What is Objective Function?
Definition: Objective function in commerce refers to a mathematical concept that seems to demonstrate the relationship between different factors that generate value.
The objective function concept is particularly used in production processes to define production inputs with the goal of optimizing the production output. The objective function is therefore used to maximize processes so that they can align with production output targets. This ultimately helps to maximize profit. You can thus think of objective function as an equation that is designed to optimize production variables so that they align with the set production and profitability targets.
How Does Objective Function Work?
Any business that has a production process has production limits or constraints. Those limits usually act as a ceiling for the company’s production activities. Some of those limits include technology, resources, and production capacity. However, sometimes a company may not be effectively running its production activities and may, therefore, end up working well below its production limits. In other words, the company may have room for improvement, and that is where the objective function comes in.
The objective function optimizes the inputs so that the firm can operate at peak performance, and the ultimate goal is to either minimize losses or maximize profits. Different decision variables can be matched with value combinations. A feasible solution that aligns with the problem’s constraints is then selected.
Objective Function Formula
The objective function formula is usually depicted in the form below.
z = f (xi)
Objective Function Practical Applications and Examples
Objective function can be used in a variety of situations, as shown below:
Inventory Management
It is used in inventory management, especially in factories where it helps to manage spare parts and inventory. Objective function can be quite useful in such situations because properly managed inventory slashes lead time, reduces work stoppage, and it also makes it easier to find inventory items. Companies, especially those in the manufacturing segment, can optimize their inventory through objective function. This reduces costs while at the same time helping to ensure uninterrupted production activities since costs such as storage and capital are not blocked.
Allocate Resources
Objective function also helps companies to allocate resources such as labor and machinery, especially when production processes of different products are involved. This helps to minimize costs while maximizing profits.
Manage Leverage
Firms can leverage objective function to manage their truck fleets. They can also use it to identify the best transport corridors that will help to maximize profits.
Manage Production Lines
Major manufacturing firms that operate multiple production facilities can use objective function to identify the vendors that are best suited to their requirements. This approach can be quite useful because it helps the company to pick out cost-efficient vendors that will, therefore, help to reduce costs and subsequently help to achieve maximum efficiencies.
Other Production Processes
Objective function can also be a useful tool for companies that blend various inputs in their manufacturing processes to make products such as chemicals and animal feeds, among others. Such companies can use the objective function approach to help smoothen out blending issues, thus achieving more efficiencies.
The above are just some of the examples where objective function can be applied. However, it can be applied in many other situations, especially in industrial production, to eliminate resource allocation issues. It is also versatile enough to be used in many industries.
Summary
Objective Function And Its Role In Commerce
Objective function is a vital tool for any company that has is looking to optimize its production processes. Its versatility also allows it to be used in different industries or segments where companies want to squeeze out more efficiency out of their production operations. It can help companies to allocate resources properly and also to achieve the right mix as far as inputs are concerned.