Operations Report

DMM Project
Profit Maximization of a Plastic Manufacturer

Submitted To: Submitted By:
Dr. Hitesh Arora Abhimanyu Choudhary
231006
FMG23-A

DMM Project Fore School of Management, New Delhi Roll no.-231006
2
Table of Contents
Acknowledgement 3
Executive Summary 4
Introduction: 5
Shadow prices 6
PROBLEM- 7
Solution- 8
Initial Table 8
Final Solution from Excel: 9
Answer Sheet from Excel: 10
Sensitivity Report: 12
References 13

3
Acknowledgement

As any good work is incomplete without acknowledging the people who
made it possible, this acknowledgement is incomplete without thanking my
family, friends, and faculty, without whose support this report wouldn't have
taken shape.

I take this opportunity to express my profound gratitude and deep regards to my
guide Dr. Hitesh Arora for his exemplary guidance, monitoring and constant
encouragement throughout the course of this report. The blessing, help and
guidance given by him time to time shall carry me a long way in the journey of life on
which I am about to embark.
Lastly, I thank almighty, my parents, brother and friends for their constant
encouragement without which this assignment would not have been possible.

4

Executive Summary

Linear programming is a method to achieve the best outcome (such as maximum
profit or lowest cost) in a mathematical model whose requirements are represented
by linear relationships. We use this method to get either maximum or minimum
value of result. We have various ways to solve the linear programming problem like
the Graphical approach, Simplex approach, Duality approach etc.
The problem we have here is a LPP of the maximization type. In the problem the firm
has to know the optimal number of products it need to produce to achieve the
maximum profit. We will solve the problem using the Excel Solver.
We will also generate the sensitivity report for the solution from the Excel solver, the
sensitivity report will help us to know the allowable changes which can be done
keeping the profit same.

5
Introduction:

Linear programming is a method to achieve the best outcome (such as maximum
profit or lowest cost) in a mathematical model whose requirements are represented
by linear relationships. Linear programming is a special case of mathematical
programming (mathematical optimization).
More formally, linear programming is a technique for the optimization of a linear
objective function, subject to linear equality and linear inequality constraints
Linear programs are problems that can be expressed in canonical form:

Maximize C
T
X
Subject to AX b
and X>0

where X represents the vector of variables (to be determined), c and b are vectors of
(known) coefficients, A is a matrix of coefficients, and (.)
T
is the matrix transpose.
The expression to be maximized or minimized is called the objective function (C
T
X in
this case). The inequalities AX b and X 0 are the constraints, over which the
objective function is to be optimized.
Linear programming can be applied to various fields of study. It is used in business
and economics, but can also be utilized for some engineering problems. Industries
that use linear programming models include transportation, energy,
telecommunications, and manufacturing. It has proved useful in modeling diverse
types of problems in planning, routing, scheduling, assignment, and design.
Sensitivity analysis is the study of how the uncertainty in the output of a model
(numerical or otherwise) can be apportioned to different sources of uncertainty in
the model input. In simple terms it gives an insight on how changes in inputs result
in changes in the output. Sensitivity analysis is also known as post optimal analysis.
In Sensitivity analysis we mainly deal with four kinds of changes in input within
specified range that can cause some changes in the optimal solution. These are:
The objective function coefficients
The right hand side values
Introduction of a constraint
Deletion of a variable

6
Sensitivity analysis is very important to a manager who must operate in a dynamic
environment with imprecise estimates of the coefficients.
Shadow prices
In constrained optimization in economics, the shadow price is the instantaneous
change per unit of the constraint in the objective value of the optimal solution of an
optimization problem obtained by relaxing the constraint. In other words, it is the
marginal utility of relaxing the constraint, or, equivalently, the marginal cost of
strengthening the constraint.
In a business application, a shadow price is the maximum price that management is
willing to pay for an extra unit of a given limited resource. For example, if a
production line is already operating at its maximum 40-hour limit, the shadow price
would be the maximum price the manager would be willing to pay for operating it
for an additional hour, based on the benefits he would get from this change

7
PROBLEM-

Our problem is related to the production of plastic containers i.e. Microwavable food
containers, Plastic bowls and Designer plastic Trays. The Company Bhagwati Tirath
Polycontainers Industries Pvt Ltd. has to manufacture the above mentioned products
and thus has to come up with optimal produce so as to maximize its profit.
The contribution from Microwavable food containers is $4 per 100 cases and from
Plastic bowls is $3.5 per 100 cases. The production time for producing 100 cases of
Microwavable food containers and Plastic bowls are 6 hours and 5 hours
respectively. Besides the Microwavable food containers and Plastic bowls, the
companys manufacturing department was asked by a new customer to produce
Plastic Trays.
The Designer plastic Trays are not difficult to produce except that it has to be
produced in two in two different segments, the base had to be created separately
and the molding around the tray and the handles had to be made separately. The
production time for 100 Designer plastic Trays is 8 hours, which is greater than either
product. The storage space required for Designer plastic Trays per 100 case is 20
cubic feet and the contribution is $5 per case which is higher than either of the
products. There is no limit for the demand of Designer plastic Trays. Space
requirement for Microwavable food containers and Plastic bowls is 20 cubic feet and
30 cubic ft. respectively for 100 cases each. Overall capacity of the warehouse is
300sq. ft. The total production hours are limited to 80 hours per week. Also, the
maximum demand for Microwavable food containers is limited to 900.
We have to calculate the Optimal Mix of product the company needs to produce to
maximize its profit.

8
Solution-

Let , X
1
= number of cases of Microwavable food containers (in hundreds)
X
2
= number of cases of Plastic bowls (in hundreds)
X
3
= number of cases of Designer plastic Trays (in hundreds)
The objective is to maximize the profit,

Objective function is:
Max Z = 4 X
1
+ 3.5 X
2
+ 5 X
3

Subject to:
6.X
1
+ 5.X
2
+ 8.X
3
80 (time constraint)
20.X
1
+ 30.X
2
+ 20.X
3
300 (warehouse capacity in hundreds of sq. ft.)
X
1
9 (Microwavable food containers in hundreds)
Non-negativity constraints are:
X
1
0; X
2
0 ; X
3
0

Now, adding slack variables to convert it into canonical form,
we get :
Max Z = 4 X
1
+ 3.5 X
2
+ 5 X
3
+ 0 X
4
+ 0 X
5
+ 0 X
6

6.X
1
+ 5.X
2
+ 8.X
3
+ X
4
= 80 (time constraint)
20.X
1
+ 30.X
2
+ 20.X
3
+ X
5
= 300 (warehouse capacity in hundreds of sq. ft.)
X
1
+ X
6
= 9 (Microwavable food containers in hundreds)

Initial Table

9
Cj 4 3.5 5 0 0 0 Sol.
B.V Cb X
1
X
2
X
3
X
4
X
5
X
6
X
b

X
4
0 6 5 8 1 0 0 80
X
5
0 20 30 20 0 1 0 300
X
6
0 1 0 0 0 0 1 9

Final Solution from Excel:

Max Z 53.42857143

Decision Variables X1 X2 X3

9 3.142857143 1.285714286

Subject to,

LHS Operator RHS
Time Conatraint 6 5 8 80 <= 80
Warehouse Capacity 20 30 20 300 <= 300

Microwave food
container 1 0 0 9 <= 9

Here we get the optimal solution as:
No. of Microwavable food containers = 9*100 = 900
No. of Plastic bowls = 3.14*100 = 314
No. of Designer plastic Trays = 1.28*100 = 128
These values are now used for the maximization of profit.
Therefore, Profit = 53.428*100 = $5342.8
To solve this problem, we used the Solver tool. In Solver,we set the following
parameters:
1. Target cell = $C$2
2. Equal to: Max

10
3. By Changing cells: $C$5:$E$5
4. Subject to the constraints:
a. $F$10 $H$10
b. $F$8 $H$8
c. $F$9 $H$9

Enable the following Options:
Assume Linear Model
Assume Non-Negative

Answer Sheet from Excel:

11
Microsoft Excel 12.0 Answer Report
Worksheet: [Plastic_Industry_Simplex_Solver.xlsx]Sheet1
Report Created: 9/9/2014 9:42:46 PM

Target Cell (Max)

Cell Name Original Value Final Value

$C$2 Max Z 0 53.42857143

Adjustable Cells

Cell Name Original Value Final Value

$C$5 X1 0 9

$D$5 X2 0 3.142857143

$E$5 X3 0 1.285714286

Constraints

Cell Name Cell Value Formula Status
Slac
k

$F$8 Time Conatraint LHS 80 $F$8<=$H$8 Binding 0

$F$9 Warehouse Capacity LHS 300 $F$9<=$H$9 Binding 0

$F$10 Microwave food container LHS 9 $F$10<=$H$10 Binding 0

12
Sensitivity Report:

Microsoft Excel 12.0 Sensitivity Report
Worksheet: [Plastic_Industry_Simplex_Solver.xlsx]Sheet1
Report Created: 9/9/2014 9:42:47 PM

Adjustable Cells

Final Reduced Objective
Allowabl
e Allowable

Cell Name Value Cost Coefficient Increase Decrease

$C$5 X1 9 0 4 1E+30 0.142857143

$D$5 X2 3.142857143 0 3.5 0.5 0.375

$E$5 X3 1.285714286 0 5 0.25 2.666666667

Constraints

Final Shadow Constraint
Allowabl
e Allowable

Cell Name Value Price R.H. Side Increase Decrease

$F$8 Time Conatraint LHS 80 0.571428571 80 22 6

$F$9 Warehouse Capacity LHS 300 0.021428571 300 36 55

$F$1
0 Microwave food container LHS 9 0.142857143 9 2.25 9

Allowable increase and allowable decrease
This means that if a quantity is increased or decreased within this range there will be
the same product mix but the profit will change.

Shadow prices
Shadow price associated with a particular constraint is the change in the optimal
value of the objective function by changing the RHS of that constraint by 1 unit.
Here the shadow price associated with the time is 0.57142 it means by increasing 1
hour of production time the profit will increase by 57.142$.
The shadow price associated with capacity is 0.02142, it means if we increase
capacity of storage by 1 unit it will add to the profit by 2.14$.

13
References

1. http://en.wikipedia.org/wiki/Linear_programming
2. http://en.wikipedia.org/wiki/Simplex_algorithm
3. Operations Research, An Introduction, Hamdy A Taha, 6
th
Ed
4. Class Notes

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