INTEGER PROGRAMMING

MODELS
 Learning Objectives
• Formulate integer programming (IP) models.
• Set up and solve IP models using Excel’s
Solver.
• Understand the difference between general
integer and binary integer variables
• Understand use of binary integer variables in
formulating problems involving fixed (or
setup) costs.
 Integer Programming Models
• Some business problems can be solved only if
variables have integer values.
– Airline decides on the number of flights to operate
in a given sector must be an integer or whole
number amount.
Other examples:
– The number of aircraft purchased this year
– The number of machines needed for production
– The number of trips made by a sales person
– The number of police officers assigned to the night
shift.
 Some Facts
 Integer variables may be required when the model
represents a one time decision (not an ongoing
operation).

 Integer Linear Programming (ILP) models are

much more difficult to solve than Linear
Programming (LP) models.

 Algorithms that solve integer linear models do not

provide valuable sensitivity analysis results.
 Types of Integer Variables
- General integer variables and
- Binary variables.

General integer variables can take on any non-

negative, integer value that satisfies all constraints
in the model.

Binary variables can only take on either of two

values: 0 or 1.
Types of Integer Programming Problems
1. Pure integer programming problems.
1. All decision variables must have integer solutions.
2. Mixed integer programming problems.
1. Some, but not all, decision variables must have integer
solutions.
2. Non-integer variables can have fractional optimal values.
3. Pure binary (or Zero - One) integer programming
problems.
1. All decision variables are of special type known as binary.
2. Variables must have solution values of either 0 or 1.
4. Mixed binary integer programming problems.
1. Some decision variables are binary, and other decision
variables are either general integer or continuous valued.
 Models With General Integer Variables
 A model with general integer variables (IP) has objective function
and constraints identical to LP models.
 No real difference in basic procedure for formulating an IP model
and LP model.
 Only additional requirement in IP model is one or more of the
decision variables have to take on integer values in the optimal
solution.
 Actual value of this integer variable is limited by the model
constraints. (Values such as 0, 1, 2, 3, etc. are perfectly valid for
these variables as long as these values satisfy all model constraints.)
 Complexities of ILPS

 If an integer model is solved as a simple linear

model, at the optimal solution non-integer values
may be attained.

 Rounding to integer values may result in:

Infeasible solutions
Feasible but not optimal solutions
Optimal solutions.
Some Features of Integer Programming
Problems
Rounding non-integer solution values up to the
nearest integer value can result in an infeasible
solution
A feasible solution is ensured by rounding down
non-integer solution values but may result in a
less than optimal (sub-optimal) solution.
Integer Programming Example
Graphical Solution of Maximization Model

Maximize Z = $100x1 + $150x2

subject to:
8,000x1 + 4,000x2  $40,000
15x1 + 30x2  200 ft2
x1, x2  0 and integer

Optimal Solution:
Z = $1,055.56
x1 = 2.22 presses
x2 = 5.55 lathes
Feasible Solution Space with Integer Solution Points
Why not enumerate all the feasible integer points
and select the best one?

Enumerating all the integer solutions is impractical

because of the large number of feasible integer
points.

Is rounding ever done? Yes, particularly if:

- The values of the positive decision variables
are relatively large, and
- The values of the objective function
coefficients relatively small.
 General Integer Variables:
Pure Integer Programming Models
 Pure Integer Programming
Example 1: Harrison Electric Company (1 of 8)

• Produces two expensive products popular with renovators

of historic old homes:
– Ornate chandeliers (C) and
– Old-fashioned ceiling fans (F).
• Two-step production process:
– Wiring ( 2 hours per chandelier and 3 hours per ceiling
fan).
– Final assembly time (6 hours per chandelier and 5 hours
per fan).
 Pure Integer Programming
Example 1: Harrison Electric Company (2 of 8)

• Production capability this period:

– 12 hours of wiring time available and

– 30 hours of final assembly time available.

• Profits:
– Chandelier profit $600 / unit and

– Fan profit $700 / unit.

 Pure Integer Programming
Example 1: Harrison Electric Company (3 of 8)

Objective: maximize profit = $600C + $700F

subject to
2C + 3F <= 12 (wiring hours)
6C + 5F <= 30 (assembly hours)
C, F >= 0 and integer
  where
C = number of chandeliers to be produced
F = number of ceiling fans to be produced
 
 Pure Integer Programming
Example 1: Harrison Electric Company (4 of 8)
Graphical LP Solution
 Pure Integer Programming
Example 1: Harrison Electric Company (5 of 8)
• Shaded region 1 shows feasible region for LP problem.
• Optimal corner point solution:
C = 3.75 chandeliers and
F = 1.5 ceiling fans.
• Profit of $3,300 during production period. 
• But, we need to produce and sell integer values of the
products.
• The table shows all possible integer solutions for this
problem.
 Pure Integer Programming
Example 1: Harrison Electric Company (6 of 8)

Enumeration of all
integer solutions
 Pure Integer Programming
Example 1: Harrison Electric Company (7 of 8)
• Table lists the entire set of integer-valued solutions
for problem.
• By inspecting the right-hand column, optimal integer
solution is:
C = 3 chandeliers,
F = 2 ceiling fans.
• Total profit = $3,200.
• The rounded off solution:
C=4
F=1
Total profit = $3,100.
General Integer Variables Excel Solver Solution
Example 1: Harrison Electric Company (8 of 8)
Solver Options
Premium Solver for Education
 Pure Integer Programming
Example 2: Boxcar Burger Restaurants (1 of 4)

Boxcar Burger is a new chain of fast-food

establishments.

Boxcar is planning expansion in the downtown and

suburban areas.

Management would like to determine how many

restaurants to open in each area in order to maximize
net weekly profit.
 Pure Integer Programming
Example 2: Boxcar Burger Restaurants (2 of 4)
Requirements and Restrictions:
- No more than 19 managers can be assigned
- At least two downtown restaurants are to be opened
- Total investment cannot exceed $2.7 million
Suburban Downtown
Investment per location 200.000 600.000
Daily profit 1.200 2.000
Operation hours 24 hours 12 hours
Number ofmanagers needed 3 1
 Pure Integer Programming
Example 2: Boxcar Burger Restaurants (3 of 4)

• Decision Variables
X1 = Number of suburban boxcar burger restaurants
to be opened.
X2 = Number of downtown boxcar burger restaurants
to be opened.

• The mathematical model is formulated next

 Pure Integer Programming
Example 2: Boxcar Burger Restaurants (4 of 4)
Net weekly profit
Max 1200X1 + 2000X2

ST :

Total investment cannot exceed $2.7 dollars

2X1 + 6X2  2.7
At least 2 downtown restaurants
X2  2
Not more than 19 managers can be assigned
3X1 + X2  19

X1, X2 are non - negative integers

 Pure Integer Programming
Example 3: Personnel Scheduling Problem (1 of 6)
• The City of Sunset Beach staffs lifeguards 7 days a week.

• Regulations require that city employees work five days.

• Insurance requirements mandate 1 lifeguard per 8000

average daily attendance on any given day.

• The city wants to employ as few lifeguards as possible.

 Pure Integer Programming
Example 3: Personnel Scheduling Problem (2 of 6)

• Problem Summary
– Schedule lifeguard over 5 consecutive days.
– Minimize the total number of lifeguards.
– Meet the minimum daily lifeguard requirements

– Sun. Mon. Tue Wed. Thr. Fri. Sat.

8 6 5 4 6 7 9
– For each day, at least the minimum required lifeguards
must be on duty.
 Pure Integer Programming
Example 3: Personnel Scheduling Problem (3 of 6)

• Decision Variables:
– Xi = the number of lifeguards scheduled to

begin on day “I” for i=1, 2, …,7 (i=1 is

Sunday)

• Objective Function:
– Minimize the total number of lifeguards scheduled
 Pure Integer Programming
Example 3: Personnel Scheduling Problem (4 of 6)
To ensure that enough lifeguards are scheduled for each day,
ask which workers are on duty. For example:

X3 Who works on Sunday ?

X4
X5
X6
X1

Tue. Wed. Thu. Fri. Sun.

Repeat this procedure for each day of the week,

and build the constraints accordingly.
 Pure Integer Programming
Example 3: Personnel Scheduling Problem (5 of 6)

• The Mathematical Model

Minimize X1 + X2 + X3 + X4 + X5 + X6 + X7
ST
X1 + X4 + X5 + X6 + X7  8 (Sunday)
X1 + X2 + X5 + X6 + X7  6 (Monday)
X1 + X2 + X3 + X6 + X7  5 (Tuesday)

X1 + X2 + X3 + X4 + X7  4 (Wendnesday)
X1 + X2 + X3 + X4 + X5 6 (Thursday)
X2 + X3 + X4 + X5 + X6 7 (Friday)

X3 + X4 + X5 + X6 + X7  9 (Saturday)
All variables are non negative integers
 Pure Integer Programming
Example 3: Personnel Scheduling Problem (6 of 6)

POSSIBLE SUNSET BEACH LEFEGURAD

ASSIGNMENTS
LIFEGUARDS
DAY PRESENT REQUI RED BEGI N SHI FT
SUNDAY 9 8 1
MONDAY 8 6 0
TUESDAY 6 5 1
W EDNESDAY 5 4 1
THURSDAY 6 6 3
FRI DAY 7 7 2
SATURDAY 9 9 2

TOTAL LIFEGUARDS 10

Note: An alternate optimal solution exists.

 Pure Integer Programming
Example 4: Machine Shop (1 of 2)
Machine shop obtaining new presses and lathes.
Marginal profitability: each press $100/day; each lathe
$150/day.
Resource constraints: $40,000; 200 sq. ft. floor space.
Machine purchase prices and space requirements:

Required Floor
Machine Purchase
Space
Price
(sq. ft.)
Press 15 $8,000

Lathe 30 4,000
 Pure Integer Programming
Example 4: Machine Shop (2 of 2)

Integer Programming Model:

Maximize Z = $100x1 + $150x2
subject to:
8,000x1 + 4,000x2  $40,000
15x1 + 30x2  200 ft2
x1, x2  0 and integer
x1 = number of presses
x2 = number of lathes
 Pure Integer Programming
Example 5:Textbook Company (1 of 2)
Textbook company developing two new regions.
Planning to transfer some of its 10 salespeople into new regions.
Average annual expenses for sales person:
Region 1 - $10,000/salesperson
Region 2 - $7,500/salesperson
Total annual expense budget is $72,000.
Sales generated each year:
Region 1 - $85,000/salesperson
Region 2 - $60,000/salesperson
How many salespeople should be transferred into each region in
order to maximize increased sales?
 Pure Integer Programming
Example 5:Textbook Company (2 of 2)
Step 1:
Formulate the Integer Programming Model
Maximize Z = $85,000x1 + 60,000x2
subject to:
x1 + x2  10 salespeople
$10,000x1 + 7,000x2  $72,000 expense budget
x1, x2  0 or integer
Step 2:
Solve the Model using QM for Windows
 Sensitivity in ILP
• In ILP models, there is no pattern to the disjoint effects
of changes to the objective function and right hand side
coefficients.

• When changes occur, they occur in big ”steps,” rather

than the smooth, marginal fashion experienced in linear
programming.

• Therefore, sensitivity analysis for integer models must

be made by re-solving the problem, a very time-
consuming process.
 General Integer Variables:
Mixed Integer Programming Models
 General Integer Variable (IP):
Mixed Integer Programming

• A mixed integer linear programming model is one

in which some, but not all, the variables are
restricted integers.

• The Shelly Mednick Investment Problem

illustrates this situation
 Mixed Integer Linear Programming
Example 1: Shelly Mednick Investment Problem (1 of 3)

• Shelley Mednick has decided to give the stock

market a try.
• She will invest in
– TCS, a communication company stock, and or,
– MFI, a mutual fund.

• Shelley is a cautious investor. She sets limits on the

level of investments, and a modest goal for gain for
the year.
 Mixed Integer Linear Programming
Example 1: Shelly Mednick Investment Problem (2 of 3)
Data
– TCS is been sold now for $55 a share.
– TCS is projected to sell for $68 a share in a year.
– MFI is predicted to yield 9% annual return.
Restrictions
– Expected return should be at least $250.
– The maximum amount invested in TCS is not to
exceed 40 % of the total investment.
– The maximum amount invested in TCS is not to
exceed $750.
 Mixed Integer Linear Programming
Example 1: Shelly Mednick Investment Problem (3 of 3)
• Decision variables
– X1 = Number of shares of the TCS purchased.
– X2 = Amount of money invested in MFI.
• The mathematical model
Minimize 55X1 + X2
ST
Projected yearly return
Not more than 40%
13X1 + 0.09X2  250
Not more than $750 33X1 - 0.40X2  0
in TCS
in TCS 55X1  750

X1, X2  0
X1 integer.
 Mixed Integer Programming
Example 2: Investment Problem (1 of 2)
$250,000 available for investments providing greatest return after
one year.
Data:
Condominium cost $50,000/unit, $9,000 profit if sold after
one year.
Land cost $12,000/ acre, $1,500 profit if sold after one year.
Municipal bond cost $8,000/bond, $1,000 profit if sold after
one year.
Only 4 condominiums, 15 acres of land, and 20 municipal
bonds available.
 Mixed Integer Programming
Example 2: Investment Problem (2 of 2)
Integer Programming Model:
Maximize Z = $9,000x1 + 1,500x2 + 1,000x3
subject to:
50,000x1 + 12,000x2 + 8,000x3  $250,000
x1  4 condominiums
x2  15 acres
x3  20 bonds
x2  0
x1, x3  0 and integer
x1 = condominiums purchased
x2 = acres of land purchased
x3 = bonds purchased
Models with Binary Variables
 Models With Binary Variables
Binary variables restricted to values of 0 or 1.

• Model explicitly specifies that variables are binary.

• Typical examples include decisions such as:

– Introducing new product (introduce it or not),

– Building new facility (build it or not),

– Selecting team (select a specific individual or not), and

– Investing in projects (invest in a specific project or not).

Any situation that can be modeled by “yes”/“no”,
“good”/“bad” etc., falls into the binary category.
• Examples
1 If a new health care plan is adopted
X  0 If it is not


1 If a new police station is built downtown

X  0 If it is not


1 If a particular constraint must hold

X  0 If it is not

Pure Binary Integer Programming
Models
 Pure Binary Integer Programming Models:
Example 1: Oil Portfolio Selection (1 of 7)
Firm specializes in recommending oil stock portfolios.
• At least two Texas oil firms must be in portfolio.
• No more than one investment can be made in foreign oil.
• Exactly one of two California oil stocks must be
purchased.
• If British Petroleum stock is included in portfolio, then
Texas-Trans Oil stock must also be included in portfolio.
• Client has $3 million available for investments and insists
on purchasing large blocks of shares of each company for
investment.
• Objective is to maximize annual return on investment.
 Pure Binary Integer Programming Models:
Example 1. Oil Portfolio Selection (2 of 7)
Investment Opportunities
 Pure Binary (0, 1) IP Models:
Example 1. Oil Portfolio Selection (3 of 7)
Objective: maximize return on investment =
$50XT + $80XB + $90XD + $120XH + $110XL + $40XS + $75XC
Binary variable defined as:
 Xi = 1 if large block of shares in company i is purchased
= 0 if large block of shares in company i is not purchased
where i =
T (for Trans-Texas Oil),
B (for British Petroleum),
D (for Dutch Shell),
H (for Houston Drilling),
L (for Lonestar Petroleum),
S (for San Diego Oil), or
C (for California Petro).
 
 Pure Binary IP Models:
Example 1. Oil Portfolio Selection (4 of 7)
• Constraint regarding $3 million investment limit expressed as (in
thousands of dollars):
 $480XT + $540XB + $680XD + $1,000XH +

$700XL + $510XS + $900XC  $3,000

• k Out of n Variables.
– Requirement at least two Texas oil firms be in portfolio.

– Three (i.e., n = 3) Texas oil firms (XT, XH, and XL) of which at
least two (that is, k = 2) must be selected.
X T + X H + XL  2
 Pure Binary IP Models:
Example 1. Oil Portfolio Selection (5 of 7)

• Condition no more than one investment be in foreign oil

companies (mutually exclusive constraint).  

XB + XD  1

• Condition for California oil stock is mutually exclusive variable.

– Sign of constraint is an equality rather than inequality.

– Simkin must include California oil stock in portfolio.

 XS + XC = 1
 Pure Binary IP Models:
Example 1. Oil Portfolio Selection (6 of 7)
• Condition if British Petroleum stock is included in portfolio, then
Texas-Trans Oil stock must also be in portfolio. (if-then constraints)  
XB  XT
or XB - XT  0
• If XB equals 0, constraint allows XT to equal either 0 or 1.
• If XB equals 1, then XT must also equal 1.

• If the relationship is two-way (either include both or include neither),

rewrite constraint as:
 XB = XT
or XB - XT = 0
 Pure Binary IP Models:
Example 1. Oil Portfolio Selection (7 of 7)
Objective: maximize return =
$50XT + $80XB + $90XD + $120XH +
$110XL + $40XS + $75XC
subject to
$480XT + $540XB + $680XD + $1,000XH + $700XL +
$510XS + $900XC  $3,000(Investment limit)
XT + XH + XL  2 (Texas)
X B + XD  1 (Foreign Oil)
X S + XC = 1 (California)
X B - XT  0 (Trans-Texas and British
Petroleum)
Excel Solver Setup
 Pure Binary IP Models:
Example 2: Construction Projects (1 of 2)
Recreation facilities selection to maximize daily usage by
residents.
Resource constraints: $120,000 budget; 12 acres of land.
Selection constraint: either swimming pool or tennis center
(not both).
Data:
Land
Recreation Expected Usage
Cost ($) Requirement
Facility (people/day)
(acres)
Swimming pool 300 35,000 4
Tennis Center 90 10,000 2
Athletic field 400 25,000 7
Gymnasium 150 90,000 3
 Pure Binary IP Models:
Example 2: Construction Projects (2 of 2)

Integer Programming Model:

Maximize Z = 300x1 + 90x2 + 400x3 + 150x
subject to:
$35,000x1 + 10,000x2 + 25,000x3 + 90,000x4  $120,000
4x1 + 2x2 + 7x3 + 3x3  12 acres
x1 + x2  1 facility
x1, x2, x3, x4 = 0 or 1
x1 = construction of a swimming pool
x2 = construction of a tennis center
x3 = construction of an athletic field
x4 = construction of a gymnasium
 Pure Binary IP Models:
Example 3: Capital Budgeting (1 of 3)

University bookstore expansion project.

Not enough space available for both a computer department and a
clothing department.
Data:

NPV Return Project Costs per Year ($1000)

Project
($1000) 1 2 3

1. Website 120 55 40 25
2. Warehouse 85 45 35 20
3. Clothing department 105 60 25 --
4. Computer department 140 50 35 30
5. ATMs 75 30 30 --

Available funds per year 150 110 60

 Pure Binary IP Models:
Example 3: Capital Budgeting (2 of 3)
x1 = selection of web site project
x2 = selection of warehouse project
x3 = selection clothing department project
x4 = selection of computer department project
x5 = selection of ATM project
xi = 1 if project “i” is selected, 0 if project “i” is not selected

Maximize Z = $120x1 + $85x2 + $105x3 + $140x4 + $70x5

subject to:
55x1 + 45x2 + 60x3 + 50x4 + 30x5  150
40x1 + 35x2 + 25x3 + 35x4 + 30x5  110
25x1 + 20x2 + 30x4  60
x3 + x4  1
 Pure Binary IP Models:
Example 3: Capital Budgeting (3 of 3)
 Pure Binary IP Models
Example 4: Salem City Council (1 of 6)

• The Salem City Council must choose projects to fund,

such that public support is maximized
• Relevant data covers constraints and concerns the City
Council has, such as:
– Estimated costs of each project.
– Estimated number of permanent new jobs a project
can create.
– Questionnaire point tallies regarding the 9 project
ranking.
 Pure Binary IP Models
Example 4: Salem City Council (2 of 6)

• The Salem City Council must choose projects to fund, such

that public support is maximized while staying within a set of
constraints and answering some concerns.
• Data: Survey results

Project Cost (1000) Jobs Points

X1 Hire seven new police officers $ 400.00 7 4176
X2 Modernize police headquarters $ 350.00 0 1774
X3 Buy two new police cars $ 50.00 1 2513
X4 Give bonuses to foot patrol officers $ 100.00 0 1928
X5 Buy new fire truck/support equipment $ 500.00 2 3607
X6 Hire assistant fire chief $ 90.00 1 962
X7 Restore cuts to sport programs $ 220.00 8 2829
X8 Restore cuts to school music $ 150.00 3 1708
X9 Buy new computers for high school $ 140.00 2 3003
 Pure Binary IP Models
Example 4: Salem City Council (3 of 6)
• Decision Variables:
– Xj- a set of binary variables indicating if a project j is
selected (Xj=1) or not (Xj=0) for j=1,2,..,9.

• Objective function:
– Maximize the overall point score of the funded projects

• Constraints:
– See the mathematical model.
 Pure Binary IP Models
Example 4: Salem City Council (4 of 6)
Max 4176X1+ 1774X2 + 2513X3 + 1928X4 + 3607X5 + 962X6 + 2829X7 + 1708X8 + 3003X9

ST
The maximum amounts of funds to be allocated is $900,000
400X1+ 350X2 + 50X3 + 100X4 + 500X5 + 90X6 + 220X7 + 50X8 + 140X9  900
The number of new jobs created must be at least 10
7X1+ X3 + 2X5 + X6 + 8X7 + 3X8 + 2X9  10
The number of police-related activities selected is at most 3 (out of 4)
X1+ X2 + X3 + X4  3

Either police car or fire truck be purchased

X3 + X5 = 1

Sports funds and music funds must be restored / not restored together
X7 - X8 = 0

Sports funds and music funds must be X7 - X9  0

restored before computer equipment X8 - X9  0
is purchased
CONTINUE
 Pure Binary IP Models
Example 4: Salem City Council (5 of 6)
At least $250,000 must be reserved (do not use more than $650,000)
400X1+ 350X2 + 50X3 + 100X4 + 500X5 + 90X6 + 220X7 + 50X8 + 140X9  650
At least three police and fire stations should be funded
Three of X1+ X2 + X3 + X4 + X5 + X6  3
these 5
constraints X1 Must hire seven new police officers = 1
must be At least fifteen new jobs should be created (not 10)
satisfied: 7X1+ X3 + 2X5 + X6 + 8X7 + 3X8 + 2X9  15

Three education projects should be funded X7 + X8 + X9 = 3

The condition that at least three of these objectives

are to be met can be expressed by the binary variable
1 if constraint i is ignored (the objective is not met)
Yi  
0 If constraint i is not ignored (the objective is met)

CONTINUE
 Pure Binary IP Models
Example 4: Salem City Council (6 of 6)
400X1+ 350X2 + 50X3 + 100X4 + 500X5 + 90X6 + 220X7 + 50X8 + 140X9  650 + MY1

X1+ X2 + X3 + X4 + X5 + X6  3 - MY2

X1 THE CONDITIONAL CONSTRAINTS ARE  1 - MY3

X1 MODIFIED AS FOLLOWS:  1 + MY3

7X1+ X3 + 2X5 + X6 + 8X7 + 3X8 + 2X9  15 - MY4

X7 + X8 + X9  3 - MY5
X7 + X8 + X9  3 + MY5

Y1+ Y2 + Y3 + Y4 + Y5  2

The following constraint is added to ensure

that at most two of the above objectives do not hold
Mixed Binary Integer
Programming Models
Mixed Binary Integer Programming Models
–Fixed Charge Problems
• Fixed costs may include costs to set up machines for production
run or construction costs to build new facility.
– Fixed costs are independent of volume of production.
– Incurred whenever decision to go ahead with project is
taken.
• Linear programming does not include fixed costs in its cost
considerations. It assumes these costs as costs that cannot be
avoided. However, this may be incorrect.
Problems involving fixed and variable costs are mixed
integer programming models or fixed-charge problems.

• Binary variables are used for fixed costs.

• Ensures whenever a decision variable associated with
variable cost is non-zero, the binary variable associated
with fixed cost takes on a value of 1 (i.e., fixed cost is
also incurred).
Example 1: Fixed Charge and Facility Example (1 of 3)
Which of six farms should be purchased that will meet current
production capacity at minimum total cost, including annual
fixed costs and shipping costs?
Available
Data: Plant Capacity
(tons,1000s)
A 12
Farms Annual Fixed Projected Annual B 10
Costs Harvest (tons, 1000s) C 14
($1000)
1 405 11.2
2 390 10.5 Plant
3 450 12.8 Farm A B C
4 368 9.3 1 18 15 12
5 520 10.8 2 13 10 17
6 465 9.6 3 16 14 18
4 19 15 16
5 17 19 12
6 14 16 12
Example 1: Fixed Charge and Facility Example (2 of 3)
yi = 0 if farm i is not selected, and 1 if farm i is selected, i = 1,2,3,4,5,6
xij = potatoes (tons, 1000s) shipped from farm i, i = 1,2,3,4,5,6 to plant j, j
= A,B,C.
Minimize Z = 18x1A + 15x1B + 12x1C + 13x2A + 10x2B + 17x2C + 16x3A +
14x3B + 18x3C + 19x4A + 15x4b + 16x4C + 17x5A + 19x5B +
12x5C + 14x6A + 16x6B + 12x6C + 405y1 + 390y2 + 450y3 +
368y4 + 520y5 + 465y6
subject to:
x1A + x1B + x1B - 11.2y1 = 0 x2A + x2B + x2C -10.5y2 = 0
x3A + x3A + x3C - 12.8y3 = 0 x4A + x4b + x4C - 9.3y4 = 0
x5A + x5B + x5B - 10.8y5 = 0 x6A + x6B + X6C - 9.6y6 = 0
x1A + x2A + x3A + x4A + x5A + x6A =12
x1B + x2B + x3A + x4b + x5B + x6B = 10
x1B + x2C + x3C+ x4C + x5B + x6C = 14
xij = 0 yi = 0 or 1
Example 1: Fixed Charge and Facility Example (3 of 3)

Exhibit 5.19
The Fixed Charge Location Problem
• In the Fixed Charge Problem we have:
where:
C is a variable cost, and F is a fixed cost

CX + F If X > 0
Total Cost =  0 If X = 0

 Fixed Charge Problems:
Example 2: Hardgrave Machine Company –Location (1 of 9)
• Produces computer components at its plants in Cincinnati and
Pittsburgh.
– Plants are not able to keep up with demand for orders at
warehouses in Detroit, Houston, New York, and Los Angeles.
– Firm is to build a new plant to expand its productive capacity.
– Sites being considered are Seattle, Washington and
Birmingham.
• Table presents -
– Production costs and capacities for existing plants and demand
at each warehouse.
– Estimated production costs of new (proposed) plants.
• Transportation costs from plants to warehouses are also
summarized in the Table
 Fixed Charge Problems
Example 2: Hardgrave Machine Company (2 of 9)
 Fixed Charge Problems:
Example 2: Hardgrave Machine Company (3 of 9)
 Fixed Charge Problems:
Example 2: Hardgrave Machine Company (4 of 9)
• Monthly fixed costs are $400,000 in Seattle and
$325,000 in Birmingham
• Which new location will yield lowest cost in
combination with existing plants and warehouses?
• Unit cost of shipping from each plant to warehouse is
found by adding shipping costs to production costs
• Solution must consider monthly fixed costs of
operating new facility.
 Fixed Charge Problems
Example 2: Hardgrave Machine Company (5 of 9)
• Use binary variables for each of the two locations.
  YS = 1 if Seattle selected as new plant.
= 0 otherwise.
YB = 1 if Birmingham is selected as new plant.
= 0 otherwise.
• Use binary variables for representative quantities.
  Xij = # of units shipped from plant i to warehouse j
where
i = C (Cincinnati), K (Kansas City), P ( Pittsburgh),
S ( Seattle), or B (Birmingham)
j = D (Detroit), H (Houston), N (New York), or
L (Los Angeles)
 Fixed Charge Problems
Example 2: Hardgrave Machine Company (6 of 9)
• Objective:  minimize total costs =
$73XCD + $103XCH + $88XCN + $108XCL + $85XKD +
$80XKH + $100XKN + $90XKL + $88XPD + $97XPH +
$78XPN + $118XPL + $84XSD + $79XSH + $90XSN +
$99XSL + $113XBD + $91XBH + $118XBN + $80XBL +
$400,000YS + $325,000YB
• Last two terms in above expression represent fixed costs.
• Costs incurred only if plant is built at location that has
variable Yi = 1.
 Fixed Charge Problems
Example 2: Hardgrave Machine Company (7 of 9)
• Flow balance constraints at plants and warehouses: 
Net flow = (Total flow in to node) - (Total flow out of node)
• Flow balance constraints at existing plants (Cincinnati, Kansas
City, and Pittsburgh) :
(0) - (XCD + XCH + XCN + XCL) = -15,000 (Cincinnati supply)
(0) - (XKD + XKH + XKN + XKL) = -6,000 (Kansas City supply)
(0) - (XPD + XPH + XPN + XPL) = -14,000 (Pittsburgh supply)
• Flow balance constraint for new plant - account for the 0,1
(Binary) YS and YB variables:
(0) - (XSD + XSH + XSN + XSL) = -11,000YS (Seattle supply)
(0) - (XBD + XBH + XBN + XBL) = -11,000YB (Birmingham
supply)
 Fixed Charge Problems
Example 2: Hardgrave Machine Company (8 of 9)

• Flow balance constraints at existing warehouses (Detroit,

Houston, New York, and Los Angeles):
  XCD + XKD + XPD + XSD + XBD = 10,000 (Detroit demand)
XCH + XKH + XPH + XSH + XBH = 12,000 (Houston demand)
XCN + XKN + XPN + XSN + XBN = 15,000 (New York demand)
XCL + XKL + XPL + XSL + XBL = 9,000 (Los Angeles
demand)
• Ensure exactly one of two sites is selected for new plant.
• Mutually exclusive variable:
 YS + YB = 1
Excel Layout
 Fixed Charge Problems
Example 2: Hardgrave Machine Company (9 of 9)
• Cost of shipping was $3,704,000 if new plant built at
Seattle.
• Cost was $3,741,000 if new plant built at
Birmingham.
• Including fixed costs, total costs would be:
  Seattle: $3,704,000 + $400,000 = $4,104,000
Birmingham: $3,741,000 + $325,000 = $4,066,000
•  Select Birmingham as site for new plant.
Excel Layout
 Globe Electronics, Inc.
Two Different Problems,
Two Different Models
 Fixed Charge Problems
Example 3.Globe Electronics, Inc. Data (1 of 5)

• Globe Electronics, Inc. manufactures two styles of

remote control cable boxes, G50 and G90.

• Globe runs four production facilities and three

distribution centers.

• Each plant operates under unique conditions, thus has

a different fixed operating cost, production costs,
production rate, and production time available.
 Fixed Charge Problems
Example 3.Globe Electronics, Inc. Data (2 of 5)

Demand has decreased, therefore, management

is contemplating either:
- working undercapacity at one or some of its plants or,
- closing one or more of its facilities.

So Management wishes to:

– Develop an optimal distribution policy.
– Determine which plant(s) to be 1) operated under
capacity or closed (if any).
 Fixed Charge Problems
Example 3.Globe Electronics, Inc. Data (3 of 5)
• Data
Production costs, Times, Availability
Fixed
FixedCost
Cost Production
ProductionCost
Costper
per100
100 Production
ProductionTime
Time(hr
(hr/ /100)
100) Available
Availablehrhr
Plant
Plant per
perMonth
Month G50
G50 G90
G90 G50
G50 G90
G90 per
perMonth
Month
Philadelphia
Philadelphia 4040 1000
1000 1400
1400 66 66 640
640
St.
St.Louis
Louis 3535 1200
1200 1200
1200 77 88 960
960
New
NewOrleans
Orleans 2020 800
800 1000
1000 99 77 480
480
Denver
Denver 3030 1300
1300 1500
1500 55 99 640
640

Monthly Demand Projection

Demand
Demand
Cincinnati
Cincinnati Kansas
Kansas CitySan
CitySanFrancisco
Francisco
G50
G50 2000
2000 3000
3000 5000
5000
G90
G90 5000
5000 6000
6000 7000
7000
 Fixed Charge Problems
Example 3.Globe Electronics, Inc. Data (4 of 5)

– Transportation Costs per 100 units

Cincinnati Kansas San
City Francisco
Philadelphia $200 300 500
St.Louis 100 100 400
New Orleans 200 200 300
Denver 300 100 100

– At least 70% of the demand in each distribution center must be

satisfied.

– Unit selling price

• G50 = $22; G90 = $28.
 Fixed Charge Problems
Example 3.Globe Electronics, Inc. Dec. Vrbs.(5 of 5)
• Decision Variables
Xi = hundreds of G50s produced at plant i
Zi = hundreds of G90s produced at plant i
Xij = hundreds of G50s shipped from plant i to
distribution center j
Zij = hundreds of G90s shipped from plant i to
distribution center j
Location Identification
Plant
Plant Distribution
DistributionCenter
Center
Location
Location ii Location
Location jj
Philadelphia
Philadelphia 11 Cincinnati
Cincinnati 11
St.Louis
St.Louis 22 Kansas
KansasCity
City 22
New
NewOrleans
Orleans 33 San
SanFrancisco
Francisco 33
Denver
Denver 44
 Globe Electronics
Model No. 1:
All The Plants Remain Operational
• Objective function
– Management wants to maximize net profit.
– Gross profit per 100 = 22(100) [minus] (production cost per 100)
– Net profit per 100 units produced at plant i and shipped to center j = [Gross profit] -
[Transportation cost from to j per 100]
– Max 1200X1+1000X2+1400X3+ 900X4
+1400Z1+1600Z2+1800Z3+1300Z4
- 200X11 - 300X12 - 500X13
- 100X21 - 100X22 - 400X23
- 200X31 - 200X32 - 300X33
- 300X41 - 100X42 - 100X43
Gross profit - 200Z11 - 300Z12 - 500Z13
- 100Z21 - 100Z22 - 400Z23
- 200Z31 - 200Z32 - 300Z33
50 - 300Z41 - 100Z42 - 100Z43
G

Transportation cost G90

 • Constraints:
Ensure that the amount shipped from a plant equals the
amount produced in a plant

For G50 For G90

X11 + X12 + X13 = X1 Z11 + Z12 + Z13 = Z1
X21 + X22 + X23 = X2 Z21 + Z22 + Z23 = Z2
X31 + X32 + X33 = X3 Z31 + Z32 + Z33 = Z3
X41 + X42 + X43 = X4 Z41 + Z42 + Z43 = Z4

Production
Amounttime used atbyeach
received plant cannot
a distribution exceed
center the exceed
cannot time available:
its
demand or be less than 70%
6X1 of its demand
+ 6Z1 640
For G50 7X2 + 8Z2  960 For G90
X11 + X21 + X31 + X41 < 20  Z11 + Z21 +Z31 + Z41 < 50
9X3 + 7Z3 480
X11 + X21 + X31 + X41 > 14  Z11 + Z21 + Z31 + Z41 > 35
X12 + X22 + X32 + X42 <5X4
30 + 9Z4 640Z12 + Z22 + Z32 + Z42 < 60
X12 + X22 + X32 + X42 > 21 Z12 + Z22 + Z32 + Z42 > 42
X13 + X23 + X33
All +the
X43variables
< 50 Z13 + Z23 + Z33 + Z43 < 70
are non negative
X13 + X23 + X33 + X43 > 35 Z13 + Z23 + Z33 + Z43 > 49
AA portion
portion ofof the
the WINQSB
WINQSB optimal
optimal solution
solution
 Solution summary:

• The optimal value of the objective function is $356,571.

• Note that the fixed cost of operating the plants was not included in the
objective function because all the plants remain operational.

• Subtracting the fixed cost of $125,000 results in a net monthly profit of

$231,571
 Globe Electronics Model No. 2:
The number of plants that remain
operational is a
decision variable
• Decision Variables
Xi = hundreds of G50 s produced at plant i
Zi = hundreds of G90 s produced at plant i
Xij = hundreds of G50 s shipped from plant i to
distribution center j
Zij = hundreds of G90 s shipped from plant i to
distribution center j
Yi = A 0-1 variable that describes the number of
operational plants in city i.
 • Objective function
– Management wants to maximize net profit.

– Gross profit per 100 = 22(100) - (production cost

per 100)

– Net profit per 100 produced at plant i and shipped to

center j =
Gross profit - Costs of transportation from i to j - Conditional fixed costs
• Objective function

Max 1200X1+1000X2+1400X3+ 900X4

+1400Z1+1600Z2+1800Z3+1300Z4
- 200X11 - 300X12 - 500X13
- 100X21 - 100X22 - 400X23
- 200X31 - 200X32 - 300X33
- 300X41 - 100X42 - 100X43
- 200Z11 - 300Z12 - 500Z13
- 100Z21 - 100Z22 - 400Z23
- 200Z31 - 200Z32 - 300Z33
- 300Z41 - 100Z42 - 100Z43
- 40000Y1 - 35000Y2 - 20000Y3 - 30000Y4
 • Constraints:

Ensure that the amount shipped from a plant equals the amount produced in a plant

For G50 For G90

X11 + X12 + X13 = X1 Z11 + Z12 + Z13 = Z1
X21 + X22 + X23 = X2 Z21 + Z22 + Z23 = Z2
X31 + X32 + X33 = X3 Z31 + Z32 + Z33 = Z3
X41 + X42 + X43 = X4 Z41 + Z42 + Z43 = Z4

Amounttime
Production received
used atbyeacha distribution
plant cannotcenter cannot
exceed the exceed its
time available:
demand or be less 6X1 than
+ 6Z1 70% of its demand
- 640Y1 0
For G50 For G90
7X2 + 8Z2 - 960Y2  0
X11 + X21 + X31 + X41 < 20 Z11 + Z21 +Z31 + Z41 < 50

9X3 + 7Z3 - 480Y3 0Z11 + Z21 + Z31 + Z41 > 35
X11 + X21 + X31 + X41 > 14
5X4
X12 + X22 + X32 + <9Z4
+ X42

30 - 640Y4 0Z12 + Z22 + Z32 + Z42 < 60
X12 + X22 + X32 + X42 > 21 Z12 + Z22 + Z32 + Z42 > 42
X13 + X23 + X33 + X43 < 50
All Xij, X>i, Z35ij,
X13 + X23 + X33 + X43
Zi > 0, and YZ13
i
+ Z23 + Z33 + Z43 < 70
are 0,1.
Z13 + Z23 + Z33 + Z43 > 49
AA portion
portion ofof the
the WINQSB
WINQSB optimal
optimal solution
solution
 Solution Summary:
• The Philadelphia plant should be closed.

• Schedule monthly production according

to the quantities shown in the output.

• The net monthly profit will be $266,115, which is

$34,544 per month greater than the optimal monthly
profit obtained when all four plants are operational.