Linear Programming

CHAPTER 7
LINEAR OPTIMIZATION
MODELS
INTRODUCTION
 Optimization problems:
 Can be used to support and improve managerial
decision making
 Maximize or minimize some function, called the
objective function, and have a set of
restrictions known as constraints
 Can be linear or nonlinear
2
INTRODUCTION
 Typical applications:
 A manufacturer wants to develop a production schedule
and an inventory policy that will satisfy demand in future
periods and at the same time minimize the total
production and inventory costs
 A financial analyst would like to establish an investment
portfolio from a variety of stock and bond investment
alternatives that maximizes the return on investment
 A marketing manager wants to determine how best to
allocate a fixed advertising budget among alternative
advertising media such as web, radio, television,
newspaper, and magazine that maximizes advertising
effectiveness
 A company had warehouses in a number of locations. Given
specific customer demands, the company would like to
determine how much each warehouse should ship to each
customer so that total transportation costs are minimized
3
INTRODUCTION
 Linear optimization models are also known
as linear programming
 Linear programming:
 A problem-solving approach developed to help
managers make better decisions
 Numerous applications in today’s competitive
business environment
 For instance, GE Capital uses linear
programming to help determine optimal lease
structuring
4
Problem Formulation
Mathematical Model for the Par, Inc. Problem
A SIMPLE MAXIMIZATION
PROBLEM
A SIMPLE MAXIMIZATION PROBLEM
 Illustration:
 Par, Inc. is a small manufacturer of golf
equipment and supplies whose management
has decided to move into the market for
medium- and high-priced golf bags. Par’s
distributor is enthusiastic about the new
product line and has agreed to buy all the golf
bags Par produces over the next three months
6
PROBLEM
 Operations involved in manufacturing a golf
bag:
 Cutting and dyeing the material
 Sewing
 Finishing (inserting umbrella holder, club
separators, etc.)
 Inspection and packaging
7
PROBLEM
 Table 7.1: Production Requirements Per Golf
Bag
8
 Par’s production is constrained by a limited

number of hours available in each
department during the next three months:
Department Number of hours
Cutting and Dyeing 630
Sewing 600
Finishing 708
Inspection and 135
Packaging
 Required profit contribution:

 Standard bag: $10/unit
 Deluxe bag: $9/unit
9
PROBLEM
 Develop a mathematical model of the Par,
Inc. problem to determine the number of
standard bags and the number of deluxe
bags to produce to maximize total profit
contribution
 Problem Formulation
 Problem formulation or modeling:
Process of translating the verbal
statement of a problem into a
mathematical statement (or model)
10
PROBLEM
 General guidelines for problem
formulation:
 Understand the problem thoroughly
 Describe the objective
 Describe each constraint
 Define the decision variables
 Write the objective in terms of the decision
variables
 Write the constraints in terms of the
decision variables
 Describe each constraint
Constraint Constraint
1 Number of hours of cutting and dyeing time

used must be less than or equal to the
number of hours of cutting and dyeing time
available.
2 Number of hours of sewing time used must
be less than or equal to the number of hours
of sewing time available.
3 Number of hours of finishing time used must
be less than or equal to the number of hours
of finishing time available.
4 Number of hours of inspection and packaging
time used must be less than or equal to the
number of hours of inspection and packaging
time available.
12
PROBLEM
 Define the decision variables
 S = number of standard bags
 D = number of deluxe bags
 Write the objective in terms of the decision
variables
 If Par makes $10 for every standard and $9 for
every deluxe bag,
Total profit contribution = 10S + 9D = Objective
function
 Objective: Max 10S + 9D
13
PROBLEM
 Write the constraints in terms of the
decision variables
 Constraint 1:
≤
S + 1D ≤ 630
 Constraint 2:
≤
S + D ≤ 600
14
 Constraint 3:
≤
1S + D ≤ 708
 Constraint 4:
≤
S + D ≤ 135
 Nonnegativity constraints—based on the fact
that the number of standard or deluxe bags
produced cannot be negative
S ≥ 0 and D ≥ 0 or S, D ≥ 0
15
Mathematical Model for the Par, Inc.
Problem
Mathematical model: a set of mathematical
relationships
Max 10S + 9D
subject to(s.t)
S + 1D ≤ 630 Cutting and dyeing
S + D ≤ 600 Sewing
1S + D ≤ 708 Finishing
S + D ≤ 135 Inspection and packaging

S, D ≥ 0
16
Mathematical Model for the Par, Inc.

Problem (contd.)
 This is a linear programming model (or linear

program) because the objective function and all
constraint functions are linear functions of the
decision variables
 Linear function: Mathematical function in which

each variable appears in a separate term and is
raised to the first power
17
The Geometry of the Par, Inc. Problem
Solving Linear Programs with Excel Solver
SOLVING THE PAR, INC.

PROBLEM
SOLVING THE PAR, INC. PROBLEM
 To find the optimal solution to the problem
modeled as a linear program:
 The optimal solution must have the highest

objective function value
 The optimal solution must be a feasible
solution—a setting of the decision variables
that satisfies all of the constraints of the
problem
 Search over the feasible region—a set of all
possible solutions
 Find the solution that gives the best objective
function value
19
The Geometry of the Par, Inc. Problem
 When only two decision variables, the functions

of variables are linear
 If constraints are inequalities, the constraint cuts
the space in two
 The line and the area on one side of the line is
the space the satisfies that constraint
 These subregions are called half spaces
 The intersection of the half spaces make up the
feasible region
FIGURE 7.1: FEASIBLE REGION FOR
THE PAR, INC. PROBLEM
21
THE OPTIMAL SOLUTION TO
THE PAR, INC. PROBLEM
• To solve the Par, Inc. problem, we must find
the point in the feasible region that results in
the highest possible objective function value.
• An objective function contour is a set of
points that yield a fixed value of the
objective function.
• By choosing a fixed value of the objective
function, we may plot contour lines of the
objective function over the feasible region.
• As we move away from the origin we see
higher values of the objective function.
FIGURE 7.2: THE OPTIMAL SOLUTION
TO THE PAR, INC. PROBLEM
23
 Based on the geometry of Figure 7.2, to solve a
linear optimization problem we only have to
search the extreme points of the feasible
region to find the optimal solution
 Extreme points are found where constraints
intersect on the boundary of the feasible region
Solving Linear Programs with Excel Solver
 The first step is to construct the relevant what-if
model
 A what-if model for optimization allows the user
to try different values of the decision variables
and see:
 Whether that trial solution is feasible
 The value of the objective function for that
trial solution
 Convey to Excel Solver the structure of the linear
optimization model
25
FIGURE 7.3: WHAT-IF SPREADSHEET
MODEL FOR PAR, INC.
26
FIGURE 7.4: SOLVER DIALOG BOX AND
SOLUTION TO THE PAR, INC. PROBLEM
27
 The optimal solution:
 To make 540 Standard bags and 252
Deluxe bags for a profit of $7,668
 Using all the cutting and dyeing time as
well as all finishing time, from cells
B19:B22 compared to C19:C22
 The results are consistent with the results
obtained in Figures 7.1 and 7.2
28
FIGURE 7.5: THE SOLVER ANSWER
REPORT FOR THE PAR, INC. PROBLEM
29
 A binding constraint is one that holds as an
equality at the optimal solution
 The slack value for each less-than-or-equal-
to constraint indicates the difference
between the left-hand and right-hand values
for a constraint
 By adding a nonnegative slack variable, we
can make the constraint equality
Problem Formulation
Solution for the M&D Chemicals Problem
A SIMPLE MINIMIZATION
PROBLEM
A SIMPLE MINIMIZATION PROBLEM
 Illustration:
 Production requirements for M&D
Chemicals:
 The combined production for products A and
B must total at least 350 gallons
 Separately a major customer’s order for 125
gallons of product A must also be satisfied
 Processing time:
 Product A: 2 hours/gallon
 Product B: 1 hour/gallon
 For the coming month, 600 hours of
processing time are available
32
 Production cost: Product A: $2/gallon;
Product B: $3/gallon
 Objective: Minimizing the total production
cost
Problem Formulation
 To find the minimum-cost production
schedule:
 Define the decision variables and the
objective function
Let A = number of gallons of product A
B = number of gallons of product B
 Objective function = 2A + 3B
33
 Linear program for the M&D Chemicals problem:

Min 2A + 3B
s.t.
1A ≥ 125 Demand for product A
1A + 1B ≥ 350 Total production
2A + 1B ≤ 600 Processing time
A, B ≥ 0
 A surplus variable tells how much over the
right-hand side the left-hand side of a greater-
than-or-equal-to constraint is for a solution
34
FIGURE 7.6: SOLVER DIALOG BOX AND
SOLUTION TO THE M&D CHEMICAL
PROBLEM
35
FIGURE 7.7: THE SOLVER ANSWER REPORT
FOR THE M&D CHEMICALS PROBLEM
36
Alternative Optimal Solutions
Infeasibility
Unbounded
SPECIAL CASES OF LINEAR

PROGRAM OUTCOMES
PROGRAM OUTCOMES
Alternative Optimal Solutions
 Where the optimal objective function contour

line coincides with one of the binding
constraint lines on the boundary of the feasible
region
 In these situations, more than one solution
provides the optimal value for the objective
function
38
PROGRAM OUTCOMES
 Illustration using the Par, Inc. problem
 Original objective function: 10S + 9D

 Assume the profit for the standard golf bag
decreased to $6.30.
 Revised objective function: 6.3S + 9D
 The optimal solution occurs at two extreme
points:
 Extreme point 4 (S = 300, D = 420) and
 Extreme point 3 (S = 540, D = 252)
39
FIGURE 7.8: PAR, INC. PROBLEM WITH
AN OBJECTIVE FUNCTION OF 6.3S + 9D
(ALTERNATIVE OPTIMAL SOLUTIONS)
40
PROGRAM OUTCOMES
Infeasibility
 Means no solution to the linear
programming problem
 No points satisfy all the constraints and the
nonnegativity conditions simultaneously
 Graphically, a feasible region does not exist
 Infeasibility occurs because:
 Management’s expectations are too high
 Too many restrictions have been placed on the
problem
41
FIGURE 7.9: NO FEASIBLE REGION FOR THE
PAR, INC. PROBLEM WITH MINIMUM
PRODUCTION REQUIREMENTS OF 500
STANDARD AND 360 DELUXE BAGS
42
PROGRAM OUTCOMES
 Interpretation of Infeasibility for the Par,
Inc. problem
 Let the management know that the
resources available are not sufficient to
make 500 standard bags and 360 deluxe bags
 Provide details to the management on:
 Minimum amounts of resources that must be
available
 The amounts currently available
 Additional amounts that would be required to
accomplish this level of production
43
TABLE 7.2: RESOURCES NEEDED TO
MANUFACTURE 500 STANDARD BAGS AND 360
DELUXE BAGS
44
PROGRAM OUTCOMES
 An infeasible problem when solved in Excel
Solver:
 Will return a message indicating that no feasible
solutions exists—indicating no solution to the
linear programming problem will satisfy all
constraints
 Careful inspection is necessary to identify why the
problem is infeasible
 One of the approaches is to drop one or more
constraints and re-solve the problem
 If we find an optimal solution for this revised
problem, then the constraint(s) that were
omitted, in conjunction with the others, are
causing the problem to be infeasible
45
PROGRAM OUTCOMES
Unbounded
 The situation in which the value of the
solution
 May be made infinitely large—for a
maximization linear programming
 May be made infinitely small—for a
minimization linear programming
 Without violating any of the constraints
46
PROGRAM OUTCOMES
 Illustration:
Consider the following linear program with
two decision variables,
X and Y:
Max 20X + 10Y
s.t.
1X ≥2
1Y ≤ 5
X, Y ≥ 0
47
FIGURE 7.10: EXAMPLE OF AN
UNBOUNDED PROBLEM
48
PROGRAM OUTCOMES
 Solving an unbounded problem using Excel
Solver:
 Returns a message “Objective Cell
values do not converge”
 In linear programming models of real
problems:
 The occurrence of an unbounded
solution means that the problem has
been improperly formulated
49
Interpreting Excel Solver Sensitivity Report
SENSITIVITY ANALYSIS
 Sensitivity analysis: The study of how the changes
in the input parameters of an optimization model
affect the optimal solution
 It helps in answering the questions:
 How will a change in a coefficient of the
objective function affect the optimal solution?
 How will a change in the right-hand-side value
for a constraint affect the optimal solution?
 The shadow price for a constraint is the change
in the optimal objective function value if the
right-hand side of that constraint is increased by
one
51
Interpreting Excel Solver Sensitivity Report
 Consider the M&D chemicals problem:
A = number of gallons of product A
B = number of gallons of product B
Min 2A + 3B
s.t.
1A ≥ 125 Demand for
product A
1A + 1B ≥ 350 Total production
2A + 1B ≤ 600 Processing time
A, B ≥ 0
52
FIGURE 7.11: SOLVER SENSITIVITY REPORT
FOR THE M&D CHEMICALS PROBLEM
53
 Classical sensitivity analysis:
 Based on the assumption that only one piece
of input data has changed
 It is assumed that all other parameters
remain as stated in the original problem
 When interested in what would happen if
two or more pieces of input data are
changed simultaneously:
 The easiest way to examine the effect of
simultaneous changes is to make the changes
and rerun the model
54
Investment Portfolio Selection
Transportation Planning
Advertising Campaign Planning
GENERAL LINEAR PROGRAMMING

NOTATION AND MORE EXAMPLES
 The general notation for linear programs uses
the letter x with a subscript
 In the Par, Inc. problem the decision variables
could be denoted as:
 = number of standard bags
 = number of deluxe bags
 Advantage: Formulating a mathematical
model for a problem that involves a large
number of decision variables is much easier
 Disadvantage: Not being able to easily
identify what the decision variables actually
represent in the mathematical model
56
 Par, Inc. model using the general notation:
Max 10 + 9
s.t.
+ 1 ≤ 630 Cutting and dyeing
+ ≤ 600 Sewing
1 + ≤ 708 Finishing
+ ≤ 135 Inspection and packaging
,≥0
57
Investment Portfolio Selection
 Portfolio selection problems involve
situations in which a financial manager must
select specific investments—for example,
stocks and bonds—from a variety of
investment alternatives
 Objective: Maximization of expected return
or minimization of risk
 Constraints: Restrictions on the type of
permissible investments, state laws,
company policy, and so on
58
illustration
 Welte Mutual Funds, Inc., located in New York City, is
looking for investment opportunities for $100,000
 The firm’s top financial analyst identified five
investment opportunities and projected their annual
rates of return
59
 Welte investment guidelines:
 Neither industry (oil or steel) should
receive more than $50,000
 Amount invested in government bonds
should be at least 25 percent of the steel
industry investments
 The investment in Pacific Oil, the high-
return but high-risk investment, cannot
be more than 60 percent of the total oil
industry investment
60
 Define the following decision variables:
= dollars invested in Atlantic Oil
= dollars invested in Pacific Oil
= dollars invested in Midwest Steel
= dollars invested in Huber Steel
= dollars invested in government bonds
 Specify the objective: Maximizing return
Max 0.073 + 0.103 + 0.064 + 0.075 + 0.045
61
 Define the constraints:
Constraint 1: + + + + = 100,000
Constraint 2: + ≤ 50,000
+ ≤ 50,000
Constraint 3: + )
Constraint 4: + )
Nonnegativity constraints: , , , , 0
62
 Linear programming model for the Welte
Mutual Funds investment problem:
Max 0.073 + 0.103 + 0.064 + 0.075 + 0.045
s.t.
+ + + + = 100,000 Available funds
+ ≤ 50,000 Oil industry maximum
+ ≤ 50,000 Steel industry maximum
+) Government bonds minimum
+) Pacific Oil restriction
,,,, 0
63
FIGURE 7.12: THE SOLUTION FOR THE
WELTE MUTUAL FUNDS PROBLEM
64
Transportation Planning
 Transportation problem arises in planning
for the distribution of goods and services
from several supply locations to several
demand locations
 Quantity of goods available at each supply
location (origin) is limited
 Quantity of goods needed at each of several
demand locations (destinations) is known
 Objective: Minimize the cost of shipping
goods from the origins to the destinations
65
 Illustration using Foster Generators problem
 Involves the transportation of a product
from three plants to four distribution
centers
 To determine how much of its production
should be shipped from each plant to each
distribution center
66
 Production capacities over the next three-month
planning period for one type of generator:
 The three-month forecast of demand for the

distribution centers:
67
FIGURE 7.13: THE NETWORK
REPRESENTATION OF THE FOSTER
GENERATORS TRANSPORTATION PROBLEM
68
 Objective is to determine:
 Routes to be used
 Quantity to be shipped via each route
 Minimum total transportation cost
 Let xij = number of units shipped from origin
i to destination j
where i = 1, 2, . . . , m and j = 1, 2, . . . , n
69
TABLE 7.14: TRANSPORTATION COST PER
UNIT FOR THE FOSTER GENERATORS
TRANSPORTATION PROBLEM ($)
70
 Supply constraints
x11 + x12 + x13 + x14 ≤ 5000 Cleveland supply
x21 + x22 + x23 + x24 ≤ 6000 Bedford supply
x31 + x32 + x33 + x34 ≤ 2500 York supply
 Demand constraints
x11 + x21 + x31 = 6000 Boston demand
x12 + x22 + x32 = 4000 Chicago demand
x13 + x23 + x33 = 2000 St. Louis demand
x14 + x24 + x34 = 1500 Lexington demand
71
 A 12-variable, 7-constraint linear programming
formulation of the Foster Generators transportation
problem:
72
FIGURE 7.14: SPREADSHEET MODEL AND
SOLUTION FOR THE FOSTER GENERATOR
PROBLEM
73
Advertising Campaign Planning:
 Designed to help marketing managers
allocate a fixed advertising budget to
various advertising media
 Objective: Maximize reach, frequency, and
quality of exposure
 Restrictions: Company policy, contract
requirements, and media availability
74
 Illustration: Relax-and-Enjoy Lake
Development Corporation:
 Developing a lakeside community at a
privately owned lake
 Primary market includes all middle- and
upper-income families within approximately
100 miles of the development
 Employed the advertising firm of Boone,
Phillips, and Jackson (BP&J) to design the
promotional campaign
75
TABLE 7.15: ADVERTISING MEDIA
ALTERNATIVES FOR THE RELAX-AND-ENJOY
LAKE DEVELOPMENT CORPORATION
76
 Problem Formulation:
 Budget: $30,000
 Restrictions imposed:
 At least 10 television commercials must
be used
 At least 50,000 potential customers must
be reached
 No more than $18,000 may be spent on
television advertisements
 The decision to be made is how many
times to use each medium
77
 Define the decision variables:
 DTV = number of times daytime TV is used
 ETV = number of times evening TV is used
 DN = number of times daily newspaper is
used
 SN = number of times Sunday newspaper is
used
 R = number of times radio is used
 Objective: Maximizing the total exposure
quality units for the overall
media selection plan
78
 Linear programming model for the Relax-and-
Enjoy advertising campaign planning problem:
Max 65DTV + 90ETV + 40DN + 60SN + 20R Exposure
quality
DTV ≤ 15
Availa-
ETV ≤ 10 bility
DN ≤ 25 of
SN ≤ 4 media
R ≤ 30
1500DTV + 3000ETV + 400DN + 1000SN +100R ≤ 30,000 Budget
79
 Linear programming model for the Relax-
and-Enjoy advertising campaign planning
problem (contd.):
Televis
DTV + ETV ≥ 10 -ion
restric
1500DTV + 3000ETV ≤ 18,000
-tion
1000DTV + 2000ETV + 1500DN + 2500SN + 300R ≥ 50,000 Customers

reached
DTV, ETV, DN, SN, R ≥ 0
80
FIGURE 7.15: A SPREADSHEET MODEL
AND THE SOLUTION FOR THE RELAX-
AND-ENJOY LAKE DEVELOPMENT
CORPORATION PROBLEM
81
FIGURE 7.16: THE EXCEL SENSITIVITY
REPORT FOR THE RELAX-AND-ENJOY
LAKE DEVELOPMENT CORPORATION
PROBLEM
82
GENERATING AN ALTERNATIVE
OPTIMAL SOLUTION FOR A
LINEAR PROGRAM
OPTIMAL SOLUTION FOR A LINEAR
PROGRAM
 Illustration: Consider the Foster
Generators transportation problem
 From Figure 7.14, the optimal solution:
x11 = 1000, x12 = 4000, x13 = 0, x14 = 0
x21 = 2500, x22 = 0, x23 = 2000, x24 = 1500
x31 = 2500, x32 = 0, x33 = 0, x34 = 0
 Optimal cost: $39,500
 For the revised model to be optimal, the
solution must give a total cost of $39,500
84
GENERATING AN ALTERNATIVE OPTIMAL
SOLUTION FOR A LINEAR PROGRAM
 From Figure 7.14:

x13 = x14 = x22 = x32 = x33 = x34 = 0
 If the sum of these variables is maximized
and if the optimal objective function value
of the revised problem is positive
 A different feasible solution that is also
optimal is found
85
GENERATING AN ALTERNATIVE OPTIMAL
SOLUTION FOR A LINEAR PROGRAM
 Revised model
86
TABLE 7.16: AN ALTERNATIVE OPTIMAL
SOLUTION TO THE FOSTER GENERATORS
TRANSPORTATION PROBLEM
87
PROGRAM
 In the original solution (Figure 7.14):
 Boston distribution center is sourced from all three plants,
whereas each of the other distribution centers is sourced by
one plant
 Hence, the manager in the Boston distribution center has to
deal with three different plant managers, whereas each of
the other distribution center managers has only one plant
manager
 The alternative solution (Table 7.6) provides a more
balanced solution
 Managers in Boston and Chicago each deal with two plants,
and those in St. Louis and Lexington, which have lower
total volumes, deal with only one plant
 Because the alternative solution seems to be more
equitable, it might be preferred
 Both the solutions give a total cost of $39,500
88
PROGRAM
 General approach to find an alternative optimal
solution to a linear program:
 Step 1: Solve the linear program
 Step 2: Make a new objective function to be
maximized; It is the sum of those variables that
were equal to zero in the solution from Step 1
 Step 3: Keep all the constraints from the original
problem; add a constraint that forces the
original objective function to be equal to the
optimal objective function value from Step 1
 Step 4: Solve the problem created in Steps 2 and
3; if the objective function value is positive, an
alternative optimal solution is found
89

Linear Programming

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Linear Programming

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CHAPTER 7

 Par’s production is constrained by a limited

 Required profit contribution:

1 Number of hours of cutting and dyeing time

S + D ≤ 135 Inspection and packaging

Mathematical Model for the Par, Inc.

 This is a linear programming model (or linear

 Linear function: Mathematical function in which

SOLVING THE PAR, INC.

 The optimal solution must have the highest

The Geometry of the Par, Inc. Problem

 When only two decision variables, the functions

 Linear program for the M&D Chemicals problem:

SPECIAL CASES OF LINEAR

 Where the optimal objective function contour

 Original objective function: 10S + 9D

 Extreme point 3 (S = 540, D = 252)

GENERAL LINEAR PROGRAMMING

 The three-month forecast of demand for the

1500DTV + 3000ETV + 400DN + 1000SN +100R ≤ 30,000 Budget

1000DTV + 2000ETV + 1500DN + 2500SN + 300R ≥ 50,000 Customers

 From Figure 7.14:

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