Project

Eli Orchid has designed a new pharmaceutical product, Orchid Relief, which
improves the night sleep. Before initiating mass production of the product, Eli
Orchid has been market-testing Orchid Relief in Orange County over the past 9
weeks.
Now that the daily demand for Orange County can be predicted with reasonable
accuracy using the M3 model, the COO of the company decided to use it to optimize
the production of the new drug.
The daily demand values and production process data are recorded in the Excel file
provided.
The new pharmaceutical product that the company wishes to introduce, Orchid
Relief, uses two new ingredients. At this stage, Eli Orchid can procure limited
amounts of each ingredient. The company has 4500 pounds of ingredient 1 and
3600 pounds of ingredient 2 available for this week.
Eli Orchid can manufacture the new product using any of its three existing
processes that have different capabilities. The production with each of the
processes is done in batches (a batch typically represents one full run of a machine
from when it starts a task until it finishes it). Each batch of production by each of
the processes uses different amounts of ingredients 1 and 2, and results in different
number of units of Orchid Relief produced (note the difference between a batch and
units of Orchid Relief produced). The table below outlines the cost per batch,
amounts of the two ingredients required, and the number of units of Orchid Relief
yielded per batch.
Cost of production per batch
Ingredient 1 required per
batch (pounds)
Ingredient 2 required per
batch (pounds)
Orchid Relief yielded per
batch (units)

Process 1
$14,000
180

Process 2
$30,000
120

Process 3
$11,000
540

60

420

120

120

300

60

Eli Orchid needs to determine how many batches to produce with each process in
the least costly way given the limited availability of the two ingredients. Also, the
total production of Orchid Relief in units must be greater than or equal to the total
forecasted demand (in units) for the following week.

The COO of the company asked the analyst 1:

1. To use the new M3 model
updated with week 9 data (d =
0.6568*Day -151.1703*Mon
-136.2715*Tue -110.595*Wed
-118.3629*Thu -74.7975*Fri +
1.7679*Sat + 434.5675) to
predict the total demand (in
units) for Week 10 (days 6470).

2. To state if this is a
maximization or a
minimization optimization
problem?
3. To provide the mathematical
formulation of the objective
function assuming that X1, X2,
and X3 are the decision
variables representing the
number of batches of each
process to be used.

Mon.
Tue.
Wed.
Thu.
Fri.
Sat.
Sun.
TOTAL:

325.4324
340.9880
367.3213
360.2102
404.4324
481.6546
480.5435
2760.5824

Refer the excel sheet for calculations

Since we are calculating the cost incurred by the
company, we need to minimize the cost
incurred. Thus, it is a minimization problem
Cost = 14000*X1+30000*X2+11000*X3

1 Round numbers to four decimal points (e.g. 0.1234), unless explicitly requested
otherwise.
2

4. To provide the mathematical

formulation of the model
constraints.

180*X1+120*X2+540*X3 <=
4500

Supply of
ingr. 1

Supply of
ingr. 2
Units
produced
Nonnegativity
Integer

5. To use the Production tab

of the Excel file and complete
the setup by:
- entering the forecasted
total demand in the pink
cell
- entering formulas in the
five grey cells based on
the mathematical
formulation
6. To set up Excel Solver
(Assume Constraint Precision
of 0.000001 and Integer
Optimality (%) of 0) and
provide the solution to the
optimization problem.

Excel Formulas:
Cost of
Production
Supply of Ingr.
1
Unit Cost

The total amount of ingredient

1 used should be less than
4500
60*X1+420*X2+120*X3 <=
3600
The total amount of ingredient
1 used should be less than
3600
120*X1+300*X2+60*X3 >=
2760.5824
X1, X2, X3 >= 0
X1, X2, X3 : Integer

=SUMPRODUCT(B3:D3,H3:J3)
=SUMPRODUCT(B3:D3,C10:E
10)
=I6/H12

Process 1
Process 2
Process 3
Cost of production
(obj.)
Unit cost ($###.##)

Number of batches
6
7
0
2,94,000

7. To label each constraint in

the solution as binding or notbinding.

8. To consider a possible
shortage of ingredients in the
following week. What would
the optimized production
process look like if Eli Orchard
could only procure 4320
pounds of Ingredient 1 and
1440 pounds of Ingredient 2?

9. To label each constraint in

the new solution (for the
shortage of ingredients) as
binding or not-binding.

10. To make recommendations

about the production
processes and pricing of
Orchid Relief.

Supply of
Non binding
ingr. 1
Supply of
Non binding
ingr. 2
Units
Non binding
produced
Refer the answer report

Process 1
Process 2
Process 3
Cost of production
(obj.)
Unit cost ($###.##)

Number of batches
24
0
0
3,36,00
116.67

Supply of
binding
ingr. 1
Supply of
binding
ingr. 2
Units
Not binding
produced
[write your paragraph here]

Note: this paragraph must fit

on page 3. The entire project
report (with the original
description) must fit on 3
pages.