Operations Research Methods Optimisation: Linear Programming Contents

1. Introduction & model formulation 2. Graphical solution of linear programming (LP) problems 3. Interpreting solutions to LP problems and sensitivity analysis 4. Using computer software to solve LP problems 5. More on sensitivity analysis using computer software 6. Further analysis of LP models
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Learning Objectives
To introduce the concept of modeling as a method of solving managerial problems To use optimisation methods i.e. LP as a means for solving modeling problems

To use computer software for solving modeling problems

Introduction to LP & Model Formulation

A Modeling Approach
Linear Programming (LP) is a modeling approach used to model business optimisation problems. It is very different from computer programming. In LP terms, programming means planning.
LP models seek to optimise (to maximise or minimise) something subject to some constraints. In other words, it is a technique for dealing with constrained optimisation problems, a study of allocation of activities that use limited resources in an optimal manner.

Two features of LP models

Objective (maximise returns, minimise costs) A set of constraints (labour, funds, materials, time)

Some Typical LP Applications

1. Manufacture Decide a production schedule and an inventory policy that satisfy sales demand to minimise the total production and inventory costs, subject to production capacity. 2. Finance Select an investment portfolio from a variety of stock and bond investment alternatives to maximise return on investment. 3. Marketing Determine how best to allocate a fixed advertising budget among alternative advertising media (such as radio, TV, newspaper and magazines) to maximise the advertising effectiveness. 4. Logistics A company has warehouses in a number of locations. Given a set of customer demands for its products, the company wants to determine which warehouse should ship how much product to which customers , so that the total transportation 4 costs are minimised.

Formulation of LP Models
1. Define appropriate decision variables
Require a variable for every separately identifiable entity, e.g. amount of a particular product produced at a particular factory. Use descriptive names, e.g., WHEAT

2. Formulate constraints
Limited production capacity/demand Raw material availability Mix or blend constraints, e.g., diet Material balance, e.g., Used + Sold <= Produced + Bought (NB: All variables on the left-hand side of the inequality and constant on the right-hand side.)

3. Formulate objective function

Profit, cost Maximise or minimise
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Some Examples of LP Modeling

Example 1 A company makes two kinds of paint in bulk by mixing two raw materials in different proportions. Availability of materials and the selling prices of the products are as follows: Tons of raw material needed per ton of paint Paint 1 Paint 2 Available 1 2 6 2 1 8 $3000 $2000

Material 1 Material 2 Price/ton

Research shows that demand for paint 2 is no more than 1.9 tons/day, and in any case will not exceed that for paint 1 by more than 1 ton/day.
The company wishes to decide its daily production to maximise its gross income. Formulate this problem as an LP model.
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Formulation of Example Problem 1

Decision Variables X1 = amount of Paint 1 to be produced daily (tons) X2 = amount of Paint 2 to be produced daily (tons) Constraints 1X1 + 2X2 6 2X1 + 1X2 8 X2 1.9 X2 - X1 1 X1, X2 0 Objective Function Max 3000 X1 + 2000 X2

Example 2 A firm has 3 workshops, each working 40 hours per week. It can produce 2 products, the first selling at $108 per unit and the second at $84 per unit. The only direct cost is labour at $5 per person-hour. Product 1 requires 5 hours in workshop 1, 9 hours in workshop 2, 7 hours in workshop 3 and 10 person-hours per unit. Product 2 requires 10 hours in workshop 1, 2 hours in workshop 2, 5 hours in workshop 3 and 8 person-hours per unit.

Formulate this problem as an LP model, assuming the firm wishes to maximise profits.

Formulation of Example Problem 2

Decision Variables

Constraints

Objective Function
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Example 3 A ship has three cargo holds: forward, aft and center. The capacity limits are as follows:

Forward Centre Aft

2000 tons 3000 tons 1500 tons

100,000 cu ft 135,000 cu ft 30,000 cu ft

The following cargoes are offered and the ship owners may accept all or any part of each commodity:

Commodity

Amount (tons)

Volume per ton (cu ft)

Profit ($/ton)

A B C

6,000 4,000 2,000

60 50 25

6 8 5

Formulate an LP model to determine how the cargoes should be accepted and distributed so as to maximise profits.
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Formulation of Example Problem 3

Decision Variables

Constraints

Objective Function
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