Question 1

Question 1a

Formulate an LP model for this problem.

Decision variables are quantity of pineapple tarts, pineapple balls and nyonya pineapple tarts

to be predicted in next week. Let these be T kg, B kg, N kg respectively.

Objective is to maximize profit in next week

𝐌𝐚𝐱𝐢𝐦𝐢𝐳𝐞 𝐏 = 𝟐𝟕𝐓 + 𝟏𝟖𝐁 + 𝟐𝟑𝐍

Explanation:

$27, $18, $23 are net profit from 1 kg of pineapple tarts, pineapple balls and nyonya pineapple

tarts respectively

Subjected to Constraints:

0.48T + 0.43B + 0.65N ≤ 620 (Constraint for availability of pineapple)

0.52T + 0.57B + 0.35N ≤ 510 (Constraint for availability of flour)

1.4T1.2B − 1.4N ≤ 35 × 60 i. e 2100 (Constraint for availability of machine 1)

2.1T + 1.3B + 1.2N ≤ 32 × 60 i. e 1920 (Constraint for availability of machine 2)

1.1T + 0.8B + 0.6N ≤ 8 × 60 i. e 2280 (Constraint for availability of machine 3)

B ≤ 150 (Constraint for demand of pineapple balls)

N ≤ 310 (Constraint for demand of nyonya pineapple tarts)

T ≥ 550 (Constraint for demand of pineapple tarts)

N ≥ 260 (Constraint for demand of nyonya pineapple tarts)

T, B, N ≥ 0 (non-negative variables' constraint)

Question 1b

Set up a spreadsheet model for this problem.

Determine the optimal solution using the Solver. Comment on your results.
The Solver's optimal solution yielded a value of $27,127.1. Among the variables, T has the

highest final value, amounting to 692.77 kilograms, followed by variable N with a production
of 310 kilograms. The lowest production was achieved by variable B, totalling only 73.3

kilograms.

Question 1c

If you want to change the production of any product, which one would you recommend

and why?

From sensitivity analysis, it is concluded that the least objective coefficient is obtained from

Variable B, hence to increase the profit, the Variable B should be decreased.

If production of a product is to be increased then the solution will be changed. In comparison

of Variable T and N, we can see there is only 2.07 allowable increase allowed for Variable T,

while for Variable N the demand has been already utilized fully of 310kg, means recommended

decision variables will change if B is decreased.

Question 2

Question 2a

Construct a spreadsheet model to determine the average profit Challenger will earn from

Samsung TVs over the next two years.

Month Beginning Inventory Demand Sales Ending Inventory Lost Sale Revenue Purchasing Cost Holding Cost Ordering Cost Total Profit

1 4.10E+02 4.34E+02 4.34E+02 2.00E+02 0.00E+00 8.47E+05 1.96E+05 4.00E+03 0.00E+00 6.47E+05

2 2.00E+02 4.93E+02 1.07E+02 -9.26E+01 3.85E+02 2.10E+05 -9.07E+04 -1.85E+03 1.20E+02 3.02E+05

3 -9.26E+01 4.43E+02 -7.21E+02 -6.29E+02 1.16E+03 -1.41E+06 -6.16E+05 -1.26E+04 1.20E+02 7.78E+05

4 -6.29E+02 2.62E+02 -2.15E+03 -1.52E+03 2.41E+03 -4.19E+06 -1.49E+06 -3.04E+04 1.20E+02 2.67E+06

5 -1.52E+03 4.35E+02 -4.99E+03 -3.47E+03 5.43E+03 -9.74E+06 -3.40E+06 -6.95E+04 1.20E+02 6.26E+06

6 -3.47E+03 1.38E+02 -1.06E+04 -7.09E+03 1.07E+04 -2.06E+07 -6.94E+06 -1.42E+05 1.20E+02 1.35E+07

7 -7.09E+03 3.07E+02 -2.16E+04 -1.45E+04 2.19E+04 -4.20E+07 -1.42E+07 -2.90E+05 1.20E+02 2.76E+07

8 -1.45E+04 4.54E+02 -4.39E+04 -2.94E+04 4.43E+04 -8.56E+07 -2.88E+07 -5.88E+05 1.20E+02 5.62E+07

9 -2.94E+04 2.53E+02 -8.85E+04 -5.91E+04 8.87E+04 -1.73E+08 -5.79E+07 -1.18E+06 1.20E+02 1.13E+08

10 -5.91E+04 3.64E+02 -1.78E+05 -1.19E+05 1.78E+05 -3.46E+08 -1.16E+08 -2.37E+06 1.20E+02 2.28E+08

11 -1.19E+05 4.24E+02 -3.56E+05 -2.37E+05 3.56E+05 -6.94E+08 -2.33E+08 -4.75E+06 1.20E+02 4.57E+08

12 -2.37E+05 4.02E+02 -7.13E+05 -4.75E+05 7.13E+05 -1.39E+09 -4.66E+08 -9.51E+06 1.20E+02 9.15E+08

The average value of approximately 3.98E+10 (or 3.98 x 10^10) still seems unusually high for

the context of inventory management and sales of Samsung TVs, indicating a potential issue

Question 2b

Suppose John has the option to place an emergency order when demand exceeds the on-

hand inventory. These orders will arrive instantaneously but cost $50 per TV. Analyse

whether he should opt for such an option.

The total cost for the emergency order option is $39,760,240,058 over the two-year period.

This cost includes the purchasing cost, holding cost, and emergency order cost, but no lost sales

cost since all demand is met instantaneously.

 The total cost for the emergency order option is significantly higher than the cost for

the current policy without emergency orders. This is because the emergency orders
 incur a high cost of $50 per TV, which adds up quickly when demand exceeds on-hand

inventory.

 While the emergency order option ensures that all demand is met without any lost sales,

the high cost of emergency orders makes this option economically unfeasible in most

cases.

 John should consider other inventory management strategies, such as adjusting order

quantities or safety stock levels, to reduce the risk of lost sales without incurring such

high costs.

Question 2c

Suppose John wants to find the best reorder point and order quantity that results in the

highest profit over the next two years. The following table illustrates the options available:

Adjust the spreadsheet model you constructed for Q2b and find the best inventory policy

for Samsung TVs for the next two years.

Policy Number Reorder Point Order Qty Ending Int Sales Ordering Cost Total Profit

1 150 700 700 150 84000 194500

2 200 700 200 200 84000 107500

3 200 900 900 200 108000 156500

4 300 900 300 300 108000 314500

5 300 1100 1100 300 132000 116500

6 400 1100 400 400 132000 523500

Avg Profit 235500

From the calculations, results in the highest average profit of $235,500 over the next two years

compared to the other policies. This policy maintains a higher ending inventory level, which

helps in meeting higher demand levels and reduces the risk of lost sales.

 Policy 1 seems to be the best option as it provides the highest average profit, indicating

that it effectively balances inventory holding costs, ordering costs, and potential lost

sales.

 Policies with lower reorder points or order quantities (e.g., Policy 1 and Policy 2) result

in lower profits due to higher instances of lost sales.

 Policies with higher reorder points and order quantities (e.g., Policy 5 and Policy 6)

result in higher profits by reducing the likelihood of lost sales and leveraging economies

of scale in ordering.

 The choice of the best policy depends on various factors such as demand variability,

holding costs, and ordering costs. A sensitivity analysis can help determine the

robustness of Policy 6 to changes in these factors.