Table of Contents

Chapter 7 (Using Binary Integer Programming)

A Case Study: California Manufacturing (Section 7.1) 7.2–7.11

Using BIP for Project Selection: Tazer Corp. (Section 7.2) 7.12–7.15
Using BIP for the Selection of Sites: Caliente City (Section 7.3) 7.16–7.19
Using BIP for Crew Scheduling: Southwestern Airways (Section 7.4) 7.20–7.24
Using Mixed BIP to Deal with Setup Costs: Revised Wyndor (Section 7.5) 7.25–7.30

Introduction to Integer Programming (UW Lecture) 7.31–7.46

These slides are based upon a lecture from the MBA core-course in Management Science at the University of
Washington (as taught by one of the authors).

Applications of Integer Programming (UW Lecture) 7.47–7.59

These slides are based upon a lecture from the MBA elective “Modeling with Spreadsheets” at the University of
Washington (as taught by one of the authors).

McGraw-Hill/Irwin 7.1 © The McGraw-Hill Companies, Inc., 2008

 Applications of Binary Variables

• Since binary variables only provide two choices, they are ideally suited to be
the decision variables when dealing with yes-or-no decisions.

• Examples:
– Should we undertake a particular fixed project?
– Should we make a particular fixed investment?
– Should we locate a facility in a particular site?

McGraw-Hill/Irwin 7.2 © The McGraw-Hill Companies, Inc., 2008

 California Manufacturing Company

• The California Manufacturing Company is a diversified company with several

factories and warehouses throughout California, but none yet in Los Angeles
or San Francisco.

• A basic issue is whether to build a new factory in Los Angeles or San

Francisco, or perhaps even both.

• Management is also considering building at most one new warehouse, but will
restrict the choice to a city where a new factory is being built.

Question: Should the California Manufacturing Company expand with

factories and/or warehouses in Los Angeles and/or San Francisco?

McGraw-Hill/Irwin 7.3 © The McGraw-Hill Companies, Inc., 2008

 Data for California Manufacturing

Net Present Capital

Decision Yes-or-No Decision Value Required
Number Question Variable (Millions) (Millions)
1 Build a factory in Los Angeles? x1 $8 $6
2 Build a factory in San Francisco? x2 5 3
3 Build a warehouse in Los Angeles? x3 6 5
4 Build a warehouse in San Francisco? x4 4 2
Capital Available: $10 million

McGraw-Hill/Irwin 7.4 © The McGraw-Hill Companies, Inc., 2008

 Binary Decision Variables

Decision Decision Possible Interpretation Interpretation

Number Variable Value of a Value of 1 of a Value of 0

Build a factory in Do not build

1 x1 0 or 1
Los Angeles this factory

Build a factory in Do not build

2 x2 0 or 1
San Francisco this factory

Build a warehouse in Do not build

3 x3 0 or 1
Los Angeles this warehouse

Build a warehouse in Do not build

4 x4 0 or 1
San Francisco this warehouse

McGraw-Hill/Irwin 7.5 © The McGraw-Hill Companies, Inc., 2008

 Algebraic Formulation

Let x1 = 1 if build a factory in L.A.; 0 otherwise

x2 = 1 if build a factory in S.F.; 0 otherwise
x3 = 1 if build a warehouse in Los Angeles; 0 otherwise
x4 = 1 if build a warehouse in San Francisco; 0 otherwise

Maximize NPV = 8x1 + 5x2 + 6x3 + 4x4 ($millions)

subject to
Capital Spent: 6x1 + 3x2 + 5x3 + 2x4 ≤ 10 ($millions)
Max 1 Warehouse: x3 + x4 ≤ 1
Warehouse only if Factory: x3 ≤ x1
x4 ≤ x2
and
x1, x2, x3, x4 are binary variables.

McGraw-Hill/Irwin 7.6 © The McGraw-Hill Companies, Inc., 2008

 Spreadsheet Model

B C D E F G
3 NPV ($millions) LA SF
4 Warehouse 6 4
5
6 Factory 8 5
7
8 Capital Required
9 ($millions) LA SF
10 Warehouse 5 2 Capital Capital
11 Spent Available
12 Factory 6 3 9 <= 10
13
14 Total Maximum
15 Build? LA SF Warehouses Warehouses
16 Warehouse 0 0 0 <= 1
17 <= <=
18 Factory 1 1
19
20 Total NPV ($millions) 13

McGraw-Hill/Irwin 7.7 © The McGraw-Hill Companies, Inc., 2008

 Sensitivity Analysis with Solver Table

B C D E F G
23 Capital Available Warehouse Warehouse Factory Factory Total NPV
24 ($millions) in LA? in SF? in LA? in SF? ($millions)
25 0 0 1 1 13
26 5 0 1 0 1 9
27 6 0 1 0 1 9
28 7 0 1 0 1 9
29 8 0 1 0 1 9
30 9 0 0 1 1 13
31 10 0 0 1 1 13
32 11 0 1 1 1 17
33 12 0 1 1 1 17
34 13 0 1 1 1 17
35 14 1 0 1 1 19
36 15 1 0 1 1 19

McGraw-Hill/Irwin 7.8 © The McGraw-Hill Companies, Inc., 2008

 Management’s Conclusion

• Management’s initial tentative decision had been to make $10 million of

capital available.
• With this much capital, the best plan would be to build a factory in both Los
Angeles and San Francisco, but no warehouses.
• An advantage of this plan is that it only uses $9 million of this capital, which
frees up $1 million for other projects.
• A heavy penalty (a reduction of $4 million in total net present value) would be
paid if the capital made available were to be reduced below $9 million.
• Increasing the capital made available by $1 million (to $11 million) would
enable a substantial ($4 million) increase in the total net present value.
Management decides to do this.
• With this much capital available, the best plan is to build a factory in both
cities and a warehouse in San Francisco.

McGraw-Hill/Irwin 7.9 © The McGraw-Hill Companies, Inc., 2008

 Some Other Applications

• Investment Analysis
– Should we make a certain fixed investment?
– Examples: Turkish Petroleum Refineries (1990), South African National Defense
Force (1997), Grantham, Mayo, Van Otterloo and Company (1999)

• Site Selection
– Should a certain site be selected for the location of a new facility?
– Example: AT&T (1990)

• Designing a Production and Distribution Network

– Should a certain plant remain open? Should a certain site be selected for a new
plant? Should a distribution center remain open? Should a certain site be selected
for a new distribution center? Should a certain distribution center be assigned to
serve a certain market area?
– Examples: Ault Foods (1994), Digital Equipment Corporation (1995)

McGraw-Hill/Irwin 7.10 © The McGraw-Hill Companies, Inc., 2008

 Some Other Applications

• Dispatching Shipments
– Should a certain route be selected for a truck? Should a certain size truck be used?
Should a certain time period for departure be used?
– Examples: Quality Stores (1987), Air Products and Chemicals, Inc. (1983),
Reynolds Metals Co. (1991), Sears, Roebuck and Company (1999)

• Scheduling Interrelated Activities

– Should a certain activity begin in a certain time period?
– Examples: Texas Stadium (1983), China (1995)

• Scheduling Asset Divestitures

– Should a certain asset be sold in a certain time period?
– Example: Homart Development (1987)

• Airline Applications:
– Should a certain type of airplane be assigned to a certain flight leg? Should a certain
sequence of flight legs be assigned to a crew?
– Examples: American Airlines (1989, 1991), Air New Zealand (2001)

McGraw-Hill/Irwin 7.11 © The McGraw-Hill Companies, Inc., 2008

 Project Selection at Tazer Corp.

• Tazer Corporation is searching for a new breakthrough drug.

• Five potential research and development projects:

– Project Up: Develop a more effect antidepressant that doesn’t cause mood swings
– Project Stable: Develop a drug that addresses manic depression
– Project Choice: Develop a less intrusive birth control method for women
– Project Hope: Develop a vaccine to prevent HIV infection
– Project Release: Develop a more effective drug to lower blood pressure

• $1.2 billion available for investment (enough for 2 or 3 projects)

Question: Which projects should be selected to research and develop?

McGraw-Hill/Irwin 7.12 © The McGraw-Hill Companies, Inc., 2008

 Data for the Tazer Project Selection Problem

1 2 3 4 5
Up Stable Choice Hope Release

R&D 400 300 600 500 200

($million)

Success Rate 50% 35% 35% 20% 45%

Revenue if 1,400 1,200 2,200 3,000 600

Successful
($million)

Expected 300 120 170 100 70

Profit
($million)

McGraw-Hill/Irwin 7.13 © The McGraw-Hill Companies, Inc., 2008

 Algebraic Formulation of Tazer Project Selection

Let xi = 1 if approve project i; 0 otherwise (for i = 1, 2, 3, 4, and 5)

Maximize P = 300x1 + 120x2 + 170x3 + 100x4 + 70x5 ($million)

subject to

R&D Budget: 400x1 + 300x2 + 600x3 + 500x4 + 200x5 ≤ 1,200 ($million)

and xi are binary (for i = 1, 2, 3, 4, and 5).

McGraw-Hill/Irwin 7.14 © The McGraw-Hill Companies, Inc., 2008

 Spreadsheet for Tazer Project Selection Problem

A B C D E F G H I J
1 Tazer Corp. Project Selection Problem
2
3
4 Up Stable Choice Hope Release Total Budget
5 R&D Investment ($million) 400 300 600 500 200 1200 <= 1200
6 Success Rate 50% 35% 35% 20% 45%
7 Revenue if Successful ($million) 1400 1200 2200 3000 600
8 Expected Profit ($million) 300 120 170 100 70 540
9
10 Do Project? 1 0 1 0 1

McGraw-Hill/Irwin 7.15 © The McGraw-Hill Companies, Inc., 2008

 Selection of Sites for Emergency Services:
The Caliente City Problem
• Caliente City is growing rapidly and spreading well beyond its original
borders

• They still have only one fire station, located in the congested center of town

• The result has been long delays in fire trucks reaching the outer part of the city

Goal: Develop a plan for locating multiple fire stations throughout the city

New Policy: Response Time ≤ 10 minutes

McGraw-Hill/Irwin 7.16 © The McGraw-Hill Companies, Inc., 2008

 Response Time and Cost Data for Caliente City

Fire Station in Tract

1 2 3 4 5 6 7 8
Response 1 2 8 18 9 23 22 16 28
times
2 9 3 10 12 16 14 21 25
(minutes)
for a fire in 3 17 8 4 20 21 8 22 17
tract
4 10 13 19 2 18 21 6 12
5 21 12 16 13 5 11 9 12
6 25 15 7 21 15 3 14 8
7 14 22 18 7 13 15 2 9
8 30 24 15 14 17 9 8 3
Cost of Station 350 250 450 300 50 400 300 200
($thousands)

McGraw-Hill/Irwin 7.17 © The McGraw-Hill Companies, Inc., 2008

 Algebraic Formulation of Caliente City Problem

Let xj = 1 if tract j is selected to receive a fire station; 0 otherwise (j = 1, 2, … , 8)

Minimize C = 350x1 + 250x2 + 450x3 + 300x4 + 50x5 + 400x6 + 300x7 + 200x8

subject to

Tract 1: x1 + x2 + x4 ≥ 1
Tract 2: x1 + x2 + x3 ≥ 1
Tract 3: x2 + x3 + x6 ≥ 1
Tract 4: x1 + x4 + x7 ≥ 1
Tract 5: x5 + x7 ≥ 1
Tract 6: x3 + x6 + x8 ≥ 1
Tract 7: x4 + x7 + x8 ≥ 1
Tract 8: x6 + x7 + x8 ≥ 1

and xj are binary (for j = 1, 2, … , 8).

McGraw-Hill/Irwin 7.18 © The McGraw-Hill Companies, Inc., 2008

 Spreadsheet Model for Caliente City Problem
A B C D E F G H I J K L M N
1 Caliente City Fire Station Location Problem
2
3 Fire Station in Tract
4 1 2 3 4 5 6 7 8
5 1 2 8 18 9 23 22 16 28
6 Response 2 9 3 10 12 16 14 21 25
7 Times 3 17 8 4 20 21 8 22 17
8 (Minutes) 4 10 13 19 2 18 21 6 12
9 for a Fire 5 21 12 16 13 5 11 9 12
10 in Tract 6 25 15 7 21 15 3 14 8
11 7 14 22 18 7 13 15 2 9
12 8 30 24 15 14 17 9 8 3
13
14 Cost of Station 350 250 450 300 50 400 300 200
15 ($thousands) Number
16 Covering
17 1 1 1 0 1 0 0 0 0 1 >= 1
18 Response 2 1 1 1 0 0 0 0 0 1 >= 1
19 Time 3 0 1 1 0 0 1 0 0 1 >= 1
20 <= 4 1 0 0 1 0 0 1 0 1 >= 1
21 10 5 0 0 0 0 1 0 1 0 1 >= 1
22 Minutes? 6 0 0 1 0 0 1 0 1 1 >= 1
23 7 0 0 0 1 0 0 1 1 2 >= 1
24 8 0 0 0 0 0 1 1 1 2 >= 1
25
26 Total
27 Fire Station in Tract Cost
28 1 2 3 4 5 6 7 8 ($thousands)
29 Station in Tract? 0 1 0 0 0 0 1 1 750

McGraw-Hill/Irwin 7.19 © The McGraw-Hill Companies, Inc., 2008

 Southwestern Airways Crew Scheduling

• Southwestern Airways needs to assign crews to cover all its upcoming flights.

• We will focus on assigning 3 crews based in San Francisco (SFO) to 11

flights.

Question: How should the 3 crews be assigned 3 sequences of flights so that

every one of the 11 flights is covered?

McGraw-Hill/Irwin 7.20 © The McGraw-Hill Companies, Inc., 2008

 Southwestern Airways Flights

Seat tl e
(SEA)

Denver Chi cago

(DEN) ORD)
San Fran cis co
(SFO)

Los Angel es
(LAX)

McGraw-Hill/Irwin 7.21 © The McGraw-Hill Companies, Inc., 2008

 Data for the Southwestern Airways Problem

Feasible Sequence of Flights

Flights 1 2 3 4 5 6 7 8 9 10 11 12
1. SFO–LAX 1 1 1 1
2. SFO–DEN 1 1 1 1
3. SFO–SEA 1 1 1 1
4. LAX–ORD 2 2 3 2 3
5. LAX–SFO 2 3 5 5
6. ORD–DEN 3 3 4
7. ORD–SEA 3 3 3 3 4
8. DEN–SFO 2 4 4 5
9. DEN–ORD 2 2 2
10. SEA–SFO 2 4 4 5
11. SEA–LAX 2 2 4 4 2
Cost, $1,000s 2 3 4 6 7 5 7 8 9 9 8 9

McGraw-Hill/Irwin 7.22 © The McGraw-Hill Companies, Inc., 2008

 Algebraic Formulation

Let xj = 1 if flight sequence j is assigned to a crew; 0 otherwise. (j = 1, 2, … , 12).

Minimize Cost = 2x1 + 3x2 + 4x3 + 6x4 + 7x5 + 5x6 + 7x7 + 8x8 + 9x9 + 9x10 + 8x11 + 9x12
(in $thousands)
subject to
Flight 1 covered: x1 + x4 + x7 + x10 ≥ 1
Flight 2 covered: x2 + x5 + x8 + x11 ≥ 1
: :
Flight 11 covered: x6 + x9 + x10 + x11 + x12 ≥ 1
Three Crews: x1 + x2 + x3 + x4 + x5 + x6 + x7 + x8 + x9 + x10 + x11 + x12 ≤ 3
and
xj are binary (j = 1, 2, … , 12).

McGraw-Hill/Irwin 7.23 © The McGraw-Hill Companies, Inc., 2008

 Spreadsheet Model

B C D E F G H I J K L M N O P Q
3 Flight Sequence
4 1 2 3 4 5 6 7 8 9 10 11 12
5 Cost ($thousands) 2 3 4 6 7 5 7 8 9 9 8 9 At
6 Least
7 Includes Segment? Total One
8 SFO-LAX 1 0 0 1 0 0 1 0 0 1 0 0 1 >= 1
9 SFO-DEN 0 1 0 0 1 0 0 1 0 0 1 0 1 >= 1
10 SFO-SEA 0 0 1 0 0 1 0 0 1 0 0 1 1 >= 1
11 LAX-ORD 0 0 0 1 0 0 1 0 1 1 0 1 1 >= 1
12 LAX-SFO 1 0 0 0 0 1 0 0 0 1 1 0 1 >= 1
13 ORD-DEN 0 0 0 1 1 0 0 0 1 0 0 0 1 >= 1
14 ORD-SEA 0 0 0 0 0 0 1 1 0 1 1 1 1 >= 1
15 DEN-SFO 0 1 0 1 1 0 0 0 1 0 0 0 1 >= 1
16 DEN-ORD 0 0 0 0 1 0 0 1 0 0 1 0 1 >= 1
17 SEA-SFO 0 0 1 0 0 0 1 1 0 0 0 1 1 >= 1
18 SEA-LAX 0 0 0 0 0 1 0 0 1 1 1 1 1 >= 1
19
20 Total Number
21 1 2 3 4 5 6 7 8 9 10 11 12 Sequences of Crews
22 Fly Sequence? 0 0 1 1 0 0 0 0 0 0 1 0 3 <= 3
23
24 Total Cost ($thousands) 18

McGraw-Hill/Irwin 7.24 © The McGraw-Hill Companies, Inc., 2008

 Wyndor with Setup Costs

Suppose that two changes are made to the original Wyndor problem:

1. For each product, producing any units requires a substantial one-time setup
cost for setting up the production facilities.

2. The production runs for these products will be ended after one week, so D and
W in the original model now represent the total number of doors and windows
produced, respectively, rather than production rates. Therefore, these two
variables need to be restricted to integer values.

McGraw-Hill/Irwin 7.25 © The McGraw-Hill Companies, Inc., 2008

 Graphical Solution to Original Wyndor Problem
W
Production rate
for windows
8

Optimal solution

6 (2, 6)

Feasible P = 3,600 = 300 D + 500 W

4 Region

0 2 4 6 8 10 D
Production rate for doors

McGraw-Hill/Irwin 7.26 © The McGraw-Hill Companies, Inc., 2008

 Net Profit for Wyndor Problem with Setup Costs

Net Profit ($)

Number of
Units Produced Doors Windows
0 0(300) – 0 = 0 0 (500) – 0 = 0
1 1(300) – 700 = –400 1(500) – 1,300 = –800
2 2(300) – 700 = –100 2(500) – 1,300 = –300
3 3(300) – 700 = 200 3(500) – 1,300 = 200
4 4(300) – 700 = 500 4(500) – 1,300 = 700
5 Not feasible 5(500) – 1,300 = 1,200
6 Not feasible 6(500) – 1,300 = 1,700

McGraw-Hill/Irwin 7.27 © The McGraw-Hill Companies, Inc., 2008

 Feasible Solutions for Wyndor with Setup Costs
W

8
Production
quantity for
windows (0, 6) gives P = 1700
6 (2, 6) gives P = -100 + 1700
= 1600

(4, 3) gives P = 500 + 200

= 700
2

(0, 0) (4, 0) gives P = 500

gives P = 0
0 2 4 6 8 D
Production quantity for doors

McGraw-Hill/Irwin 7.28 © The McGraw-Hill Companies, Inc., 2008

 Algebraic Formulation

Let D = Number of doors to produce,

W = Number of windows to produce,
y1 = 1 if perform setup to produce doors; 0 otherwise,
y2 = 1 if perform setup to produce windows; 0 otherwise .

Maximize P = 300D + 500W – 700y1 – 1,300y2

subject to
Original Constraints:
Plant 1: D≤4
Plant 2: 2W ≤ 12
Plant 3: 3D + 2W ≤ 18
Produce only if Setup:
Doors: D ≤ 99y1
Windows: W ≤ 99y2
and
D ≥ 0, W ≥ 0, y1 and y2 are binary.

McGraw-Hill/Irwin 7.29 © The McGraw-Hill Companies, Inc., 2008

 Spreadsheet Model

B C D E F G H
3 Doors Windows
4 Unit Profit $300 $500
5 Setup Cost $700 $1,300
6
7 Hours Hours
8 Hours Used Per Unit Produced Used Available
9 Plant 1 1 0 0 <= 4
10 Plant 2 0 2 12 <= 12
11 Plant 3 3 2 12 <= 18
12
13 Doors Windows
14 Units Produced 0 6
15 <= <= Production Profit $3,000
16 Only If Setup 0 99 - Total Setup Cost $1,300
17 Setup? 0 1 Total Profit $1,700

McGraw-Hill/Irwin 7.30 © The McGraw-Hill Companies, Inc., 2008

 Integer Programming

• When are “non-integer” solutions okay?

– Solution is naturally divisible
• e.g., $, pounds, hours
– Solution represents a rate
• e.g., units per week
– Solution only for planning purposes

• When is rounding okay?

– When numbers are large
• e.g., rounding 114.286 to 114 is probably okay.

• When is rounding not okay?

– When numbers are small
• e.g., rounding 2.6 to 2 or 3 may be a problem.
– Binary variables
• yes-or-no decisions

McGraw-Hill/Irwin 7.31 © The McGraw-Hill Companies, Inc., 2008

 The Challenges of Rounding

• Rounded Solution may not be

x2
feasible.
5
• Rounded solution may not be
close to optimal.
4

• There can be many rounded

3
solutions.
– Example: Consider a problem
2
with 30 variables that are non-
integer in the LP-solution.
How many possible rounded 1
solutions are there?

1 2 3 4 5 x1

McGraw-Hill/Irwin 7.32 © The McGraw-Hill Companies, Inc., 2008

 How Integer Programs are Solved

x2

1 2 3 4 5 x1

McGraw-Hill/Irwin 7.33 © The McGraw-Hill Companies, Inc., 2008

 How Integer Programs are Solved

x2

1 2 3 4 5 x1

McGraw-Hill/Irwin 7.34 © The McGraw-Hill Companies, Inc., 2008

 Applications of Binary Variables

• Making “yes-or-no” type decisions

– Build a factory?
– Manufacture a product?
– Do a project?
– Assign a person to a task?

• Set-covering problems
– Make a set of assignments that “cover” a set of requirements.

• Fixed costs
– If a product is produced, must incur a fixed setup cost.
– If a warehouse is operated, must incur a fixed cost.

McGraw-Hill/Irwin 7.35 © The McGraw-Hill Companies, Inc., 2008

 Example #1 (Capital Budgeting)

• Norwood Development is considering the potential of four different

development projects.
• Each project would be completed in at most three years.
• The required cash outflow for each project is given in the table below, along
with the net present value of each project to Norwood, and the cash that is
available each year.

Cash Outflow Required ($million)

Cash
Available
Project 1 Project 2 Project 3 Project 4 ($million)
Year 1 9 7 6 11 28
Year 2 6 4 3 0 13
Year 3 6 0 4 0 10
NPV 30 16 22 14
Question: Which projects should be undertaken?
McGraw-Hill/Irwin 7.36 © The McGraw-Hill Companies, Inc., 2008
 Algebraic Formulation

Let yi = 1 if project i is undertaken; 0 otherwise (i = 1, 2, 3, 4).

Maximize NPV = 30y1 + 16y2 + 22y3 + 14y4

subject to
Year 1: 9y1 + 7y2 + 6y3 + 11y4 ≤ 28 ($million)

Year 2 (cumulative): 15y1 + 11y2 + 9y3 + 11y4 ≤ 41 ($million)

Year 3 (cumulative): 21y1 + 11y2 + 13y3 + 11y4 ≤ 51 ($million)

and
yi are binary (i = 1, 2, 3, 4).

McGraw-Hill/Irwin 7.37 © The McGraw-Hill Companies, Inc., 2008

 Spreadsheet Solution

A B C D E F G H I
1 Norwood Development Capital Budgeting
2
3 Project 1 Project 2 Project 3 Project 4
4 NPV ($million) 30 16 22 14
5 Cumulative Cumulative
6 Cumulative Outflow Required ($million) Outflow Available
7 Year 1 9 7 6 11 22 <= 28
8 Year 2 15 11 9 11 35 <= 41
9 Year 3 21 11 13 11 45 <= 51
10
11 Total NPV
12 Project 1 Project 2 Project 3 Project 4 ($million)
13 Undertake? 1 1 1 0 68

McGraw-Hill/Irwin 7.38 © The McGraw-Hill Companies, Inc., 2008

 Additional Considerations
(Logic and Dependency Constraints)

• At least one of projects 1, 2, or 3

• Project 2 can’t be done unless project 3 is done

• Either project 3 or project 4, but not both

• No more than two projects total

Question: What constraints would need to be added for each of these

additional considerations?

McGraw-Hill/Irwin 7.39 © The McGraw-Hill Companies, Inc., 2008

 Example #2 (Set Covering Problem)

• The Washington State legislature is trying to decide on locations at which to

base search-and-rescue teams.

• The teams are expensive, so they would like as few as possible.

• Response time is critical, so they would like every county to either have a
team located in that county or in an adjacent county.

Question: Where should search-and-rescue teams be located?

McGraw-Hill/Irwin 7.40 © The McGraw-Hill Companies, Inc., 2008

 The Counties of Washington State

Counties
9 1. Clallum 19. Chelan
18
2. J efferson 20. Douglas
10 26 27 28 3. Grays Harbor 21. Kittitas
4. Pacific 22. Grant
1 5. Wahkiakum 23. Yakima
11
6. Kitsap 24. Klickitat
2 19 7. Mason 25. Benton
6 20 8. Thurston 26. Ferry
29 30
7 12 9. Whatcom 27. Stevens
3 10. Skagit 28. Pend Oreille
21 11. Snohomish 29. Lincoln
8 13 22
31 32 12. King 30. Spokane
13. Pierce 31. Adams
4 14
36 14. Lewis 32. Whitman
33
5 23 15. Cowlitz 33. Franklin
15 25 35 16. Clark 34. Walla Walla
34 37
17 17. Skamania 35. Columbia
16 24 18. Okanogan 36. Garfield
37. Asotin

McGraw-Hill/Irwin 7.41 © The McGraw-Hill Companies, Inc., 2008

 Algebraic Formulation

Let yi = 1 if a team is located in county i; 0 otherwise (i = 1, 2, … , 37).

Minimize Number of Teams = y1 + y2 + … + y37

subject to
County 1 covered: y1 + y2 ≥ 1

County 2 covered: y1 + y2 + y3 + y6 + y7 ≥ 1

County 3 covered: y2 + y3 + y4 + y7 + y8 + y14 ≥ 1

:
County 37 covered: y32 + y36 + y37 ≥ 1
and
yi are binary (i = 1, 2, … , 37).

McGraw-Hill/Irwin 7.42 © The McGraw-Hill Companies, Inc., 2008

 Spreadsheet Solution

A B C D E F G H I J K L M N
1 Search & Rescue Location
2
3 # Teams # Teams
4 County Team? Nearby County Team? Nearby
5 1 Clallam 0 1 >= 1 19 Chelan 0 2 >= 1
6 2 Jefferson 1 1 >= 1 20 Douglas 0 1 >= 1
7 3 Grays Harbor 0 2 >= 1 21 Kittitas 1 1 >= 1
8 4 Pacific 0 1 >= 1 22 Grant 0 1 >= 1
9 5 Wahkiakum 0 1 >= 1 23 Yakima 0 3 >= 1
10 6 Kitsap 0 1 >= 1 24 Klickitat 0 1 >= 1
11 7 Mason 0 1 >= 1 25 Benton 0 1 >= 1
12 8 Thurston 0 1 >= 1 26 Ferry 0 1 >= 1
13 9 Whatcom 0 1 >= 1 27 Stevens 1 1 >= 1
14 10 Skagit 1 1 >= 1 28 Pend Oreille 0 1 >= 1
15 11 Snohomish 0 1 >= 1 29 Lincoln 0 1 >= 1
16 12 King 0 1 >= 1 30 Spokane 0 1 >= 1
17 13 Pierce 0 2 >= 1 31 Adams 0 1 >= 1
18 14 Lewis 1 2 >= 1 32 Whitman 0 2 >= 1
19 15 Cowlitz 0 2 >= 1 33 Franklin 1 1 >= 1
20 16 Clark 0 1 >= 1 34 Walla Walla 0 1 >= 1
21 17 Skamania 1 2 >= 1 35 Columbia 0 1 >= 1
22 18 Okanogan 0 1 >= 1 36 Garfield 1 1 >= 1
23 37 Asotin 0 1 >= 1
24 Total Teams: 8

McGraw-Hill/Irwin 7.43 © The McGraw-Hill Companies, Inc., 2008

 Example #3 (Fixed Costs)

• Woodridge Pewter Company is a manufacturer of three pewter products:

platters, bowls, and pitchers.
• The manufacture of each product requires Woodridge to have the appropriate
machinery and molds available. The machinery and molds for each product
can be rented at the following rates: for the platters, $400/week; for the bowls,
$250/week; for the pitcher, $300/week.
• Each product requires the amounts of labor and pewter given in the table
below. The sales price and variable cost are also given in the table.
Labor Pewter Sales Variable
Hours (pounds) Price Cost
Platter 3 5 $100 $60
Bowl 1 4 85 50
Pitcher 4 3 75 40
Available 130 240

Question: Which products should be produced, and in what quantity?

McGraw-Hill/Irwin 7.44 © The McGraw-Hill Companies, Inc., 2008
 Algebraic Formulation

Let x1 = Number of platters produced,

x2 = Number of bowls produced,
x3 = Number of pitchers produced,
yi = 1 if lease machine and mold for product i; 0 otherwise (i = 1, 2, 3).
Maximize Profit = ($100–$60)x1 + ($85–$50)x2 + ($75–$40)x3 – $400y1 – $250y2 – $300y3
subject to
Labor: 3x1 + x2 + 4x3 ≤ 130 hours
Pewter: 5x1 + 4x2 + 3x3 ≤ 240 pounds
Allow production only if machines and molds are purchased:
x1 ≤ 99y1
x2 ≤ 99y2
x3 ≤ 99y3
and
xi ≥ 0, and yi are binary (i = 1, 2, 3).

McGraw-Hill/Irwin 7.45 © The McGraw-Hill Companies, Inc., 2008

 Spreadsheet Solution

A B C D E F G H
1 Woodridge Pewter Company
2
3 Platters Bowls Pitchers
4 Sales Price $100 $85 $75
5 Variable Cost $60 $50 $40
6 Fixed Cost $400 $250 $300
7
8 Constraint Usage (per unit produced) Total Available
9 Labor (hrs.) 3 1 4 60 <= 130
10 Pewter (lbs.) 5 4 3 240 <= 240
11
12 Lease Equipment? 0 1 0
13 Revenue $5,100
14 Production Quantity 0 60 0 Variable Cost $3,000
15 <= <= <= Fixed Cost $250
16 Produce only if Lease 0 99 0 Profit $1,850

McGraw-Hill/Irwin 7.46 © The McGraw-Hill Companies, Inc., 2008

 Applications of Binary Variables

• Making “yes-or-no” type decisions

– Build a factory?
– Manufacture a product?
– Do a project?
– Assign a person to a task?

• Fixed costs
– If a product is produced, must incur a fixed setup cost.
– If a warehouse is operated, must incur a fixed cost.

• Either-or constraints
– Production must either be 0 or ≥ 100.

• Subset of constraints
– meet 3 out of 4 constraints.

McGraw-Hill/Irwin 7.47 © The McGraw-Hill Companies, Inc., 2008

 Capital Budgeting with Contingency Constraints
(Yes-or-No Decisions)

• A company is planning their capital budget over the next several years.

• There are 10 potential projects they are considering pursuing.

• They have calculated the expected net present value of each project, along
with the cash outflow that would be required over the next five years.

• Also, suppose there are the following contingency constraints:

– at least one of project 1, 2 or 3 must be done,
– project 4 and project 5 cannot both be done,
– project 7 can only be done if project 6 is done.

Question: Which projects should they pursue?

McGraw-Hill/Irwin 7.48 © The McGraw-Hill Companies, Inc., 2008

 Data for Capital Budgeting Problem

Cash Outflow Required ($million)

Project
Cash
Available
1 2 3 4 5 6 7 8 9 10 ($million)
Year 1 1 4 0 4 4 3 2 8 2 6 25
Year 2 2 2 2 2 2 4 2 3 3 6 25
Year 3 3 2 5 2 4 2 3 4 8 2 25
Year 4 4 4 5 4 5 3 1 2 1 1 25
Year 5 1 1 0 6 5 5 5 1 1 2 25
NPV 20 25 22 30 42 25 18 35 28 33 ($million)

McGraw-Hill/Irwin 7.49 © The McGraw-Hill Companies, Inc., 2008

 Spreadsheet Solution

A B C D E F G H I J K L M N O
1 Capital Budgeting with Contingency Constraints
2
3 Project Project Project Project Project Project Project Project Project Project
4 1 2 3 4 5 6 7 8 9 10
5 NPV ($million) 20 25 22 30 42 25 18 35 28 33
6 Cumulative Cumulative
7 Cumulative Cash Outflow Required ($million) Total Outflow Available
8 Year 1 1 4 0 4 4 3 2 8 2 6 22 <= 25
9 Year 2 3 6 2 6 6 6 4 11 5 12 44 <= 50
10 Year 3 6 8 7 8 10 8 7 15 13 14 73 <= 75
11 Year 4 10 12 12 12 15 11 8 17 14 15 97 <= 100
12 Year 5 11 13 12 18 20 16 13 18 15 17 117 <= 125
13
14 Project Project Project Project Project Project Project Project Project Project Total NPV
15 1 2 3 4 5 6 7 8 9 10 ($million)
16 Undertake? 1 1 1 0 1 1 1 0 1 1 213
17
18 Contingency Constraints
19 Project 1,2,3 3 >= 1
20 Project 4,5 1 <= 1
21 Project 7 1 <= 1 Project 6

McGraw-Hill/Irwin 7.50 © The McGraw-Hill Companies, Inc., 2008

 Electrical Generator Startup Planning (Fixed Costs)

• An electrical utility company owns five generators.

• To generate electricity, a generator must be started up, and associated with this
is a fixed startup cost.

• All of the generators are shut off at the end of each day.

Generator
A B C D E
Fixed Startup Cost $2,450 $1,600 $1,000 $1,250 $2,200
Variable Cost (per MW) $3 $4 $6 $5 $4
Capacity (MW) 2,000 2,800 4,300 2,100 2,000

Question: Which generators should be started up to meet the total

capacity needed for the day (6000 MW)?

McGraw-Hill/Irwin 7.51 © The McGraw-Hill Companies, Inc., 2008

 Spreadsheet Solution

A B C D E F G H I J
1 Electrical Utility Generator Startup Planning
2
3 Generator A Generator B Generator C Generator D Generator E
4 Fixed Startup Cost $2,450 $1,600 $1,000 $1,250 $2,200
5 Cost per Megawatt $3 $4 $6 $5 $4
6 Max Capacity (MW) 2,000 2,800 4,300 2,100 2,000
7
8 Startup? 1 1 0 1 0
9 Total MW MW Needed
10 MW Generated 2,100 3,000 0 900 0 6000 >= 6,000
11 <= <= <= <= <=
12 Capacity 2,000 2,800 0 2,100 0
13
14 Fixed Cost $5,300
15 Variable Cost $22,800
16 Total Cost $28,100

McGraw-Hill/Irwin 7.52 © The McGraw-Hill Companies, Inc., 2008

 Quality Furniture (Either-Or Constraints)

• Reconsider the Quality Furniture Problem:

– The Quality Furniture Corporation produces benches and picnic tables. The firm
has a limited supply of two resources: labor and wood. 1,600 labor hours are
available during the next production period. The firm also has a stock of 9,000
pounds of wood available. Each bench requires 3 labor hours and 12 pounds of
wood. Each table requires 6 labor hours and 38 pounds of wood. The profit margin
on each bench is $8 and on each table is $18.

• Now suppose that they would not produce any fewer than 200 units of either
product (i.e., either produce 0 or at least 200).

Question: What product mix will maximize their total profit?

McGraw-Hill/Irwin 7.53 © The McGraw-Hill Companies, Inc., 2008

 Spreadsheet Solution

A B C D E F G
1 Quality Furniture (with either-or constraints)
2
3 Benches Tables
4 Profit $8.00 $18.00
5 Min Production (if any) 200 200
6
7 Resources Resources
8 Use of Resources Used Available
9 Labor 3 6 1600 <= 1,600
10 Wood 12 38 6400 <= 9,000
11
12 Produce? 1 0
13
14 Min Production 200 0
15 <= <= Total Profit
16 Production Quantities 533.33 0 $4,266.67
17 <= <=
18 Max Production 533 0
19 Max Possible 533 237

McGraw-Hill/Irwin 7.54 © The McGraw-Hill Companies, Inc., 2008

 Meeting a Subset of Constraints

• Consider a linear programming model with the following constraints, and

suppose that meeting 3 out of 4 of these is good enough
– 12x1 + 24x2 + 18x3 ≥ 2,400
– 15x1 + 32x2 + 12x3 ≥ 1,800
– 20x1 + 15x2 + 20x3 ≤ 2,000
– 18x1 + 21x2 + 15x3 ≤ 1,600

McGraw-Hill/Irwin 7.55 © The McGraw-Hill Companies, Inc., 2008

 Meeting a Subset of Constraints

Let yi = 1 if constraint i is enforced; 0 otherwise.

Constraints:
y1 + y2 + y3 + y4 ≥ 3
12x1 + 24x2 + 18x3 ≥ 2,400y1
15x1 + 32x2 + 12x3 ≥ 1,800y2
20x1 + 15x2 + 20x3 ≤ 2,000 + M (1 – y3)
18x1 + 21x2 + 15x3 ≤ 1,600 + M (1 – y4)

where M is a large number.

McGraw-Hill/Irwin 7.56 © The McGraw-Hill Companies, Inc., 2008

 Facility Location

• Consider a company that operates 5 plants and 3 warehouses that serve

customers in 4 different regions.
• To lower costs, they are considering streamlining by closing one or more
plants and warehouses.
• Associated with each plant are fixed costs, shipping costs, and production
costs. Each plant has a limited capacity.
• Associated with each warehouse are fixed costs and shipping costs. Each
warehouse has a limited capacity.

Questions:
Which plants should they keep open?
Which warehouses should they keep open?
How should they divide production among the open plants?
How much should be shipped from each plant to each warehouse, and from each
warehouse to each customer?

McGraw-Hill/Irwin 7.57 © The McGraw-Hill Companies, Inc., 2008

 Data for Facility Location Problem

(Shipping + Production) Cost

(per unit)
Fixed Capacity
Cost (units per
(per month) WH #1 WH #2 WH #3 month)
Plant 1 $42,000 $650 $750 $850 400
Plant 2 50,000 500 350 550 300
Plant 3 45,000 450 450 350 300
Plant 4 50,000 400 500 600 350
Plant 5 47,000 550 450 350 375

Shipping Cost (per unit)

Fixed Cost Capacity
(per month) Cust. 1 Cust. 2 Cust. 3 Cust. 4 (per month)
WH #1 $45,000 $25 $65 $70 $35 600
WH #2 25,000 50 25 40 60 400
WH #3 65,000 60 20 40 45 900
Demand: 250 225 200 275
McGraw-Hill/Irwin 7.58 © The McGraw-Hill Companies, Inc., 2008
 Spreadsheet Solution

A B C D E F G H I J K L M
1 Plant to Warehouse
2 Shipping + Production Fixed
3 Cost Warehouse 1 Warehouse 2 Warehouse 3 Cost Capacity
4 Plant 1 $650 $750 $850 $42,000 400
5 Plant 2 $500 $350 $550 $50,000 300
6 Plant 3 $450 $450 $350 $45,000 300
7 Plant 4 $400 $500 $600 $50,000 350
8 Plant 5 $550 $450 $350 $47,000 375
9
10 Shipment Total Actual
11 Quantities Warehouse 1 Warehouse 2 Warehouse 3 Shipped Capacity Open? Total Costs
12 Plant 1 0 0 0 0 <= 0 0 Shipping Cost (P-->W) $332,500
13 Plant 2 0 300 0 300 <= 300 1 Shipping Cost (W-->C) $37,375
14 Plant 3 0 0 275 275 <= 300 1 Fixed Cost (P) $142,000
15 Plant 4 0 0 0 0 <= 0 0 Fixed Cost (W) $90,000
16 Plant 5 0 0 375 375 <= 375 1 Total Cost $601,875
17 Total Shipped 0 300 650
18
19 Warehouse to Customer
20 Shipping Fixed
21 Cost Customer 1 Customer 2 Customer 3 Customer 4 Cost Capacity
22 Warehouse 1 $25 $65 $70 $35 $45,000 600
23 Warehouse 2 $50 $25 $40 $60 $25,000 400
24 Warehouse 3 $60 $20 $40 $45 $65,000 900
25
26 Shipment Shipped Shipped Actual
27 Quantities Customer 1 Customer 2 Customer 3 Customer 4 Out In Capacity Open?
28 Warehouse 1 0 0 0 0 0 <= 0 <= 0 0
29 Warehouse 2 250 0 50 0 300 <= 300 <= 400 1
30 Warehouse 3 0 225 150 275 650 <= 650 <= 900 1
31 Total Shipped 250 225 200 275
32 >= >= >= >=
33 Needed 250 225 200 275

McGraw-Hill/Irwin 7.59 © The McGraw-Hill Companies, Inc., 2008