EFIM20005:

Management Science

Video Lecture Part A: Formulating a LP

Model

Dr Bangdong Zhi

Lecturer in Operations Management and Analytics

Objectives of Today’s Lecture

By the end of this lecture, you should:

• Understand what is meant by linear programming;

• Formulate linear programming models for simple management cases.

What is Linear Programming?

Managers face the problem of allocating scarce resources amongst

competing activities.

➢To decide a production schedule and inventory policy that minimizes

costs;

➢ To allocate a fixed budget to different types of advertising media to

maximize advertising effectiveness.

What is Linear Programming?

• A Linear Programming model is a model that seeks to maximize

or minimize a linear objective function subject to a set of linear

constraints.

Why Linear Programming Models are

Important

• Many problems lend themselves naturally to L.P. formulation, or are

approximated by this structure.

• Efficient solution techniques are available.

• The output from L.P. solutions provides useful “what if” analyses about

the sensitivity of the optimal solution to changes in the model

coefficients.

Features of L.P. problems

• Manager controls some decision variables

• Intention is to optimize ( maximize / minimize ) a target measure

➢This is the objective function

• There are restrictions on the courses of action available

➢These are the constraints

Formulating a L.P.

• If, from descriptive information, we are able to identify

➢decision variables

➢objective function

➢constraints

• and write them in mathematical form, then we are formulating the Linear

Program.

Management Decision Problem

• Par Inc. produce two types of golf bag standard and deluxe.

• Demand over the next 3 months is known to be so high that however many

bags are produced, they can be sold.

• There is a profit of £10 per standard bag and £9 per deluxe.

Management Decision Problem (cont.)

Every golf bag passes through 4 stages of production:

➢Preparation (per bag): Standard needs 7/10 hour; Deluxe needs 1 hour

➢Sewing (per bag): Standard needs ½ hour; Deluxe needs 5/6 hour

➢Manufacture (per bag): Standard needs 1 hour; Deluxe needs 2/3 hour

➢Packaging (per bag): Standard needs 1/10 hour; Deluxe needs 1/4 hour

Management Decision Problem (cont.)

Over the next 3 months, the total time available in each department is:

➢Preparation: 630 hours

➢Sewing: 600 hours

➢Manufacture: 708 hours

➢Packaging: 135 hours

The company wishes to determine how many standard and deluxe bags

should be manufactured to maximize total profit.

10

Formulation of the L.P.

• We can see this is a resource allocation problem.

• We need to identify:

➢decision variables

➢objective function

➢constraints

• to formulate as a Linear Program.

11

Decision Variables

• The manager controls the number of each type of bag that is produced.

• These are the decision variables:

➢𝑋1 = number of standard bags produced

➢𝑋2 = number of deluxe bags produced

12

Objective Function

• The objective is to maximize profit (P)

• Profit comes from two sources:

➢Profit is £10 per standard bag and we make 𝑋1 of these

➢Profit is £9 per deluxe bag and we make 𝑋2 of these

Maximize P = 10 𝑋1 +9 𝑋2

13

Constraints

There are five constraints:

➢Limit on preparation time available

➢Limit on sewing time available

➢Limit on manufacture time available

➢Limit on packaging time available

➢The decision variables can’t be negative

14

Constraint on Preparation Time

• Hours needed to prepare standard bags: 𝑋1

• Hours needed to prepare deluxe bags: 1𝑋2

• Total hours available: 630

𝑋 + 𝑋2 ≤ 630
10 1

15

Constraints on Sewing, Manufacture and

Packaging

In the same way we get:

➢ Constraint on Sewing Time:

1 5
𝑋1 + 𝑋2 ≤ 600

2 6

➢ Constraint on Manufacture Time:

2
𝑋1 + 𝑋2 ≤ 708

➢ Constraint on Packaging Time:

1 1
𝑋1 + 𝑋2 ≤ 135

10 4

16

Non-Negativity Conditions

• Clearly𝑋1 and 𝑋2 cannot be negative (as they represent amounts produced).

• We need to add constraints to the formulation to state this explicitly:

𝑋1 ≥ 0 and 𝑋2 ≥ 0

• usually written:

𝑋1 , 𝑋2 ≥ 0

17

Complete L.P. Formulation

Max

St.

And

18

EFIM20005:

Management Science

Video Lecture Part B: Graphical Solution

for Linear Programming

Dr Bangdong Zhi

Lecturer in Operations Management and Analytics

Objectives of Today’s Lecture

By the end of this lecture, you should be able to:

• Solve simple linear programming models graphically

Graphical Solution Method Step 1

• Identify the horizontal axis as 𝑋1 and the vertical axis as 𝑋2 and choose an

appropriate scale.

• Because of the non negativity conditions, we are only interested in the

positive sections of the axes.

Graphical Solution Method Step 1 (cont.)

Graphical Solution Method Step 2

• Represent each constraint on the graph by drawing the line representing the

constraint as an equality. Determine which side of the line the constraint

applies.

• For:

𝑎𝑋1 + 𝑏𝑋2 = 𝑐

• We need just two points on the line. Use:

(𝑋1 =0, 𝑋2 = c/b) and (𝑋1 = c/a, 𝑋2 =0)

First Constraint: 𝑿𝟏 + 𝑿𝟐 = 𝟔𝟑𝟎

𝟏𝟎

Second Constraint: 𝑿𝟏 + 𝑿𝟐 = 𝟕𝟎𝟖

𝟏 𝟏

Third Constraint: 𝑿𝟏 + 𝑿𝟐 ≤ 𝟏𝟑𝟓

𝟏𝟎 𝟒

𝟏 𝟓

Fourth Constraint: 𝑿𝟏 + 𝑿𝟐 = 𝟔𝟎𝟎

𝟐 𝟔

Graphical Solution Method Step 3

Identify the area common to all constraints. This is called the feasible region.

10

Graphical Solution Method Step 4

Evaluate the objective function at each of the corners (vertices) of the feasible region

11

Finding the Vertices of the Feasible Region

• A is (0,0)

• B is (0,540)

• C is at the intersection of constraint 1 and 3

• D is at the intersection of constraint 1 and 2

• E is (708,0)

12

Finding C

• Need to solve simultaneously:

𝑋 + 𝑋2 = 630 (1)

10 1

1 1

𝑋 + 4 𝑋2 = 135 (3)
10 1

• From (1), 𝑋2 = 630 - 𝑋 .

• Substitute into (3) to give:

𝑋1 = 300, 𝑋2 = 420

13

Finding D

• Need to solve simultaneously:

𝑋 + 𝑋2 = 630 (1)
10 1

𝑋1 + 3 𝑋2 = 708 (2)

• From (1), 𝑋2 = 630 -

10 1

• Substitute into (2) to give:

𝑋1 = 540, 𝑋2 = 252

14

Graphical Solution Method Step 5

Substitute the vertices into the objective function to find the point that gives the

maximum.

➢At A: P = 10 ( 0) + 9 (0) = 0

➢At B: P = 10 (0) + 9 (540) = 4860

➢At C: P = 10 (300) + 9 (420) = 6780

➢At D: P = 10 (540) + 9 (252) = 7668

➢At E: P = 10 (708) + 9 (0) = 7080

15

Graphical Solution Method Step 6

• State solution in terms of the original problem.

• “The optimal production policy for the next 3 months is to produce 540

standard golf bags and 252 deluxe golf bags. This will produce a maximized

profit of £7668”

16

Minimization Problem

M&D Chemicals produces two products that are sold as raw materials to

companies manufacturing bath soaps and laundry detergents. Based on an analysis

of current inventory levels and potential demand for the coming months, M&D’s

management has specified that the combined production for products 1 and 2 must

total at least 350 litres. Separately, a major customer’s order for 125 litres of product

1 must also be satisfied. Product 1 requires 2 hours of processing time per litre

while product 2 requires 1 hour of processing time per litre, and for the coming

month, 600 hours of processing time are available. M&D’s objective is to satisfy the

above requirements at a minimum total production cost. Production costs are £2

per litre for product 1 and £3 per litre for product 2.

17

Minimization Problem

• It should be immediately apparent that the Graphical Solution Method will

work for minimization problems too.

• We take the smallest value when the objective function is evaluated at each

of the vertices of the feasible region.

18

Guidelines on Model Formulation

Modelling is an art best learnt by repeated practice. However, some

guidelines are appropriate:

➢Understand the problem thoroughly;

➢Write a verbal statement of the objective function and each constraint;

➢Define the decision variables;

➢Write the objective function and constraints in terms of the decision

variables.

19

Formulating Problems with More than Two

Variables - Case

An investment company has £100,000 to invest. The financial analyst advises

that all new investments should be in oil companies, steel companies or

government bonds. Specifically, the analyst has identified 5 investment

opportunities and projected their annual rates of return:

20

Formulating Problems with More than Two

Variables – Case (cont.)

The management has imposed the following guidelines:

➢Neither industry (oil or steel) should receive more than £50,000 of the total

investment;

➢Government Bonds should be at least 25% of the steel industry exposure;

➢The investment in Pacific Oil, the highest return but highest risk investment cannot

be more than 60% of the total oil industry investment.

What portfolio recommendations should be made for the available £100,000 if the

intention is to maximize return?

21

EFIM20005:

Management Science

Live Lecture: Linear Programming

Dr Bangdong Zhi

Lecturer in Operations Management and Analytics

Objectives of Today’s Lecture

By the end of this lecture, you should be able to:

• Graphically solve a minimization problem.

• Formulate linear programming models for problems with more than 2

decision variables

• Solve linear programming models using Excel and SOLVER

Minimization Problem

M&D Chemicals produces two products that are sold as raw materials to

companies manufacturing bath soaps and laundry detergents. Based on an analysis

of current inventory levels and potential demand for the coming months, M&D’s

management has specified that the combined production for products 1 and 2 must

total at least 350 litres. Separately, a major customer’s order for 125 litres of product

1 must also be satisfied. Product 1 requires 2 hours of processing time per litre

while product 2 requires 1 hour of processing time per litre, and for the coming

month, 600 hours of processing time are available. M&D’s objective is to satisfy the

above requirements at a minimum total production cost. Production costs are £2

per litre for product 1 and £3 per litre for product 2.

Minimization Problem

• It should be immediately apparent that the Graphical Solution Method will

work for minimization problems too.

• We take the smallest value when the objective function is evaluated at each

of the vertices of the feasible region.

Formulation

Let: 𝑋1 = litres of product 1 produced.

𝑋2 = litres of product 2 produced.

Min: 𝐶 = 2𝑋1 + 3𝑋2

s.t.: 𝑋1 + 𝑋2 ≥ 350 (1)

𝑋1 ≥ 125 (2)

2𝑋1 + 𝑋2 ≤ 600 (3)

and 𝑋1 , 𝑋2 ≥ 0

Graph

Finding the Vertices of the Feasible Region

• A: intersection of constraint (1) and (2): 𝑋1 = 125 and 𝑋2 = 350 − 125 = 225

• B: intersection of constraint (2) and (3): 𝑋1 = 125 and 𝑋2 = 600 − 2 125 =

350

• C: intersection of constraint (1) and (3): 𝑋1 = 250 and 𝑋2 = 350 − 250 = 100

Solution for 𝑪 = 𝟐𝑿𝟏 + 𝟑𝑿𝟐

Substitute the vertices into the objective function to find the point that gives

the maximum.

➢At A: C = 2 ( 125) + 3 (225) = 925

➢At B: C = 2 (125) + 3 (300) = 1150

➢At C: C = 2 (250) + 3 (100) = 800

Minimum product cost is £800 when we produce 250 litres of product 1

and 100 litres of product 2.

Formulating Problems with More than Two

Variables - Case

An investment company has £100,000 to invest. The financial analyst advises

that all new investments should be in oil companies, steel companies or

government bonds. Specifically, the analyst has identified 5 investment

opportunities and projected their annual rates of return:

Formulating Problems with More than Two

Variables – Case (cont.)

The management has imposed the following guidelines:

➢Neither industry (oil or steel) should receive more than £50,000 of the total

investment;

➢Government Bonds should be at least 25% of the steel industry exposure;

➢The investment in Pacific Oil, the highest return but highest risk investment cannot

be more than 60% of the total oil industry investment.

What portfolio recommendations should be made for the available £100,000 if the

intention is to maximize return?

10

Formulation

11

MS Linear Programming Questions for Week 20 Tutorial

Question 1

As part of a quality improvement initiative, government employees in Abu Dhabi complete a

three-day training programme on teamwork and a two-day training programme on problem

solving. The manager of quality improvement requested that at least eight training

programmes on teamwork and at least ten training programmes on problem solving be

offered during the next six months. In addition, senior-level management specified that at

least 25 training programmes must be offered during this period. A consultant is used to teach

the training programmes. During the next six months, the consultant has 84 days of training

time available. Each training programme on teamwork costs AED 10000 and each training

programme on problem solving costs AED 8000 (AED = United Arab Emirates Dirham)

a) Formulate a linear programming model that can be used to determine the number of

training programmes on team working and the number of training programmes on

problem solving that should be offered in order to minimize total cost.

b) Graph the feasible region.

c) Determine the coordinates of each vertex of the feasible region.

d) Solve for the minimum cost solution.

e) Confirm your solution by using Excel.

Question 2

L.P. models are used by many Wall Street firms to select a desirable bond portfolio. The

following is a simplified version of such a model. Solodrex is considering investing in four

bonds: $1 million is available for investment. The expected annual return, the worst case

annual return on each bond and the “duration” are given below. (The duration of a bond is a

measure of the bond’s sensitivity to interest rates).

Solodrex wants to maximize the expected return from its bond investments, subject to three

constraints:

• The worst case return of the bond must be at least 8%

• The average duration of the portfolio must be at most 6. For example, a portfolio that

invests $600000 in bond 1 and $400000 in bond 4 has an average duration of

[600000(3)+400000(9)]/1000000 = 5.4

• Because of diversification requirements, at most 40% of the total amount invested can

be invested in a single bond.

Formulate the problem of determining how Solodrex can maximize the expected return on its

investment , and solve using Excel

Question 3

The Uppsala Chamber of Commerce periodically sponsors public service seminars and

programmes. Currently, promotional plans are under way for this year’s programme.

Advertising alternatives include television, internet and newspaper. Audience estimates,

costs and maximum media limitations are as shown.

The budget constraint is € 18200. To ensure a balanced use of advertising media, internet

advertisements must not exceed 50 per cent of the total number of advertisements authorized.

In addition, television should account for at least 10 per cent of the total number of

advertisements authorized.

• Formulate the Linear Programming problem to determine the maximum audience

contact.

• Use Excel to solve the problem to determine the optimal advertising plan.

Question 4

Which of the following mathematical relationships could be found in a linear programming

model, and which could not? For those that are unacceptable, state your reasons.

MS Linear Programming Solutions for Week 20 Tutorial

Question 1

As part of a quality improvement initiative, government employees in Abu Dhabi complete a

three-day training programme on teamwork and a two-day training programme on problem

solving. The manager of quality improvement requested that at least eight training

programmes on teamwork and at least ten training programmes on problem solving be

offered during the next six months. In addition, senior-level management specified that at

least 25 training programmes must be offered during this period. A consultant is used to teach

the training programmes. During the next six months, the consultant has 84 days of training

time available. Each training programme on teamwork costs AED 10000 and each training

programme on problem solving costs AED 8000 (AED = United Arab Emirates Dirham)

a) Formulate a linear programming model that can be used to determine the number of

training programmes on team working and the number of training programmes on

problem solving that should be offered in order to minimize total cost.

b) Graph the feasible region.

c) Determine the coordinates of each vertex of the feasible region.

d) Solve for the minimum cost solution.

e) Confirm your solution by using Excel.

a. Let X1 = number of programmes run on teaming; X2 = number of programmes run on

problem solving.

If C = cost, Minimize: C = 10000X1 + 8000X2

Subject to: X1 ≥ 8 (minimum number of teaming progs required)

X2 ≥ 10 (minimum number of prob solving progs required)

X1 + X2 ≥ 25 (minimum number of progs that must run)

3X1 + 2X2 ≤ 84 (consultant time availability constraint)

And: X1, X2 ≥ 0 (non-negativity condition)

c. Identify the feasible region, defined by the points A,B,C,D

A = intersection of X1=8 and X1 + X2 = 25 = (8,17)

B = intersection of X1 = 8 and 3X1 + 2X2 = 84 = (8,30)

C = intersection of X2 =10 and 3X1 + 2X2 = 84 = (21.333,10)

D = intersection of X2 = 10 and X1 + X2 = 25 = (15,10)

d. Evaluate C for each extreme point.

C(8,17) = 10000(8) + 8000(17) = 216000

C(8,30) = 10000(8) + 8000(30) = 320000

C(21.333,10) = 10000(21.3333) + 8000(10) =293333.33

C(15,10) = 10000(15) + 8000(10) = 230000

The minimum of these is X1 = 8, X2 = 17 giving lowest cost of AED216000. This means to

optimise costs we should run 8 teaming programmes and 17 problem solving programmes.

Note that if C had been the solution we would have had a problem. X1 = 21.3333 is a valid

solution to the mathematical problem, but not to the real problem, as it would not make sense

to run 1/3 of a problem solving programme. In instances like this we are using linear
programming to approximate an integer problem. Next week we will look at how to properly

solve problems with integer variables. For this case, however, it would have been ok to round

the answer to X1 = 21.

e. See Excel File Sheet Q1 for Excel solution

Question 2

L.P. models are used by many Wall Street firms to select a desirable bond portfolio. The

following is a simplified version of such a model. Solodrex is considering investing in four

bonds: $1 million is available for investment. The expected annual return, the worst case

annual return on each bond and the “duration” are given below. (The duration of a bond is a

measure of the bond’s sensitivity to interest rates).

Solodrex wants to maximize the expected return from its bond investments, subject to three

constraints:

• The worst case return of the bond must be at least 8%

• The average duration of the portfolio must be at most 6. For example, a portfolio that

invests $600000 in bond 1 and $400000 in bond 4 has an average duration of

[600000(3)+400000(9)]/1000000 = 5.4

• Because of diversification requirements, at most 40% of the total amount invested can

be invested in a single bond.

Formulate the problem of determining how Solodrex can maximize the expected return on its

investment , and solve using Excel.

See Excel File Worksheet Question 2 for solution:

Maximum return is $130000 when we invest $400000 in Bond 1, $300000 in Bond 3 and $300000

in Bond 4.

Question 3

The Uppsala Chamber of Commerce periodically sponsors public service seminars and

programmes. Currently, promotional plans are under way for this year’s programme.

Advertising alternatives include television, internet and newspaper. Audience estimates,

costs and maximum media limitations are as shown.

The budget constraint is € 18200. To ensure a balanced use of advertising media, internet

advertisements must not exceed 50 per cent of the total number of advertisements authorized.

In addition, television should account for at least 10 per cent of the total number of

advertisements authorized.

• Formulate the Linear Programming problem to determine the maximum audience

contact.

• Use Excel to solve the problem to determine the optimal advertising plan.

See Excel File Worksheet Question 3 for solution:

Maximum audience reach is 1052000 when number of TV ads is 4, number of internet ads is

14 and 10 newspaper ads are used.

Question 4

Which of the following mathematical relationships could be found in a linear programming

model, and which could not? For those that are unacceptable, state your reasons.

• Yes

• Yes

• No. Square roots are non-linear

• Yes

• No. product of two linear variables is non-linear

• No. Square roots are non-linear