulation of a Queuing System 470
Management Science Application: Planning for Catastrophic Disease Outbreaks Using Simulation 473
Continuous Probability Distributions 474 Statistical Analysis of Simulation Results 479
Management Science Application: Predicting Somalian Pirate Attacks Using Simulation 480
Crystal Ball 481
Verification of the Simulation Model 488 Areas of Simulation Application488
Summary 489 • Example Problem Solution 490 • Problems 493 • Case Problems 496
14Forecasting 500
Forecasting Components 501
Management Science Application:
Forecasting Advertising Demand at NBC 503
Time Series Methods 504
Management Science Application:
Forecasting Empty Shipping Containers at CSAV (Chile) 508
Management Science Application:
Forecasting at Heineken USA 513
Forecast Accuracy 516
Time Series Forecasting Using Excel 520
Management Science Application: Demand Forecasting at Zara 521
Regression Methods 524
Management Science Application: An Airline Passenger Forecasting Model 528
Data Mining 533
Summary 534 • Example Problem Solutions 534 • Problems 537 • Case Problems 544
15Inventory Management 548
Elements of Inventory Management 549
Management Science Application: Inventory Optimization at Procter & Gamble551
Inventory Control Systems 552
Time Out: for Ford Harris 553 Economic Order Quantity Models 553 The Basic EOQ Model 554
The EOQ Model with Noninstantaneous Receipt 559
The EOQ Model with Shortages 562
Management Science Application:
Determining Inventory Ordering Policy at Dell 565
EOQ Analysis with QM for Windows 565 EOQ Analysis with Excel and Excel QM566 Quantity Discounts 567
Management Science Application: Quantity Discount Orders at Mars 570
Reorder Point 571
Determining Safety Stock by Using Service Levels 573
CONTENTS v
Order Quantity for a Periodic Inventory
Appendix A
Normal and Chi-Square Tables 584
Appendix B
Setting Up and Editing a Spreadsheet 586
Appendix C
The Poisson and Exponential Distributions 590
Glossary 592