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INTRODUCTION TO QUANTITATIVE METHODS

IQM SUBMISSION GROUP NO. 06


CHANDPUR ENTERPRISES LIMITED, STEEL DIVISION

Questions

1. If you were making only one batch, what is the best batch you could make? What
is the profit associated with this batch?

2. Did the regulatory constraint of 4000 kg per batch of the finished product hamper
your ability to make more profit? Is it worthwhile to seek regulatory approval to
increase that limit?

3. CEL has used some amount of all seven materials in the past. A vendor may be
somewhat unhappy if CEL does not order a particular type of raw material. How much
profit will Akshay Mittal lose if he must use at least one unit of a raw material in a batch
given he would otherwise choose not to use that raw material?

4. What suggestion does your optimal batch from question one have on monthly
contribution?

5. Do you have any further suggestions for how to improve monthly profits?

Question 1. If you were making only one batch, what is the best batch you could
make? What is the profit associated with this batch?
LP MODEL FORMULATION

Nomenclature. How much weight (in kgs) of each raw materials per batch, to be ordered for the
following month would decide the profit per batch production. We would use the following weight (in
Kgs per batch) nomenclature to formulate the objective function.

TA Kgs for Tasla, RA Kgs for Rangeen, SP Kgs for Sponge, LS Kgs for Local Scrap, IS Kgs for Imported
Scrap, HC Kgs for High Carbon and PI Kgs for Pig Iron, each per batch.

Let TRM be the total weight (in kilograms) of the raw material to be ordered for the next month.

\ TRM = TA + RA + SP + LS + IS + HC + PI (weight in kilograms)

Let TSP be the weight (in kilograms) of steel produced (finished product)
\ TSP = 29000*[0.84*TA + 0.74*RA + 0.85*SP + 0.94*LS + 0.97*IS + 0.25*HC + 0.95*PI]/1000

Decision Variables
The decision variables would therefore be TA, RA, SP, LS, IS, HC, PI, TRM, TSP (all in kilograms
per batch).

Cost of production of one batch of Steel = (Fixed Cost per batch + Variable Cost per batch)

= {Cost of Raw Materials per batch} + {Cost of Electricity per batch + Cost of Salary per batch + Cost
of other expenses per batch}

Profit = (Revenue generated through sales of one batch - Cost of production of one batch of Steel)

OBJECTIVE FUNCTION
The objective is to optimise profit.
\The objective function Max Z:

= (Revenue generated through sales of one batch - Cost of production of one batch of Steel)

= {Revenue generated through sales of one batch} – {Cost of Raw Materials per batch + Cost of
Electricity per batch + Cost of Salary per batch + Cost of other expenses per batch}

= 29000*[0.84*TA + 0.74*RA + 0.85*SP + 0.94*LS + 0.97*IS + 0.25*HC + 0.95*PI]/1000


[Selling price per batch per ton]
- [17000*TA + 13600*RA + 17800*SP + 20000*LS + 23000*IS + 2500*HC + 20400*PI]/1000
[Cost of Raw Materials per batch per ton]
- 4.3*[1200 + (700*( TA + RA + SP + LS + IS + HC + PI)/1000]
[Cost of electricity per batch in kWh]
- 3000
[Cost of Salary per batch]
- 2000*[0.84*TA + 0.74*RA + 0.85*SP + 0.94*LS + 0.97*IS + 0.25*HC + 0.95*PI]/1000]
[Other expenses per ton of finished goods]

= [(29*0.84)-17-(4.3*0.7)-(2*0.84)]*TA + [(29*0.74)-13.6-(4.3*0.7)-(2*0.74)]*RA + [(29*0.85)-17.8-(4.3*0.7)-


(2*0.85)]*SP + [(29*0.94)-20-(4.3*0.7)-(2*0.94)]*LS + [(29*0.97)-23-(4.3*0.7)-(2*0.97)]*IS + [(29*0.25)-2.5-
(4.3*0.7)-(2*0.25)]*HC + [(29*0.95)-20.4-(4.3*0.7)-(2*0.95)]*PI – 4.3*1200 – 3000

= 2.67 * TA + 3.37 * RA + 2.14 * SP + 2.37 * LS + 0.18 * IS + 1.24 * HC + 2.24 * PI - 8160

\The objective is to Maximise

[2.67 * TA + 3.37 * RA + 2.14 * SP + 2.37 * LS + 0.18 * IS + 1.24 * HC + 2.24 * PI] - 8160

CONSTRAINTS
(a) Constraint on the maximum size of a batch of finished product

Size of a batch of finished product £ 4,000 Kgs per batch

\ S (Recovery for each type of raw material*Corresponding weight of raw material to be


ordered per batch) £ 4,000 Kgs per batch

\ (0.84*TA + 0.74*RA + 0.85*SP + 0.94*LS + 0.97*IS + 0.25*HC + 0.95*PI) £ 4,000 Kgs per batch

(b) Constraint on the minimum quantity of raw material per batch

Minimum quantity of Tasla, Rangeen, Imported Scrap and High Carbon that can be used in a
batch is 0%

\ (TA / TRM)*100 ³ 0; \ (RA / TRM)*100 ³ 0; \ (IS / TRM)*100 ³ 0; \ (HC / TRM)*100 ³ 0

\ TA ³ 0 [Min Tasla constraint]


RA ³ 0 [Min Rangeen constraint]
IS ³ 0 [Min Imported Scrap constraint]
HC ³ 0 [Min High Carbon constraint]

Minimum quantity of Sponge that can be used in a batch is 10%

\ (SP / TRM)*100 ³ 10
\ 9*SP – (TA + RA + LS + IS + HC + PI) ³ 0 [Min Sponge constraint]

Minimum quantity of Local Scrap that can be used in a batch is 15%

\ (LS / TRM)*100 ³ 15
\ 17*LS – 3*(TA + RA + SP + IS + HC + PI) ³ 0 [Min Local Scrap constraint]

Minimum quantity of Pig Iron that can be used in a batch is 5%

\ (PI / TRM)*100 ³ 5
\ 19*PI – (TA + RA + SP + IS + HC + LS) ³ 0 [Min Pig Iron constraint]

(c) Constraint on the maximum quantity of raw material per batch

Maximum quantity of Tasla that can be used in a batch is 50%

\ (TA / TRM)*100 £ 50

\ -TA + RA + SP + LS + IS + HC + PI ³ 0 [Max Tasla constraint]

Similarly for the other raw materials,

(RA / TRM)*100 £ 25
\ -3*RA + TA + SP + LS + IS + HC + PI ³ 0 [Max Rangeen constraint]
(SP / TRM)*100 £ 50
\ TA + RA - SP + LS + IS + HC + PI ³ 0 [Max Sponge constraint]
(LS / TRM)*100 £ 80
\ -LS + 4*(TA + RA + SP + IS + HC + PI) ³ 0 [Max Local Scrap constraint]
(IS / TRM)*100 £ 80
\ -IS + 4*(TA + RA + SP + LS + HC + PI) ³ 0 [Max Imported Scrap constraint]
(HC / TRM)*100 £ 20
\ -4*HC + TA + RA + SP + LS + IS + PI ³ 0 [Max High Carbon constraint]
(PI / TRM)*100 £ 10
\ -9*PI + TA + RA + SP + LS + IS + HC ³ 0 [Max Pig Iron constraint]

(d) Constraint on the Maximum Availability of Raw Material During the Following Month

As we are concerned about production of one batch of steel we assume that the quantity of raw
material available in the following month to produce one batch of finished product would be
much lesser than the maximum available quantity of the raw materials. Therefore, presently,
the maximum availability of raw material during the following month is not being considered as
constraint while optimising the profit for a batch production.

(e) Un-constrained Variables

Weights of all raw materials would be ³ 0

\ TA ³ 0, RA ³ 0, SP ³ 0, LS ³ 0, IS ³ 0, HC ³ 0 & PA ³ 0

The LP Model thus obtained has been solved by Simplex method of linear programming using the Excel
Solver. The batch would comprise of the following sizes (weight is Kilograms):-

(a) 1391.79 Kgs of Tasla


(b) 1391.79 Kgs of Rangeen
(c) 556.72 Kgs of Sponge
(d) 835.07 Kgs of Local Scrap
(e) Zero amount of Imported Scrap
(f) 1113.43 Kgs of High Carbon and
(g) 278.36 Kgs of Pig Iron

The profit associated to this batch is INR 5421.07

Weight
Weight of
Min per Max per Max of Raw Cost (INR)
Rate/ Steel
Raw Batch (% Batch (% per Material of Raw
Kg Recovery Produced
Material of Raw of Raw Month (in Kgs) Materials
(INR) (in Kgs)
Material) Material) (Ton) per per Batch
per Batch
Batch
Tasla 17 0.84 0% 50% 800 1391.79 23660.40 1169.102
Rangeen 13.6 0.74 0% 25% 500 1391.79 18928.32 1029.923
Sponge 17.8 0.85 10% 50% 1,000 556.72 9909.53 473.2081
Weight
Weight of
Min per Max per Max of Raw Cost (INR)
Rate/ Steel
Raw Batch (% Batch (% per Material of Raw
Kg Recovery Produced
Material of Raw of Raw Month (in Kgs) Materials
(INR) (in Kgs)
Material) Material) (Ton) per per Batch
per Batch
Batch
Local
20 0.94 15% 80% 1,000 835.07 16701.46 784.9687
Scrap
Imported
23 0.97 0% 80% 1,500 0.00 0.00 0
Scrap
HC 2.5 0.25 20% 300 1113.43 2783.58 278.3577
Pig Iron 20.4 0.95 5% 10% 300 278.36 5678.50 264.4398
Total 5567.15 77661.80 4000

Cost of Electricity = 4.30*{1200+(700*Total raw material Weight per Batch in Tons)} = 21917.13
Salary = INR 3000 per Batch = 3000.00
Other Expenses = INR 2000 per Ton of finished goods (2000*4000/1000) = 8000.00
Cost of Production of one Batch of Steel = Cost of (Raw Materials + Electricity + Salary + Other
Expenses) 110578.93
Revenue Generated per Batch = INR 29000*Weight of Final Product in Tons 116000.0
∴ Profit per Batch = Revenue Generated - Cost of production of one batch 5421.07
Time for Producing One Batch and No. of Batches per Month

Time for producing one Batch (in hours) = 0.2 + (0.3 x Total raw material weight per batch in tons)

\ TBatch = 0.2 + (0.3 * 5567.15)/1000 = 1.87

Number of batches that can be produced in a month = (25 days * 24 Hrs per day)/ TBatch

\ Number of batches per month = 25 * 24 / 1.87 = 320.86 ~ 321 batches (When the profit is
optimised)

Electricity consumed per batch = 1200+(700*Total raw material weight per batch)

\ Electricity consumed per batch = 1200 + (700 * 5567.15 / 1000) = 5097.01 kWh per batch

Imposing Constraint on the Maximum Availability of Raw Materials During the


Following Month.
The above LP model assumed that for optimising the profit for a batch, quantity required to
produce one batch of finished product would be much lesser than the maximum quantity that can be
supplied. However, we will optimise the profit when constraint is imposed on the maximum availability
of these raw material in the following month.

Therefore, the constraint can be formulated as,

[Total weight of Raw material in kgs per batch] * [No. of batches per month] £ [Max supply quantity in kgs per month]

\ [Wt of RM (in Kgs per batch)] * [25 (days per month) * 24 (hours per day)] / [Time of one batch (in hrs)]
£ Max supply quantity per month

\ [Wt of RM (in Kgs per batch)] * [600] / [0.2 + (0.3 * (TRM)/1000] £ Max supply quantity in kgs per month

Therefore, for Tasla

(TA * 600) / [0.2 + (0.3 * [TA + RA + SP + LS + IS + HC + PI])/1000] £ 800000


\ 600 TA £ [200 + 0.3 * (TA + RA + SP + LS + IS + HC + PI)] * 800
\ 6 TA £ 1600 + 2.4 (TA + RA + SP + LS + IS + HC + PI)

\ 1.8 TA – 1.2 (RA + SP + LS + IS + HC + PI) £ 800


[Monthly supply weight constraint of Tesla]
Similarly for other Raw Materials, we get

-0.75 TA + 2.25 RA – 0.75* (SP + LS + IS + HC + PI) £ 500


[Monthly supply weight constraint of Rangeen]
-1.5 TA – 1.5 RA + 1.5 SP – 1.5 LS – 1.5 IS – 1.5 HC – 1.5 PI £ 1000
[Monthly supply weight constraint of Sponge]
-1.5 TA – 1.5 RA – 1.5 SP + 1.5 LS + 1.5 IS – 1.5 HC – 1.5 PI £ 1000
[Monthly supply weight constraint of Local Scrap]
-2.25 TA – 2.25 RA – 2.25 SP – 2.25 LS + 0.75 IS – 2.25 HC – 2.25 PI £ 1500
[Monthly supply weight constraint of Imported Scrap]
-0.45 TA – 0.45 RA - 0.45 SP – 0.45 LS - 0.45 IS + 2.55 HC – 0.45 PI £ 300
[Monthly supply weight constraint of High Carbon]
-0.45 TA – 0.45 RA - 0.45 SP – 0.45 LS – 0.45 IS – 0.45 HC + 2.55 PI £ 300
[Monthly supply weight constraint of Pig Iron]

Weight
Weight of
Min per Max per Max of Raw Cost (INR)
Rate/ Steel
Raw Batch (% Batch (% per Material of Raw
Kg Recovery Produced
Material of Raw of Raw Month (in Kgs) Materials
(INR) (in Kgs)
Material) Material) (Ton) per per Batch
per Batch
Batch
Tasla 17 0.84 0% 50% 800 1527.94 25975.00 1283.47
Rangeen 13.6 0.74 0% 25% 500 1356.62 18450.00 1003.89
Sponge 17.8 0.85 10% 50% 1,000 542.65 9659.12 461.25
Local
20 0.94 15% 80% 1,000 813.97 16279.41 765.13
Scrap
Imported
23 0.97 0% 80% 1,500 0.00 0.00 0
Scrap
HC 2.5 0.25 0% 20% 300 913.97 2284.93 228.49
Pig Iron 20.4 0.95 5% 10% 300 271.32 5535.00 257.75
Total 5426.47 78183.46 4000

Cost of Electricity = 4.30*{1200+(700*Total raw material Weight per Batch in Tons)} = 21493.676
Salary = INR 3000 per Batch = 3000.00
Other Expenses = INR 2000 per Ton of finished goods (2000*4000/1000) = 8000.00
Cost of Production of one Batch of Steel = Cost of (Raw Materials + Electricity + Salary + Other
Expenses) 110677.13
Revenue Generated per Batch = INR 29000*Weight of Final Product in Tons 116000.0
∴ Profit per Batch = Revenue Generated - Cost of production of one batch 5322.87

Comparison of Values - Without v/s With Imposing the Limits on the Maximum Availability of
Raw Materials in Following Month

Batch-wise Profit
Batch-wise Profit
Optimisation WITH
Optimisation WITHOUT
Imposing
Imposing Constraint of
Variables Constraint of
Availability of Raw
Availability of Raw
Materials in Following
Materials in
Month
Following Month
Weight of Raw Materials per Batch (in Kgs)
Weight of Tesla (Kgs per Batch) 1391.79 1527.94
Weight of Rangeen (Kgs per Batch) 1391.79 1356.62
Weight of Sponge (Kgs per Batch) 556.72 542.65
Weight of Local Scrap (Kgs per Batch) 835.07 813.97
Weight of Imported Scrap (Kgs per Batch) 0.00 0.00
Weight of High Carbon (Kgs per Batch) 1113.43 913.97
Weight of Pig Iron (Kgs per Batch) 278.36 271.32
Total Weight of Raw Materials 5567.17 5426.47
Cost of Raw Materials per Batch (in INR)
Cost of Tesla 23660.40 25975.00
Cost of Rangeen 18928.32 18450.00
Cost of Sponge 9909.53 9659.12
Cost of Local Scrap 16701.46 16279.41
Cost of Imported Scrap 0.00 0.00
Cost of High Carbon 2783.58 2284.93
Batch-wise Profit
Batch-wise Profit
Optimisation WITH
Optimisation WITHOUT
Imposing
Imposing Constraint of
Variables Constraint of
Availability of Raw
Availability of Raw
Materials in Following
Materials in
Month
Following Month
Cost of Pig Iron 5678.50 5535.00
Total Cost of Raw Materials 77,661.80 78,183.46
Weight of Finished Product after Recovery per Batch (in Kgs)
Weight of Tesla (Kgs per Batch) 1169.10 1283.47
Weight of Rangeen (Kgs per Batch) 1029.92 1003.89
Weight of Sponge (Kgs per Batch) 473.20 461.25
Weight of Local Scrap (Kgs per Batch) 784.96 765.13
Weight of Imported Scrap (Kgs per Batch) 0 0
Weight of High Carbon (Kgs per Batch) 278.36 228.49
Weight of Pig Iron (Kgs per Batch) 264.44 257.75
Total Weight of Finished Product 4000 4000
Variable Costs
Cost of Electricity (in kWh) 21,917.13 21,493.68
Salary (in INR per batch) 3,000 3,000
Other Expenses (in INR per batch) 8,000 8,000

Cost of Production of one Batch of Steel


1,10,578.93 1,10,677.13
(in INR)
Revenue Generated per Batch (in INR) 1,16,000 1,16,000

Profit per Batch = (Revenue


Generated - Cost of production of 5,421.07 5,322.87
one batch)

Inferences.

(a) From the comparative table (Table No. 5), the profit per batch production without any
constraint on the availability of raw material for following month is INR 5,421.07 as against the
profit of INR 5,322.87 when the same constraint on the availability of raw material for following
month (i.e the profit is more by an amount of INR 98.2 when no availability of raw materials
constraint is imposed).

(b) The best batch would be made WITHOUT imposing constraint of availability of raw
materials in the following month and would give a profit of INR 5421.07 per batch and a profit
of INR 17,34,742.4 per month for 320 batches.
_________________________________________________________________________________

Question 2. Did the regulatory constraint of 4,000 Kgs per batch of the finished
product hamper your ability to make more profit? Is it worthwhile to seek regulatory
approval to increase that limit?
If the regulatory constraint of 4,000 Kgs per batch of finished product is completely removed
with no constraint on the availability of the raw materials in the following month, then the objective cell
values do not converge (solver is able to increase the profit without limit) and hence the simplex LP
solver would not yield any usable result.

When we increase the regulatory constraint from 4000 Kgs to 4100 Kgs and run the simplex
LP solver, we notice that the profit increases to INR 5,760.60 which is INR 339.53 more than the profit
of INR 5421.07 (with a regulatory constraint of 4000 Kgs). In a month, 313 such batches can be
produced.

Therefore, for every 1 Kg relaxation in the size per batch of finished product, there is an
increase in profit of INR 3.39. Solution can be obtained using the Simplex LP Solver of Excel for profit
optimisation without imposing any constraint on the maximum availability of RM in the following month.
Therefore, increase in monthly profit would be INR 3.39 x 320 (no of batches per month) = INR 1089.31.
It can be observed from the calculations for profit (in excel) that the cost of production per batch
increases by INR 2,560.47 (from INR 1,10,578.93 to INR 1,13,139.40) if the regulatory constraint is
relaxed by 100 kgs (from 4000 kgs to 4100 kgs).
The increase in profit due to this relaxation as given above is INR 339.53 per batch. In a year
the increase in profit would amount to INR 12,75,274.68 (INR 339.53 x 313 batches x 12 months).
Therefore, it would be worthwhile to seek regulatory approval to increase that limit.
_________________________________________________________________________________

Question 3. CEL has used some amount of all seven materials in the past. A
vendor may be somewhat unhappy if CEL does not order a particular type of raw
material. How much profit will Akshay Mittal lose if he must use at least one unit of a
raw material in a batch given he would otherwise choose not to use that raw material?
Imported scrap is the only raw material that is not being utilised in the production of raw
material. All other raw materials are being used in the production when optimising maximum profit per
batch without constraint being imposed on the availability of raw materials in the following month and
imposing the regulatory constraint of 4000 Kgs per batch of production.

It can be observed that there would be an impact of INR 2.93 on the profit per 1 kg of imported
scrap utilised. The present price of imported scrap is INR 23 per kg (INR 23000 per ton). To keep the
vendor happy, necessary amount of imported scrap can be used for production if the current price can
be bargained from INR 23 per kg to INR 20.07 (INR 23 – INR 2.93) per kg or INR 20,070 per ton, so
that there is no impact on the profit.

Question 4. What suggestion does your optimal batch from question one have on
monthly contribution?

Monthly Profit (with Regulatory Constraint on Batch Size)

The best batch that CEL could make (with regulatory constraint on the max size of the batch
as 4,000 kgs) yielded a profit of INR 5,421.07 per batch. The time taken to produce the batch is
1.87 hrs. In a month with 24 working hours per day and 25 working days a month, approximately 320
(~320.83) batches can be produced.

Therefore, the profit generated in a month when the profit is optimised per batch would be
INR 17,39,241.89.

INR 17,39,241.89 may not be the optimum profit when the month’s production is considered as
that would also depend on the quantity of raw materials ordered for a month and the number of batches
produced in a month.

Monthly Profit (with Regulatory Constraint on Batch Size of 4000 kgs and Number of Hours
Available in a Month)

Nomenclature. How much weight (in tons) of each raw materials per month, to be ordered for the
following month would decide the profit per month. We would use the following weight (in Tons per
month) nomenclature to formulate the objective function.

T for Tasla, R for Rangeen, S for Sponge, L for Local Scrap, I for Imported Scrap, H for High Carbon
and P for Pig Iron, are weights in tons of each raw material per month.

Let TRMT be the total weight (in tons) of the raw material to be ordered for the next month.

\ TRMT = T + R + S + L + I + H + P (weight in tons)

Let TSPT be the weight (in ton) of steel produced (finished product) per month

\ TSPT = 29000*[0.84*T + 0.74*R + 0.85*S + 0.94*L + 0.97*I + 0.25*H + 0.95*P]

Since, variable costs like electricity and salary are referenced to the number of batches, let B be the
number of batches produced in a month.

Decision Variables
The decision variables would therefore be T, R, S, L, I, H, P, TRMT, TSPT (all in tons per month)
and B (number of batches produced per month).

Cost of production of one batch of Steel = (Fixed Cost per batch + Variable Cost per batch)

= {Cost of Raw Materials per batch} + {Cost of Electricity per batch + Cost of Salary per batch + Cost
of other expenses per batch}

Profit = (Revenue generated through sales of one batch - Cost of production of one batch of Steel)

OBJECTIVE FUNCTION
The objective is to optimise profit.

\The objective function Max Z’:

= (Revenue generated through sales in a month - Cost of production of in a month)

= {Revenue generated through sales in a month} – {Cost of Raw Materials in a month + Cost of
Electricity per month + Cost of Salary per month + Cost of other expenses per month}

= 29000*[0.84*T + 0.74*R + 0.85*S + 0.94*L + 0.97*I + 0.25*H + 0.95*P]


[Selling price for a month’s produce]
- [17000*T + 13600*R + 17800*S + 20000*L + 23000*I + 2500*H + 20400*P]
[Cost of Raw Materials per month]
- 4.3*[1200 + (700*( T + R + S + L + I + H + P)/B] * B
[Cost of electricity for monthly production in kWh]
- 3000 * B
[Cost of Salary per month]
- 2000*[0.84*T + 0.74*R + 0.85*S + 0.94*L + 0.97*I + 0.25*H + 0.95*P]
[Other expenses for a month]

= [(29000*0.84)-17000-(4.3*700)-(2000*0.84)]*T +
[(29000*0.74)-13600-(4.3*700)-(2000*0.74)]*R +
[(29000*0.85)-17800-(4.3*700)-(2000*0.85)]*S +
[(29000*0.94)-20000-(4.3*700)-(2000*0.94)]*L +
[(29000*0.97)-23000-(4.3*700)-(2000*0.97)]*I +
[(29000*0.25)-2500-(4.3*700)-(2000*0.25)]*H +
[(29000*0.95)-20400-(4.3*700)-(2000*0.95)]*P –
4.3*1200*B – 3000*B

= 2670* T + 3370 * R + 2140 * S + 2370 * L + 180 * I + 1240 * H + 2240 * P – 8160*B

\The objective is to Maximise,

2670* T + 3370 * R + 2140 * S + 2370 * L + 180 * I + 1240 * H + 2240 * P – 8160*B

CONSTRAINTS
(a) Constraint on the maximum size of a batch of finished product

Size of a batch of finished product £ 4,000 Kgs per batch

\ S (Recovery for each type of raw material*Corresponding weight of raw material to be


ordered per batch) £ 4,000 Kgs per batch (or 4 Tons per batch)

\ (0.84*T + 0.74*R + 0.85*S + 0.94*L + 0.97*I + 0.25*H + 0.95*P) £ 4 Tons (per batch) * B

\ (0.84*T + 0.74*R + 0.85*S + 0.94*L + 0.97*I + 0.25*H + 0.95*P) – 4B £ 0

(b) Constraint on the minimum quantity (in Tons) of raw material per batch
Minimum quantity (in tons) of Tasla, Rangeen, Imported Scrap and High Carbon that can be
used in a batch is 0%

\ (T / TRMT)*100 ³ 0; \ (R / TRMT)*100 ³ 0; \ (I / TRMT)*100 ³ 0; \ (H / TRMT)*100 ³ 0

\ T³0 [Min Tasla constraint]


R³0 [Min Rangeen constraint]
I³0 [Min Imported Scrap constraint]
H³0 [Min High Carbon constraint]

Minimum quantity of Sponge that can be used in a batch is 10%

\ (S / TRMT)*100 ³ 10
\ 9*S – (T + R + L + I + H + P) ³ 0 [Min Sponge constraint]

Minimum quantity of Local Scrap that can be used in a batch is 15%

\ (L / TRMT)*100 ³ 15
\ 17*L – 3*(T + R + S + I + H + P) ³ 0 [Min Local Scrap constraint]

Minimum quantity of Pig Iron that can be used in a batch is 5%

\ (PI / TRM)*100 ³ 5
\ 19*P – (T + R + S + I + H + L) ³ 0 [Min Pig Iron constraint]

(c) Constraint on the maximum quantity (in Tons) of raw material per batch

Maximum quantity of Tasla that can be used in a batch is 50%

\ (T / TRMT)*100 £ 50

\ -T + R + S + L + I + H + P ³ 0 [Max Tasla constraint]

Similarly for the other raw materials,

(R / TRMT)*100 £ 25
\ -3*R + T + S + L + I + H + P ³ 0 [Max Rangeen constraint]
(S / TRMT)*100 £ 50
\T+R-S+L+I+H+P³0 [Max Sponge constraint]
(L / TRMT)*100 £ 80
\ -L + 4*(T + R + S + I + H + P) ³ 0 [Max Local Scrap constraint]
(I / TRMT)*100 £ 80
\ -I + 4*(T + R + S + L + H + P) ³ 0 [Max Imported Scrap constraint]
(H / TRMT)*100 £ 20
\ -4*H + T + R + S + L + I + P ³ 0 [Max High Carbon constraint]
(P / TRMT)*100 £ 10
\ -9*P + T + R + S + L + I + H ³ 0 [Max Pig Iron constraint]

(d) Constraint on the total time (in hours) for production in a month

Time for production in a month


= [0.2 + (0.3 * Total Raw material weight in tons per batch/B)] * B £ 600 Hrs

= 0.3 (T + R + S + L + I + H + P) + 0.2 B + £ 600

(e) Constraint on the Maximum Availability of Raw Material During the Following Month

We assume that the quantity of raw material available in the following month to produce
requisite finished product that would optimise profit would be much lesser than the maximum
available quantity of the raw materials. Therefore, presently, the maximum availability of raw
material during the following month is not being considered as constraint while optimising the
profit for a batch production.

(f) Un-constrained Variables


Weights of all raw materials would be ³ 0 and also the number of batches produced in a month
would be ³ 0

\ T ³ 0, R ³ 0, S ³ 0, L ³ 0, I ³ 0, H ³ 0, P ³ 0 & B ³ 0

The LP Model thus obtained has been solved by Simplex LP method using the Excel Solver.

Based on the solution of the solver, following are calculated:-

Min per Max per Weight of Weight of


Max Cost (INR) of
Batch Batch Raw Steel
Raw Rate/Ton per
Material (INR)
Recovery (% of (% of
Month
Materials Raw Materials Produced
Raw Raw (in Tons) for a Month (in tons) per
(Ton)
Material) Material) per Month Month
Tasla 17,000 0.84 0% 50% 800 789.88 13427923.65 663.4974036
Rangeen 13,600 0.74 0% 25% 500 438.82 5967966.06 324.7275653
Sponge 17,800 0.85 10% 50% 1,000 175.53 3124405.76 149.1991516
Local
20,000 0.94 15% 80% 1,000
Scrap 263.29 5265852.41 247.4950633
Imported
23,000 0.97 0% 80% 1,500
Scrap 0.00 0.00 0
HC 2,500 0.25 20% 300 0.00 0.00 0
Total 1755.28 29576537.70 1468.30

Cost of Electricity per Month = 7177506.034


Salary per Month = INR 3000 * B 1101221.39
Other Expenses per Month = INR 2000/Ton of finished goods 2936590.36
Cost of Production for a Month = 4,07,91.855.48
Revenue Generated Month = INR 29000*Weight of Final Product in Tons 4,25,80,560.2
∴ Profit in a Month = Revenue Generated - Cost of production 17,88,704.75
∴ Profit per Batch = Profit in a Month / Number of Batches = 4,872.88
Time of one Batch (in hours) = 0.2 + (0.3*Total raw material Weight per Batch
1.63
in Tons) =
∴ Number of batches per Month = (25 days *24 Hours per day) /Time of one
367.07
Batch

When the monthly contribution model is considered:-

(a) The profit generated in a month is increased to INR 17,88,704.75 as against the
monthly profit of INR 17,39,241.89 for optimum batch model. An excess profit of INR 49,462.86
is yielded when the monthly contribution model is considered.

(b) The number of batches in a month have increased to 367 as against 320 batches for
optimum batch model.

(c) The profit per batch has reduced to INR 4872.88 as against INR 5,421.07 for optimum
batch model.

(d) For more profits, monthly contribution model may be considered against the optimum
batch model.
_________________________________________________________________________________

Question 5. Do you have any further suggestions for how to improve monthly
profits?

The following suggestions are relevant to increase the monthly profit:-

(a) CEL should seek the regulatory approval to increase the limit above 4000 Kgs per
batch.

(b) To improve monthly profits, CEL should increase the number of working hours as
feasible. Every hour increased would result in an additional profit of INR 2,981.