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Linear Programming Applications

Chapter 8

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• Formulate LP problems in marketing.

• Formulate LP problems in production.

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 Introduction

• The graphical method of LP is useful for understanding how to formulate and solve small
LP problems
• Many types of problems can be solved using LP
• Principles developed here are applicable to larger problems – Although we only look at
marketing and production examples, the same principles are used to formulate problems in
the scheduling of employees, problems in finance, problems in blending of ingredients and
problems in revenue management

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 Marketing Applications

• Linear programming models have been used in the advertising field as a decision aid in
selecting an effective media mix
• Media selection LP problems can be approached from two perspectives:
-Maximize audience exposure
-Minimize advertising costs

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 Marketing Applications
Example: WIN BIG GAMBLING CLUB (1 of 4)
The Club promotes gambling to customers
-R8,000 per week available to spend on advertising
-Goal is to reach the largest possible high-potential audience
-Media types and audience figures shown below
-Place at least five radio spots per week
-No more than R1,800 can be spent on radio advertising each week

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 Marketing Applications
Example: WIN BIG GAMBLING CLUB (2 of 4)
Problem Formulations:
X1= number of 1-minute TV spots taken each week
X2= number of daily newspaper ads taken each week
X3= number of 30-second prime-time radio spots taken each week
X4= number of 1-minute afternoon radio spots taken each week

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 Marketing Applications
Example: WIN BIG GAMBLING CLUB (3 of 4)
Objective:
Maximize audience coverage = 5,000X1+ 8,500X2+ 2,400X3+ 2,800X4
Subject to
X1≤ 12 (max TV spots/week)
X2≤ 5 (max newspaper ads/week)
X3≤ 25 (max 30-sec radio spots/week)
X4≤ 20 (max 1-min radio spots/week)
800X1+ 925X2+ 290X3+ 380X4≤ 8,000 (weekly advertising budget)
X3+ X4≥ 5 (min radio spots contracted)
290X3+ 380X4≤ 1,800 (max dollars spent on radio)
X1, X2, X3, X4≥ 0

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 Marketing Applications
Example: WIN BIG GAMBLING CLUB (4 of 4)

Solution
X1= 1.97TV spots
X2= 5newspaper ads
X3= 6.230-second radio spots
X4= 01-minute radio spots

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 Marketing Applications
Example: Management Sciences Association (1 of 3)
MSA is a marketing research firm
Several requirements for a statistical validity
1.Survey at least 2,300 SA households
2.Survey at least 1,000 households whose heads are ≤ 30 years old
3.Survey at least 600 households whose heads are between 31 and 50
4.Ensure that at least 15% of those surveyed live in a province that borders the coast
5.Ensure that no more than 20% of those surveyed who are 51 years of age or over live in a
province that borders the coast

MSA decides to conduct all surveys in person

•Estimates of the costs of reaching people in each age and region category
•Goal is to meet the sampling requirements at the least possible cost

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 Marketing Applications
Example: Management Sciences Association (2 of 3)

Decision variables
X1= number of 30 or younger and in a coast province
X2= number of 31-50 and in a coast province
X3= number 51 or older and in a coast province
X4= number 30 or younger and not in a province bordering the coast
X5= number of 31-50 and not in a province bordering the coast
X6= number 51 or older and not in a province bordering the coast

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 Marketing Applications
Example: Management Sciences Association (3 of 3)
Objective function
Minimize total interview costs = 7.50X1+ 6.80X2+ 5.50X3 + 6.90X4+ 7.25X5+ 6.10X6
subject to
X1+ X2+ X3+ X4+ X5+ X6 ≥ 2,300(total households)
X1+X4 ≥ 1,000(households 30 or younger)
X2+X5 ≥ 600(households 31-50)
X1+X2+X3 ≥ 0.15(X1+ X2+ X3+ X4+ X5+ X6) (Provinces bordering the coast)
X3 ≤ 0.20(X3+ X6) (limit on age group 51+ who can live in province bordering the coast)
X1, X2, X3, X4, X5, X6 ≥ 0

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 Manufacturing Applications

Production Mix
-LP can be used to plan the optimal mix of products to manufacture
-Company must meet a myriad of constraints:
• Financial concerns
• Sales demand
• Material contracts
• Union labour demands

-Primary goal is to generate the largest profit possible

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 Manufacturing Applications
Example: Fifth Avenue Industries (1 of 4)
Produces four varieties of ties
-Expensive all-silk
-All-polyester
-Two are polyester-cotton or silk-cotton blends

•Cost and availability of the three materials used in the production process

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 Manufacturing Applications
Example: Fifth Avenue Industries (2 of 4)

The firm has contracts with several major department store chains
-Contracts require a minimum number of ties
•Goal is to maximize monthly profit

Decision variables

X1= number of all-silk ties produced per month

X2= number all-polyester ties
X3= number of blend 1
polyester-cotton ties
X4= number of blend 2
silk-cotton ties

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 Manufacturing Applications
Example: Fifth Avenue Industries (3 of 4)

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 Manufacturing Applications
Example: Fifth Avenue Industries (4 of 4 )

Objective function
Maximize profit = $16.24X1+ $8.22X2+ $8.77X3+ $8.66X4
Subject to
0.125X1+ 0.066X4 ≤ 1200(yds of silk) Optimal solution will result in a profit of
0.08X2+ 0.05X3 ≤ 3,000(yds of polyester) $412,028 per month
0.05X3+ 0.44X4 ≤ 1,600(yds of cotton)
X1 ≥ 5,000(contract min for silk)
X1 ≤ 7,000(contract min)
X2 ≥ 10,000(contract min for all polyester)
X2 ≤ 14,000(contract max)
X3 ≥ 13,000(contract min for blend 1)
X3 ≤ 16,000(contract max)
X4 ≥ 5,000(contract min for blend 2)
X4 ≤ 8,500(contract max)
X1 , X 2 , X 3 , X 4 ≥ 0

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Linear Programming Applications

Chapter 8
The end.
THANK YOU

A n d ries Potg ieter Blvd . Va n d erb ij lp a rk, 1 9 0 0, S ou th A frica | T 0 9 8 0 0 8 8 9 0 0 | E en q u iries @ v u t. a c. za