Table of Contents

Chapter 7 (Using Binary Integer

Programming)
A Case Study: California Manufacturing (Section 7.1) 7.2–7.11
Using BIP for Project Selection: Tazer Corp. (Section 7.2) 7.12–7.15
Using BIP for the Selection of Sites: Caliente City (Section 7.3) 7.16–7.19
Using BIP for Crew Scheduling: Southwestern Airways (Section 7.4) 7.20–7.24
Using Mixed BIP to Deal with Setup Costs: Revised Wyndor (Section 7.5) 7.25–7.30

7.1

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 Applications of Binary
Variables
• Since binary variables only provide two choices, they are ideally
suited to be the decision variables when dealing with yes-or-no
decisions.
• Examples:
• Should we undertake a particular fixed project?
• Should we make a particular fixed investment?
• Should we locate a facility in a particular site?

7.2

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 California Manufacturing
Company
• The California Manufacturing Company is a diversified
company with several factories and warehouses throughout
California, but none yet in Los Angeles or San Francisco.
• A basic issue is whether to build a new factory in Los Angeles
or San Francisco, or perhaps even both.
• Management is also considering building at most one new
warehouse, but will restrict the choice to a city where a new
factory is being built.

Question: Should the California Manufacturing Company

expand with factories and/or warehouses in Los Angeles
and/or San Francisco? 7.3

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 Data for California
Manufacturing
Net Present Capital
Decision Yes-or-No Decision Value Required
Number Question Variable (Millions) (Millions)
1 Build a factory in Los Angeles? x1 $8 $6
2 Build a factory in San Francisco? x2 5 3
3 Build a warehouse in Los Angeles? x3 6 5
4 Build a warehouse in San x4 4 2
Francisco?
Capital Available: $10 million

7.4

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 Binary Decision Variables
Decision Decision Possible Interpretation Interpretation
Number Variable Value of a Value of 1 of a Value of 0

x1 Build a factory in Do not build

1 0 or 1
Los Angeles this factory

x2 Build a factory in Do not build

2 0 or 1
San Francisco this factory

x3 Build a warehouse in Do not build

3 0 or 1
Los Angeles this warehouse

x4 Build a warehouse in Do not build

4 0 or 1
San Francisco this warehouse

7.5

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 Algebraic Formulation
Let x1 = 1 if build a factory in L.A.; 0 otherwise
x2 = 1 if build a factory in S.F.; 0 otherwise
x3 = 1 if build a warehouse in Los Angeles; 0 otherwise
x4 = 1 if build a warehouse in San Francisco; 0 otherwise

Maximize NPV = 8x1 + 5x2 + 6x3 + 4x4 ($millions)

subject to
Capital Spent: 6x1 + 3x2 + 5x3 + 2x4 ≤ 10 ($millions)
Max 1 Warehouse: x3 + x4 ≤ 1
Warehouse only if Factory: x3 ≤ x1
x4 ≤ x2
and
x1, x2, x3, x4 are binary variables.

7.6

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 Spreadsheet Model
B C D E F G
3 NPV ($millions) LA SF
4 Warehouse 6 4
5
6 Factory 8 5
7
8 Capital Required
9 ($millions) LA SF
10 Warehouse 5 2 Capital Capital
11 Spent Available
12 Factory 6 3 9 <= 10
13
14 Total Maximum
15 Build? LA SF Warehouses Warehouses
16 Warehouse 0 0 0 <= 1
17 <= <=
18 Factory 1 1
19
20 Total NPV ($millions) 13
7.7

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 Parameter Analysis Report

The parameter analysis report shows the effect of varying the amount of capital being
made available for these investments.

7.8

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 Management’s Conclusion
• Management’s initial tentative decision had been to make $10
million of capital available.
• With this much capital, the best plan would be to build a factory in
both Los Angeles and San Francisco, but no warehouses.
• An advantage of this plan is that it only uses $9 million of this capital,
which frees up $1 million for other projects.
• A heavy penalty (a reduction of $4 million in total net present value)
would be paid if the capital made available were to be reduced
below $9 million.
• Increasing the capital made available by $1 million (to $11 million)
would enable a substantial ($4 million) increase in the total net
present value. Management decides to do this.
• With this much capital available, the best plan is to build a factory in 7.9
both cities and a warehouse in San Francisco.
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 Some Other Applications
• Investment Analysis
• Should we make a certain fixed investment?
• Examples: Turkish Petroleum Refineries (1990), South African
National Defense Force (1997), Grantham, Mayo, Van Otterloo and
Company (1999)
• Site Selection
• Should a certain site be selected for the location of a new facility?
• Example: AT&T (1990)
• Designing a Production and Distribution Network
• Should a certain plant remain open? Should a certain site be
selected for a new plant? Should a distribution center remain open?
Should a certain site be selected for a new distribution center?
Should a certain distribution center be assigned to serve a certain 7.10
market area?
• Examples: Ault Foods (1994), Digital Equipment Corporation (1995)
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 Some Other Applications
• Dispatching Shipments
• Should a certain route be selected for a truck? Should a certain size
truck be used? Should a certain time period for departure be used?
• Examples: Quality Stores (1987), Air Products and Chemicals, Inc.
(1983), Reynolds Metals Co. (1991), Sears, Roebuck and Company
(1999)
• Scheduling Interrelated Activities
• Should a certain activity begin in a certain time period?
• Examples: Texas Stadium (1983), China (1995)
• Scheduling Asset Divestitures
• Should a certain asset be sold in a certain time period?
• Example: Homart Development (1987)
• Airline Applications:
• Should a certain type of airplane be assigned to a certain flight leg?
7.11
Should a certain sequence of flight legs be assigned to a crew?
• Examples: American Airlines (1989, 1991), Air New Zealand (2001)
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 Project Selection at Tazer Corp.
• Tazer Corporation is searching for a new breakthrough drug.
• Five potential research and development projects:
• Project Up: Develop a more effect antidepressant that doesn’t cause
mood swings
• Project Stable: Develop a drug that addresses manic depression
• Project Choice: Develop a less intrusive birth control method for
women
• Project Hope: Develop a vaccine to prevent HIV infection
• Project Release: Develop a more effective drug to lower blood
pressure
• $1.2 billion available for investment (enough for 2 or 3 projects)

Question: Which projects should be selected to research and 7.12

develop?
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 Data for the Tazer Project
Selection Problem 1 2 3 4 5
Up Stable Choice Hope Release

R&D 400 300 600 500 200

($million)

Success Rate 50% 35% 35% 20% 45%

Revenue if 1,400 1,200 2,200 3,000 600

Successful
($million)

Expected 300 120 170 100 70

Profit
($million)

7.13

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 Algebraic Formulation of Tazer
Project Selection
Let xi = 1 if approve project i; 0 otherwise (for i = 1, 2, 3, 4, and 5)
Maximize P = 300x1 + 120x2 + 170x3 + 100x4 + 70x5 ($million)
subject to
R&D Budget: 400x1 + 300x2 + 600x3 + 500x4 + 200x5 ≤ 1,200
($million)
and xi are binary (for i = 1, 2, 3, 4, and 5).

7.14

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 Spreadsheet for Tazer Project
Selection Problem
A B C D E F G H I J
1 Tazer Corp. Project Selection Problem
2
3
4 Up Stable Choice Hope Release Total Budget
5 R&D Investment ($million) 400 300 600 500 200 1200 <= 1200
6 Success Rate 50% 35% 35% 20% 45%
7 Revenue if Successful ($million) 1400 1200 2200 3000 600
8 Expected Profit ($million) 300 120 170 100 70 540
9
10 Do Project? 1 0 1 0 1

7.15

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 Selection of Sites for
Emergency Services:
The Caliente City Problem
• Caliente City is growing rapidly and spreading well beyond its
original borders
• They still have only one fire station, located in the congested
center of town
• The result has been long delays in fire trucks reaching the
outer part of the city

Goal: Develop a plan for locating multiple fire stations

throughout the city
7.16

New Policy: Response Time ≤ 10 minutes

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 Response Time and Cost Data
for Caliente City Fire Station in Tract
1 2 3 4 5 6 7 8
Response 1 2 8 18 9 23 22 16 28
times
(minutes) 2 9 3 10 12 16 14 21 25
for a fire in 3 17 8 4 20 21 8 22 17
tract
4 10 13 19 2 18 21 6 12
5 21 12 16 13 5 11 9 12
6 25 15 7 21 15 3 14 8
7 14 22 18 7 13 15 2 9
8 30 24 15 14 17 9 8 3
Cost of Station 350 250 450 300 50 400 300 200
($thousands)
7.17

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 Algebraic Formulation of
Caliente City Problem
Let xj = 1 if tract j is selected to receive a fire station; 0 otherwise (j = 1,
2, … , 8)
Minimize C = 350x1 + 250x2 + 450x3 + 300x4 + 50x5 + 400x6 + 300x7 +
200x8
subject to
Tract 1: x1 + x2 + x4 ≥ 1
Tract 2: x1 + x2 + x3 ≥ 1
Tract 3: x2 + x3 + x6 ≥ 1
Tract 4: x1 + x4 + x7 ≥ 1
Tract 5: x5 + x7 ≥ 1
Tract 6: x3 + x6 + x8 ≥ 1
Tract 7: x4 + x7 + x8 ≥ 1
7.18
Tract 8: x6 + x7 + x8 ≥ 1
and xj are binary (for j = 1, 2, … , 8).
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 Spreadsheet Model for Caliente City
Problem A B C D E F G H I J K L M N
1 Caliente City Fire Station Location Problem
2
3 Fire Station in Tract
4 1 2 3 4 5 6 7 8
5 1 2 8 18 9 23 22 16 28
6 Response 2 9 3 10 12 16 14 21 25
7 Times 3 17 8 4 20 21 8 22 17
8 (Minutes) 4 10 13 19 2 18 21 6 12
9 for a Fire 5 21 12 16 13 5 11 9 12
10 in Tract 6 25 15 7 21 15 3 14 8
11 7 14 22 18 7 13 15 2 9
12 8 30 24 15 14 17 9 8 3
13
14 Cost of Station 350 250 450 300 50 400 300 200
15 ($thousands) Number
16 Covering
17 1 1 1 0 1 0 0 0 0 1 >= 1
18 Response 2 1 1 1 0 0 0 0 0 1 >= 1
19 Time 3 0 1 1 0 0 1 0 0 1 >= 1
20 <= 4 1 0 0 1 0 0 1 0 1 >= 1
21 10 5 0 0 0 0 1 0 1 0 1 >= 1
22 Minutes? 6 0 0 1 0 0 1 0 1 1 >= 1
23 7 0 0 0 1 0 0 1 1 2 >= 1
24 8 0 0 0 0 0 1 1 1 2 >= 1
25
26 Total
27 Fire Station in Tract Cost
28 1 2 3 4 5 6 7 8 ($thousands) 7.19
29 Station in Tract? 0 1 0 0 0 0 1 1 750

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 Southwestern Airways Crew
Scheduling
• Southwestern Airways needs to assign crews to cover all its
upcoming flights.
• We will focus on assigning 3 crews based in San Francisco
(SFO) to 11 flights.

Question: How should the 3 crews be assigned 3 sequences of

flights so that every one of the 11 flights is covered?

7.20

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 Southwestern Airways Flights
Seat tl e
(SEA)

Denver Chi cago

(DEN) ORD)
San Francisco
(SFO)

Los Angel es
(LAX)

7.21

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 Data for the Southwestern
Airways Problem Feasible Sequence of Flights
Flights 1 2 3 4 5 6 7 8 9 10 11 12
1. SFO–LAX 1 1 1 1
2. SFO–DEN 1 1 1 1
3. SFO–SEA 1 1 1 1
4. LAX–ORD 2 2 3 2 3
5. LAX–SFO 2 3 5 5
6. ORD–DEN 3 3 4
7. ORD–SEA 3 3 3 3 4
8. DEN–SFO 2 4 4 5
9. DEN–ORD 2 2 2
10. SEA–SFO 2 4 4 5
11. SEA–LAX 2 2 4 4 2
Cost, $1,000s 2 3 4 6 7 5 7 8 9 9 8 9 7.22

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 Algebraic Formulation
Let xj = 1 if flight sequence j is assigned to a crew; 0 otherwise. (j = 1, 2, … , 12).
Minimize Cost = 2x1 + 3x2 + 4x3 + 6x4 + 7x5 + 5x6 + 7x7 + 8x8 + 9x9 + 9x10 + 8x11 +
9x12
(in $thousands)
subject to
Flight 1 covered: x1 + x4 + x7 + x10 ≥ 1
Flight 2 covered: x2 + x5 + x8 + x11 ≥ 1
: :
Flight 11 covered: x6 + x9 + x10 + x11 + x12 ≥ 1
Three Crews: x1 + x2 + x3 + x4 + x5 + x6 + x7 + x8 + x9 + x10 + x11 + x12
≤3
7.23
and
xj are binary (j = 1, 2, … , 12).
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 Spreadsheet Model
Flight Sequence
1 2 3 4 5 6 7 8 9 10 11 12
Cost ($thousands) 2 3 4 6 7 5 7 8 9 9 8 9 At
Least
Includes Segment? Total One
SFO-LAX 1 0 0 1 0 0 1 0 0 1 0 0 1 >= 1
SFO-DEN 0 1 0 0 1 0 0 1 0 0 1 0 1 >= 1
SFO-SEA 0 0 1 0 0 1 0 0 1 0 0 1 1 >= 1
LAX-ORD 0 0 0 1 0 0 1 0 1 1 0 1 1 >= 1
LAX-SFO 1 0 0 0 0 1 0 0 0 1 1 0 1 >= 1
ORD-DEN 0 0 0 1 1 0 0 0 1 0 0 0 1 >= 1
ORD-SEA 0 0 0 0 0 0 1 1 0 1 1 1 1 >= 1
DEN-SFO 0 1 0 1 1 0 0 0 1 0 0 0 1 >= 1
DEN-ORD 0 0 0 0 1 0 0 1 0 0 1 0 1 >= 1
SEA-SFO 0 0 1 0 0 0 1 1 0 0 0 1 1 >= 1
SEA-LAX 0 0 0 0 0 1 0 0 1 1 1 1 1 >= 1

Total Number
1 2 3 4 5 6 7 8 9 10 11 12 Sequences of Crews
Fly Sequence? 0 0 1 1 0 0 0 0 0 0 1 0 3 <= 3

Total Cost ($thousands) 18

7.24

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 Wyndor with Setup Costs
Suppose that two changes are made to the original Wyndor
problem:
1.For each product, producing any units requires a substantial
one-time setup cost for setting up the production facilities.
2.The production runs for these products will be ended after
one week, so D and W in the original model now represent the
total number of doors and windows produced, respectively,
rather than production rates. Therefore, these two variables
need to be restricted to integer values.

7.25

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 Graphical Solution to Original
Wyndor Problem
W
Production rate
for windows
8

Optimal solution

6 (2, 6)

Feasible P = 3,600 = 300 D+ 500 W

4 Region

0 2 4 6 8 10 D
Production rate for doors 7.26

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 Net Profit for Wyndor Problem
with Setup Costs
Number of
Units Produced Doors
0 0(300) – 0 = 0
1 1(300) – 700 = –400
2 2(300) – 700 = –100
3 3(300) – 700 = 200
4 4(300) – 700 = 500
5 Not feasible
6 Not feasible
Net Profit ($)
Windows
0 (500) – 0 = 0
1(500) – 1,300 = –800
2(500) – 1,300 = –300
3(500) – 1,300 = 200
4(500) – 1,300 = 700
5(500) – 1,300 = 1,200
6(500) – 1,300 = 1,700

7.27

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 Feasible Solutions for Wyndor with
Setup Costs
W

8
Production
quantity for
windows (0, 6) gives P = 1700
6 (2, 6) gives P = -100 + 1700
= 1600

(4, 3) gives P = 500 + 200

= 700
2

(0, 0) (4, 0) gives P = 500

gives P = 0
0 2 4 6 8 D
7.28
Production quantity for doors

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 Algebraic Formulation
Let D = Number of doors to produce,
W = Number of windows to produce,
y1 = 1 if perform setup to produce doors; 0 otherwise,
y2 = 1 if perform setup to produce windows; 0 otherwise .

Maximize P = 300D + 500W – 700y1 – 1,300y2

subject to
Original Constraints:
Plant 1: D≤4
Plant 2: 2W ≤ 12
Plant 3: 3D + 2W ≤ 18
Produce only if Setup:
Doors: D ≤ 99y1
Windows: W ≤ 99y2
and
D ≥ 0, W ≥ 0, y1 and y2 are binary. 7.29

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 Spreadsheet Model

7.30

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