Project 1: Application of LP in Manufacturing and Project Management

Due date: 11:59pm Friday 9 September 2022

OBJECTIVE:
This project provides students an opportunity to apply the knowledge and problem
solving skills obtained in LP to a practical optimisation problem.

DESCRIPTION:
10 LP problems are listed in this document. A group of three or two students can either
select three problems among the 10 problems (and will be allocated one from the three),
or identify a potential/actual LP application based on their prior work experience or from
some other personal experience. Please form a group of three or two students and add
your names in one of the groups in Canvas “People – Groups – Project groups”. Note
some groups are with three people (e.g. Group project – three persons A) and some
groups are with two people (e.g. Group project – two persons A), if your group has three
person, then select a three person group, if your group has two person, then select a two
person group). After forming the group, please select three options from the list and post
it within your group as soon as possible but no later than Friday 26 August 11:59pm, with
the following format:
Option 1: Problem ?, Option 2: Problem ?, Option 3: Problem ?
We will then reply to you within your group to allocate one problem to your group from
the three options you selected.

If you have identified a problem by yourself, please also post the message in your group
and also email to Shoudong.Huang@uts.edu.au (cc to your group members) with the
problem to confirm the suitability of the project.

If you cannot form a group of two or three students, you can also work individually. In
this case, please email to Shoudong.Huang@uts.edu.au with the 3 problems you selected.

TASKS and REQUIREMENTS:

(1) Understand the LP problems
(2) Develop the mathematical models
(3) Applying the required optimisation techniques to solve the problem
(4) Write and submit a project report as a group, including problem description,
mathematical model, a brief explanation of the applied optimisation technique,
results and discussions. The code you developed and/or the spreadsheets used
should also be attached.
(5) Only one of the group members need to submit in Canvas.
(6) Each student also needs to submit a separate one page report individually
through email to Shoudong.Huang@uts.edu.au, talking about each group
member’s contribution in the group project with your justifications, and any
individual reflection from the group project. This will be used to evaluate the
individual contributions of each student.
 Marking Criteria

20 marks in total which consist of:

(1) Correctness of the mathematical model and results: 7

(2) Amount of work involved: 4
(3) Discussions: 3
(4) Quality of the report: 3
(5) Difficulty level of the problem: 1 or 2 or 3 (as indicated in the problems)

Please note, the difficulty level of each problem is given and fixed. For example, if your
group is allocated Problem 1, the maximal mark you can get is 19 since the difficulty
level is 2. Please also be very careful before the problem selection, since the problems
with difficulty level 3 can be a lot more challenging than other problems.
Problem 1: (Difficulty level: 2)

Wivco produces two products: Product 1 and Product 2. The relevant data is shown
below. Each week, up to 400 units of raw material can be purchased at a cost of $1.50 per
unit. The company employs four workers, who work 40 hours per week (their salaries are
considered a fixed cost). Workers can be asked to work overtime and are paid $6 per hour
for overtime work. Each week 320 hours of machine time are available.
In the absence of advertising, 50 units of Product 1 and 60 units of Product 2 will be
demanded each week. Advertising can be used to stimulate demand for each product.
Each dollar spent on advertising product 1 increases its demand by 10 units, each dollar
spent on product 2 increases its demand by 15 units. At most $14 can be spent on
advertising.

Product 1 Product 2
Selling price $15 $8
Labor required 0.75 hours 0.5 hours
Machine time required 1.5 hours 0.8 hours
Raw material required 2 units 1 unit

(a) Formulate an LP to maximize Wivco’s weekly profit. Use both MATLAB

Optimisation Toolbox and Excel Solver to solve the problem.

Use the answer and the sensitivity analysis report to answer the following questions:
(b) If overtime were only $4/hour, would Wivco use it?
(c) If each unit of product 1 sold at $15.50, would the current solution still
remain optimal? What would the new solution be?
(d) What is the most that Wivco would be willing to pay for another unit of raw
material?
(e) How much would Wivco be willing to pay for another hour of machine time?
(f) If each worker were required (as part of their regular work week) to work for
45 hours per week (with their salary remaining the same as in the original
problem, so in essence Wivco gets five extra hours from each employee for
free), what would the company’s profit be?
(g) Wivco is considering producing a new product (product 3). Each unit sells for
$17 and uses 2 hours of labor, 1 unit of raw material, and 2 hours of machine
time. Should Wivco produce any of product 3?
(h) If each unit of product 2 sold for $10, would the current solution remain
optimal?
Problem 2: (Difficulty level: 3)

An oil company produces three brands of oils: Regular, Multigrade and Supreme. Each
brand of oil is composed of one or more of four crude stocks, each having a different
viscosity index. The relevant data is:
Crude Stock Viscosity index Cost ($/barrel) Supply per day (barrels)
1 20 7.2 1000
2 40 8.5 1100
3 30 7.7 1200
4 55 9.00 1100

Each brand of oil must satisfy a minimum standard for viscosity index and each brand
thus sells at a different price. The relevant data concerning the three brands are:
Brand Minimum Viscosity Index Selling Price ($/barrel)
Regular 25 8.50
Multigrade 35 9.00
Supreme 50 10.00

One of three scenarios can occur:

Low demand (prob. = Med. demand (prob. = High demand
0.2) 0.5) (prob. = 0.3)
Regular 1800 2000 2100
Multigrade 1300 1500 1600
Supreme 650 750 800

The company cannot sell more than its demand. Also any unused crude oil is disposed off
at no cost.
The decision of buying crude stock is taken well in advance and thus the company does
not know what scenario holds at the time of buying crude stock. However at the time of
production of oil the company knows the exact demand.
How much of crude stock must the company buy in order to maximize its expected profit?

Use either MATLAB Optimisation Toolbox or Excel Solver to solve the problem.

More analyses on different demand scenarios should be done by students. Please refer to
the Paper of “Sensitivity analysis and uncertainty in linear programming” by Julia L.
Higle and Stain, W. Wallace in Interfaces, 33(4), 2003, pp53-60.
Problem 3: (Difficulty level: 3)

The Auto company of America (ACA) produces 4 types of cars: subcompact, compact,
intermediate and luxury. ACA also produces trucks and vans. Vendor capacities limit
total production capacity to at most 1,200,000 vehicles per year. Subcompacts and
compacts are built together in a facility with a total annual capacity of 620,000 cars.
Intermediate and luxury are built together in a facility with a total annual capacity of
400,000 cars; and the truck/ van facility has a capacity of 275,000. Profit margins and
fuel efficiencies are summarized below:
Type Profit Margin ($/vehicle) Fuel Efficiency (MPG)
Subcompact 150 40
Compact 225 35
Intermediate 250 15
Luxury 500 12
Truck 400 20
Van 200 25

The company expects the demand level to be one of the three: high demand (with
probability = 0.2), medium demand (with probability = 0.5) and low demand (with
probability = 0.3). Note that the company does not know which scenario holds until the
selling season arrives, long after it has taken its production decisions.
The demands for these scenarios are:
Type High Demand (in ‘000) Medium Demand(in ‘000) Low Demand (in ‘000)
Subcompact 700 600 550
Compact 500 400 350
Intermediate 400 300 250
Luxury 325 225 175
Truck 425 325 275
Van 200 100 50

If the company ends up making more cars than the demand, it can sell its excess stock
through a discount channel and earn half the normal profit; for example surplus compact
cars would yield profits of $112.5/ vehicle.
The average fleet fuel efficiency must be at least 27 MPG.
What should the production plan of the company be so that its:
a) Expected revenue is maximized
b) Minimum revenue is maximized

Refer to the Paper of “Sensitivity analysis and uncertainty in linear programming” by

Julia L. Higle and Stain, W. Wallace in Interfaces, 33(4), 2003, pp53-60

Use either MATLAB Optimisation Toolbox or Excel Solver to solve the problem.
Problem 4: (Difficulty level: 1)

Short-Run Manufacturing Problems at DEC

In the fourth quarter of 1988, the corporate demand/supply group of Digital Equipment
Corporation (DEC) was under pressure to come up with a manufacturing plan for dealing
with a series of major supply shortfalls that were impacting on the production, revenue,
and customer satisfaction of one of DEC's new family of general purpose computer
systems and workstations. The critical components for this family of systems that were
going to be in short supply in the first quarter of 1989 were CPU chip sets, 1-meg
memory boards, 256K memory boards, and disk drives. Pertinent data for these
components and their usage in the family of systems is given below:

System List price Chip sets 1 Meg memory 256K memory Disk drive avg
GP-1 $60,000 1 2 – 0.3
GP-2 $40,000 1 – 2 1.7
GP-3 $30,000 1 – 1 –
WS-1 $30,000 1 – 1 1.4
WS-2 $15,000 1 – 1 –
1989 First Quarter
Availability: 7,000 4,000 15,000 8,000

Brian Shannahan of corporate supply/demand was asked on short notice to formulate a

manufacturing strategy given these shortfalls. Brian wanted to take into account both the
importance of revenue for DEC as well as the maintenance of DEC's reputation for
customer satisfaction and service. Brian took a quick stab at the market/sales situation
and then developed the following target data for the first quarter of 1989:

Brian Shannahan then proceeded to analyze DEC's problem and to formulate a

manufacturing strategy. What is the strategy?
Use both MATLAB Optimisation Toolbox and Excel Solver to solve the problem
and perform sensitivity analysis. Then describe and formulate another two similar
Linear Programming problems (with at least 5 design variables and the parameters
should come from modern computers) and solve them using both MATLAB
Optimisation Toolbox and Excel Solver.
Problem 5: (Difficulty level: 1)

New Bedford Steel Coking Coal Supply Problem

New Bedford Steel (NBS) is a small steel manufacturing company. Coking coal is a
necessary raw material in the production of steel, and NBS procures 1.0 - 1.5 million tons
of coking coal per year. It is now time to plan for the 1997 production, and Stephen
Coggins, coal supply manager for NBS, has solicited and received bids from the
following eight suppliers for next year. He has organized the information about the bids
in the following table.

Bids Received from Potential Coking Coal Suppliers

Based on market forecasts and 1996 production characteristics, NBS is planning to accept
bids for 1,225 mtons (1,225 million tons) of coking coal. This coal must have an average
volatility of at least 19% (volatility is the percent of volatile or burnable matter in the
coal). Also, as a hedge against adverse labor relations, NBS has decided to procure at
least 60% of its coking coal from union mines (United Mine Workers). Finally, Steve
Coggins needs to keep in mind that capacity for bringing in coal by rail is limited to
roughly 650 mtons per year, and capacity for bring in coal by truck is limited to 730
mtons per year.
Questions:
1. How much coal should Coggins contract for from each supplier?
2. What will be NBS's total cost of supply?
3. What will be NBS's average cost of supply?

Use both MATLAB Optimisation Toolbox and Excel Solver to solve the problem
and perform sensitivity analysis. Then formulate another two similar LP problems
(with at least 5 design variables) by changing the products, suppliers, the
requirements, and solve the problems again.
Problem 6: (Difficulty level: 1)

Dietary optimisation

There are six different foods: Bread, Milk, Cheese, Fish, Potato and Yogurt:

Bread Milk Cheese Potato Fish Yogurt

Cost, $ 2.0 3.5 8.0 1.5 11.0 1.0
Protein, g 4.0 8.0 7.0 1.3 8.0 9.2

Fat, g 1.0 5.0 9.0 0.1 7.0 1.0

Carbohydrates, g 15.0 11.7 0.4 22.6 0.0 17.0

Calories, Cal 90 120 106 97 130 180

(1) We have to find a diet that contains not less than 150 calories, not more than 12g
of protein, not less than 15g of carbohydrates and not less than 8g of fat. In
addition the diet should include at least 0.5kg of fish and not more than 1 cup of
milk. Find the diet that has minimal cost.
(2) Select 5-7 different foods you usually have, search the related information and
form a similar table as above. Formulate two LP problems (one is to minimise the
cost, the other uses cost as a constraint). After solving each of the two problems,
do a sensitivity analysis on the cost of one or two foods.

Use both MATLAB Optimisation Toolbox and Excel Solver to solve the problems
and perform sensitivity analysis.
Problem 7: (Difficulty level: 1)

A company makes three products and has available 4 workstations. The production time
(in minutes) per unit produced varies from workstation to workstation (due to different
manning levels) as shown below:

Workstation
1 2 3 4
Product 1 5 7 4 10
2 6 12 8 15
3 13 14 9 18

Similarly the profit (£) contribution (contribution to fixed costs) per unit varies from
workstation to workstation as below

Workstation
1 2 3 4
Product 1 10 8 6 9
2 18 20 15 17
3 15 16 13 16

If, one week, there are 35 working hours available at each workstation how much of each
product should be produced given that we need at least 100 units of product 1, 140 units
of product 2 and 100 units of product 3.

(1) Formulate this problem as an LP

(2) Solve it using the simplex method (First simplify the problem to 2-3 variables by
fixing the other variables);

(3) Solve it using both MATLAB Optimisation Toolbox and Excel Solver.

(4) Perform sensitivity analysis;

(5) Formulate another LP problem using different (hopefully more realistic) parameters
and solve it using both MATLAB Optimisation Toolbox and Excel Solver.
Problem 8: (Difficulty level: 1)

Select 3 problems from (a) to (e); For each problem selected, apply the Simplex
method, MATLAB Optimisation Toolbox, and Excel Solver to solve it and compare
the results, then perform sensitivity analysis.

(a) A contractor hiring earth moving equipment has the choice of two machines. Type A
costs 23$ per day to hire, needs one man to operate it and moves 30 tonnes of earth per
day. Type B costs 10$ per day to hire, needs four men to operate it and moves 70 tonnes
of earth per day. The contractor can spend up to 500$ per day, has a labour force of 64
men available and can use a maximum of 25 machines on the site.
Find the maximum weight of earth that the contractor can move in one day.

(b) A cycle manufacturer produces two types of mountain-bike: a basic Model X and a
Super Model Y. Model X takes 7 man-hours to make per unit, while Model Y takes 10
man-hours per unit. There is a total of 460 man-hours available per week for the
manufacture of the two models. Due to the difference in demand for the two models,
handling and marketing costs 20$ per unit for Model X, but only 10$ per unit for Model
Y. The total funds available for these purposes are 800$ per week. Profits per unit for
Models X and Y are 20$ and 30$ respectively. The objective is to maximise weekly
profits by optimising the numbers of each model produced.
(1) Assume the numbers of units of Model X and Model Y produced each week are x
and y. Express the weekly profit in terms of x and y. Also write down inequalities
representing the constraints on production.
(2) Find the maximum obtainable profit and the numbers of each model
manufactured which give this profit.

(c) In order to supplement his daily diet someone wishes to take some Xtravit and some
Yeastalife tablets. Their contents of iron, calcium and vitamins (in milligrams per tablet)
are shown in the table.

Tablet Iron Calcium Vitamin

Xtravit 6 3 2
Yeastalife 2 3 4

(1) By taking x tablets of Xtravit and y tablets of Yeastalife the person expects to
receive at least 18 milligrams of iron, 20 milligrams of calcium and 16
milligrams of vitamins. Write these conditions down as three inequalities in x
and y.
(2) If the Xtravit tablets cost 10 cents each and the Yeastalife tablets cost 5 cents
each, how many tablets of each should the person take in order to satisfy the
above requirements at the minimum cost?
 (d) A maker of wooden furniture can produce three different types of furniture:
sideboards, tables and chairs. Two machines are used in the production- a jigsaw and a
lathe. The manufacture of a sideboard requires 1 hour on the jigsaw and 2 hours on the
lathe. The manufacture of a table requires 4 hours on the jigsaw and none on the lathe.
The manufacture of a chair requires 2 hours on the jigsaw and 8 hours on the lathe. The
jigsaw can only operate 100 hours per week and the lathe for 40 hours per week. The
profit made on a sideboard is 100$, 40$ on a table and 14$ on a chair. In order to
determine how best to use the machines so as to maximise profits, formulate the problem
as a linear programming problems and solve it.

(e) A diet-conscious housewife wishes to ensure her family’ daily intake of vitamins A, B
and C does not fall below certain levels, say 24 units, 30 units and 18 units, respectively.
For this she relies on two fresh foods which, respectively, provide 8, 6 and 3 units of
vitamins per ounce of foodstuff and 3, 6 and 9 units per ounce. If the first foodstuff cost
3p per ounce and the second only 2p per ounce, find how many ounces of each foodstuff
should be bought by the housewife daily in order to keep her food bill as low as possible.
Problem 9: (Difficulty level: 1)

In the following example given in the lecture slides in Lecture 1, the floor space
constraint formula is not reasonable. Formulate three new LP problems by adding
necessary information about the floor space and the dimensions of the machines to
model the floor space constraint. Then solve the problem using both MATLAB
Optimisation Toolbox and Excel Solver. After that, fix the number of machine A and
obtain an LP problem with two variables and then solve it using the simplex method.

MyPC Company invests $12 million to buy 3 models of Component Placement Machines
A,B,C to manufacture different kinds of motherboards for personal computers. Total
number of operators available is 100. A floor space constraint needs to be satisfied.
Determine how many of each kind is appropriate to maximise the number of boards
manufactured per day.
Problem 10: (Difficulty level: 3)

Formulate the following problem into LP and solve it using both MATLAB Optimisation
Toolbox and Excel Solver, then perform sensitivity analysis. After that, formulate
another similar LP problem on the same topic and solve it again.

Cash sales and accounts receivable produce immediate income to the checking account.
Expenses are immediate deductions. Accounts payable amounts pt are not actually due
until week t+3, but they are discounted by 2% if paid early in week t. The company can
borrow at most $4 million in total from the bank but need to pay the bank 0.2% interest
per week. In addition, the bank requires at least 20% of the current amount borrowed to
be maintained (without earning interest) in the checking account. The other option is
investment of excess cash in short-term money markets. The company can earn 0.1%
interest per week on amounts invested in this way. The manage wishes to minimise net
total cost in interest and lost discounts while maintaining at least a $20000 checking
account safety balance. And, the company needs to pay off all the payable amount after
the 8th week. Decide how to exercise the available options.