OR/MA 504

Introduction to Mathematical
Programming

Chapter 2
Modeling and Solving LP
Problems in a Spreadsheet

3-2

Introduction
Solving LP problems graphically is
only possible when there are two
decision variables
Few real-world LP have only two
decision variables
Fortunately, we can now use
spreadsheets to solve LP problems
3-3

Spreadsheet Solvers
The company that makes the Solver in
Excel, Lotus 1-2-3, and Quattro Pro is
Frontline Systems, Inc.
Check out their web site:
http://www.solver.com

Other packages for solving MP

problems:
AMPL
CPLEX

LINDO
MPSX
3-4

The Steps in Implementing an LP

Model in a Spreadsheet
1. Organize the data for the model on the
spreadsheet.
2. Reserve separate cells in the spreadsheet for
each decision variable in the model.
3. Create a formula in a cell in the spreadsheet
that corresponds to the objective function.
4. For each constraint, create a formula in a
separate cell in the spreadsheet that
corresponds to the left-hand side (LHS) of the
constraint.
3-5

Lets Implement a Model for the

Blue Ridge Hot Tubs Example...
MAX: 350X1 + 300X2

} profit

S.T.: 1X1 + 1X2 <= 200} pumps

9X1 + 6X2 <= 1566

} labor

12X1 + 16X2 <= 2880 } tubing

X1, X2 >= 0

} nonnegativity

3-6

Implementing the Model

See file Fig2-1.xls

3-7

How Solver Views the Model

Target cell - the cell in the spreadsheet
that represents the objective function
Changing cells - the cells in the
spreadsheet representing the decision
variables
Constraint cells - the cells in the
spreadsheet representing the LHS
formulas on the constraints
3-8

Using Excel to Solve the LP

Lets use Solver in Excel to find the

solution the Blue Ridge Hot Tub
problem

3-9

Goals For Spreadsheet Design

Communication -

A spreadsheet's primary
business purpose is communicating information to
managers.

Reliability -

The output a spreadsheet generates

should be correct and consistent.

Auditability -

A manager should be able to retrace

the steps followed to generate the different outputs
from the model in order to understand and verify
results.

Modifiability -

A well-designed spreadsheet should

be easy to change or enhance in order to meet
dynamic user requirements.

3-10

Spreadsheet Design Guidelines I

Organize the data, then build the

model around the data.
Do not embed numeric constants in
formulas.
Things which are logically related
should be physically related.
Use formulas that can be copied.
Column/rows totals should be close
to the columns/rows being totaled.

3-11

Spreadsheet Design Guidelines II

The English-reading eye scans left to

right, top to bottom.
Use color, shading, borders and
protection to distinguish changeable
parameters from other model elements.
Use text boxes and cell notes to
document various elements of the model.

3-12

Make vs. Buy Decisions:

The Electro-Poly Corporation
Electro-Poly is a leading maker of slip-rings.
A $750,000 order has just been received.
Model 1

Model 2

Model 3

3,000

2,000

900

Hours of wiring/unit

1.5

Hours of harnessing/unit

Cost to Make

$50

$83

$130

Cost to Buy

$61

$97

$145

Number ordered

The company has 10,000 hours of wiring

capacity and 5,000 hours of harnessing
3-13
capacity.

Defining the Decision Variables

M1 = Number of model 1 slip rings to make inhouse
M2 = Number of model 2 slip rings to make inhouse
M3 = Number of model 3 slip rings to make inhouse
B1 = Number of model 1 slip rings to buy from
competitor
B2 = Number of model 2 slip rings to buy from
competitor

3-14

Defining the Objective Function

Minimize the total cost of filling the
order.
MIN: 50M1+ 83M2+ 130M3+ 61B1+ 97B2+
145B3

3-15

Defining the Constraints

Demand Constraints
M1 + B1 = 3,000

} model 1

M2 + B2 = 2,000

} model 2

M3 + B3 =

} model 3

900

Resource Constraints
2M1 + 1.5M2 + 3M3 <= 10,000 } wiring
1M1 + 2.0M2 + 1M3 <= 5,000 } harnessing

Nonnegativity Conditions
M1, M2, M3, B1, B2, B3 >= 0
3-16

Implementing the Model

See file Fig2-2.xls

3-17

An Investment Problem:
Retirement Planning Services, Inc.
A client wishes to invest $750,000 in the
following bonds.
Return

Years to
Maturity

Rating

Acme Chemical

8.65%

11

1-Excellent

DynaStar

9.50%

10

3-Good

Eagle Vision

10.00%

4-Fair

Micro Modeling

8.75%

10

1-Excellent

OptiPro

9.25%

3-Good

Sabre Systems

9.00%

13

2-Very Good

Company

3-18

Investment Restrictions
No more than 25% can be invested
in any single company.
At least 50% should be invested in
long-term bonds (maturing in 10+
years).
No more than 35% can be invested
in DynaStar, Eagle Vision, and
OptiPro.
3-19

Defining the Decision Variables

X1 = amount of money to invest in Acme
Chemical
X2 = amount of money to invest in DynaStar
X3 = amount of money to invest in Eagle
Vision
X4 = amount of money to invest in
MicroModeling
X5 = amount of money to invest in OptiPro 3-20

Defining the Objective Function

Maximize the total
annual investment return:
MAX: .0865X1+ .095X2+ .10X3+ .0875X4+ .0925X5+ .
09X6

3-21

Defining the Constraints

Total amount is invested
X1 + X2 + X3 + X4 + X5 + X6 = 750,000

No more than 25% in any one investment

Xi <= 187,500, for all i

50% long term investment restriction.

X1 + X2 + X4 + X6 >= 375,000
35% Restriction on DynaStar, Eagle Vision,
and OptiPro.
X2 + X3 + X5 <= 262,500

Nonnegativity conditions
Xi >= 0 for all i

3-22

Implementing the Model

See file Fig2-3.xls

3-23

A Transportation Problem: Tropicsun

Supply
275,000

Groves

Distances (in miles)

21

Mt. Dora

50

Processing
Plants
Capacity
Ocala

200,000

40

35

400,000

30

Eustis

Orlando

22

600,000

55

300,000

20

Clermont

25

Leesburg

225,000

3-24

Defining the Decision Variables

Xij = # of bushels shipped from node i to node j
Specifically, the nine decision variables are:
X14 = # of bushels shipped from Mt. Dora (node 1) to Ocala
(node 4)
X15 = # of bushels shipped from Mt. Dora (node 1) to Orlando
(node 5)
X16 = # of bushels shipped from Mt. Dora (node 1) to Leesburg
(node 6)
X24 = # of bushels shipped from Eustis (node 2) to Ocala (node
4)
X25 = # of bushels shipped from Eustis (node 2) to Orlando
(node 5)
X

3-25

= # of bushels shipped from Eustis (node 2) to Leesburg

Defining the Objective Function

Minimize the total number of bushelmiles.
MIN: 21X14 + 50X15 + 40X16 +
35X24 + 30X25 + 22X26 +
55X34 + 20X35 + 25X36

3-26

Defining the Constraints

Capacity constraints
X14 + X24 + X34 <= 200,000

} Ocala

X15 + X25 + X35 <= 600,000

} Orlando

X16 + X26 + X36 <= 225,000

Leesburg

Supply constraints
X14 + X15 + X16 = 275,000 } Mt. Dora
X24 + X25 + X26 = 400,000 } Eustis
X34 + X35 + X36 = 300,000 } Clermont

Nonnegativity conditions
Xij >= 0 for all i and j

3-27

Implementing the Model

See file Fig2-4.xls

3-28

A Blending Problem:The Agri-Pro

Company
Agri-Pro has received an order for 8,000
pounds of chicken feed to be mixed from the
following feeds.
Percent of Nutrient in
Nutrient

Feed 1

Feed 2

Feed 3

Feed 4

Corn

30%

5%

20%

10%

Grain

10%

30%

15%

10%

Minerals

20%

20%

20%

30%

Cost per pound

$0.25

$0.30

$0.32

$0.15

The order must contain at least 20% corn,

15% grain, and 15% minerals.
3-29

Defining the Decision Variables

X1 = pounds of feed 1 to use in the
mix
X2 = pounds of feed 2 to use in the
mix
X3 = pounds of feed 3 to use in the
mix
X4 = pounds of feed 4 to use in the
mix

3-30

Defining the Objective Function

Minimize the total cost of filling the
order.
MIN: 0.25X1 + 0.30X2 + 0.32X3 +
0.15X4

3-31

Defining the Constraints

Produce 8,000 pounds of feed
X1 + X2 + X3 + X4 = 8,000

Mix consists of at least 20% corn

(0.3X1 + 0.05X2 + 0.2X3 + 0.1X4)/8000 >= 0.2

Mix consists of at least 15% grain

(0.1X1 + 0.3X2 + 0.15X3 + 0.1X4)/8000 >= 0.15

Mix consists of at least 15% minerals

(0.2X1 + 0.2X2 + 0.2X3 + 0.3X4)/8000 >= 0.15

Nonnegativity conditions
X1, X2, X3, X4 >= 0

3-32

A Comment About Scaling

Notice the coefficient for X2 in the corn
constraint is 0.05/8000 = 0.00000625
As Solver runs, intermediate calculations are
made that make coefficients larger or
smaller.
Storage problems may force the computer to
use approximations of the actual numbers.
Such scaling problems sometimes prevents
Solver from being able to solve the problem
accurately.
Most problems can be formulated in a way to
minimize scaling errors...
3-33

Re-Defining the Decision

Variables
X = thousands of pounds of feed 1 to use in
1

the mix
X2 = thousands of pounds of feed 2 to use in
the mix
X3 = thousands of pounds of feed 3 to use in
the mix
X4 = thousands of pounds of feed 4 to use in
the mix
3-34

Re-Defining the Objective

Function
Minimize the total cost of filling the
order.
MIN: 250X1 + 300X2 + 320X3 +
150X4

3-35

Re-Defining the Constraints

Produce 8,000 pounds of feed
X1 + X 2 + X3 + X 4 = 8

Mix consists of at least 20% corn

(0.3X1 + 0.05X2 + 0.2X3 + 0.1X4)/8 >= 0.2

Mix consists of at least 15% grain

(0.1X1 + 0.3X2 + 0.15X3 + 0.1X4)/8 >= 0.15

Mix consists of at least 15% minerals

(0.2X1 + 0.2X2 + 0.2X3 + 0.3X4)/8 >= 0.15

Nonnegativity conditions
X1, X2, X3, X4 >= 0

3-36

Scaling: Before and After

Before:
Largest constraint coefficient was 8,000
Smallest constraint coefficient was
0.05/8 = 0.00000625.

After:
Largest constraint coefficient is 8
Smallest constraint coefficient is
0.05/8 = 0.00625.

The problem is now more evenly scaled!

3-37

The Assume Linear Model Option

The Solver Options dialog box has an option
labeled Assume Linear Model.
This option makes Solver perform some tests
to verify that your model is in fact linear.
These test are not 100% accurate & may fail
as a result of a poorly scaled model.
If Solver tells you a model isnt linear when
you know it is, try solving it again. If that
doesnt work, try re-scaling your model.
3-38

Implementing the Model

See file Fig2-5.xls

3-39

A Production Planning Problem:

The Upton Corporation
Upton is planning the production of their heavy-duty
air compressors for the next 6 months.
1
Unit Production Cost $240

Month

$250

$265

$285 $280

$260

1,000 4,500 6,000 5,500 3,500

4,000

Maximum Production 4,000 3,500 4,000 4,500 4,000

3,500

Minimum Production 2,000 1,750 2,000 2,250 2,000

1,750

Units Demanded

Beginning inventory = 2,750 units

Safety stock = 1,500 units
Unit carrying cost = 1.5% of unit production
cost
Maximum warehouse capacity = 6,000 units

3-40

Defining the Decision Variables

Pi = number of units to produce in month i,
i=1 to 6
Bi = beginning inventory month i, i=1 to 6

3-41

Defining the Objective Function

Minimize the total cost production
& inventory costs.
MIN:
240P1+250P2+265P3+285P4+280P5+260
P6
+
3.6(B
+B
)/2
+
3.75(B
+B
)/2
+
1
2
2
3
Note: The beginning inventory in any month is
the 3.98(B
same as
the4)/2
ending inventory in the
3+B
previous month.

+ 4.28(B4+B5)/2 + 4.20(B5+ B6)/2 +

3-42

Defining the Constraints - I

Production levels
2,000 <= P1 <= 4,000 } month 1
1,750 <= P2 <= 3,500 } month 2
2,000 <= P3 <= 4,000 } month 3
2,250 <= P4 <= 4,500 } month 4
2,000 <= P5 <= 4,000 } month 5
1,750 <= P6 <= 3,500 } month 6
3-43

Defining the Constraints - II

Ending Inventory (EI = BI + P - D)
1,500 < B1 + P1 - 1,000 < 6,000 } month 1
1,500 < B2 + P2 - 4,500 < 6,000 } month 2
1,500 < B3 + P3 - 6,000 < 6,000 } month 3
1,500 < B4 + P4 - 5,500 < 6,000 } month 4
1,500 < B5 + P5 - 3,500 < 6,000 } month 5
1,500 < B6 + P6 - 4,000 < 6,000 } month 6
3-44

Defining the Constraints - III

Beginning Balances
B1 = 2750
B2 = B1 + P1 - 1,000
B3 = B2 + P2 - 4,500
B4 = B3 + P3 - 6,000
B5 = B4 + P4 - 5,500
B6 = B5 + P5 - 3,500
B7 = B6 + P6 - 4,000

Notice that the

Bi can be
computed
directly from
the Pi.
Therefore, only
the Pi need to
be identified
as changing
cells.
3-45

Implementing the Model

See file Fig2-6.xls

3-46

A Multi-Period Cash Flow Problem:

The Taco-Viva Sinking Fund - I
Taco-Viva needs a sinking fund to pay $800,000 in
building costs for a new restaurant in the next 6 months.
Payments of $250,000 are due at the end of months 2
and 4, and a final payment of $300,000 is due at the
end of month 6.
The following investments may be used.
Investment
A
B
C
D

Available in Month Months to Maturity Yield at Maturity

1, 2, 3, 4, 5, 6
1
1.8%
1, 3, 5
2
3.5%
1, 4
3
5.8%
1
6
11.0%

3-47

Summary of Possible Cash Flows

Investment
A1
B1
C1
D1
A2
A3
B3
A4
C4
A5
B5
A6

Cash Inflow/Outflow at the Beginning of Month

1
2
3
4
5
6
7
-1
1.018
-1 <_____> 1.035
-1
<_____> <_____> 1.058
-1
<_____> <_____> <_____> <_____> <_____> 1.11
-1
1.018
-1
1.018
-1 <_____> 1.035
-1
1.018
-1
<_____> <_____> 1.058
-1
1.018
-1
<_____> 1.035
-1
1.018
3-48

Reqd Payments $0

$0

$250

$0

$250

$0

$300

Defining the Decision Variables

Ai = amount (in $1,000s) placed in investment
A at the beginning of month i=1, 2, 3, 4, 5,
6
Bi = amount (in $1,000s) placed in investment
B at the beginning of month i=1, 3, 5
Ci = amount (in $1,000s) placed in investment
C at the beginning of month i=1, 4
Di = amount (in $1,000s) placed in investment
D at the beginning of month i=1

3-49

Defining the Objective Function

Minimize the total cash invested in month
1.

MIN: A1 + B1 + C1 + D1

3-50

Defining the Constraints

Cash Flow Constraints
1.018A1 1A2 = 0

} month 2

1.035B1 + 1.018A2 1A3 1B3 = 250 } month 3

1.058C1 + 1.018A3 1A4 1C4 = 0

} month 4

1.035B3 + 1.018A4 1A5 1B5 = 250 } month 5

1.018A5 1A6 = 0

} month 6

1.11D1 + 1.058C4 + 1.035B5 + 1.018A6 = 300 }

month 7

Nonnegativity Conditions
Ai, Bi, Ci, Di >= 0, for all i
3-51

Implementing the Model

See file Fig2-7.xls

3-52

Risk Management:
The Taco-Viva Sinking Fund - II
Assume the CFO has assigned the following risk ratings to
each investment on a scale from 1 to 10 (10 = max risk)
Investment

Risk Rating

D
6
The CFO wants the
weighted average
risk to not
exceed 5.

3-53

Defining the Constraints

Risk Constraints

1A1 + 3B1 + 8C1 + 6D1

A1 + B1 + C1 + D1
1A2 + 3B1 + 8C1 + 6D1
A2 + B1 + C1 + D1
1A3 + 3B3 + 8C1 + 6D1
A3 + B3 + C1 + D1
1A4 + 3B3 + 8C4 + 6D1
A4 + B3 + C4 + D1
1A5 + 3B5 + 8C4 + 6D1
A5 + B5 + C4 + D1
1A6 + 3B5 + 8C4 + 6D1
A6 + B5 + C4 + D1

<5

} month 1

<5

} month 2

<5

} month 3

<5

} month 4

<5

} month 5

<5

} month 6

3-54

An Alternate Version of the Risk

Constraints

Equivalent Risk Constraints

-4A1 2B1 + 3C1 + 1D1 < 0 } month 1

-2B1 + 3C1 + 1D1 4A2 < 0 } month 2
3C1 + 1D1 4A3 2B3 < 0 } month 3
1D1 2B3 4A4 + 3C4 < 0 } month 4
1D1 + 3C4 4A5 2B5 < 0 } month 5
1D1 + 3C4 2B5 4A6 < 0 } month 6

Note that each

coefficient is
equal to the risk
factor for the
investment
minus 5 (the
max. allowable
weighted
average risk).

3-55

Implementing the Model

See file Fig2-8.xls

3-56

Data Envelopment Analysis (DEA):

Steak & Burger
Steak & Burger needs to evaluate the performance
(efficiency) of 12 units.
Outputs for each unit (Oij) include measures of: Profit,
Customer Satisfaction, and Cleanliness
Inputs for each unit (Iij) include: Labor Hours, and Operating
Costs
The Efficiency of unit i is defined as follows:
nO

Weighted sum of unit is outputs

Weighted sum of unit is inputs

nO

Oij w j
j 1
nI

I v
=
j 1

ij j

Oij w j
j 1
nI

I ij v j
j 1

3-57

Defining the Decision Variables

wj = weight assigned to output j
vj = weight assigned to input j
A separate LP is solved for each unit, allowing
each unit to select the best possible weights for
itself.

3-58

Defining the Objective Function

Maximize the weighted output for unit i :
nO

MAX: Oij w j
nO

Oij w j
j 1

j 1

3-59

Defining the Constraints

Efficiency cannot exceed 100% for any unit
nO

nI

j 1

j 1

Okj w j I kj v j , k 1 to the number of units

Sum of weighted inputs for unit i must equal

1 nI
nO nI

j 1 j 1

I ij v j 1

I ij v j 1
j 1

Nonnegativity Conditions
wj, vj >= 0, for all j

3-60

Important Point
When using DEA, output variables should be
expressed on a scale where more is better
and input variables should be expressed on a
scale where less is better.

3-61

Implementing the Model

See file Fig2-9.xls

3-62

End of Chapter 2

3-63