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Dynamic Programming Overview Dynamic Programming Notation Backwards Recursion 3 Applications of Dynamic Programming A Production and Inventory Control Problem

© 2005 Thomson/South-Western Thomson/South-

Slide 1

Dynamic Programming

Dynamic programming (DP) is an approach to problem solving which permits decomposing of the original problem into a series of several smaller subproblems. To successfully apply DP, the original problem must be viewed as a multistage decision problem. problem. Defining the stages of a DP problem is sometimes obvious, but at other times this requires subtle reasoning.

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Slide 2

Dynamic Programming

The power of DP is that one need solve only a small portion of all subproblems, due to Bellman's principle of optimality. optimality. Bellman·s principle states that regardless of what decisions were made at previous stages, if the decision to be made at stage n is to be part of an overall optimal solution, then the decision made at stage n must be optimal for all remaining stages.

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Slide 3

Dynamic Programming Notation

At each stage, n, of the dynamic program, there is: a state variable, xn variable, an optimal decision variable, dn variable, For each value of xn and dn at stage n, there is: a return function value, rn(xn,dn) value, The output of the process at stage n is: the state variable for stage n-1, xn-1 xn-1 is calculated by a stage transformation function, function, tn(xn,dn) The optimal value function, fn(xn), is the cumulative function, return starting at stage n in state xn and proceeding to stage 1 under an optimal strategy.

Slide 4

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Backwards Recursion

Generally, a dynamic programming problem is solved by starting at the final stage and working backwards to the initial stage, a process called backwards recursion. recursion. The following recursion relation can be used to operationalize the principle of optimality: fn(xn) = MAX {rn(xn,dn) + fn -1(tn(xn , dn))} {r dn

A problem is solved beginning at stage 0 with the boundary condition f0(x0) = 0, and working backwards to the last stage, N.

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Slide 5

Three Applications of Dynamic Programming Problems

Shortest Route Problem In solving a shortest route problem using dynamic programming, one should consider the network as a series of stages with a unique subset of nodes corresponding to each stage. The state variables correspond to the different nodes at each stage.

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Slide 6

Three Applications of Dynamic Programming Problems

Knapsack or Cargo Loading Problem The knapsack problem seeks to determine the optimal number of each of N items (which must not be fractional) to select in order to maximize profit subject to an overall capacity constraint. In solving a knapsack problem using dynamic programming, the stages correspond to the different items being placed into a knapsack. The state variables correspond to the capacity available at the stage.

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Slide 7

Three Applications of Dynamic Programming Problems

Production and Inventory Control Problems In production and inventory control problems, the stages correspond to time periods and the state variables generally will refer to the amounts of inventory on hand at the beginning of each stage.

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Slide 8

Example: Dicom Corporation

Production and Inventory Control Problem Dicom Corporation wishes to determine a production schedule for its new Model 44/12 robotic welder. Due to differences in parts availability and spare production capacity, the cost of producing the welder will vary monthly. The holding cost for each unsold welder still in inventory at the end of a month is $500,000. Corporate policy dictates that the maximum number of welders allowed in inventory at the end of any month is 8.

Slide 9

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**Example: Dicom Corporation
**

Cost of Maximum Production Production Per Machine Level Month (in $100,000's) for Month August 32 4 September 18 3 October 26 4 November 45 5

Sales Demand (in Units) 2 1 5 3

Determine an optimal 4-month production 4schedule for the Model 44/12 welder.

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Slide 10

Example: Dicom Corporation

4-Stage Dynamic Programming Problem Working backwards, let stage 1 correspond to November, stage 2 to October, etc. The following data (costs in $100,000's) can be inferred: Product. Holding Product. Storage Cost Cost Month Dem. Capacity Capacity Per Unit Per unit (n) Dn Pn Wn Cn Hn 1 2 3 4 3 5 1 2 5 4 3 4 8 8 8 8 45 26 18 32 5 5 5 5

Slide 11

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Example: Dicom Corporation

State Variable Defined xn = number of computers in inventory at the beginning of month n. x4 = 0 (Since the computer is new, there will be no inventory at the start of August.) Decision Variable Defined dn = production quantity for month n.

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Slide 12

Example: Dicom Corporation

Stage Transformation Function Then the stage transformations for months 0 through 4 can be defined by: (Previous month's inventory) + (Production this month) - (Demand this month)

xn-1 = xn + dn - Dn

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Slide 13

Example: Dicom Corporation

Return Function rn(xn,dn) = (Production cost) + (Holding cost) for month n Production cost = (Production cost per unit) x (Number of units produced in month n) Holding cost = (Holding cost per unit) x (Ending inventory for month n) Hence, rn(xn,dn) = Cn dn + Hn(xn + dn - Dn)

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Slide 14

Example: Dicom Corporation

Return Function (continued) rn(xn,dn) = Cn dn + Hn(xn + dn - Dn) This gives: r1(x1,d1) = 50d1 + 5x1 - 15 50d 5x r2(x2,d2) = 31d2 + 5x2 - 25 31d 5x r3(x3,d3) = 23d3 + 5x3 - 5 23d 5x r4(x4,d4) = 37d4 + 5x4 ² 10 37d 5x

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Slide 15

Example: Dicom Corporation

Restrictions on xn and dn Restriction (1) Because backordering is not allowed, we must be able to meet the sales demand in any month.

x n + d n > Dn

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Slide 16

Example: Dicom Corporation

Restrictions on xn and dn (continued) Restriction (2) Because there is a maximum storage of Wn at each stage n, the total inventory at the end of any month cannot exceed Wn .

xn + dn - Dn < Wn

or

xn + dn < Wn + Dn

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Slide 17

Example: Dicom Corporation

Restrictions on xn and dn (continued) Restriction (3) The amount produced in any given month cannot exceed the production capacity for that month.

dn < Pn

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Slide 18

Example: Dicom Corporation

Optimal Value Function fn(xn) = optimal return (minimal cost) for stages 1 through n given one starts stage n with xn welders in inventory

**fn(xn) = Min {rn(xn ,dn) + fn -1(xn -1)} {r dn
**

where dn is constrained by restrictions (1), (2), and (3).

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Slide 19

Example: Dicom Corporation

Stage 1 (November) Because f0(x0) = 0 is a boundary condition: f1(x1) = Min r1(x1, d1) d1

**Using the expression for r1(x1, d1) and restrictions (1), (2), (3): f1(x1) = Min 5x1 + 50d1 - 15 5x 50d s.t. x1 + d1 > 3 x1 + d1 < 11 d1 < 5 and, d1 > 0
**

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(1) (2) (3)

Slide 20

Example: Dicom Corporation

Tabulated Values for 50d1 +5x1 ²15 50d +5x d1 x1 0 1 2 3 0 1 2 3 4 185 190 195 200 5 235 240 245 250 d1* f1(x1) 3 2 1 0 135 90 45 0 135 90 140 45 95 145 50 100 150

0

Note: Having x1 > 3 would result in having welders in inventory at the end of November which is undesirable.

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Slide 21

Example: Dicom Corporation

Stage 2 (October) f2(x2) = Min 5x2 + 31d2 -25 + f1(x1) 5x 31d d2 Given the restrictions, the subproblem is: f2(x2) = Min 5x2+ 31d2 -25 + f1(x2+ d2 - 5) 5x 31d s.t. x2+ x 2+ d2 > d2 < d2 < and d2 > 5 (1) 13 (2) 4 (3) 0

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Slide 22

Example: Dicom Corporation

Tabulated Values for 5x2 + 31d2 -25 + f1(x1) 5x 31d x2 1 2 3 4 5 6 7 8 0 1 d2 2 3 4 d2* 4 4 4 4 3 2 1 0 f2(x2) x2+d2*-5 = x1 239 199 159 119 93 67 41 15 0 1 2 3 3 3 3 3

239 213 199 187 173 159 161 147 133 119 135 121 107 93 95 81 67 55 41 15

Note: x2= 0 is infeasible.

© 2005 Thomson/South-Western Thomson/SouthSlide 23

Example: Dicom Corporation

Stage 3 (September) f3(x3) = Min 5x3 + 23d3 - 5 + f2(x2) 5x 23d d3 Given the restrictions, the subproblem is: f3(x3) = Min 5x3 + 23d3 - 5 + f2(x3 + d3 - 1) 5x 23d s.t. x3 + d3 > x3 + d3 < d3 < and d3 > 1 9 3 0 (1) (2) (3)

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Slide 24

Example: Dicom Corporation

Tabulated Values for 5x3 + 23d3 - 5 + f2(x3 + d3 -1) 5x 23d x3 0 1 2 3 4 5 6 7 8 0 1 263 227 192 157 136 115 94 73 d3 2 3 263 228 193 172 151 130 109 d3* 3 3 3 3 3 3 3 1 1 f3(x3) x3 + d3*-1 = x2 263 228 193 172 151 130 109 91 73 2 3 4 5 6 7 8 8 8

Slide 25

244 209 174 139 118 97 76

280 245 210 175 154 133 112 91

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Example: Dicom Corporation

Stage 4 (August) f4(x4) = Min 5x4 + 37d4 - 10 + f3(x3) 5x 37d d4 Given the restrictions, the subproblem is: f4(x4) = Min 5x4 + 37d4 - 10 + f3(x4 + d4 - 2) 5x 37d s.t. x4 + d4 > x4 + d4 < d4 < and d4 > 2 (1) 10 (2) 4 (3) 0

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Slide 26

Example: Dicom Corporation

Tabulated Values for 5x4 + 37d4 - 10 + f3(x4 + d4 - 2) 5x 37d d4 2

x4 0

0

1

3

4

d4* f4 (x4 ) x4+d4*-2 = x3 2 327 0

327 329 331

Note: Because August starts with x4 = 0 inventory on hand, compute table only for x4 = 0.

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Slide 27

Example: Dicom Corporation

Solution Summary Working backwards through the tables, one can determine the optimal solution that gives the minimum cost of $327 x 100,000 = $32,700,000. Inventory OnOnHand Beginning Produce (dn*) Next Month xn-1 (d 2 3 4 2 0 2 1 0

Stage 4 3 2 1

Month August September October November

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Slide 28

End of Chapter 18

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