Product Mix Problem Example 1

This
This is
is a
a very
very basic
basic example
example ofof how
how you
you can
can set
set up
up a
a series
series of
of decision
decision variables
variables to
to optimize
optimize choices
choices across
across what
what product
product
to
to produce
produce based
based onon product
product profit,
profit, parts
parts used,
used, and
and capacity
capacity (in
(in this
this case
case pressing
pressing time
time and
and inventory).
inventory). This
This model
model could
could
easily
easily be
be modified
modified and
and scaled
scaled toto take
take into
into account
account demand,
demand, many
many more
more products,
products, etc.
etc. For
For this
this example,
example, assume
assume your
your
company
company manufactures
manufactures pallets
pallets using
using aa common
common parts
parts inventory
inventory of
of glue,
glue, pine
pine chips,
chips, and
and oak
oak chips,
chips, and
and each
each pallet
pallet require
require
a
a certain
certain amount
amount ofof pressing
pressing time.
time. Both
Both pressing
pressing time
time and
and parts
parts are
are in
in limited
limited supply
supply and
and you
you must
must determine
determine the
the most
most
profitable
profitable mix
mix of
of products
products to
to build.
build.

Decision
Decision Variables
Variables Variable
Variable Bounds
Bounds Model
Model Building
Building Tip:
Tip: Defined
Defined
In
In this
this example
example youyou need
need toto decide
decide the
the Since
Since we
we won't
won't be
be making
making aa negative
negative Names
Names
optimal
optimal mixmix of
of pallets
pallets to
to produce.
produce.As
As aa number
number ofof pallets,
pallets, we've
we've set
set each
each In
variable's In aa large
large model,
model, using
using defined
defined names
names
result,
result, wewe have
have set
set cells
cells C18:F18
C18:F18 asas our
our variable's lower
lower bound
bound to to 0.
0. These
These lower
lower for
for aa range
range ofof variables
variables or
or constraint
constraint
bounds
bounds appear
appear inin the
the Model
Model Task
Task Pane
Pane as as cells
Decision
Decision Variables
Variables and
and have
have created
created the
the cells will
will create
create aa more
more readable
readable model
mode
Number_to_build
Number_to_build >= >= 0.
0. for
defined
defined name,
name, Number_to_build.
Number_to_build. for the
the User.
User.ToTo create
create aa defined
defined name,
name
Alternatively,
Alternatively, we
we could
could set
setAssume
Assume Non-
Non- simply
simply select
select the
the range
range of
of cells
cells you
you
Negative
Negative toto True
True on
on the
the Engine
Engine tab
tab of
of the
the want
want to to name
name (for(for example
example C18:F18),
C18:F18),
Task Pane.
Task Pane. click
click Formulas
Formulas on on the
the Excel
Excel Ribbon,
Ribbon,
Panel Type and
and then
then select
select Name
Name Manager.
Manager.
Tahoe Pacific Savannah Aspen Objective
Objective Function
Function
Pallets 0 0 0 0 Total Profit Our
Our objective
objective in in this
this model
model isis to
to
maximize
maximize profit.
profit. AsAs aa result,
result, we
we have
have
Profit $450 $1,150 $800 $400 $0 chosen
chosen toto maximize
maximize our our Objective
Objective
located
located in
in cell
cell G19
G19 and
and named
named this
this cel
ce
Total_profit.
Total_profit.
Resources Required per Pallet Type Used Available
Glue 50 50 100 50 0 5,800 quarts Constraints
Constraints
Pressing 5 15 10 5 0 730 hours The
The example
example model
model contains
contains four
four
Pine Chips 500 400 300 200 0 29,200 pounds constraints
constraints which
which limit
limit the
the number
number ofof
parts
parts or
or pressing
pressing time
time used
used per
per product
product
Oak Chips 500 750 250 500 0 60,500 pounds the
the amount
amount available.
available. In
In the
the Model
Model tab
tab
the
the Task
Task Pane,
Pane, these
these constraints
constraints appea
appea
as:
as: Number_Used
Number_Used <= <= Number_Availab
Number_Availab

Model
Model Notes
Notes
Although
Although this is a good basic example of a product mix problem, bear
this is a good basic example of a product mix problem, bear in
in mind
mind the
the limitations
limitations ofof this
this model.
model. For
For example,
example,
market
market demand
demand andand price
price elasticity
elasticity are
are not
not included
included inin the
the model
model -- -- we
we assume
assume that
that itit does
does not
not matter
matter how
how many
many pallets
pallets of
of
each
each type
type wewe build,
build, we
we will
will always
always be
be able
able to
to sell
sell them.
them. Nor
Nor are
are there
there any
any pre-specified
pre-specified minimum
minimum oror maximum
maximum number
number ofof
products
products that
that are
are required
required to
to be
be manufactured.
manufactured. The The effect
effect of
of introducing
introducing these
these restrictions
restrictions can
can be
be studied
studied by
by examining
examining a a
Sensitivity
Sensitivity Report, which you can create after the status bar shows "Solver found a solution." by clicking Reports on
Report, which you can create after the status bar shows "Solver found a solution." by clicking Reports on the
the RS
RS
ribbon
ribbon and
and then
then selecting
selecting Optimization
Optimization and
and then
then Sensitivity.
Sensitivity.
1
e
e choices
choices across
across what
what products
products
inventory).
inventory). This
This model
model could
could
is
is example,
example, assume
assume your
your
chips,
chips, and
and each
each pallet
pallet requires
requires
u
u must
must determine
determine the
the most
most

del Building
odel Building Tip:
Tip: Defined
Defined
Names
Names
ge model,
rge model, using
using defined
defined names
names
ange
ange ofof variables
variables or
or constraint
constraint
ill create
will create aa more
more readable
readable model
model
User.
User.To
To create
create aa defined
defined name,
name,
select
select the
the range
range of
of cells
cells you
you
oo name
name (for
(for example
example C18:F18),
C18:F18),
ormulas
ormulas on on the
the Excel
Excel Ribbon,
Ribbon,
en
en select
select Name
Name Manager.
Manager.
Objective
Objective Function
Function
bjective in
objective in this
this model
model isis to
to
mize
mize profit.
profit. AsAs aa result,
result, we
we have
have
n to
en to maximize
maximize our our Objective
Objective
d in
ed in cell
cell G19
G19 and
and named
named this
this cell
cell
_profit.
_profit.

Constraints
Constraints
ample
ample model
model contains
contains four
four
aints
aints which
which limit
limit the
the number
number ofof
rr pressing
pressing time
time used
used per
per product
product to
to
ount
ount available.
available. In
In the
the Model
Model tab
tab of
of
sk
sk Pane,
Pane, these
these constraints
constraints appear
appear
umber_Used
umber_Used <= <= Number_Available.
Number_Available.

of
of this
this model.
model. For
For example,
example,
tt matter
matter how
how many
many pallets
pallets of
of
um
um or or maximum
maximum number
number ofof
be
be studied
studied by
by examining
examining a a
by
by clicking Reports on
clicking Reports on the
the RSP
RSP
 489480563.xlsx

A B C D E F G H I J K L M N O
1

2 Product Mix Example Problem

Your
Your company
company manufactures
manufactures TVs,
TVs, stereos
stereos and
and speakers,
speakers, using
using a
a common
common parts
parts inventory
inventory of
of chassis,
chassis, LCD
LCD Screens,
Screens, speakers,
speakers, power
power
supplies
supplies and
and various
various internal
internal electronics.
electronics. Parts
Parts are
are in
in limited
limited supply
supply and
and you
you must
must determine
determine the
the most
most profitable
profitable mix
mix of
of products
products to
to build.
build.
3
4
5 Decision
Decision Variables Variable
Variables Variable Bounds
Bounds
6 The
The variables
variables are
are the
the number
number of of TVs,
TVs, stereos,
stereos, Since
Since we
we won't
won't be
be making
making aa negative
negative
and
and speakers
speakers toto build.
build. In
In this
this worksheet,
worksheet, they
they number
number ofof products,
products, thethe three
three variables
variables
7 are
are located
located in
in cells
cells C14:E14
C14:E14 and and have
have the
the each
each have
have aa lower
lower bound
bound of of 0.
0. These
These lower
lower
8 defined
defined name,
name, Number_to_build.
Number_to_build. bounds
bounds appear
appear inin the
the Model
Model TaskTask Pane
Pane as
as
Number_to_build >=
Number_to_build >= 0. 0.
9
Alternatively, we could set Assume
Alternatively, we could set Assume Non- Non-
10 Negative
Negative toto True
True on
on the
the Engine
Engine tasktask pane.
pane.
11
12 Production Decisions
13 LCD TV Stereo Speakers
14 Number to Build: 0 0 0
Constraints
Constraints
15 The
The example
example model
model contains
contains five
five constraints
constraints
16 Part Requirements by Product Part Inventory Levels which
which limit
limit the
the number
number ofof parts
parts used
used per
per
product
product to
to the
the number
number ofof parts
parts available.
available. In
In the
the
17 Part Name LCD TV Stereo Speakers Used Available Solver
Solver Task Pane, these constraints appear as:
Task Pane, these constraints appear as:
Number_used
Number_used <= <= Number_available.
Number_available.
18 Chassis 1 1 0 0 450 This
This translates
translates into
into G18
G18 <=
<= H18,
H18, G19
G19 <=
<= H19,
H19,
etc.
etc.
19 LCD Screen 1 0 0 0 250
20 Speaker 2 2 1 0 800
21 Power Supply 1 1 0 0 450
22 Electronics 2 1 1 0 600 Objective
Objective Function
Function
The
The objective
objective of of this
this model
model isis to
to maximize
maximize
23 profit.
profit. In
In the
the worksheet,
worksheet, thethe objective
objective function
function
24 Profit per unit $75 $50 $35 $0 isis located
located inin cell
cell G24
G24 and
and isis defined
defined as
as
Total_profit.
Total_profit.
25
26
27 Model
Model Building
Building Tip: Tip: Sensitivity
Sensitivity ReportReport
28 AASensitivity
Sensitivity Report
Report lists
lists which
which constraints
constraints are are binding
binding or or not
not binding.
binding. IfIf aa constraint
constraint isis
29 binding,
binding, the
the left
left hand
hand side
side of of the
the constraint
constraint is is equal
equal to to its
its upper
upper oror lower
lower bound
bound or or both,
both, in
in
the
the case
case of of an
an equality.
equality. This
This means
means that that in
in order
order to to improve
improve the the objective,
objective, thethe constraint(s)
constraint(s)
30
must be relaxed. The Shadow Price is the change in the
must be relaxed. The Shadow Price is the change in the objective value of the optimal objective value of the optimal
31 solution
solution when
when the the constraint
constraint is is relaxed
relaxed by by one
one unit
unit within
within the the allowable
allowable increase
increase or or
decrease.
decrease.
32
To
To create
create aa Sensitivity
Sensitivity Report,
Report, press press the
the green
green arrowarrow on on thethe Model
Model task
task pane
pane toto run
run the
the
33 Solver,
Solver, then
then go go to
to Reports
Reports >> Optimization
Optimization >> Sensitivity
Sensitivity on on the
the RSP
RSP ribbon.
ribbon. AASensitivity
Sensitivity
Report will be inserted directly to the left of this
Report will be inserted directly to the left of this worksheet. worksheet.
34
This
This report
report shows
shows thatthat atat the
the optimal
optimal solution,
solution, we we useuse allall 800
800 Speaker
Speaker Cones
Cones andand 600600
35 Electronics
Electronics units,
units, but
but not
not all
all of
of the
the additional
additional components
components such such as
as Chassis,
Chassis, LCDLCD Screens
Screens
or Power Supplies. In addition, we shoud produce 200
or Power Supplies. In addition, we shoud produce 200 TVs and 200 Stereos but no TVs and 200 Stereos but no
36 Speakers.
Speakers. WhatWhat do do the
the shadow
shadow prices prices ofof the
the two
two "binding"
"binding" constraints
constraints andand the
the reduced
reduced
37 cost
cost of
of the
the one
one "nonbasic"
"nonbasic" variable
variable telltell us?
us?
The
The shadow
shadow priceprice ofof 12.5
12.5 forfor Speaker
Speaker ConesCones tellstells us
us that
that we we could
could increase
increase Total
Total Profits
Profits by
by
38 $12.50
$12.50 for
for every
every additional
additional Speaker
Speaker Cone Cone we we cancan acquire,
acquire, up up to
to 100
100 more.
more. Similarly,
Similarly, the
the
39 shadow price of 25 for Electronics units tells us we could use up to 50 more units and
shadow price of 25 for Electronics units tells us we could use up to 50 more units and
40 increase
increase Total
Total Profits
Profits by by $25.00
$25.00 for for each
each extra
extra unit.
unit.
41 The
The reduced
reduced cost cost of
of -2.5
-2.5 for
for E14
E14 tells
tells us
us that,
that, ifif we
we were
were forced
forced toto produce
produce some
some
42 Speakers,
Speakers, we we would
would reduce
reduce TotalTotal Profits
Profits byby $2.50
$2.50 for for each
each Speaker
Speaker we we made
made (since
(since wewe
43 would give up production of an alternate more
would give up production of an alternate more profitable product). profitable product).
44

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