Product Mix Problem Example 1

This
This is
is a
a very
very basic
basic example
example ofof how
how you
you can
can set
set up
up aa series
series of
of decision
decision variables
variables to
to optimize
optimize choices
choices across
across what
what product
product
used,
used, and
and capacity
capacity (in
(in this
this case
case pressing
pressing time
time and
and inventory).
inventory). This
This model
model could
could easily
easily be
be modified
modified and
and scaled
scaled to
to take
take into
into
this
this example,
example, assume
assume your
your company
company manufactures
manufactures pallets
pallets using
using a
a common
common parts
parts inventory
inventory of
of glue,
glue, pine
pine chips,
chips, and
and oak
oak ch
ch
of
of pressing
pressing time.
time. Both
Both pressing
pressing time
time and
and parts
parts are
are in
in limited
limited supply
supply and
and you
you must
must determine
determine the
the most
most profitable
profitable mix
mix of
of pro
pro

Decision
Decision Variables
Variables Variable
Variable Bounds
Bounds
In
In this
this example
example youyou need
need to to decide
decide the
the optimal
optimal mix
mix of
of Since
Since we
we won't
won't bebe making
making aa negative
negative number
number of
of pallets,
pallets, we've
we've
pallets
pallets toto produce.
produce.AsAs aa result,
result, we
we have
have set
set cells
cells set
set each
each variable's
variable's lower
lower bound
bound to
to 0.
0. These
These lower
lower bounds
bounds
C18:F18 appear
appear in
in the
the Model
Model Task
Task Pane
Pane as
as Number_to_build
Number_to_build >= >= 0.
0.
C18:F18 as as our
our Decision
Decision Variables
Variables and
and have
have created
created
the
the defined
defined name,
name, Number_to_build.
Number_to_build. Alternatively,
Alternatively, we could set Assume Non-Negative to True on
we could set Assume Non-Negative to True on
the
the Engine
Engine tab
tab of
of the
the Task
Task Pane.
Pane.

Panel Type
Tahoe Pacific Savannah Aspen
Pallets 0 0 0 0 Total Profit
Profit $450 $1,150 $800 $400 $0

Resources Required per Pallet Type Used Available

Glue 50 50 100 50 0 5,800 quarts
Pressing 5 15 10 5 0 730 hours
Pine Chips 500 400 300 200 0 29,200 pounds
Oak Chips 500 750 250 500 0 60,500 pounds

Model
Model Notes
Notes
Although
Although this
this is
is a
a good
good basic
basic example
example of of a
a product
product mix
mix problem,
problem, bear
bear inin mind the limitations
mind the limitations of
of this
this model.
model. For
For example,
example, ma ma
in
in the
the model
model --
-- we
we assume
assume that
that itit does
does not
not matter
matter how
how many
many pallets
pallets of
of each
each type
type we
we build,
build, we
we will
will always
always bebe able
able to
to sell
sell the
the
maximum
maximum number
number of of products
products that
that are
are required
required to
to be
be manufactured.
manufactured. The
The effect
effect of
of introducing
introducing these
these restrictions
restrictions can
can be
be stud
stud
can
can create after the status bar shows "Solver found a solution." by clicking Reports on the RSP ribbon and then selecting O
create after the status bar shows "Solver found a solution." by clicking Reports on the RSP ribbon and then selecting O
Example 1
ces
ces across
across what
what products
products to
to produce
produce based
based onon product
product profit,
profit, parts
parts
and
and scaled
scaled to
to take
take into
into account
account demand,
demand, many
many more
more products,
products, etc.
etc. For
For
e,
e, pine
pine chips,
chips, and
and oak
oak chips,
chips, and
and each
each pallet
pallet requires
requires a
a certain
certain amount
amount
ost
ost profitable
profitable mix
mix of
of products
products to
to build.
build.

Model
Model Building
Building Tip:
Tip: Defined
Defined Names
Names
ff pallets,
pallets, we've
we've In
In aa large
large model,
model, using
using defined
defined names
names for
for aa range
range of
of
er bounds
wer bounds variables
variables or or constraint
constraint cells
cells will
will create
create aa more
more readable
readable
build
build >=
>= 0.
0. model
model for for the
the User.
User. To
To create
create aa defined
defined name,
name, simply
simply
ve to True on
e to True on select
select thethe range
range ofof cells
cells you
you want
want toto name
name (for
(for example
example
C18:F18),
C18:F18), click click Formulas
Formulas on on the
the Excel
Excel Ribbon,
Ribbon, andand then
then
select
select Name
Name Manager.
Manager.

Objective
Objective Function
Function
Our
Our objective
objective in in this
this model
model isis to
to maximize
maximize profit.
profit. As
As aa
result,
result, we
we have
have chosen
chosen toto maximize
maximize our our Objective
Objective
located
located in
in cell
cell G19
G19 and
and named
named this this cell
cell Total_profit.
Total_profit.

Constraints
Constraints
The
The example
example model
model contains
contains four
four constraints
constraints which
which limit
limit
the
the number
number of
of parts
parts or
or pressing
pressing time
time used
used per
per product
product to
to
the
the amount
amount available.
available. In
In the
the Model
Model tab
tab of
of the
the Task
Task Pane,
Pane,
these
these constraints
constraints appear
appear as:
as: Number_Used
Number_Used <= <=
Number_Available.
Number_Available.

model.
model. For
For example,
example, market
market demand
demand and
and price
price elasticity
elasticity are
are not
not included
included
ways
ways bebe able
able to
to sell
sell them.
them. Nor
Nor are
are there
there any
any pre-specified
pre-specified minimum
minimum or or
restrictions
restrictions can
can be
be studied
studied by
by examining
examining a a Sensitivity
Sensitivity Report,
Report, which
which you
you
on
on and
and then
then selecting
selecting Optimization
Optimization and
and then
then Sensitivity.
Sensitivity.
 363835983.xlsx

A B C D E F G H I J K L M N
1

2 Product Mix Example Problem

Your
Your company
company manufactures
manufactures TVs,
TVs, stereos
stereos and
and speakers,
speakers, using
using a
a common
common parts
parts inventory
inventory of
of chassis,
chassis, LCD
LCD Screens,
Screens, speakers,
speakers, power
power supplies
supplies and
and various
various internal
internal electronics.
electronics. Parts
Parts are
are
in
in limited
limited supply
supply and
and you
you must
must determine
determine the
the most
most profitable
profitable mix
mix of
of products
products to
to build.
build.
3
4
5 Decision
Decision Variables Variable
Variables Variable Bounds
Bounds
6 The
The variables
variables areare the
the number
number of
of TVs,
TVs, stereos,
stereos, and
and speakers
speakers to
to Since
Since we
we won't
won't be
be making
making aa negative
negative number
number of of products,
products, the
the
build.
build. In
In this
this worksheet,
worksheet, they
they are
are located
located in
in cells
cells C14:E14
C14:E14 and
and three
three variables
variables each
each have
have aa lower
lower bound
bound of
of 0.
0. These
These lower
lower
7 have
have the
thedefined
defined name,
name, Number_to_build.
Number_to_build. bounds
bounds appear
appear in
in the
the Model
Model Task
Task Pane
Pane as
as Number_to_build
Number_to_build>= >=0.0.
8 Alternatively,
Alternatively, we
we could
could set
setAssume
Assume Non-Negative
Non-Negative to to True
True on
on the
the
9 Engine
Engine task
task pane.
pane.
10
11
12 Production Decisions
13 LCD TV Stereo Speakers
14 Number to Build: 0 0 0
Constraints
Constraints
15 The
The example
example model
model contains
contains five
five constraints
constraints which
which limit
limit the
the
16 Part Requirements by Product Part Inventory Levels number
number ofof parts
parts used
used per
per product
product to
to the
the number
number of
of parts
parts
available.
available. In
In the
the Solver
Solver Task
Task Pane,
Pane, these
these constraints
constraints appear
appear as:
as:
17 Part Name LCD TV Stereo Speakers Used Available Number_used
Number_used <= <= Number_available.
Number_available.
This translates into G18 <= H18, G19 <= H19,
This translates into G18 <= H18, G19 <= H19, etc.etc.
18 Chassis 1 1 0 0 450
19 LCD Screen 1 0 0 0 250
20 Speaker 2 2 1 0 800
21 Power Supply 1 1 0 0 450
22 Electronics 2 1 1 0 600 Objective
Objective Function
Function
The
The objective
objective of
of this
this model
model isis to
to maximize
maximize profit.
profit. InIn the
the
23 worksheet,
worksheet, the
the objective
objective function
function isis located
located in
in cell
cell G24
G24 and
and isis
24 Profit per unit $75 $50 $35 $0 defined
defined as
as Total_profit.
Total_profit.
25
26
27 Model
Model Building
Building Tip:Tip: Sensitivity
Sensitivity ReportReport
28 AASensitivity
Sensitivity Report
Report lists
lists which
which constraints
constraints are are binding
binding or or not
not binding.
binding. IfIf aa constraint
constraint isis binding,
binding, thethe left
left hand
hand side
side of
of the
the constraint
constraint
29 is
is equal
equal to
to its
its upper
upper oror lower
lower bound
bound or or both,
both, inin the
the case
case of of an
an equality.
equality. This
This means
means that that in
in order
order toto improve
improve the the objective,
objective, the the
constraint(s)
constraint(s) mustmust bebe relaxed.
relaxed. TheThe Shadow
Shadow PricePrice is is the
the change
change inin the
the objective
objective value
value ofof the
the optimal
optimal solution
solution when
when thethe constraint
constraint
30
is
is relaxed
relaxed byby one
one unit
unit within
within the
the allowable
allowable increase
increase or or decrease.
decrease.
31 To
To create
create aa Sensitivity
Sensitivity Report,
Report, press
press thethe green
green arrowarrow onon the
the Model
Model task
task pane
pane to to run
run the
the Solver,
Solver, then
then gogo toto Reports
Reports >> Optimization
Optimization
32 >> Sensitivity
Sensitivity on on the
the RSP
RSP ribbon.
ribbon. AASensitivity
Sensitivity Report
Report will
will be
be inserted
inserted directly
directly to to the
the left
left of
of this
this worksheet.
worksheet.
This
This report
report shows
shows that
that at
at the
the optimal
optimal solution,
solution, we we use
use all
all 800
800 Speaker
Speaker Cones
Cones and and 600600 Electronics
Electronics units,
units, but
but not
not all
all of
of the
the
33 additional
additional components
components such such asas Chassis,
Chassis, LCDLCD Screens
Screens or or Power
Power Supplies.
Supplies. In In addition,
addition, we we shoud
shoud produce
produce 200 200 TVs
TVs and
and 200200
34 Stereos
Stereos but no Speakers. What do the shadow prices of the two "binding" constraints and the reduced cost of the one "nonbasic"
but no Speakers. What do the shadow prices of the two "binding" constraints and the reduced cost of the one "nonbasic"
variable
variable tell
tell us?
us?
35 The
The shadow
shadow priceprice of
of 12.5
12.5 for
for Speaker
Speaker Cones
Cones tells
tells usus that
that wewe could
could increase
increaseTotal
Total Profits
Profits by
by $12.50
$12.50 for for every
every additional
additional Speaker
Speaker
36 Cone
Cone we we can
can acquire,
acquire, up up to
to 100
100 more.
more. Similarly,
Similarly, thethe shadow
shadow priceprice of
of 25
25 for
for Electronics
Electronics unitsunits tells
tells us
us wewe could
could use
use upup toto 50
50 more
more
units and increase Total Profits by $25.00 for each
units and increase Total Profits by $25.00 for each extra unit. extra unit.
37 The
The reduced
reduced cost cost of
of -2.5
-2.5 for
for E14
E14 tells
tells us
us that,
that, ifif we
we were
were forced
forced to
to produce
produce somesome Speakers,
Speakers, we we would
would reduce
reduce Total
Total Profits
Profits by by
38 $2.50
$2.50 for
for each
each Speaker
Speaker we we made
made (since
(since wewe would
would givegive upup production
production of of an
an alternate
alternate moremore profitable
profitable product).
product).
39
40
41
42
43
44

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