AY 2021 Sem 1 E210 - W03 - IS - SLIDES

OFFICIAL (CLOSED) \ NON-SENSITIVE
Lesson 03
Product Mix and Distribution Planning
E210 – Operations Planning

E210 Operations Planning Topic Tree
2
IS Lecture (1)
Case Scenario
Scenario for Lesson 03 – 05:

Product Mix and Distribution Planning
• PrettyFit is an apparel manufacturer specialized in
producing high quality customized dresses for various
functions. Based in South Korea, PrettyFit has a number of
manufacturing plants in Asia.
• The main resources consumed to produce the dresses are
cloth, machine time and labour time. With limited resources
and different profitability of the products, when PrettyFit
has more than one product in the product family, it is
important to plan the right product mix (quantity of each
product) to produce to achieve a maximum profit.
• Moreover, with the increasing customer demand
worldwide, especially in the Asia Pacific region, PrettyFit
foresees that the distribution cost may also become a
concern if there is no properly developed distribution plan
considering both available supplies and customer
demands.
• How should PrettyFit plan the product mix to maximize profit with the limited resources?
• How would the available resources and the unit profit of each product affect the overall
profit from producing the products?
• How should PrettyFit develop a distribution plan to minimize the distribution cost while
considering both available supplies and customer demands?
4
Scenario for Lesson 03 – 05: Product Mix and Distribution Planning

Additional Information for Lesson 03
• Recently, PrettyFit opened a new manufacturing plant in Myanmar. As a start,
the plant focuses on producing two products: Midi-dress and Mini-dress. As
the Operations Manager, Kate is tasked to plan the right product mix (quantity
of each product) to produce daily to achieve a maximum profit.
• Among the main resources consumed to produce the Midi-dress and Mini-
dress, Kate knows that the labour time is not a concern as it is more than
enough. Table below summarizes the amount of machine time and cloth
needed to produce one unit of Midi-dress and Mini-dress, with expected profit
earned from each of the dresses sold.
Machine Time (Hour) Cloth (m2) Unit Profit ($)

Midi-dress 0.3 1.2 24
Mini-dress 0.6 0.8 36
• Currently, the plant has a maximum of 45 hours of machine time available

daily. Kate understands that the suppliers can provide up to 84 m2 of cloth
each day.
• Kate recalls that the product mix can be determined using a mathematical
model and a graphical approach.
5

• In PrettyFit’s new manufacturing plant in Myanmar, Kate has successfully planned the
right product mix for two products: Midi-dress and Mini-dress. Now PrettyFit is planning
to further expand the product family by adding one more product: Maxi-dress.
• Kate was informed by the marketing department that there are pre-orders placed by
customers: 15 units of Midi-dress and 30 units of Mini-dress daily. Kate now has a
more challenging task of planning the product mix for three products: Midi-dress, Mini-
dress and Maxi-dress.
• To meet the customer demand and produce according to the new product mix, Kate
has to consider the availability of all resources: machine time, cloth and labour time.
The plant now has a maximum of 150 hours of machine time and 500 hours of labour
time available daily. Meanwhile, the suppliers can provide up to 198 m2 of cloth each
day.
• Table below summarizes the amount of each resource needed to produce one unit of
the products with expected profit earned from each of the products sold.
Product Machine Time (Hour) Cloth (m2) Labour Time (Hour) Unit Profit ($)
Midi-dress 0.3 1.2 1.5 24
Mini-dress 0.6 0.8 2 36
Maxi-dress 0.9 1.5 1.8 42
• Kate recalls that the new product mix can be determined using a mathematical model
and Excel Solver.
6

• To plan for the distribution, Kate checked the
• Kate has successfully expanded the
inventories at the manufacturing plants in
product line by introducing Maxi-dress into
the Asia Pacific region and found three
the product family. With broader customer
plants with enough inventories. Table 2
base built in the Asia Pacific region, now it
below shows the three manufacturing plants
is imperative for her to consider how to
and their available supplies.
distribute the products from the
manufacturing plants to the customers to Table 2: Manufacturing Plants and Supplies
meet the customer demands while Manufacturing Plants at Supply (Box )
keeping the distribution cost at its A. Beijing 320
minimum. B. Kuala Lumpur 260
C. Sydney 480
• For the coming month, Kate has received
Total 1060
orders placed from customers in the Asia
Pacific region. Table 1 below shows the • Help Kate develop a shipping arrangement if
locations of the customers and their the shipping cost per box of products from
demands. each manufacturing plant to each customer
region is given in the following Table 3.
Table 1: Customers and Demands Table 3: Shipping Cost
Customers at Demand (Box) To (Cost per Box of Products in US $)
1. Bangkok 210 From 1 2 3 4
2. Hong Kong 350 Bangkok Hong Kong Manila Singapore
3. Manila 200 A. Beijing 32 18 42 34
4. Singapore 300 B. Kuala Lumpur 12 30 15 10
Total 1060 C. Sydney 48 55 23 36
7
Scenario Definition Template

• What do we know?
• What do we not know?
• What do we need to find out?
8
Scenario – Tasks of the day

Assume that you are a consultant helping Kate plan the right product
mix (quantity of Midi-dress and Mini-dress) to produce daily. Help her
• Explain how the product mix problem can be solved using linear
programming.
• Formulate a Linear Programming (LP) model for the product mix
problem.
• Apply the graphical method to determine the optimum quantity to
produce for each product in order to maximize the daily profit.
• Determine what is limiting the company from making more profit and
how the profit will be affected if she could have more resources.
• Understand how sensitive the company’s profit from the two products
is to the unit profit of the Midi-dress.
Continuing from Lesson 03,

• Lesson 04 will help Kate plan the product mix and conduct sensitivity analysis based on
Excel Solver when the manufacturing plant needs to produce more than two products.
• Lesson 05 will help Kate develop a distribution plan to minimize the distribution cost based
on the transportation model.
9
IS Lecture (2)
Introduction to Linear Programming

& LP Formulation
Mathematical Models
• Set of mathematical relationships, equations and
logical assumptions as a representation of real world
decision making problem.
• An example is mathematical programming, also

referred to as optimization.
• Models have been applied successfully in the areas of

military, industry, transportation, economics, health
care systems, etc.
11
Mathematical Models
• 3 stages in the application of mathematical
models to real-world problems:
 Translating problem situation into a formal
mathematical model,
 Solving mathematical problem, and
 Interpreting solution for the original situation
• Linear Programming (LP) is a type of

mathematical technique used to allocate
resources among competing demands in an
optimal way.
12
Linear Programming (LP)

Identifying an LP problem:
• There are limited resources (e.g. a finite number of hours
available for each machine)
• There is an explicit objective function (e.g. worth of each
variable and what is the goal in solving the problem?)
• The equations are linear (e.g. no cross-products)
• The resources are homogenous (e.g. everything is in one
unit of measure, such as machine hours)
• The decision variables are divisible and non-negative
(e.g. we can make fractional part of a product. If deemed
undesirable, then integer programming would be used)
13
Linear Programming (LP)

• Mathematical model designed to optimize the
use of limited resources.
 E.g. maximize profit or minimize cost
• Assumes linearity of all model equations.

 Equations are of the form:
ax + by + … + cz = d
where a, b, c and d are constants(coefficients)
• LP models can be efficiently solved in Excel

spreadsheet or other analytical software.
14
LP Model Formulation Process

• Understand the problem.
• Define the Decision Variables.
• State the Objective Function in terms of the

decision variables.
• Formulate each Constraint in terms of the decision

variables.
• Identify any upper or lower bounds on the decision

variables or if they should be integers.
15
LP Model Formulation
• Helpful questions to identify the major components of
the Linear Programming model:
1. What am I trying to decide? (Decision Variables)
 E.g. Number of Product A to make, Number of staff to hire
2. What is the aim? (Objective Function)

 E.g. Maximize Profit, Minimize Cost
3. What limitations or requirements restrict the values of the

decision variables? (Constraints)
 E.g. Machine Time <= 50 hrs per week
 Number of units to ship overseas >= 100
16
LP Formulation - Decision Variables & Objective
Function
• The decision variables must represent a physical

measurable quantity (number of units, weight, volume,
etc). The objective function is formulated using
decision variables and coefficients. Example:
 Decision variables are:
Let X1 = Number of product A to make
Let X2 = Number of product B to make
 Objective function is:
Maximize profit Z = 100X1 + 150X2
Objective function coefficients for X1 and X2 respectively, i.e. Each unit of

X1 brings $100 of profit and each unit of X2 brings $150 of profit.
In the case where the objective function is to minimize cost, cost
coefficients should be used.
17
LP Formulation - Constraints
• Each constraint in an LP represents a relation between two
measurable quantities: Limited resource (≤), Minimum
performance (≥), and Conservation/ balance (=).
• Example: A total of 150 labour hours are available for the
production of X1 and X2
20X1 + 10X2 ≤ 150
Production of each unit of X1 requires 20 labour hours and each unit

of X2 requires 10 labour hours. They are constraint coefficients.
• Special note: Most frequent error in constraint formulation

stage is "reversal of variables".
How to represent “There is one teacher for every twelve
students”?
S = 12T (S: Number of students)
Answer:
(T: Number of teachers)
Check: When T=1, S = 12(1) = 12

18
Post and Share – Mathematical Relationships

Translate the following statements into mathematical
expressions.
a) 1 teacher will be in-charge of 20 students
b) The number of students must be at least 15 times as many as

the number of teachers
c) The proportion of female students should not exceed 50% of all

students (male and female)
Post and share your answers in

Padlet / MS Teams
19
Post and Share – Mathematical Relationships

Translate the following statements into mathematical
expressions.
a) 1 teacher will be in-charge of 20 students
S=20T
b) The number of students must be at least 15 times as many as

the number of teachers
S>=15T
c) The proportion of female students should not exceed 50% of all

students (male and female)
F/(F+M)<=50% or F<=M
20
Scenario for the Interactive Seminar (IS)

• Danny is the Operations Manager in a company specialized in manufacturing
two types of products: Type A and Type B.
• Danny is tasked to plan the right product mix (quantity of each product) to
produce for the coming week.
• The main resources used to produce the two types of products are plastic,
machine time and labour time.
• Currently, there is enough amount of plastic available and only machine time
and labour time may limit the production of the two types of products. Table
below summarizes the amount of machine hours and labour hours needed to
produce one unit of each product type, with expected profit earned from each of
the product sold.
Machine (Hours) Labour (Hours) Profit ($)

Type A 0.8 3 120
Type B 1.6 2 150
• In the coming week, there are a maximum of 160 machine hours and 240 labour
hours available, respectively.
• Danny recalls that the product mix can be determined using a mathematical
model and a graphical approach.
21
Post and Share – LP Formulation

Consider the IS scenario given, identify the major components in
the LP formulation.
Post and share your answers

in Padlet / MS Teams
22

Consider the IS scenario given, identify the major components in
the LP formulation.
• Danny wants to know how many units of Type A and

how many units of Type B to make (Decision) per
week so that,
• He could earn as much profit as possible;
 Maximize profit (Objective); with each unit of Type A earning
$120 and each unit of Type B earning $150.
• He has limited available machine hours (160 hours) and

labour hours (240 hours) (Constraints).
• He needs 0.8 machine hours and 3 labour hours to
produce one unit of Type A and needs 1.6 machine hours
and 2 labour hours to produce one unit of Type B.
23

Consider the IS scenario given, formulate the LP model by stating
the decision variables, constructing the objective function and
formulating the constraints.

Padlet / MS Teams
24

Consider the IS scenario given, formulate the LP model by stating
the decision variables, constructing the objective function and
formulating the constraints.
Decision Variables
Let X1 be the number of Type A to make per week

Let X2 be the number of Type B to make per week
Objective Function
Maximize profit Z = 120X1 + 150X2
Constraints
0.8X1+ 1.6X2 ≤ 160 (machine hours constraint)
3X1+ 2X2 ≤ 240 (Labour hours constraint)
X1 , X2 ≥ 0 (Non–negativity constraints for the decision variables)

25
IS Lecture (3)
Graphical Method
Solving a 2-decision variable LP Model using

Graphical Method
1. Plot the constraints as equations in the graph.
2. Taking into account the inequalities of the constraints, indicate the

feasible solution area.
Then either:
3. Plot the objective function and move this line in parallel away from the
origin. Locate the extreme point of the feasible region.
4. Solve simultaneous equations at the extreme point to find the optimal

solution values.
Or:
1. Solve simultaneous equations at each corner point of the feasible region

to find the solution values at each point.
2. Substitute these values into the objective function to find the set of values
that results in maximum/minimum Z value.
Note: It may be possible to read the solution values directly from the graph
instead of solving as simultaneous equations.
(Watch the video https://docs.google.com/file/d/0Bz-Yttbj61bxeW16a3R1NEQ5dVE/edit?usp=sharing)
27
Hands-on Session on Graphical Method (1)

Refer to the graph “AY 2021 Sem1 E210_W03 Graphical Method (1) ”
provided, where lines corresponding to the constraints are given.
a) Match the lines in the graphs with the constraints that you have
formulated.
b) What role does the inequality sign play in the graphs?
c) Shade the feasible solution region clearly in your graphs.

Padlet / MS Teams
28

Refer to the graph “AY 2021 Sem1 E210_W03 Graphical Method (1) ”
provided, where lines corresponding to the constraints are given.
a) Match the lines in the graphs with the constraints that you have
formulated.
b) What role does the inequality sign play in the graphs?
c) Shade the feasible solution region clearly in your graphs.
• To understand the inequality, substitute values such that the LHS is not
equal to the RHS and then see where the point falls in the graph.
 <= : below the line; towards the left side of the line
 >= : above the line; towards the right side of the line
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Graphical Solution: Non-negativity Constraints for the

Number of Type A and Type B (X1≥ 0, X2 ≥ 0)
(Type B)
(Type A)
30
Graphical Solution: Machine Hours Constraint

(0.8X1 + 1.6X2 ≤ 160)
140
X1 ≥ 0
Machine Hours
120 Feasible Region
X2 (Type B)
100
80 Infeasible region
Machine Hours Constraint:
0.8X1 + 1.6X2 ≤ 160
60
40
20
Feasible region X2 ≥ 0
0
0 50 100 150 200 250
X1(Type A)
31
Graphical Solution: Labour Hours Constraint

(3X1+ 2X2 ≤ 240 )
140 Machine Hours Labour Hours
X1 ≥ 0
Feasible Region
120
X2 (Type B)
Labour Hours Constraint:

100 3X1+ 2X2 ≤ 240
80 Machine Hours Constraint:

0.8X1+ 1.6X2 ≤ 160
60
40 Feasible
region
20
X2 ≥ 0
0
0 50 100 150 200 250
X1 (Type A)
32

Refer to the graph “AY 2021 Sem1 E210_W03 Graphical Method (2)” provided, after
you identify the feasible solution region, one line parallel to the objective function
(when Z = $6,000) is given. Move this line in parallel to the objective function to
identify the optimal solution.
a) What happens to Z when you move this line in parallel away from the origin?
b) Where is the furthest you can move without leaving the feasible solution region?
c) What is the significance of this extreme (furthest) point in the feasible region?

33

Refer to the graph “AY 2021 Sem1 E210_W03 Graphical Method (2)” provided, after
you identify the feasible solution region, one line parallel to the objective function
(when Z = $6,000) is given. Move this line in parallel to the objective function to
identify the optimal solution.
a) What happens to Z when you move this line in parallel away from the origin?
b) Where is the furthest you can move without leaving the feasible solution region?
c) What is the significance of this extreme (furthest) point in the feasible region?
a) Z (the profit) changes when the objective function line moves. And since the
objective is to maximize profit, the line should be moved as far right or upwards
as possible without leaving the feasible region.
b) As the objective function line moves further, its value (right-hand side of equation)
increases. Optimal solution is found by moving the objective function line right
and upwards (keeping to its gradient) until the extreme point is reached in the
feasible solution region.
c) This is the optimal solution that will give the maximum objective function value.
34
Graphical Solution: Possible Solutions for the Objective

Function (Z=120X1+150X2)
140 X1 ≥ 0
Machine Hours Labour Hours
Labour Hours Feasible Region
120 Constraint: Objective
3X1+ 2X2 ≤ 240
X2 (Type B)
100 Extreme point
80
0.8X1+ 1.6X2 ≤ 160
60
40
20
X2 ≥ 0
0
0 50 100 150 200 250
Lines parallel to the objective X1 (Type A)
function: Z = 120X1 +150X2
35
Graphical Solution: Optimized Objective Function

X1 ≥ 0
Labour Hours Feasible Region
120 Constraint: Objective
3X1+ 2X2 ≤ 240
X2 (Type B)
100
Extreme point: X1 = 20; X2= 90
Machine hours used = 160 hours
80 Labour hours used = 240 hours
Profit = 120x20 + 150x90 = $15,900
60

40
0.8X1 + 1.6X2 ≤ 160
20
X2 ≥ 0
0
0 50 100 150 200 250
X1 (Type A)
36
Graphical Solution: Outside Feasible Region

X1 ≥ 0
Feasible Region
120 Objective
X2 (Type B)
Labour Hours Constraint:

100 3X1+ 2X2 ≤ 240
What will happen if to make: X1 = 100;
80
X2= 60? Solution is outside feasible
region: both resources are not enough.
60
40 0.8X1 + 1.6X2 ≤ 160
20
X2 ≥ 0
0
0 50 100 150 200 250
X1 (Type A)
37
Solutions
• The optimal solution at which profit is maximized
is X1= 20, X2= 90.
• In other words, we recommend to make 20 units
of Type A and 90 units of Type B per week which
will yield a maximum profit of $15,900.
Profit = 120x20 + 150x90 = $15,900
• The assumptions are:

 The coefficient and right-hand side values in the
equations are constant.
 The linearity assumption holds for all values of the
decision variables.
38
IS Lecture (4)
Sensitivity Analysis
- Shadow Price and Range of Feasibility
Assumptions of Linear Programming (LP)

What will happen if this
• The Certainty assumption: assumption does not hold?
 Each model parameter is known with certainty.

 Model parameters here refer to objective function coefficients, right-
hand side values of model constraints, and constraint coefficients.
• The Proportionality assumption:
 The contribution to the objective function (left-hand side of each
constraint) from each decision variable is proportional to the value of
the decision variable.
• The Additivity assumption:
 Total contributions to the objective function (left-hand side of each
constraint) is the sum of individual contributions from each variable.
• The Continuity assumption:
 Variables can take on any value within a given feasible range.
40
Role of Sensitivity Analysis of Optimal solution
• When formulating LP models, the model

parameters are assumed to be known with
certainty
• In reality, model parameters are simply estimates
(best guesses) that are subject to changes.
• Sensitivity analysis is the analysis of parameter
changes and their effects on the model solution.
• Sensitivity analysis provides a better picture of how
the solution to a problem will change if different
parameters in the model change.
41
• Sensitivity analysis aids in answering questions such as:
 Range of optimality - The range of values that the objective
function coefficients can assume without changing the optimal
solution.
 Range of feasibility - The range of values for the right-hand side
of a constraint, in which the shadow price for the constraint remains
unchanged - the valid range of shadow price.
 Reduced Cost - The impact of forcing a variable which is
currently zero to be non-zero on the optimal objective function
value.
 Shadow price - The impact of increasing or decreasing the right-
hand side value of various constraints on the optimal objective
function value.
 The impact of changing the constraint coefficients on the optimal
solution to the problem.
42
• The information and insights obtained through
sensitivity analysis are valuable to management
 They provide an indication of the degree of flexibility
that is inherent in an operating environment.
• Almost all commercial software for linear
programming provides
 Right-hand side ranging information
 Objective coefficient ranging information.
 Other sensitivity analysis, such as adding new variable
and constraint, is dealt by solving the modified linear
programming problem.
43
Hands-on Session on Sensitivity Analysis (1)

Use the graph “AY 2021 Sem1 E210_W03 Hands-on Session on
Sensitivity Analysis (1)” provided.
Consider the IS scenario given, how does Danny know if his
resources have been used up? What do you call the constraints
corresponding to the resources being used up?

44

Consider the IS scenario given, how does Danny know if his
resources have been used up? What do you call the constraints
corresponding to the resources being used up?
A resource is used up if the optimal solution is on the equation line

of the constraint. The corresponding constraint is binding.
A constraint is binding if the left-hand side and the right-hand side
of the constraint are equal when the optimal values of the decision
variables are substituted into the constraint.
A constraint is nonbinding if the left-hand side and the right-hand
side of the constraint are unequal when the optimal values of the
decision variables are substituted into the constraint.
45
Sensitivity Analysis: Binding/Nonbinding Constraints

X1 ≥ 0
Labour Hours Constraint: Feasible Region
120 3X1+ 2X2 ≤ 240 Objective
X2 (Type B)
100 Extreme point: (X1 = 20; X2= 90)

Machine hours used = 160; Labour hours used = 240
80 Both machine hours and labour hours are used up and
the corresponding constraints are binding.
60
40 Machine Hours Constraint:

0.8X1 + 1.6X2 ≤ 160
20
X2 ≥ 0
0
0 50 100 150 200 250
X1 (Type A)
46

Use the graph “AY 2021 Sem1 E210_W03 Hands-on Session on Sensitivity
Analysis (2)” provided.
Consider the IS scenario given, assume that the weekly available labour
time is increased from 240 to 280 hours.
a) How will the feasible region change?
b) Determine the new optimal solution and calculate the corresponding
profit.
c) Calculate the shadow price for the Labour Hours constraint.

47
Sensitivity Analysis of Right-Hand Side Value of

Constraints
140 X1 ≥ 0 Shadow price: The increase (or
decrease) in objective function
120 Max Z = 120X1 + 150X2 = $15,900 given 1 unit increase (or decrease)
in resource (RHS value).
Max Z = 120X1 + 150X2 = $16,800
X2 (Type B)
100 Shadow price for the labour hours

constraint:
New Optimal
80 Solution: (40, 80) (16,800 – 15,900)/(280-240)
=$22.5
60

40 0.8X1 + 1.6X2 ≤ 160
20
X2 ≥ 0
0
0 50 100 150 200 250
When more labour hours become available (the X1 (Type A)

labour hours constraint is relaxed), the right- hand
side of the labour hours constraint increases. 48

Use the graph “AY 2021 Sem1 E210_W03 Hands-on Session on Sensitivity
Analysis (3)” provided.
Consider the IS scenario given, assume that the weekly available labour
time is increased from 240 to 600 hours.
a) Determine the new optimal solution and calculate the corresponding
profit.
b) How to calculate the change in profit based on the shadow price?
c) What will happen if the weekly available labour time is increased
beyond 600 hours?

49
Sensitivity Analysis of Right-Hand Side Value of Constraints
140 X1 ≥ 0
Max Z = 120X1 +150X2 = $15,900
120 Beyond this point, the Labour
Hours constraint becomes
Machine Hours Constraint: non-binding.
X2 (Type B)
100
0.8X1+ 1.6X2 ≤ 160 At this point the profit is
$24,000
80
Change in profit = [Shadow
Price]*[Change in RHS value]
60
= 22.5*(600-240) = $8,100
40
New Optimal
20 Solution: (200,0)
X2 ≥ 0
0
0 50 100 150 200 250
X1 (Type A) Max Z = 120X1 + 150X2

= $24,000
50

Consider the IS scenario given, assume that the weekly available
labour time is decreased from 240 to 200 hours.
a) Determine the new optimal solution and calculate the
corresponding profit.
b) How to calculate the change in profit based on the shadow price?
c) What will happen if the weekly available labour time is decreased
to below 200 hours?

Padlet / MS Teams
51
Sensitivity Analysis of Right-Hand Side Value of Constraints
140 X1 ≥ 0
Below this 200 labour hours, Machine Hours
Max Z = 120X1 + 150X2 = $15,000 constraint becomes non-binding. Only Labour Hours
120 constraint is binding.
New Optimal
Solution: (0,100) At this point the profit is $15,000
X2 (Type B)
100
Change in profit = [Shadow Price]*[Change in RHS
value]
80
= 22.5*(200-240) = -$900
60

40 0.8X1 + 1.6X2 ≤ 160
20
X2 ≥ 0
0
0 50 100 150 200 250
When labour hours are reduced,
the right-hand side of the labour
X1 (Type A)
hours constraint decreases.
52

Consider the IS scenario given and the Labour Hours constraint,
a) What does range of feasibility mean?
b) What is the range of feasibility for the Labour Hours constraint?

Padlet / MS Teams
53
Range of Feasibility – Labour Hours

140 X1 ≥ 0
Assuming there are no other changes to the input parameters, the
range of feasibility is:
120
The range of values for the right-hand side of a constraint, in which
the shadow price for the constraint remains unchanged.
X2 (Type B)
100 In this case, the labour hours should be within 200 to 600 hours for
the shadow price of the labour hours constraint to be $22.5.
80
60
40
20
X2 ≥ 0
0
0 50 100 150 200 250
X1 (Type A)
54
IS Lecture (5)
- Range of Optimality

Sensitivity Analysis (6) – 1” provided.
Consider the scenario given,
a) What would happen if the unit profit of Type A is decreased from
$120 to $75?
b) What would happen if the unit profit of Type A is increased from
$120 to $225?
c) What would happen if the unit profit of Type A is further
increased or decreased beyond this range?

56
Sensitivity Analysis of Objective Function Coefficients

- Range of Optimality
If the unit profit for Type A reduces to $75, the objective function will be
140
parallel to the Machine Hours constraint (multiple optimal solution).
X1 ≥ 0 Max Z = 75X1 + 150X2
120 Profit = $15,000
X2 (Type B)
100 Extreme point Range of Optimality for

X1 = 20; X2= 90
objective coefficient of X1:
80 [75, 225]
60
40
20
X2 ≥ 0
0
0 50 100 150 200 250
If the unit profit for Type A increases to $225, the X1 (Type A)
objective function will be parallel to the Labour
What happens if the unit profit for
Hours constraint (multiple optimal solution).
Type A further reduces / increases
Max Z = 225X1 + 150X2
beyond this range?
Profit = $18,000
57
Sensitivity Analysis of Objective Function Coefficients

- What happens if the unit profit further reduces/increases?
140 If the unit profit for Type A decreases to $50
X1 ≥ 0 Extreme point: (X1 = 0; X2= 100)
120 Max Z = 50X1 + 150X2

Profit = $15,000
X2 (Type B)
100 What happens if the unit profit for Type A further

reduces/increases beyond the range of optimality?
80 The Optimal Solution will change.
60
40
20
X2 ≥ 0
0
0 50 100 150 200 250
If the unit profit for Type A increases to $450
Extreme point: (X1 = 80; X2=0)
X1 (Type A)
Max Z = 450X1 + 150X2
Profit = $24,000
58
Validity of Model
• Verify the model – check the formula and assumptions
• Check that the model represents reality by comparing
the result with the expected outcome
 Use historical data to reconstruct the past and then
determine how well the model and the resulting solution
would have performed if they had been used.
59
Learning Outcomes
At the end of the lesson, students should be able to:
• Identify problems that can be solved using linear programming.
• Formulate a Linear Programming (LP) model by establishing the decision variables, objective
function and constraints.
• Solve a Linear programming (LP) problem with two decision variables using graphical method.
• Perform sensitivity analysis on the objective function coefficients and right-hand side values of the
constraints using graphical method.
• Interpret feasibility and optimality of an LP solution.
• Solve an LP model using MS Excel Solver.
• Interpret shadow price to determine the impact of changing constraint right-hand side value on the
optimal objective value.
• Explain range of optimality: the range of values that the objective function coefficients can assume
without changing the optimal solution.
• Explain range of feasibility: the range of values for the right-hand side of a constraint, in which the
shadow price for the constraint remains unchanged.
• Calculate Reduced Cost to determine the impact of forcing a decision variable which has zero value
to be non-zero on the objective function value.
• Identify a transportation problem that deals with the distribution of goods from multiple supply
sources to multiple demand destinations.
• Apply North-West Corner Rule and Lowest Cost Method to determine a feasible solution for a
transportation problem.
• Formulate the transportation problem that involves minimizing the cost of shipping goods from a set
of origins to a set of destinations as a linear programming model.
• Apply Excel Solver to find an optimal shipment allocation for the transportation problem to minimize
the total transportation cost.
• Compare the heuristic solutions with the solution of linear programming method.
60
Overview of E210 Operation Planning Module
Decision
Operations LP – Integer Making using
Planning Programming Decision Tree
Overview
LP -
Transportation Network
Model Diagram and
Decision
Making with Min. Spanning
Dependent Tree
Decisions
LP formulation LP – Binary
Process Strategy and EXCEL Integer
& Capacity Solver with Programming Decision
Requirements Sensitivity Making using
analysis Utility Dissimilarity
Function Index and MST
Linear
Programming Decision
(LP) Graphical Making under
Method uncertainty
and risk
We are
here !
61

AY 2021 Sem 1 E210 - W03 - IS - SLIDES

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OFFICIAL (CLOSED) \ NON-SENSITIVE

E210 – Operations Planning

E210 Operations Planning Topic Tree

Scenario for Lesson 03 – 05:

Scenario for Lesson 03 – 05: Product Mix and Distribution Planning

Machine Time (Hour) Cloth (m2) Unit Profit ($)

• Currently, the plant has a maximum of 45 hours of machine time available

Scenario for Lesson 03 – 05: Product Mix and Distribution Planning

Scenario for Lesson 03 – 05: Product Mix and Distribution Planning

Scenario Definition Template

• What do we not know?

• What do we need to find out?

Scenario – Tasks of the day

Continuing from Lesson 03,

Introduction to Linear Programming

• An example is mathematical programming, also

• Models have been applied successfully in the areas of

• Linear Programming (LP) is a type of

Linear Programming (LP)

Linear Programming (LP)

• Assumes linearity of all model equations.

• LP models can be efficiently solved in Excel

LP Model Formulation Process

• Define the Decision Variables.

• State the Objective Function in terms of the

• Formulate each Constraint in terms of the decision

• Identify any upper or lower bounds on the decision

2. What is the aim? (Objective Function)

3. What limitations or requirements restrict the values of the

• The decision variables must represent a physical

Objective function coefficients for X1 and X2 respectively, i.e. Each unit of

Production of each unit of X1 requires 20 labour hours and each unit

• Special note: Most frequent error in constraint formulation

Check: When T=1, S = 12(1) = 12

Post and Share – Mathematical Relationships

b) The number of students must be at least 15 times as many as

c) The proportion of female students should not exceed 50% of all

Post and share your answers in

Post and Share – Mathematical Relationships

b) The number of students must be at least 15 times as many as

c) The proportion of female students should not exceed 50% of all

Scenario for the Interactive Seminar (IS)

Machine (Hours) Labour (Hours) Profit ($)

Post and Share – LP Formulation

Post and share your answers

Post and Share – LP Formulation

• Danny wants to know how many units of Type A and

• He has limited available machine hours (160 hours) and

Post and Share – LP Formulation

Post and share your answers in

Post and Share – LP Formulation

Let X1 be the number of Type A to make per week

0.8X1+ 1.6X2 ≤ 160 (machine hours constraint)

3X1+ 2X2 ≤ 240 (Labour hours constraint)

X1 , X2 ≥ 0 (Non–negativity constraints for the decision variables)

Solving a 2-decision variable LP Model using

2. Taking into account the inequalities of the constraints, indicate the

4. Solve simultaneous equations at the extreme point to find the optimal

1. Solve simultaneous equations at each corner point of the feasible region

Hands-on Session on Graphical Method (1)

b) What role does the inequality sign play in the graphs?

c) Shade the feasible solution region clearly in your graphs.

Post and share your answers in