Introduction to linear programming

Linear Programming (LP) is one of the most widely used techniques for
effective decision-making. It is an optimisation technique that focuses
on providing the optimal solution for allocating available resources
amongst different competing and conflicting requirements.

The first serious attempt at the linear programming formulation and

solution of a problem was done by Soviet mathematician and economist
Leonid Kantorovich in 1939 during World War II, for planning the
transport, scheduling, and allocation of resources within the given
constraints of costs and availability.

The scope for application of LP is wide-range as it can be adapted to

analyse diverse multi-dimensional decision-making problems. To be
able to use and apply LP successfully, the formulation of a realistic
model which accurately states the objectives of the decision-making is
needed, subject to the restrictions in which the decision-making has to
be made.
What is Linear Programming?
Linear programming or Linear optimization is a technique that helps
us to find the optimum solution for a given problem, an optimum
solution is a solution that is the best possible outcome of a given
particular problem.
In simple terms, it is the method to find out how to do something in the
best possible way. With limited resources, you need to do the optimum
utilization of resources and achieve the best possible result in a
particular objective such as least cost, highest margin, or least time.
The situation that requires a search for the best values of the variables
subject to certain constraints is where we use linear programming
problems. These situations cannot be handled by the usual calculus and
numerical techniques.

Linear Programming Definition

Linear programming is the technique used for optimizing a particular

scenario. Using linear programming provides us with the best possible
outcome in a given situation. It uses all the available resources in a
manner such that they produce the optimum result.

Concepts of linear programming

1. Objective Function:
The objective function is a mathematical expression representing the
goal of the optimization problem. In linear programming, this function is
linear and usually aims to maximize profit or minimize cost. It is
typically expressed as a linear combination of decision variables. For
example, in a manufacturing setting, the objective function might
represent total revenue or total cost.

2. Decision Variables:
Decision variables are the variables that the decision-maker can control
or manipulate to achieve the objective. These variables directly
influence the outcome of the problem. They represent the quantities to
be determined. For instance, in a production scenario, decision variables
could represent the number of units to produce for each product.

3. Constraints:
Constraints are limitations or restrictions on the decision variables. They
define the feasible region within which solutions must lie. Constraints
can be expressed as linear inequalities or equalities. They represent
resource limitations, capacity constraints, or other requirements that
must be satisfied. Examples of constraints include budget constraints,
production capacity constraints, and resource availability constraints.

4. Feasible Region:
The feasible region is the set of all possible combinations of decision
variable values that satisfy all constraints. It is the intersection of all
constraint boundaries. The feasible region defines the space within
which feasible solutions to the optimization problem exist. Points
outside the feasible region violate one or more constraints and are
therefore not considered feasible solutions.

5. Optimal Solution:
The optimal solution is the point within the feasible region that
optimizes the objective function. It represents the best possible outcome
given the constraints and the objective. In maximization problems, the
optimal solution is the point with the highest value of the objective
function within the feasible region. In minimization problems, it is the
point with the lowest value of the objective function.

6. Sensitivity Analysis:
Sensitivity analysis involves examining how changes in the coefficients
of the objective function or constraints affect the optimal solution. It
helps decision-makers understand the robustness of the solution to
changes in input parameters. Sensitivity analysis can reveal which
constraints are binding (i.e., active) and which are non-binding (i.e.,
inactive), as well as the impact of changes in resource availability or
other factors on the optimal solution.

Assumptions of linear programming

Proportionality / Linearity
Linear programming assumes that any modification in the constraint inequalities will
result in a proportional change in the objective function. This means that if it takes 10
hours to produce 1 unit of a product, then it would take 50 hours to produce 5 such
products.

Certainty
Certainty in linear programming refers to the assumption that the parameters of the
objective function coefficients and the coefficients of constraints are known with
certainty. For example, profit per unit of product, resource availability per unit, etc. are
known with certainty.

Presence of different alternatives

Linear programming assumes that different courses of action are available to the
decision-maker/s and they need to decide which is the most optimal.

Additivity
Additivity means that each function in a linear programming model is the sum of the
individual contributions of the respective activities. For example, the total profit is
determined by the sum of profit contributed by each activity separately.

Likewise, the total amount of resources used is also determined by the sum of resources
used by each activity separately. This assumption thus implies that there is no interaction
among the decision variables.

Non-negative variable
Linear programming assumes that all answers or variables are non-negative. This
assumption is true in the sense that negative values of physical quantities are not possible.
It is not possible for the output in the production problem (such as bicycles, cars,
computers, etc.) to be negative.

Finiteness
Linear programming assumes about the presence of a finite number of activities. An
optimal solution is not possible in a situation where there is an infinite number of
alternative activities and resource constraints.
Divisibility
Linear programming makes the divisibility assumption that the solution has to be in
whole numbers i.e. integers. This assumption means that decision variable may take any
value, including non-integer values, as long as functional and non-negativity constraints
are satisfied.

Continuity
Linear programming assumes the continuity of decision variables. This means that a
combination of outputs with fractional values plus integer values can be used.

Usage in business decision making

1. Production Planning and Optimization:
 Manufacturing: LP helps determine the optimal production levels
for different products while considering factors such as production
capacity, resource availability, and demand forecasts. It helps
minimize production costs or maximize profits.
 Scheduling: LP can be used to optimize production schedules,
including machine scheduling, shift scheduling, and job
sequencing, to minimize idle time and maximize utilization.

2. Inventory Management:
 Inventory Control: LP assists in determining the optimal
inventory levels to balance holding costs, ordering costs, and
stockout costs. It helps in minimizing inventory carrying costs
while ensuring that customer demand is met.
 Supply Chain Optimization: LP optimizes inventory allocation
and distribution across various locations or warehouses to
minimize transportation costs and lead times.
3. Distribution and Logistics:
 Routing and Transportation: LP helps in optimizing delivery
routes, vehicle assignment, and transportation schedules to
minimize transportation costs, fuel consumption, and delivery
times.
 Warehouse Management: LP assists in warehouse layout
optimization, inventory placement, and order picking strategies to
maximize warehouse efficiency and minimize operating costs.

4. Financial Planning and Portfolio Optimization:

 Portfolio Management: LP aids in optimizing investment
portfolios by allocating funds across different assets or securities to
maximize returns while managing risk.
 Budget Allocation: LP helps in allocating financial resources
across departments, projects, or initiatives to achieve strategic
objectives while adhering to budget constraints.

5. Marketing and Advertising:

 Media Planning: LP assists in optimizing advertising campaigns
by allocating marketing budgets across various media channels
(TV, radio, online, etc.) to maximize reach, brand exposure, or
sales while staying within budget constraints.
 Promotion Planning: LP helps in optimizing promotional
activities such as discounts, coupons, and incentives to maximize
sales revenue or customer acquisition.

6. Human Resource Management:

 Workforce Scheduling: LP aids in optimizing employee
schedules, shift assignments, and workforce allocation to meet
operational demands while minimizing labor costs and overtime.
  Resource Allocation: LP assists in allocating human resources to
different projects, tasks, or departments to maximize productivity
and efficiency.

7. Pricing and Revenue Management:

 Pricing Optimization: LP helps in setting optimal pricing
strategies for products or services to maximize revenue or profit
margins while considering demand elasticity and competitor
pricing.
 Revenue Management: LP assists in dynamic pricing, capacity
allocation, and yield management in industries such as airlines,
hotels, and rental services to maximize revenue by selling the right
product to the right customer at the right price.
Conclusion
Linear programming (LP) provides a mathematical framework for
optimizing resource allocation and decision-making in business.
Assumptions such as proportionality and certainty simplify modeling,
enabling efficient problem-solving. LP's applications span diverse areas
including production planning, inventory management, logistics,
financial planning, marketing, human resources, and pricing strategies.
By formulating objectives, constraints, and decision variables, LP helps
identify the most effective course of action to achieve business goals. Its
versatility allows for the maximization of profits, minimization of costs,
and improvement of operational efficiency. Through sensitivity analysis,
LP also facilitates understanding of the impact of changes in parameters
on the optimal solution. By leveraging LP techniques, businesses can
gain insights into complex problems, make informed decisions, and
adapt to evolving market conditions. Overall, LP serves as a valuable
tool for enhancing decision-making processes, driving efficiency, and
ensuring competitiveness in dynamic business environments, thereby
contributing to sustainable growth and success.

Bibliography
1. https://byjus.com/maths/linear-programming/
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%20Linear,calculation%20of%20profit%20and%20loss.
2. https://www.geektonight.com/linear-programming/
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