Confirming Pages

Chapter Seven

Using Binary Integer

Programming to Deal
with Yes-or-No Decisions
Learning Objectives
After completing this chapter, you should be able to

1. Describe how binary decision variables are used to represent yes-or-no decisions.
2. Use binary decision variables to formulate constraints for mutually exclusive alterna-
tives and contingent decisions.
3. Formulate a binary integer programming model for the selection of projects.
4. Formulate a binary integer programming model for the selection of sites for facilities.
5. Formulate a binary integer programming model for crew scheduling in the travel
industry.
6. Formulate other basic binary integer programming models from a description of the
problems.
7. Use mixed binary integer programming to deal with setup costs for initiating the pro-
duction of a product.

The preceding chapters have considered various kinds of problems where decisions need to
be made about how much to do of various activities. Thus, the decision variables in the result-
ing model represent the level of the corresponding activities.
We turn now to a common type of problem where, instead of how-much decisions, the
decisions to be made are yes-or-no decisions. A yes-or-no decision arises when a particu-
lar option is being considered and the only possible choices are yes, go ahead with this option,
or no, decline this option.
The natural choice of a decision variable for a yes-or-no decision is a binary variable.
Binary variables are variables whose only possible values are 0 and 1. Thus, when repre-
senting a yes-or-no decision, a binary decision variable is assigned a value of 1 for choos-
ing yes and a value of 0 for choosing no.
Models that fit linear programming except that they use binary decision variables are called
binary integer programming (BIP) models. (We hereafter will use the BIP abbreviation.)
A pure BIP model is one where all the variables are binary variables, whereas a mixed BIP
model is one where only some of the variables are binary variables.
A BIP model can be considered to be a special type of integer programming model. A gen-
eral integer programming model is simply a linear programming model except for also having
constraints that some or all of the decision variables must have integer values (0, 1, 2, . . .). A
BIP model further restricts these integer values to be only 0 or 1.
However, BIP problems are quite different from general integer programming problems
because of the difference in the nature of the decisions involved. Like linear programming
problems, general integer programming problems involve how-much decisions, but where
these decisions make sense only if they have integer values. For example, the TBA Airlines
232

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7.1 A Case Study: The California Manufacturing Co. Problem 233

problem presented in Section 3.2 is a general integer programming problem because it is essen-
tially a linear programming problem except that its how-much decisions (how many small air-
planes and how many large airplanes to purchase) only make sense if they have integer values.
By contrast, BIP problems involve yes-or-no decisions instead of how-much decisions.
The preceding chapters already have focused on problems involving how-much decisions
and how such techniques as linear programming or integer programming can be used to ana-
lyze these problems. Therefore, this chapter will be devoted instead to problems involving yes-
or-no decisions and how BIP models can be used to analyze this special category of problems.
BIP problems arise with considerable frequency in a wide variety of applications. To illus-
trate this, we begin with a case study and then present some more examples in the subsequent
sections. One of the supplements to this chapter on the CD-ROM also provides additional
formulation examples for BIP problems.
You will see throughout this chapter that BIP problems can be formulated on a spreadsheet
just as readily as linear programming problems. The Solver also can solve BIP problems of
modest size. You normally will have no problem solving the small BIP problems found in
this book, but Solver may fail on somewhat larger problems. To provide some perspective
on this issue, we include another supplement on the CD-ROM that is entitled Some Perspec-
tives on Solving Binary Integer Programming Problems. The algorithms available for solving
BIP problems (including the one used by Solver) are not nearly as efficient as those for linear
programming, so this supplement discusses some of the difficulties and pitfalls involved in
solving large BIP problems. One option with any large problem that fits linear programming
except that it has decision variables that are restricted to integer values (but not necessarily
just 0 and 1) is to ignore the integer constraints and then to round the solution obtained to
integer values. This is a reasonable option in some cases but not in others. The supplement
emphasizes that this is a particularly dangerous shortcut with BIP problems.

7.1 A CASE STUDY: THE CALIFORNIA MANUFACTURING CO. PROBLEM

The top management of the California Manufacturing Company wants to develop a plan for
the expansion of the company. Therefore, a management science study will be conducted
to help guide the decisions that need to be made. The president of the company, Armando
Ortega, is about to meet with the company’s top management scientist, Steve Chan, to discuss
the study that management wants done. Let’s eavesdrop on this meeting.
Armando Ortega (president): OK, Steve, here is the situation. With our growing busi-
ness, we are strongly considering building a new factory. Maybe even two. The factory
needs to be close to a large, skilled labor force, so we are looking at Los Angeles and San
Francisco as the potential sites. We also are considering building one new warehouse. Not
more than one. This warehouse would make sense in saving shipping costs only if it is in the
same city as a new factory. Either Los Angeles or San Francisco. If we decide not to build a
new factory at all, we definitely don’t want the warehouse either. Is this clear, so far?
Steve Chan (management scientist): Yes, Armando, I understand, What are your criteria
for making these decisions?
Armando Ortega: Well, all the other members of top management have joined me in
addressing this issue. We have concluded that these two potential sites are very comparable
on nonfinancial grounds. Therefore, we feel that these decisions should be based mainly on
financial considerations. We have $10 million of capital available for this expansion and we
want it to go as far as possible in improving our bottom line. Which feasible combination of
investments in factories and warehouses in which locations will be most profitable for the
company in the long run? In your language, we want to maximize the total net present value
of these investments.
What is the most profit- Steve Chan: That’s very clear. It sounds like a classical management science problem.
able combination of
Armando Ortega: That’s why I called you in, Steve. I would like you to conduct a quick
investments?
management science study to determine the most profitable combination of investments.
I also would like you to take a look at the amount of capital being made available and its

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 Confirming Pages

An Application Vignette
With headquarters in Houston, Texas, Waste Management,
Inc. (a Fortune 100 company), is the leading provider of com-
prehensive waste-management services in North America. Its
network of operations includes 293 active landfill disposal
sites, 16 waste-to-energy plants, 72 landfill gas-to-energy
facilities, 146 recycling plants, 346 transfer stations, and 435
collection operations (depots) to provide services to nearly
20 million residential customers and 2 million commercial
customers throughout the United States and Canada.
The company’s collection-and-transfer vehicles need to
follow nearly 20,000 daily routes. With an annual operating
cost of nearly $120,000 per vehicle, management wanted
to have a comprehensive route-management system that
would make every route as profitable and efficient as possi-
ble. Therefore, a management science team that included a
number of consultants was formed to attack this problem.
The heart of the route-management system developed
by this team is a huge mixed BIP model that optimizes the
routes assigned to the respective collection-and-transfer
vehicles. Although the objective function takes several fac-
tors into account, the primary goal is the minimization of
total travel time. The main decision variables are binary vari-
ables that equal 1 if the route assigned to a particular vehicle
includes a particular possible leg and that equal 0 otherwise.
A geographical information system (GIS) provides the data
about the distance and time required to go between any two
points. All of this is imbedded within a Web-based Java appli-
cation that is integrated with the company’s other systems.
It is estimated that the recent implementation of this
comprehensive route-management system will increase
the company’s cash flow by $648 million over a five-year
period, largely because of savings of $498 million in opera-
tional expenses over this same period. It also is providing
better customer service.
Source: S. Sahoo, S. Kim, B.-I. Kim, B. Krass, and A. Popov, Jr.,
“Routing Optimization for Waste Management,” Interfaces 35,
no. 1 (January–February 2005), pp. 24–36. (A link to this article is
provided on our website, www.mhhe.com/hillier5e.)

effect on how much profit we can get from these investments. The decision to make
$10 million available is only a tentative one. That amount is stretching us, because we now
are investigating some other interesting project proposals that would require quite a bit of
capital, so we would prefer to use less than $10 million on these particular investments if the
last few million don’t buy us much. On the other hand, this expansion into either Los Ange-
les or San Francisco, or maybe both of these key cities, is our number one priority. It will
have a real positive impact on the future of this company. So we are willing to go out and
raise some more capital if it would give us a lot of bang for the buck. Therefore, we would
like you to do some what-if analysis to tell us what the effect would be if we were to change
the amount of capital being made available to anything between $5 million and $15 million.
Steve Chan: Sure, Armando, we do that kind of what-if analysis all the time. We refer to
it as sensitivity analysis because it involves checking how sensitive the outcome is to the
amount of capital being made available.
Armando Ortega: Good. Now, Steve, I need your input within the next couple weeks.
Can you do it?
Steve Chan: Well, Armando, as usual, the one question is whether we can gather all the
necessary data that quickly. We’ll need to get good estimates of the net present value of each
of the possible investments. I’ll need a lot of help in digging out that information.
Armando Ortega: I thought you would say that. I already have my staff working hard on
developing those estimates. I can get you together with them this afternoon.
Steve Chan: Great. I’ll get right on it.

Background
The California Manufacturing Company is a diversified company with several facto-
ries and warehouses throughout California, but none yet in Los Angeles or San Francisco.
Because the company is enjoying increasing sales and earnings, management feels that the
time may be ripe to expand into one or both of those prime locations. A basic issue is whether
to build a new factory in either Los Angeles or San Francisco, or perhaps even in both cities.
Management also is considering building at most one new warehouse, but will restrict the
choice of location to a city where a new factory is being built.
The decisions to be made are listed in the second column of Table 7.1 in the form of yes-
or-no questions. In each case, giving an answer of yes to the question corresponds to the
decision to make the investment to build the indicated facility (a factory or a warehouse) in
234

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TABLE 7.1
Data for the California
Manufacturing Co.
Problem
With a group of mutually
exclusive alternatives, only
one of the corresponding
binary decision variables
can equal 1.
TABLE 7.2
Binary Decision Variables for the California Manufacturing Co. Problem
Decision Decision
Number Variable
1 x1
2 x2
3 x3
4 x4
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7.1 A Case Study: The California Manufacturing Co. Problem 235
Capital
Decision Yes-or-No Decision Net Present Required
Number Question Variable Value (Millions) (Millions)
1 Build a factory in Los Angeles? x1 $8 $6
2 Build a factory in San Francisco? x2 5 3
3 Build a warehouse in Los Angeles? x3 6 5
4 Build a warehouse in San Francisco? x4 4 2
Capital available: $10 million
the indicated location (Los Angeles or San Francisco). The capital required for the investment
is given in the rightmost column, where management has made the tentative decision that
the total amount of capital being made available for all the investments is $10 million. (Note
that this amount is inadequate for some of the combinations of investments.) The fourth col-
umn shows the estimated net present value (net long-run profit considering the time value of
money) if the corresponding investment is made. (The net present value is 0 if the investment
is not made.) Much of the work of Steve Chan’s management science study (with substantial
help from the president’s staff) goes into developing these estimates of the net present values.
As specified by the company’s president, Armando Ortega, the objective now is to find the
feasible combination of investments that maximizes the total net present value.
Introducing Binary Decision Variables for the Yes-or-No Decisions
As summarized in the second column of Table  7.1, the problem facing management is to
make four interrelated yes-or-no decisions. To formulate a mathematical model for this prob-
lem, Steve Chan needs to introduce a decision variable for each of these decisions. Since
each decision has just two alternatives, choose yes or choose no, the corresponding decision
variable only needs to have two values (one for each alternative). Therefore, Steve uses a
binary variable, whose only possible values are 0 and 1, where 1 corresponds to the decision
to choose yes and 0 corresponds to choosing no.
These decision variables are shown in the second column of Table 7.2. The final two col-
umns give the interpretation of a value of 1 and 0, respectively.
Dealing with Interrelationships between the Decisions
Recall that management wants no more than one new warehouse to be built. In terms of the
corresponding decision variables, x3 and x4, this means that no more than one of these vari-
ables is allowed to have the value 1. Therefore, these variables must satisfy the constraint
x3 1 x4 # 1
as part of the mathematical model for the problem.
These two alternatives (build a warehouse in Los Angeles or build a warehouse in San
Francisco) are referred to as mutually exclusive alternatives because choosing one of
these alternatives excludes choosing the other. Groups of two or more mutually exclusive
alternatives arise commonly in BIP problems. For each such group where at most one of the
alternatives can be chosen, the constraint on the corresponding binary decision variables has
the form shown above, namely, the sum of these variables must be less than or equal to 1.
For some groups of mutually exclusive alternatives, management will exclude the possibility
Possible Interpretation Interpretation
Value of a Value of 1 of a Value of 0
0 or 1 Build a factory in Los Angeles Do not build this factory
0 or 1 Build a factory in San Francisco Do not build this factory
0 or 1 Build a warehouse in Los Angeles Do not build this warehouse
0 or 1 Build a warehouse in San Francisco Do not build this warehouse
09/11/12 1:30 PM

236 Chapter Seven Using Binary Integer Programming to Deal with Yes-or-No Decisions
One yes-or-no decision is
contingent on another yes-
or-no decision if the first
one is allowed to be yes
only if the other one is yes.
Excel Tip: Beware that
rounding errors can occur
with Excel. Therefore, even
when you add a constraint
that a changing cell has to
be binary, Excel occasion-
ally will return a noninteger
value very close to an inte-
ger (e.g., 1.23E-10, meaning
0.000000000123). When this
happens, you can replace the
noninteger value with the
proper integer value.
hil24064_ch07_232-266.indd 236
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of choosing none of the alternatives, in which case the constraint will set the sum of the cor-
responding binary decision variables equal to 1.
The California Manufacturing Co. problem also has another important kind of restriction.
Management will allow a warehouse to be built in a particular city only if a factory also is
being built in that city. For example, consider the situation for Los Angeles (LA).
If decide no, do not build a factory in LA (i.e., if choose x1 5 0),
then cannot build a warehouse in LA (i.e., must choose x3 5 0).
If decide yes, do build a factory in LA (i.e., if choose x1 5 1),
then can either build a warehouse in LA or not (i.e., can choose either x3 5 1 or 0).
How can these interrelationships between the factory and warehouse decisions for LA be
expressed in a constraint for a mathematical model? The key is to note that, for either value of
x1, the permissible value or values of x3 are less than or equal to x1. Since x1 and x3 are binary
variables, the constraint
x3 # x1
forces x3 to take on a permissible value given the value of x1.
Exactly the same reasoning leads to
x4 # x2
as the corresponding constraint for San Francisco. Just as for Los Angeles, this constraint
forces having no warehouse in San Francisco (x4  5  0) if a factory will not be built there
(x2 5 0), whereas going ahead with the factory there (x2 5 1) leaves open the decision to build
the warehouse there (x4 5 0 or 1).
For either city, the warehouse decision is referred to as a contingent decision, because
the decision depends on a prior decision regarding whether to build a factory there. In general,
one yes-or-no decision is said to be contingent on another yes-or-no decision if it is allowed to
be yes only if the other is yes. As above, the mathematical constraint expressing this relation-
ship requires that the binary variable for the former decision must be less than or equal to the
binary variable for the latter decision.
The rightmost column of Table 7.1 reveals one more interrelationship between the four
decisions, namely, that the amount of capital expended on the four facilities under consid-
eration cannot exceed the amount available ($10 million). Therefore, the model needs to
include a constraint that requires
Capital expended # $10 million
How can the amount of capital expended be expressed in terms of the four binary decision vari-
ables? To start this process, consider the first yes-or-no decision (build a factory in Los Angeles?).
Combining the information in the rightmost column of Table 7.1 and the first row of Table 7.2,
$6 million if x1 5 1
Capital expended on factory in Los Angeles 5 b
0 if x1 5 0
5 $6 million times x1
By the same reasoning, the amount of capital expended on the other three investment oppor-
tunities (in units of millions of dollars) is 3x2, 5x3, and 2x4, respectively. Consequently,
Capital expended 5 6x1 1 3x2 1 5x3 1 2x4 (in millions of dollars)
Therefore, the constraint becomes
6x1 1 3x2 1 5x3 1 2x4 # 10
The BIP Model
As indicated by Armando Ortega in his conversation with Steve Chan, management’s objec-
tive is to find the feasible combination of investments that maximizes the total net present
value of these investments. Thus, the value of the objective function should be
NPV 5 Total net present value
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7.1 A Case Study: The California Manufacturing Co. Problem 237

FIGURE 7.1 A B C D E F G
A spreadsheet formula-
tion of the BIP model
1 California Manufacturing Co. Facility Location Problem
for the California Manu- 2
facturing Co. case study 3 NPV ($millions) LA SF
where the changing cells 4 Warehouse 6 4
BuildFactory? (C18:D18)
5
and BuildWarehouse?
(C16:D16) give the opti- 6 Factory 8 5
mal solution obtained by 7
Solver. 8 Capital Required
9 ($millions) LA SF
10 Warehouse 5 2 Capital Capital
11 Spent Available
12 Factory 6 3 9 ? 10
13
14 Total Maximum
15 Build? LA SF Warehouses Warehouses
16 Warehouse 0 0 0 ? 1
17 ? ?
18 Factory 1 1
19
20 Total NPV ($millions) $13

Solver Parameters E
Set Objective Cell: TotalNPV
To: Max 10 Capital
By Changing Variable Cells: 11 Spent
BuildWarehouse?, BuildFactory?
Subject to the Constraints: 12 = SUMPRODUCT(CapitalRequired,Build?)
BuildFactory? = binary 13
BuildWarehouse? = binary
BuildWarehouse? <= BuildFactory? 14 Total
CapitalSpent <= CapitalAvailable
15 Warehouses
TotalWarehouses <= MaxWarehouses
16 = SUM(BuildWarehouse?)
Solver Options:
Make Variables Nonnegative
Solving Method: Simplex LP Range Name Cells
Excel Tip: In the Solver Build? C16:D18
Options, the Integer Opti- BuildWarehouse? C16:D16
mality (%) setting (1 percent BuildFactory? C18:D18
by default) causes Solver CapitalAvailable G12
to stop solving an integer CapitalRequired C10:D12
programming problem when CapitalSpent E12
it finds a feasible solution MaxWarehouses G16
whose objective function NPV C4:D6
value is within the specified TotalNPV D20
percentage of being opti- TotalWarehouses E16
mal. (In RSPE, this option
is called Integer Tolerance C D
and is found in the Engine 20 Total NPV ($millions) =SUMPRODUCT(NPV,Build?)
tab of the Model pane.) This
is useful for very large BIP
problems since it may enable If the investment is made to build a particular facility (so that the corresponding decision
finding a near-optimal solu- variable has a value of 1), the estimated net present value from that investment is given in the
tion when finding an optimal fourth column of Table 7.1. If the investment is not made (so the decision variable equals 0),
solution in a reasonable
the net present value is 0. Therefore, continuing to use units of millions of dollars,
period of time is not pos-
sible. For smaller problems NPV 5 8x1 1 5x2 1 6x3 1 4x4
(e.g., all the problems in this
book), this option should be is the quantity to enter into the objective cell to be maximized.
set to 0 to guarantee finding Incorporating the constraints developed in the preceding subsection, the complete BIP model
an optimal solution. then is shown in Figure 7.1. The format is basically the same as for linear programming models.

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238 Chapter Seven Using Binary Integer Programming to Deal with Yes-or-No Decisions
Note how helpful the range
names are for interpreting
this BIP spreadsheet model.
Solver’s sensitivity report
is not available for integer
programming problems.
Trial-and-error and/or a
parameter analysis report
can be used to perform sen-
sitivity analysis for integer
programming problems.
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The one key difference arises when using Solver. Each of the decision variables (cells C18:D18
and C16:D16) is constrained to be binary. In Excel’s Solver, this is accomplished in the Add
Constraint dialog box by choosing each range of changing cells as the left-hand side and then
choosing bin from the pop-up menu. In RSPE, this is accomplished by selecting each range of
changing cells, and then under the Constraints menu on the RSPE ribbon, choose Binary in the
Variable Type/Bound submenu. The other constraints shown in Solver (see the lower left-hand
side of Figure 7.1) have been made quite intuitive by using the suggestive range names given in
the lower right-hand side of the figure. For convenience, the equations entered into the output
cells in E12 and D20 use a SUMPRODUCT function that includes C17:D17 and either C11:D11
or C5:D5 because the blanks or # signs in these rows are interpreted as zeroes by Solver.
Solver gives the optimal solution shown in C18:D18 and C16:D16 of the spreadsheet,
namely, build factories in both Los Angeles and San Francisco, but do not build any ware-
houses. The objective cell (D20) indicates that the total net present value from building these
two factories is estimated to be $13 million.
Performing Sensitivity Analysis
Now that Steve Chan has used the BIP model to determine what should be done when the amount
of capital being made available to these investments is $10 million, his next task is to perform
what-if analysis on this amount. Recall that Armando Ortega wants him to determine what the
effect would be if this amount were changed to anything else between $5 million and $15 million.
In Chapter 5, we described three different methods of performing what-if analysis on a
linear programming spreadsheet model when there is a change in a constraint: using trial and
error with the spreadsheet, generating a parameter analysis report, or referring to Solver’s
sensitivity report. The first two of these can be used on integer programming problems in
exactly the same way as for linear programming problems. The third method, however, does
not work. The sensitivity report is not available for integer programming problems. This is
because the concept of a shadow price and allowable range no longer applies. In contrast to
linear programming, the objective function values for an integer programming problem do
not change in a predictable manner when the right-hand side of a constraint is changed.
It is straightforward to determine the impact of changing the amount of available capital
by trial and error. Simply try different values in the data cell CapitalAvailable (G12) and
re-solve with Solver. However, a more systematic way to perform this analysis is to gener-
ate a parameter analysis report using RSPE. The parameter analysis report works for integer
programming models in exactly the same way as it does for linear programming models (as
described in Section 5.3 in the subsection entitled Using a Parameter Analysis Report (RSPE)
to Do Sensitivity Analysis Systematically).
After defining CapitalAvailable (G12) as a parameter cell with values ranging from 5 to
15 ($millions), the parameter analysis report shown in Figure 7.2 was generated by executing
the series of steps outlined in Section 5.3. Note how Figure 7.2 shows the effect on the opti-
mal solution and the resulting total net present value of varying the amount of capital being
made available.
What-if analysis also could be performed on any of the other data cells—NPV (C4:D6),
CapitalRequired (C10:D12), and MaxWarehouses (G16)—in a similar way with a parameter
analysis report (or by using trial and error with the spreadsheet). However, a careful job was
done in developing good estimates of the net present value of each of the possible invest-
ments, and there is little uncertainty in the values entered in the other data cells, so Steve
Chan decides that further what-if analysis is not needed.
Management’s Conclusion
Steve Chan’s report is delivered to Armando Ortega within the two-week deadline. The report
recommends the plan presented in Figure 7.1 (build a factory in both Los Angeles and San
Francisco but no warehouses) if management decides to stick with its tentative decision to
make $10 million of capital available for these investments. One advantage of this plan is that
it only uses $9 million of this capital, which frees up $1 million of capital for other project
proposals currently being investigated. The report also highlights the results shown in Fig-
ure 7.2 while emphasizing two points. One is that a heavy penalty would be paid (a reduction
09/11/12 1:31 PM
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7.2 Using BIP for Project Selection: The Tazer Corp. Problem 239

FIGURE 7.2 A B C D E F
The parameter analysis 1 CapitalAvailable BuildWarehouseLA? BuildWarehouseSF? BuildFactoryLA? BuildFactorySF? TotalINPV
2 5 0 1 0 1 9
report generated by RSPE 3 6 0 1 0 1 9
that shows the effect 4 7 0 1 0 1 9
on the optimal solution 5 8 0 1 0 1 9
and the resulting total 6 9 0 0 1 1 13
7 10 0 0 1 1 13
net present value of sys- 8 11 0 1 1 1 17
tematically varying the 9 12 0 1 1 1 17
amount of capital being 10 13 0 1 1 1 17
made available for these 11 14 1 0 1 1 19
12 15 1 0 1 1 19
investments.

in the total net present value from $13 million to $9 million) if the amount of capital being
made available were to be reduced below $9 million. The other is that increasing the amount
of capital being made available by just $1 million (from $10 million to $11 million) would
enable a substantial increase of $4 million in the total net present value (from $13 million to
$17 million). However, a much larger further increase in the amount of capital being made
available (from $11 million to $14 million) would be needed to enable a considerably smaller
further increase in the total net present value (from $17 million to $19 million).
Armando Ortega deliberates with other members of top management before making a
decision. It is quickly concluded that increasing the amount of capital being made available
all the way up to $14 million would be stretching the company’s financial resources too
dangerously to justify the relatively small payoff. However, there is considerable discussion
of the pros and cons of the two options of using either $9 million or $11 million of capital.
Because of the large payoff from the latter option (an additional $4 million in total net pres-
ent value), management finally decides to adopt the plan presented in row 8 of Figure 7.2.
Thus, the company will build new factories in both Los Angeles and San Francisco as well as
a new warehouse in San Francisco, with an estimated total net present value of $17 million.
However, because of the large capital requirements of this plan, management also decides to
defer building the warehouse until the two factories are completed so that their profits can
help finance the construction of the warehouse.

Review 1. What are the four interrelated decisions that need to be made by the management of the
Questions California Manufacturing Co.?
2. Why are binary decision variables appropriate to represent these decisions?
3. What is the objective specified by management for this problem?
4. What are the mutually exclusive alternatives in this problem? What is the form of the resulting
constraint in the BIP model?
5. What are the contingent decisions in this problem? For each one, what is the form of the
resulting constraint in the BIP model?
6. What is the tentative managerial decision on which sensitivity analysis needs to be performed?

7.2 USING BIP FOR PROJECT SELECTION: THE TAZER CORP. PROBLEM
The California Manufacturing Co. case study focused on four proposed projects: (1) build
a factory in Los Angeles, (2) build a factory in San Francisco, (3) build a warehouse in Los
Angeles, and (4) build a warehouse in San Francisco. Management needed to make yes-or-no
decisions about which of these projects to select. This is typical of many applications of BIP.
However, the nature of the projects may vary considerably from one application to the next.
Instead of the proposed construction projects in the case study, our next example involves the
selection of research and development projects.
This example is adapted from both Case 3-7 and its continuation in the supplement to
Chapter 13, but all the relevant information is repeated below.

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240 Chapter Seven Using Binary Integer Programming to Deal with Yes-or-No Decisions
The objective is to choose
the projects that will maxi-
mize the expected profit
while satisfying the budget
constraint.
TABLE 7.3
Data for the Tazer
Project Selection
Problem
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The Tazer Corp. Problem
Tazer Corp., a pharmaceutical manufacturing company, is beginning the search for a new
breakthrough drug. The following five potential research and development projects have been
identified for attempting to develop such a drug.
Project Up: Develop a more effective antidepressant that does not cause serious
mood swings.
Project Stable: Develop a drug that addresses manic depression.
Project Choice: Develop a less intrusive birth control method for women.
Project Hope: Develop a vaccine to prevent HIV infection.
Project Release: Develop a more effective drug to lower blood pressure.
In contrast to Case 3-7, Tazer management now has concluded that the company cannot
devote enough money to research and development to undertake all of these projects. Only
$1.2 billion is available, which will be enough for only two or three of the projects. The first
row of Table 7.3 shows the amount needed (in millions of dollars) for each of these projects.
The second row estimates each project’s probability of being successful. If a project is suc-
cessful, it is estimated that the resulting drug would generate the revenue shown in the third
row. Thus, the expected revenue (in the statistical sense) from a potential drug is the product
of its numbers in the second and third rows, whereas its expected profit is this expected rev-
enue minus the investment given in the first row. These expected profits are shown in the
bottom row of Table 7.3.
Tazer management now wants to determine which of these projects should be undertaken
to maximize their expected total profit.
Formulation with Binary Variables
Because the decision for each of the five proposed research and development projects is a
yes-or-no decision, the corresponding decision variables are binary variables. Thus, the deci-
sion variable for each project has the following interpretation.
1, if approve the project
Decision Variable 5 b
0, if reject the project
Let x1, x2, x3, x4, and x5 denote the decision variables for the respective projects in the order in
which they are listed in Table 7.3.
If a project is rejected, there is neither any profit nor any loss, whereas the expected profit
if a project is approved is given in the bottom row of Table 7.3. Therefore, when using units
of millions of dollars, the expected total profit is
P 5 300x1 1 120x2 1 170x3 1 100x4 1 70x5
The objective is to select the projects to approve that will maximize this expected total profit
while satisfying the budget constraint.
Other than requiring the decision variables to be binary, the budget constraint limit-
ing the total investment to no more than $1.2 billion is the only constraint that has been
imposed by Tazer management on the selection of these research and development projects.
Project
1 (Up) 2 (Stable) 3 (Choice) 4 (Hope) 5 (Release)
R&D investment ($million) 400 300 600 500 200
Success rate 50% 35% 35% 20% 45%
Revenue if successful ($million) 1,400 1,200 2,200 3,000 600
Expected profit ($million) 300 120 170 100 70
09/11/12 1:31 PM
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An Application Vignette
The Midwest Independent Transmission Operator, Inc.
(MISO) is a nonprofit organization formed in 1998 to
administer the generation and transmission of electricity
throughout the midwestern United States. It serves over
40 million customers (both individuals and businesses)
through its control of nearly 60,000 miles of high-voltage
transmission lines and more than 1,000 power plants capa-
ble of generating 146,000 megawatts of electricity. This
infrastructure spans 13 midwestern states plus the Cana-
dian province of Manitoba.
The key mission of any regional transmission organi-
zation is to reliably and efficiently provide the electricity
needed by its customers. MISO transformed the way this
was done by using mixed binary integer programming to
minimize the total cost of providing the needed electricity.
Each main binary variable in the model represents a yes-or-
no decision about whether a particular power plant should
be on during a particular time period. After solving this
model, the results are then fed into a linear programming
model to set electricity output levels and establish prices
for electricity trades.
The mixed BIP model is a massive one with about
3,300,000 continuous variables, 450,000 binary variables,
and 3,900,000 functional constraints. A special technique
(Lagrangian relaxation) is used to solve such a huge model.
This innovative application of management science
yielded savings of approximately $2.5 billion over the four
years from 2007 to 2010, with an additional savings of
about $7 billion expected through 2020. These dramatic
results led to MISO winning the prestigious first prize in
the 2011 international competition for the Franz Edelman
Award for Achievement in Operations Research and the
Management Sciences.
Source: B. Carlson and 12 co-authors, “MISO Unlocks Billions
in Savings through the Application of Operations Research for
Energy and Ancillary Services Markets,” Interfaces 42,
no. 1 (January–February 2012), pp. 58–73. (A link to this article is
provided on our website, www.mhhe.com/hillier5e.)

Referring to the first row of Table 7.3, this constraint can be expressed in terms of the deci-
sion variables as
400x1 1 300x2 1 600x3 1 500x4 1 200x5 # 1,200
With this background, the stage now is set for formulating a BIP spreadsheet model for
this problem.

A BIP Spreadsheet Model for the Tazer Problem

Figure 7.3 shows a BIP spreadsheet model for this problem. The data in Table 7.3 have been trans-
ferred into cells C5:G8. The changing cells are DoProject? (C10:G10) and the objective cell is
TotalExpectedProfit (H8). The one functional constraint is depicted in cells H5:J5. In addition, the
changing cells DoProject? are constrained to be binary, as shown in the Solver Parameters box.
The changing cells DoProject? (C10:G10) in Figure 7.3 show the optimal solution that has
been obtained by Solver, namely,
Choose Project Up, Project Choice, and Project Release.
The objective cell indicates that the resulting total expected profit is $540 million.

Review 1. How are binary variables used to represent managerial decisions on which projects from a
Questions group of proposed projects should be selected for approval?
2. What types of projects are under consideration in the Tazer Corp. problem?
3. What is the objective for this problem?

7.3 USING BIP FOR THE SELECTION OF SITES FOR EMERGENCY SERVICES
FACILITIES: THE CALIENTE CITY PROBLEM
Although the problem encountered in the California Manufacturing Co. case study can be
described as a project selection problem (as was done at the beginning of the preceding sec-
tion), it could just as well have been called a site selection problem. Recall that the company’s
management needed to select a site (Los Angeles or San Francisco) for its new factory as

241

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242 Chapter Seven Using Binary Integer Programming to Deal with Yes-or-No Decisions

FIGURE 7.3
A spreadsheet formulation of the BIP model for the Tazer Corp. project selection problem where the changing cells DoProject?
(C10:G10) give the optimal solution obtained by Solver.
A B C D E F G H I J
1 Tazer Corp. Project Selection Problem
2
3
4 Up Stable Choice Hope Release Total Budget
5 R&D Investment ($million) 400 300 600 500 200 1,200 <= 1,200
6 Success Rate 50% 35% 35% 20% 45%
7 Revenue If Successful ($million) 1,400 1,200 2,200 3,000 600
8 Expected Profit ($million) 300 120 170 100 70 540
9
10 Do Project? 1 0 1 0 1

B C D E F G
8 Expected Profit ($million) =C7*C6-C5 =D7*D6-D5 =E7*E6-E5 =F7*F6-F5 =G7*G6-G5

Range Name Cells

Budget J5
DoProject? C10:G10
ExpectedProfit C8:G8 H
RandDInvestment C5:G5 4 Total
Revenue C7:G7 5 =SUMPRODUCT(RandDInvestment,DoProject?)
SuccessRate C6:G6 6
TotalExpectedProfit H8 7
TotalRandD H5 8 =SUMPRODUCT(ExpectedProfit,DoProject?)

Solver Parameters
Set Objective Cell: TotalExpectedProfit
To: Max
By Changing Variable Cells:
DoProject?
Subject to the Constraints:
DoProject? = binary
TotalRandD <= Budget

Solver Options:
Make Variables Nonnegative
Solving Method: Simplex LP

well as for its possible new warehouse. For either of the possible sites for the new factory (or
the warehouse), there is a yes-or-no decision for whether that site should be selected, so it
becomes natural to represent each such decision by a binary decision variable.
Various kinds of site selection problems are one of the most common types of applications
of BIP. The kinds of facilities for which sites need to be selected can be of any type. In some
cases, several sites are to be selected for several facilities of a particular type, whereas only a
single site is to be selected in other cases.
We will focus here on the selection of sites for emergency services facilities. These facili-
ties might be fire stations, police stations, ambulance centers, and so forth. In any of these
cases, the overriding concern commonly is to provide facilities close enough to each part of
the area being served that the response time to an emergency anywhere in the area will be suf-
ficiently small. The form of the BIP model then will be basically the same regardless of the
specific type of emergency services being considered.
To illustrate, let us consider an example where sites are being selected for fire stations. For
simplicity, this example will divide the area being served into only eight tracts instead of the
many dozens or hundreds that would be typical in real applications.

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7.3 Using BIP for the Selection of Sites for Emergency Services Facilities: The Caliente City Problem 243

The Caliente City Problem

The objective is to mini-
mize the total cost of ensur-
ing a response time of no
more than 10 minutes.
Caliente City is located in a particularly warm and arid part of the United States, so it is
especially prone to the occurrence of fires. The city has become a popular place for senior
citizens to move to after retirement, so it has been growing rapidly and spreading well beyond
its original borders. However, the city still has only one fire station, located in the congested
center of the original town site. The result has been some long delays in fire trucks reaching
fires in the outer parts of the city, causing much more damage than would have occurred with
a prompt response. The city’s residents are very unhappy about this, so the city council has
directed the city manager to develop a plan for locating multiple fire stations throughout the
city (including perhaps moving the current fire station) that would greatly reduce the response
time to any fire. In particular, the city council has adopted the following policy about the
maximum acceptable response time for fire trucks to reach a fire anywhere in the city after
being notified about the fire.
Response time # 10 minutes
Having had a management science course in college, the city manager recognizes that BIP
provides her with a powerful tool for analyzing this problem. To get started, she divides
the city into eight tracts and then gathers data on the estimated response time for a fire in
each tract from a potential fire station in each of the eight tracts. These data are shown in
Table 7.4. For example, if a decision were to be made to locate a fire station in tract 1 and if
that fire station were to be used to respond to a fire in any of the tracts, the second column
of Table 7.4 shows what the (estimated) response time would be. (Since the response time
would exceed 10 minutes for a fire in tracts 3, 5, 6, 7, or 8, a fire station actually would need
to be located nearer to each of these tracts to satisfy the city council’s new policy.) The bot-
tom row of Table 7.4 shows what the cost would be of acquiring the land and constructing a
fire station in any of the eight tracts. (The cost is far less for tract 5 because the current fire
station already is there so only a modest renovation is needed if the decision is made to retain
a fire station there.)
The objective now is to determine which tracts should receive a fire station to minimize
the total cost of the stations while ensuring that each tract has at least one station close enough
to respond to a fire in no more than 10 minutes.

Formulation with Binary Variables

For each of the eight tracts, there is a yes-or-no decision as to whether that tract should
receive a fire station. Therefore, we let x1,  x2, . . . ,  x8 denote the corresponding binary deci-
sion variables, where
1, if tract j is selected to receive a fire station
xj 5 b
0, if not
for j 5 1, 2, . . . , 8.

TABLE 7.4 Response Time and Cost Data for the Caliente City Problem

Fire Station in Tract

1 2 3 4 5 6 7 8
1 2 8 18 9 23 22 16 28
Response 2 9 3 10 12 16 14 21 25
times 3 17 8 4 20 21 8 22 17
(minutes) 4 10 13 19 2 18 21 6 12
for a fire 5 21 12 16 13 5 11 9 12
in tract 6 25 15 7 21 15 3 14 8
7 14 22 18 7 13 15 2 9
8 30 24 15 14 17 9 8 3

Cost of station 350 250 450 300 50 400 300 200

($thousands)

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244 Chapter Seven Using Binary Integer Programming to Deal with Yes-or-No Decisions

This constraint ensures that
the response time for a fire
in tract 1 will be no more
than 10 minutes.
Since the objective is to minimize the total cost of the fire stations that will satisfy the city
council’s new policy on response times, the total cost needs to be expressed in terms of these
decision variables. Using units of thousands of dollars while referring to the bottom row of
Table 7.4, the total cost is
C 5 350x1 1 250x2 1 450x3 1 300x4 1 50x5 1 400x6 1 300x7 1 200x8
We also need to formulate constraints in terms of these decision variables that will ensure
that no response times exceed 10 minutes. For example, consider tract 1. When a fire occurs
there, the row for tract 1 in Table 7.4 indicates that the only tracts close enough that a fire
station would provide a response time not exceeding 10 minutes are tract 1 itself, tract 2, and
tract 4. Thus, at least one of these three tracts needs to have a fire station. This requirement is
expressed in the constraint
x1 1 x2 1 x4 $ 1
Incidentally, this constraint is called a set covering constraint because it covers the
requirement of having a fire station located in at least one member of the set of tracts (tracts 1,
2, and 4) that are within 10 minutes of tract 1. In general, any constraint where a sum of binary
variables is required to be greater-than-or-equal-to one is referred to as a set covering constraint.
Applying the above reasoning for tract 1 to all the tracts leads to the following
constraints.

Tract 1: x1 1x2 1x4 $1

Tract 2: x1 1x2 1x3 $1
Tract 3: x2 1x3 1x6 $1
Tract 4: x1 1x4 1x7 $1
Tract 5: 1x5 1x7 $1
Tract 6: x3 1x6 1x8 $1
Tract 7: x4 1x7 1x8 $1
Tract 8: x6 1x7 1x8 $1

These set covering constraints (along with requiring the variables to be binary) are all that is
needed to ensure that each tract has at least one fire station close enough to respond to a fire
in no more than 10 minutes.
This type of BIP model (minimizing total cost where all the functional constraints are set
covering constraints) is called a set covering problem. Such problems arise fairly fre-
quently. In fact, you will see another example of a set covering problem in Section 7.4.
Having identified the nature of the constraints for the Caliente City problem, it now is
fairly straightforward to formulate its BIP spreadsheet model.

A BIP Spreadsheet Model for the Caliente City Problem

Figure 7.4 shows a BIP spreadsheet model for this problem. The data cells ResponseTime
(D5:K12) show all the response times given in Table  7.4 and CostOfStation (D14:K14)
provides the cost data from the bottom row of this table. There is a yes-or-no decision for
each tract as to whether a fire station should be located there, so the changing cells are
StationInTract? (D29:K29). The objective is to minimize total cost, so the objective cell is
TotalCost (N29). The set covering constraints are displayed in cells L17:N24. The Station-
InTract? changing cells have been constrained to be binary, as can be seen in the Solver
Parameters box.
After running Solver, the optimal solution shown in the changing cells StationInTract?
(D29:K29) in Figure 7.4 is obtained, namely,
Select tracts 2, 7, and 8 as the sites for fire stations.
The objective cell TotalCost (N29) indicates that the resulting total cost is $750,000.

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7.3 Using BIP for the Selection of Sites for Emergency Services Facilities: The Caliente City Problem 245

FIGURE 7.4
A spreadsheet formulation of the BIP model for the Caliente City site selection problem where the changing cells StationInTract?
(D29:K29) show the optimal solution obtained by Solver.
A B C D E F G H I J K L M N
1 Caliente City Fire Station Location Problem
2
3 Fire Station in Tract
4 1 2 3 4 5 6 7 8
5 1 2 8 18 9 23 22 16 28
6 Response 2 9 3 10 12 16 14 21 25
7 Times 3 17 8 4 20 21 8 22 17
8 (minutes) 4 10 13 19 2 18 21 6 12
9 for a Fire 5 21 12 16 13 5 11 9 12
10 in Tract 6 25 15 7 21 15 3 14 8
11 7 14 22 18 7 13 15 2 9
12 8 30 24 15 14 17 9 8 3
13
14 Cost of Station 350 250 450 300 50 400 300 200
15 ($thousands) Number
16 Covering
17 1 1 1 0 1 0 0 0 0 1 >= 1
18 Response 2 1 1 1 0 0 0 0 0 1 >= 1
19 Time 3 0 1 1 0 0 1 0 0 1 >= 1
20 <= 4 1 0 0 1 0 0 1 0 1 >= 1
21 10 5 0 0 0 0 1 0 1 0 1 >= 1
22 Minutes? 6 0 0 1 0 0 1 0 1 1 >= 1
23 7 0 0 0 1 0 0 1 1 2 >= 1
24 8 0 0 0 0 0 1 1 1 2 >= 1
25
26 Total
27 Fire Station in Tract Cost
28 1 2 3 4 5 6 7 8 ($thousands)
29 Station in Tract? 0 1 0 0 0 0 1 1 750

J K L
15 Number
16 Covering
17 =IF(J5<=MaxResponseTime,1,0) =IF(K5<=MaxResponseTime,1,0) =SUMPRODUCT(D17:K17,StationInTract?)
18 =IF(J6<=MaxResponseTime,1,0) =IF(K6<=MaxResponseTime,1,0) =SUMPRODUCT(D18:K18,StationInTract?)
19 =IF(J7<=MaxResponseTime,1,0) =IF(K7<=MaxResponseTime,1,0) =SUMPRODUCT(D19:K19,StationInTract?)

Solver Parameters
Set Objective Cell: TotalCost
To: Min Range Name Cells
By Changing Variable Cells:
StationInTract? CostOfStation D14:K14
Subject to the Constraints: MaxResponseTime B21
StationInTract? = binary
NumberCovering >= One NumberCovering L17:L24
One N17:N24
Solver Options: ResponseTime D5:K12
Make Variables Nonnegative
Solving Method: Simplex LP StationInTract? D29:K29
TotalCost N29

N
26 Total
27 Cost
28 ($thousands)
29 =SUMPRODUCT(CostOfStation,StationInTract?)

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246 Chapter Seven Using Binary Integer Programming to Deal with Yes-or-No Decisions

Review 1. How are binary variables used to represent managerial decisions regarding which site or sites
Questions should be selected for new facilities?
2. What are some types of emergency services facilities for which sites may need to be selected?
3. What was the objective for the Caliente City problem?
4. What is a set covering constraint and what is a set covering problem?

7.4 USING BIP FOR CREW SCHEDULING: THE SOUTHWESTERN

AIRWAYS PROBLEM
Throughout the travel industry (airlines, rail travel, cruise ships, tour companies, etc.), one of
the most challenging problems in maintaining an efficient operation is the scheduling of its
crews who serve customers during their travels. Given many feasible overlapping sequences
of trips for a crew, to which ones should a crew be assigned so as to cover all the trips at a
minimum cost? Thus, for each feasible sequence of trips, there is a yes-or-no decision as to
whether a crew should be assigned to that sequence, so a binary decision variable can be used
to represent that decision.
For many years, airline companies have been using BIP models to determine how to do
their crew scheduling in the most cost-efficient way. Some airlines have saved many mil-
lions of dollars annually through this application of BIP. Consequently, other segments of the
travel industry now are also using BIP in this way. For example, the application vignette in
this section describes how Netherlands Railways achieved a dramatic increase in profits by
applying BIP (and related techniques) in a variety of ways, including crew scheduling.
To illustrate the approach, consider the following miniature example of airline crew
scheduling.

The Southwestern Airways Problem

Southwestern Airways needs to assign its crews to cover all its upcoming flights. We will
focus on the problem of assigning three crews based in San Francisco (SFO) to the 11 flights
shown in Figure 7.5. These same flights are listed in the first column of Table 7.5. The other
12 columns show the 12 feasible sequences of flights for a crew. (The numbers in each column
indicate the order of the flights.) At most, three of the sequences need to be chosen (one per
crew) in such a way that every flight is covered. (It is permissible to have more than one crew
on a flight, where the extra crews would fly as passengers, but union contracts require that the
extra crews still be paid for their time as if they were working.) The cost of assigning a crew to
a particular sequence of flights is given (in thousands of dollars) in the bottom row of the table.
The objective is to minimize the total cost of the crew assignments that cover all the flights.

FIGURE 7.5 Seattle

The arrows show the 11 (SEA)
Southwestern Airways
flights that need to be cov-
ered by the three crews
based in San Francisco.

San Francisco Chicago

(SFO) Denver (ORD)
(DEN)
Los Angeles
(LAX)

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An Application Vignette
Netherlands Railways (Nederlandse Spoorwegen Reizigers)
is the main Dutch railway operator of passenger trains.
In this densely populated country, about 5,500 passenger
trains currently transport approximately 1.1 million passen-
gers on an average workday. The company’s operating rev-
enues are approximately 1.5 billion euros (approximately
$2 billion) per year.
The amount of passenger transport on the Dutch rail-
way network has steadily increased over the years, so a
national study in 2002 concluded that three major infra-
structure extensions should be undertaken. As a result,
a new national timetable for the Dutch railway system,
specifying the planned departure and arrival times of every
train at every station, would need to be developed. There-
fore, the management of Netherlands Railways directed
that an extensive management science study should be
conducted over the next few years to develop an optimal
overall plan for both the new timetable and the usage of
the available resources (rolling-stock units and train crews)
for meeting this timetable. A task force consisting of sev-
eral members of the company’s Department of Logistics
and several prominent management science scholars from
European universities or a software company was formed
to conduct this study.
The new timetable was launched in December 2006,
along with a new system for scheduling the allocation of
rolling-stock units (various kinds of passenger cars and
other train units) to the trains meeting this timetable. A
new system also was implemented for scheduling the
assignment of crews (with a driver and a number of con-
ductors in each crew) to the trains. Binary integer program-
ming and related techniques were used to do all of this. For
example, the BIP model used for crew scheduling closely
resembles (except for its vastly larger size) the one shown
in this section for the Southwestern Airlines problem.
This application of management science immediately
resulted in an additional annual profit of approximately
$60 million for the company and this additional profit is
expected to increase to $105 million annually in the coming
years. These dramatic results led to Netherlands Railways
winning the prestigious First Prize in the 2008 international
competition for the Franz Edelman Award for Achievement
in Operations Research and the Management Sciences.
Source: L. Kroon, D. Huisman, E. Abbink, P.-J. Fioole, M. Fischetti,
G. Maróti, A. Schrijver, A. Steenbeck, and R. Ybema, “The New
Dutch Timetable: The OR Revolution,” Interfaces 39,
no. 1 (January–February 2009), pp. 6–17. (A link to this article is
provided on our website, www.mhhe.com/hillier5e.)

TABLE 7.5 Data for the Southwestern Airways Problem

Feasible Sequence of Flights

Flight 1 2 3 4 5 6 7 8 9 10 11 12
1. San Francisco to Los Angeles 1 1 1 1
(SFO–LAX)
2. San Francisco to Denver 1 1 1 1
(SFO–DEN)
3. San Francisco to Seattle 1 1 1 1
(SFO–SEA)
4. Los Angeles to Chicago 2 2 3 2 3
(LAX–ORD)
5. Los Angeles to San Francisco 2 3 5 5
(LAX–SFO)
6. Chicago to Denver 3 3 4
(ORD–DEN)
7. Chicago to Seattle 3 3 3 3 4
(ORD–SEA)
8. Denver to San Francisco 2 4 4 5
(DEN–SFO)
9. Denver to Chicago 2 2 2
(DEN–ORD)
10. Seattle to San Francisco 2 4 4 5
(SEA–SFO)
11. Seattle to Los Angeles 2 2 4 4 2
(SEA–LAX)
Cost, $1,000s 2 3 4 6 7 5 7 8 9 9 8 9

Formulation with Binary Variables

With 12 feasible sequences of flights, we have 12 yes-or-no decisions:
Should sequence j be assigned to a crew? (j 5 1, 2, c, 12)
247

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248 Chapter Seven Using Binary Integer Programming to Deal with Yes-or-No Decisions

Therefore, we use 12 binary variables to represent these respective decisions:

1, if sequence j is assigned to a crew

xj 5 b
0, otherwise
Since the objective is to minimize the total cost of the three crew assignments, we now
need to express the total cost in terms of these binary decision variables. Referring to the bot-
tom row of Table 7.5, this total cost (in units of thousands of dollars) is
C 5 2x1 1 3x2 1 4x3 1 6x4 1 7x5 1 5x6 1 7x7 1 8x8 1 9x9 1 9x10 1 8x11 1 9x12
With only three crews available to cover the flights, we also need the constraint
x1 1 x2 1 c1 x12 # 3
The most interesting part of this formulation is the nature of each constraint that ensures
that a corresponding flight is covered. For example, consider the last flight in Table 7.5 (Seat-
tle to Los Angeles). Five sequences (namely, sequences 6, 9, 10, 11, and 12) include this flight.
Therefore, at least one of these five sequences must be chosen. The resulting constraint is
x6 1 x9 1 x10 1 x11 1 x12 $ 1
For each of the 11 flights, the constraint that ensures that the flight is covered is con-
structed in the same way from Table 7.5 by requiring that at least one of the flight sequences
that includes that flight is assigned to a crew. Thus, 11 constraints of the following form are
needed.

These are set covering con- Flight 1: x1 1 x4 1 x7 1 x10 $ 1

straints, just like the con-
Flight 2: x2 1 x5 1 x8 1 x11 $ 1
straints in the Caliente City
problem in Section 7.3.
#
#
#
Flight 11: x6 1 x9 1 x10 1 x11 1 x12 $ 1
Note that these constraints have the same form as the constraints for the Caliente City
problem in Section 7.3 (a sum of certain binary variables $ 1), so these too are set covering
constraints. Therefore, this crew scheduling problem is another example of a set covering
problem (where this particular set covering problem also includes the side constraint that
x1 1 x2 1 ? ? ? 1 x12 # 3).
Having identified the nature of the constraints, the stage now is set for formulating a BIP
spreadsheet model for this problem.

A BIP Spreadsheet Model for the Southwestern Airways Problem

Figure  7.6 shows a spreadsheet formulation of the complete BIP model for this problem.
The changing cells FlySequence? (C22:N22) contain the values of the 12 binary decision
variables. The data in IncludesSegment? (C8:N18) and Cost (C5:N5) come directly from
Table 7.5. The last three columns of the spreadsheet are used to show the set covering con-
straints, Total  $ AtLeastOne, and the side constraint, TotalSequences # NumberOfCrews.
Finally, the changing cells FlySequence? have been constrained to be binary, as shown in
the Solver Parameters box.
Solver provides the optimal solution shown in FlySequence? (C22:N22). In terms of the xj
variables, this solution is
x3 5 1 (assign sequence 3 to a crew)
x4 5 1 (assign sequence 4 to a crew)
x11 5 1 (assign sequence 11 to a crew)
and all other xj 5 0, for a total cost of $18,000 as given by TotalCost (Q24). (Another optimal
solution is x1 5 1, x5 5 1, x12 5 1, and all other xj 5 0.)

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7.4 Using BIP for Crew Scheduling: The Southwestern Airways Problem 249

FIGURE 7.6
A spreadsheet formulation of the BIP model for the Southwestern Airways crew scheduling problem, where FlySequence (C22:N22)
shows the optimal solution obtained by Solver. The list of flight sequences under consideration is given in cells A25:D37.

A B C D E F G H I J K L M N O P Q
1 Southwestern Airways Crew Scheduling Problem
2
3 Flight Sequence
4 1 2 3 4 5 6 7 8 9 10 11 12
5 Cost ($thousands) 2 3 4 6 7 5 7 8 9 9 8 9 At
6 Least
7 Includes Segment? Total One
8 SFO–LAX 1 0 0 1 0 0 1 0 0 1 0 0 1 ≥ 1
9 SFO–DEN 0 1 0 0 1 0 0 1 0 0 1 0 1 ≥ 1
10 SFO–SEA 0 0 1 0 0 1 0 0 1 0 0 1 1 ≥ 1
11 LAX–ORD 0 0 0 1 0 0 1 0 1 1 0 1 1 ≥ 1
12 LAX–SFO 1 0 0 0 0 1 0 0 0 1 1 0 1 ≥ 1
13 ORD–DEN 0 0 0 1 1 0 0 0 1 0 0 0 1 ≥ 1
14 ORD–SEA 0 0 0 0 0 0 1 1 0 1 1 1 1 ≥ 1
15 DEN–SFO 0 1 0 1 1 0 0 0 1 0 0 0 1 ≥ 1
16 DEN–ORD 0 0 0 0 1 0 0 1 0 0 1 0 1 ≥ 1
17 SEA–SFO 0 0 1 0 0 0 1 1 0 0 0 1 1 ≥ 1
18 SEA–LAX 0 0 0 0 0 1 0 0 1 1 1 1 1 ≥ 1
19
20 Total Number
21 1 2 3 4 5 6 7 8 9 10 11 12 Sequences of Crews
22 Fly Sequence? 0 0 1 1 0 0 0 0 0 0 1 0 3 ≤ 3
23
24 Total Cost ($thousands) 18
25 Flight Sequence Key Solver Parameters O
26 1 SFO-LAX Set Objective Cell: TotalCost
To: Min 7 Total
27 2 SFO-DEN-SFO By Changing Variable Cells:
FlySequence? 8 =SUMPRODUCT(C8:N8,FlySequence?)
28 3 SFO-SEA-SFO
Subject to the Constraints: 9 =SUMPRODUCT(C9:N9,FlySequence?)
29 4 SFO-LAX-ORD-DEN-SFO FlySequence? = binary
Total >= AtLeastOne 10 =SUMPRODUCT(C10:N10,FlySequence?)
30 5 SFO-DEN-ORD-DEN-SFO TotalSequences <= NumberOfCrews
11 =SUMPRODUCT(C11:N11,FlySequence?)
31 6 SFO-SEA-LAX-SFO
Solver Options:
32 7 SFO-LAX-ORD-SEA-SFO Make Variables Nonnegative 12 =SUMPRODUCT(C12:N12,FlySequence?)
Solving Method: Simplex LP 13 =SUMPRODUCT(C13:N13,FlySequence?)
33 8 SFO-DEN-ORD-SEA-SFO
34 9 SFO-SEA-LAX-ORD-DEN-SFO 14 =SUMPRODUCT(C14:N14,FlySequence?)
35 10 SFO-LAX-ORD-SEA-LAX-SFO 15 =SUMPRODUCT(C15:N15,FlySequence?)
36 11 SFO-DEN-ORD-SEA-LAX-SFO 16 =SUMPRODUCT(C16:N16,FlySequence?)
37 12 SFO-SEA-LAX-ORD-SEA-SFO 17 =SUMPRODUCT(C17:N17,FlySequence?)
18 =SUMPRODUCT(C18:N18,FlySequence?)
Range Name Cells
19
AtLeastOne Q8:Q18
Cost C5:N5 20 Total
FlySequence? C22:N22 21 Sequences
IncludesSegment? C8:N18
NumberOfCrews Q22 22 =SUM(FlySequence?)
Total O8:O18 P Q
TotalCost Q24
TotalSequences O22 24 Total Cost ($thousands) =SUMPRODUCT(Cost,FlySequence?)

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250 Chapter Seven Using Binary Integer Programming to Deal with Yes-or-No Decisions
Many airlines are solving
huge BIP models of this
kind.
Review
Questions
7.5 USING MIXED BIP TO DEAL WITH SETUP COSTS FOR INITIATING
PRODUCTION: THE REVISED WYNDOR PROBLEM
hil24064_ch07_232-266.indd 250
Confirming Pages
We should point out that this BIP model is a tiny one compared to the ones typically used
in actual practice. Airline crew scheduling problems involving thousands of possible flight
sequences now are being solved by using models similar to the one shown above but with
thousands of binary variables rather than just a dozen.
1. What is the crew scheduling problem that is encountered by companies in the travel industry?
2. What are the yes-or-no decisions that need to be made when addressing a crew scheduling
problem?
3. For the Southwestern Airways problem, there is a constraint for each flight to ensure that this
flight is covered by a crew. Describe the mathematical form of this constraint. Then explain in
words what this constraint is saying.
All of the examples considered thus far in this chapter have been pure BIP problems (prob-
lems where all the decision variables are binary variables). However, mixed BIP problems
(problems where only some of the decision variables are binary variables) also arise quite
frequently because only some of the decisions to be made are yes-or-no decisions and the rest
are how-much decisions.
One important example of this type is the product-mix problem introduced in Chapter 2,
but now with the added complication that a setup cost must be incurred to initiate the pro-
duction of each product. Therefore, in addition to the how-much decisions of how much to
produce of each product, there also is a prior yes-or-no decision for each product of whether
to perform a setup to enable initiating its production.
To illustrate this type of problem, we will consider a revised version of the Wyndor Glass
Co. product-mix problem that was described in Section 2.1 and analyzed throughout most of
Chapter 2.
The Revised Wyndor Problem with Setup Costs
Suppose now that the Wyndor Glass Co. will only devote one week each month to the pro-
duction of the special doors and windows described in Section 2.1, so the question now is how
many doors and windows to produce during each of these week-long production runs. Since
the decisions to be made are no longer the rates of production for doors and windows, but
rather how many doors and windows to produce in individual production runs, these quanti-
ties now are required to be integer.
Each time Wyndor’s plants convert from the production of other products to the produc-
tion of these doors and windows for a week, the following setup costs would be incurred to
initiate this production.
Setup cost to produce doors 5 $700
Setup cost to produce windows 5 $1,300
Otherwise, all the original data given in Table 2.2 still apply, including a unit profit of $300
for doors and $500 for windows when disregarding these setup costs.
Table 7.6 shows the resulting net profit from producing any feasible quantity for either
product. Note that the large setup cost for either product makes it unprofitable to produce less
than three units of that product.
The dots in Figure 7.7 show the feasible solutions for this problem. By adding the appro-
priate entries in Table 7.6, the figure also shows the calculation of the total net profit P for
each of the corner points. The optimal solution turns out to be
(D, W ) 5 (0, 6) with P 5 1,700
By contrast, the original solution
(D, W ) 5 (2, 6) with P 5 1,600
09/11/12 1:31 PM

TABLE 7.6
Net Profit ($) for
the Revised Wyndor
Problem
FIGURE 7.7
The dots are the feasible
solutions for the revised
Wyndor problem. Also
shown is the calculation
of the total net profit P (in
dollars) for each corner
point from the net profits
given in Table 7.6.
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7.5 Using Mixed BIP to Deal with Setup Costs for Initiating Production: The Revised Wyndor Problem 251
Net Profit ($)
Number of
Units Produced Doors Windows
0 0 (300) 2 0 5 0 0 (500) 2 0 5 0
1 1 (300) 2 700 5 2400 1 (500) 2 1,300 5 2800
2 2 (300) 2 700 5 2100 2 (500) 2 1,300 5 2300
3 3 (300) 2 700 5 200 3 (500) 2 1,300 5 200
4 4 (300) 2 700 5 500 4 (500) 2 1,300 5 700
5 Not feasible 5 (500) 2 1,300 5 1,200
6 Not feasible 6 (500) 2 1,300 5 1,700
Production W
quantity for
windows 8
(0, 6) gives P = 1,700
(2, 6) gives P = –100 + 1,700
6 = 1,600
(4, 3) gives P = 500 + 200
= 700
(0, 0) (4, 0) gives P = 500
gives P = 0
0 2 4 6 8 D
Production quantity for doors
now gives a smaller value of P. The reason that this original solution (which gave P 5 3,600
for the original problem) is no longer optimal is that the setup costs reduce the total net profit
so much:
P 5 3,600 2 700 2 1,300 5 1,600
Therefore, the graphical method for linear programming can no longer be used to find the
optimal solution for this new problem with setup costs.
How can we formulate a model for this problem so that it fits a standard kind of model that
can be solved by Solver? Table 7.6 shows that the net profit for either product is no longer
directly proportional to the number of units produced. Therefore, as it stands, the problem no
longer fits either linear programming or BIP. Before, for the original problem without setup
costs, the objective function was simply P  5 300D  1 500W. Now we need to subtract from
this expression each setup cost if the corresponding product will be produced, but we should
not subtract the setup cost if the product will not be produced. This is where binary variables
come to the rescue.
Formulation with Binary Variables
For each product, there is a yes-or-no decision regarding whether to perform the setup that
would enable initiating the production of the product, so the setup cost is incurred only if
the decision is yes. Therefore, we can introduce a binary variable for each setup cost and
09/11/12 1:31 PM
 Confirming Pages

An Application Vignette
Prior to its merger with United Airlines in 2010, Continental
Airlines was a major United States air carrier that trans-
ported passengers, cargo, and mail. It operated more than
2,000 daily departures to well over 100 domestic destina-
tions and nearly 100 foreign destinations.
Airlines like Continental face schedule disruptions daily
because of unexpected events, including inclement weather,
aircraft mechanical problems, and crew unavailability.
Another consequence of such disruptions is that crews may
not be in positions to service their remaining scheduled
flights. Airlines must reassign crews quickly to cover open
flights and to return them to their original schedules in a
cost-effective manner while honoring all government regula-
tions, contractual obligations, and quality-of-life requirements.
To address such problems, a management science
team at Continental Airlines developed a detailed mixed
BIP model for reassigning crews to flights as soon as such
emergencies arise. Because the airline has thousands of
crews and daily flights, the model needed to be huge to
consider all possible pairings of crews with flights. There-
fore, the model has millions of decision variables and many
thousands of constraints. (Most of these decision variables
are binary variables and the rest are general integer vari-
ables). In its first year of use (mainly in 2001), the model
was applied four times to recover from major schedule
disruptions (two snowstorms, a flood, and the September
11 terrorist attacks). This led to savings of approximately
$40 million. Subsequent applications extended to many
daily minor disruptions as well.
Although other airlines subsequently scrambled to apply
management science in a similar way, this initial advantage
over other airlines in being able to recover more quickly
from schedule disruptions with fewer delays and cancelled
flights left Continental Airlines in a relatively strong posi-
tion as the airline industry struggled through a difficult
period during the initial years of the 21st century. This ini-
tiative led to Continental winning the prestigious First Prize
in the 2002 international competition for the Franz Edel-
man Award for Achievement in Operations Research and
the Management Sciences.
Source: G. Yu, M. Argüello, C. Song, S. M. McGowan, and
A. White, “A New Era for Crew Recovery at Continental Airlines,”
Interfaces 33, no. 1 (January–February 2003), pp. 5–22. (A link to
this article is provided on our website, www.mhhe.com/hillier5e.)

associate each value of the binary variable with one of the two possibilities for the setup cost.
In particular, let

1, if perform the setup to produce doors

These binary variables y1 5 b
enable subtracting each 0, if not
setup cost only if the setup
1, if perform the setup to produce windows
is performed. y2 5 b
0, if not
Therefore, the objective function now can be written as
P 5 300D 1 500W 2 700y1 2 1,300y2
which fits the format for mixed BIP.
Since a setup is required to produce the corresponding product, these binary variables can
be related directly to the production quantities as follows:

1, if D . 0 can hold (can produce doors)

y1 5 b
0, if D 5 0 must hold (cannot produce doors)

1, if W . 0 can hold (can produce windows)

y2 5 b
0, if W 5 0 must hold (cannot produce windows)
We need to include constraints in the model that will ensure that these relationships will
hold. (An algorithm solving the model only recognizes the objective function and the con-
straints, not the definitions of the variables.)
So what are the constraints of the model? We still need all the constraints of the original
model. We also need constraints that D and W are integers, and that y1 and y2 are binary. In
addition, we need some ordinary linear programming constraints that will ensure the follow-
ing relationships:
If y1 5 0, then D 5 0.
If y2 5 0, then W 5 0.
252

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These constraints force the
model to refuse production
if the corresponding setup
is not performed.
If a how-much decision x can
only be done (i.e., x . 0) if
a corresponding yes-no deci-
sion y is done (i.e., y 5 1),
this can be enforced with a
big-number constraint such
as x # 99y. If y 5 0, this
becomes x # 0. If y 5 1,
then this becomes x # 99.
The big number (99 in this
example) is chosen to be big
enough so that it is safely
larger than x could ever
become.
Review
Questions
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7.5 Using Mixed BIP to Deal with Setup Costs for Initiating Production: The Revised Wyndor Problem 253
(If y1 5 1, no restrictions are placed on D other than those already imposed by the other con-
straints, and the same thing applies to W if y2 5 0.)
It is possible with Excel to use the IF function to represent this relationship between y1 and
D and between y2 and W. Unfortunately, the IF function does not fit the assumptions of linear
programming. Consequently, Solver has difficulty solving spreadsheet models that use this
function. This is why another formulation with ordinary linear programming constraints is
needed instead to express these relationships.
Since the other constraints impose bounds on D and W of 0 # D # 4 and 0 # W # 6, here
are some ordinary linear programming constraints that ensure these relationships:
D # 4y1
W # 6y2
Note that setting y1 5 0 gives D # 0, which forces the nonnegative D to be D 5 0, whereas
setting y1  5 1 gives D # 4, which allows all the values of D already allowed by the other
constraints. Then check that the same conclusions apply for W when setting y2  5  0 and
y2 5 1.
It was not necessary to choose 4 and 6 for the respective coefficients of y1 and y2 in these
two constraints. Any coefficients larger than 4 and 6 would have the same effect. You just
need to avoid smaller coefficients, since this would impose undesired restrictions on D and W
when y1 5 1 and y2 5 1.
On larger problems, it is sometimes difficult to determine the smallest acceptable coef-
ficients for these binary variables. Therefore, it is common to formulate the model by just
using a reasonably large number (say, 99 in this case) that is safely larger than the smallest
acceptable coefficient.
With this background, we now are ready to formulate a mixed BIP spreadsheet model for
this problem that uses the number 99 in these constraints.
A Mixed BIP Spreadsheet Model for the Revised Wyndor Problem
Figure  7.8 shows one way of formulating this model. The format for the first 14 rows is
the same as for the original Wyndor problem, so the difference arises in rows 15–17 of
the spreadsheet. The values of the binary variables, y1 and y2, appear in the new chang-
ing cells, Setup? (C17:D17). The bottom of the figure identifies the equations entered into
the output cells in row 16, C16  5  99*C17 and D16  5  99*D17. Consequently, the con-
straints, UnitsProduced (C14:D14) #  OnlyIfSetup (C16:D16), impose the relationships that
D # 99y1 and W # 99y2.
The changing cells in this spreadsheet show the optimal solution obtained after apply-
ing Solver. Thus, this solution is to not produce any doors (y1  5 0 and D  5 0) but to per-
form the setup to enable producing 6 windows (y2  5 1 and W  5 6) to obtain a net profit
of $1,700.
Note that this optimal solution does indeed satisfy the requirements that D 5 0 must hold
when y1  5 0 and that W . 0 can hold when y2  5 1. The constraints do permit performing a
setup to produce a product and then not producing any units (y1  5 1 with D  5 0 or y2  5 1
with W 5 0), but the objective function causes an optimal solution automatically to avoid this
foolish option of incurring the setup cost for no purpose.
1. How does a mixed BIP problem differ from a pure BIP problem?
2. Why is a linear programming formulation no longer valid for a product-mix problem when
there are setup costs for initiating production?
3. How can a binary variable be defined in terms of whether a setup is performed to initiate the
production of a certain product?
4. What caused the optimal solution for the revised Wyndor problem to differ from that for the
original Wyndor problem?
09/11/12 1:31 PM
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254 Chapter Seven Using Binary Integer Programming to Deal with Yes-or-No Decisions

FIGURE 7.8 A B C D E F G H
A spreadsheet model
for the revised Wyndor 1 Wyndor Glass Co. Product-Mix with Setup Costs
problem, where Solver 2
gives the optimal solu- 3 Doors Windows
tion shown in the chang- 4 Unit Profit $300 $500
ing cells, UnitsProduced
(C14:D14) and Setup? 5 Setup Cost $700 $1,300
(C17:D17). 6
7 Hours Hours
8 Hours Used per Unit Produced Used Available
9 Plant 1 1 0 0 ≤ 4
10 Plant 2 0 2 12 ≤ 12
11 Plant 3 3 2 12 ≤ 18
12
13 Doors Windows
14 Units Prod'd 0 6
15 ≤ ≤ Production Profit $3,000
16 Only if Set Up 0 99 −Total Setup Cost $1,300
17 Setup? 0 1 Total Profit $1,700
Solver Parameters
Range Name Cells
Set Objective Cell: TotalProfit
To: Max HoursAvailable G9:G11
By Changing Variable Cells: HoursUsed E9:E11
UnitsProduced, Setup? HoursUsedPerUnitProduced C9:D11
Subject to the Constraints: OnlyIfSetUp C16:D16
Setup? = binary
ProductionProfit H15
UnitsProduced = integer
Setup? C17:D17
HoursUsed <= HoursAvailable
UnitsProduced <= OnlyIfSetup SetupCost C5:D5
TotalProfit H17
Solver Options: TotalSetupCost H16
Make Variables Nonnegative UnitProfit C4:D4
Solving Method: Simplex LP UnitsProduced C14:D14

E
7 Hours
8 Used
9 =SUMPRODUCT(C9:D9,UnitsProduced)
10 =SUMPRODUCT(C10:D10,UnitsProduced)
11 =SUMPRODUCT(C11:D11,UnitsProduced)

B C D
16 Only if Set Up =99*C17 =99*D17

G H
15 Production Profit =SUMPRODUCT(UnitProfit,UnitsProduced)
16 −Total Setup Cost =SUMPRODUCT(SetupCost,Setup?)
17 Total Profit =ProductionProfit − TotalSetupCost

7.6 Summary Managers frequently must make yes-or-no decisions, where the only two possible choices are yes, go
ahead with a particular option, or no, decline this option. A binary integer programming (BIP) model
considers many options simultaneously, with a binary decision variable for each option. Mixed BIP
models include some continuous decision variables as well.
The California Manufacturing Co. case study involves yes-or-no decisions on whether a new factory
should be built in certain cities and then whether a new warehouse also should be built in certain cities.
This case study also introduced the modeling of mutually exclusive alternatives and contingent deci-
sions, as well as the performance of sensitivity analysis for BIP models.

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 Confirming Pages

Chapter 7 Solved Problems 255

Many companies have saved millions of dollars by formulating and solving BIP models for a wide
variety of applications. We have described and illustrated some of the most important types, including
the selection of projects (e.g., research and development projects), the selection of sites for facilities
(e.g., emergency services facilities such as fire stations), and crew scheduling in the travel industry (e.g.,
airlines). We also have discussed how to use mixed BIP to deal with setup costs for initiating production
when addressing product-mix problems.

Glossary binary decision variable A binary variable
that represents a yes-or-no decision by assigning
a value of 1 for choosing yes and a value of 0 for
choosing no. (Introduction), 232
binary integer programming A type of prob-
lem or model that fits linear programming
except that it uses binary decision variables.
(Introduction), 232
binary variable A variable whose only pos-
sible values are 0 and 1. (Introduction), 232
BIP Abbreviation for binary integer program-
ming. (Introduction), 232
contingent decision A yes-or-no decision
is a contingent decision if it can be yes only if
a certain other yes-or-no decision is yes.
(Section 7.1), 236
mixed BIP model A BIP model where only
some of the variables are restricted to be binary
variables. (Introduction), 232
mutually exclusive alternatives A group
of alternatives where choosing any one alterna-
tive excludes choosing any of the others.
(Section 7.1), 235
pure BIP model A BIP model where all the
variables are restricted to be binary variables.
(Introduction), 232
set covering constraint A constraint that
requires the sum of certain binary variables to be
greater than or equal to 1. (Section 7.3), 244
set covering problem A type of BIP model
where the objective is to minimize some
quantity such as total cost and all the functional
constraints are set covering constraints.
(Section 7.3), 244
yes-or-no decision A decision whose only
possible choices are (1) yes, go ahead with a cer-
tain option or (2) no, decline this option.
(Introduction), 232

Learning Aids for This Chapter in Your MS Courseware

Chapter 7 Excel Files: Excel Add-in:
California Mfg. Case Study Risk Solver Platform for Education (RSPE)
Tazer Corp. Example Supplements to This Chapter on the CD-ROM:
Advanced Formulation Techniques for Binary Integer
Caliente City Example
Programming
Southwestern Airways Example Some Perspectives on Solving Binary Integer Programming
Revised Wyndor Example Problems

Solved Problems (See the CD-ROM or Website for the Solutions)

7.S1. Capital Budgeting with Contingency
Constraints
A company is planning its capital budget over the next several
years. There are eight potential projects under consideration. A
calculation has been made of the expected net present value of
each project, along with the cash outflow that would be required
over the next four years. These data, along with the cash that is
available each year, are shown in the next table. There also are
the following contingency constraints: (a) at least one of project
1, 2, or 3 must be done, (b) projects 6 and 7 cannot both be
done, and (c) project 5 can only be done if project 6 is done.
Formulate and solve a BIP model in a spreadsheet to determine
which projects should be pursued to maximize the total expected
net present value.
7.S2. Locating Search-and-Rescue Teams
The Washington State legislature is trying to decide on loca-
tions at which to base search-and-rescue teams. The teams are
expensive, so the legislature would like as few as possible while
still providing the desired level of service. In particular, since
response time is critical, the legislature would like every county
to either have a team located in that county or in an adjacent

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256 Chapter Seven Using Binary Integer Programming to Deal with Yes-or-No Decisions

Cash Outflow Required ($million) Cash

Project Available
($million)
1 2 3 4 5 6 7 8
Year 1 1 3 0 3 3 7 2 5 20
Year 2 2 2 2 2 2 3 3 4 20
Year 3 2 3 4 2 3 3 6 2 20
Year 4 2 1 0 5 4 2 1 2 20
NPV 10 12 11 15 24 17 16 18
($mil)

9
Counties
1. Clallum 19. Chelan
10 18 26 28 2. Jefferson 20. Douglas
27 3. Grays Harbor 21. Kittitas
1 4. Pacific 22. Grant
11 5. Wahkiakum 23. Yakima
2 19 6. Kitsap 24. Klickitat
6 20 7. Mason 25. Benton
12 29 30 8. Thurston 26. Ferry
7
9. Whatcom 27. Stevens
3 10. Skagit 28. Pend Oreille
13 21
8 22 31 32 11. Snohomish 29. Lincoln
12. King 30. Spokane
4 14 13. Pierce 31. Adams
33 36 14. Lewis 32. Whitman
5 23
15 35 15. Cowlitz 33. Franklin
25 34
17 37 16. Clark 34. Walla Walla
16 24 17. Skamania 35. Columbia
18. Okanogan 36. Garfield
37. Asotin

county. (The locations and names of the counties are shown at the site. The product costs $400 to produce at Plant 1 and
above.) Formulate and solve a BIP model in a spreadsheet to $300 to produce at Plant 2. The shipping cost from each plant
determine where the teams should be located. to each potential warehouse location is shown in the first table
below. The fixed leasing and operating cost (if open), the ship-
7.S3. Warehouse Site Selection ping costs, and the capacity (maximum monthly shipments) of
Consider a small company that produces a single product in two each potential warehouse location are shown in the second table
plants and serves customers in five different regions. below. The monthly demand in each of the customer regions is
The company has been using a make-to-order policy of pro- expected to be 200, 225, 100, 150, and 175 units, respectively.
ducing the product only in the quantities needed to fill the orders Formulate and solve a BIP model in a spreadsheet to determine
that have come in from the various regions. However, because which warehouse(s) should be used and how the product should
of the problems caused by the sporatic production schedule, be distributed from plant to warehouse(s) to customer.
management has decided to smooth out the production rate and
ship the product to one or more storage warehouses, which then
will use inventory to fill the incoming regional orders. Manage- Shipping Costs and Capacity of the Plants
ment now needs to decide where to locate the company’s new
warehouse(s). There are three locations under consideration. For Shipping Cost (per unit) Capacity
each location, there is a fixed monthly cost associated with leas- WH 1 WH 2 WH 3 (units/month)
ing and operating the warehouse there. Furthermore, each poten-
Plant 1 $25 $50 $75 500
tial warehouse location has a maximum capacity for monthly
Plant 2 $50 $75 $25 400
shipments restricted primarily by the number of trucking docks

Fixed Cost, Shipping Costs, and Capacity of the Warehouses

Shipping Cost (per unit)
Fixed Cost Capacity
(per month) Region 1 Region 2 Region 3 Region 4 Region 5 (units/month)
WH 1 $50,000 $30 $70 $75 $55 $40 700
WH 2 $30,000 $55 $30 $45 $45 $70 500
WH 3 $70,000 $70 $30 $50 $60 $55 1,000

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Chapter 7 Problems 257

Problems
To the left of the problems (or their parts), we have inserted an as well as the amount of investment required to undertake the
E* whenever Excel should be used (unless your instructor gives project.
you contrary instructions). An asterisk on the problem number
indicates that at least a partial answer is given in the back of the Development Project
book.
1 2 3 4 5
7.1. Read the referenced article that fully describes the man- Estimated profit
agement science study summarized in the application vignette (millions) $1 $ 1.8 $ 1.6 $0.8 $1.4
presented in Section 7.1. Briefly describe how mixed BIP was Capital required
applied in this study. Then list the various financial and nonfi- (millions) 6 12 10 4 8
nancial benefits that resulted from this study.
7.2. Reconsider the California Manufacturing Co. case The owners of the firm, Dave Peterson and Ron Johnson, have
study presented in Section 7.1. The mayor of San Diego now raised $20 million of investment capital for these projects. Dave
has contacted the company’s president, Armando Ortega, to try and Ron now want to select the combination of projects that
to persuade him to build a factory and perhaps a warehouse in will maximize their total estimated long-run profit (net present
that city. With the tax incentives being offered the company, value) without investing more than $20 million.
Armando’s staff estimates that the net present value of building a. Formulate a BIP model in algebraic form for this
a factory in San Diego would be $7 million and the amount of problem.
capital required to do this would be $4 million. The net present E* b. Formulate and solve this model on a spreadsheet.
value of building a warehouse there would be $5 million and the E* c. Perform sensitivity analysis on the amount of
capital required would be $3 million. (This option will only be investment capital made available for the devel-
considered if a factory also is being built there.) opment projects by generating a parameter analy-
Armando has asked Steve Chan to revise his previous man- sis report with RSPE to solve the model with the
agement science study to incorporate these new alternatives into following amounts of investment capital (in mil-
the overall problem. The objective still is to find the feasible lions of dollars): 16, 18, 20, 22, 24, 26, 28, and 30.
combination of investments that maximizes the total net present Include both the changing cells and the objective
value, given that the amount of capital available for these invest- cell as output cells in the parameter analysis report.
ments is $10 million.
E*7.6. The board of directors of General Wheels Co. is con-
a. Formulate a BIP model in algebraic form for this sidering seven large capital investments. Each investment can
problem. be made only once. These investments differ in the estimated
E* b. Formulate and solve this model on a spreadsheet. long-run profit (net present value) that they will generate as
7.3.* A young couple, Eve and Steven, want to divide their well as in the amount of capital required, as shown by the fol-
main household chores (marketing, cooking, dishwashing, and lowing table.
laundering) between them so that each has two tasks but the total
time they spend on household duties is kept to a minimum. Their
Investment Estimated Profit Capital Required
efficiencies on these tasks differ, where the time each would
Opportunity (millions) (millions)
need to perform the task is given by the following table.
1 $17 $43
2 10 28
Time Needed per Week (Hours) 3 15 34
4 19 48
Marketing Cooking Dish Washing Laundry 5 7 17
6 13 32
Eve 4.5 7.8 3.6 2.9 7 9 23
Steven 4.9 7.2 4.3 3.1

The total amount of capital available for these investments is

a. Formulate a BIP model in algebraic form for this
problem.
E* b. Formulate and solve this model on a spreadsheet.
7.4. Read the referenced article that fully describes the man-
agement science study summarized in the application vignette
presented in Section 7.2. Briefly describe how mixed binary inte-
ger programming was applied in this study. Then list the various
financial and nonfinancial benefits that resulted from this study.
7.5. A real-estate development firm, Peterson and Johnson,
is considering five possible development projects. Using units of
millions of dollars, the following table shows the estimated long-
run profit (net present value) that each project would generate,
$100 million. Investment opportunities 1 and 2 are mutually
exclusive, and so are 3 and 4. Furthermore, neither 3 nor 4 can
be undertaken unless one of the first two opportunities is under-
taken. There are no such restrictions on investment opportunities
5, 6, and 7. The objective is to select the combination of capi-
tal investments that will maximize the total estimated long-run
profit (net present value).
a. Formulate and solve a BIP model on a spreadsheet
for this problem.
b. Perform sensitivity analysis on the amount of
capital made available for the investment oppor-
tunities by generating a parameter analysis report

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258 Chapter Seven Using Binary Integer Programming to Deal with Yes-or-No Decisions

with RSPE to solve the model with the following
amounts of capital (in millions of dollars): 80, 90,
100, 110, .  .  .  , and 200. Include both the chang-
ing cells and the objective cell as output cells in the
parameter analysis report.
E*7.7. The Fly-Right Airplane Company builds small jet air-
planes to sell to corporations for use by their executives. To
meet the needs of these executives, the company’s customers
sometimes order a custom design of the airplanes being pur-
chased. When this occurs, a substantial start-up cost is incurred
to initiate the production of these airplanes.
Fly-Right has recently received purchase requests from three
customers with short deadlines. However, because the com-
pany’s production facilities already are almost completely tied
up filling previous orders, it will not be able to accept all three
orders. Therefore, a decision now needs to be made on the num-
ber of airplanes the company will agree to produce (if any) for
each of the three customers.
The relevant data are given in the next table. The first row
gives the start-up cost required to initiate the production of the
airplanes for each customer. Once production is under way,
the marginal net revenue (which is the purchase price minus
the marginal production cost) from each airplane produced is
shown in the second row. The third row gives the percentage
of the available production capacity that would be used for
each airplane produced. The last row indicates the maximum
number of airplanes requested by each customer (but less will
be accepted).
Customer
1 2 3
Start-up cost $3 million $2 million 0 three drivers will be arriving in less than an hour to make the day’s
Marginal net revenue $2 million $3 million $0.8 million
Capacity used per plane 20% 40% 20%
Maximum order 3 planes 2 planes 5 planes
Fly-Right now wants to determine how many airplanes to
produce for each customer (if any) to maximize the company’s
total profit (total net revenue minus start-up costs). Formulate
and solve a spreadsheet model with both integer variables and
binary variables for this problem.
E*7.8. Consider the following special type of shortest path
problem (discussed in Section 6.4) where the nodes are in
columns and the only paths considered always move forward
one column at a time.
6
A C
3 3
5
(Origin) O T (Destination)
4
6 2
B D
3
The numbers along the links represent distances (in miles), and the
objective is to find the shortest path from the origin to the destination.
This problem also can be formulated as a BIP model involv-
ing both mutually exclusive alternatives and contingent deci-
sions. Formulate and solve this BIP model on a spreadsheet.
Identify the constraints for (1) mutually exclusive alternatives
and (2) contingent decisions.
7.9. Read the referenced article that fully describes the man-
agement science study summarized in the application vignette
presented in Section 7.4. Briefly describe how BIP and related
techniques were applied in this study. Then list the various
financial and nonfinancial benefits that resulted from this study.
7.10. Speedy Delivery provides two-day delivery service of
large parcels across the United States. Each morning at each col-
lection center, the parcels that have arrived overnight are loaded
onto several trucks for delivery throughout the area. Since the
competitive battlefield in this business is speed of delivery, the
parcels are divided among the trucks according to their geo-
graphical destinations to minimize the average time needed to
make the deliveries.
On this particular morning, the dispatcher for the Blue River
Valley Collection Center, Sharon Lofton, is hard at work. Her
deliveries. There are nine parcels to be delivered, all at locations
many miles apart. As usual, Sharon has loaded these locations
into her computer. She is using her company’s special software
package, a decision support system called Dispatcher. The first
thing Dispatcher does is use these locations to generate a con-
siderable number of attractive possible routes for the individual
delivery trucks. These routes are shown in the table below (where
the numbers in each column indicate the order of the deliveries),
along with the estimated time required to traverse the route.
Dispatcher is an interactive system that shows these routes
to Sharon for her approval or modification. (For example, the

Attractive Possible Route

Delivery Location 1 2 3 4 5 6 7 8 9 10
A 1 1 1
B 2 1 2 2 2
C 3 3 3 3
D 2 1 1
E 2 2 3
F 1 2
G 3 1 2 3
H 1 3 1
I 3 4 2

Time (in hours) 6 4 7 5 4 6 5 3 7 6

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computer may not know that flooding has made a particular
route infeasible.) After Sharon approves these routes as attrac-
tive possibilities with reasonable time estimates, Dispatcher next
formulates and solves a BIP model for selecting three routes that
minimize their total time while including each delivery location
on exactly one route.
E* a. Using the data in the table, demonstrate how Dis-
patcher can formulate and solve this BIP model on a
spreadsheet.
b. Describe how the problem addressed in part a is
analogous to the crew scheduling problem described
in Section 7.4.
E*7.11. An increasing number of Americans are moving to
a warmer climate when they retire. To take advantage of this
trend, Sunny Skies Unlimited is undertaking a major real-estate
development project. The project is to develop a completely
new retirement community (to be called Pilgrim Haven) that
will cover several square miles. One of the decisions to be made
is where to locate the two paramedic stations that have been
allocated to the community to respond to medical emergen-
cies. For planning purposes, Pilgrim Haven has been divided
into five tracts, with no more than one paramedic station to
be located in any given tract. Each station is to respond to all
the medical emergencies that occur in the tract in which it is
located as well as in the other tracts that are assigned to this
station. Thus, the decisions to be made consist of (1) the tracts
to receive a paramedic station and (2) the assignment of each of
the other tracts to one of the paramedic stations. The objective is
to minimize the overall average of the response times to medical
emergencies.
The following table gives the average response time to a
medical emergency in each tract (the rows) if that tract is served
by a station in a given tract (the columns). The last column gives
the forecasted average number of medical emergencies that will
occur in each of the tracts per day.
Fire Station in Tract Average Frequency of
Medical Emergencies
1 2 3 4 5 per Day
Response 1 5 20 15 25 10
times (min.) 2 12 4 20 15 25
to a medical 3 30 15 6 25 15
emergency 4 20 10 15 4 12
in tract 5 15 25 12 10 5 3
Formulate and solve a BIP model on a spreadsheet for this
problem. Identify any constraints that correspond to mutually
exclusive alternatives or contingent decisions.
7.12. Reconsider Problem 7.11. The management of Sunny
Skies Unlimited now has decided that the decision regarding
the locations of the paramedic stations should be based mainly
on costs.
The cost of locating a paramedic station in a tract is
$200,000 for tract 1, $250,000 for tract 2, $400,000 for tract 3,
$300,000 for tract 4, and $500,000 for tract 5. Management’s
objective now is to determine which tracts should receive a
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Confirming Pages
Chapter 7 Problems 259
station to minimize the total cost of stations while ensuring
that each tract has at least one station close enough to respond
to a medical emergency in no more than 15 minutes. In con-
trast to the original problem, note that the total number of
paramedic stations is no longer fixed. Furthermore, if a tract
without a station has more than one station within 15 minutes,
it is no longer necessary to assign this tract to just one of these
stations.
a. Formulate the algebraic form of a pure BIP model
with five binary variables for this problem.
E* b. Display and solve this model on a spreadsheet.
7.13. Reconsider the Southwestern Airways crew scheduling
problem presented in Section 7.4. Because of a blizzard in the
Chicago area, all the flights into and out of Chicago (including
flights 4, 6, 7, and 9 in Table 7.5) have been canceled for the
time being, so a new crew scheduling plan needs to be devel-
oped to cover the seven remaining flights in Table 7.5.
The 12 feasible sequences of flights still are the ones
shown in Table 7.5 after deleting the canceled flights. When
flights into and out of Chicago had originally been part of a
sequence, a crew now would fly as passengers on a Southwest-
ern Airways flight to the next city in the sequence to cover
the remaining flights in the sequence. For example, flight
sequence 4 now would be San Francisco to Los Angeles to
Denver to San Francisco, where a crew would fly as passen-
gers on a flight from Los Angeles to Denver (not shown in
the table) to enable serving as the crew from Denver to San
Francisco. (Since the original sequence 5 included a round-
trip from Denver to Chicago and back, a crew assigned to this
sequence now would simply lay over in Denver to await the
flight from Denver to San Francisco.) The cost of assigning a
crew to any sequence still would be the same as shown in the
bottom row of Table 7.5.
The objective still is to minimize the total cost of the crew
assignments that cover all the flights. The fact that only 7 flights
2
1
3
1
now need to be covered instead of 11 increases the chance
that fewer than three crews will need to be assigned to a flight
sequence this time. (The flights where these crews fly as passen-
gers do not need to be covered since they already are assigned to
crews that are not based in San Francisco.)
a. Formulate a BIP model in algebraic form for this
problem.
E* b. Formulate and solve this problem on a spreadsheet.
7.14. Yakima Construction Corporation (YCC) is consid-
ering a number of different development projects. The cash
outflows that would be required to complete each project are
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260 Chapter Seven Using Binary Integer Programming to Deal with Yes-or-No Decisions

indicated in the table below, along with the expected net present a. Formulate a BIP model in algebraic form for this
value of each project (all values in millions of dollars). problem.
E* b. Formulate and solve this model on a spreadsheet.
Project
7.17. The school board for the Bellevue School District has
1 2 3 4 5 made the decision to purchase 1,350 additional Macintosh com-
puters for computer laboratories in all its schools. Based on past
Year 1 $ 8 $10 $12 $4 $14
Year 2 6 8 6 3 6 experience, the school board also has directed that these computers
Year 3 3 7 6 2 5 should be purchased from some combination of three companies—
Year 4 0 5 6 0 7 Educomp, Macwin, and McElectronics. In all three cases, the
companies charge a discounted variable cost per computer and a
NPV $12 $15 $20 $9 $23
fixed delivery and installation cost for these large sales to school
districts. The table below shows these charges as well as the
Each project must be done in full (with the corresponding cash capacity (the maximum number of computers that can be sold
flows for all four years) or not done at all. Furthermore, there from the limited inventory) for each of the companies.
are the following additional considerations. Project 1 cannot be
done unless Project 2 is also undertaken, and projects 3 and 4
Educomp Macwin McElectronics
would compete with each other, so they should not both be cho-
sen. YCC expects to have the following cash available to invest Capacity 700 700 1,000
in these projects: $40 million for year 1, $25 million for year 2, Fixed cost $45,000 $35,000 $50,000
$16 million for year 3, and $12 million for year 4. Any available Variable cost $750 $775 $700
money not spent in a given year is then available to spend the
following year. YCC’s policy is to choose their projects so as to The school board wants to determine the minimum-cost plan
maximize their total expected NPV. for meeting its computer needs.
a. Formulate a BIP model in algebraic form for this a. Formulate a BIP model in algebraic form for this
problem. problem.
E* b. Formulate and solve this model on a spreadsheet. E* b. Formulate and solve this model on a spreadsheet.
7.15. Read the referenced article that fully describes the man- E* c. Now suppose that Macwin has not submitted its
agement science study summarized in the application vignette final bid yet, so the per computer cost is not known
presented in Section 7.5. Briefly describe how mixed BIP was with certainty. Generate a parameter analysis report
applied in this study. Then list the various financial and nonfi- with RSPE to show the optimal order quantities
nancial benefits that resulted from this study. and total cost of the optimal solution when the cost
7.16. An electrical utility needs to generate 6,500 megawatts per computer for Macwin is $680, $690, $700,
of electricity today. It has five generators. If any electricity is $710, . . . , $790, or $800.
generated by a given generator, that generator must be started up E*7.18. Noble Amazon sells books online. Management is try-
and a fixed start-up cost is incurred. There is an additional cost ing to determine the best sites for the company’s warehouses.
for each megawatt generated by a generator. These costs, as well The five potential sites under consideration are listed in the first
as the maximum capacity of each generator, are shown in the column of the table at the bottom of the page. Most of the sales
following table. The objective is to determine the minimum cost come from customers in the United States. The average weekly
plan that meets the electrical needs for today. demand from each region of the country, the average shipping

Generator
A B C D E
Fixed start-up cost $3,000 $2,000 $2,500 $1,500 $1,000
Cost per megawatt /day generated $5 $4 $6 $6 $7
Maximum capacity (MW/day) 2,100 1,800 2,500 1,500 3,000

Average Shipping Cost ($/book) Fixed Warehouse

Cost Capacity
Warehouse Site Northwest Southwest Midwest Southeast Northeast (per week) (books/week)
Spokane, WA $2.40 $3.50 $4.80 $6.80 $5.75 $40,000 20,000
Reno, NV $3.25 $2.30 $3.40 $5.25 $6.00 $30,000 20,000
Omaha, NE $4.05 $3.25 $2.85 $4.30 $4.75 $25,000 15,000
Harrisburg, PA $5.25 $6.05 $4.30 $3.25 $2.75 $40,000 25,000
Jacksonville, FL $6.95 $5.85 $4.80 $2.10 $3.50 $30,000 15,000
Customer demand 8,000 12,000 9,000 14,000 17,000
(per week)

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Case 7-1 Assigning Art 261

cost from each warehouse site to each region of the country, production and distribution of the WebSurfer from
the fixed cost per week of each warehouse if it is operated, and the various plants, through the warehouses, to the
the maximum capacity of each warehouse (if it is operated) are customers that will minimize total costs.
shown in the table. Formulate and solve a mixed BIP model in a
spreadsheet to determine which warehouse sites Noble Amazon Fixed Cost
should operate and how books should be distributed from each Plant ($/week)
warehouse to each region of the country to minimize total cost. Atlanta $8,000
E*7.19. Aberdeen Computer Corp. (ACC) is located in Aber- Kansas City $9,000
deen, Washington. The company has developed the WebSurfer, Aberdeen $9,000
a low-cost e-mail and Web-surfing appliance. This product is Austin $10,000
manufactured at four plants, located in Atlanta, Kansas City,
Aberdeen, and Austin. After production, the WebSurfers are
shipped to three warehouses, located in Nashville, San Jose, Fixed Cost
and Houston. ACC sells the WebSurfers through the retail Warehouse ($/week)
channel. In particular, five different retailers currently sell the Nashville $4,000
WebSurfer—Sears, Best Buy, Fry’s, Comp USA, and Office San Jose $5,000
Max. ACC makes weekly shipments to the main warehouses of Houston $5,000
these five retailers. The shipping cost from each plant to each
warehouse, along with the production cost and weekly produc- b. Now suppose that ACC is considering saving
tion capacity at each plant, are given in the table below. money by closing some of its production facilities

Shipping Cost ($/unit)

Production Capacity
Plant Nashville San Jose Houston Cost ($/unit) (units/week)
Atlanta $30 $40 $50 $208 200
Kansas City $25 $45 $40 $214 300
Aberdeen $45 $30 $55 $215 300
Austin $30 $50 $30 $210 400

The shipping cost from each warehouse to each customer, the
variable cost (cost per unit moved through the warehouse), the
capacity (maximum number of units that can be moved through
the warehouse per week) for each warehouse, and the weekly
demand for each customer are given in the table below.
and/or warehouses. Suppose there is a fixed cost
to operate each plant and each warehouse as indi-
cated in the tables above. Add binary variables to
your model in part a to incorporate the decision of
which plants and warehouses to keep open so as to

Shipping Cost ($/unit)

Variable
Best Comp Office Cost Capacity
Warehouse Sears Buy Fry’s USA Max ($/unit) (units/week)
Nashville $40 $45 $30 $25 $20 $4 300
San Jose $15 $50 $25 $15 $40 $5 500
Houston $50 $35 $15 $40 $50 $5 500
Customer demand 100 50 75 300 150
(per week)

a. Formulate and solve a linear programming model minimize total cost (including the fixed costs for
in a spreadsheet to determine the plan for weekly any plant or warehouse that is operated).

Case 7-1
Assigning Art
It had been a dream come true for Ash Briggs, a struggling art-
ist living in the San Francisco Bay area. He had made a trip to
the corner grocery store late one Friday afternoon to buy some
milk, and, on impulse, he had also purchased a California lottery
ticket. One week later, he was a multimillionaire.
Ash did not want to squander his winnings on materialistic, triv-
ial items. Instead he wanted to use his money to support his true pas-
sion: art. Ash knew all too well the difficulties of gaining recognition
as an artist in this post-industrial, technological society where artistic
appreciation is rare and financial support even rarer. He therefore

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262 Chapter Seven Using Binary Integer Programming to Deal with Yes-or-No Decisions

decided to use the money to fund an exhibit of up-and-coming mod-
ern artists at the San Francisco Museum of Modern Art.
Ash approached the museum directors with his idea, and the
directors became excited immediately after he informed them that
he would fund the entire exhibit in addition to donating $1 million to
the museum. Celeste McKenzie, a museum director, was assigned
to work with Ash in planning the exhibit. The exhibit was slated
to open one year from the time Ash met with the directors, and the
exhibit pieces would remain on display for two months.
Ash began the project by combing the modern art commu-
nity for potential artists and pieces. He presented a list (shown
below) of artists, their pieces, and the price of displaying each
piece1 to Celeste.
Ash possesses certain requirements for the exhibit. He
believes the majority of Americans lack adequate knowledge of
art and artistic styles, and he wants the exhibit to educate Ameri-
cans. Ash wants visitors to become aware of the collage as an
art form, but he believes collages require little talent. He there-
fore decides to include only one collage. Additionally, Ash wants
viewers to compare the delicate lines in a three-dimensional
wire mesh sculpture to the delicate lines in a two-dimensional
computer-generated drawing. He therefore wants at least one
wire-mesh sculpture displayed if a computer-generated draw-
ing is displayed. Alternatively, he wants at least one computer-
generated drawing displayed if a wire-mesh sculpture is dis-
played. Furthermore, Ash wants to expose viewers to all painting
styles, but he wants to limit the number of paintings displayed to
achieve a balance in the exhibit between paintings and other art
forms. He therefore decides to include at least one photo-realistic
painting, at least one cubist painting, at least one expressionist
painting, at least one watercolor painting, and at least one oil
painting. At the same time, he wants the number of paintings to
be no greater than twice the number of other art forms.
Ash wants all his own paintings included in the exhibit since
he is sponsoring the exhibit and since his paintings celebrate the
San Francisco Bay area, the home of the exhibit.
Ash possesses personal biases for and against some artists.
Ash is currently having a steamy affair with Candy Tate, and he
wants both of her paintings displayed. Ash counts both David
Lyman and Rick Rawls as his best friends, and he does not want

Artist Piece Description of Piece   Price

Colin Zweibell Perfection A wire-mesh sculpture of the human body $300,000
Burden A wire-mesh sculpture of a mule 250,000
The Great Equalizer A wire-mesh sculpture of a gun 125,000
Rita Losky Chaos Reigns A series of computer-generated drawings 400,000
Who Has Control? A computer-generated drawing intermeshed with lines 500,000
of computer code
Domestication A pen-and-ink drawing of a house 400,000
Innocence A pen-and-ink drawing of a child 550,000
Norm Marson Aging Earth A sculpture of trash covering a larger globe 700,000
Wasted Resources A collage of various packaging materials 575,000
Candy Tate Serenity An all-blue watercolor painting 200,000
Calm before the Storm A painting with an all-blue watercolor background and a black 225,000
watercolor center
Robert Bayer Void An all-black oil painting 150,000
Sun An all-yellow oil painting 150,000
David Lyman Storefront Window A photo-realistic painting of a jewelry store display window 850,000
Harley A photo-realistic painting of a Harley-Davidson motorcycle 750,000
Angie Oldman Consumerism A collage of magazine advertisements 400,000
Reflection A mirror (considered a sculpture) 175,000
Trojan Victory A wooden sculpture of a condom 450,000
Rick Rawls Rick A photo-realistic self-portrait (painting) 500,000
Rick II A cubist self-portrait (painting) 500,000
Rick III An expressionist self-portrait (painting) 500,000
Bill Reynolds Beyond A science fiction oil painting depicting Mars colonization 650,000
Pioneers An oil painting of three astronauts aboard the space shuttle 650,000
Bear Canton Wisdom A pen-and-ink drawing of an Apache chieftain 250,000
Superior Powers A pen-and-ink drawing of a traditional Native American rain dance 350,000
Living Land An oil painting of the Grand Canyon 450,000
Helen Row Study of a Violin A cubist painting of a violin 400,000
Study of a Fruit Bowl A cubist painting of a bowl of fruit 400,000
Ziggy Lite My Namesake A collage of Ziggy cartoons 300,000
Narcissism A collage of photographs of Ziggy Lite 300,000
Ash Briggs All That Glitters A watercolor painting of the Golden Gate Bridge 50,000*
The Rock A watercolor painting of Alcatraz 50,000*
Winding Road A watercolor painting of Lombard Street 50,000*
Dreams Come True A watercolor painting of the San Francisco Museum of Modern Art 50,000*
*Ash does not require personal compensation, and the cost for moving his pieces to the museum from his home in San Francisco is minimal. The cost of displaying his pieces therefore
only includes the cost of constructing the display and insuring the pieces.

1
The display price includes the cost of paying the artist for loaning the piece to the museum, transporting the piece to San Francisco, con-
structing the display for the piece, insuring the piece while it is on display, and transporting the piece back to its origin.

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to play favorites among these two artists. He therefore decides to
display as many pieces from David Lyman as from Rick Rawls
and to display at least one piece from each of them. Although
Ziggy Lite is very popular within art circles, Ash believes Ziggy
makes a mockery of art. Ash will therefore only accept one dis-
play piece from Ziggy, if any at all.
Celeste also possesses her own agenda for the exhibit. As a
museum director, she is interested in representing a diverse pop-
ulation of artists, appealing to a wide audience, and creating a
politically correct exhibit. To advance feminism, she decides to
include at least one piece from a female artist for every two pieces
included from a male artist. To advance environmentalism, she
decides to include either one or both of the pieces Aging Earth
and Wasted Resources. To advance Native American rights, she
decides to include at least one piece by Bear Canton. To advance
science, she decides to include at least one of the following
pieces: Chaos Reigns, Who Has Control?, Beyond, and Pioneers.
Celeste also understands that space is limited at the museum.
The museum only has enough floor space for four sculptures and
enough wall space for 20 paintings, collages, and drawings.
Finally, Celeste decides that if Narcissism is displayed,
Reflection should also be displayed since Reflection also sug-
gests narcissism.
Case 7-2
Stocking Sets
Daniel Holbrook, an expediter at the local warehouse for Furniture
City, sighed as he moved boxes and boxes of inventory to the side
to reach the shelf where the particular item he needed was located.
He dropped to his hands and knees and squinted at the inven-
tory numbers lining the bottom row of the shelf. He did not find
the number he needed. He worked his way up the shelf until he
found the number matching the number on the order slip. Just his
luck! The item was on the top row of the shelf! Daniel walked back
through the warehouse to find a ladder, stumbling over boxes of
inventory littering his path. When he finally climbed the ladder to
reach the top shelf, his face crinkled in frustration. Not again! The
item he needed was not in stock! All he saw above the inventory
number was an empty space covered with dust!
Daniel trudged back through the warehouse to make the
dreaded phone call. He dialed the number of Brenda Sims, the
saleswoman on the kitchen showroom floor of Furniture City,
and informed her that the particular light fixture the customer
had requested was not in stock. He then asked her if she wanted
him to look for the rest of the items in the kitchen set. Brenda
told him that she would talk to the customer and call him back.
Brenda hung up the phone and frowned. Mr. Davidson, her cus-
tomer, would not be happy. Ordering and receiving the correct light
fixture from the regional warehouse would take at least two weeks.
Brenda then paused to reflect upon business during the last
month and realized that over 80 percent of the orders for kitchen
sets could not be filled because items needed to complete the
sets were not in stock at the local warehouse. She also realized
that Furniture City was losing customer goodwill and business
because of stockouts. The furniture megastore was gaining a
reputation for slow service and delayed deliveries, causing cus-
tomers to turn to small competitors that sold furniture directly
from the showroom floor.
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Confirming Pages
Case 7-2 Stocking Sets 263
Please explore the following questions independently except
where otherwise indicated.
a. Ash decides to allocate $4 million to fund the exhibit. Given
the pieces available and the specific requirements from Ash
and Celeste, formulate and solve a binary integer program-
ming problem to maximize the number of pieces displayed in
the exhibit without exceeding the budget. How many pieces
are displayed? Which pieces are displayed?
b. To ensure that the exhibit draws the attention of the pub-
lic, Celeste decides that it must include at least 20 pieces.
Formulate and solve a binary integer programming prob-
lem to minimize the cost of the exhibit while displaying at
least 20 pieces and meeting the requirements set by Ash and
Celeste. How much does the exhibit cost? Which pieces are
displayed?
c. An influential patron of Rita Losky’s work who chairs the
museum’s board of directors learns that Celeste requires at
least 20 pieces in the exhibit. He offers to pay the minimum
amount required on top of Ash’s $4 million to ensure that
exactly 20 pieces are displayed in the exhibit and that all of
Rita’s pieces are displayed. How much does the patron have
to pay? Which pieces are displayed?
Brenda decided to investigate the inventory situation at the
local warehouse. She walked the short distance to the building
next door and gasped when she stepped inside the warehouse.
What she saw could only be described as chaos. Spaces allo-
cated for some items were overflowing into the aisles of the
warehouse while other spaces were completely bare. She walked
over to one of the spaces overflowing with inventory to deter-
mine what item was overstocked. She could not believe her
eyes! The warehouse had at least 30 rolls of pea-green wallpa-
per! No customer had ordered pea-green wallpaper since 1973!
Brenda marched over to Daniel demanding an explanation.
Daniel said that the warehouse had been in such a chaotic state
since his arrival one year ago. He said the inventory problems
occurred because management had a policy of stocking every
furniture item on the showroom floor in the local warehouse.
Management only replenished inventory every three months, and
when inventory was replenished, management ordered every item
regardless of whether it had been sold. Daniel also said that he had
tried to make management aware of the problems with overstock-
ing unpopular items and understocking popular items, but manage-
ment would not listen to him because he was simply an expediter.
Brenda understood that Furniture City required a new inven-
tory policy. Not only was the megastore losing money by making
customers unhappy with delivery delays, but it was also losing
money by wasting warehouse space. By changing the inventory
policy to stock only popular items and replenish them immedi-
ately when sold, Furniture City would ensure that the majority of
customers would receive their furniture immediately and that the
valuable warehouse space would be utilized effectively.
Brenda needed to sell her inventory policy to management.
Using her extensive sales experience, she decided that the most
effective sales strategy would be to use her kitchen department
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 Confirming Pages

264 Chapter Seven Using Binary Integer Programming to Deal with Yes-or-No Decisions

as a model for the new inventory policy. She would identify all
kitchen sets comprising 85 percent of customer orders. Given
the fixed amount of warehouse space allocated to the kitchen
department, she would identify the items Furniture City should
stock to satisfy the greatest number of customer orders. She
would then calculate the revenue from satisfying customer
orders under the new inventory policy, using the bottom line to
persuade management to accept her policy.
Brenda analyzed her records over the past three years and
determined that 20 kitchen sets were responsible for 85 percent
of the customer orders. These 20 kitchen sets were composed
of up to eight features in a variety of styles. Brenda listed each
feature and its popular styles in the tables below.
Brenda then created a table (given on the next page) showing
the 20 kitchen sets and the particular features composing each
set. To simplify the table, she used the codes shown in paren-
theses below to represent the particular feature and style. For
example, kitchen set 1 consists of floor tile T2, wallpaper W2,
light fixture L4, cabinet C2, countertop O2, dishwasher D2, sink
S2, and range R2. Notice that sets 14 through 20 do not contain
dishwashers.
a. Formulate and solve a binary integer programming problem
to maximize the total number of kitchen sets (and thus the
number of customer orders) Furniture City stocks in the local
warehouse. Assume that when a customer orders a kitchen
set, all the particular items composing that kitchen set are
replenished at the local warehouse immediately.
b. How many of each feature and style should Furniture City
stock in the local warehouse? How many different kitchen
sets are in stock?
c. Furniture City decides to discontinue carrying nursery sets,
and the warehouse space previously allocated to the nurs-
ery department is divided between the existing departments
at Furniture City. The kitchen department receives enough
additional space to allow it to stock both styles of dishwash-
ers and three of the four styles of ranges. How does the opti-
mal inventory policy for the kitchen department change with
this additional warehouse space?
d. Brenda convinces management that the kitchen department
should serve as a testing ground for future inventory policies.
To provide adequate space for testing, management decides

Floor Tile Wallpaper Light Fixtures Cabinets

(T1) White textured tile
(T2) Ivory textured tile
(T3) White checkered tile
with blue trim
(T4) White checkered tile
with light yellow trim
(W1) Plain ivory paper
(W2) Ivory paper with
dark brown pinstripes
(W3) Blue paper with
marble texture
(W4) Light yellow paper
with marble texture
(L1) One large rectangular frosted fixture
(L2) Three small square frosted fixtures
(L3) One large oval frosted fixture
(L4) Three small frosted globe fixtures
(C1) Light solid wood cabinets
(C2) Dark solid wood cabinets
(C3) Light-wood cabinets with
glass doors
(C4) Dark-wood cabinets with
glass doors

Countertops Dishwashers Sinks Ranges

(O1) Plain light-wood
countertops
(O2) Stained light-wood
countertops
(O3) White lacquer-coated
countertops
(O4) Ivory lacquer-coated
countertops
(D1) White energy-saving dishwasher
(D2) Ivory energy-saving dishwasher
(S1) Sink with separate hot (R1) White electric oven
and cold water taps
(S2) Divided sink with separate (R2) Ivory electric oven
hot and cold water taps and
garbage disposal
(S3) Sink with one hot and cold (R3) White gas oven
water tap
(S4) Divided sink with one hot (R4) Ivory gas oven
and cold water tap and gar
bage disposal

Brenda knew she had only a limited amount of warehouse
space allocated to the kitchen department. The warehouse could
hold 50 square feet of tile and 12 rolls of wallpaper in the inven-
tory bins. The inventory shelves could hold two light fixtures,
two cabinets, three countertops, and two sinks. Dishwashers
and ranges are similar in size, so Furniture City stored them in
similar locations. The warehouse floor could hold a total of four
dishwashers and ranges.
Every kitchen set always includes exactly 20 square feet of
tile and exactly five rolls of wallpaper. Therefore, 20 square feet
of a particular style of tile and five rolls of a particular style of
wallpaper are required for the styles to be in stock.
to allocate all the space freed by the nursery department
to the kitchen department. The extra space means that the
kitchen department can store not only the dishwashers and
ranges from part c, but also all sinks, all countertops, three
of the four light fixtures, and three of the four cabinets. How
much does the additional space help?
e. How would the inventory policy be affected if the items
composing a kitchen set could not be replenished immedi-
ately? Under what conditions is the assumption of immediate
replenishment nevertheless justified?

hil24064_ch07_232-266.indd 264 09/11/12 1:31 PM

hil24064_ch07_232-266.indd 265
T1 T2 T3 T4 W1 W2 W3 W4 L1 L2 L3 L4 C1 C2 C3 C4 O1 O2 O3 O4 D1 D2 S1 S2 S3 S4 R1 R2 R3 R4
Set 1 X X X X X X X X
Set 2 X X X X X X X X
Set 3 X X X X X X X X
Set 4 X X X X X X X X
Set 5 X X X X X X X X
Set 6 X X X X X X X X
Set 7 X X X X X X X X
Set 8 X X X X X X X X
Set 9 X X X X X X X X
Set 10 X X X X X X X X
Set 11 X X X X X X X X
Set 12 X X X X X X X X
Set 13 X X X X X X X X
Set 14 X X X X X X X
Set 15 X X X X X X X
Set 16 X X X X X X X
Set 17 X X X X X X X
Set 18 X X X X X X X
Set 19 X X X X X X X
Set 20 X X X X X X X
Case 7-2
Stocking Sets 265
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09/11/12 1:31 PM

266 Chapter Seven Using Binary Integer Programming to Deal with Yes-or-No Decisions
Case 7-3
Assigning Students to Schools (Revisited)
Reconsider Case 3-5. The Springfield School Board now has
made the decision to prohibit the splitting of residential areas
among multiple schools. Thus, each of the six areas must be
assigned to a single school.
a. Formulate and solve a BIP model for this problem under the
current policy of providing busing for all middle school stu-
dents who must travel more than approximately a mile.
Case 7-4
Broadcasting the Olympic Games (Revisited)
Reconsider part b of Case 6-4. Use the spreadsheet model devel-
oped there to incorporate the following consideration.
An additional concern not considered in Case 6-4 is that
the routers at nodes C and F are each already maxed out. If
any additional capacity is built into or out of node C or node
F, then the routers at these stations must be upgraded. This
would cost a total of $2 million at node C or a total of $3 mil-
lion at node F. Which network segments should be increased in
capacity and by how much so as to increase the total capacity
of the network enough to transmit the peak requirement of 35
hil24064_ch07_232-266.indd 266
Confirming Pages
b. Referring to part c of Case 3-5, determine how much the total
busing cost increases because of the decision to prohibit the
splitting of residential areas among multiple schools.
c, d, e, f. Repeat parts d, e, f, g of Case 3-5 under the new school
board decision to prohibit splitting of residential areas among
multiple schools.
GB/s from the Olympics site (A) to the home studios (G) at the
lowest possible cost?
Additional Cases
An additional case for this chapter also is available at the Uni-
versity of Western Ontario Ivey School of Business website,
cases.ivey.uwo.ca/cases, in the segment of the CaseMate area
designated for this book.
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