MMGT6012

MMGT6012
Business Tools for Management
TOPIC 9: Linear Programming

Dr. Matthew Beck
ITLS, Business School
The University of Sydney Page 1

9. Linear Programming
Optimisation Modelling
Process of optimising a system of equations:

– Subject to constraints on what values are possible
Recall that we create spreadsheets:

– Use equations to approximate the real world
Called optimisation modelling:

– We try to set one value (variable) to a maximum or minimum amount

Optimisation Modelling
Development of a production schedule that will satisfy future

demands for a firm’s production while minimizing total production
and inventory costs
Selection of product mix in a factory to make best use of

machine-hours and labor-hours available while maximizing the
firm’s products
Determination of a distribution system that will minimize total

shipping cost from several warehouses to various market locations

Linear Programming
We represent these real world problems with linear equations:
– Profit = Revenue – Costs
– Revenue = Sales * Demand
– Costs = Fixed Costs + (Variable Costs * Production)

Linear Programming
All problems seek to optimise (maximise or minimise)
There are restrictions (constraints) on our ability to max or min
There must be alternative combinations of possible values:

– Decision variables where we choose (optimise) their level
All equations must be expressed in linear terms:

– X*Y or X+Y not X*X

Components of an LP Model
Decision Variables:
– Variables in the equations that can vary whose optimal level is unknown
– Values that we can control / that we need to decide what to set to
– Objective and Constraints are expressed as a function of these variables
Objective Function:
– A linear function reflecting the objective of an operation
– The number or value we are seeking to minimise or maximise
Model Constraints:
– A linear functions representing a restriction on decision making
– Constraints on resources, limits to what values we can obtain

Assumptions of an LP Model
Certainty:
– Values used in the equations are known and do no change
Proportionality:
– Constancy between production increases and resource utilization
Additivity:
– The total of all activities equals the sum of the individual activities
Divisibility:
– Solutions are divisible and need not be in whole numbers (integers)
Non-negativity:
– All answers or variables are greater than or equal to (≥) zero

Steps to Building an LP Model
1. Completely understand the managerial problem being faced
2. Identify the objective
3. Identify the constraints on achieving the objective
4. Define the decision variables
5. Use the decision variables to write mathematical expressions

for the objective function and the constraints

LP Model Example 1
– Each ball has a different combination of materials (costs)
– Each ball is sold for a different price so has different revenues
– How do we decide the optimal way to use our limited resources so we

produce the best combination of golf balls that maximises profit?

LP Model Example 1
Data collected on the production process:
Max
Solid Soft
Available
Inner Core Rubber (grams used) 4 3 2400
Outer Layer Resin (grams used) 2 1 1000
Profit Margin ($ per box) 7 5

LP Model Example 1
1. State the problem verbally:

– Allocate production levels (decision variables)
– To maximise profit (objective function)
– Subject to the amount of materials available (constraints)
2. State the objective and constraints mathematically:

– Use the decision variables to construct these formulas
– Max Profit: 7(Solid) + 5(Soft)
– Rubber: 4(Solid) + 3(Soft) ≤ 2400
– Resin: 2(Solid) + 1(Soft) ≤ 1000
– Non-negativity: Soft ≥ 0 & Solid ≥ 0

LP Model Example 1
In this model we have two decision variables:

– How many solid golf balls to produce
– How many soft golf balls to produce
There are two axes on a graph:

– So we can look at this problem graphically
– Any more than two; more complex approach needed

Solid
LP Model Example 1
1000
1. Plot Constraints
800
Rubber:
– 2400g available
600
– Solid = 4g
– Soft = 3g
400
– Make only solid?
– Make only soft?
200
Soft
200 400 600 800 1000
Solid
LP Model Example 1
1000
1. Plot Constraints
800
Resin:
– 1000g available
600
– Solid = 2g
– Soft = 1g
400
– Make only solid?
– Make only soft?
200
Soft
200 400 600 800 1000
Solid
LP Model Example 1
1000
2. Feasibility Region
800
Possible results:
– Doesn’t violate rubber
constraint AND Doesn’t 600
violate resin constraint
400
200
Soft
200 400 600 800 1000
Solid
LP Model Example 1
1000
3. Solve at Corners
800
Corner Points:
– Solution will always be
at a corner in a two 600
variable model b
400
d
200
a c Soft
200 400 600 800 1000
LP Model Example 1
a) Make no golf balls at all (Solid = 0, Soft = 0):

– Profit = 7(Solid) + 5(Soft) = 7(0) + 5(0) = $0
b) Where we only make solid golf balls (Solid = 500, Soft = 0):
c) Where we only make soft golf balls (Solid = 0, Soft = 800):

d) Where we make some combination of solid and soft!

LP Model Example 1
d) Is where the two constraints intersect:

– 4(Solid) + 3(Soft) = 2400
– 2(Solid) + 1(Soft) = 1000
1. Set one decision variable as a function of the other:

– Soft = 1000 – 2(Solid)
2. Substitute this value of “soft” into the other function:

– 4(Solid) + 3(Soft) = 2400
– 4(Solid) + 3(1000 – 2(Solid)) = 2400

LP Model Example 1
3. Solve for “Solid”:

– 4(Solid) + 3(1000 – 2(Solid)) = 2400
– 4(Solid) + 3000 – 6(Solid) = 2400
– -2(Solid) + 3000 = 2400
– -2(Solid) = -600
– Solid = 300
4. Sub this value back into (1):

– Soft = 1000 – 2(Solid)
– Soft = 1000 – 2(300)
– Soft = 400

LP Model Example 1
d) Produce 300 Solid and 400 Soft golf balls:


LP Model Example 2
The Holiday Meal Turkey Ranch is considering buying two different brands of
turkey feed and blending them to provide a quality diet for its turkeys.
There are three key ingredients (A, B and C) that a turkey must east to be
healthy, and each brand has a different quantity of each ingredient:
– Each kilogram of Brand 1 has 5 grams of Ingredient A, 4 grams of
Ingredient B and 0.5 grams of Ingredient C and costs $0.20 per kg.
– Each kilogram of Brand 2 has 10 grams of Ingredient A, 3 grams of
Ingredient B, but nothing of Ingredient C and costs $0.30 per kg.
For a turkey to stay healthy it must each 90 grams of Ingredient A; 48 grams

of Ingredient B and 1.5 grams of ingredient C every month.
What is the quantity of feed the farmer must purchase to keep the turkeys
healthy, but minimise cost?
LP Model Example 2
Min
Brand 1 Brand 2
Needed
Ingredient A
Ingredient B
Ingredient C
Cost per Kilogram

LP Model Example 2 Brand 1
25
20
15
10
Brand 2
5 10 15 20 25
LP Modelling in Excel
We use a feature in Excel called Solver to find the solution
To install Solver:
1. Select File
2. Select Options
3. Select Add-ins
4. Go to Manage: Excel Add-ins
5. Click Go
6. Select the Solver Add-in.
7. Click OK

You need to create spreadsheet formulas for the:

– Objective
As a function of the cells containing the decision variables
– Constraints
Once this is done, to access solver go to:

1. Data
2. Solver

Cell with objective function goes here
Cells with decision variables go here
Cells with constraints are added here
Type of optimisation selected here

Sensitivity Analysis
We have assumed the linear programming is deterministic:

– All inputs are fixed (resources are known, production time is constant)
But in the real world, conditions are dynamic and changing:

– How sensitive is the optimal solution to changes in profits, resources, or other
input parameters?
We want to perform Sensitivity Analysis:

– Postoptimality Analysis
– Parametric Programming

Performed after an LP problem has been solved
Finds the range of changes to inputs that:

– Will not affect the optimal solution
– Change the variables in the solution
Excel output highlights changes allowed to the:

– Values in the objective function (Adjustable Cells)
– Values in the constraints (Constraints)


MMGT6012 - Topic 9 - Linear Programming

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

MMGT6012 - Topic 9 - Linear Programming

Uploaded by

Copyright:

Available Formats

Business Tools for Management

TOPIC 9: Linear Programming

The University of Sydney Page 1

Process of optimising a system of equations:

Recall that we create spreadsheets:

Called optimisation modelling:

The University of Sydney Page 2

Development of a production schedule that will satisfy future

Selection of product mix in a factory to make best use of

Determination of a distribution system that will minimize total

The University of Sydney Page 3

We represent these real world problems with linear equations:

– Profit = Revenue – Costs

– Revenue = Sales * Demand

– Costs = Fixed Costs + (Variable Costs * Production)

The University of Sydney Page 4

All problems seek to optimise (maximise or minimise)

There are restrictions (constraints) on our ability to max or min

There must be alternative combinations of possible values:

All equations must be expressed in linear terms:

The University of Sydney Page 5

The University of Sydney Page 6

The University of Sydney Page 7

Steps to Building an LP Model

1. Completely understand the managerial problem being faced

2. Identify the objective

3. Identify the constraints on achieving the objective

4. Define the decision variables

5. Use the decision variables to write mathematical expressions

The University of Sydney Page 8

– Each ball has a different combination of materials (costs)

– Each ball is sold for a different price so has different revenues

– How do we decide the optimal way to use our limited resources so we

The University of Sydney Page 9

Data collected on the production process:

Profit Margin ($ per box) 7 5

The University of Sydney Page 10

1. State the problem verbally:

2. State the objective and constraints mathematically:

The University of Sydney Page 11

In this model we have two decision variables:

There are two axes on a graph:

The University of Sydney Page 12

a) Make no golf balls at all (Solid = 0, Soft = 0):

c) Where we only make soft golf balls (Solid = 0, Soft = 800):

d) Where we make some combination of solid and soft!

The University of Sydney Page 17

d) Is where the two constraints intersect:

1. Set one decision variable as a function of the other:

2. Substitute this value of “soft” into the other function:

The University of Sydney Page 18

3. Solve for “Solid”:

4. Sub this value back into (1):

The University of Sydney Page 19

d) Produce 300 Solid and 400 Soft golf balls:

The University of Sydney Page 20

For a turkey to stay healthy it must each 90 grams of Ingredient A; 48 grams

Cost per Kilogram

The University of Sydney Page 22

LP Model Example 2 Brand 1

We use a feature in Excel called Solver to find the solution

The University of Sydney Page 24

You need to create spreadsheet formulas for the: