MINIMIZING THE COST OF TRANSPORTATION FOR

SAWMILL COMPANY

PROJECT REPORT FOR

QUANTITATIVE TECHNIQUES FOR
BUSINESS DECISIONS

Submitted By:

Mallika Kulkarni (09HR-032)

Ankur Srivastava (09IT-002)

Nidhi Verma (09IT-015)

Nishant Dubey (09IT-016)

Omer Mohammed Saber (09IT-017)

Rahul Jain (09IT-020)

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 CONTENTS

Abstract………………………………………………………………………………………3

Problem Statement…………………………………………………………………………4

The Mathematical Model…………………………………………………………………..5

Approach……………………………………………………………………………………6

Analysis……………………………………………………………………………………12

 Recommendation………………………………………………………………....12
 Reduced Cost……………………………………………………………………..12
 Range of Optimality……………………………………………………………….12
 Shadow Prices…………………………………………………………………….13
 Range of Feasibility……………………………………………………………….13

References………………………………………………………………………………...14

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 Abstract

The problem discussed in the report deals with the scenario where a Sawmill
Company is required to minimize the cost of shipping goods from one location to
another so that demand at each arrival is met. There are several constraints that
need to be addressed. The technique of linear programming is used to reach the
optimal solution so that every constraint is optimally satisfied. The interpretation and
the analysis of the result are also done.

PROBLEM STATEMENT
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The XYZ Sawmill Company’s CEO asks to see next month’s log hauling schedule to
his three sawmills. He wants to make sure he keeps a steady, adequate flow of logs
to his sawmills to capitalize on the good lumber market. Secondary, but still
important to him, is to minimize the cost of transportation. The harvesting group
plans to move to three new logging sites. The distance from each site to each
sawmill is in Table 1. The average haul cost is $2 per mile for both loaded and empty
trucks. The logging supervisor estimated the number of truckloads of logs coming off
each harvest site daily. The number of truckloads varies because terrain and cutting
patterns are unique for each site. Finally, the sawmill managers have estimated the
truckloads of logs their mills need each day. All these estimates are in Table 1.

Distance to Mills (miles)

Logging Sites Mill A Mill B Mill C Maximum

truckloads/day
per logging site

1 8 15 50 20
2 10 17 20 30
3 30 26 15 45
Mill Demand 30 35 30
(Truckloads/day)

The next step is to determine costs to haul from each site to each mill (Table 2).

Logging Sites Mill A Mill B Mill C

1 $32 $60 $200

2 40 68 80
3 120 104 60

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 SOLUTION

The following is a brief summary of the problem:

1. Minimize hauling costs

2. Meet each of the saw mills daily demand
3. Not exceed the maximum number of truck loads from each site

MATHEMATICAL EQUATION FOR THE PROBLEM:

Let Xij= Haul cost from Site i to Mill j

i = 1, 2, 3(logging sites) j= 1, 2, 3(sawmills)

Objective function:

Minimize:

32X11 + 40X21 +120X31 + 60X12 + 68X22 + 104X32 + 200X13 + 80X23 + 60X33

Subject to:

X11 + X21 + X31 ≥ 30 Truckloads to Mill A

X12 + X22 + X32 ≥ 35 Truckloads to Mill B

X13 + X23 + X33 ≥ 30 Truckloads to Mill C

X11 + X12 + X13 ≤ 20 Truckloads from Site 1

X21 + X22 + X23 ≤ 30 Truckloads from Site 2

X31 + X32 + X33 ≤ 45 Truckloads from Site 3

X11, X21, X31, X12 , X22, X32, X13, X23, X33 ≥ 0

APPROACH USING SOLVERS PROCESS

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1. The problem was written in the Excel Sheet in the prescribed manner and excel
formulas were applied. Initial Solution mix was taken as 1 for each variable. All the
constraints were also specified.

2. The solver was invoked and the target cell, changing cell and the constraints were
specified in the solver. The solver was also set to assume a linear model and a non
negative model to take care of the non-negativity constraint.
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3. The solver was executed successfully and it found an optimum solution to the
problem so that every constraint is optimally satisfied. The ‘Answer’ and the
‘Sensitivity Report’ were selected to be shown for analysis.

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4. The ‘Answer Report’ was successfully displayed and the final value for each
variable as well as for overall solution was presented.

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5. The ‘Sensitivity Report’ was also displayed successfully and it listed all the
details regarding Final Value, Reduced Cost, Allowable Increase, Allowable
Decrease and Shadow Price.

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6. Finally on the main problem sheet the final value calculating the overall
transportation cost is displayed.

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ANALYSIS

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 The constraints are that truck load to mill A is greater than 30 truck load to mill B
is greater than 35 truck load to mill C is greater than 30.Also the truck load from
site1 should be less than 20, truck load from site2 should be less than 30 truck
load from site3 should be less than 45.Keeping these constraints in mind we
have to minimize the cost of transportation from site to mill. In the problem taken
all the resources are being optimally used and there is no residual of any.

RECOMMENDATION

According to the solution obtained through solvers process the least will be
incurred when haul cost from site 1 to mill 1 is 20, haul cost from site 2 to mill 1 is
10, haul cost from site 1 to mill 2 is 20, haul cost from site 3 to mill 2 is 15, haul
cost from site 3 to mill 3 is 30. By incurring these haul cost we finally get the
minimized cost of 5760.

REDUCED COSTS

According to sensitivity report for sawmill company its cost of transportation can
be reduced by 44 in case of haul cost from site 3 to mill 1,by 184 in case of haul
cost from site 1 to mill 3,by 56 in case of haul cost from site 3 to mill 3.

RANGE OF OPTIMALITY

For each investment the “Allowable Increase” and “Allowable Decrease” columns
in the sensitivity report give the minimum and maximum amounts of costs that
can be changed without altering Sawmills total cost of transportation. For
example, the range of optimal haul cost from site 3 to mill 2 for the Sawmill
company is between 68 (=104-36) and 148 (=104+48). The range of optimality
applies to changing one transportation cost at a time.

SHADOW PRICES

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The Shadow Prices in the Sensitivity Report give us the following information:

1. If an extra truck load was sent to mill A the cost would increase by 76
2. If an extra truck load was sent to mill B the cost would increase by 104
3. If an extra truck load was sent to mill C the cost would increase by 60
4. If an extra truck load from site 1 is sent it would decrease the cost by 44
5. If an extra truck load from site 2 is sent it would decrease the cost by 36

RANGE OF FEASIBILITY

The allowable increase and allowable decrease to the original right hand side
coefficient give the range of feasibility of individual changes to the right hand side
within which the shadow prices remains constant. For example, the range of
feasibility corresponding to the 30, load from site 2 is (30 - 0) to (30 + 15) or from 30
to 45.

References

Quantitative Methods for Business: by David R. Anderson, Dennis J. Sweeney and

Thomas A. Williams.

Operations Research: by J. Reeb and S. Leavengood

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Computer Assisted Marketing Analysis and Planning: by Lillien G. and A.
Rangaswamy.

http://www.wikipedia.org

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