Optimization with

Spreadsheets
Introduction
• Optimization models – what and why?
• Important part of decision-making toolkit
• Selection of the best option (optimal decision)
Steps towards optimal decisions
• Step 1 : Model formulation : (vague) business scenario to well-defined
problem statement
Outcome of model formulation : objectives, quantify the relationships (constraints),
identify the controllable inputs (decisions)

• Step 2 : Solutions : Apply various techniques to solve the problem

• Options : graphical and mathematical techniques (ex: simplex)

• Step 3: Inference and decisions : argue if the solutions are meaningful

enough to infer decisions
Business scenario
• Wyndor Glass co. produces high-quality glass doors and windows

• It has three plants. Aluminum frames are made in Plant 1, wooden frames in Plant 2 and Plant 3
produces glass and assembles products.

• Because of the declining revenues, the company has decided to launch two new products having
sales potential. These products were identified after extensive analysis by the company’s
marketing team.

• Of the two products, Product 1 requires some production capacity in Plants 1 and 3, none in Plant
2. Product 2 needs only Plants 2 and 3

• Marketing team has concluded it could sell as much of products as could be produced by the
plants. The top management, however, is not clear which mix of two products to produce. The
Optimization team has been formed to study this question
Step 1 : Model formulation
• Problem statement
• Determine the quantities of the two new products to maximize the company’s profit, subject to the restrictions imposed by
production capacities available in the three plants

• Controllable inputs (Decision variables)

• No. of units of product 1 to produce
• No. of units of product 2 to produce

• Relationship between variables (Constraints)

• Units of Product 1 to produce in Plant 1 <= Capacity of Plant 1
• Units of Product 2 to produce in Plant 2 <= Capacity of Plant 2
• Units of Product 1 and Product 2 to produce in Plant 3 <= Capacity of Plant 3

• Objective function
• Maximize profits obtained from Product 1 and Product 2
Step 1 : Model formulation
Production and Sales data

Decision variables:
• No. of batches of prod 1 to be produced per week (𝑥! )
• No. of batches of prod 2 to be produced per week (𝑥" )

Production constraints:
• Plant 1 production capacity : x! ≤ 4
• Plant 2 production capacity : 2x" ≤ 12
• Plant 3 production capacity : 3x! + 2x" ≤ 18

Objective function:
Maximize profit , 𝑍 = 3𝑥! + 5𝑥"
Step 1 : Model formulation (continued)
• Controllable inputs (Decision variables)
• No. of batches of prod 1 to be produced per week (𝑥! )
• No. of batches of prod 2 to be produced per week (𝑥" )

• Relationship between the variables (Constraints)

• Plant 1 production capacity : 𝑥! ≤ 4
• Plant 2 production capacity : 2𝑥" ≤ 12
• Plant 3 production capacity : 3𝑥! + 2𝑥" ≤ 18

• Objective function:
• Maximize profit , 𝑍 = 3𝑥! + 5𝑥"

• Non-negativity constraints
• 𝑥! , 𝑥" ≥ 0
 Step 1 :Model formulation (Continued)

Generic form of product mix

problem:
 Step 2 : Graphical solution
𝑀𝑎𝑥𝑖𝑚𝑖𝑧𝑒 𝑍 = 3𝑥! + 5𝑥"

Subject to constraints,

𝑥! ≤ 4
2𝑥" ≤ 12
3𝑥! + 2𝑥" ≤ 18
𝑥! , 𝑥" ≥ 0

Concept : The optimal solution coincides with one of the

corner points of the feasible region
Why corner points result in optimal solution?

Concept: Points lying on an iso-objective function line result in producing the same profits.
Moving the objective function line parallelly changes the value of profit.
Major assumptions
• Proportionality
• Contribution of each activity to obj function (or constraints) is proportional to
the level of activity
• Additivity
• Total contribution = sum of the individual contributions
• Divisibility
• Variables are allowed to have any real values
• Certainty
• Value assigned to each parameter is assumed to be a known constant
Multiple optimal solutions
• Concept : when the objective function line coincides with one of the
constraints on the boundary of feasible region, then there are
multiple optimal solutions
 Multiple optimal solutions (using Excel)
𝑀𝑎𝑥 𝑆
𝑀𝑎𝑥 6.3 𝑆 + 9𝐷
Subject to constraints
Subject to constraints
Subject to constraints 7
7 𝑆 + 𝐷 ≤ 630
7 𝑆 + 𝐷 ≤ 630 10
𝑆 + 𝐷 ≤ 630 10
10
1 5
1 5 𝑆+ 𝐷 ≤ 600
1 5 𝑆+ 𝐷 ≤ 600 2 6
𝑆+ 𝐷 ≤ 600 2 6
2 6 2
2 𝑆+ 𝐷 ≤ 708
2 𝑆+ 𝐷 ≤ 708 3
𝑆+ 𝐷 ≤ 708 3
3 1 1
1 1 𝑆+ 𝐷 ≤ 135
1 1 𝑆+ 𝐷 ≤ 135 10 4
𝑆+ 𝐷 ≤ 135 10 4
10 4 6.3 𝑆 + 9𝐷 = 5670
6.3 𝑆 + 9𝐷 = 5670