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# QUANTITATIVE TECHNIQUES 2013

PROJECT REPORT ON

Prepared by Mr. Jinesh Gala Batch IIPM/SS(11-13)/FS2 Subject QUANTITATIVE TECHNIQUES Semester 1ST

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PART 1

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## QUANTITATIVE TECHNIQUES 2013

INTRODUCTION Linear programming is the process of taking various linear inequalities relating to some situation, and finding the "best" value obtainable under those conditions. A typical example would be taking the limitations of materials and labor, and then determining the "best" production levels for maximal profits under those conditions. In "real life", linear programming is part of a very important area of mathematics called "optimization techniques". This field of study (or at least the applied results of it) are used every day in the organization and allocation of resources. These "real life" systems can have dozens or hundreds of variables, or more. In algebra, though, you'll only work with the simple (and graphable) two-variable linear case. The general process for solving linear-programming exercises is to graph the inequalities (called the "constraints") to form a walled-off area on the x,y-plane (called the "feasibility region"). Then you figure out the coordinates of the corners of this feasibility region (that is, you find the intersection points of the various pairs of lines), and test these corner points in the formula (called the "optimization equation") for which you're trying to find the highest or lowest value. Linear programming (LP, or linear optimization) is a mathematical method for determining a way to achieve the best outcome (such as maximum profit or lowest cost) in a given mathematical model for some list of requirements represented as linear relationships. Linear programming is a specific case of mathematical programming (mathematical optimization). More formally, linear programming is a technique for the optimization of a linear objective function, subject to linear equality and linear inequality constraints. Its feasible region is a convex polyhedron, which is a set defined as the intersection of finitely many half spaces, each of which is defined by a linear inequality. Its objective function is a real-valued affine function defined on this polyhedron. A linear programming algorithm finds a point in the polyhedron where this function has the smallest (or largest) value if such a point exists. Linear programs are problems that can be expressed in canonical form:

where x represents the vector of variables (to be determined), c and b are vectors of (known) coefficients, A is a (known) matrix of coefficients, and is the matrix transpose. The expression to be maximized or minimized is called the objective function (cTx in this case). The inequalities Ax b are the constraints which specify a convex polytope over which the objective function is to be optimized. In this context, two vectors are comparable when they have the same dimensions. If every entry in the first is less-than or equal-to the
Prepared by-Mr.Jinesh Gala Batch-IIPM/SS(11-13)/FS2, Semester-1st [Type text]

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## QUANTITATIVE TECHNIQUES 2013

corresponding entry in the second then we can say the first vector is less-than or equal-to the second vector. Linear programming can be applied to various fields of study. It is used in business and economics, but can also be utilized for some engineering problems. Industries that use linear programming models include transportation, energy, telecommunications, and manufacturing. It has proved useful in modeling diverse types of problems in planning, routing, scheduling, assignment, and design.

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## QUANTITATIVE TECHNIQUES 2013

ADVANTAGES AND DISADVANTAGES OF LINEAR PROGRAMMING Linear programming has become nowadays, the mathematical technique most used in solving a variety of problems related with management, from scheduling, media selection, financial planning to capital budgeting, transportation and many others, with the special characteristic that linear programming expect always to maximise or minimise some quantity. Two possibilities appear at the solution of a linear-programming problem: 1-Simplex method, developed by Dr.Dantzing, this method is remarkable due to its efficiency and calculating facility. The simplex method can be used where distributions method cannot. Therefore the field of application is quite broad. In complex cases this method saves time and effort by taking us to the optimal solution in a finite number of steps. 2-Graphically, this option will be developed in the later example. By means of one example we are going to gradually check the advantages and disadvantages of linear programming as a management aid. First of all it is known that one of the main advantages of linear programming is that it fits strictly with reality, as we will see, the example reflects this property. Example: I have designed this example searching for a high grade of reality, suppose we are running a football club and launching a new merchandising campaign and we have to decide the quantity of scarves and shirts produced, considering current constraints. The sale prices of shirts and scarves are 35 and 10 respectively, also we know the maximum annual manufacture capacity is 2000 units, secondly four times more time is needed to sew a shirt compared with a scarf having at the most 2300 hours a year and finally space is limited up to 2500 square inches, requiring shirts and scarves, 3 and 2 square inches respectively. The first advantage is the calculation facility, as can be checked in the first step where we have to model or formulate the problem. This is a process where verbal statement is translated to mathematical statement; here this example is quite simple. The incomes must be maximised knowing the different prices of scarves and shirts but some limitations have been set which are called constraints, in this case limitations are related with capacity, time and sales space. Objective function: 35X+10Y Constraints: 1-capacity x+y<=2000 2-time 4x+y<=2300
Prepared by-Mr.Jinesh Gala Batch-IIPM/SS(11-13)/FS2, Semester-1st [Type text] Page 5

## QUANTITATIVE TECHNIQUES 2013

3-sales space 3x+2y<=2500 4-nonnegativity constraints x,y>=0 The next step can vary depending of the selected method; two options can be chosen such as graphical or simplex algorithm. In this occasion we have selected the first option due to the fact that only two variables are being studied, but this method sometimes cause objections. The maximum profit is in the point where the second and third constraints intersect each other. As a result is known that X=420 and Y=620 . To draw the objective function we have suppose that we want to make the maximum profit equal to 3000, but it means nothing, because we can choose any number, the slope of the line is the matter that concerns us. If we move parallel the function toward larger objective function values, the maximum profit point will be found when the line will be completely outside of the feasible region. Then the largest value is the optimal solution. It can be ascertained that in frequent occasions some variables are ignored in this sort of problems (In our example trends and fashions have been ignored but maybe people prefer to buy a shirt than a scarf for certain reasons). Hence the problem is less rigorous and it lose accuracy and certainly, that become a disadvantage, furthermore the model is static which means that it does not consider the changes and the evolution of variables as time goes by. Another obstacle arises in the formulation process which should be taken into account, values must be known with certainty. Having seen the example it is obviously that talking in disadvantages terms functions lineality is an important bound, it means that each decision variable appears in a separate term and has an exponent of 1, so that non-lineal function cannot be used. This example has been resolved by graphical method because it has only two variables, if it would have had more than two variables we would have used the simplex method, due to the fact of the impossibility of solving problems having more than two variables, with the graphical method. Therefore this is another disadvantage of linear programming; graphical method can be used only under determined conditions. There may be another two problems consisting of numerous optimal solutions, this is not a simple matter despite the fact could seem a minor concern, and the other problem could be infeasibility. When no solution to the linear programming problem satisfies all the constraints, feasible region does not exist and therefore any solution cannot be reached. In this case the problem we have focused on is related with the portfolio selection area, one of the varieties of applications where linear programming can be used, helping managers in inventory design (in the example, number of scarves and shirts), in control and in capacity planning. But this is not the only linear programming advantage, also it can be used in much more different areas such as marketing (helping marketing managers in allocating a fixed advertising budget to various advertising media), finance (resolving situations of capital budgeting, financial planning an so on), product mix problems (problems based on blending
Prepared by-Mr.Jinesh Gala Batch-IIPM/SS(11-13)/FS2, Semester-1st [Type text] Page 6

## QUANTITATIVE TECHNIQUES 2013

resources to produce 1 item, management must decide the quantity of each product), multiple plant location studies (the new location will be where the total production and distribution cost will be minimised), maximizing material utilization (determine the combination of cuts that will meet requirements for the amounts of the different sizes with a minimum trim loss) and finally data envelopment analysis (has been used in efficiency measure) But there still are more advantages, linear programming analysis can help both with determining whether management's plans are feasible and in unbounded cases where the value of the solution is infinitely large, without violating any of the constraints, warning us that the problem is improperly formulated. As we can see, in the example, it does not occur, consequently there are finite solutions and therefore we can ascertain that the problem is properly formulated. It must be mentioned, another remarkable characteristic of linear programming problems such as, the adapting facility to reality, which allows solving, by computer programs, problems with thousands of variables and constraints. The next step to analyse is what happens when we change the values of the objective function or in the constraints. This is another advantage of using linear programming, when can check easily how the results vary when we change the old coefficients for others. This is called sensitivity analysis, which determines how changes affect the optimal solution to the original linear programming problem. The range of values over which the current solution will remain optimal, despite the change of the coefficients, is called range of optimality. For example we suppose that the space for sales in the third constraint is reduced, now the available space is 2499 square inches, therefore we have changed in one unit the right hand side of the third constraint and as a result the solution has varied. The new results are X=420,2 and Y=619,2 therefore it can be seen that the solutions have changed in 0.2 and in 0,8 respectively these variations are called dual prices as well as implicit cost and shadow prices. Dual prices can be used what will happen to the value of the objective function when we make a one unit change in the right-hand side of the constraints. We have to take into account that dual price is only operative for small variations. In conclusion if we evaluate the pros and cons it can be ascertained that is not coincidence that linear programming is the most used program in the management area ,despite it has several arguments against, there are sound reasons which take us to select this method solving management problems owing to the complexity of the problems that can be handled.

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PART 2

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## QUANTITATIVE TECHNIQUES 2013 (1) North West Corner Rule

The North West corner rule is a method for computing a basic feasible solution of a transportation problem, where the basic variables are selected from the North - West corner ( i.e., top left corner ). The standard North West Corner Rule instructions are paraphrased below: Steps 1. Select the north west (upper left-hand) corner cell of the transportation table and allocate as many units as possible equal to the minimum between available supply and demand, i.e., min(s1, d1). 2. Adjust the supply and demand numbers in the respective rows and columns. 3. If the demand for the first cell is satisfied, then move horizontally to the next cell in the second column. 4. If the supply for the first row is exhausted, then move down to the first cell in the second row. 5. If for any cell, supply equals demand, then the next allocation can be made in cell either in the next row or column. 6. Continue the process until all supply and demand values are exhausted. Example 1 The Amulya Milk Company has three plants located throughout a state with production capacity 50, 75 and 25 gallons. Each day the firm must furnish its four retail shops R 1, R2, R3, & R4 with at least 20, 20 , 50, and 60 gallons respectively. The transportation costs (in Rs.) are given below. Retail Shop R1 R2 P1 3 5 P2 2 5 P3 3 6 Demand 20 20 Plant Supply 50 75 25

R3 7 8 9 50

R4 6 2 2 60

7. The economic problem is to distribute the available product to different retail shops in such a way so that the total transportation cost is minimum 8. Solution. 9. Starting from the North west corner, we allocate min (50, 20) to P1R1, i.e., 20 units to cell P1R1. The demand for the first column is satisfied. The allocation is shown in the following table. 10. Table 1 Plant Retail Shop Supply
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## QUANTITATIVE TECHNIQUES 2013

R1 P1 P2 2 P3 3 Demand 20 R2 5 5 6 20 R3 7 8 9 50 R4 6 2 2 60 50 30 75 25

11. Now we move horizontally to the second column in the first row and allocate 20 units to cell P1R2. The demand for the second column is also satisfied. 12. Table 2 Plant P1 P2 P3 Demand 2 3 20 5 6 20 Retail Shop R1 R2 Supply 50 30 10 75 25

R3 7 8 9 50

R4 6 2 2 60

13. Proceeding in this way, we observe that P1R3 = 10, P2R3 = 40, P2R4 = 35, P3R4 = 25. The resulting feasible solution is shown in the following table. 14. Final Table Plant P1 P2 P3 Demand 2 3 20 5 6 20 9 50 60 Retail Shop R1 R2 Supply 50 75 25

R3

R4 6

15. Here, number of retail shops(n) = 4, and Number of plants (m) = 3 16. Number of basic variables = m + n 1 = 3 + 4 1 = 6. 17. Initial basic feasible solution 18. The total transportation cost is calculated by multiplying each xij in an occupied cell with the corresponding cij and adding as follows: 19. 20 X 3 + 20 X 5 + 10 X 7 + 40 X 8 + 35 X 2 + 25 X 2 = 670

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## QUANTITATIVE TECHNIQUES 2013 (2) LEAST COST METHOD

Least cost method is a method for computing a basic feasible solution of a transportation problem, where the basic variables are chosen according to the unit cost of transportation. This method is very useful because it reduces the computation and the time required to determine the optimal solution. The following steps summarize the approach. Steps 1. Identify the box having minimum unit transportation cost (cij). 2. If the minimum cost is not unique, then you are at liberty to choose any cell. 3. Choose the value of the corresponding xij as much as possible subject to the capacity and requirement constraints. 4. Repeat steps 1-3 until all restrictions are satisfied 5. Example 1 6. Consider the transportation problem presented in the following table: Retail Shop 1 2 1 3 5 2 2 5 3 3 6 Demand 20 20 Factory Supply 50 75 25

3 7 8 9 50

4 6 2 2 60

7. Solution. 8. We observe that c21 =2, which is the minimum transportation cost. So x21 = 20. The demand for the first column is satisfied. The allocation is shown in the following table. 9. Table 1 Factory 1 2 3 3 Demand 20 Retail Shop 1 2 3 5 5 6 20 Supply 50 75 55 25

3 7 8 9 50

4 6 2 2 60

10. Now we observe that c24 =2, which is the minimum transportation cost, so x24 = 55. The supply for the second row is exhausted. 11. Table 2 Factory 1 Retail Shop 1 2 3 5 Supply 50
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2 3 3 Demand 20 5 6 20 8 9 50 2 60 5 75 25

12. Proceeding in this way, we observe that x34 = 5, x12 = 20, x13 = 30, x33 = 20. The resulting feasible solution is shown in the following table. 13. Final Table Factory 1 2 3 3 Demand 20 Retail Shop 1 2 3 5 6 20 50 60 8 Supply 50 75 25

4 6

14. Number of basic variables = m + n - 1 = 3 + 4 - 1 = 6. 15. Initial basic feasible solution 16. The total transportation cost associated with this solution is calculated as given below: 20 X 2 + 20 X 5 + 30 X 7 + 55 X 2 + 20 X 9 + 5 X 2 = 650.

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## QUANTITATIVE TECHNIQUES 2013

CONCLUSION Linear programming is a considerable field of optimization for several reasons. Many practical problems in operations research can be expressed as linear programming problems. Certain special cases of linear programming, such as network flow problems and multicommodity flow problems are considered important enough to have generated much research on specialized algorithms for their solution. A number of algorithms for other types of optimization problems work by solving LP problems as sub-problems. Historically, ideas from linear programming have inspired many of the central concepts of optimization theory, such as duality, decomposition, and the importance of convexity and its generalizations. Likewise, linear programming is heavily used in microeconomics and company management, such as planning, production, transportation, technology and other issues. Although the modern management issues are ever-changing, most companies would like to maximize profits or minimize costs with limited resources. Therefore, many issues can be characterized as linear programming problems. The transportation problem i.e North west corner rule, Least cost method and Vogels Approximation method deals with a special class of linear programming problems in which the objective is to transport a homogeneous product manufactured at several plants (origins) to a number of different destinations at a minimum total cost. The total supply available at the origin and the total quantity demanded by the destinations are given in the statement of the problem. The cost of shipping a unit of goods from a known origin to a known destination is also given. Our objective is to determine the optimal allocation that results in minimum total shipping cost

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