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Business Decision Models Review

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**Business Decision Models
**

Taught by: Greg Overholt

Laurier SOS:

www.laurierSOS.com www.facebook.com/SchoolSOS www.twitter.com/SchoolSOS Don’t forget about the digital Exam-AID version!!

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05/02/2013

About me!

INTERESTED in watching the examples / explanations again? Go to www.lauriersos.com for the Digital ExamAID, allowing you to watch- and re-watch explanations until your exam!

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Agenda

• Overview BDM Stuff • Linear Programming

– – – – Compute, draw them, look at excel Sensitivity analysis!! Common Business Applications Network Problems

**Overview BDM Stuff
**

• Management Science process =

– Observation -> problem definition -> model construction -> model solution -> implementation.

**• Models are used because:
**

– Less expensive – Less time consuming and risky – More feasible They are abstraction of a real object can be (iconic (replica), analog, or mathematical)

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Linear Programming

• Linear Programming is a model of linear relationships representing a decision given an objective and resource constraints. • Constraint types are ‘=<’ ‘=’ ‘>=’ • They can be any fraction, as long as linear! • If RHS of constraints are integers then solution will be integer!

Linear Programming

• Properties of LP’s

– – – – – Assumptions Parameters Decision Variables Constraints Objective Function

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Linear Programming • Properties of LP’s – Parameters • KNOWN constant values from the Question.05/02/2013 Linear Programming • Properties of LP’s – Assumptions • When you read a question. They are your coefficients for your variables in your objective function and constraints 5 . you NEED to state your assumptions that you are using to make your model. and there is ambiguity.

2 and 3).5(X3) .05/02/2013 Linear Programming • Properties of LP’s – Constraints • These are resource/capacity issues that affect how many of your product you can produce.5(X1) + .5(X2) -.5(X2) + .5(X1) + . Usually labour hours/materials/space available • Constraint types are ‘=<’ ‘=’ ‘>=’ – STANDARD FORM (Constraints are ALL ‘=’) • Need to add a slack/surplus variable • Constraint: 10x + 20y <= 100 – Standard Constraint: 10x + 20y + u = 100 (slack) • Constraint 3x + 4y >= 30 – Standard Constraint: 3x + 4y – v = 30 (surplus) Linear Programming • Properties of LP’s – Constraints • THEY MUST BE LINEAR!! Eg: production ratio of product 1 and 2 can’t be more then 50% of all products (1. (X1 + x2) / (X1 + X2 + X3) <= .5(X3) <= 0 6 .50 X1+X2 <= .

» NOTE: If they give you sale level and expenses per unit. 7 .05/02/2013 Linear Programming • Properties of LP’s – Constraints can be: • Binding (define part of the optimal solution) • Non-Binding (define part of the feasible region. if they ask for max profit. but not the optimal solution) • Redundant (not part of either) binding redundant Non-binding Feasible region Linear Programming • Properties of LP’s – Objective Function • What are you trying to do?? – Eg: MAXIMIZE profit! – So the objective function needs to be about PROFIT for each possible product option. MAKE SURE you take revenues and subtract expenses and put that number in your objective function.

What should you produce to maximize profit? 8 . • Put yourself in the shoes of the manager. Your warehouse only can store 20 pairs of shoes in the off-season. but take 12 hours of labour and 4 units of cloth. in the end. You only have 180 hours of labour and can buy no more then 100 units of cloth. yet take 10 hours of labour and 10 units of cloth. what is your problem you are looking to get solved? Linear Programming Ex: You are making 2 types of shoes in your off-season – black shoes and brown shoes. whereas Brown shoes give $8 profit. Black shoes bring in $5 profit per shoe.05/02/2013 Linear Programming • Properties of LP’s – Decision Variables • This is what you are trying to find out – how much x and y you should do to maximize/minimize profit/costs.

You only have 180 hours of labour and can buy no more then 100 units of cloth. Black shoes bring in $5 profit per shoe.05/02/2013 Linear Programming (Objective Function Parameters) (Parameters) Ex: You are making 2 types of shoes in your off-season – black shoes and brown shoes. yet take 10 hours of labour and 10 units of cloth. Black shoes bring in $5 profit per shoe. You only have 180 hours of labour and can buy no more then 100 units of cloth. Your warehouse only can store 20 pairs of shoes in the off-season. but take 12 hours of labour and 4 units of cloth. whereas Brown shoes give $8 profit.TO MAXIMIZE PROFIT 9 . but take 12 hours of labour and 4 units of cloth. yet take 10 hours of labour and 10 units of cloth. Your warehouse only can store 20 pairs of shoes in the off-season. whereas Brown shoes give $8 profit. What should you produce to maximize profit? Problem Objective: . What should you produce to maximize profit? RHS of Constraints Linear Programming Ex: You are making 2 types of shoes in your off-season – black shoes and brown shoes.

05/02/2013 Linear Programming Ex: You are making 2 types of shoes in your off-season – black shoes and brown shoes. whereas Brown shoes give $8 profit. but take 12 hours of labour and 4 units of cloth. Black shoes bring in $5 profit per shoe. Decision Variables: Let x be the number of BLACK shoes Let y be the number of BROWN shoes Linear Programming Ex: You are making 2 types of shoes in your off-season – black shoes and brown shoes. You only have 180 hours of labour and can buy no more then 100 units of cloth. yet take 10 hours of labour and 10 units of cloth. whereas Brown shoes give $8 profit. Your warehouse only can store 20 pairs of shoes in the off-season. Black shoes bring in $5 profit per shoe. You only have 180 hours of labour and can buy no more then 100 units of cloth. but take 12 hours of labour and 4 units of cloth. Your warehouse only can store 20 pairs of shoes in the off-season. yet take 10 hours of labour and 10 units of cloth. Objective Function: MAX: z = 5x + 8y 10 .

05/02/2013 Linear Programming Ex: You are making 2 types of shoes in your off-season – black shoes and brown shoes. but take 12 hours of labour and 4 units of cloth. Your warehouse only can store 20 pairs of shoes in the off-season. whereas Brown shoes give $8 profit. Black shoes bring in $5 profit per shoe. y >= 0 Linear Programming • Ways to Solve a LP: – Graphically (will need to do on exam) – Excel Solver (will be given and need to analyze) 11 . You only have 180 hours of labour and can buy no more then 100 units of cloth. yet take 10 hours of labour and 10 units of cloth. Constraints: Labour Constraint: 10x + 12y <= 180 Cloth Constraint: 10x + 4y <= 100 Warehouse Constraint: x + y <= 20 NON-NEGATIVE: x.

Plot your constraints 2. so calculate the solution for each point.05/02/2013 Linear Programming • GRAPHICALLY 1. Linear Programming 25 20 15 10 z = 5x + 8y Extreme Points (intersection points) Cloth Constraint: 10x + 4y = 100 Determine line by plugging in 0 for x and y Brown shoes (y) Warehouse Constraint : x + y = 20 5 Feasible region 5 15 10 Black shoes (x) 17 Labour Constraint 10x + 12y = 180 20 0 12 . Take the largest/smallest one. Optimal Solution WILL be on an intersection/end point. Determine your feasible region (area of possible solutions) 3.

5x 3) 10x + 12y = 180 2 into 3) 10x + 12(25 – 2.5x) = 180 10x + 300 – 30x = 180 20x = 120 x = 6 (sub into 1) 1) 10(6) + 4y = 100 4y = 40 y = 10 Labour Constraint 10x + 12y = 180 C Cloth Constraint: 10x + 4y = 100 Brown shoes (y) B 5 0 5 15 10 Black shoes (x) 17 20 13 .05/02/2013 Linear Programming 25 20 15 10 A Objective Function z = 5x + 8y Cloth Constraint: 10x + 4y = 100 Point A: (0. ?) 1) 10x + 4y = 100 2) y = 25 – 2.0) Z = 5*10 + 8*0 Z = $50 Brown shoes (y) 5 C 5 15 10 Black shoes (x) 17 Labour Constraint 10x + 12y = 180 20 0 Linear Programming 25 20 15 10 A Objective Function z = 5x + 8y Point A = $120 Point B = $50 Point B: (?.15) Z = 5*0 + 8*15 Z = $120 Point C: (10.

05/02/2013 Linear Programming 25 20 15 10 A Objective Function z = 5x + 8y Point A = $120 Point B = $50 Point B: (6. 10) z = 5*6 + 8*10 Z = $30 + $80 Z = $110 Point A optimal Solution with 15 brown and 0 black generating $120 Profit Cloth Constraint: 10x + 4y = 100 Brown shoes (y) B 5 C 5 15 10 Black shoes (x) 17 Labour Constraint 10x + 12y = 180 20 0 LP: Excel Solver BL DecVar ObFnCoef Labour Constraint Cloth Constraint Warehouse Constraint 0 5 10 10 1 BR 15 8 12 4 1 120 180 ≤ 60 ≤ 15 ≤ Constraint Slack Amount (Surplus) 180 100 20 0 40 5 Amount that is unused 14 .

66 in order to have BLACK shoes being produced which also maximized profit. Graphically shown by changing the slope of the obj function until a new optimal solution is found. slope of the constraints. it does not need to increase profit per shoe to be part of optimal solution 15 . LP: Sensitivity Analysis REDUCED COST Must increase profit per BLACK shoe by more then $1. NOT negative. you take the ABSOLUTE value of this.666666667 5 1..666666667 1E+30 $C$3 Brown Shoes 15 0 8 1E+30 2 Basic variable (in opt sol) Since BROWN shoes are already part of the solution. Value is != 0 only if the value of coefficient is 0 (not used) aka non-basic variable DUAL COST: is amount that coefficient needs to ‘improve’ to be part of optimal solution so will ALWAYS be positive. NOTE – in a maximization problem. – Find slope of obj func. and compare the fractions with the middle coefficient in question as the variable to see how much it can go up/down • Reduced Cost: the amount the variables obj function coefficient need to be reduced/increased in order for it to become part of the solution.05/02/2013 LP: Sensitivity Analysis • Objective Function Changes: • Range of Optimality (allowable inc/dec): the amount the objective coefficients can change without changing the optimal solution. Adjustable Cells Non-basic variable (not in opt sol) Final Reduced Objective Allowable Allowable Cell Name Value Cost Coefficient Increase Decrease $B$3 Black Shoes 0 -1.

666666667 5 1.666666667 5 1.666666667 1E+30 15 0 8 1E+30 2 Brown shoes (y) 2 5 20 15 10 5 0 A Cloth Constraint: 10x + 4y = 100 If increase coefficient of brown shoes by $7 to $15 STILL POINT A! Labour Constraint 10x + 12y = 180 20 B Slope = .8 / 5 5 C 15 17 10 Black shoes (x) Labour Constraint 10x + 12y = 180 20 LP: Sensitivity Analysis RANGE OF OPTIMALITY (Allowable Inc/Dec) Adjustable Cells Cell Name $B$3 Black Shoes $C$3 Brown Shoes Final Reduced Objective Allowable Allowable Value Cost Coefficient Increase Decrease 0 -1.05/02/2013 LP: Sensitivity Analysis RANGE OF OPTIMALITY (Allowable Inc/Dec) Adjustable Cells Cell Name $B$3 Black Shoes $C$3 Brown Shoes Final Reduced Objective Allowable Allowable Value Cost Coefficient Increase Decrease 0 -1.15/ 5 (-3) 5 C 15 17 10 Black shoes (x) 16 .666666667 1E+30 15 0 8 1E+30 2 Brown shoes (y) 2 5 20 15 10 5 0 A Cloth Constraint: 10x + 4y = 100 B Slope = .

): • Labour Constraint: 10x + 12y = 180 • Slope = -10/12 So we have: • Lower constraint slope < function slope < higher constraint slope • -10/12 < -5/8 < (NA – only 1 binding.5/ 15 5 C 15 17 10 Black shoes (x) LP: Sensitivity Analysis SENSITIVITY RANGE Adjustable Cells Cell Name $B$3 Black Shoes $C$3 Brown Shoes Final Reduced Objective Allowable Allowable Value Cost Coefficient Increase Decrease 0 -1.666666667 5 1. how much can they go up / down? Recall: the slope of a line in standard form: a1x1 + a2x2 = b is: . (no upper binding constraint) 17 . So.666666667 1E+30 15 0 8 1E+30 2 Brown shoes (y) 2 5 20 15 10 5 0 A Cloth Constraint: 10x + 4y = 100 If decrease coefficient of brown shoes by $3 to $5 WILL NEED TO RESOLVE! Labour Constraint 10x + 12y = 180 20 B Slope = . Our Example: z = 5x + 8y Slope = -5/8. How much can the Brown shoes go up/down? (replace the 8 with y) • -10/12 < -5 / y (multiply both by -12y) • 10y < 60 y < 6 y = 8 in the solution.05/02/2013 LP: Sensitivity Analysis RANGE OF OPTIMALITY (Allowable Inc/Dec) Adjustable Cells Cell Name $B$3 Black Shoes $C$3 Brown Shoes Final Reduced Objective Allowable Allowable Value Cost Coefficient Increase Decrease 0 -1..666666667 1E+30 15 0 8 1E+30 2 ALBRAICALLY: FOR THE OBJ COFFICIENTS.666666667 5 1. How far can it go up? What is the slope of binding constraints (only 1 here..) Q.a1/a2... so it can go down 2 (to 6) and it can go up as much as it wants.

• Look to the graph to see where the extreme points are that still use the binding constraints. – Will be negative for >= and positive for <= (*cheat sheet) • Range of Feasibility (allowable inc/dec for RHS coeff): The values of the RHS of the constraint such that the original lines that determine the orig opt sol continue to determine it. (if non-binding – shadow price is 0). add 1 to rhs and solve for the 2 constraints. 18 . figure out that x/y. – Adding 1 to RHS of a constraint will increase/decrease the value of obj function by the shadow price.05/02/2013 LP: Sensitivity Analysis RANGE OF OPTIMALITY (Allowable Inc/Dec) • Change within the allowable limit – Nonbasic • Current optimal solution remains optimal • OFV remains the same – Basic • Current optimal solution remains optimal • New OFV determined by plug in the optimal solution in the new objective function • Change outside the allowable limit – Must re-solve. sub into constraint to see the range. – To find manually. LP: Sensitivity Analysis – RHS CONSTRAINT CHANGES: • Shadow Price: the amount the objective function will change per unit increase in the right hand side value of a constraint.

B warehouse Need to look at < > to know the sign of shadow price! (cheat sheet!) cloth 5 Labour Constraint 10x + 12y = 180 C 15 17 20 10 Black shoes (x) LP: Sensitivity Analysis Adjustable Cells SENSITIVITY RANGE Cell Name $B$3 Black Shoes $C$3 Brown Shoes Final Reduced Objective Allowable Allowable Value Cost Coefficient Increase Decrease 0 -1.666666667 1E+30 15 0 8 1E+30 2 25 Brown shoes (y) 20 15 10 5 0 A For each hour of labour more.H. cloth 5 Labour Constraint 10x + 12y = 180 C 15 17 20 10 Black shoes (x) 19 . and will need to RESOLVE.666666667 180 0 100 0 20 Allowable Allowable Increase Decrease 60 180 1E+30 40 1E+30 5 25 Brown shoes (y) 20 15 10 5 0 A B warehouse Labour can go up 60 hours.666666667 180 0 100 0 20 Allowable Allowable Increase Decrease 60 180 1E+30 40 1E+30 5 Final Reduced Objective Allowable Allowable Value Cost Coefficient Increase Decrease 0 -1. profit will increase by $0. if it goes up to 61.666666667 5 1.666666667 1E+30 15 0 8 1E+30 2 Constraints Cell Name $D$7 Labour Constraint $D$8 Cloth Constraint $D$9 Warehouse Constraint Final Value 180 60 15 Shadow Constraint Price R.05/02/2013 LP: Sensitivity Analysis SHADOW PRICE Adjustable Cells Cell Name $B$3 Black Shoes $C$3 Brown Shoes Constraints Cell Name $D$7 Labour Constraint $D$8 Cloth Constraint $D$9 Warehouse Constraint Final Value 180 60 15 Shadow Constraint Price R.67.H. then different lines will be binding. Side 0. Side 0.666666667 5 1.

05/02/2013 LP: Sensitivity Analysis SENSITIVITY RANGE Adjustable Cells Cell Name $B$3 Black Shoes $C$3 Brown Shoes Final Reduced Objective Allowable Allowable Value Cost Coefficient Increase Decrease 0 -1. then opt sol and OFV are unchanged.Allowable decrease = RHS – final value Non-binding constraint of ≥ type .H.You will not have to solve for allowable inc/dec for a BINDING constraint (correct me if wrong for this year.RHS .666666667 5 1.Allowable decrease = infinity THESE ARE ON CHEAT SHEET! ☺ LP: Sensitivity Analysis Adding/Deleting Constraint: • If constraint will be binding. then must resolve.Allowable Increase = final value . • If non-binding.666666667 1E+30 15 0 8 1E+30 2 Constraints Cell Name $D$7 Labour Constraint $D$8 Cloth Constraint $D$9 Warehouse Constraint Final Value 180 60 15 Shadow Constraint Price R.666666667 180 0 100 0 20 Allowable Allowable Increase Decrease 60 180 1E+30 40 1E+30 5 Solve for Allowable Inc/Dec: .) -You WILL HAVE to solve for the allowable inc/dec for a NON-BINDING constraint: Non-binding constraint of ≤ type .. Add variable: • must resolve Change LHS coefficient of constraint: • must resolve 20 .Allowable Increase = infinity . Side 0.

As long as each change is within allowable limits.25) + 3*5 = $20. and the cloth by 60%. (KEY MC/Fill in blanks) • So if you changed the labour constraint by 50% (of the allowable decrease). So the only change that matters is the . then the shadow price / obj function doesn’t change. (for example). add up the % inc or dec (relating to allowable inc/dec) and if they sum to over 100% -RESOLVE! • same thing if multiple changes in the obj function variables. You can! SO final value would stay as 4 and 3 units of each ($7). 100% rule example OB Function: The cost for a tv and print ad is both $1. If they asked you to increase the price of Television by . If not.5.5 which is 50% . NOTE: For Non-binding constraint and non-basic variables • Do not need to check 100% rule .05/02/2013 LP: Sensitivity Analysis Multiple Changes.. 100% rule! (in Obj Funct or constraint RHS) • if you make multiple changes in the RHS constraints. both optimal solution and OFV are unchanged..25 of . that would be 110% = re-solve. 21 .25 cents and the Print Media by 5. What would be the final quantity and price? Can you solve? Allowable increase for TV is . allocation increase for Print Media is infinity. The value would be (4*1.

sha price = 0).10 and Powder by .10? .10/.12 is 83% .Would have to resolve as . it’d be over 100%. BUT… Powder isn’t a binding constraint (final value not equal constraint. and it’s < 100%..000 available for a production run. • 500 dozen blank T-shirts and sweatshirts in stock. • sweatshirt box (holds 12) is three times size of standard box. Add them up and it’s over 100%.2 ? .. What if increase Liquid by . • Standard size box holds 12 T-shirts.If you add up the % change.33 = $10.06 = 66% and . • Must complete production within 72 hours • Truck capacity = 1. So you can! ..05/02/2013 100% rule example RHS: What if they asked you to increase the constraint of the Stain remover by . • $25.10*33.04 and Liquid detergent by . So only consider the liquid.04/.200 standard sized boxes.To compute the OFV = old OFV ($7) + .33 LP Prob: Product Mix • Four-product T-shirt/sweatshirt manufacturing company. • How many dozens (boxes) of each type of shirt to produce? 22 .

05/02/2013 The data Model Construction 23 .

05/02/2013 Excel Results • Proft is 45.22 selling 175 Excel Results • Profit says 45. in which you’d have another constraint.522. • X1.22 • but that’s assuming decimal boxes/shirts. Can’t have! • Would think this question would state that only full boxes are required.x3. 24 .x2.x3 are integers.522.

05/02/2013 LP Prob: Advertising • • • • • • Budget limit $100.000 Television time for 4 commercials Radio time for 10 commercials Newspaper space for 7 ads Resources for no more than 15 commercials and/or ads Maximize exposure! Advertising Ex: Model 25 .

p (premium). • xij = barrels of component i used in motor oil grade j per day.000 barrels of each grade of motor oil. LP Prob: Blend! • Decision variables: The quantity of each of the three components used in each grade of gasoline (9 decision variables). 2. Company wants to produce at least 3.05/02/2013 LP Prob: Blend Example Determine the optimal mix of the three components in each grade of motor oil that will maximize profit. and e (extra). 26 . 3 and j = s (super). where i = 1.

The first item: 3. 2. both negative. Put to together! 27 .05/02/2013 Blend Model • KEY is the Opt Function: ‘$11’ is the profit of using a barrel of component 1 in (s)uper. The value is 1 -’x’ (so less than 25% would be 1-. The sign – – – ‘at least’ means >= 0 ‘no more than’ mean <= 0 The first item is your constraint item. The others: – 4.75) The others will be the remainder of 100%. $23 (price) – $12 (cost) = $11 (PROFIT) Blend Model Constraints • Time to explain 3 STEPS: 1.25 = .

05/02/2013 Blend Model Constraints • 1st one: – At least 50% of 1 1.50x1 3. The first item: 1-. The sign: <= 0 The first item: 1-.25x1 .75x3 .75x3 The last ones: -. The last ones: .50x2 ..50x3 >= 0 4th one: ... 4. The sign: >= 0 2.50x3 4.25 = .50 = .25x1 .25x2 <= 0 Multi-Period Example 28 .. 2...Not more than 25% of 3: 1. Total: .. 3.50x2 .50x1 .25x2 Total:.

05/02/2013 29 .

set of arcs and function associated with the arcs and/or nodes.locations 1 d1 c11 s1 1 c12 c13 c21 c 22 2 d2 s2 s 2 2 c23 3 d3 SOURCES DESTINATIONS Can also have TRANSSHIPMENT points between (middle-men) 30 .05/02/2013 LP: Applications • Network Model: one which can be represented by a set of nodes. assignment. Used in transportation. and transshipment problems. Network Model si = Place that makes the good (supply) di = demand to locations/stores/cities csd = cost to ship goods from manufacture .

n Demand for all i and j Network Model • Special Cases .modifications to LP formulation: – Minimum shipping guarantees from i to j: xij ≥ Lij (L = Limit) – Maximum route capacity from i to j: xij ≤ Lij (L = Limit) – Unacceptable routes: delete the variable or set equal to zero 31 .K. 2.K. xij Min∑∑ c ij x ij i=1 j=1 m n Objective Function – to MINIMIZE Costs!! Xij is the amount shipped from source i to destination j st ∑x ∑x i=1 j=1 m n ij ≤ si = dj i = 1. 2. m Supply Can’t ship more then you can produce ij x ij ≥ 0 Must satisfy demand! j = 1.05/02/2013 Network Model • Formulated in terms of amounts shipped from origins to destinations.

Eastwood – 45 tons and. excess supply will simply be slack. the solution will not be feasible – Solution: add a dummy origin • Assign zero cost for each destination route General Formula For network model: beginning inventory .05/02/2013 Supply ≠ Demand • If supply exceeds demand.demand + production = ending inventory Example: BBC • Building Brick Company (BBC) has orders for 80 tons of bricks at three suburban locations as follows: Northwood – 25 tons. • BBC has two plants. unused capacity • If demand exceeds supply. each of which can produce 50 tons per week • How should end of week shipments be made to fill above orders given following delivery cost/ton: Plant 1 Plant 2 Northwood Eastwood Westwood 24 30 40 30 40 42 32 . Westwood – 10 tons.

05/02/2013 BBC Example • Network Representation 1 d1 – Northwood S1 – Plant 1 1 2 d2 – Eastwood s2 S2 – Plant 2 2 nodes arcs 3 nodes DESTINATIONS d3 – Westwood SOURCES (PLANTS) LP Formulation: Transportation Decision Variables xij = amount shipped from Plant i to customer j where i = 1 (Plant 1). 2 (Eastwood). 3 (Westwood) Objective Function Minimize Overall Shipping Costs: Min 24x11 + 30x12 + 40x13 + 30x21 + 40x22 + 42x23 33 . 2 (Plant 2) j = 1 (Northwood).

05/02/2013 LP Formulation: Transportation Constraints Plant #1 Plant #2 Northwood: Eastwood: Westwood: x11 + x12 + x13 ≤ 50 x21 + x22 + x23 ≤ 50 x11 + x21 = 25 x12 + x22 = 45 x13 + x23 = 10 Supply Constraints Demand Constraints EACH NODE WILL HAVE A CONSTRAINT (even transshipment nodes!) Non-negativities: xij ≥ 0. for all i and j. Excel Formulation x11 DecVar ObFnCoef Plant 1 Plant 2 Northwood Eastwood Westwood 0 24 1 1 1 1 x12 0 30 1 x13 0 40 1 1 1 1 1 1 1 x21 0 30 x22 0 40 x23 0 42 0 0 0 0 0 0 ≤ ≤ = = = Constraint Amount 50 50 25 45 10 34 .

Maximize Profits? – Add a dummy origin 0 – Cost c0j=0 (no cost from origin 0 to destination j) – Supply = ∑ − ∑ – Demand exceeds supply and certain customers are more valuable – rj revenue per unit received at destination j • Alternative objective function – Max Σ Σ rjxij (revs) . Supply exceeds demand? 2.05/02/2013 Excel Solution x 11 DecVar ObFnCoef Plant 1 Plant 2 Northwood Eastwood Westwood 5 24 1 1 1 1 x 12 45 30 1 x 13 0 40 1 1 1 1 1 1 1 x 21 20 30 x 22 0 40 x 23 10 42 2490 50 30 25 45 10 ≤ ≤ = = = Constraint Constraint Amount Slack 50 50 25 45 10 0 20 • Plant 1 is fully utilized.Σ Σ cijxij (costs) 35 .490 Special Cases for Network models! 1. shipping 45 tons to Eastwood and 5 tons to Northwood. Demand exceeds supply? Σdi > Σsi – Change this constraint: Σxij ≤ si (not equal to) 3. Plant 2 supplies the remaining 20 tons required by Northwood and the 10 tons for Westwood and has 20 tons of spare capacity • Total delivery cost is $2.

05/02/2013 Special Cases for Network models! Side constraints / Business constraints: 4. • Maximum route capacity from i to j: xij < Lij (L = Limit) 6.) 36 . No one should be awarded less than 10% of the business between.. • Unacceptable route (i. – Is it number of cartons to sell vs number of ounces to use (macro vs micro) – Is it number of people working on a particular shift or is it number of people work on a particular time shift? (understanding problem) • Make sure all variables in the question are addressed for constraints (but may have redundant info. • Minimum shipping guarantees from i to j: xij > Mij (M = Minimum) 5. At most 20% of the supply should be shipped over the US border.j) – Huge cost to cij – Delete decision variable xij General Rules: Application Prob’s • Obj Function in proper format (profit vs revenue vs cost) • Realize what IT is you are trying to figure out. There should be no shipments over the US border.

05/02/2013 Exam Q: LP Sensitivity 37 .

Reduced cost is the amount that the coefficient needs to rise in this case.62 dollars before being part of the optimal solution reduced cost = . Since Minicakes has a final value. and it’s telling us that it is allowed to increase by 12.62.05/02/2013 1 = 0. then reduced cost is 0 (since the coeff does not need to go up for minicakes to be part of the optimal solution – it already is) 2 = -12. This is the allowable increase.allowable increase (for max) or decrease (for min) 38 .

Since it is already too cheap to be in the optimal solution. 4 = 83. so find out what is left after subtracting minicakes/muffin profit and divide by the coeff of $62 for FruitCruchers 39 .73 minicakes and 49.49. it’s allowable decrease is infinity because it can be reduced to 0 and still won’t affect the optimal solution. and you know the final value is 9304. You know that 25.42.05/02/2013 3 = infinity.07 muffins are in the solution.

40 . so that is the final value. This is 600 since the mix/fill process has a shadow price. 6 = 0.05/02/2013 5 = 600. it would have NO effect on the optimal solution. then we would know that the final value would be < 600. If the shadow price was 0. The final value is less then the constraint Right hand side value. so there is no shadow price since if you increase the RHS by 1. so this does not use all of the baking process time. aka the constraint is fully utilized and the RHS of the constraint is 600.

This is the amount that you would have to reduce the RHS of the constraint to make this constraint affect the solution and is the difference between the final value (340.89 41 .89. and still not affect the optimal solution 8 = 159. Since the baking constraint is not binding and is redundant.05/02/2013 7 = infinity. you can increase the 500 value to as much as you want.11) and the RHS (500) = 159.

your (x1+x2) / (x1+x2+x3+x4) <= . by multiplying the x1+x2+x3+x4 by .4*x2 . the RHS has to be 0. This is 0 since when you linearize the ratio constraint.. 10. 42 .6*x4 <= 0.60 needs to be linearized. 0.6*x3 -.13.05/02/2013 9 = -20. Plugging in numbers for the final values for x1 -> x4 will get you -20.4*x1 + .60 and bringing over to the other side – so you get . To determine the value.13.

05/02/2013 43 .

• Make sure you know how to play the number game on the excel printout (key!) • Good luck on the exam! Want to experience two weeks in Latin America volunteering to see the impact your donations have? Go on an Outreach trip! Laurier SOS has 2 trips this summer in May and August.05/02/2013 Finished: Next steps! • Make sure you go through examples of all the types and see how the constraints are created.com or info@lauriersos.com 44 . LaurierSOS.

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