Appendix A: Solving Network Design and Operations Problem Using Excel Solver Network operations planning and design problems can be formulated as linear programming problems and solved using Excel Solver. In this appendix, we describe the use of Excel Solver for formulating and solving network planning and design problems. We illustrate the use of Excel Solver through the example of Indian Paints. We will work with cost minimization for both network operations planning and design formulations. The whole exercise involves three steps Step 1: Preparing base data in Excel Step 2: Formulating the model in Solver Step 3: Solving the problem and carrying out sensitivity analysis of the solution using Solver Table 6.1(a): Plant data. Plant Capacity Unit variable production cost Ahmedabad 350 675 Baddi 400 525 Hubli 450 650 Nagpur 300 625 Vishakapatnam 400 675 Table 6.1(b): Market data. Market Bangalore | Chennai | Delhi | Mumbai | Lucknow | Kolkata Quarterly | 165 135 280 200 125 155 demand Price per | 1,030 950 1,000 | 975 900 50 unit Table 6.1(c): Transportation cost matrix. Bangalore | Chennai | Delhi | Mumbai | Lucknow | Kolkata Ahmedabad 235 278 100 65 189 261 Baddi 511 558 97 328 216 305 Hubli 77 138 327 105 372 326 Nagpur 165 160 183 117 148 235 Vishakapatnam | 163 107 328 217 303 203 ‘Step 1: Preparing Base Data As can be seen in Figure A6.1, cells B3:G7 contain production and transportation cost data (Cost,) for supply of product from plant to market, cells H3:H7 and 13:17 contain capacityFigure A6.1 Spreadsheet forthe daca (Cap) and fixed cost (Foost,) data for each of the five plants, and B8:G8 contains demand (Dem) data for each of the market. )bjective Function and the respective left-hand sides of demand (Equation 6.1) and supply (Equation 6.2) are prepared using the formula shown in Table A6.1. Decision variable supplies from plant to market (Quant,) are represented by Cells B11: G15. Objective function is represented by cell B19. The left- and right-hand sides of Equation 6.1 are represented by cells B16:G16 and B8:G8. Similarly, the cells HI1:H15 and H3:H7 represent the left- and right-hand sides of Equation 6.2. The left-hand side of Equation 6.3 is, represented by cells BLI:G15. Now we are ready to set up the Solver in Excel. Step 2: Formulating Model in Solver Choosing Solver from the tool menu displays the Solver parameter box, as can be seen in Figure A6,2. This parameter box allows us to set up the model in the Solver. The objective function cell (B19) is treated as the target cell in Solver, and as we are working on a minimiza- tion problem, we choose the minimization option. Decision variables (B11:G15) are entered in the box indicated “Guess” Table A6.1: Relevant spread formulae. Cell_] Cell formate Equation Copied to | Remark SUMPRODUCT(B3:7,B11:G15) | Objective function Demand constraint (Equation 6.1) | C16:G16 | Six demand constraints Supply constraint (Equation 6.2) | H112:H15 | Five supply constraintsFigure A6.2 Solver parameter box. As can be seen in Figure A6.2, Equations 6.3, 6.1 and 6.2 are entéred in that order in the constraint box. Step 3: Solving Problem and Carrying Out Sensitivity Analysis of the Solution Using Solver Clicking solve within the Solver parameter box will result in an optimal solution as shown in Figure A6.3. The details of the solution are reported in Table 6.3. ‘While clicking solve on Solver parameter box, one can choose to obtain data on sensitivity analysis as one of the outputs of Solver. The sensitivity analysis output contains two outputs: (a) sensitivity analysis on constraints (see Figure A6.4(a)) and (b) sensitivity analysis on param- eters of objective function (see Figure A6.4(b) for a partial extract of the output). Foreach demand and supply constraint, the shadow price is also reported in the above table. ‘The shadow price of the constraint equation measures the marginal value of this resource. If we look at supply constraints, the shadow price is ~32 for Baddi and zero for all other plants. So, if the capacity of the Baddi plant is increased by one unit, the objective function (total vari- able cost) will increase by ~32. For all other plants change in capacity will have no impact on objective function. This is quite intuitive because all other plants are operating at less than full capacity in the final solution, so a change in the capacity value will have no impact on network planning decisions. The shadow price of ~32 for Baddi will be valid from the capacity range of 280 (400 - 120) to 405 (400 + 5). Beyond this range of capacity, one will have to run Solver again to understand the impact of change in the capacity on the objective function. Similarly, if demand from Delhi increases by one unit, the objective function will increase by 654, while any increase in unit demand at Kolkata will increase cost by 860. This information will help the marketing department in making appropriate plans for different marketsSe = s a We a Figure A6.3 Optimal Solver solut Cell Name Final Shadow Constraint Allowable Allowable Value Price RH. Side Increase Decrease $B$16 Demand Met Bangalore 165727165 285 165 $C$16 Demand Met Chennai 135782135 265 135 $DS16 Demand Met Delhi 280 654-280 120 5 $E$16 Demand Met Mumbai 200740200 150 200 Heenaicies SFS16 Demand Met Lucknow 125773 125 140 5 Seuliviy aa $G$16 Demand Met Kolkata 155 860155 140 155 constraians: SHS11 Ahmedabad Supply 200 0350 16430150 SHS12__Baddi Supply 400-32 400 5 120 SH$13_ Hubli Supply 165 0 450 16:30 285 SHS14__ Nagpur Supply 160-0300 1630140 SHS15_Vishakapatnam Supply 135 0400 1630265Cell Name Final Reduced Objective Allowable Allowable Value Cost Coefficient Increase Decrease $0511 Ahmedabad Bangalore 0183910 1e30 183 $CS11 Ahmedabad Chennat «0171953 1630171 $0511 Ahmedabad Delhi os “E30 121 SES11__ Ahmedabad Mumbai___200 0 740 2 130 a a eee 864 163091 Sensitivity analysis on parameters of objective _SGS11_ Ahmedabad Kolkata_—0==—76 936 13076 ae $B$12 _Baddi Bangalore 03a 1036 16430341 $C$12__ Badd Chennai 0333 «1083 130333, $D$12_Baddi Delhi 2000 on 121 16430 SES12_ Baddi Mumbai Gao er esd 1630145 SF512_ Badd Lucknow 1200 7a 2 12 $G$12 Badd Kolkata 02 830 16302 Using the parameter of objective function, sensitivity is captured by reduced cost. If the rel- evant decision variable (Quant,) is positive, the reduced cost will be zero. But wherever Quant, is zero, the reduced cost will tell us by what amount the cost parameter should change sO that the corresponding decision variable will get a non-zero value in the optimal solution. For ‘example, Baddi does not supply to Mumbai and the corresponding cell E12 has reduced cost to 145. Hence, only if the cost of production plus transportation from Baddi to Mumbai drops by 145 will Baddi start supplying to Mumbai. Similarly, Delhi gets it supply from Baddi and will keep getting supply from Baddi as long as the per unit cost increase is not more than 121. So it allows one to understand the impact of change in value of objective function parameters on optimal solution. Network Design Decision We work with cost minimization for network design formulations. In network design prob- lems, we need to introduce binary variables. As can be seen in Figure A6.5, apart from Quant, Table A6,2: Relevant spreadsheet formulae. Cell] Cell formula Equation Copied to | Remark B19] = SUMPRODUCT (13:17,H11:H15)_| Objective function + SUMPRODUCT(B3:G7,B11:G15) B16 | = sUM@B11:B15) Let side of Demand constraint — | C16:G16 _| Six demand constraints (Equation 6.7) m1 | =sum@:c1) Left side of Supply Constraint 12:15 | Five supply constraints (Equation 6.8) sv] sH3eH11 Right side of Supply Constraint | J12;)15_| Five supply constraints (Equation 6.8)variables, additional variables Racopen, have been introduced in cell H11:HI5. The relevant spreadsheet formulae are presented in Table A6.2. ‘Ascan be seen in Figure A6.5, in the constraint box Equations 6.9, 6.7, 6.10 and 6.8 are centered in that order. Solver solves binary linear programming problems using the branch and ‘bound solution methodology. Figure A6.5 Solver parameter box for network design problem.