Introduction to Management Science!
What is management science?!
Some denitions: !
Management science is a discipline that attempts to aid management decision making
by applying a scientic approach to managerial problems that involve quantitative
Business Studies 1
March 10th, 2014
The Oxford Dictionary of English (2013) defines inventory as the entire stock of a
business, including materials, components, work in progress, and finished product.
Inventory Management - Modeling strategies!
Different types of inventory control models may be considered!
Detailed modeling and analytical solution methods with a!
limited number of decisions (e.g. EOQ)!
Broader scope modeling with limited or no opti
A typical medium-sized manufacturing rm stocks approximately 10, 000 types of raw
materials, parts and nished goods.!
A stock-keeping unit (SKU) is an item of stock that is completely specied as to function,
style, size, color, and
Chacko denes decision-making as: the commitment of resources today for results
Decision Analysis (DA) provides a framework and methodology for rational decision
making under uncertainty.!
Types of Model!
MS/OR makes extensive use of existing modeling and solution methods.!
A model is a representation of reality. Several kind of models:!
Physical models i.e. a physical representation of reality, usually in smaller or larger
The Value Chain!
Concept introduced by Michael Porter in Competitive Advantage: Creating and
Sustaining Superior Performance, Free Press, 1985.!
A value chain is a chain of activities for a rm operating in a specic industry.!
Solving the Model!
Exact optimisation methods!
search for an optimal solution!
the optimization method used (e.g. linear programming etc.)!
will depend on nature of problem. Heuristic methods!
intuitively reasonable methods that p
Inventory Managent - Cost Factors!
Ordering/production costs variable unit cost!
price of raw material!
cost of labor!
import tax duties!
Cost of carrying item in inventory typically proportio
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