**Operation Research & LSCM in decision making**

**Operation Research & LSCM in decision making**

**Introduction to operation research**

Operations Research is the application of analytical methods designed to help the decision makers choose between various courses of action available to accomplish specified objectives.

**Definition of operation research**

**Operations **means the activities carried out in an organization. **Research **means the process of observation and testing characterized by the scientific method.Â Situation, problem statement, model construction, validation, experimentation, candidate solutions.

**Operations Research**

Operations Research is a quantitative approach to decision making based on the scientific method of problem solving.

**Operation research in Logistics Supply Chain Management decision making**

Every industrial organization faces multifaceted problems to identify best possible solution to their problems.Â OR aims to help the executives to obtain optimal solution with the use of OR techniques. It also helps the decision maker to improve his creative and judicious capabilities, analyze and understand the problem situation leading to better control, better co-ordination, better systems and finally better decisions.

**Decision Parameters**

Logistics and supply chain management is more concerned with the following decision parameters: Optimal location and arrangement of fixed storage facilities such as the warehouse depots or supply centers so as to provide the customers with desired products, number of depots/supply centers?, How should different customers be supplied from the different depots/supply centers?, Inventory control system and policies in these depots and Optimal management of the transport/shipment of the products. Besides the above factors, there are some other factors such as:

**What packaging to use in order to prevent damage? What is to be the frequency? Which routes to be chosen for shipment? What quantity and the mix of the above? Railway/truck /air/water**

The LSCM decisions have a direct impact upon the distribution cost and the customer service. The total cost of distribution system may be identified as follows as by taking the total of fixed cost of transportation (TFC), Variable Cost of transportation (TVC), Fixed Cost of supply chain (TFC), variable Cost of Service centers (SVC), Inventory Related Cost (IC) and Packaging Cost (PC).

**Optimal warehouse location **

Optimal warehouse location selection is a processing of selecting allocation centre in economic region where there are some supply stations and the certain demand point.

**Two ways to service customers:**

Each customer requires a full-load supply and, therefore, the optimal location of the DC is equal to the point O. A single vehicle can service all points and hence the facility can be located at any point of the triangle *ABC *perimeter.

**Methods of location analysis**

The methods of location analysis depend on location factor rating, Centre-of-gravity, load distance and Break Even Analysis.

**Location Factor Rating **

TheÂ processÂ ofÂ selectingÂ aÂ newÂ facilityÂ locationÂ involvesÂ aÂ seriesÂ ofÂ followingÂ steps:

IdentifyÂ theÂ importantÂ locationÂ factors,Â RateÂ eachÂ factorÂ accordingÂ toÂ itsÂ relativeÂ importance, AssignÂ eachÂ locationÂ accordingÂ toÂ theÂ meritsÂ ofÂ theÂ locationÂ forÂ eachÂ factor,Â CalculateÂ theÂ ratingÂ forÂ eachÂ locationÂ byÂ multiplyingÂ factorÂ assignedÂ toÂ eachÂ locationÂ with basicÂ factorsÂ considered, FindÂ theÂ sumÂ ofÂ productÂ calculatedÂ forÂ eachÂ factorÂ andÂ selectÂ bestÂ locationÂ havingÂ highest totalÂ score.

**Center of Gravity**

CentreÂ ofÂ gravityÂ isÂ basedÂ primarilyÂ onÂ costÂ considerations.Â ThisÂ methodÂ canÂ beÂ usedÂ to assist managers in balancing cost and service objects. The centre of gravity method takesÂ into account the locations of plans and markets, the volume of goods moved,Â andÂ transportationÂ costs in arriving at the best location for a single intermediate warehouse.

**Load Distance technique**

TheÂ load distanceÂ methodÂ isÂ aÂ mathematicalÂ model used to evaluate locations based onÂ proximity factors the objectives is to select a location that minimizes the total weighed loadsÂ movingÂ into and out of the facility. The distance between two points is expressed by assigningÂ theÂ pointsÂ to grid coordinates on a map.

**Break Even Point (BEP) Analysis **

Break even analysis implies that at some point in the operations, total revenue equals total cost. Break even analysis is concerned with finding the point at which revenues and costs agree exactly. It is called â€˜Break-even Pointâ€™. Break Even Point is the volume of output at which neither a profit is made nor a loss is incurred. The Break Even Point (BEP) in units can be calculated by using the relation:

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