Topic 2

Linear Programming:
Concepts and Applications

Production Scheduling
• LP can be used in operations management to aid in decision-making about product mix, production
scheduling, staffing, inventory control, capacity planning, and other issues.
• An important application of LP is multi-period planning such as production scheduling.
• Usually the objective is to establish an efficient, low-cost production schedule for one or more products
over several time periods.
• Typical constraints include limitations on production capacity, labour capacity, storage space, and more.

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Let us consider the case of the Bollinger Electronics Company, which produces two different electronic
components for a major airplane engine manufacturer. The airplane engine manufacturer notifies the
Bollinger sales office each quarter of its monthly requirements for components for each of the next three
months. The monthly requirements for the components may vary considerably, depending on the type of
engine the airplane engine manufacturer is producing. The order shown in the Table below has just been
received for the next three-month period.

Component April May June

322A 1000 3000 5000
802B 1000 500 3000

After the order is processed, a demand statement is sent to the production control department. The
production control department must then develop a three-month production plan for the components. In
arriving at the desired schedule, the production manager will want to identify the following:

1. Total Production cost

2. Inventory holding cost
3. Change-in-production-level costs
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Inputs / Requirements:
• Component 322A costs $20 per unit produced and component 802B costs $10 per unit produced.
• Bollinger determined that on a monthly basis inventory holding costs are 1.5% of the cost of the
product. A common assumption made in using the linear programming approach to production scheduling
is that monthly ending inventories are an acceptable approximation to the average inventory levels
throughout the month.

• After estimating the effects of employee layoffs, turnovers, reassignment training costs, and other costs
associated with fluctuating production levels, Bollinger estimates that the cost associated with increasing
the production level for any month is $0.50 per unit increase. A similar cost associated with decreasing the
production level for any month is $0.20 per unit.
• Suppose that the inventories at the beginning of the three-month scheduling period were 500 units for
component 322A and 200 units for component 802B.
• Company specifies a minimum inventory level at the end of the three-month period of at least 400 units of
component 322A and at least 200 units of component 802B.

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Inputs / Requirements:
• Additional information on machine, labour, and storage capacity shown in the Table below.

Month Machine Capacity Labour Capacity Storage Capacity

(hours) (hours) (square feet)
April 400 300 10,000
May 500 300 10,000
June 600 300 10,000

• Machine, labour, and storage space requirements are given in the Table below.

Component Machine Labour Storage

(hours/unit) (hours/unit) (square feet/unit)
322A 0.10 0.05 2
802B 0.08 0.07 3

Formulate a linear programming model of the production and

inventory process for Bollinger Electronics to minimise the total cost
and meet the demand requirements.
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Total Cost = Total Production Cost + Inventory Holding Cost + Change-in-Production-Level Costs

Total Production Cost:

• Component 322A costs $20 per unit produced and component 802B costs $10 per unit produced.

Decision Variables

Let xim denote the production volume in units for product i in month m.
i = 1, 2; i = 1 refers to component 322A, i = 2 refers to component 802B; and
m = 1, 2, 3; m = 1 refers to April, m = 2 refers to May, and m = 3 refers to June.

For example, x23 = production volume in units for product 802B in month June.

Total Production Cost = 20x11 + 20x12 + 20x13 + 10x21 + 10x22 + 10x23

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Total Cost = Total Production Cost + Inventory Holding Cost + Change-in-Production-Level Costs

Inventory Holding Cost

• Bollinger determined that on a monthly basis inventory holding costs are 1.5% of the cost of the product.

Decision Variables

Let sim denote the inventory level for product i at the end of month m.

Inventory Holding Cost = 0.30s11 + 0.30s12 + 0.30s13 + 0.15s21 + 0.15s22 + 0.15s23

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Total Cost = Total Production Cost + Inventory Holding Cost + Change-in-Production-Level Costs

Change-in-Production-Level Costs

• Bollinger estimates that the cost associated with increasing the production level for any month is $0.50 per
unit in- crease. A similar cost associated with decreasing the production level for any month is $0.20 per unit.

Decision Variables

Im = increase in the total production level necessary during month m

Dm = decrease in the total production level necessary during month m

Change-in-production-level costs = 0.50I1 + 0.50I2 + 0.50I3 + 0.20D1 + 0.20D2 + 0.20D3

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Total Cost = Total Production Cost + Inventory Holding Cost + Change-in-Production-Level Costs

Objective Function

Minimise Total Cost or z = 20x11 + 20x12 + 20x13 + 10x21 + 10x22 + 10x23 +

0.30s11 + 0.30s12 + 0.30s13 + 0.15s21 + 0.15s22 + 0.15s23 +
0.50I1 + 0.50I2 + 0.50I3 + 0.20D1 + 0.20D2 + 0.20D3

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Constraints

We must guarantee that the schedule meets

customer demand. Because the units shipped
can come from the current month’s production or
from inventory carried over from previous
months, the demand requirement takes the form
• Suppose that the inventories at the beginning of the three-month scheduling period were 500 units for
component 322A and 200 units for component 802B.
• The demand for both products in the first month (April) was 1000 units, so the constraints for meeting
demand in the first month become

500 + x11 - s11 = 1000 x11 - s11 = 500

200 + x21 - s21 = 1000 x21 - s21 = 800
Moving the constants
to the right-hand side.

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Constraints

Similarly, we need demand constraints for both products in the second and third months.
We write them as follows:

Month 1 Month 2 Month 3

x11 - s11 = 500 s11 + x12 - s12 = 3000 s12 + x13 - s13 = 5000
x21 - s21 = 800 s21 + x22 - s22 = 500 s22 + x23 - s23 = 3000

Company specifies a minimum inventory level at the end of the three-month period of at least 400 units of
component 322A and at least 200 units of component 802B. Thus, we can add these constraints:

s13 ≥ 400 (minimum inventory level of component 322A at the end of the three-month period)

s23 ≥ 200 (minimum inventory level of component 802B at the end of the three-month period)

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Constraints

Machine Capacity
0.10x11 + 0.08x21 ≤ 400 April Month Machine Labour Storage
Capacity Capacity Capacity
0.10x12 + 0.08x22 ≤ 500 May (hours) (hours) (square feet)
April 400 300 10,000
0.10x13 + 0.08x23 ≤ 600 June
May 500 300 10,000
Labour Capacity June 600 300 10,000
0.05x11 + 0.07x21 ≤ 300 April
0.05x12 + 0.07x22 ≤ 300 May Component Machine Labour Storage
0.05x13 + 0.07x23 ≤ 300 June (hours/unit) (hours/unit) (square
feet/unit)

Storage Capacity 322A 0.10 0.05 2

2s11 + 3s21 ≤ 10,000 April 802B 0.08 0.07 3

2s12 + 3s22 ≤ 10,000 May

2s13 + 3s23 ≤ 10,000 June

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Constraints

• One final set of constraints must be added to guarantee that Im and Dm will reflect the increase or
decrease in the total production level for month m.
• Suppose that the production levels for March, the month before the start of the current production
scheduling period, had been 1500 units of component 322A and 1000 units of component 802B for a
total production level of 1500 + 1000 = 2500 units.
• We can find the amount of the change in production for April from the relationship

April production - March production = Change

Using the April production variables, x11 and x21, and the March production of 2500 units, we have
(x11 + x21) - 2500 = Change
Note that the change can be positive or negative. A positive change reflects an increase in the total
production level, and a negative change reflects a decrease in the total production level. We can use the
increase in production for April, I1, and the decrease in production for April, D1, to specify the constraint for
the change in total production for the month of April:
(x11 + x21) - 2500 = I1 - D1
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Constraints

• Of course, we cannot have an increase in production and a decrease in production during the same
one-month period; thus, either, I1 or D1 will be zero. If April requires 3000 units of production, I1 = 500
and D1 = 0. If April requires 2200 units of production, I1 = 0 and D1 = 300. This approach of denoting the
change in production level as the difference between two nonnegative variables, I1 and D1, permits both
positive and negative changes in the total production level. If a single variable (say, cm) had been used
to represent the change in production level, only positive changes would be possible because of the
non-negativity requirement.
• Using the same approach in May and June (always subtracting the previous month’s total production
from the current month’s total production), we obtain the constraints for the second and third months of
the production scheduling period:

All variables should be moved to

(x12 + x22) - (x11 + x21) = I2 – D2
the left-hand side and all
(x13 + x23) - (x12 + x22) = I3 – D3
constants to the right-hand side.

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Mathematical Model

Minimise Total Cost or z = 20x11 + 20x12 + 20x13 + 10x21 + 10x22 + 10x23 +

0.30s11 + 0.30s12 + 0.30s13 + 0.15s21 + 0.15s22 + 0.15s23 +
0.50I1 + 0.50I2 + 0.50I3 + 0.20D1 + 0.20D2 + 0.20D3
Subject to

1) x11 - s11 = 500 (Schedule meets customer demand for product 322A in April)
2) x21 - s21 = 800 (Schedule meets customer demand for product 802B in April)
3) s11 + x12 - s12 = 3000 (Schedule meets customer demand for product 322A in May)

4) s21 + x22 - s22 = 500 (Schedule meets customer demand for product 802B in May)

5) s12 + x13 - s13 = 5000 (Schedule meets customer demand for product 322A in June)
6) s22 + x23 - s23 = 3000 (Schedule meets customer demand for product 802B in June)

7) s13 ≥ 400 (minimum inventory level of component 322A at the end of the three-month period)
8) s23 ≥ 200 (minimum inventory level of component 802B at the end of the three-month period)

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Mathematical Model

9) 0.10x11 + 0.08x21 ≤ 400 (Machine capacity, April)

10) 0.10x12 + 0.08x22 ≤ 500 (Machine capacity, May)
11) 0.10x13 + 0.08x23 ≤ 600 (Machine capacity, June)
12) 0.05x11 + 0.07x21 ≤ 300 (Labour capacity, April)
13) 0.05x12 + 0.07x22 ≤ 300 (Labour capacity, May)
14) 0.05x13 + 0.07x23 ≤ 300 (Labour capacity, June)
15) 2s11 + 3s21 ≤ 10,000 (Storage capacity, April)
16) 2s12 + 3s22 ≤ 10,000 (Storage capacity, May)
17) 2s13 + 3s23 ≤ 10,000 (Storage capacity, June)
18) x11 + x21 - I1 + D1 = 2500 (increase or decrease in the total production level for month April)
19) x12 + x22 - x11 - x21 - I2 + D2 = 0 (increase or decrease in the total production level for month May)
20) x13 + x23 - x12 - x22 - I3 + D3 = 0 (increase or decrease in the total production level for month June)
x11, x12, x13, x21, x22, x23, I1, I2, I3, D1, D2, D3, s11, s12, s13, s21, s22, s23 ≥ 0 (Non-negativity)
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Upscaling:

The initially rather small, two-product, three-month scheduling problem has now developed into an 18-
variable, 20-constraint linear programming problem. Note that in this problem we were concerned only
with one type of machine process, one type of labour, and one type of storage area. Actual production
scheduling problems usually involve several machine types, several labour grades, and/or several storage
areas, requiring large-scale linear programs. For instance, a problem involving 100 products over a 12-
month period could have more than 1000 variables and constraints.

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Summary Tables for Model Inputs

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Specify Empty Cells for Decision Variables

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Reproduce the Objective Function Formula in Excel

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Reproduce the Objective Function Formula in Excel

This section is only required

for solving the problem

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Solver Parameter Setting

As decision variables are located in non-adjacent

cells, you need to select the first range and then
press and hold the ‘control’ key in Windows or
‘Command’ key in Mac while selecting other
ranges.

The alternative solution is to type ’comma’

between the coordinates of multiple ranges.

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Solution

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Solution – Answer Report Optimal value of Objective Function

Note: you can compute this value by substituting

the decision variables by their optimal values into
the objective function formula.

Optimal value of Decision Variables Constraints’ LHS values Slack or

Surplus
Note: you can compute these values by substituting the
decision variables by their optimal values into the
constraints'’ LHS formula.

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Summary of Production Schedule

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