Introduction toManagement Science
Bernard W. Taylor IIIVirginia Polytechnic Institute and State University
E D I T I O N
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Library of Congress Cataloging-in-Publication Data
Taylor, Bernard W.
Introduction to management science / Bernard W. Taylor III.—Ed. 11.
p. cm.
ISBN-13: 978-0-13-275191-9
ISBN-10: 0-13-275191-7
1. Management science. I. Title.
T56.T38 2011
658.5—dc23
2011031153
10 9 8 7 6 5 4 3 2 1
ISBN-10: 0-13-275191-7
ISBN-13: 978-0-13-275191-9
To Diane, Kathleen, and Lindsey
To the memory of my grandfather,
Bernard W. Taylor, Sr.
This page intentionally left blank
Brief Contents
Preface xi
1 Management Science 1
2 Linear Programming:Model Formulation andGraphical Solution 30
3 Linear Programming:Computer Solution andSensitivity Analysis 72
4 Linear Programming:Modeling Examples 111
5 Integer Programming 184
6 Transportation,Transshipment, andAssignment Problems 233
7 Network Flow Models 289
8 Project Management 339
9 Multicriteria DecisionMaking 407
10 Nonlinear Programming 477
11 Probability and Statistics 502
12 Decision Analysis 537
13 Queuing Analysis 597
14 Simulation 637
15 Forecasting 689
16 Inventory Management 752
Appendix A
Normal and Chi-Square Tables 794
Appendix B
Setting Up and Editing a Spreadsheet 796
Appendix C
The Poisson and Exponential Distributions 800
Solutions to Selected Odd-Numbered Problems 802
Glossary 810
Index 815
The following items can be found on the Companion Web
site that accompanies this text:
Web Site ModulesModule A: The Simplex Solution
Method A-1
Module B: Transportation and Assignment Solution
Methods B-1
Module C: Integer Programming: The Branch and
Bound Method C-1
Module D: Nonlinear Programming Solution
Techniques D-1
Module E: Game Theory E-1
Module F: Markov Analysis F-1
v
Contents
Preface xi
1 Management Science 1
The Management Science Approach to ProblemSolving 2
Time Out: for Pioneers in ManagementScience 5
Management Science Application:Room Pricing with Management Science at Marriott 6
Model Building: Break-Even Analysis 7
Computer Solution 12
Management Science Application:The Application of Management Science with Spreadsheets 14
Management Science Modeling Techniques 15
Business Usage of Management ScienceTechniques 18
Management Science Application:Management Science in Health Care 19
Management Science Models in Decision SupportSystems 20
Summary 21 • Problems 22 • Case Problems 28
2 Linear Programming:Model Formulation andGraphical Solution 30
Model Formulation 31
A Maximization Model Example 31
Time Out: for George B. Dantzig 32
Management Science Application:Allocating Seat Capacity on Indian RailwaysUsing Linear Programming 35
Graphical Solutions of Linear ProgrammingModels 35
Management Science Application:Improving Customer Service atAmazon.com 47
A Minimization Model Example 47
Management Science Application:Determining Optimal Fertilizer Mixes at Soquimich (South America) 51
Irregular Types of Linear ProgrammingProblems 53
Characteristics of Linear ProgrammingProblems 56
Summary 57 • Example Problem Solution 57 •Problems 61 • Case Problems 70
3 Linear Programming:Computer Solution andSensitivity Analysis 72
Computer Solution 73
Management Science Application:Optimizing Production Quantities at GEPlastics 77
Management Science Application:Improving Profitability at Norske Skog with Linear Programming 79
Sensitivity Analysis 80
Summary 91 • Example Problem Solution 91 •Problems 94 • Case Problems 108
vi
CONTENTS vii
4 Linear Programming:Modeling Examples 111
A Product Mix Example 112
Time Out: for George B. Dantzig 117
A Diet Example 117
An Investment Example 120
Management Science Application: A LinearProgramming Model for Optimal PortfolioSelection at GE Asset Management 125
A Marketing Example 126
A Transportation Example 130
A Blend Example 133
A Multiperiod Scheduling Example 137
Management Science Application:Linear Programming Blending Applications in the Petroleum Industry 138
Management Science Application:Employee Scheduling with ManagementScience 140
A Data Envelopment Analysis Example 142
Management Science Application:Evaluating American Red Cross Chapters UsingDEA 144
Summary 146 • Example Problem Solution 147 •Problems 149 • Case Problems 179
5 Integer Programming 184
Integer Programming Models 185
Management Science Application: AllocatingOperating Room Time at Toronto’s Mount SinaiHospital 188
Integer Programming Graphical Solution 188
Computer Solution of Integer ProgrammingProblems with Excel and QM for Windows 190
Time Out: for Ralph E. Gomory 191
Management Science Application:College of Business Class Scheduling at Ohio University 194
Management Science Application: FormingBusiness Case Student Teams at IndianaUniversity 199
0–1 Integer Programming Modeling Examples 199
Management Science Application: PlanningNext-Day Air Shipments at UPS 208
Summary 208 • Example Problem Solution 209 •Problems 209 • Case Problems 225
6 Transportation,Transshipment, andAssignment Problems 233
The Transportation Model 234
Time Out: for Frank L. Hitchcock and TjallingC. Koopmans 236
Management Science Application:Transportation Models at Nu-koteInternational 237
Computer Solution of a TransportationProblem 237
Management Science Application: MatchingWineries with Distributors 242
The Transshipment Model 243
Management Science Application:Transporting Mail at the U.S. PostalService 246
The Assignment Model 247
Computer Solution of an Assignment Problem 247
Management Science Application: SupplyingEmpty Freight Cars at Union PacificRailroad 250
Management Science Application: AssigningUmpire Crews at Professional TennisTournaments 251
Summary 252 • Example Problem Solution 252 •Problems 253 • Case Problems 281
7 Network Flow Models 289
Network Components 290
The Shortest Route Problem 291
The Minimal Spanning Tree Problem 298
Management Science Application:Determining Optimal Milk Collection Routes in Italy 302
viii CONTENTS
The Maximal Flow Problem 303
Time Out: for E. W. Dijkstra, L. R. Ford, Jr.,and D. R. Fulkerson 304
Management Science Application:Distributing Railway Cars to Customers at CSX 306
Summary 310 • Example Problem Solution 310 •Problems 312 • Case Problems 332
8 Project Management 339
The Elements of Project Management 340
Management Science Application:Managing Projects in China 342
Time Out: for Henry Gantt 346
Management Science Application:An Interstate Highway Construction Project in Virginia 348
CPM/PERT 349
Time Out: for Morgan R. Walker, James E.Kelley, Jr., and D. G. Malcolm 350
Probabilistic Activity Times 357
Management Science Application: The T5Project at Heathrow Airport 364
Microsoft Project 365
Project Crashing and Time–Cost Trade-Off 369
Management Science Application:Reconstructing the Pentagon After 9/11 373
Formulating the CPM/PERT Network as a LinearProgramming Model 374
Summary 381 • Example Problem Solution 382 •Problems 384 • Case Problems 404
9 Multicriteria DecisionMaking 407
Goal Programming 408
Graphical Interpretation of GoalProgramming 412
Computer Solution of Goal Programming Problemswith QM for Windows and Excel 415
Management Science Application:Developing Television Advertising Sales Plans at NBC 415
Time Out: for Abraham Charnes and WilliamW. Cooper 419
The Analytical Hierarchy Process 422
Management Science Application: SelectingStudents for Graduate Studies Abroad at DarAl-Hekma Women’s College 422
Management Science Application: AnalyzingAdvanced-Technology Projects at NASA 428
Management Science Application: RankingTwentieth-Century Army Generals 430
Scoring Models 433
Management Science Application: A ScoringModel for Determining U.S. Army InstallationRegions 435
Summary 435 • Example Problem Solutions 436 •Problems 439 • Case Problems 472
10 NonlinearProgramming 477
Nonlinear Profit Analysis 478
Constrained Optimization 481
Solution of Nonlinear Programming Problems withExcel 483
Management Science Application: MakingSupplier Decisions at Ford with NonlinearProgramming 487
A Nonlinear Programming Model with MultipleConstraints 488
Nonlinear Model Examples 490
Summary 494 • Example Problem Solution 495 •Problems 495 • Case Problems 500
11 Probability andStatistics 502
Types of Probability 503
Fundamentals of Probability 505
Management Science Application: TreasureHunting with Probability and Statistics 507
Statistical Independence and Dependence 508
Expected Value 515
Management Science Application:A Probability Model for Analyzing Coast GuardPatrol Effectiveness 516
CONTENTS ix
The Normal Distribution 517
Summary 527 • Example Problem Solution 527 •Problems 529 • Case Problem 535
12 Decision Analysis 537
Components of Decision Making 538
Decision Making Without Probabilities 539
Management Science Application:Planning for Terrorist Attacks and Epidemics in Los Angeles County with DecisionAnalysis 546
Decision Making with Probabilities 546
Management Science Application:Evaluating Electric Generator MaintenanceSchedules Using Decision Tree Analysis 557
Decision Analysis with Additional Information 560
Management Science Application:Scheduling Refueling at the Indian Point 3Nuclear Power Plant 566
Utility 567
Summary 568 • Example Problem Solution 569 •Problems 572 • Case Problems 592
13 Queuing Analysis 597
Elements of Waiting Line Analysis 598
The Single-Server Waiting Line System 599
Time Out: for Agner Krarup Erlang 600
Management Science Application: ReducingPerceived Waiting Time at Bank ofAmerica 607
Undefined and Constant Service Times 608
Finite Queue Length 611
Management Science Application: ProvidingTelephone Order Service in the Retail CatalogBusiness 613
Finite Calling Population 614
The Multiple-Server Waiting Line 617
Management Science Application: MakingSure 911 Calls Get Through at AT&T 620
Additional Types of Queuing Systems 622
Summary 623 • Example Problem Solution 623 •Problems 625 • Case Problems 633
14 Simulation 637
The Monte Carlo Process 638
Time Out: for John Von Neumann 643
Computer Simulation with Excel Spreadsheets 643
Simulation of a Queuing System 648
Management Science Application: Planningfor Health Emergencies Created by Terrorist Attacks 651
Continuous Probability Distributions 652
Statistical Analysis of Simulation Results 657
Management Science Application:A Monte Carlo Simulation Model for Managing Liquidity Risk at Merrill Lynch Bank USA 658
Crystal Ball 659
Verification of the Simulation Model 666
Areas of Simulation Application 666
Summary 667 • Example Problem Solution 668 •Problems 671 • Case Problems 685
15 Forecasting 689
Forecasting Components 690
Management Science Application:Forecasting Advertising Demand at NBC 692
Time Series Methods 693
Management Science Application:Forecasting at Goodyear Tire and RubberCompany 697
Management Science Application:Forecasting at Heineken USA 702
Forecast Accuracy 705
Management Science Application:Forecasting at Bayer Consumer Care 709
Time Series Forecasting Using Excel 709
Time Series Forecasting Using QM forWindows 712
Regression Methods 713
Management Science Application:An Airline Passenger Forecasting Model 717
Summary 722 • Example Problem Solutions 722 •Problems 725 • Case Problems 748