Chapter 3:

Linear Programming
Modeling Applications

© 2007 Pearson Education

 Linear Programming (LP) Can Be
Used for Many Managerial Decisions:
• Product mix
• Make-buy
• Media selection
• Marketing research
• Portfolio selection
• Shipping & transportation
• Multiperiod scheduling
For a particular application we begin with
the problem scenario and data, then:

1) Define the decision variables

2) Formulate the LP model using the
decision variables
• Write the objective function equation
• Write each of the constraint equations
3) Implement the model in Excel
4) Solve with Excel’s Solver
 Product Mix Problem:
Fifth Avenue Industries
• Produce 4 types of men's ties
• Use 3 materials (limited resources)

Decision: How many of each type of tie to

make per month?

Objective: Maximize profit

 Resource Data

Yards available
Material Cost per yard per month
Silk $20 1,000
Polyester $6 2,000
Cotton $9 1,250

Labor cost is $0.75 per tie

 Product Data
Type of Tie
Silk Polyester Blend 1 Blend 2
Selling Price
$6.70 $3.55 $4.31 $4.81
(per tie)
Monthly
6,000 10,000 13,000 6,000
Minimum
Monthly
7,000 14,000 16,000 8,500
Maximum
Total material
(yards per tie) 0.125 0.08 0.10 0.10
 Material Requirements
(yards per tie)
Type of Tie
Blend 1 Blend 2
Silk Polyester
Material (50/50) (30/70)

Silk 0.125 0 0 0

Polyester 0 0.08 0.05 0.03

Cotton 0 0 0.05 0.07

Total yards 0.125 0.08 0.10 0.10

 Decision Variables
S = number of silk ties to make per month
P = number of polyester ties to make per
month
B1 = number of poly-cotton blend 1 ties to
make per month
B2 = number of poly-cotton blend 2 ties to
make per month
 Profit Per Tie Calculation
Profit per tie =
(Selling price) – (material cost) –(labor cost)

Silk Tie
Profit = $6.70 – (0.125 yds)($20/yd) - $0.75
= $3.45 per tie
Objective Function (in $ of profit)

Max 3.45S + 2.32P + 2.81B1 + 3.25B2

Subject to the constraints:

Material Limitations (in yards)

0.125S < 1,000 (silk)
0.08P + 0.05B1 + 0.03B2 < 2,000 (poly)
0.05B1 + 0.07B2 < 1,250 (cotton)
 Min and Max Number of Ties to Make
6,000 < S < 7,000
10,000 < P < 14,000
13,000 < B1 < 16,000
6,000 < B2 < 8,500

Finally nonnegativity S, P, B1, B2 > 0

Go to file 3-1.xls
 Media Selection Problem:
Win Big Gambling Club
• Promote gambling trips to the Bahamas
• Budget: $8,000 per week for advertising
• Use 4 types of advertising

Decision: How many ads of each type?

Objective: Maximize audience reached

 Data
Advertising Options
Radio Radio
TV Sport Newspaper (prime time) (afternoon)
Audience
Reached 5,000 8,500 2,400 2,800
(per ad)
Cost
$800 $925 $290 $380
(per ad)
Max Ads
12 5 25 20
Per week
 Other Restrictions
• Have at least 5 radio spots per week
• Spend no more than $1800 on radio

Decision Variables
T = number of TV spots per week
N = number of newspaper ads per week
P = number of prime time radio spots per week
A = number of afternoon radio spots per week
Objective Function (in num. audience reached)
Max 5000T + 8500N + 2400P + 2800A
Subject to the constraints:

Budget is $8000
800T + 925N + 290P + 380A < 8000
At Least 5 Radio Spots per Week
P+A>5
 No More Than $1800 per Week for Radio
290P + 380A < 1800

Max Number of Ads per Week

T < 12 P < 25
N< 5 A < 20

Finally nonnegativity T, N, P, A > 0

Go to file 3-3.xls
 Portfolio Selection:
International City Trust
Has $5 million to invest among 6 investments

Decision: How much to invest in each of 6

investment options?

Objective: Maximize interest earned

 Data
Interest
Investment Rate Risk Score
Trade credits 7% 1.7
Corp. bonds 10% 1.2
Gold stocks 19% 3.7
Platinum stocks 12% 2.4
Mortgage securities 8% 2.0
Construction loans 14% 2.9
 Constraints
• Invest up to $ 5 million
• No more than 25% into any one investment
• At least 30% into precious metals
• At least 45% into trade credits and
corporate bonds
• Limit overall risk to no more than 2.0
 Decision Variables
T = $ invested in trade credit
B = $ invested in corporate bonds
G = $ invested gold stocks
P = $ invested in platinum stocks
M = $ invested in mortgage securities
C = $ invested in construction loans
Objective Function (in $ of interest earned)
Max 0.07T + 0.10B + 0.19G + 0.12P
+ 0.08M + 0.14C
Subject to the constraints:

Invest Up To $5 Million
T + B + G + P + M + C < 5,000,000
No More Than 25% Into Any One Investment
T < 0.25 (T + B + G + P + M + C)
B < 0.25 (T + B + G + P + M + C)
G < 0.25 (T + B + G + P + M + C)
P < 0.25 (T + B + G + P + M + C)
M < 0.25 (T + B + G + P + M + C)
C < 0.25 (T + B + G + P + M + C)
 At Least 30% Into Precious Metals
G + P > 0.30 (T + B + G + P + M + C)

At Least 45% Into

Trade Credits And Corporate Bonds
T + B > 0.45 (T + B + G + P + M + C)
Limit Overall Risk To No More Than 2.0
Use a weighted average to calculate portfolio risk

1.7T + 1.2B + 3.7G + 2.4P + 2.0M + 2.9C < 2.0

T+B+G+P+M+C
OR
1.7T + 1.2B + 3.7G + 2.4P + 2.0M + 2.9C <
2.0 (T + B + G + P + M + C)

finally nonnegativity: T, B, G, P, M, C > 0

Go to file 3-5.xls
 Labor Planning:
Hong Kong Bank
Number of tellers needed varies by time of day

Decision: How many tellers should begin

work at various times of the day?

Objective: Minimize personnel cost

 Time Period Min Num. Tellers
9 – 10 10
10 – 11 12
11 – 12 14
12 – 1 16
1–2 18
2-3 17
3–4 15
4–5 10

Total minimum daily requirement is 112 hours

Full Time Tellers
• Work from 9 AM – 5 PM
• Take a 1 hour lunch break, half at 11, the
other half at noon
• Cost $90 per day (salary & benefits)
• Currently only 12 are available
Part Time Tellers
• Work 4 consecutive hours (no lunch break)
• Can begin work at 9, 10, 11, noon, or 1
• Are paid $7 per hour ($28 per day)
• Part time teller hours cannot exceed 50%
of the day’s minimum requirement
(50% of 112 hours = 56 hours)
 Decision Variables

F = num. of full time tellers (all work 9–5)

P1 = num. of part time tellers who work 9–1
P2 = num. of part time tellers who work 10–2
P3 = num. of part time tellers who work 11–3
P4 = num. of part time tellers who work 12–4
P5 = num. of part time tellers who work 1–5
Objective Function (in $ of personnel cost)
Min 90 F + 28 (P1 + P2 + P3 + P4 + P5)
Subject to the constraints:

Part Time Hours Cannot Exceed 56 Hours

4 (P1 + P2 + P3 + P4 + P5) < 56

Minimum Num. Tellers Needed By Hour
Time of Day
F + P1 > 10 (9-10)
F + P1 + P2 > 12 (10-11)
0.5 F + P1 + P2 + P3 > 14 (11-12)
0.5 F + P1 + P2 + P3+ P4 > 16 (12-1)
F + P 2 + P 3 + P4 + P 5 > 18 (1-2)
F + P 3 + P4 + P 5 > 17 (2-3)
F + P 4 + P5 > 15 (3-4)
F + P5 > 10 (4-5)
 Only 12 Full Time Tellers Available

F < 12

finally nonnegativity: F, P1, P2, P3, P4, P5 >

0

Go to file 3-6.xls
 Vehicle Loading:
Goodman Shipping
How to load a truck subject to weight and
volume limitations

Decision: How much of each of 6 items to

load onto a truck?

Objective: Maximize the value shipped

 Data

Item
1 2 3 4 5 6
Value $15,500 $14,400 $10,350 $14,525 $13,000 $9,625
Pounds 5000 4500 3000 3500 4000 3500
$ / lb $3.10 $3.20 $3.45 $4.15 $3.25 $2.75
Cu. ft.
0.125 0.064 0.144 0.448 0.048 0.018
per lb
 Decision Variables
Wi = number of pounds of item i to load onto
truck , (where i = 1,…,6)

Truck Capacity
• 15,000 pounds
• 1,300 cubic feet
Objective Function (in $ of load value)

Max 3.10W1 + 3.20W2 + 3.45W3 + 4.15W4 +

3.25W5 + 2.75W6

Subject to the constraints:

Weight Limit Of 15,000 Pounds

W1 + W2 + W3 + W4 + W5 + W6 < 15,000
 Volume Limit Of 1300 Cubic Feet
0.125W1 + 0.064W2 + 0.144W3 +
0.448W4 + 0.048W5 + 0.018W6 < 1300

Pounds of Each Item Available

W1 < 5000 W4 < 3500
W2 < 4500 W5 < 4000
W3 < 3000 W6 < 3500

Finally nonnegativity: Wi > 0, i=1,…,6

Go to file 3-7.xls
 Blending Problem:
Whole Food Nutrition Center
Making a natural cereal that satisfies
minimum daily nutritional requirements

Decision: How much of each of 3 grains to

include in the cereal?

Objective: Minimize cost of a 2 ounce

serving of cereal
 Grain
A B C Minimum
Daily
$ per pound $0.33 $0.47 $0.38
Requirement
Protein per
22 28 21 3
pound
Riboflavin per
16 14 25 2
pound
Phosphorus
8 7 9 1
per pound
Magnesium
5 0 6 0.425
per pound
 Decision Variables
A = pounds of grain A to use
B = pounds of grain B to use
C = pounds of grain C to use

Note: grains will be blended to form a 2

ounce serving of cereal
Objective Function (in $ of cost)
Min 0.33A + 0.47B + 0.38C

Subject to the constraints:

Total Blend is 2 Ounces, or 0.125 Pounds

A + B + C = 0.125 (lbs)
 Minimum Nutritional Requirements
22A + 28B + 21C > 3 (protein)
16A + 14B + 25C > 2 (riboflavin)
8A + 7B + 9C > 1 (phosphorus)
5A + 6C > 0.425 (magnesium)

Finally nonnegativity: A, B, C > 0

Go to file 3-9.xls
 Multiperiod Scheduling:
Greenberg Motors
Need to schedule production of 2 electrical
motors for each of the next 4 months

Decision: How many of each type of motor

to make each month?

Objective: Minimize total production and

inventory cost
 Decision Variables
PAt = number of motor A to produce in
month t (t=1,…,4)
PBt = number of motor B to produce in
month t (t=1,…,4)

IAt = inventory of motor A at end of

month t (t=1,…,4)
IBt = inventory of motor B at end of
month t (t=1,…,4)
 Sales Demand Data

Motor
Month A B
1 (January) 800 1000
2 (February) 700 1200
3 (March) 1000 1400
4 (April) 1100 1400
 Production Data
Motor
(values are per motor)
A B
Production cost $10 $6
Labor hours 1.3 0.9

• Production costs will be 10% higher in months

3 and 4
• Monthly labor hours most be between
2240 and 2560
 Inventory Data
Motor
A B
Inventory cost
$0.18 $0.13
(per motor per month)
Beginning inventory
0 0
(beginning of month 1)
Ending Inventory
450 300
(end of month 4)

Max inventory is 3300 motors

Production and Inventory Balance
(inventory at end of previous period)
+ (production the period)
- (sales this period)
= (inventory at end of this period)
Objective Function (in $ of cost)

Min 10PA1 + 10PA2 + 11PA3 + 11PA4

+ 6PB1 + 6 PB2 + 6.6PB3 + 6.6PB4
+ 0.18(IA1 + IA2 + IA3 + IA4)
+ 0.13(IB1 + IB2 + IB3 + IB4)
Subject to the constraints:

(see next slide)

 Production & Inventory Balance
0 + PA1 – 800 = IA1 (month 1)
0 + PB1 – 1000 = IB1
IA1 + PA2 – 700 = IA2 (month 2)
IB1 + PB2 – 1200 = IB2
IA2 + PA3 – 1000 = IA3 (month 3)
IB2 + PB3 – 1400 = IB3
IA3 + PA4 – 1100 = IA4 (month 4)
IB3 + PB4 – 1400 = IB4
 Ending Inventory
IA4 = 450
IB4 = 300

Maximum Inventory level

IA1 + IB1 < 3300 (month 1)
IA2 + IB2 < 3300 (month 2)
IA3 + IB3 < 3300 (month 3)
IA4 + IB4 < 3300 (month 4)
 Range of Labor Hours
2240 < 1.3PA1 + 0.9PB1 < 2560 (month
1)
2240 < 1.3PA2 + 0.9PB2 < 2560 (month
2)
2240 < 1.3PA3 + 0.9PB3 < 2560 (month
3)
2240 < 1.3PA4 + 0.9PB4 < 2560 (month
4)

finally nonnegativity: PAi, PBi, IAi, IBi > 0