Quantitative Analysis 9/06/2014

What are the main steps of Quantitative Analysis?

1. Problem Definition: Define the problem (which is given to you in a specific area)
2. Model Development: Build a model
3. Data Preparation: Put data in this model (profit = revenue – cost), and that model
is mathematical model.
4. Model Solution: Solve this model
5. Report Generation: Report to GM to make a decision in the problem solving.

This will end up with what we call Quantitative Analysis.

- Every week we will have a mathematical model, which has the following:
 left hand side
 Right hand side: Something I do not know and will investigate in order to
improve the left hand side.

Linear Programming

Linear Programming is a quantitative problem solving approach,

that has been developed
to help managers make rational managerial decision

- It is one of the important model that is used in the world, it is used in any type
of solving methodology specially in operations and production.
- We do not need to change the data of the unit to another unit or to change the
data into a certain value. But it has some characteristics, it has to be linear
which means we have no square, no curves in the problem.
- In this lecture, Linear programming will be the graphical presentation because
it is only 2 products in the company.
- Ex: if a manager wants to get the best blend between two products in his
company, what is the best blend that he can have in order to get the maximum
profit or to minimize the total cost? These are the two directions of the
objective function.

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Objective

Increase a certain value Reduce certain value

Maximize
Reduce cost
Maximize Return Advertising Minimize Cost
on inventory
Campaign

- All these type of things can be a model; we put it on the left hand side, then
put the parameter on the right hand side and try to investigate into the right
hand side what is the best combination of this right hand side in order to get
the best profit out of it or the cost.
- Linear programming is a chosen course of action for making rational decision.
- Linear programming has some characteristic that I want to reach a certain
objective, but this objective has to be done within constraints, which should be
linear.
- Linear objective function that is to be maximized or minimized, a set of linear
constraints and another third one which is very important, it is called variable
that is all restricted to non negative value, the product can be 0 units, but it
cannot be negative, it has to be in the positive section.
product ≥ 0

- In linear programming, we do not need to force the problem into hours or units
or dollars, we can take from each department its own measurement.

1) Maximization Problem

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Problem identification:
- A toy company produces two types of toy models (model 1) and (model 2).
The company has 900 hours of production time available in its producing
department, 300 hours in its finishing department and 100 hours in its packing
and shipping department.
- The production time of model 1 is 1 hour while that for model 2 is 3/2 hours.
- The finishing time required for model 1 is 1/2 hours and for model 2 is 1/3
hours.
- Finally, the packing and shipping department requires 1/8 hours for model 1
and 1/4 hours for model 2.
- The company estimated the profit of contribution of models 1 and 2 to be $5
and $8 per toy respectively.
- Formulate problem as linear program and solve it for an optimal solution.

What is the objective function of this problem?

- Maximize the profit.
- Objective Function: Max P=5 x+8 y

What type of programs is this problem?

- It is linear programming maximization.

1) Table Format
Production Finishing Packing Profit
Model 1 (X) 1 ½ 1/8 5
Model 2 (Y) 3/2 1/3 ¼ 8
Capacity 900 hrs 300 hrs 100 hrs
- We do not need to force the units into hours, we will leave it as it is because
they are after X and Y, and they are all linear which means we can put them in
a certain diagram.
- From this diagram, we can get the best X and Y, which can satisfy all three
constraints (Production, Finishing and Packing).
- This is the idea of the linear programming which is to satisfy the constraints
and at the same time get the best rational/optimal X and Y.

2) Free Format
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Quantitative Analysis 9/06/2014

Max P=5 x+8 y

-
- Subject to the following constraints:
 C 1 : X +3 ⁄ 2 Y ≤ 900hrs

If X = 0, 0+(3/2Y) = 900, Y = 900*2/3 = 600

If Y = 0, 1X + 0 = 900, X = 900

 C 2 :1 ⁄ 2 X +1 ⁄ 3 Y ≤ 300 hrs

If X = 0, 0+(1/8Y) = 300, Y = 300*3/1 = 900

If Y=0, (1/2X) + 0 = 300, X= 300*2/1 = 600

1 1
C 3 : X + Y ≤ 100hrs
 8 4

If X = 0, 0+(1/4Y) = 100, Y = 100*4/1 = 400

If Y=0, (1/8X) + 0 = 100, X= 100*8/1 = 800

 C4 :X ,Y ≥0

Notes:
≤
- We use the sign , because in the problem he mentioned the word
“available”.
- If the word was “at least” or “minimum”, we will use the sign ≥.

3) Standard Format
- Max P = 5X + 8Y + 0 S1 + 0 S2 + 0 S3
S = Slack, we have to imagine that there will be a slack and we reflect that into
the constraint, but at the same time the slack does not affect the objective
function. Because the constraints are either amount or hours or units, which
means it does not have any implication on X and Y.
- Subject to the following constraints:
 C1: X + 3/2Y + S1 = 900 hrs
500 + 3/2(150) + S1 = 900 then S1 = 175 hrs
 C2: 1/2X + 1/3Y + S2 = 300 hrs
½ (500) + 1/3(150) + S2 = 300 then S2 = 0
 C3: 1/8X + 1/4Y + S3 = 100 hrs
1/8(500) + 1/4(150) + S2 = 100 then S3 = 0
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 C4: X , Y, S1, S2, S3, ≥ 0

Optimal Solution:
- 5(500) + 8(150) = 3700$
- Will every point give me the 3700?
It depends on the slope of the objective function, which is the relation between
the X and Y contribution.

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Homework:
1) P = 15X + 8Y
2) P = 5X + 18Y

2) Minimization Problem

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Problem identification:
- A company produces two types of products (product 1) and (product 2). The
company management estimated that combined production of both products
must total to at least 4 units per hour.
- They also estimated that the processing units of product 1 takes about 1 hour
while that of product 2 takes about 3 hours.
- The minimum number of hours to be worked in a shift is 6 hours.
- The company estimated the cost of production of both products to be $3 and
$4 per unit respectively.
- Formulate problem as linear program and solve it for an optimal solution.

What is the objective function of this problem?

- The problem is minimizing cost
- Objective Function: MinC=3 x +4 y

What type of programs is this problem?

- It is linear programming minimization.

1) Table Format
Production Processing Cost
X 1 1 3
Y 1 3 4
Capacity 4 units 6 hrs

2) Free Format
MinC=3 x +4 y
-
- Subject to the following constraints:
 C 1 : X +Y ≥ 4

If X = 0, 0+Y = 4, Y=4
If Y = 0, X + 0 = 4, X=4

 C 2 : X +3 Y ≥6

If X = 0, 0+(3Y) = 6, Y = 6*1/3 = 2
If Y=0, X + 0 = 6, X= 6

 C3: X ,Y ≥0

3) Standard Format
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- Min C = 3X + 4Y + 0 S1 + 0 S2
- Subject to the following constraints:
 C1: X+ Y - S1 = 4
then S1 = 0
 C2: X + 3Y - S2 = 6
then S2 = 0
 C3: X , Y, ≥ 0

Optimal Solution:
- 3(3) + 4(1) = 13$

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Homework:
3) P = 13X + 4Y
4) P = 3X + 14Y

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