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Introduction
• Optimization problems:
• Can be used to support and improve managerial decision making

Linear Optimization Models • Maximize or minimize some function, called the objective function, and
have a set of restrictions known as constraints
• Can be linear or nonlinear
Chapter 11

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Introduction Introduction
• Typical applications: • Linear optimization models are also known as linear programs
• A manufacturer wants to develop a production schedule and an inventory policy • Linear programming:
that will satisfy demand in future periods and at the same time minimize the total
production and inventory costs • A problem-solving approach developed to help managers make better
• A financial analyst would like to establish an investment portfolio from a variety of decisions
stock and bond investment alternatives that maximizes the return on investment • Numerous applications in today’s competitive business environment
• A marketing manager wants to determine how best to allocate a fixed advertising • For instance, GE Capital uses linear programming to help determine optimal
budget among alternative advertising media such as web, radio, television, lease structuring
newspaper, and magazine that maximizes advertising effectiveness
• A company had warehouses in a number of locations. Given specific customer
demands, the company would like to determine how much each warehouse
should ship to each customer so that total transportation costs are minimized

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A Simple Maximization Problem

• Illustration:
• Par, Inc. - A small manufacturer of golf equipment and supplies
• Management has decided to move into the market for medium- and
A Simple Maximization Problem high-priced golf bags
Problem Formulation
• Par’s distributor to buy all the produced bags by the end of third
month
Mathematical Model for the Par, Inc. Problem

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A Simple Maximization Problem A Simple Maximization Problem

• Operations involved in manufacturing a golf bag: • Estimated total time available for the next three months to perform
• Cutting and dyeing the material different operations:
• Sewing Department Number of hours
• Finishing (inserting umbrella holder, club separators, etc.) Cutting and Dyeing 630
• Inspection and packaging Sewing 600
• Table 11.1: Production Requirements Per Golf Bag Finishing 708
Inspection and Packaging 135

• Required profit contribution:

• Standard bag: $10/unit
• Deluxe bag: $9/unit

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A Simple Maximization Problem A Simple Maximization Problem

• Develop a mathematical model of the Par, Inc. problem to determine • General guidelines for problem formulation:
the number of standard bags and the number of deluxe bags to • Understand the problem thoroughly
produce to maximize total profit contribution • Describe the objective
• Describe each constraint
• Problem Formulation • Define the decision variables
• Problem formulation or modeling: Process of translating the verbal • Write the objective in terms of the decision variables
statement of a problem into a mathematical statement (or model) • Write the constraints in terms of the decision variables

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A Simple Maximization Problem A Simple Maximization Problem

• Describe each constraint • Define the decision variables
Constraint Constraint • S = number of standard bags
1 Number of hours of cutting and dyeing time used must be • D = number of deluxe bags
less than or equal to the number of hours of cutting and
dyeing time available. • Write the objective in terms of the decision variables
2 Number of hours of sewing time used must be less than or • If Par makes $10 for every standard and $9 for every deluxe bag,
equal to the number of hours of sewing time available.
Total profit contribution = 10S + 9D = Objective function
3 Number of hours of finishing time used must be less than or
equal to the number of hours of finishing time available. • Objective: Max 10S + 9D
4 Number of hours of inspection and packaging time used
must be less than or equal to the number of hours of
inspection and packaging time available.

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A Simple Maximization Problem A Simple Maximization Problem

• Write the constraints in terms of the decision variables • Constraint 3:
Hours of finishing
≤
Hours of finishing
Hours of cutting and Hours of cutting and time used time available
• Constraint 1: ≤ 2
dyeing time used dyeing time available 1S + D ≤ 708
3
7
S + 1D ≤ 630 Hours of inspection and Hours of inspection and
10 • Constraint 4: ≤
Hours of sewing Hours of sewing packaging time used packaging time available
• Constraint 2: ≤ 1 1
time used time available S + D ≤ 135
1 5 10 4
S + D ≤ 600 • Nonnegativity constraints—based on the fact that the number of standard
2 6
or deluxe bags produced cannot be negative
S ≥ 0 and D ≥ 0 or S, D ≥ 0

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A Simple Maximization Problem A Simple Maximization Problem

Mathematical Model for the Par, Inc. Problem Mathematical Model for the Par, Inc. Problem (contd.)
Mathematical model: a set of mathematical relationships • This is a linear programming model (or linear program) because the
Max 10S + 9D objective function and all constraint functions are linear functions of
7
subject to(s.t)
10
S + 1D ≤ 630 Cutting and dyeing the decision variables
1 5 • Linear function: Mathematical function in which each variable
S + D ≤ 600 Sewing
2 6
2 appears in a separate term and is raised to the first power
1S + D ≤ 708 Finishing
3
1 1
S + D ≤ 135 Inspection and packaging
10 4
S, D ≥ 0

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Solving the Par, Inc. Problem

• To find the optimal solution to the problem modeled as a linear
program:
• The optimal solution must have the highest objective function value
Solving the Par, Inc. Problem • The optimal solution must be a feasible solution—a setting of the
The Geometry of the Par, Inc. Problem decision variables that satisfies all of the constraints of the problem
Solving Linear Programs with Excel Solver • Search over the feasible region—a set of all possible solutions
• Find the solution that gives the best objective function value

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Solving the Par, Inc. Problem Figure 11.1: Feasible Region for the Par, Inc. Problem
The Geometry of the Par, Inc. Problem
• When only two decision variables, the functions of variables are
linear; they form lines in 2-D space.
• If constraints are inequalities, the constraint cuts the space in two
• The line and the area on one side of the line is the space the satisfies that
constraint
• These subregions are called half spaces
• The intersection of the half spaces make up the feasible region

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Figure 11.2:
The Optimal Solution to the Par, Inc. Problem Solving the Par, Inc. Problem
• Based on the geometry of Figure 11.2, to solve a linear optimization
problem we only have to search the extreme points of the feasible
region to find the optimal solution
• Extreme points are found where constraints intersect on the
boundary of the feasible region

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Solving the Par, Inc. Problem Figure 11.3: What-If Spreadsheet Model for Par, Inc.
Solving Linear Programs with Excel Solver
• The first step is to construct the relevant what-if model
• A what-if model for optimization allows the user to try different values of
the decision variables and see:
• Whether that trial solution is feasible
• The value of the objective function for that trial solution
• Convey to Excel Solver the structure of the linear optimization model

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Figure 11.4: Solver Dialog Box and Solution to the Par,

Inc. Problem Solving the Par, Inc. Problem
• The optimal solution:
• To make 540 Standard bags and 252 Deluxe bags for a profit of $7,668
• Using all the cutting and dyeing time as well as all finishing time, from
cells B19:B22 compared to C19:C22
• The results are consistent with the results obtained in Figures 11.1
and 11.2

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Figure 11.5: The Solver Answer Report for the Par, Inc.
Problem Solving the Par, Inc. Problem
• A binding constraint is one that holds as an equality at the optimal
solution
• The slack value for each less-than-or-equal-to constraint indicates
the difference between the left-hand and right-hand values for a
constraint
• By adding a nonnegative slack variable, we can make the constraint
equality

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A Simple Minimization Problem

• Illustration:
• Production requirements for M&D Chemicals:
• The combined production for products A and B must total at least 350
A Simple Minimization Problem gallons
• Separately a major customer’s order for 125 gallons of product A must
Problem Formulation also be satisfied
Solution for the M&D Chemicals Problem • Processing time:
• Product A: 2 hours/gallon
• Product B: 1 hour/gallon
• For the coming month, 600 hours of processing time are available

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A Simple Minimization Problem A Simple Minimization Problem

• Production cost: Product A: $2/gallon; Product B: $3/gallon • Linear program for the M&D Chemicals problem:
• Objective: Minimizing the total production cost Min 2A + 3B
Problem Formulation s.t.
1A ≥ 125 Demand for product A
• To find the minimum-cost production schedule:
1A + 1B ≥ 350 Total production
• Define the decision variables and the objective function
Let A = number of gallons of product A
2A + 1B ≤ 600 Processing time
B = number of gallons of product B A, B ≥ 0
• Objective function = 2A + 3B • A surplus variable tells how much over the right-hand side the left-
hand side of a greater-than-or-equal-to constraint is for a solution
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Figure 11.6: Solver Dialog Box and Solution to the M&D Figure 11.7: The Solver Answer Report for the M&D
Chemical Problem Chemicals Problem

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Special Cases of Linear Program Outcomes

Alternative Optimal Solutions
Special Cases of Linear Program • Where the optimal objective function contour line coincides with one of
the binding constraint lines on the boundary of the feasible region
Outcomes • In these situations, more than one solution provides the optimal value
Alternative Optimal Solutions for the objective function
Infeasibility
Unbounded

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Figure 11.8: Par, Inc. Problem with an Objective

Special Cases of Linear Program Outcomes Function of 6.3S + 9D (Alternative Optimal Solutions)
• Illustration using the Par, Inc. problem
• Original objective function: 10S + 9D
• Assume the profit for the standard golf bag decreased to $6.30.
• Revised objective function: 6.3S + 9D
• The optimal solution occurs at two extreme points:
• Extreme point 4 (S = 300, D = 420) and
• Extreme point 3 (S = 540, D = 252)

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Figure 11.9: No Feasible Region for the Par, Inc. Problem with Minimum
Special Cases of Linear Program Outcomes Production Requirements of 500 Standard and 360 Deluxe Bags

Infeasibility
• Means no solution to the linear programming problem
• No points satisfy all the constraints and the nonnegativity conditions
simultaneously
• Graphically, a feasible region does not exist
• Infeasibility occurs because:
• Management’s expectations are too high
• Too many restrictions have been placed on the problem

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Table 11.2: Resources Needed to Manufacture 500

Special Cases of Linear Program Outcomes Standard Bags and 360 Deluxe Bags
• Interpretation of Infeasibility for the Par, Inc. problem
• Let the management know that the resources available are not sufficient
to make 500 standard bags and 360 deluxe bags
• Provide details to the management on:
• Minimum amounts of resources that must be available
• The amounts currently available
• Additional amounts that would be required to accomplish this level of
production

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Special Cases of Linear Program Outcomes Special Cases of Linear Program Outcomes
• An infeasible problem when solved in Excel Solver: Unbounded
• Will return a message indicating that no feasible solutions exists—indicating
• The situation in which the value of the solution
no solution to the linear programming problem will satisfy all constraints
• May be made infinitely large—for a maximization linear programming
• Careful inspection is necessary to identify why the problem is infeasible
• May be made infinitely small—for a minimization linear programming
• One of the approaches is to drop one or more constraints and re-solve the
problem • Without violating any of the constraints
• If we find an optimal solution for this revised problem, then the constraint(s)
that were omitted, in conjunction with the others, are causing the problem
to be infeasible

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Special Cases of Linear Program Outcomes Figure 11.10: Example of an Unbounded Problem
• Illustration:
Consider the following linear program with two decision variables,
X and Y:
Max 20X + 10Y
s.t.
1X ≥2
1Y ≤ 5
X, Y ≥ 0

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Special Cases of Linear Program Outcomes

• Solving an unbounded problem using Excel Solver:
• Returns a message “Objective Cell values do not converge”
• In linear programming models of real problems:
• The occurrence of an unbounded solution means that the problem Sensitivity Analysis
has been improperly formulated Interpreting Excel Solver Sensitivity Report

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Sensitivity Analysis Sensitivity Analysis

• Sensitivity analysis: The study of how the changes in the input Interpreting Excel Solver Sensitivity Report
parameters of an optimization model affect the optimal solution • Consider the M&D chemicals problem:
• It helps in answering the questions: A = number of gallons of product A
• How will a change in a coefficient of the objective function affect the B = number of gallons of product B
optimal solution? Min 2A + 3B
• How will a change in the right-hand-side value for a constraint affect s.t.
the optimal solution? 1A ≥ 125 Demand for product A
• The shadow price for a constraint is the change in the optimal 1A + 1B ≥ 350 Total production
objective function value if the right-hand side of that constraint is 2A + 1B ≤ 600 Processing time
increased by one A, B ≥ 0

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Figure 11.11: Solver Sensitivity Report for the M&D

Chemicals Problem Sensitivity Analysis
• Classical sensitivity analysis:
• Based on the assumption that only one piece of input data has changed
• It is assumed that all other parameters remain as stated in the original
problem
• When interested in what would happen if two or more pieces of
input data are changed simultaneously:
• The easiest way to examine the effect of simultaneous changes is to make
the changes and rerun the model

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General Linear Programming Notation and

More Examples
• The general notation for linear programs uses the letter x with a subscript
General Linear Programming • In the Par, Inc. problem the decision variables could be denoted as:

Notation and More Examples •

•
= number of standard bags
= number of deluxe bags
Investment Portfolio Selection • Advantage: Formulating a mathematical model for a problem that
Transportation Planning involves a large number of decision variables is much easier
Advertising Campaign Planning • Disadvantage: Not being able to easily identify what the decision variables
actually represent in the mathematical model

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General Linear Programming Notation and General Linear Programming Notation and
More Examples More Examples
• Par, Inc. model using the general notation: Investment Portfolio Selection
Max 10 +9 • Portfolio selection problems involve situations in which a financial
s.t. manager must select specific investments—for example, stocks and
7 bonds—from a variety of investment alternatives
+ 1 ≤ 630 Cutting and dyeing
10 • Objective: Maximization of expected return or minimization of risk
1 5
+ ≤ 600 Sewing
2 6 • Constraints: Restrictions on the type of permissible investments,
2
1 + ≤ 708 Finishing state laws, company policy, and so on
3
1 1
+ ≤ 135 Inspection and packaging
10 4
, ≥0
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General Linear Programming Notation and General Linear Programming Notation and
More Examples More Examples
Table 11.3: Investment Opportunities for • Welte investment guidelines:
Illustration Welte Mutual Funds
• Neither industry (oil or steel) should receive more than $50,000
• Welte Mutual Funds, Inc.,
located in New York City, is • Amount invested in government bonds should be at least 25 percent of
looking for investment the steel industry investments
opportunities for $100,000 • The investment in Pacific Oil, the high-return but high-risk investment,
• The firm’s top financial analyst cannot be more than 60 percent of the total oil industry investment
identified five investment
opportunities and projected
their annual rates of return

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General Linear Programming Notation and General Linear Programming Notation and
More Examples More Examples
• Define the following decision variables: • Define the constraints:
= dollars invested in Atlantic Oil Constraint 1: + + + + = 100,000

= dollars invested in Pacific Oil

Constraint 2: + ≤ 50,000
+ ≤ 50,000
= dollars invested in Midwest Steel
Constraint 3: ≥ 0.25( + )
= dollars invested in Huber Steel
Constraint 4: ≤ 0.60( + )
= dollars invested in government bonds
Nonnegativity constraints: , , , , ≥0
• Specify the objective: Maximizing return
Max 0.073 + 0.103 + 0.064 + 0.075 + 0.045

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General Linear Programming Notation and Figure 11.12:

More Examples The Solution for the Welte Mutual Funds Problem
• Linear programming model for the Welte Mutual Funds investment
problem:
Max 0.073 + 0.103 + 0.064 + 0.075 + 0.045
s.t.
+ + +
= 100,000 Available funds +
+ ≤ 50,000 Oil industry maximum
+ ≤ 50,000 Steel industry maximum
≥ 0.25( + ) Government bonds minimum
≤ 0.60( + ) Pacific Oil restriction
, , , , ≥0

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General Linear Programming Notation and General Linear Programming Notation and
More Examples More Examples
Transportation Planning • Illustration using Foster Generators problem
• Transportation problem arises in planning for the distribution of goods • Involves the transportation of a product from three plants to four
and services from several supply locations to several demand locations distribution centers
• Quantity of goods available at each supply location (origin) is limited • To determine how much of its production should be shipped from
each plant to each distribution center
• Quantity of goods needed at each of several demand locations
(destinations) is known
• Objective: Minimize the cost of shipping goods from the origins to the
destinations

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General Linear Programming Notation and Figure 11.13: The Network Representation of the Foster
More Examples Generators Transportation Problem
• Production capacities over the next three-month planning period for one type of
generator:

• The three-month forecast of demand for the distribution centers:

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General Linear Programming Notation and Table 11.4: Transportation Cost Per Unit for the Foster
More Examples Generators Transportation Problem ($)
• Objective is to determine:
• Routes to be used
• Quantity to be shipped via each route
• Minimum total transportation cost
• Let xij = number of units shipped from origin i to destination j
where i = 1, 2, . . . , m and j = 1, 2, . . . , n

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General Linear Programming Notation and General Linear Programming Notation and
More Examples More Examples
• Supply constraints • A 12-variable, 7-constraint linear programming formulation of the Foster Generators
x11 + x12 + x13 + x14 ≤ 5000 Cleveland supply transportation problem:
x21 + x22 + x23 + x24 ≤ 6000 Bedford supply
x31 + x32 + x33 + x34 ≤ 2500 York supply
• Demand constraints
x11 + x21 + x31 = 6000 Boston demand
x12 + x22 + x32 = 4000 Chicago demand
x13 + x23 + x33 = 2000 St. Louis demand
x14 + x24 + x34 = 1500 Lexington demand

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Figure 11.14: Spreadsheet Model and Solution for the General Linear Programming Notation and
Foster Generator Problem More Examples
Advertising Campaign Planning:
• Designed to help marketing managers allocate a fixed advertising
budget to various advertising media
• Objective: Maximize reach, frequency, and quality of exposure
• Restrictions: Company policy, contract requirements, and media
availability

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General Linear Programming Notation and Table 11.5: Advertising Media Alternatives for the Relax-and-
More Examples Enjoy Lake Development Corporation
• Illustration: Relax-and-Enjoy Lake Development Corporation:
• Developing a lakeside community at a privately owned lake
• Primary market includes all middle- and upper-income families within
approximately 100 miles of the development
• Employed the advertising firm of Boone, Phillips, and Jackson (BP&J) to
design the promotional campaign

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General Linear Programming Notation and General Linear Programming Notation and
More Examples More Examples
• Problem Formulation: • Define the decision variables:
• Budget: $30,000 • DTV = number of times daytime TV is used
• Restrictions imposed: • ETV = number of times evening TV is used
• At least 10 television commercials must be used • DN = number of times daily newspaper is used
• At least 50,000 potential customers must be reached • SN = number of times Sunday newspaper is used
• No more than $18,000 may be spent on television advertisements • R = number of times radio is used
• The decision to be made is how many times to use each medium
• Objective: Maximizing the total exposure quality units for the
overall media selection plan

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General Linear Programming Notation and General Linear Programming Notation and
More Examples More Examples
• Linear programming model for the Relax-and-Enjoy advertising • Linear programming model for the Relax-and-Enjoy advertising
campaign planning problem: campaign planning problem (contd.):
Max 65DTV + 90ETV + 40DN + 60SN + 20R Exposure quality
DTV + ETV ≥ 10 Television
DTV ≤ 15 1500DTV + 3000ETV ≤ 18,000 restrictions
ETV ≤ 10 1000DTV + 2000ETV + 1500DN + 2500SN + 300R ≥ 50,000 Customers reached

DN ≤ 25 Availability of media DTV, ETV, DN, SN, R ≥ 0

SN ≤ 4
R ≤ 30
1500DTV + 3000ETV + 400DN + 1000SN +100R ≤ 30,000 Budget

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Figure 11.15: A Spreadsheet Model and the Solution for the Figure 11.16: The Excel Sensitivity Report for the Relax-
Relax-and-Enjoy Lake Development Corporation Problem and-Enjoy Lake Development Corporation Problem

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Generating an Alternative Optimal Solution

Generating an Alternative for a Linear Program
• Illustration: Consider the Foster Generators transportation
Optimal Solution for a Linear problem
• From Figure 11.14, the optimal solution:
Program x11 = 1000, x12 = 4000, x13 = 0, x14 = 0
x21 = 2500, x22 = 0, x23 = 2000, x24 = 1500
x31 = 2500, x32 = 0, x33 = 0, x34 = 0
• Optimal cost: $39,500
• For the revised model to be optimal, the solution must give a total
cost of $39,500

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Generating an Alternative Optimal Solution Generating an Alternative Optimal Solution

for a Linear Program for a Linear Program
• From Figure 11.14: • Revised model
x13 = x14 = x22 = x32 = x33 = x34 = 0
• If the sum of these variables is maximized and if the optimal
objective function value of the revised problem is positive
• A different feasible solution that is also optimal is found

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Table 11.6: An Alternative Optimal Solution to the Generating an Alternative Optimal Solution
Foster Generators Transportation Problem for a Linear Program
• In the original solution (Figure 11.14):
• Boston distribution center is sourced from all three plants, whereas each of the other
distribution centers is sourced by one plant
• Hence, the manager in the Boston distribution center has to deal with three different plant
managers, whereas each of the other distribution center managers has only one plant
manager
• The alternative solution (Table 11.6) provides a more balanced solution
• Managers in Boston and Chicago each deal with two plants, and those in St. Louis and
Lexington, which have lower total volumes, deal with only one plant
• Because the alternative solution seems to be more equitable, it might be preferred
• Both the solutions give a total cost of $39,500

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Generating an Alternative Optimal Solution

for a Linear Program
• General approach to find an alternative optimal solution to a linear
program:
• Step 1: Solve the linear program
• Step 2: Make a new objective function to be maximized; It is the sum of
those variables that were equal to zero in the solution from Step 1
• Step 3: Keep all the constraints from the original problem; add a constraint
that forces the original objective function to be equal to the optimal
objective function value from Step 1
• Step 4: Solve the problem created in Steps 2 and 3; if the objective function
value is positive, an alternative optimal solution is found

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