Chapter 3: Linear Programming Modeling Applications

2007 Pearson Education

Linear Programming (LP) Can Be Used for Many Managerial Decisions:

Product mix Make-buy Media selection Marketing research Portfolio selection Shipping & transportation Multiperiod scheduling

For a particular application we begin with the problem scenario and data, then: 1) Define the decision variables 2) Formulate the LP model using the decision variables
Write the objective function equation Write each of the constraint equations

3) Implement the model in Excel 4) Solve with Excels Solver

Product Mix Problem: Fifth Avenue Industries

Produce 4 types of men's ties Use 3 materials (limited resources) Decision: How many of each type of tie to make per month? Objective: Maximize profit

Resource Data
Yards available Cost per yard per month $20 1,000 $6 $9 2,000 1,250

Material Silk Polyester Cotton

Labor cost is $0.75 per tie

Product Data
Type of Tie Silk Selling Price
(per tie)

Polyester Blend 1 Blend 2 $3.55 10,000 14,000 0.08 $4.31 13,000 16,000 0.10 $4.81 6,000 8,500 0.10

$6.70 6,000 7,000 0.125

Monthly Minimum Monthly Maximum Total material

(yards per tie)

Material Requirements (yards per tie)

Type of Tie Silk Material Silk Polyester Cotton Total yards 0.125 0 0 0.125 Blend 1 Polyester (50/50) 0 0.08 0 0.08 0 0.05 0.05 0.10 Blend 2 (30/70) 0 0.03 0.07 0.10

Decision Variables
S = number of silk ties to make per month P = number of polyester ties to make per month B1 = number of poly-cotton blend 1 ties to make per month B2 = number of poly-cotton blend 2 ties to make per month

Profit Per Tie Calculation

Profit per tie = (Selling price) (material cost) (labor cost) Silk Tie Profit = $6.70 (0.125 yds)($20/yd) - $0.75 = $3.45 per tie

Objective Function (in $ of profit) Max 3.45S + 2.32P + 2.81B1 + 3.25B2

Subject to the constraints:

Material Limitations (in yards) 0.125S 0.05B1 + 0.07B2 < 1,000 (silk) < 1,250 (cotton) 0.08P + 0.05B1 + 0.03B2 < 2,000 (poly)

Min and Max Number of Ties to Make 6,000 < S < 7,000 10,000 < P < 14,000 13,000 < B1 < 16,000 6,000 < B2 < 8,500 Finally nonnegativity S, P, B1, B2 > 0
Go to file 3-1.xls

Media Selection Problem: Win Big Gambling Club

Promote gambling trips to the Bahamas Budget: $8,000 per week for advertising Use 4 types of advertising Decision: How many ads of each type? Objective: Maximize audience reached

Data
Advertising Options Radio TV Spot Newspaper
(prime time)

Radio
(afternoon)

Audience Reached (per ad) Cost (per ad) Max Ads Per week

5,000

8,500

2,400

2,800

$800 12

$925 5

$290 25

$380 20

Other Restrictions Have at least 5 radio spots per week Spend no more than $1800 on radio Decision Variables T = number of TV spots per week N = number of newspaper ads per week P = number of prime time radio spots per week A = number of afternoon radio spots per week

Objective Function (in num. audience reached) Max 5000T + 8500N + 2400P + 2800A
Subject to the constraints:

Budget is $8000 800T + 925N + 290P + 380A < 8000 At Least 5 Radio Spots per Week P+A>5

No More Than $1800 per Week for Radio 290P + 380A < 1800
Max Number of Ads per Week

T < 12 N< 5
Finally nonnegativity

P < 25 A < 20
T, N, P, A > 0

Go to file 3-3.xls

Portfolio Selection: International City Trust

Has $5 million to invest among 6 investments Decision: How much to invest in each of 6 investment options? Objective: Maximize interest earned

Data
Investment Trade credits Corp. bonds Gold stocks Platinum stocks Mortgage securities Construction loans Interest Rate 7% 10% 19% 12% 8% 14% Risk Score 1.7 1.2 3.7 2.4 2.0 2.9

Constraints
Invest up to $ 5 million No more than 25% into any one investment At least 30% into precious metals At least 45% into trade credits and corporate bonds Limit overall risk to no more than 2.0

Decision Variables
T = $ invested in trade credit B = $ invested in corporate bonds G = $ invested gold stocks P = $ invested in platinum stocks M = $ invested in mortgage securities C = $ invested in construction loans

Objective Function (in $ of interest earned) Max 0.07T + 0.10B + 0.19G + 0.12P + 0.08M + 0.14C
Subject to the constraints:

Invest Up To $5 Million T + B + G + P + M + C < 5,000,000

No More Than 25% Into Any One Investment T < 0.25 (T + B + G + P + M + C) B < 0.25 (T + B + G + P + M + C) G < 0.25 (T + B + G + P + M + C) P < 0.25 (T + B + G + P + M + C) M < 0.25 (T + B + G + P + M + C) C < 0.25 (T + B + G + P + M + C)

At Least 30% Into Precious Metals G + P > 0.30 (T + B + G + P + M + C) At Least 45% Into Trade Credits And Corporate Bonds T + B > 0.45 (T + B + G + P + M + C)

Limit Overall Risk To No More Than 2.0

Use a weighted average to calculate portfolio risk 1.7T + 1.2B + 3.7G + 2.4P + 2.0M + 2.9C < 2.0 T+B+G+P+M+C OR 1.7T + 1.2B + 3.7G + 2.4P + 2.0M + 2.9C < 2.0 (T + B + G + P + M + C) finally nonnegativity: T, B, G, P, M, C > 0
Go to file 3-5.xls

Labor Planning: Hong Kong Bank

Number of tellers needed varies by time of day

Decision: How many tellers should begin work at various times of the day? Objective: Minimize personnel cost

Time Period 9 10 10 11 11 12 12 1 12 2-3 34 45

Min Num. Tellers 10 12 14 16 18 17 15 10

Total minimum daily requirement is 112 hours

Full Time Tellers Work from 9 AM 5 PM Take a 1 hour lunch break, half at 11, the other half at noon Cost $90 per day (salary & benefits) Currently only 12 are available

Part Time Tellers Work 4 consecutive hours (no lunch break) Can begin work at 9, 10, 11, noon, or 1 Are paid $7 per hour ($28 per day) Part time teller hours cannot exceed 50% of the days minimum requirement (50% of 112 hours = 56 hours)

Decision Variables F = num. of full time tellers (all work 95) P1 = num. of part time tellers who work 91 P2 = num. of part time tellers who work 102 P3 = num. of part time tellers who work 113 P4 = num. of part time tellers who work 124 P5 = num. of part time tellers who work 15

Objective Function (in $ of personnel cost) Min 90 F + 28 (P1 + P2 + P3 + P4 + P5)

Subject to the constraints:

Part Time Hours Cannot Exceed 56 Hours 4 (P1 + P2 + P3 + P4 + P5) < 56

Minimum Num. Tellers Needed By Hour

Time of Day

F + P1 F + P1 + P2 0.5 F + P1 + P2 + P3 0.5 F + P1 + P2 + P3+ P4 F + P2 + P3+ P4 + P5 F + P3+ P4 + P5 F + P4 + P5 F + P5

> 10 > 12 > 14 > 16 > 18 > 17 > 15 > 10

(9-10) (10-11) (11-12) (12-1) (1-2) (2-3) (3-4) (4-5)

Only 12 Full Time Tellers Available F < 12 finally nonnegativity: F, P1, P2, P3, P4, P5 > 0
Go to file 3-6.xls

Vehicle Loading: Goodman Shipping

How to load a truck subject to weight and volume limitations Decision: How much of each of 6 items to load onto a truck? Objective: Maximize the value shipped

Data
Item 1
Pounds

2
4500 $3.20 0.064

3
3000 $3.45 0.144

4
3500 $4.15 0.448

5
4000 $3.25 0.048

6
3500 $2.75 0.018

Value $15,500 $14,400 $10,350 $14,525 $13,000 $9,625 5000 $3.10 0.125 $ / lb Cu. ft. per lb

Decision Variables
Wi = number of pounds of item i to load onto truck, (where i = 1,,6) Truck Capacity 15,000 pounds 1,300 cubic feet

Objective Function (in $ of load value) Max 3.10W1 + 3.20W2 + 3.45W3 + 4.15W4 + 3.25W5 + 2.75W6
Subject to the constraints:

Weight Limit Of 15,000 Pounds W1 + W2 + W3 + W4 + W5 + W6 < 15,000

Volume Limit Of 1300 Cubic Feet 0.125W1 + 0.064W2 + 0.144W3 + 0.448W4 + 0.048W5 + 0.018W6 < 1300 Pounds of Each Item Available W1 < 5000 W4 < 3500 W2 < 4500 W5 < 4000 W6 < 3500 W3 < 3000
Finally nonnegativity: Wi > 0, i=1,,6
Go to file 3-7.xls

Blending Problem: Whole Food Nutrition Center

Making a natural cereal that satisfies minimum daily nutritional requirements Decision: How much of each of 3 grains to include in the cereal? Objective: Minimize cost of a 2 ounce serving of cereal

$ per pound Protein per pound Riboflavin per pound Phosphorus per pound Magnesium per pound

Minimum Daily $0.33 $0.47 $0.38 Requirement 22 16 8 5 28 14 7 0 21 25 9 6 3 2 1 0.425

Grain B

Decision Variables
A = pounds of grain A to use B = pounds of grain B to use C = pounds of grain C to use

Note: grains will be blended to form a 2 ounce serving of cereal

Objective Function (in $ of cost) Min 0.33A + 0.47B + 0.38C

Subject to the constraints:

Total Blend is 2 Ounces, or 0.125 Pounds A + B + C = 0.125 (lbs)

Minimum Nutritional Requirements 22A + 28B + 21C > 3 16A + 14B + 25C > 2 8A + 7B + 9C > 1 5A (protein) (riboflavin) (phosphorus)

+ 6C > 0.425 (magnesium)

Finally nonnegativity: A, B, C > 0

Go to file 3-9.xls

Multiperiod Scheduling: Greenberg Motors

Need to schedule production of 2 electrical motors for each of the next 4 months Decision: How many of each type of motor to make each month? Objective: Minimize total production and inventory cost

Decision Variables
PAt = number of motor A to produce in month t (t=1,,4) PBt = number of motor B to produce in month t (t=1,,4) IAt = inventory of motor A at end of month t (t=1,,4) IBt = inventory of motor B at end of month t (t=1,,4)

Sales Demand Data

Motor A B 800 700 1100 1000 1200 1400

Month 1 (January) 2 (February) 3 (March) 4 (April)

1000 1400

Production Data
Motor (values are per motor) A B Production cost Labor hours $10 1.3 $6 0.9

Production costs will be 10% higher in months 3 and 4 Monthly labor hours most be between 2240 and 2560

Inventory Data
Motor A B Inventory cost $0.18 $0.13 (per motor per month) Beginning inventory 0 0 (beginning of month 1) Ending Inventory 450 300 (end of month 4)

Max inventory is 3300 motors

Production and Inventory Balance

(inventory at end of previous period) + (production the period) - (sales this period) = (inventory at end of this period)

Objective Function (in $ of cost) Min 10PA1 + 10PA2 + 11PA3 + 11PA4 + 6PB1 + 6 PB2 + 6.6PB3 + 6.6PB4 + 0.18(IA1 + IA2 + IA3 + IA4) + 0.13(IB1 + IB2 + IB3 + IB4)
Subject to the constraints: (see next slide)

Production & Inventory Balance 0 + PA1 800 = IA1 (month 1) 0 + PB1 1000 = IB1 IA1 + PA2 700 = IA2 (month 2) IB1 + PB2 1200 = IB2 IA2 + PA3 1000 = IA3 (month 3) IB2 + PB3 1400 = IB3 IA3 + PA4 1100 = IA4 (month 4) IB3 + PB4 1400 = IB4

Ending Inventory IA4 = 450 IB4 = 300 Maximum Inventory level IA1 + IB1 < 3300 (month 1) (month 2) IA2 + IB2 < 3300 (month 3) IA3 + IB3 < 3300 IA4 + IB4 < 3300 (month 4)

Range of Labor Hours 2240 < 1.3PA1 + 0.9PB1 < 2560 1) 2240 < 1.3PA2 + 0.9PB2 < 2560 2) 2240 < 1.3PA3 + 0.9PB3 < 2560 3) 2240 < 1.3PA4 + 0.9PB4 < 2560 4) (month (month (month (month

finally nonnegativity: PAi, PBi, IAi, IBi > 0