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**Report of Analytic Skill
**

Name: Zhao Mingming

Major: Marketing Analytics

ID number: 24202207

Word count: 5,490

2

Introduction

According to Anderson et al (2008), management science is an approach to

managerial decision making based on extensive use of quantitative analysis. Linear

programming plays a key role in management science. It is problem-solving

approaches which can help managers make decisions (ibid). The programming needs

to formulation the problem to develop a model including decision variables,

constraints and objective function ( Ignizio, 1968). The applications of linear

programming include production scheduling, media selection, financial planning,

capital budgeting, transportation, product mix and staffing (Hillier and Lieberman,

1995). This report will utilize linear programming to firstly solve a financial planning

problem for Nori & Leets Co. and t hen find a solution for Alabama Atlantic to solve its

transportation problem. Moreover, all the results are accurate to 2 decimal digits.

Finally, it will examine a report about application of linear programming for

dormitory development plan at Petra Christian University.

Q1

The Nori & Leets Co. needs to reduce the emissions of three main types of pollutants

which are particulate, sculpture oxides and hydrocarbons. The policy standard of

required reduction in annual emission rate is 60 million pounds particulates, 150

million pounds sulfur oxides, and 125 million pounds hydrocarbons respectively. The

two sources of pollution are blast furnaces for making pig iron and opening hearth

furnaces for changing iron into steel. There are three effective abatement methods:

(1) increasing height of the smokestacks, (2) using filter devices, and (3) including

better fuels for the furnaces. However, these methods have technological limit that

emissions has a abatement capacity as Table 2.1 shows.

3

Pollutant Taller smokestacks Filters Better fuels

Blast

Furnace

s

Open-Hear

th Furnaces

Blast

Furnace

s

Open-Hear

th Furnaces

Blast

Furnace

s

Open-Hear

th Furnaces

Particulates 12 9 25 20 17 13

Sulfur

oxides

35 42 18 31 56 49

Hydrocarbo

ns

37 53 28 24 29 20

Table 1.1 (millions of pounds)

Furthermore, emission reduction by each method is independent. Engineers also

concluded that it should use some combination of methods. However, each method

can lead to a huge cost such as opportunity revenue loss, operating and maintenance

expenses and start-up cost. Therefore, the company has estimated total annual cost

given in the table below for using the methods at full abatement capacities.

Abatement Method Blast Furnaces Open-Hearth Furnace

Taller Smokestacks $8 million 10 million

Filters 7 million 6 million

Better Fuels 11 million 9 million

Table 1.2

The company intends to minimize the annual cost of achieving the required emission

reduction rates for three poll utants by drawing up a plan which specifies which types

of abatement methods will be used and at what fractions of their abatement

capacities for the blast furnaces and the open-hearth furnaces.

a

It is a deterministic model and there is a linear relationship between total cost and

fraction of capacities. Moreover, the variables are independent. Therefore, it will use

4

linear programming to solve the financial planning problem.

The first step is to define variables. Letting X

ij

(i= taller smokestacks, filters, better

fuels; j=blast furnaces, open-hearth furnaces) denotes the fraction of total annual

cost from the maximum feasible use of each abatement method on both two sources

of pollutant. The following table shows the variables clearly.

X

ij

Blast Furnaces Open-Hearth Furnace

Taller Smokestacks X

tb

X

to

Filters X

fb

X

fo

Better Fuels X

bb

X

bo

Table 1.3

The next step is to determine the coefficients of variables, C

ij

. As the total annual cost

(Z) is the sum of the actual total annual cost of each method, C

ij

are the total annual

cost from maximum feasible use of each abatement method as shown in Table 1.2.

Hence, objective function is to minimize Z= 8X

tb

+ 10X

to

+ 7X

fb

+ 6X

fo

+ 11X

bb

+ 9X

bo

.

Furthermore, it needs to set constraints. There are two kinds of constraints: the total

emission reduction of these three pollutants should be more than or equal to

required reduction in annual emission rate (mentioned above), and the X

ij

should be

less than or equal to 1 and more than 0 as it is fraction.

Total emission reduction

The total emission reduction of each pollutant should be the sum of the fraction of

abatement capacity of every method timing the abatement capacity from maximum

feasible use of that method which is given in table 1.1 above. It is determined that

cost of a method is roughly proportional to the fraction of the abatement capacity.

As a result, the fraction of abatement capacity is roughly equal to X

ij

. Hence, the

5

constraints can be displayed as:

Particulates: 12X

tb

+ 9X

to

+ 25X

fb

+ 20X

fo

+ 17X

bb

+ 13X

bo

60

Sulfur oxides: 35X

tb

+ 42X

to

+ 18X

fb

+ 31X

fo

+ 56X

bb

+ 49X

bo

150

Hydrocarbons: 37X

tb

+ 53X

to

+ 28X

fb

+ 24X

fo

+ 29X

bb

+ 20X

bo

125

0X

ij

1

The problem is calculated by Excel Solver (The process is expressed in Appendix 1).

The optimal solution is Z= $32.15 million and the plan is displayed in Table 1.4.

Taller Smokestacks Filters Better Fuels

Blast

Furnaces

Open-Hearth

Furnaces

Blast

Furnace

s

Open-Hearth

Furnaces

Blast

Furnace

s

Open-Hearth

Furnaces

Fractio

n

1 0.62 0.34 1 0.05 1

Table 1.4

Recommendation:

It is recommended that:

All the three types of abatement methods are used but the fractions of their

abatement capacities are different. Among them, taller smokestacks for blast

furnaces, Filters for open-hearth furnaces, and better fuels for open-hearth furnaces

should be maximum feasible used. Taller Smokestacks for open-hearth furnaces

should be used at 62% of its abatement capacity. Filt ers for blast furnaces should be

34% of its abatement capacity and Better Fuels for Blast Furnaces is used at 5% of its

abatement capacity.

Sensitivity analysis

According to Fabrycky and Mize (1982), sensitivity analysis in linear programming is

the study of how the changes in coefficients impact optimal solution. It is important

6

because in real-life, the problems will seldom satisfy all of these assumptions . If data

used have errors, the system will be modified. For this case, after designing the plan,

management needs to conduct sensitivity analysis. The cost in table 1.2 is estimated

and each one may easily be off by as much as 10 percent in either direction.

Moreover, values in table 1.1 are uncertain as well but the uncertainty is less than

cost. The policy standards are constants. However, company and government achieve

the agreement that each 10% increase in the policy standards over the current values

will result in $3.5 million tax reduction for the company. Furthermore, there is a

debate between relative values of the policy standards for three pollutants as well.

The next part is to make senility analysis based on the sensitivity report in Appendix

1.

b

Objective function coefficients (OFC) and right-hand side values of constraints are

sensitive parameters in linear programming. As mentioned above, OFCs are cost

parameters and RHS values are required reduction of pollutant. However, for this

case, the constraints Right-Hand Sides values of constraints are constant because

they are policy standards. Hence, only cost parameters which are given in Table 1.2

are sensitive parameters in this case.

To find which parameters should be estimated more closely, it needs to identify the

range of optimality for each coefficient of variables. Range of optimality supplies the

range of values over which the current optimal solution will not change. Moreover, it

is assumed that one coefficient change but others are constant. The formula of range

of optimality is shown as:

cuiient coefϐicient value െ allowable ueciease C

cuiient coefϐicient value allowable inciease

Allowable increase means that the maximized value the coefficient can increase to

7

remain the optimal solution. Conversely, allowable decrease refers to the maximized

value the coefficient can decrease to keep optimal solution. Allowable increase and

allowable decrease for each objective function coefficient is given in sensitivity

report in Appendix 1. In terms of allowable decrease, the data of three coefficients is

1E+30 which means the number is nearly infinite. This applies that no matter how

much this coefficient decrease, the optimal solution will not change. However,

because the coefficient refers to cost in real world, it cannot be negative and the

lowest value is 0. Hence, the range of optimality (in million dollars) for each OFC is:

Taller Smokestacks for Blast Furnaces: 0 C

୲ୠ

8.34

Taller Smokestacks for Open-Hearth furnaces: 9.33 C

୲୭

10.43

Filters for Blast Furnaces: 5 C

ϐୠ

7.38

Filters for Open-Hearth furnaces: 0 C

୭

7.82

Better Fuels for Blast Furnaces: 10.96 C

ୠୠ

13.98

Better Fuels for Open-Hearth furnaces: 0 C

ୠ୭

9.04

The area value of the range (upper value minus lower value) displays the probability

that estimated value can remain the optimal solution. If the range area are is great,

this implies that the estimate value has a large probability to be located in the range

of optimality. In contrast, if the range area is small, the estimated coefficient will

have a large probability to be out of range of optimality and then the optimal

solution changes. The area value of the range for each coefficient is given as in table

1.5.

Coefficient Area of range of optimality

C

୲ୠ

8.34 (8.34െͲ)

C

୲୭

1.1 (10.43െͻǤ͵͵)

C

ϐୠ

2.38 (7.38െͷ)

C

୭

7.82 (7.82െͲ)

C

ୠୠ

3.02 (13.98െͳͲǤͻ)

C

ୠ୭

9.04 (9.04െͲ)

8

Table 1.5

Recommendation

As the Table 1.5 show, C

to

(Taller Smokestacks for Open-Hearth furnaces) has the

lowest area value and it is the parameter that the company should be estimated

more closely to true value without changing optimal solution. In addition, C

fb

(Filter

for Blast Furnaces) and C

bb

(Better fuels for Blast Furnaces) should also be estimated

a little accurately as their area of range of optimality is not very large.

c

As mentioned above, the true cost parameter may be off by 10% in either direction.

To analyze the effect of inaccuracy in estimating each cost parameter, it needs to

assume that if one parameter change, others are constant as well. The assumption is

valid for every parameter. In terms of the situation when true value is less than

estimated value, the true value and range of optimality is displayed in Table 1.6.

Coefficient Estimated value True value (10%

decrease)

Range of optimality

C

୲ୠ

8 7.2 [0, 8.34]

C

୲୭

10 9 [9.33, 10.43]

C

ϐୠ

7 6.3 [5, 7.38]

C

୭

6 5.4 [0, 7.82]

C

ୠୠ

11 9.9 [10.96, 13.98]

C

ୠ୭

9 8.1 [0,9.04]

Table 1.6 (million dollars)

It is clear that the true value of C

tb

, C

fb

, C

fo

and C

bo

is located in its range of optimality

respectively. Therefore, true value of these four coefficients does not change the

optimal solution. However, for C

to

(Taller Smokestacks for Open-Hearth Furnaces) and

9

C

bb

(Better Fuels for Blast Furnaces), its true value is out of their range of optimality

and the optimal solution will change.

As for the situation when the true value is 10% more than estimated value, the

process is similar to the situation when true value is 10% less than estimated value. It

also assumes that when one parameter changes, other parameters do not change.

The following table shows the true value and range of optimality.

Coefficient Estimated value True value (10%

decrease)

Range of optimality

C

୲ୠ

8 8.8 [0, 8.34]

C

୲୭

10 11 [9.33, 10.43]

C

ϐୠ

7 7.7 [5, 7.38]

C

୭

6 6.6 [0, 7.82]

C

ୠୠ

11 12.1 [10.96, 13.98]

C

ୠ୭

9 9.9 [0,9.04]

Table 1.7 (million dollars)

It is explicit that if true value of cost parameter is 10% more than estimated value,

nearly all of them is not in their range of optimality except C

bb

. This displays that

except C

bb

, the optimal solution will c hange when other cost parameter͛s true value

is 10% more than estimated value.

Recommendation:

The company should conduct much effort to make its true cost value lower than its

estimated value. The reason is that the probability of changing optimal solution

when the true value is more than estimated value is really high. As the table 1.7

shows, five of six parameters will change optimal solution. However, the probability

of changing optimal solution when true value is less than estimated value is relatively

low. Two of six parameters will modify optimal solution.

10

Moreover, the company should put more focus on C

bb

and C

bo

to estimate more

closely. In perspective of C

bb

, even the estimated value is in the optimality, but 11 is

so close to lower limit which is 10.96 in range of optimality. If the true value of C

bb

is

a little less than 11, the optimal solution will change probably. Similar to C

bb

, C

bo

͛s

estimated value is too close to upper limit which is 9.04 as well. If the true value of

C

bo

is a bit more than 9, the optimal may solution change in a large probability.

Thereforeƥthe company should revise C

bb

(better fuels for blast furnaces) and C

bo

(better fuels for open-hearth furnaces).

d

Shadow price in the constraints part of sensitivity report refers to the change in the

value of the solution because of per unit increase in the right-hand side of the

constraints. However, shadow price is only valid when there is fairly small change in

right-hand side. Allowable increase and allowable decrease in sensitivity report

specify how much the right-hand side value can be changed without changing the

value of optimal solution. As mentioned above, the required reduction in the annual

emission rate of pollutant is right-hand side value and the total cost is the value of

optimal solution. Hence, shadow price is a good approach to specify the rate at

which the total cost of an optimal solution would change with any small change in

the required reduction in annual emission rate of each pollutant.

For particulates, as given in sensitivity report, its shadow price is 0.11. As a result,

when the policy standard of particulates changes by 1 million, the total cost of

optimal solution will alter 0.11 million dollars in same direction. Its allowable

increase is 14.30 that the value of policy standard for particulate can be increased at

most 14.30 million pounds without changing the shadow price. The allowable

decrease is 7.48 which refers to that government can just decrease 7.48 million

pounds in maximum for policy standard for particulate without changing the rate

11

above.

For sulfur oxides, the shadow price is 0.13 which implies that if government change 1

million pounds for policy standard of sulfur oxides, the total cost will change 0.13

million dollars in same direction simultaneously. Allowable increase for this pollutant

is 20.45 that its value of policy standard can go up 20.45 million pounds without

changing shadow price. The policy standard can reduce 1.69 million pounds for sulfur

oxides with remaining shadow price as the allowable decrease is 1.69.

The shadow price of hydrocarbons is 0.07 which implies that 1 million changes in

policy standard of hydrocarbons will result in 0.07 million dollars change in same

direction. Allowable increase and allowable decrease is 2.01 and 21.69 respectively

which means that government can increase 2.01 million pounds and cut down 21.69

million pounds for policy standard for hydrocarbons without changing the rate.

e

As the debate about the relative values of policy standards for the three pollutants,

the company wants to determine how much change in the opposite direction for

sulfur oxides can offset the impact of total cost of optimal solution by each unit

change in policy standard for particulates. Shadow price is the best way to solve it.

As argued above, the total cost of optimal solution will change by 0.11 million dollars

with the same direction change of 1 million pounds for particulates ͛ policy standard.

To offset the effect on total cost, surfer oxides should change the same cost in

opposite direction by altering the value of policy standard. Letting Q refers to the

quantity change of sulfur oxides and the formula is:

Q * shadow price of sulfur oxides = െ0.11

Shadow price of sulfur oxides is equal to 0.13 and the result is Q= 0.11/0.13= െ0.85

12

million pounds. Hence, if 1 million pounds is increased in values of policy standard

for particulates, the value of policy standard for sulfur oxides should decrease 0.85

million pounds to remain the total cost of the optimal solution. If values of policy

standard for particulates decrease 1 million pounds, 0.85 million pounds should be

increased for policy standards for sulfur oxides.

However, because the change happens simultaneously, it is necessary to check if the

change is small enough to keep shadow price valid. 100 percent rule is a tool to

examine it. For particulates, 1 million increases should be divided by allowable

increase which is 14.30 million and the result is 7%. Concerning sulfur oxides, the

corresponding decrease is 0.85 and its allowable decrease is 1.69 million. The

percent is 50%. The sum of two percent is 57% which is less than 100%. Consequently,

the shadow price is valid and the corresponding 0.85 million decrease is available.

Taking the situation when government decreases 1 million for particulates into

consideration, its 100 percent rule calculation is similar to the process above. 1

million decreases should be divided by its allowable decrease which is 1.69 million

and the percent is 59%. For sulfur oxides, 0.85 million increases should be divided by

its allowable decrease which is 20.45 million. The percent is 4%. The sum of two

percent is 63% which less than 100%. As a result, the shadow price is valid and the

0.85 million decrease is available as well.

f

As mentioned above, government concludes that each 10% increase in all the policy

standard for pollutant will result in reducing 3.5 million dollar tax for the company.

Moreover, the percentage cannot be over 50%. The tax reduction can be reflected in

reduction of total cost. Therefore, the objective function and right-hand side

constraints will change. Letting ɽ denotes the percentage change in all the policy

13

standard and ɽ is equal to one of 10%, 20%, 30%, 40% and 50%. Assuming Y means

the total tax reduction and k refers to the relationship between ɽ and Y. Based on the

information above, Y= k * ɽ. As mentioned above, when ɽ equals 10%, Y is 3.5 million.

When ɽ is equal to 20%, Y will be 7 million. Thus, k refers to 35. As a result, the

objectives function in original linear programming will change into:

Z= 8X

tb

+ 10X

to

+ 7X

fb

+ 6X

fo

+ 11X

bb

+ 9X

bo

ȂY= 8X

tb

+ 10X

to

+ 7X

fb

+ 6X

fo

+ 11X

bb

+ 9X

bo

Ȃ 35*

ɽ

In terms of constraints, the left-hand side value will not change, however, right-hand

side value changes. The new constraints are shown as:

Particulates: 12X

tb

+ 9X

to

+ 25X

fb

+ 20X

fo

+ 17X

bb

+ 13X

bo

60*(1+ɽ)

Sulfur oxides: 35X

tb

+ 42X

to

+ 18X

fb

+ 31X

fo

+ 56X

bb

+ 49X

bo

150*(1+ɽ)

Hydrocarbons: 37X

tb

+ 53X

to

+ 28X

fb

+ 24X

fo

+ 29X

bb

+ 20X

bo

125*(1+ɽ)

Other information in original linear programming will not change. When Ⱥ is equal to

0, its result is the same as the total cost of original optimal solution. By using Excel

Solver, the minimized total cost for each ɽ can be gained and given in Table 1.7.

Ⱥ (%) Total cost (million dollars)

0 32.15

10 32.09

20 32.02

30 31.96

40 31.90

50 32.21

As a result, it will be chosen when Ⱥ equals 40% because its total cost is minimized

which is 31.90 million dollars.

14

Q2

Alabama Atlantic is a lumber company and it has three sources of wood and five

markets to be supplied. Moreover, the delivery of each route is independent. The

annual capacity of wood at sources is 15, 20 and 15 million board feet and the annual

demand at markets is 11, 12, 9, 10 and 8 million board feet. In the past, the company

has shipping wood by rail. However, because of the increasing shipping cost of rail,

the alternative of using ships is being investigated. Now the company has three

options about shipping channels which are exclusively by rail, exclusively by water

and, by rail and water together to distribute wood from sources to market. The

problem for the company is to determine the overall shipping plan that minimizes

the total equivalent uniform annual cost (Z). This is a typical transportation problem

and as Hiller and Lieberman (1995) suggests, the problem can be solved by linear

programming.

Option 1: Ship exclusively by ship

To formulate the model, first thing is to define variables. Letting X

ij

(i=1,2,3; and j=

1,2,3,4,5) be the number of million board feet of wood from resource i to market j

which can shown in Table 2.1 below.

X

ij

1 2 3 4 5

1 X

11

X

12

X

13

X

14

X

15

2 X

21

X

22

X

23

X

24

X

25

3 X

31

X

32

X

33

X

34

X

35

Table 2.1 (millions)

Simultaneously, the objective function coefficient, which is indicated as C

ij

1

(coefficient of option 1)demonstrates that the equivalent uniform annual cost of per

million board feet by rail from source i to market j. As shipping by rail does not have

other cost, its equivalent uniform annual cost is just unit cost by rail. The C

ij

1

is shown

15

in table 2.2.

C

ij

1

Unit Cost by Rail ($1,000s) to market

Source 1 2 3 4 5

1 61 72 45 55 66

2 69 78 60 49 56

3 59 66 63 61 47

Table 2.2

Letting Z

1

refers to total equivalent annual cost which is the sum of equivalent annual

cost of each route. Hence, according to the general formula shown in appendix 1, the

objective function is to minimize Z

1

= 61 X

11

+72 X

12

+45 X

13

+ 55 X

14

+66 X

15

+69 X

21

+78

X

22

+60 X

23

+49 X

24

+56 X

25

+ 59 X

31

+ 66 X

32

+ 63 X

33

+ 61 X

34

+47 X

35

.

The next stage is checking the constraints. There are three constraints which are

supply constraints, demand constraints as every source has capacity of wood and the

amount of demand is limited in each market , and all X

ij

are nonnegative.

Supply constraints:

Source 1: σ ͳj

ହ

୨ୀଵ

ͳͷ (X

11

+X

12

+X

13

+X

14

+X

15

15)

Source 2: σ ʹj

ହ

୨ୀଵ

ʹͲ (X

21

+X

22

+X

23

+X

24

+X

25

ʹͲ)

Source 3: σ ͵j

ହ

୨ୀଵ

ͳͷ (X

31

+X

32

+X

33

+X

34

+X

35

ͳͷ)

Demand constraints:

Market 1: σ iͳ

ଷ

୧ୀଵ

ൌ ͳͳ (X

11

+X

21

+X

31

ൌ ͳͳ)

Market 2: σ iʹ

ଷ

୧ୀଵ

ൌ ͳʹ (X

12

+X

22

+X

32

ൌ ͳʹ)

Market 3: σ i͵

ଷ

୧ୀଵ

ൌ ͻ (X

13

+X

23

+X

33

ൌ ͻ)

Market 4: σ iͶ

ଷ

୧ୀଵ

ൌ ͳͲ (X

14

+X

24

+X

34

ൌ ͳͲ)

Market 5: σ iͷ

ଷ

୧ୀଵ

ൌ ͺ (X

15

+X

25

+X

35

ൌ ͺ)

X

ij

Ͳ

16

By using Excel Solver, the minimize cost is $2,816,000 and the optimal solution is

shown in the Table 2.3 and diagram 2.1 below. (The process is shown in Appendix 2)

X

ij

Optimal distribution design (millions)

Source 1 2 3 4 5

1 6 0 9 0 0

2 2 0 0 10 8

3 3 12 0 0 0

Table 2.3

Diagram 2.1

Option 2: Ship exclusively by water

Similar to calculate option 1, letting X

ij

represents number of million board feet of

wood from resource i to market j as shown in Table 1 above.

Taking objective function coefficient into account, C

ij

2

(coefficient of option 2)

1

1

2

2

3

3

4

5

15

20

15

11

12

8

10

9

8

12

10

2

9

3

6

17

represents the equivalent uniform annual cost of per million board feet by water

from source i to market j. Different from shipping by rail, shipping by water needs

capital investment in ships and the equivalent uniform annual cost of these

investment is one-tenth the amount of capital investment. Hence, C

ij

2

is equal to

one-tenth the amount of capital investment of each rout e plus the unit shipping cost.

A

ij

denotes the capital investment for ships per million board feet from source i to

market j and the data is displayed in table 2.4. B

ij

means the shipping cost by water

per million board feet from source i to market j whose number is shown in table 2.5.

Thus, C

ij

2

= 0.1*A

ij

+B

ij

. However, C

14

2

and C

31

2

do not apply to this formula because

ship is not feasible from source 1 to market 4 and source 3 to market 1. The company

can just delivery wood by rail from source 1 to market 4 and source 3 to market 1.

Consequently, C

14

2

and C

31

2

is shipping cost by rail which is 55 and 59 ($1,000s)

respectively. Thus, the result of C

ij

is expressed in Table 2.6.

A

ij

Unit investment for ships ($1,000s) to market

Souce 1 2 3 4 5

1 275 303 238 Ʀ 285

2 293 318 270 250 265

3 Ʀ 283 275 268 240

Table 2.4

B

ij

Unit Cost by Rail ($1,000s) to market

Source 1 2 3 4 5

1 31 38 24

Ʀ

35

2 36 43 28 24 31

3

Ʀ

33 36 32 26

Table 2.5

18

C

ij

2

Equivalent uniform annual cost ($1,000s)

Source 1 2 3 4 5

1 58.5 68.3 47.8 55 63.5

2 65.3 74.8 55 49 57.5

3 59 61.3 63.5 58.8 50

Table 2.6

Therefore, the objective function is to minimize Z

2

= 58.5 X

11

+68.3 X

12

+47.8 X

13

+ 55

X

14

+63.5 X

15

+65.3 X

21

+74.8 X

22

+55 X

23

+49 X

24

+57.5 X

25

+ 59 X

31

+ 61.3 X

32

+ 63.5 X

33

+

58.8 X

34

+50 X

35

.

As other conditions do not change, the constraints are the same as option 1 which

are:

Supply constraints:

Source 1: σ ͳj

ହ

୨ୀଵ

ͳͷ (X

11

+X

12

+X

13

+X

14

+X

15

15)

Source 2: σ ʹj

ହ

୨ୀଵ

ʹͲ (X

21

+X

22

+X

23

+X

24

+X

25

ʹͲ)

Source 3: σ ͵j

ହ

୨ୀଵ

ͳͷ (X

31

+X

32

+X

33

+X

34

+X

35

ͳͷ)

Demand constraints:

Market 1: σ iͳ

ଷ

୧ୀଵ

ൌ ͳͳ (X

11

+X

21

+X

31

ൌ ͳͳ)

Market 2: σ iʹ

ଷ

୧ୀଵ

ൌ ͳʹ (X

12

+X

22

+X

32

ൌ ͳʹ)

Market 3: σ i͵

ଷ

୧ୀଵ

ൌ ͻ (X

13

+X

23

+X

33

ൌ ͻ)

Market 4: σ iͶ

ଷ

୧ୀଵ

ൌ ͳͲ (X

14

+X

24

+X

34

ൌ ͳͲ)

Market 5: σ iͷ

ଷ

୧ୀଵ

ൌ ͺ (X

15

+X

25

+X

35

ൌ ͺ)

X

ij

Ͳ

The problem is solved by Excel Solver as well and the minimize cost is Z

2

= $2,770,800

and optimal solution is expressed in Table 2.7 and diagram 2.2 (The process is shown

in Appendix 2).

19

X

ij

Optimal distribution design (millions)

Source 1 2 3 4 5

1 6 0 9 0 0

2 5 0 0 10 5

3 0 12 0 0 3

Table 2.7

Diagram 2.2

Option 3: Ship by either rail or water, depending on which is less expensive for the

particular route

As option 1 and option 2, letting X

ij

displays number of million board feet of wood

from resource i to market j as shown in Table 1 above.

The objective function coefficient C

ij

3

(coefficient of option 3) is the less expensive

equivalent uniform annual cost of each route by rail or water. In other words, if the

1

1

2

2

3

3

4

5

15

20

15

11

12

8

10

9

5

12

10

5

9

3

6

20

equivalent uniform annual cost of a route by rail is lower than that by water, C

ij

3

equals to the equivalent uniform annual cost by rail. On the contrary, if that cost by

rail is higher than that by water, C

ij

is the equivalent uniform annual cost by water.

Hence, comparing the cost for each route in table 2 and table 6, the C

ij

3

is:

C

ij

3

Total equivalent uniform annual cost($1,000s)

Source 1 2 3 4 5

1 58.5 (w) 68.3(w) 45(r) 55(r) 63.5(w)

2 65.3(w) 74.8(w) 55(w) 49(r) 56(r)

3 59(r) 61.3(w) 63(w) 58.8(w) 47(r)

Table 2.8

Hence, the objective function is to minimize Z

3

= 58.5 X

11

+68.3 X

12

+45 X

13

+ 55

X

14

+63.5 X

15

+65.3 X

21

+74.8 X

22

+55 X

23

+49 X

24

+56 X

25

+ 59 X

31

+ 61.3 X

32

+ 63 X

33

+

58.8 X

34

+47 X

35

The constraints are identical as option 1 and option 3 which are:

Supply constraints:

Source 1: σ ͳj

ହ

୨ୀଵ

ͳͷ (X

11

+X

12

+X

13

+X

14

+X

15

15)

Source 2: σ ʹj

ହ

୨ୀଵ

ʹͲ (X

21

+X

22

+X

23

+X

24

+X

25

ʹͲ)

Source 3: σ ͵j

ହ

୨ୀଵ

ͳͷ (X

31

+X

32

+X

33

+X

34

+X

35

ͳͷ)

Demand constraints:

Market 1: σ iͳ

ଷ

୧ୀଵ

ൌ ͳͳ (X

11

+X

21

+X

31

ൌ ͳͳ)

Market 2: σ iʹ

ଷ

୧ୀଵ

ൌ ͳʹ (X

12

+X

22

+X

32

ൌ ͳʹ)

Market 3: σ i͵

ଷ

୧ୀଵ

ൌ ͻ (X

13

+X

23

+X

33

ൌ ͻ)

Market 4: σ iͶ

ଷ

୧ୀଵ

ൌ ͳͲ (X

14

+X

24

+X

34

ൌ ͳͲ)

Market 5: σ iͷ

ଷ

୧ୀଵ

ൌ ͺ (X

15

+X

25

+X

35

ൌ ͺ)

X

ij

Ͳ

21

The minimized cost gained by Excel Solver is that Z

3

= $2,729,100 and the optimal

solution is given in Table 2.9 (The process is shown in Appendix 2).

X

ij

3

Optimal distribution design (millions)

Source 1 2 3 4 5

1 6(w) 0 9(r) 0 0

2 5(w) 0 0 10(r) 5(r)

3 0 12(w) 0 0 3(r)

Table 2.9

Diagram 2.3

Recommendation:

Comparing these options, option 3 is the best as the total equivalent uniform annual

cost is the lowest.

1

1

2

2

3

3

4

5

15

20

15

11

12

8

10

9

6 by water

5 by rail

12 by

10 by rail

5 by

water

9 by rail

3 by rail

22

Q3

a

The title of paper is ͞Application of Linear Programming for Dormitory Development

plan at Petra Christian University͟. The authors were Connie Susilawati, Desire L.

Litaay and Andre Parsaulian. Moreover, it was published in Volume 3 and Number 2

of journal ͞Dimensi Teknik Sipil͟ in 2001.

b

The paper considered a dormitory problem. A survey to Petra Christian University͛s

students showed the required facilities and their financial ability and the author

defined dormitory as students residential with book shop, cafeteria, sport and other

support facilities. Therefore, the investors wanted to know how to allocate scarce

resources to different types of uses to obtain optimum profit. This paper was to solve

the site allocation problem in dormitory that how many rooms and how much area

of each facility should be built to obtain the maximum profit and satisfy students͛

needs simultaneously.

c

Linear programming was utilized to solve the problem. To formulate the model, the

study defines the variables as numbers of room and the area of supporting facilities

firstly. However, the dimensions of some facilities depended on the number of

occupants which were based on the number of rooms. According to the survey the

university conducted, four units of two-bed rooms need to be buil t one three-bed

room. Moreover, three bathrooms are requisite for these 11 occupants. To meet

linear programming, the author transformed the dependent facilities such as

common room, living room and dining room into three bedroom unit (I

2

). For

instance, when building a three bedroom, it needs 8.8 m

2

areas for common room.

Another example is that when building a three bed room, it needs to build four two

23

bed room. The transformation was given in table 3.1. The other six variables are

independent which was shown as X

1

,X

2

, X

3

, X

4

, X

5

and X

6

. The variables represented

the area of kitchen, book shop, mini market, phone booths , sporting facilities and

garden.

The coefficient of objective function could be calculated by the net present value of

the cash flow for each variable. For I

2

, its coefficient is composed by the net present

value of cash flow of independent and dependent variables in table 3.1. The result is

34,952,096.51. For other six variables, their coefficients are Ʀ576,000, 1,564,218.78,

1,564,218.78, 1,564,218.78, Ʀ50,000 and Ʀ49,529.5 (Rp) respectively.

d

Hence, the objective function was to maximize Z= 34,952,096.51*I

2

Ʀ576,000*X

1

+1,564,218.78*X

2

+1,564,218.78*X

3

+1,564,218.78*X Ʀ50,000*X

5

Ʀ49,529.5*X

6

Ʀ

1,385,557,930

The objective function is to maximize the net cash flow which was equal to the sum

of the net cash flow of every variable. Coefficients of kitchen, sport facilities and

garden were negative because they could not gain profit and were referred to cost.

Moreover, it needed to minus 1,385,557,930 which were fixed cost.

There were three constraints in this model which were physical constraints,

regulation constraints and market constraints. The physical constraints consisted of

land area, minimum room capacity and layout. The constraints were shown in Table

3.2. Letting Y

i

stand for the constraints, Y

1

was policy constraints as the policy that the

Building Coverage Ratio in the region was 50%. Y

2

and Y

3

were physical constraints as

it was limited by layout. For example, for Y

3

, the constraint emerged because second

floor of dormitory could only have living room, kitchen, bedrooms and bathrooms.

24

Moreover, Y

4

was physical constraints as well because it referred to land area.

Additionally, Y

7

to Y

12

represented the market demand constraints of book shop, mini

market, phone booths and sporting facilities respectively. Moreover, I

2

were integer

because it was bedrooms.

Table 3.2 (Source: Susilawati et al, 2001)

f

The result was that the maximum of net cash flow was equal to Rp 392,952,557. The

optimal solution was shown as Table 3.3.

Decision variables Description Value Unit

I

2

Bedroom 35.00 Rooms

X

1

kitchen 73.15 m

2

X

2

Book shop 149.33 m

2

X

3

Mini market 169.29 m

2

X

4

Phone booths 49.29 m

2

X

5

Sporting facilities 381.43 m

2

X

6

Garden 0.00 m

2

Table 3.3 (Source: Susilawati et al, 2001)

I

2

just showed the optimal number of three-bed room and it should be transformed

to other dependent variable. Therefore, the final is result is shown in Table 3.4.

25

Table 3.4 (Source: Susilawati et al, 2001)

e

However, this model also had some limitations and shortcomings. As the paper

argued, this model ignored the qualitative factors such as social, politic or ethic

issues which could impact the result significantly in real world. Moreover, when the

model transformed dependent variable into I

2

, the ratio between favorable rooms

was gained by the former survey which might have errors. Additionally, the model

also assumed the ratio constant which is not realistic. Furthermore, because

objective function coefficients were calculated by net present value of the cash flow,

it needed to use discount rate, 17%. Nevertheless, there was risk and uncertainty

about discount rate and the discount rate fluctuation would lead to inaccuracy of the

model.

26

Appendix 1

Sheet 1 for Qa:

Sheet 2 for sensitivity report

27

Sheet 3 for ɽ=10%

Sheet 4 for ɽ=20%

28

Sheet 5 for ɽ=30%

Sheet 6 for ɽ=40%

29

Sheet 7 for ɽ=50%

30

Appendix 2

The general linear programming model for the transportation problem is:

Min

C

ij

ij

m

jൌͳ

n

iൌͳ

s.t.

σ

ij

n

jൌͳ

s

i

, i=1, 2,͙͙m Supply

σ

ij

m

jൌͳ

ൌ u

j

ǡ j= 1, 2,͙..n Demand

ij

Ͳ for all i and j

where

i= index for origins, i=1, 2,͙..m

J= index for destinations, j =1, 2,͙..n

ij

= number of units shipped from origin I to destination j

C

ij

= cost per unit shipped from origin I to destination j

s

i

= supply or capacity in units at origin i

u

j

= demand in units at destination j

Sheet 1 for shipping by rail

31

Sheet 2 for shipping by water

Sheet for shipping by either water and rail

32

33

Reference:

Anderson,D.R., Sweeney,D.J., Williams, T.A. & Martin R.K. (2008), An introduction to

management, United States: Thomson South-Western

Hillier, F.S. & Lieberman, G.J. (1995), Introduction to operations research, New York:

McGraw-Hill

Ignizio, J.P. (1982) Linear Programming in Single- & Multiple- Objective System,

United States: Prenitice-Hall

Susilawati, C. & Litaay, D.L. & Parsaulian, A. (2001), Application of Linear

Programming for Dormitory Development Plan at Petra Christian University,

͞Dimensi Teknik Sipil͟, vol.3, no.2, pp. 59-63

Introduction

According to Anderson et al (2008), management science is an approach to managerial decision making based on extensive use of quantitative analysis. Linear programming plays a key role in management science. It is problem-solving approaches which can help managers make decisions (ibid). The programming needs to formulation the problem to develop a model including decision variables, constraints and objective function ( Ignizio, 1968). The applications of linear programming include production scheduling, media selection, financial planning, capital budgeting, transportation, product mix and staffing (Hillier and Lieberman, 1995). This report will utilize linear programming to firstly solve a financial planning problem for Nori & Leets Co. and t hen find a solution for Alabama Atlantic to solve its transportation problem. Moreover, all the results are accurate to 2 decimal digits. Finally, it will examine a report about application of linear programming for dormitory development plan at Petra Christian University.

Q1

The Nori & Leets Co. needs to reduce the emissions of three main types of pollutants which are particulate, sculpture oxides and hydrocarbons. The policy standard of required reduction in annual emission rate is 60 million pounds particulates, 150 million pounds sulfur oxides, and 125 million pounds hydrocarbons respectively. The two sources of pollution are blast furnaces for making pig iron and opening hearth furnaces for changing iron into steel. There are three effective abatement methods: (1) increasing height of the smokestacks, (2) using filter devices, and (3) including better fuels for the furnaces. However, these methods have technological limit that emissions has a abatement capacity as Table 2.1 shows.

2

Pollutant

Taller smokestacks Blast Open-Hear

Filters Blast Open-Hear

Better fuels Blast Open-Hear

Furnace th Furnaces s Particulates Sulfur oxides Hydrocarbo ns 37 53 12 35 9 42

Furnace th Furnaces s 25 18 20 31

Furnace th Furnaces s 17 56 13 49

28

24

29

20

Table 1.1 (millions of pounds) Furthermore, emission reduction by each method is independent. Engineers also concluded that it should use some combination of methods. However, each method can lead to a huge cost such as opportunity revenue loss, operating and maintenance expenses and start-up cost. Therefore, the company has estimated total annual cost given in the table below for using the methods at full abatement capacities. Abatement Method Blast Furnaces Open-Hearth Furnace Taller Smokestacks Filters Better Fuels $8 million 7 million 11 million Table 1.2 The company intends to minimize the annual cost of achieving the required emission reduction rates for three poll utants by drawing up a plan which specifies which types of abatement methods will be used and at what fractions of their abatement capacities for the blast furnaces and the open-hearth furnaces. 10 million 6 million 9 million

a

It is a deterministic model and there is a linear relationship between total cost and fraction of capacities. Moreover, the variables are independent. Therefore, it will use

3

open-hearth furnaces) denotes the fraction of total annual cost from the maximum feasible use of each abatement method on both two sources of pollutant. The following table shows the variables clearly. the fraction of abatement capacity is roughly equal to Xij. it needs to set constraints. j=blast furnaces. filters. Furthermore. better fuels. The first step is to define variables. the 4 . As the total annual cost (Z) is the sum of the actual total annual cost of each method. As a result.1 above. Letting Xij (i= taller smokestacks.2. Cij are the total annual cost from maximum feasible use of each abatement method as shown in Table 1. It is determined that cost of a method is roughly proportional to the fraction of the abatement capacity. Total emission reduction The total emission reduction of each pollutant should be the sum of the fraction of abatement capacity of every method timing the abatement capacity from maximum feasible use of that method which is given in table 1.3 Taller Smokestacks Xtb Filters Better Fuels Xfb Xbb The next step is to determine the coefficients of variables. Xij Blast Furnaces Open-Hearth Furnace Xto Xfo Xbo Table 1. and the X ij should be less than or equal to 1 and more than 0 as it is fraction.linear programming to solve the financial planning problem. There are two kinds of constraints: the total emission reduction of these three pollutants should be more than or equal to required reduction in annual emission rate (mentioned above). objective function is to minimize Z= 8Xtb + 10Xto + 7Xfb + 6Xfo + 11X bb + 9X bo. Hence. Hence. C ij.

15 million and the plan is displayed in Table 1. It is important 5 . The optimal solution is Z= $32.4 0. Among them. Taller Smokestacks for open-hearth furnaces should be used at 62% of its abatement capacity.62 0. sensitivity analysis in linear programming is the study of how the changes in coefficients impact optimal solution. Filters for open-hearth furnaces.05 1 Furnaces s Filters Blast Open-Hearth Furnace Furnaces Better Fuels Blast Open-Hearth Recommendation: It is recommended that: All the three types of abatement methods are used but the fractions of their abatement capacities are different. taller smokestacks for blast furnaces. Sensitivity analysis According to Fabrycky and Mize (1982).4.34 1 0. Taller Smokestacks Blast Open-Hearth Furnace Furnaces Furnaces s Fractio 1 n Table 1. Filt ers for blast furnaces should be 34% of its abatement capacity and Better Fuels for Blast Furnaces is used at 5% of its abatement capacity. and better fuels for open -hearth furnaces should be maximum feasible used.constraints can be displayed as: Particulates: 12Xtb + 9Xto + 25X fb + 20X fo + 17Xbb + 13Xbo Sulfur oxides: 35Xtb + 42Xto + 18Xfb + 31Xfo + 56Xbb + 49Xbo Hydrocarbons: 37Xtb + 53X to + 28Xfb + 24X fo + 29Xbb + 20Xbo 0 Xij 1 60 150 125 The problem is calculated by Excel Solver (The process is expressed in Appendix 1).

However.5 million tax reduction for the company. Moreover. the problems will seldom satisfy all of these assumptions . Moreover. The cost in table 1. management needs to conduct sensitivity analysis.2 is estimated and each one may easily be off by as much as 10 percent in either direction. Range of optimality supplies the range of values over which the current optimal solution will not change.2 are sensitive parameters in this case. b Objective function coefficients (OFC) and right-hand side values of constraints are sensitive parameters in linear programming. Furthermore. Hence. OFCs are cost parameters and RHS values are required reduction of pollutant. the constraints Right-Hand Sides values of constraints are constant because they are policy standards.because in real-life. For this case. The next part is to make senility analysis based on the sensitivity report in Appendix 1. only cost parameters which are given in Table 1. company and government achieve the agreement that each 10% increase in the policy standards over the current values will result in $3. it is assumed that one coefficient change but others are constant. As mentioned above. However. the system will be modified. values in table 1. it needs to identify the range of optimality for each coefficient of variables. To find which parameters should be estimated more closely. after designing the plan.1 are uncertain as well but the uncertainty is less than cost. there is a debate between relative values of the policy standards for three pollutants as well. The policy standards are constants. for this case. If data used have errors. The formula of range of optimality is shown as: Allowable increase means that the maximized value the coefficient can increase to 6 .

02 (13.remain the optimal solution. because the coefficient refers to cost in real world.33 Filters for Blast Furnaces: 5 7.98 10.34 1. If the range area are is great.34 (8. the range of optimality (in million dollars) for each OFC is: Taller Smokestacks for Blast Furnaces: 0 8.38 7. In contrast.82 13.38 7. The area value of the range for each coefficient is given as in table 1. the optimal solution will not change. However.43 Filters for Open-Hearth furnaces: 0 Better Fuels for Blast Furnaces: 10.96 Better Fuels for Open-Hearth furnaces: 0 9. In terms of allowable decrease. Allowable increase and allowable decrease for each objective function coefficient is given in sensitivity report in Appendix 1.5. Conversely. the data of three coefficients is 1E+30 which means the number is nearly infinite.34 Taller Smokestacks for Open-Hearth furnaces: 9. this implies that the estimate value has a large probability to be located in the range of optimality. if the range area is small. it cannot be negative and the lowest value is 0.82 3.04 (9. Hence.82 (7. allowable decrease refers to the maximized value the coefficient can decrease to keep optimal solution.04 The area value of the range (upper value minus lower value) displays the probability that estimated value can remain the optimal solution. This applies that no matter how much this coefficient decrease.04 ) ) ) ) ) ) . Coefficient 7 Area of range of optimality 8. the estimated coefficient will have a large probability to be out of range of optimality and then the optimal solution changes.38 (7.98 9.1 (10.43 2.

96. C fb (Filter for Blast Furnaces) and C bb (Better fuels for Blast Furnaces) should also be estimated a little accurately as their area of range of optimality is not very large.33.98] [0.4 9. C fo and C bo is located in its range of optimality respectively. it needs to assume that if one parameter change. true value of these four coefficients does not change the optimal solution. the true cost parameter may be off by 10% in either direction.43] [5.38] [0. others are constant as well.3 5.34] [9.5 Recommendation As the Table 1.9. C fb. the true value and range of optimality is displayed in Table 1. 7.6 (million dollars) [0. 10. for C to (Taller Smokestacks for Open-Hearth Furnaces) and 8 .5 show. The assumption is valid for every parameter. In addition. 7. 8. To analyze the effect of inaccuracy in estimating each cost parameter. c As mentioned above.82] [10.9 8. However. In terms of the situation when true value is less than estimated value.1 Table 1.6. Coefficient Estimated value True value (10% Range of optimality decrease) 8 10 7 6 11 9 7.04] It is clear that the true value of C tb. Therefore. Cto (Taller Smokestacks for Open-Hearth furnaces) has the lowest area value and it is the parameter that the company should be estimated more closely to true value without changing optimal solution. 13.Table 1.2 9 6.

other parameters do not change. 8. nearly all of them is not in their range of optimality except Cbb.7 (million dollars) It is explicit that if true value of cost parameter is 10% more than estimated value. As for the situation when the true value is 10% more than estimated value. 7.8 11 7. Two of six parameters will modify optimal solution. Coefficient Estimated value True value (10% Range of optimality decrease) 8 10 7 6 11 9 8. 9 . the process is similar to the situation when true value is 10% less than estimated value. Recommendation: The company should conduct much effort to make its true cost value lower than its estimated value.82] [10.Cbb (Better Fuels for Blast Furnaces).7 6. The reason is that the probability of changing optimal solution when the true value is more than estimated value is really high.04] Table 1.96.1 9. 10.7 shows.98] [0.9 [0. five of six parameters will change optimal solution. 13. the probability of changing optimal solution when true value is less than estimated value is relatively low.9. This displays that except Cbb.34] [9. the optimal solution will c hange when other cost parameter s true value is 10% more than estimated value. The following table shows the true value and range of optimality. its true value is out of their range of optimality and the optimal solution will change.6 12.38] [0. As the table 1. It also assumes that when one parameter changes. However. 7.43] [5.33.

but 11 is so close to lower limit which is 10. For particulates. The allowable decrease is 7. As mentioned above. shadow price is only valid when there is fairly small change in right-hand side. the required reduction in the annual emission rate of pollutant is right-hand side value and the total cost is the value of optimal solution. C bo s estimated value is too close to upper limit which is 9.30 that the value of policy standard for particulate can be increased at most 14. the optimal solution will change probably. when the policy standard of particulates changes by 1 million.30 million pounds without changing the shadow price. Its allowable increase is 14. Therefore the company should revise C bb (better fuels for blast furnaces) and C bo (better fuels for open -hearth furnaces). its shadow price is 0. Hence. as given in sensitivity report. If the true value of Cbo is a bit more than 9.48 million pounds in maximum for policy standard for particulate without changing the rate 10 . As a result.11.96 in range of optimality. even the estimated value is in the optimality. In perspective of C bb. the total cost of optimal solution will alter 0. d Shadow price in the constraints part of sensitivity report refers to the change in the value of the solution because of per unit increase in the right-hand side of the constraints.04 as well. the optimal may solution change in a large probability. If the true value of C bb is a little less than 11. Allowable increase and allowable decrease in sensitivity report specify how much the right-hand side value can be changed without changing the value of optimal solution. Similar to C bb. the company should put more focus on Cbb and C bo to estimate more closely.48 which refers to that government can just decrease 7. However.11 million dollars in same direction.Moreover. shadow price is a good approach to specify the rate at which the total cost of an optimal solution would change with any small change in the required reduction in annual emission rate of each pollutant.

69 million pounds for policy standard for hydrocarbons without changing the rate. the total cost will change 0. The policy standard can reduce 1. To offset the effect on total cost. the total cost of optimal solution will change by 0. the company wants to determine how much change in the opposite direction for sulfur oxides can offset the impact of total cost of optimal solution by each unit change in policy standard for particulates.01 million pounds and cut down 21. e As the debate about the relative values of policy standards for the three pollutants. surfer oxides should change the same cost in opposite direction by altering the value of policy standard.45 million pounds without changing shadow price.11 million dollars with the same direction change of 1 million pounds for particulates policy standard. Allowable increase for this pollutant is 20.07 which implies that 1 million changes in policy standard of hydrocarbons will result in 0. As argued above.01 and 21.69 respectively which means that government can increase 2.69.07 million dollars change in same direction.45 that its value of policy standard can go up 20. Allowable increase and allowable decrease is 2.11 0. The shadow price of hydrocarbons is 0. Letting Q refers to the quantity change of sulfur oxides and the formula is: Q * shadow price of sulfur oxides = 0.above. Shadow price is the best way to solve it.13 million dollars in same direction simultaneously.11/0.13 and the resu lt is Q= 0.13 which implies that if government change 1 million pounds for policy standard of sulfur oxides. the shadow price is 0.13= 11 . For sulfur oxides.85 Shadow price of sulfur oxides is equal to 0.69 million pounds for sulfur oxides with remaining shadow price as the allowable decrease is 1.

its 100 percent rule calculation is similar to the process above. f As mentioned above.69 million and the percent is 59%. As a result. Concerning sulfur oxides. the objective function and right-hand side constraints will change.85 million decrease is available as well. government concludes that each 10% increase in all the policy standard for pollutant will result in reducing 3. 0. The percent is 4%.85 million decrease is available. However.85 million increases should be divided by its allowable decrease which is 20. 100 percent rule is a tool to examine it. because the change happens simultaneously.85 and its allowable decrease is 1.85 million pounds should be increased for policy standards for sulfur oxides. The percent is 50%. Consequently. the value of policy standard for sulfur oxides should decrease 0.69 million. 0. For sulfur oxides. The sum of two percent is 57% which is less than 100%. If values of policy standard for particulates decrease 1 million pounds. Taking the situation when government decreases 1 million for particulates into consideration. 1 million increases should be divided by allowable increase which is 14.30 million and the result is 7%. For particulates.45 million.million pounds.5 million dollar tax for the company. the corresponding decrease is 0. Moreover. Letting denotes the percentage change in all the policy 12 . 1 million decreases should be divided by its allowable decrease which is 1. The sum of two percent is 63% which less than 100%. the shadow price is valid and the corresponding 0. Hence. The tax reduction can be reflected in reduction of total cost. it is necessary to check if the change is small enough to keep shadow price valid. the percentage cannot be over 50%. if 1 million pounds is increased in values of policy standard for particulates.85 million pounds to remain the total cost of the optimal solu tion. the shadow price is valid and the 0. Therefore.

30%. Y is 3. Y will be 7 million. By using Excel Solver. 20%. is equal to 20%. right-hand side value changes.02 31. Based on the the total tax reduction and k refers to the relationship between information above. equals 40% because its total cost is minimized 13 .96 31. Assuming Y means and Y. When 0. ho wever.standard and is equal to one of 10%. Y= k * . As a result.09 32. the left-hand side value will not change. The new constraints are shown as: Particulates: 12X tb + 9Xto + 25Xfb + 20X fo + 17X bb + 13Xbo Sulfur oxides: 35X tb + 42Xto + 18Xfb + 31Xfo + 56Xbb + 49X bo Hydrocarbons: 37Xtb + 53Xto + 28X fb + 24X fo + 29Xbb + 20Xbo 60*(1+ ) 150*(1+ ) 125*(1+ ) is equal to Other information in original linear programming will not change.90 million dollars.7. As mentioned above. its result is the same as the total cost of original optimal solution. Total cost (million dollars) 32.90 32. it will be chosen when which is 31.21 As a result.5 million. k refers to 35. the minimized total cost for each (%) 0 10 20 30 40 50 can be gained and given in Table 1.15 32. 40% and 50%. when When equals 10%. Thus. the objectives function in original linear programming will change into: Z= 8Xtb + 10X to + 7Xfb + 6Xfo + 11X bb + 9Xbo Y= 8Xtb + 10X to + 7Xfb + 6X fo + 11X bb + 9Xbo 35* In terms of constraints.

first thing is to define variables. by rail and water together to distribute wood from sources to market. exclusively by water and. Now the company has three options about shipping channels which are exclusively by rail.3.5) be the number of million board feet of wood from resource i to market j which can shown in Table 2.2.2.1 below. 10 and 8 million board feet. its equivalent uniform annual cost is just unit cost by rail. and j= 1. 9. because of the increasing shipping cost of rail. The problem for the company is to determine the overall shipping plan that minimizes the total equivalent uniform annual cost (Z). the problem can be solved by linear programming. Moreover. the alternative of using ships is being investigated. which is indicated as Cij1 (coefficient of option 1)demonstrates that the equivalent uniform annual cost of per million board feet by rail from source i to market j.3.4. the delivery of each route is independent. the objective function coefficient. 12. The annual capacity of wood at sources is 15. In the past. As shipping by rail does not have other cost. The C ij1 is shown 14 . Option 1: Ship exclusively by ship To formulate the model. 20 and 15 million board feet and the annual demand at markets is 11.1 (millions) Simultaneously. However. the company has shipping wood by rail. Xij 1 2 3 1 X11 X21 X31 2 X12 X22 X32 3 X13 X23 X33 4 X14 X24 X34 5 X15 X25 X35 Table 2. Letting Xij (i=1. This is a typical transportation problem and as Hiller and Lieberman (1995) suggests.Q2 Alabama Atlantic is a lumber company and it has three sources of wood and five markets to be supplied.

The next stage is checking the constraints. Supply constraints: Source 1: Source 2: Source 3: (X11 +X12 +X13 +X14 +X15 15) (X21 +X22 +X23 +X24 +X25 (X31 +X32 +X33 +X34 +X35 ) ) Demand constraints: Market 1: Market 2: Market 3: Market 4: Market 5: Xij 15 (X11 +X21 +X31 (X12 +X22 +X32 (X13 +X23 +X33 (X14 +X24 +X34 (X15 +X25 +X35 ) ) ) ) ) . There are three constraints which are supply constraints. the objective function is to minimize Z1= 61 X11 +72 X12 +45 X13+ 55 X14+66 X15 +69 X21+78 X22+60 X23 +49 X24 +56 X25 + 59 X 31+ 66 X32+ 63 X33+ 61 X34+47 X35.2. Hence. and all Xij are nonnegative.2 61 69 59 Letting Z1 refers to total equivalent annual cost which is the sum of equivalent annual cost of each route. demand constraints as every source has capacity of wood and the amount of demand is limited in each market . according to the general formula shown in appendix 1.000s) to market 2 72 78 66 3 45 60 63 4 55 49 61 5 66 56 47 Source 1 1 2 3 Table 2.in table 2. Cij1 Unit Cost by Rail ($1.

the minimize cost is $2. Cij2 (coefficient of option 2) 16 .1 Option 2: Ship exclusively by water Similar to calculate option 1.By using Excel Solver.3 and diagram 2.1 below.3 6 15 1 9 6 2 3 1 11 2 2 20 2 10 3 12 9 3 8 15 3 12 5 4 10 8 Diagram 2. (The process is shown in Appendix 2) Xij Optimal distribution design (millions) 2 0 0 12 3 9 0 0 4 0 10 0 5 0 8 0 Source 1 1 2 3 Table 2.816. letting Xij represents number of million board feet of wood from resource i to market j as shown in Table 1 above.000 and the optimal solution is shown in the Table 2. Taking objective function coefficient into account.

6. Thus. C142 and C 312 do not apply to this formula because ship is not feasible from source 1 to market 4 and source 3 to market 1.4 275 293 Bij Unit Cost by Rail ($1. the result of C ij is expressed in Table 2. Aij Unit investment for ships ($1. Consequently.represents the equivalent uniform annual cost of per million board feet by water from source i to market j.5 31 36 17 . C ij2 is equal to one-tenth the amount of capital investment of each rout e plus the unit shipping cost.000s) respectively. shipping by water needs capital investment in ships and the equivalent uniform annual cost of these investment is one-tenth the amount of capital investment.1*A ij +Bij. Aij denotes the capital investment for ships per million board feet from source i to market j and the data is displayed in table 2. Hence. C14 2and C 312 is shipping cost by rail which is 55 and 59 ($1. Different from shipping by rail.5.000s) to market 2 38 43 33 3 24 28 36 24 32 4 5 35 31 26 Source 1 1 2 3 Table 2. C ij2= 0.4. Bij means the shipping cost by water per million board feet from source i to market j whose number is shown in table 2. Thus. The company can just delivery wood by rail from source 1 to market 4 and source 3 to market 1.000s) to market 2 303 318 283 3 238 270 275 250 268 4 5 285 265 240 Souce 1 1 2 3 Table 2. However.

5 X15 +65.8 X34+50 X35.8 61. the constraints are the same as option 1 which are: Supply constraints: Source 1: Source 2: Source 3: (X11 +X12 +X13 +X14 +X15 15) (X21 +X22 +X23 +X24 +X25 (X31 +X32 +X33 +X34 +X35 ) ) Demand constraints: Market 1: Market 2: Market 3: Market 4: Market 5: Xij (X11 +X21 +X31 (X12 +X22 +X32 (X13 +X23 +X33 (X14 +X24 +X34 (X15 +X25 +X35 ) ) ) ) ) The problem is solved by Excel Solver as well and the minimize cost is Z2= $2.5 X33+ 58.3 X32+ 63.8 55 63.5 57.2 (The process is shown in Appendix 2). As other conditions do not change.800 and optimal solution is expressed in Table 2.3 X12 +47.5 4 55 49 58.3 X21+74.3 74.000s) 2 68. 18 . the objective function is to minimize Z 2= 58.8 5 63.8 X22+55 X23 +49 X24 +57.5 X11 +68.3 3 47.Cij2 Equivalent uniform annual cost ($1.3 59 Therefore.7 and diagram 2.8 X13+ 55 X14+63.5 65.5 X25 + 59 X 31+ 61.5 50 Source 1 1 2 3 Table 2.770.6 58.

2 Option 3: Ship by either rail or water.7 6 15 1 9 6 5 0 1 11 2 5 20 2 10 3 12 9 12 5 15 3 3 5 4 10 8 Diagram 2. The objective function coefficient Cij3 (coefficient of option 3) is the less expensive equivalent uniform annual cost of each route by rail or water. In other words. letting Xij displays number of million board feet of wood from resource i to market j as shown in Table 1 above. if the 19 .Xij Optimal distribution design (millions) 2 0 0 12 3 9 0 0 4 0 10 0 5 0 5 3 Source 1 1 2 3 Table 2. depending on which is less expensive for the particular route As option 1 and option 2.

8 X34+47 X35 The constraints are identical as option 1 and option 3 which are: Supply constraints: Source 1: Source 2: Source 3: (X11 +X12 +X13 +X14 +X15 15) (X21 +X22 +X23 +X24 +X25 (X31 +X32 +X33 +X34 +X35 ) ) Demand constraints: Market 1: Market 2: Market 3: Market 4: Market 5: Xij 20 (X11 +X21 +X31 (X12 +X22 +X32 (X13 +X23 +X33 (X14 +X24 +X34 (X15 +X25 +X35 ) ) ) ) ) .5 (w) 68. if that cost by rail is higher than that by water. the C ij3 is: Cij3 Total equivalent uniform annual cost($1. Hence. C ij is the equivalent uniform annual cost by water. the objective function is to minimize Z3= 58.5 X15 +65.000s) 2 3 4 55(r) 5 63.8(w) 55(w) 49(r) 61.5(w) 56(r) Source 1 1 2 3 Table 2. comparing the cost for each route in table 2 and table 6.8 X22+55 X23 +49 X24 +56 X25 + 59 X31+ 61.3(w) 63(w) 58. C ij3 equals to the equivalent uniform annual cost by rail.3 X32+ 63 X33+ 58.8(w) 47(r) Hence.equivalent uniform annual cost of a route by rail is lower than that by water.5 X11 +68.3(w) 45(r) 65.3 X12 +45 X13+ 55 X14+63.3 X21+74. On the contrary.3(w) 59(r) 74.8 58.

Xij3 Optimal distribution design (millions) 2 0 0 12(w) 3 9(r) 0 0 4 0 10(r) 0 5 0 5(r) 3(r) Source 1 1 2 3 Table 2.9 (The process is shown in Appendix 2).9 15 1 9 by rail 6 by water 6(w) 5(w) 0 1 11 2 5 water 20 2 10 by rail 3 by 12 9 12 by 5 by rail 4 10 15 3 3 by rail 5 8 Diagram 2. option 3 is the best as the total equivalent uniform annual cost is the lowest.100 and the optimal solution is given in Table 2. 21 .The minimized cost gained by Excel Solver is that Z3= $2.729.3 Recommendation: Comparing these options.

four units of two-bed rooms need to be built one three-bed room. Another example is that when building a three bed room. Moreover. it was published in Volume 3 and Number 2 of journal Dimensi Teknik Sipil in 2001. Therefore. the author transformed the dependent facilities such as common room. living room and dining room into three bedroom unit (I2). For instance. To meet linear programming. However.Q3 a The title of paper is Application of Linear Programming for Dormitory Development plan at Petra Christian University .8 m 2 areas for common room. A survey to Petra Christian University s students showed the required facilities and their financial ability and the author defined dormitory as students residential with book shop. it needs 8. Desire L. Litaay and Andre Parsaulian. the investors wanted to know how to allocate scarce resources to different types of uses to obtain optimum profit. To formulate the model. the study defines the variables as numbers of room and the area of supporting facilities firstly. According to the survey the university conducted. This paper was to solve the site allocation problem in dormitory that how many rooms and how much area of each facility should be built to obtain the maximum profit and satisfy students needs simultaneously. The authors were Connie Susilawati. it needs to build four two 22 . three bathrooms are requisite for these 11 occupants. sport and other support facilities. Moreover. when building a three bedroom. the dimensions of some facilities depended on the number of occupants which were based on the number of rooms. c Linear programming was utilized to solve the problem. b The paper considered a dormitory problem. cafeteria.

564. bedrooms an d bathrooms.2.096.218. 1. There were three constraints in this model which were physical constraints. minimum room capacity and layout.218. The transformation was given in table 3.78*X 3+1. For other six variables. The result is 34. 49. X3. phone booths .000 and 576. its coefficient is composed by the net present value of cash flow of independent and dependent variables in table 3. Letting Yi stand for the constraints.51. For I 2. 23 . For example.385.1. d Hence. Y2 and Y3 were physical constraints as it was limited by layout.529.78. The constraints were shown in Table 3.000. 1.952.564. 50.000*X 1 49.557.5 (Rp) respectively. The physical constraints consisted of land area. Moreover.930 which were fixed cost. Coefficients of kitchen.1.564.78. X4. The variables represented the area of kitchen.X2.000*X 5 576. it needed to minus 1.952. mini market. The other six variables are independent which was shown as X 1 .529. Y1 was policy constraints as the policy that the Building Coverage Ratio in the region was 50%.78*X 2+1.564. The coefficient of objective function could be calculated by the net present value of the cash flow for each variable.564.5*X 6 The objective function is to maximize the net cash flow which was equal to the sum of the net cash flow of every variable.218. X5 and X6. sporting facilities and garden. kitchen.218. for Y3.218. book shop.564. regulation constraints and market constraints.096. the constraint emerged because second floor of dormitory could only have living room.930 50.218.78*X 1.557. the objective function was to maximize Z= 34.51*I 2 +1.385.bed room. sport facilities and garden were negative because they could not gain profit and were referred to cost.78. their coefficients are 1.

the final is result is shown in Table 3.2 (Source: Susilawati et al.Moreover.15 Unit Rooms m2 149. 2001) f The result was that the maximum of net cash flow was equal to Rp 392. I2 were integer because it was bedrooms.952. phone booths and sporting facilities respectively. Therefore. 24 .3. Moreover. Y7 to Y12 represented the market demand constraints of book shop.29 m2 Sporting facilities 381. 2001) I2 just showed the optimal number of three-bed room and it should be transformed to other dependent variable.557.33 m2 169. The optimal solution was shown as Table 3.29 m2 49.00 73.43 m2 Garden 0. Decision variables Description I2 X1 X2 X3 X4 X5 X6 Bedroom kitchen Book shop Mini market Phone booths Value 35. Table 3. Additionally. mini market.4. Y4 was physical constraints as well because it referred to land area.00 m2 Table 3.3 (Source: Susilawati et al.

Moreover. this model also had some limitations and shortcomings. when the model transformed dependent variable into I 2. politic or ethic issues which could impact the result significantly in real world. there was risk and uncertainty about discount rate and the discount rate fluctuation would lead to inaccuracy of the model. the model also assumed the ratio constant which is not realistic. it needed to use discount rate. because objective function coefficien ts were calculated by net present value of the cash flow. Furthermore. the ratio between favorable rooms was gained by the former survey which might have errors. 2001) e However. 17%. As the paper argued. this model ignored the qualitative factors such as social.Table 3. Nevertheless.4 (Source: Susilawati et al. 25 . Additionally.

Appendix 1 Sheet 1 for Qa: Sheet 2 for sensitivity report 26 .

Sheet 3 for =10% Sheet 4 for =20% 27 .

Sheet 5 for =30% Sheet 6 for =40% 28 .

Sheet 7 for =50% 29 .

2..t.m J= index for destinations. . j =1. 2. i=1.n = number of units shipped from origin I to destination j = cost per unit shipped from origin I to destination j = supply or capacity in units at origin i = demand in units at destination j Sheet 1 for shipping by rail 30 .. 2. . m Supply Demand j= 1. i=1. . .n for all i and j where i= index for origins. 2..Appendix 2 The general linear programming model for the transportation problem is: Min s.

Sheet 2 for shipping by water Sheet for shipping by either water and rail 31 .

32 .

Application of Linear Programming for Dormitory Development Plan at Petra Christian University. D. New York: McGraw-Hill Ignizio..J. & Martin R. United States: Prenitice-Hall Susilawati.J.D. F.K. United States: Thomson South -Western Hillier. An introduction to management.A. vol. & Lieberman. (1995). G. T. (2001). J.. no.S. & Parsaulian. 59-63 33 . & Litaay.Objective System. (2008).P. A.L. pp. Williams.3.2.Reference: Anderson. Sweeney.& Multiple. (1982) Linear Programming in Single. Introduction to operations research .D. C. Dimensi Teknik Sipil .R.

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