BA ZC412:: Models & App in Operations Research

BA ZC412:
MODELS & APP IN OPERATIONS

RESEARCH
BITS Pilani RAKHEE
Department of Mathematics
Pilani|Dubai|Goa|Hyderabad
1
BITS Pilani
Contact Session 5
Application of Linear Programming
2
BITS Pilani
Financial Planning
Distribution and Network Models
3
Financial Planning: Example
Hewlitt Corporation established an early retirement program as part

of its corporate restructuring. At the close of the voluntary sign-up
period, 68 employees had elected early retirement. As a result of
these early retirements, the company incurs the following obligations
over the next eight years:
Year 1 2 3 4 5 6 7 8
$ Required 430 210 222 231 240 195 225 255
The cash requirements (in thousands of dollars) are due at the
beginning of each year.
17-08-2019 BA ZC412 Rakhee BITS Pilani, Deemed to be University under Section 3 of UGC Act, 1956
Financial Planning: The Data
The corporate treasurer must determine how much money must be set aside today
to meet the eight yearly financial obligations as they come due. The financing plan
for the retirement program includes investments in T-Bonds as well as savings. The
investments in T-Bonds are limited to three choices:
Bond Price $ Rate (%) Years to Maturity
1 1150 8.875 5
2 1000 5.500 6
3 1350 11.750 7
The T-Bonds have a par value of $1000, which means that even with different
prices each bond pays $1000 at maturity. The rates shown are based on the par
value. For purposes of planning, the treasurer assumed that any funds not invested
in bonds will be placed in savings and earn interest at an annual rate of 4%.
Financial Planning: Decision
Variables
F = total dollars required to meet the retirement plan’s eight-year
obligation
B1 = units of bond 1 purchased at the beginning of year 1
Si = amount placed in savings at the beginning of year i for i = 1, . . . , 8
Financial Planning: Objective
Function
F = total dollars required to meet the retirement plan’s eight-year
obligation
Si = amount placed in savings at the beginning of year i for i = 1, . . . , 8
The objective is to minimize the funds needed to meet the plan’s

eight-year obligation:
Min F
Financial Planning: The
Constraints
A key feature of this type of financial planning problem is that a

constraint must be formulated for each year of the planning horizon.
It’s form is:

(Funds available at the beginning of the year)
- (Funds invested in bonds and placed in savings)
= (Cash obligation for the current year)
Financial Planning: The
Constraints
Year 1: F – 1.15B1 – 1B2 – 1.35B3 – S1 = 430
Year 2: 0.08875B1 + 0.055B2 + 0.1175B3 + 1.04S1 - S2 = 210
Year 3: 0.08875B1 + 0.055B2 + 0.1175B3 + 1.04S2 – S3 = 222
Year 4: 0.08875B1 + 0.055B2 + 0.1175B3 + 1.04S3 – S4 = 231
Year 5: 0.08875B1 + 0.055B2 + 0.1175B3 + 1.04S4 – S5 = 240
Year 6: 1.08875B1 + 0.055B2 + 0.1175B3 + 1.04S5 – S6 = 195
Year 7: 1.055B2 + 0.1175B3 + 1.04S6 – S7 = 225
Year 8: 1.1175B3 + 1.04S7 – S8 = 255
Non-negativity
Decision VariablesConstraints: All decision variables >= 0
F, B1, B2, B3, Si Bond Price Rate YTM
1 $1150 8.875 5
The cash requirements 2 $1000 5.500 6
Year 1 2 3 4 5 6 7 8 3 $1350 11.750 7
$ Required 430 210 222 231 240 195 225 255 Cash 4
Distribution and Network Models
10
Introduction
A network model is one which can be represented by a set of
nodes, a set of arcs, and functions (e.g. costs, supplies,
demands, etc.) associated with the arcs and/or nodes.
Transportation, transshipment, assignment, shortest-route, and
maximal flow problems are all examples of network problems.
Each of the problems of this class can be formulated as linear
programs and solved by general purpose linear programming
codes.
However, there are many computer packages that contain
separate computer codes for these problems which take
advantage of their network structure.
Provided all the coefficients in the constraints are integer, the
optimal solution will consist of integer values
Transportation Problem
The transportation problem seeks to minimize the total

shipping costs of transporting goods from m origins (each
with a supply si) to n destinations (each with a demand dj),
when the unit shipping cost from an origin, i, to a
destination, j, is cij.
dd1
s1 1 1
c11
c21
c12
1
c13
2 d2
c22
2
c23
s2 3 d3
Transportation Problem:
Network Representation & LP Formulation
Using the notation:
xij = number of units shipped from origin i to destination j
cij = cost per unit of shipping from origin i to destination j
si = supply or capacity in units at origin I & dj = demand in units at
destination j
d1 m n
s1
c11
1 Min  c x
i 1 j  1
ij ij
c12 d2 n
1
c13
x
j 1
ij  si i 1, 2, , m Supply
2 m
c21
c22 d3
x
i 1
ij  dj j 1, 2, , n Demand
2
c23
xij > 0 for all i and j
s2 3
Example
The PSU has 9,000 Kg of material in Mumbai that it wishes to ship to
three installations: B1, B2 & B3. They require 4,000, 2,500, and 2,500
Kg, respectively. Government regulations require equal distribution of
shipping among the three carriers.
The shipping costs per Kg for road, railroad, and airplane transit are
shown below. Destination
Mode B1 B2 B3
Road 12 6 5
Rail 20 11 9
Airplane 30 26 28
Formulate and solve a linear program to determine the shipping
arrangements (mode, destination, and quantity) that will minimize the
total shipping cost.
Decision Variables
We want to determine the Kgs of material, xij , to be shipped by

mode i to destination j. The following table summarizes the
decision variables:
B1 B2 B3
Road x11 x12 x13
Rail x21 x22 x23
Airplane x31 x32 x33
Objective Function
Decision Variables Shipping Costs

B1 B2 B3 B1 B2 B3
Road x11 x12 x13 12 6 5
Rail x21 x22 x23 20 11 9
Airplane x31 x32 x33 30 26 28
The objective is to minimize the total shipping cost.

Min: (shipping cost per Kg for each mode per destination pairing) * (number of
Kg shipped by mode per destination pairing)
Min: 12x11 + 6x12 + 5x13 + 20x21 + 11x22 + 9x23 + 30x31 + 26x32 + 28x33
Constraints
Equal use of transportation modes:

(1) x11 + x12 + x13 = 3000 (Road)
(2) x21 + x22 + x23 = 3000 (Rail)
(3) x31 + x32 + x33 = 3000 (Air) The PSU has 9,000 Kg of material in
Mumbai that it wishes to ship to
Destination material requirements: three installations: B1, B2 & B3. They
(4) x11 + x21 + x31 = 4000 require 4,000, 2,500, and 2,500 Kg,
(5) x12 + x22 + x32 = 2500 respectively. Government regulations
(6) x13 + x23 + x33 = 2500 require equal distribution of shipping
among the three carriers.
Non-negativity of variables:
xij > 0, i = 1, 2, 3 and j = 1, 2, 3
Solution Summary
Objective Function Value = 142000.00 • B1 will receive 1000 Kg by road and

Variable Value Reduced 3000 Kg by airplane.
Cost • B2 will receive 2000 Kg by road and
x11 1000.000 0.000 500 Kg by rail.
x12 2000.000 0.000 • B3 will receive 2500 Kg by railroad.
x13 0.000 1.000 • The total shipping cost will be
x21 0.000 3.000
x22 500.000 0.000 $142,000.
x23 2500.000 0.000
x31 3000.000 0.000
x32 0.000 2.000
x33 0.000 6.000
LP Formulation Special Cases
• Total supply exceeds total demand:
No modification of LP formulation is necessary
• Total demand exceeds total supply:
Add a dummy origin with supply equal to the shortage amount.
Assign a zero shipping cost per unit. The amount “shipped” from
the dummy origin (in the solution) will not actually be shipped.
• Minimum shipping guarantee from i to j: xij > Lij
• Maximum route capacity from i to j: xij < Lij
• Unacceptable route: Remove the corresponding decision variable
• The objective is maximizing profit or revenue: Solve as a
maximization problem.
Transshipment Problem
Transshipment problems are transportation problems in

which a shipment may move through intermediate nodes
(transshipment nodes) before reaching a particular
destination node.
Transshipment Problem: Network Representation
The network representation for a transshipment problem with two

sources, three intermediate nodes, and two destinations is shown
below.
c36
3
c13
c37
s1 1 c14 6 d1
c15 c46
c47
4
c23
c24 c56
s2 2 7 d2
c25
5 c57
Sources Destinations
Intermediate Nodes
Transshipment Problem
Using the notation:
xij = number of units shipped from node i to node j
cij = cost per unit of shipping from node i to node j
si = supply at origin node i
dj = demand at destination node j
Min 
all arcs
cij xij
s.t. 
arcs out
xij  si Origin nodes i

arcs out
xij  x
arcs in
ij 0 Transhipment nodes

arcs in
xij  d j Destination nodes j
Transshipment Problem:
• Total supply not equal to total demand

• Maximization objective function
• Route capacities or route minimums
• Unacceptable routes
The LP model modifications required here are identical to those

required for the special cases in the transportation problem.
Transshipment Problem:
Example
Kumar’s manufactures suits in two different locations: Textile Parks I & II (TP1 &
TP2). The items are stored in their two warehouses (KumarN & KumarS) from
where they are shipped to the retail outlets: Zrox, Hewes, Rocky.
Currently weekly demands at these outlets are 50 for Zrox, 60 for Hewes, and 40
for Rocky. The factories can supply at most 75 units to its customers.
The unit cost to ship to the warehouses are:
KumarN KumarS
TP1 5 8
TP2 7 4
The unit costs to ship to the final destination:
Zrox Hewes Rocky
KumarN 1 5 8
KumarS 3 4 4
Network Representation:
Example
Unit transportation cost:

KumarN KumarS
Zrox
75
1 TP1 5 8
5 50 TP2 7 4
ARNOLD
TP1 K_N 5
The costs to ship to final
8 8 destination:
Hewes
HEWES Zrox Hewes Rocky
75 3 60 KumarN 1 5
7
40 8
WASH
4 KumarS 3 4 4
TP2 K_S
BURN
4 4
Rocky
Decision Variables & Objective
Function
xij = amount shipped from manufacturer i to warehouse j
xjk = amount shipped from warehouse j to customer k
where
i = 1 (TP1), 2 (TP2) ZROX
j = 3 (KumarN), 4 (KumarS) 75
Zrox
5
k = 5 (Zrox), 6 (Hewes), 7 (Rocky) 5
1
50
TP1
ARNOLD K_N
5
1 3
8
Minimize Overall Shipping Costs: 8
Hewes
HEWES
Min 5x13 + 8x14 6
75 3 60
+ 7x23 + 4x24 7
TP2 K_S 4 40
+ 1x35 + 5x36 + 8x37 2 4
WASH
4
BURN
4
+ 3x45 + 4x46 + 4x47 Rocky
7
Example: Constraints
Amt Out of TP1: x13 + x14 < 75

Amt Out of TP2: x23 + x24 < 75
Amt Through KumarN: x13 + x23 - x35 - x36 - x37 = 0
Amt Through KumarS: x14 + x24 - x45 - x46 - x47 = 0
Amt Into Zrox: x35 + x45 = 50
Amt Into Hewes: x36 + x46 = 60 ZROX
Zrox
75 5
Amt Into Rockrite: x37 + x47 = 40 1
TP1 5 K_N 50
ARNOLD
5
1 3
Non-negativity of Variables: 8 8
Hewes
xij > 0, for all i and j. HEWES
6
75 3 60
7
TP2 K_S
K_S 4 40
WASH
2 4 4
BURN
4
Rocky
7
Example: Solution Summary
Objective Function Value = 1150.000
Variable Value
ZROX
X13 75.000 Zrox 50
X14 0.000 50
5 75 1
X23 0.000 75 ARNOLD
TP1 K_N 5
25
X24 75.000 8 8
X35 50.000 Hewes
HEWES 60
35
X36 25.000 7 3 4
X37 0.000 75 TP2 WASH
K_S 40
BURN
X45 0.000 4 75 4
Rocky 40
X46 35.000
X47 40.000
Assignment Problem & Network
Representation
An assignment problem seeks to
minimize the total cost assignment
of m workers to m jobs, given that c11
the cost of worker i performing job j 1
c12
1
is cij. c13
Agents Tasks
It assumes all workers are assigned c21
c22
and each job is performed. 2 2
c23
An assignment problem is a special c31

c32
case of a transportation problem in 3 c33 3
which all supplies and all demands
are equal to 1; hence assignment
problems may be solved as linear
programs.
Assignment Problem:
Linear Programming Formulation
Using the notation:
xij = 1 if agent i is assigned to task j
0 otherwise
m n
Min  c x ij ij
cij = cost of assigning agent i to task j i 1 j 1
n
x
j 1
ij 1 i 1, 2, , m Agents
m
x
i 1
ij 1 j 1, 2, , n Tasks
Assignment Problem: Example
An electrical contractor pays his subcontractors a fixed fee plus
mileage for work performed. On a given day the contractor is faced
with three electrical jobs associated with various projects. Given
below are the distances between the subcontractors and the
projects.
Projects
Subcontractor A B C
Westside 50 36 16
Federated 28 30 18
Goliath 35 32 20
Universal 25 25 14
How should the contractors be assigned so that total mileage is

minimized?
Example: Network Representation
Subcontractors Projects
50
West. A
36
16 Projects
28 Subcontractor A B C
30
Fed. B Westside 50 36 16
18 Federated 28 30 18
35 32 Goliath 35 32 20
Universal 25 25 14
Gol. 20
C
25
25
Univ. 14
Example: Linear Programming
Formulation
Min
Subcontractors Projects
50x11+36x12+16x13+28x21+30x22+18x23
50
West. A
36
+35x31+32x32+20x33+25x41+25x42+14x43 16
s.t. x11+x12+x13 < 1 28
30
Fed. B
x21+x22+x23 < 1 18
x31+x32+x33 < 1 35 32
x41+x42+x43 < 1 Gol. 20 C

x11+x21+x31+x41 = 1 25
25
x12+x22+x32+x42 = 1 Univ. 14
x13+x23+x33+x43 = 1
xij = 0 or 1 for all i and j
Example: The Optimal Assignment
Subcontractor Project Distance
Westside C 16
Federated A 28
Goliath (unassigned)
Universal B 25
Total Distance = 69 miles
Assignment Problem:
• Number of agents exceeds the number of tasks
• Number of tasks exceeds the number of agents
• The assignment alternatives are evaluated in terms of revenue or profit
• An assignment is unacceptable
• An agent is permitted to work t tasks:
Shortest-Route Problem
The shortest-route problem is concerned with finding the shortest path

in a network from one node (or set of nodes) to another node (or set of
nodes).
If all arcs in the network have nonnegative values then a labeling
algorithm can be used to find the shortest paths from a particular node
to all other nodes in the network.
The criterion to be minimized in the shortest-route problem is not
limited to distance even though the term "shortest" is used in
describing the procedure. Other criteria include time and cost.
(Neither time nor cost are necessarily linearly related to distance.)
“It is not crazy to say that the internet wouldn't work as efficiently as it
does if it wasn't for Dijkstra’s algorithm for computing the shortest path
between two nodes”
Shortest-Route Problem:
Linear Programming Formulation
Decision Variable
xij = 1 if the arc from node i to node j is on the shortest route
0 otherwise
cij = distance, time, or cost associated with the arc from node i to node j
Min 
all arcs
c ij xij
s.t. 
arcs out
xij 1 Origin node i

arcs out
xij  x
arcs in
ij 0 Transhipment nodes
x
arcs in
ij 1 Destination node j
Example: Network Representation
The following Network represents the cost from travelling from one
node to the next.
Formulate the problem to find the path from 1 to 6 with the least
cost.
60
2
100 5
30
80 90
130
40 130
3
6
180
1
80 30 50 90
Example:
Network Representation
60 Objective Function
2 5
100 Min 80x12 + 40x13 + 80x14 + 130x15 + 180x16
30 + 60x25 + 100x26
80 90
130 + 30x34 + 90x35 + 120x36
40 130
3
180
6 + 30x43 + 50x45 + 90x46
1
80 30 50 90 + 60x52 + 90x53 + 50x54 + 30x56
Node Flow-Conservation Constraints
4
x12 + x13 + x14 + x15 + x16 = 1 (origin)
– x12 + x25 + x26 – x52 = 0 (node 2)
– x13 + x34 + x35 + x36 – x43 – x53 = 0 (node 3)
– x14 – x34 + x43 + x45 + x46 – x54 = 0 (node 4)
– x15 – x25 – x35 – x45 + x52 + x53 + x54 + x56 = 0 (node 5)
x16 + x26 + x36 + x46 + x56 = 1 (destination)
All xij ≥ 0
Shortest Route: Solution Summary
Minimum total cost = $150
x12 = 0 x25 = 0 x34 = 1 x43 = 0 x52 = 0

x13 = 1 x26 = 0 x35 = 0 x45 = 1 x53 = 0
x14 = 0 x36 = 0 x46 = 0 x54 = 0
x15 = 0 x56 = 1
x16 = 0 2 5
30
40 3
6
1
30 50

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BA ZC412:

MODELS & APP IN OPERATIONS

Hewlitt Corporation established an early retirement program as part

The objective is to minimize the funds needed to meet the plan’s

A key feature of this type of financial planning problem is that a

It’s form is:

The transportation problem seeks to minimize the total

We want to determine the Kgs of material, xij , to be shipped by

Decision Variables Shipping Costs

The objective is to minimize the total shipping cost.

Equal use of transportation modes:

Objective Function Value = 142000.00 • B1 will receive 1000 Kg by road and

Transshipment problems are transportation problems in

The network representation for a transshipment problem with two

xij > 0 for all i and j

• Total supply not equal to total demand

The LP model modifications required here are identical to those

Unit transportation cost:

Amt Out of TP1: x13 + x14 < 75

An assignment problem is a special c31

xij > 0 for all i and j

How should the contractors be assigned so that total mileage is

x41+x42+x43 < 1 Gol. 20 C

Total Distance = 69 miles

• Number of agents exceeds the number of tasks

• Number of tasks exceeds the number of agents

• The assignment alternatives are evaluated in terms of revenue or profit

• An agent is permitted to work t tasks:

The shortest-route problem is concerned with finding the shortest path

x12 = 0 x25 = 0 x34 = 1 x43 = 0 x52 = 0

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