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INTRODUCTION TO OPERATIONS

RESEARCH

Unit Objectives

After a thorough study of this unit, you will be able to:

Define operations research.

Understand the history of operations research.

Develop acquaintance with basic features and significance of operations research.

Understand models and model building.

Identify application areas of operations research

Comprehend operations research techniques

Unit Introduction

Many people still remain in the bondage of self-incurred tutelage. Tutelage is a person's

inability to make his/her own decisions. Self-incurred is this tutelage when its cause lies

not in lack of reason but in lack of resolution and courage to use it without wishing to

have been told what to do by something or somebody else. The difficulty in life is the

choice. Good decision-making brings about a better life. A bad decision may force you to

make another one. A good decision is never an accident; it is always the result of high

intention, sincere effort, intelligent direction and skillful execution; it represents the wise

choice of many alternatives. One must appreciate the difference between a decision and

an objective. A good decision is the process of optimally achieving a given objective.

When decision-making is too complex or the interests at stake are too important, quite

often we do not know or are not sure what to decide. In many instances, we resort to

informal decision support techniques such as tossing a coin, asking an oracle, visiting an

astrologer, etc. However formal decision support from an expert has many advantages.

Management Science focuses on the formal model-driven decision support techniques

such as mathematical programs for optimization, and decision tree analysis for risky

decisions. Such techniques are now part of our everyday life. In decision-making we may

start the process of consideration. It is best to learn the decision-making process for

complex, important and critical decisions.

Cognizant to the above fact, we need to be well acquainted with the fundamentals of

management science as related to its business application. This unit is dedicated to

acquaint you with overview of operations research to make you a better decision maker

by learning the decision-making process. To this end, the unit is organized in to two

sections. In the first section, you will learn about definition of operations research, history

of operations research, basic features and significance of operations research. The second

section is devoted to quantitative analysis & decision making process, models and model

building, and operations research major techniques.

1

Section One: History, Meaning, Features and

Significance of Operations Research

Section Objectives:

Up on completing this section, you will be able to:

- Know the origination of operations research.

- Define Operations Research.

- Understand the nature and basic features of Operations Research.

- Understand application areas of Operations Research

- Identify significance of Operations Research

Section Overview:

1.1 History of Operations Research

1.2 Definition of Operations Research

1.3 Basic features of Operations Research

1.4 Application areas of Operations Research

1.5 Significance of Operations Research

1.1 History of Operations Research

The Industrial Revolution of the 19th century probably did more to shape life in the

modern industrialized world than any event in history. Large factories with mass

production created a need for managing them effectively and efficiently. The field of

Decision Science (DS) also known as Management Science (MS), Operations Research

(OR) in a more general sense, started with the publication of the Principles of Scientific

Management in 1911 by Frederick W. Taylor. His approach relied on the measurement of

industrial productivity and on time /motion studies in the factories. The goal of his

scientific management was to determine the best method for performing tasks in the least

amount of time, while unfortunately using the stopwatch in an inhuman manner.

Until the middle of the 19th century, most industrial enterprises only employed a few

workers. However, as companies expanded, it became less and less feasible for one

person to manage all of the new managerial functions of the business effectively. New

scientific methodologies were developed to provide assistance to each new type of

managerial function as it appeared. As more specialized forms of management emerged,

more specialized sub-functions, such as statistical quality control, equipment

maintenance, marketing research, and inventory control emerged. Whenever a managerial

function is broken down into a set of different sub-functions, a new task, called the

executive function of management, is created to integrate the diverse sub-functions so

that they efficiently serve the interests of the business as a whole. The executive function

evolved gradually with organizations themselves. However, increasing demands were

made on the manager who, in turn, sought aid outside the organization. This gave rise to

management consultants. What we call OR/MS/DS/SS today is, in fact, the use of

scientific tools to aid the executive.

2

OR originated in Great Britain during World War II to bring mathematical or quantitative

approaches to bear on military operations. Since then, OR/MS/DS/SS has evolved to be

applicable to the management of all aspects of a system, product, or service, and hence is

often referred to as Systems Science or Management Science. It has now become

recognized as an important input to decision-making in a wide variety of applications in

business, industry, and government.

The term OR arose in the 1940's when research was carried out on the design and

analysis of mathematical models for military operations. Since that time the scope of OR

has expanded to include economics (known as econometrics), psychology

(psychometrics), sociology (socio-metrics), marketing (marketing research and marketing

science), astrology (astronomy), and corporate planning problems. The growing

complexity of management has necessitated the development of sophisticated

mathematical techniques for planning and decision-making, and the OR/MS/DS/SS

features prominently in this structured decision-making process cycle by providing a

quantitative evaluation of alternative policies, plans, and decisions. The mathematical

disciplines most widely used in OR/MS/DS/SS modeling process include mathematical

programming, probability and statistics, and computer science. Some areas of OR, such

as inventory control, production control, and scheduling theory, have grown into sub-

disciplines of their own right and have become largely indispensable in the modern

world.

Military organizations had gone through the same type of evolution as other businesses

and industries. This organizational evolution took place in the twenty-year gap between

the end of World War I and the beginning of World War II when the military leadership

had to turn to teams of scientists for aid. These teams of scientists were usually assigned

to the executive in charge of operations; hence their work came to be known as

Operational Research in the United Kingdom and by a variety of names in the United

States: Operation Research (OR), Decision Science (DS), Operational Analysis, System

Analysis (SA), Success Science (SS), and Management Science (MS). The name

Operations Research is the most widely used.

The potential of computer and information systems as new tools for management forced

the non-technically trained executives to begin to look for help in the utilization of the

computer. The emerging search for assistance was accelerated by the outbreak of the

Korean War. This vigorous growth of OR in the military continued to provide rapid

applicability to other industries and sectors.

1.2 Meaning and Definition of Operations Research

why it cannot be defined. The following definitions provide a useful basis for an initial

understanding of the nature of OR/MS:

A scientific method of providing executive management with a quantitative

base for decisions regarding operations under their control (Mores-Kimball 1943).

Scientific approach to problem solving for executive management (Wagner,

1969).

Optimal decision-making in, and modeling of, deterministic and probabilistic

systems that originate from real life. These applications, which occur in

3

government, business, engineering, economics, and the natural and social sciences,

are largely characterized by the need to allocate limited resources. In these

situations, considerable insight can be obtained from scientific analysis, such as that

provided by OR/MS/DS/SS (Hiller & Lieberman, 1974).

A branch of applied mathematics wherein the application is to the decision-

making process (Gross, 1979).

Comparing definitions given by More-Kimball and Gross, the divergence is notable after

almost 40 years: in one case, OR/MS/DS/SS is defined as scientific method, while in the

other it is seen as a branch of mathematics.

In examining these definitions, it should be noted that neither the old and well-established

scientific discipline nor science itself has ever been defined in a way that is acceptable to

most practitioners.

Operations Research is defined by different scholars from different perspectives. But, the

most important comprehensive definition is given as follows.

disciplinary teams to problems involving the control of organized man-machine

systems so as to provide solutions which best serve the purposes of the

organization as a whole (Ackoff- Sasieni 1968).

.From the concepts and definition given above, Operations Research is:

1. The application of scientific methods, techniques and tools to a problem to find an

answer.

2. A management tool in the hands of a manager to take a decision.

3. A scientific approach to decision-making process.

4. An “applied research” aiming at finding a solution for an immediate problem facing a

society, industry or a business enterprise. This is not “fundamental research”.

5. A decision-oriented research, using scientific methods, for providing management a

quantitative basis for taking decision regarding operations under his/her control.

6. Applied decision theory. It uses scientific, mathematical and logical means to take

decisions.

The OR/MS/DS approach to decision making includes the diagnosis of current decision-

making and the specification of changes in the decision process. Diagnosis is the

identification of problems (or opportunities for improvement) in current decision

behavior; it involves determining how decisions are currently made, specifying how

decisions should be made, and understanding why decisions are not made, as they should

be. Specification of changes in decision process involves choosing what specific

improvements in decision behavior are to be achieved and thus defining the objectives.

Nowadays, the OR/MS/DS approach has been providing assistance to managers in

developing the expertise and decision tools necessary to understand the decision

problems, put them in analytical terms and then solve them. The OR/MS/DS analysts are,

e.g., "chiefs of staff for the president", "advisors", "and R&D modelers" "systems

4

analysts", etc. Applied Management Science is the science of solving business problems.

The major reason that MS/OR has evolved as quickly as it has is due to the evolution in

computing power. The foundation of OR/MS/DS/SS is built on the philosophy of

knowledge, science, logic, and above all creativity. Almost all decision problems have

environments with similar components as follows:

2. The analyst who models the problem in order to help the decision maker.

3. Controllable factors (including your personal abilities and physical resources),

4. Uncontrollable factors

5. The possible outcomes of the decision

6. The environment/structural constraints

7. Dynamic interactions among these components.

The procedure to be followed in the study of OR, generally involves the following major

phases.

1. Formulating the problem

2. Constructing a mathematical model

3. Deriving the solution from the model

4. Testing the model and its solution ( updating the model)

5. Controlling the solution

6. Implementation

1.4 Application Areas of Operations Research

There are so many application areas of operations research; to mention some of the most

widely known areas:

Forecasting Maintenance and Repair

Production Scheduling Accounting procedures

Inventory Control Packaging

Capital Budgeting Natural Resource Management

Transportation Research and Development

Plant location Health Care

Human Resource Management Quality Control

Advertising and sales research

Equipment Replacement, etc.

operations. Typical instances include;

5

Annual saving increments for many companies

Improvement in response time of customers

Increased traffic citation revenues

Optimizing refinery revenues

Optimal overbooking discount fairs

Improving the efficiency of a production line

Helpful in establishing a long-range corporate strategy, etc.

Exercise 1-1:

2. Analyze the benefits of OR to manufacturing enterprises.

3. List and describe OR models.

Quantitative Analysis & the Decision Making

Process, Models & Model Building

Section Objectives:

Up on completing this section, you will be able to:

6

- Understand major OR techniques

- Know quantitative analysis & decision making process

- Understand what a model is.

- Identify categories of OR models

- Appraise the management science approach

Section Overview:

1.6 OR Techniques

1.7 Quantitative Analysis & Decision Making Process

1.8 Models and Model Building

2) Allocation models :

o Linear programming

o Non-linear programming

o Transportation models

o Assignment models

o Integer programming

o Goal programming

o Dynamic programming

3) Inventory models

4) Replacement models

5) Network models

6) Waiting- line models(Queuing theory)

7) Simulation

8) Sequencing models

9) Decision theory

10) Game theory

11) Markov models

12) Regression and correlation

Process

is better to have a look at the decision making process.

o Decision Making: is the process of selecting a feasible course of action from a set of

alternative courses of actions so as to solve problems or capitalize on opportunities.

The decision making process is initiated by a problem. The intention of the manager,

when making a decision or selecting a course of action, is to solve that problem. In doing

7

so, the manager first makes an analysis of the alternatives. This analysis process takes

two forms— qualitative and quantitative.

Qualitative

analysis based

upon

managerial

experience and

judgment

Problem evaluation Decision

Quantitative

analysis based

upon

mathematical

techniques

Figure 1.1 The Decision Making Process

(Source: Anderson, Sweeny, and Williams (2003)

The above figure shows the brief procedures in the decision making process. The steps in

the rational decision making process includes:

1. Identify and define the problem;

A problem is a necessary condition for a decision, i.e. there would be no need for

decisions if problems did not exist.

2. Determine the set of alternative solutions;

3. Determine the criteria to evaluate alternatives;

=>Identifying those characteristics that are important in making the decision.

4. Analyze the alternatives;

=>Based on the advantages and disadvantages of each alternative and using qualitative

and quantitative approaches, analysis of the identified alternatives is crucial in the

decision process.

5. Select the best alternative/make the decision;

=> Select the best alternative that suits to solve our decision problem. In selecting the

best alternative, factors such as risk, timing and limiting factors should be considered

adequately.

6. Implementing the solution;

=> Putting the decision into action. Deciding or making a selection is not an end, we

have to implement it.

7. Establishing a control, follow up and evaluation system;

=>On going actions need to be monitored.

=>Follow – up of the decision made for any adjustments and feedbacks to be

incorporated.

8

=>Evaluate the results and determine if a satisfactory solution has been obtained. This

is to assure the achievement of the goal-solving the problem.

Our emphasis is on the analyses approaches: qualitative and quantitative. In qualitative

analysis, intuition and the manager’s subjective judgment and experience are used. This

type of problem solving is more an art than a science.

o The qualitative approach is usually used when:

The problem is simple

The problem is familiar

The costs involved are not so great

Immediate decisions are needed

o The quantitative approach is used when:

The problem is complex

The problem is not familiar

The costs involved are substantial

Enough time is available to analyze the problem

Note: Both the quantitative and qualitative analyses of a problem provide important

information for the decision maker. Of course, decisions based on quantitative analysis

tend to be more objective than those based on a purely qualitative analysis. Although OR

is not entirely quantitative, its applications falls under the heading of quantitative

analysis. For this reason OR makes use of quantitative models.

To sum up, the decision making procedure as explained earlier starts with a certain

problem. The management science approach to analyze and solve the problem involves

careful definition of the problem, use of models, analysis of models (model solution), and

implementation and follow-up. (See figure 1.2)

Problem

Definition

Model

Construction

Analysis

(Model

Solution)

Implementation

& Follow-up

9

A model is a selective abstraction of reality. It is a simplified and often idealized

representation of real world problems. A good model should capture the important details

of reality without including minor details that would obscure rather than illuminate. In

this sense, a model can be taken as a selective abstraction because only those details that

are considered as important for the problem at hand are included in the model. Thus, it is

important to carefully decide which aspects of reality to include in a model.

There are certain significant advantages gained when using a model. These are:

Problems under consideration become controllable through a model

It provides a logical and systematic approach to the problem

It provides the limitations and scope of an activity

It helps in finding useful tools that eliminate duplication of methods applied to

solve problems.

It helps in finding solutions for research and improvements in a system.

It provides an economic description and explanation of either the operation, or

the systems they represent.

The classification of models is a subjective problem. They may be distinguished as

follows:

1. Models by degree of abstraction

2. Models by function

3. Models by structure

4. Models by nature of an environment

5. Models by the extent of generality

1. Models by Function:

These models consist of Descriptive models, Predictive models and Normative

models

A) Descriptive Models: describe and predict facts and relationships among the

various activities of the problem. These models do not have an objective function

as a part of the model to evaluate decision alternatives. In this model, it is possible

to get information as to how one or more factors change as a result of changes in

other factors.

B) Normative or Optimization Models: they are prescriptive in nature and develop

objective decision-rule for optimum solutions.

2. Models by Structure and Abstraction :

A. Iconic or Physical Models: are pictorial representations of real systems

and have the appearance of the real thing. An iconic model is said to be

scaled down or scaled up according to the dimensions of the model which

may be smaller or greater than that of the real item. It is also called Static

Model. It is given in two or three dimensions. It is a representation of the

real object. These models are easy to observe and describe but are

difficult to manipulate.

Example:

The structure of an atom

Model of an airplane

Photograph of a machine

10

Layout drawing of a factory

Glob

B. Analog Models: They are more abstract than iconic models for there is no

look alike correspondence between these models and real life items. These

models are less specific, less concrete but easier to manipulate than iconic

models. These are abstract models mostly showing inter and intra

relationships between two or more parameters. For example: It may show

the relationship between an independent variable (input) with that of a

dependent variable (output). For instance; histogram, frequency table,

cause-effect diagram, flow charts, Gantt charts, price-demand graph,

world map and others. They are two dimensional.

C. Mathematical or Symbolic Models: They are most abstract in nature.

They employ a set of mathematical symbols to represent the components

of the real system. These variables are related together by means of

mathematical equations to describe the behavior of the system. The

symbolic model is usually the easiest to manipulate experimentally and it

is the most general and abstract. Its function is more explanatory than

descriptive.

Example:

1. (x + y) 2 = x2+2xy+y2

2. Max. Z=3000x1 +2500x2

Subject to:

2x1+x2 < 40

x1+3x2 < 45

x1< 12

x1 , x2 > 0

Depending on the degree of uncertainty we have about a problem, we can classify models

as Deterministic and Probabilistic/Predictive/Stochastic models.

certainty. That is to say, we use deterministic models when we know all the numerical

values in the model certainly. For example; if we are going to decide on the size of a

warehouse to be constructed, our model will be deterministic if we know the exact

amount of demand (quantity of commodity to be stored in the warehouse). In

deterministic models, all uncontrollable inputs to a model are known and cannot vary.

uncertainty or risk and the probabilities of the alternative states of nature are known.

Unlike the deterministic models; here, any of the uncontrollable inputs are uncertain

and subject to variation.

11

A. Specific Models: when a model presents a system at some specific time it

is known as a specific model.

B. General Models: are models applicable to all situations without time

bound. Simulation and Heuristic models fall under this category.

Unit Summary

approach or a qualitative approach to decision making. The two are not exclusive but are

complimentary. Operations Research provides a scientific approach to decision making.

OR is a systems approach to problem solving. It uses analytical techniques and takes a

multidisciplinary view of real life problems. Though it has the word ‘research’ built in to

its name, it deals with real life problems. The approach relies heavily on models of

existing systems and studies the problem by manipulating the various important variables

built in to the analytical models.

solve different types of problems. It helps the decision maker in making better decisions

based on facts and scientific methods of analysis. From its foundations in the Second

World War, it has come a long way and is widely used in business and industry.

Exercise 1-2

1.

1. Distinguish between quantitative and qualitative decision making process.

2. Why are models required?

3. Describe the basic types of models.

4. Is OR an art or science? Justify with supportive reasons.

5. When is quantitative analysis required in decision making?

6. Elaborate the application of Operations Research techniques in service giving

enterprises.

12

7. Explain the management science approach to decision making.

8. Identify application areas of Operations Research in business.

9. What are the drawbacks of using quantitative analysis?

10. Briefly explain the criteria of model classification.

11. Give examples of allocation models.

12. Explain the milestones in the development of OR/MS/DS/SS.

References

2. J K Sharma (2003): Operations Research, Theory and Application, Second

Edition.

3. M.P. Gupta R.B. Khanna (2004), Quantitative Techniques for Decision Making

New Delhi.

4. Anderson, Sweeney, and Williams (2003), An Introduction to Management

Science: Quantitative Approaches to Decision Making, 5th ed. west publishing.

Co.

5. Gupta Pram Kumar (2007), Operations Research, S. Chard and Company LTD.

New Delhi, India.

6. Jeffrey D. Camm and James R. Evans; Management Science: Modeling, Analysis and

Interpretation, South Western College Publishing.

7. Harvey M. Wagner; Principles of Operations Research, Prentice Hall International Inc.

8. Kant Swamp, P.K. Gupta and Man Mohan; Operations Research; McGraw Hill

International.

9. Turban and Meredith, Management Science, 6th ed. IRWIN.

10. Render and Stain; Quantitative Analysis for Management, 6th ed. Allan and Bacon.

11. Taylor III Bernard W. (1986), Introduction to Management Science, 5th ed.

Prentice Hall, Englewood Cliffs, New Jersey.

13

UNIT TWO

LINEAR PROGRAMMING

Unit Introduction:

A large number of decision problems faced by a business manager

involve allocation of resources to various activities, with the objective of

increasing profits or decreasing cost. Normally, the resources are scarce

and performance of number of activities within the constraints of limited

resources is the challenge. A manager is, therefore, required to decide as

to how best to allocate resources among the various activities.

function, called objective function, subject to the given limitations or

constraints. A manager may be faced with the problem of deciding the

appropriate product mix taking the objective function as the maximizing

of profits obtainable from the mix, keeping in view various constraints

such as availability of raw materials, position of labor supply, market

consumption etc.

The linear programming method is a technique of choosing the best

alternative from a set of feasible alternatives in situations in which the

objective function as well as constraints can be expressed as linear

mathematical function.

Unit Objectives:

After going through this unit you will be able to:

o Undertook the formulate of linear programming problems

o Solve linear programming (LP) problems through graphical and

simplex methods

o Understand the concept of Duality in LP models

Pre-Test Questions:

1. What are some types of problems that LP can help in

solving?

2. What characteristics must a problem have if linear

programming is to be used?

3. What is economic interpretation of dual variables?

14

Section One: Linear Programming Problem Formulation

Introduction:

Programming in American term is another name of planning. Planning of

resource is necessary because resources are scare and they are capable

of alternative uses. The word ‘Linear’ means that the relationship

handled are those represented by straight lines i.e. the relationships are

of the form Y= a+bx, and the word ‘programming’ means taking decisions

systematically. This section deals with description of LP problem, basic

assumptions and how to formulate a business problem of resource

allocation in form of LP problem.

Section Objectives

The main objective of this section is

o To understand the basic nature and expression of LP problem.

o To learn how to formulate LP problem

o To know the advantages of LP problem.

Section Overview

2.1 Description of LP problem

2.2 Requirements for application of LP

2.3 Assumptions underlying LP

2.4 Advantages of LP

2.5 Formulation of LP problems

function, such as, minimization of cost or maximization of profit under certain

constraints. Objective function is expressed in the form of real function f (x 1,x2

…….xn) and the constraints take the form of aij xj < or = or > 0 where (i=1….m)

and [j=1….n] since problems are referred as mathematical programming

problem. LP is the simplest and most widely used of these techniques. It is

applicable to that class of programming problems in which all the functions of

unknown are linear. Whenever objective function is a linear function of

controllable variable and is subjected to equations of linear function then it is

referred as linear programming. A LP problem can be described as follow:

15

Optimize Z= C1x1+C2x2+C3x3+…+Cnxn

Subject to

a11x1+a12x2+……..+ajj xj+……a1nxn(< = >) b1

a21x1+a22x2+……..+a2j xj+……a2nxn(< = >) b2

.

am1x1 + am2 x2 +……..+ amj xj +……amn xn(< = >) bm

Where,

o (< = >) means any of the three signs may be there.

o Optimize means maximize or minimize objective function

o The linear function which is to be optimized is called objective

function

o All constraints are equations except for non-negativity

restrictions which are inequalities.

o The RHS of each constraints is non-negative

o All variables are non-negative

o Inequality constraints can be changed to equations by adding or

subtracting LHS of each constraint by non-negative variable (ie

a slack variable S1 is added to LHS of constraint with the sign <

and a surplus variable S2 is subtracted on the LHS of constraint

with the sign >)

o aij and bm are known coefficients and xj is unknown variable.

1. The aim or object should be clearly identifiable and definable in

mathematical terms. For example, it would be optimization of either cost

or profits or time etc.

2. The activities involved should be distinct and measurable in

quantitative terms such as products involved in a production planning

problem.

3. The resources to be allocated also should be measurable

quantitatively. Limited availability/ constraints should be clearly spelt

out.

4. The relationships representing the objective function as also the

resource limitation consideration must be linear in nature.

5. There should be a series of feasible alternative courses of action

available to the decision makers that are determined by the resources

constraints.

exists in the objective function and the constraints inequalities. This

16

means that the amount of each resource used and associated

contribution to profit or cost in the objective function should be optimal,

proportional to the value of each decision variable. If we increase the

production quantity, the resources requirement should also be increased

in the same proportion.

Example:

a. Eg. If the product is assumed to contributes 10 Birr

towards the profit, the total contribution would be 10x.

b. If one unit 2 hours of labour of certain type 10 units

would require 20 hours

inequalities both, the total of all the activities is given by the sum total of

each activity conducted separately. Thus total profitability and sum total

of all resources required should be equal to the sum of the individual

amounts.

Example:

a. The total profit in the objective function is determined by

the sum of profit contributed by each of the product

separately.

b. Similarly the total amount of resource used is equal to

the sum of resource values used by various resources.

that the decision variables are continuous. As a consequence,

combinations of output with fractional values, in the context of

production problems, are possible and obtained frequently. Normally

we deal with integer values, but even fractional values can be

utilized. Fractional values should be considered only for one time

decision problems.

coefficients, the coefficients of inequality/equality constraints and

the constraints (resource) values are known with certainty. Hence,

linear programming is deterministic in nature.

limited number of choices are available to the decision maker and the

decision variables can also assume negative values.

assume negative values in reality. Even if it is mathematically

possible to find negative values for decision variables, in reality such

values do not make sense since there are no negative amounts of

money, distance, processing time, market share, etc.

17

2.4. ADVANTAGES OF LINEAR PROGRAMMING

productive resources. It helps a decision maker to ensure effective use of

scarce resources by their proper deployment.

2. Due to its structured form, linear programming techniques improve

the quality of decision making.

3. It generates large number of alternate solutions and hence it helps in

reaching practical solutions at optimum working level. It also permits

modifications of the mathematical model to suit the decision makers’

requirement.

4. This technique also indicates ideal capacity of machines or materials

in a production process. In fact it helps decision maker to decide whether

his resources can be intentionally kept idle in order to work on optimal

level of objective, if certain constraints demand so.

5. This technique can also cater for changing situations. The changed

conditions can be used to readjust the plan decided for execution.

technique. But to get the best advantage out of the process, we have to

clearly identify objective function, decision variables and constraints and

quantify the relationship to formulate a worth-while mathematical model.

There are three basic steps in formulation of linear programming model.

These should be brought into algebraic relation form for

utilization.

Step 2 : Clearly define all the limitations for a given situation. These

limitations or constraints also need to be expressed in

algebraic form either as linear equations or inequalities in

terms of the decision variables so identified in step 1.

Step 3 : Identify the objective to be optimized and it also should be

expressed in terms of linear function of decision variables.

The formation of the problem now can be achieved in a very structured

form by bringing in all related combinations.

Example 1

An electronic firm is undecided at the most profitable mix for its

products. The products manufactured are transistors, resistors and

carbon tubes with a profit of (per 100 units) US $ 10, $6 and $4

respectively. To produce a shipment of transistors containing 100 units

requires 1 hour of engineering, 10 hours of direct labor and 2 hours of

administrative service. To produce 100 units of resistors requires 1 hour,

4 hours and 2 hours of engineering, direct labor and administrative time

respectively. For 100 unit of carbon tubes it needs 1 hour, 6 hours and 5

18

hours of engineering, direct labor and administrative time respectively.

There are 100 hours of engineering time, 600 hours of direct labor and

300 hours of administrative time available. Formulate the corresponding

LPP.

Solution:

Let the firm produce x hundred units of transistors, y hundred units of

resistors and z hundred units of carbon tubes. Then the total profit to be

maximized from this out put will be

Z = 10x + 6y + 4z

resistors and z hundred unit of carbon tubes will require

10x + 4y + 6z hours of direct labour time and

2x + 2y + 5z hours of administrative service

But the total time available for engineering, direct labour and

administrative services is 100, 600 and 300 hours respectively. Hence

the constraints are

x + y + z < 100

10x + 4 y + 6z < 600

2x + 2y + 5z < 300 with x,y,z > 0

Thus formulated LPP is

Maximize z = 10x + 6y + 4z

10x + 4 y + 6z < 600

2x + 2y + 5z < 300

Where x,y,z > 0 as the non-negativity restriction

Example 2: A company is making two products A and B. The cost of

producing one unit of product A and B is $ 60 and $ 80 respectively. As

per the agreement, the company has to supply at least 200 units of

product B to its regular customers. One unit of product A requires one

machine hours whereas product B has machine hours available

abundantly within the company. Total machine hours available for

product A are 400 hours. One unit of each product A and B requires one

labour hour each and total of 500 labour hours are available. The

company wants to minimise the cost of production by satisfying the given

requirement. Formulate the problem as a linear programming problem.

Solution:

19

Let us have the manufacture of x 1 and x2 units of product A and B

respectively. Then the given data indicates the relationship of decision

variables as follows:

Objective function Minimise cost =60x1 + 80x2 (production cost)

Constraints: x2> 200 (Agreement for supply)

x1 < 400 (machine hours for product A)

x1 + x2< 500 (labour hours)

x1 , x2> 0 ( non –negative constraint)

Problems

Introduction:

assumptions that constraints are expressible in quantitative terms,

relationships expressed by constraints and objective function are linear,

the linear programming problems can be solved to determine optimum

strategy by two methods- Graphical and Simplex. In this section both

these methods are taken up along with few illustrations.

Section Objective

After completing this section the learners must be able to:

Prepare graphs and interpret the results of linear programming

problems.

Use simplex method to solve problems of maximization and

minimization type.

Determine the dual of any linear programming model and

understand its economic interpretations.

Section Overview

2.7 Simplex Method

2.7.1 Simplex Algorithm-Maximization problem.

2.7.2 Simplex Algorithm-Minimization problem.

2.8 Sensitivity Analysis

2.9 Duality in LP Problems

When there are only two decision variables involved, the conditions can

be placed on a graph to find the feasible region of the decision making.

The optimal solution is obtained by reaching the point on the feasible

20

region that optimizes the solution. We, then, can interpret the results

from this graph.

Step II. Convert the in equalities in to equalities to obtain graphical form

of the constraints. Draw the line of each constraint, first putting x 1=0 to

find the value of x2 and then putting x2=0 to find the value of

x1. Then draw the line for the values of x 1 and x2 which

represents that particular constraint. Once the lines are drawn for

all the constraints, identify the feasible polygon (area) by shading

the area below the line for the constraint < and shading above the line

for the constraint > type.

Step III. Identify the extreme points of the feasible polygon and name the

corners.

Step IV. Evaluate the objective function Z for all points of feasible region.

Step V. In case of maximizing objective function Z, the corner point of

feasible region giving the maximum value of Z becomes the

value of decision variables. Similarly in minimizing case, the

point of minimum value of Z gives the answer.

Two commodities P1 and P2 are to be produced. The profit Margin on P 1 is

$ 8 and on P2 is $ 6. Both the commodities are required to be processed

through two different machines. Sixty hours of time are available on I

machine and forty eight hours of time are available on II machine. One

unit of P1 requires 4 hours of time in machine I and 2 hours of time on

machine II. Similarly, one unit of P 2 requires 2 hours of time on machine

I and 4 hours of time on machine II. Determine the number of units of P 1

and P2 to be produced in order to maximize the profits using graphical

method?

Solution:

Step I. Formulate LP Problem.

The information available can be put into structural matrix form as follow.

Commodities

Requirement Total

P1 P2

Machine I 4 2 60

Machine II 2 4 48

Profit $ per unit 8 6 -

Let x2 be number of units to be produced for P2

X1 and X2 are unknown decision variables.

21

Objective function is profit maximization and can be expressed as.

Max Z= 8x1 + 6x2

The given constraints are time and machine and can be converted into

linear relations as follow:

4x1 + 2x2 < 60 (i)

2x1 + 4x2 < 48 (ii)

Where x1, x2 > 0 non-negativity condition.

lines and determine feasible polygon (area).

4x1 + 2x2 = 60

at x1 axes, x2 = 0 ∴ 4x1= 60 or x1 =15

at x2, axes, x1 = 0 ∴ 2x2 = 60 or x2 = 30

By these coordinates (15,30) we get line BD in graph. Similarly, taking

constraint (ii).

2x1 + 4x2 = 48

at x1 axes, x2 = 0 ∴ 2x1= 48 or x1 =24

at x2, axes, x1 = 0 ∴ 4x2 = 48 or x2 = 12

By these coordinates (24,12) we get line AE in graph.

Now, any point on line BD satisfies (i) constraint and any point on line

AE satisfies (ii) constraint. The constraints cannot be violated, they must

be satisfied. Any solution which satisfies all the know constraints is

called optimal solution. Since both the constraints are of the type <

hence any point on the right hand side (RHS) of BD or AE becomes

infeasible area/solution for which we are not concerned.

X2

40 -

30 - B

20 -

A

12 -

C

10 -

E

0 D

X1

10 15 20 24 30 40

22

Step III. Both the constraints are to be satisfied simultaneously,

therefore, OACD becomes the region of feasible solution. This is also

known as feasible polygon. Any point in this feasible polygon will also

give rise to optimal solution which we are in need. There are infinite

numbers of points in this feasible area to be examined. Let us take any

point in feasible region. Its movement is possible in two directions, either

towards origin or away from it. OA, AC, CD, OD are bounding lines of

feasible area and hence optimal solution must lie on any boundary line.

On line OA, point A give maximum profit, on line OD, point D gives

maximum profit.

Step IV. Evaluate the objective function Z= 8 x1 + 6x2 for all points of

feasible region i.e. O,A,C,D.

At point O profit is zero ∴ Z=O

At point A x2=12, x1=0 ∴ Z=12x6=72

At point D x1=15, x2=0 ∴ Z=15x8=120

At point C x1=12, x2=6 ∴ Z=12x8+6x6=132

(from graph)

Step V. Z is maximizing objective function, hence the point with

maximum value of Z is the optimal solution point.

Therefore at point C (Z=132) with x 1=12 and x2=6 is the optimal

point.

Minimize Z= 50x1 + 20x2

Subject to 2x1 – x2> 0 (i)

x1 + 4x2 > 80 (ii)

0.9x1 + 0.8x2 >40 (iii)

Where x1 ,x2 > 0 non- negativity condition.

Solution:

The first step is skipped as LP problem is already formulated. We will

follow other steps simultaneously. In constraint (i) 2x 1 –x2 > 0 there is no

constant value, hence it must pass through the origin. First convert it

into equality.

2x1 –x2 > 0 . New give x1 any arbitrary value.

When x1 =0, x2=0

x1 =1, x2=2

x1 =2, x2=4 and so on.

We draw the line with these coordinates and get line I drawn in the graph

passing through origin.

x1 + 4x2 = 80

When x1 =0, x2=20

X2 =0, x1=80

23

We draw the line II (80, 20) as shown in graph.

Now, convert constraint (iii) in equality

0.9x1 + 0.8x2 =40

When x1 =0, x2=50

X2 =0, x1=44.4

We draw line III (44.4, 50) as shown in graph.

For feasible area we need to examine all the there constraints equations

(Note, all are > type)

increasing, the equation becomes negative or less than, which is not

permitted. Hence feasible area should be on RHS.

In equation (ii), the feasible area should be above the line because it is

greater than the sum of x1 and x2.

Similarly in equation (iii) it is on the RHS therefore feasible area (region)

is indicated by three rows or shading and extends upto infinity.

Now we have to find out different values of Z at different corner points,

B,C,E by finding out their coordinates (x 1, x2) then putting them in

objective function Z. The point which gives the minimum value is the

answer.

At corner B x1=16,x2=32 therefore Z= 1440

At corner C x1=34.4,x2=11.4 therefore Z= 1948

At corner E x1=80,x2=0 therefore Z= 4000

From the above we can see that minimum value of Z is at point B where

x1=16 and x2 =32 and hence it is the answer.

24

2.7 Simplex Method of Solving LPM

problem, the solution by graphical method is not possible. The simplex

method provides an efficient technique which can be applied for solving

LPPs of any magnitude, involving two or more decision variables. In this

method, the objective function is used to control the development and

evaluation of each feasible solution of the problem.

systematic manner, the optimal solution that comes from the corner

points of the feasible region. Simplex algorithm considers only those

feasible solutions which are provided by the corner points and that too

not all of them. It is very efficient algorithm. The technique also has the

merit to indicate whether a given solution is optimal or not. This method

was formulated by G.B. Dantzig in 1947.

satisfied.

a. Right Hand Side (RHS) of each constraint should be non-

negative. In case of negative RHS, the whole solution

(inequality) to be multiplied by-1.

b. Each of the decision variables of the problem should be

non-negative. In case of ‘unrestricted’ variables it is treated

as the difference of two non-negative variables-such as x l, x2

> 0, x3 unrestricted can be written as x l, x2, x4, x5 > 0, where

x3 = x4 –x5 , After the solution is reached, we substitute

difference of x4 and x5 as x3.

Before using the simplex method, let us examine and understand certain

basic terms involved in the procedure.

1. Standard Form: This has already been clarified in the initial part of

this chapter. With linear relationships of objective function and

constraints, making RHS of constraints as equal produces standard

form, whereas the inequality situation is called canonical form.

2. Slack and Artificial Variables: These have also been explained under

an appropriate heading. Their physical significance have also been

clarified. These are generally designated as S 1, S2 . . . . etc. and A1, A2 etc.

respectively. Whereas the slack variables indicate spare capacity of the

constraints, artificial variables are imaginary variables added for

25

standard form.

greater than or equal to constraint to convert the constraint into

equality. Physical sense or interpretation of the surplus variable is that

it is amount of resource over and above the minimum required level. In

case the constraint inequality is of the type "less than or equal to", then

it is called slack variable.

linear programming problem. When we evaluate the solution of this

problem by setting (n - m) of the variables to zero and solve the other m

variable equations, we obtain a unique solution. It is called "Basic

Solution".

5. Basic Feasible Solution: When a basic solution satisfies even the non-

negativity requirement is called Basic Feasible Solution. Since it has to

be within the feasible region as explained at point 4.7 (graphical method),

a basic feasible solution corresponds to a comer point of the feasible

region.

of the simplex procedure, is called Simplex table.

7. Variable Mix: The values of the column that contains all the variables

in the solution.

8. Basis: The set of variables which are not set to zero and figure in the

column of "Product Mix" are said to be in the 'Basis'. Other than these

figuring in the product mix column are termed as non basic variables.

type from one basic feasible solution to another, these steps of moving

from one solution to another to reach optimal solution are called

Iterations.

10. Cj Row: It is the row containing the coefficients of all the variables

(decision variables, slack or artificial variables) in the objective function.

resources.

resulting from introducing one unit of the variable in that column in the

solution. A positive number in the ∆j row would indicate an algebraic

reduction or increment in the objective function if one unit of the variable

26

of that column is introduced in the basis.

13. Pivot -Column: The column with the largest positive number in Cj - Zj

row in a maximization problem or the smallest number in a minimization

problem is called Pivot column. This indicates the variable entering the

solution in the next iteration by replacing an appropriate variable.

14. Pivot Row: When we work out the ratio of quantities bi's and the

elements of the Pivot column, we get the last column of the simplex table.

The outgoing variable to be replaced by the entering variable (decided by

the key row) would be the one with the smallest positive value of the ratio

column.

15. Pivot Element: The element at the point of intersection of the key

column and the key row is called the Pivot element.

17: Linear Function: A mathematical expression in which a linear

relationship exists amongst various variables.

programming (LP) problem, we first introduce the standard form. Let us

assume the decision variables as x1, x2, x3 . . . xn such that the objective

function (Linear) of these variables assumes an optimum value, when

operated under the given constraint of resources. Thus, the standard

form of LPP can be written as follows.

Objective Function

Optimise (Maximise or minimise) Z = C1 x1 + C2 x2 + . . . . . . .+ C n xn where

Cj (j = 1,2,. . . . . . . . . n) are called cost coefficients.

Constraints (linear)

Subject to,

a11 x1 + a12 x2 +...........a1n xn = b1

a21 x1 + a22 x2 +...........a2n xn = b2

. . . . . . . . . . . .. . . . . . . . . . . . .

.........................

.........................

aml x1+ am2 x2 +.........amm xn = bm.

Where bi (i = I, 2....m) are resources constraints and constants aij (i =

l,2, ...............................……….m; j = 1,2,………..n ) are called the input

output coefficients.

Also, x1, x2…………... xn > 0 (non-negative constraint)

27

The decision variables are required to be non-negative so that they

can contribute towards the optimum objective function, which is either

maximization or minimization type.

constraints are in the inequality form, we use imaginary variables to

remove these inequalities and convert the constraint to equation form to

bring in deterministic nature of resources.

When the constraints are of the type < bi, then to convert the it into

equality we need adding some variable (not constant) this is normally

done by adding variables such as S1, S2. . . . . Sn, which are called slack

variables. In physical sense, these slack variables represent unused

resources, the slack variables contribute nothing towards the objective

function and hence their coefficients in the objective function are to be

zeros.

1 .

form)

Can be written as ail x1.....:..ain xn + Si = bi ; i = 1,2,. . . . . . . m(Standard

form)

And the objective function can be written as

Max. or Min. Z = c1 x1 + c2 x2 + . . . . . cn xn + 0S1 + 0S2 + ......

Similarly for the constraints of the type ≥, the addition of slack variables

has to be in the form of subtraction. Thus, equation of constraints can be

written as

ai1 x1 + ai2 x2 +.....ain xn - Si = b I ; i = 1,2,...…….m

To bring it to the standard form, we add another variable called artificial

variable (Ai), as follows:

ai1 x1 + ai2 x2 +. . . . . . . ainxn- Si + Ai = bi ; i = 1, 2, 3,. . . . . . . . m

This is done to achieve unit matrix for the constraints. But

artificial variables can not figure in the solution as there are artificially

added variables and have no significance for the objective function.

These variables, therefore, are to be removed from the solution.

Standardization/Tableau Form/

Types of constraint Standard form

≤ Add a slack variable

= Add an artificial variable

≥ subtract a surplus variable and add an artificial variable

28

The artificial variables in a maximization problem will appear in the objective function

with a large negative coefficient so that they are quickly eliminated as we proceed with

the solution.

In a maximization problem with all less than or equal to constraints, we have an initial

feasible solution. With mixed constraints, we do not have initial feasible solution but only

initial solution which is not feasible.

Characteristics:

All constraints are expressed in the form of equalities or equations.

All right hand sides are non-negative

All variables are non-negative

2. Develop an initial simplex tableau

Steps in developing initial simplex tableau:

i. List the variables in the model across the top of the tableau

ii. Next fill-in the parameters of the model in the appropriate rows and

columns

iii. Add two columns to the left side of the tableau. The first column is a

list of variables called Basis.

iv. The C at the top second column indicates that the values in that

column and the values in the top row are objective function

coefficients.

v. The last column at the right is called the quantity column. It refers to

the right hand side values (RHS) of the constraints.

vi. There are two more rows at the bottom of the tableau. The first raw is

a Z-row. For each column the Z – value is obtained by multiplying

each of the number of the column by their respective row coefficient in

column C. The last raw is Cj-Z row.

The values in this row are also calculated column by column. For each Column, the

value in row Z is subtracted form the C value in the top row.

3. Interpreting the initial simplex tableau

4. Determining the entering variable: For a maximization problem; the

entering variable is identified as the one which has the largest positive value in

Cj-Z row. The column which corresponds to the entering variable in the

simplex tableau is called pivot column.

In a minimization problem, the entering variable is identified as the one which

has the largest negative Cj-Z row value in the simplex tableau.

5. Determining the leaving variable: the leaving variable is identified as the one

with the smallest non-negativity ratio for quantity divided by respective

positive pivot columnar entries. The row of the leaving variable is pivot row.

6. Make the entering variable basic and the leaving non-basic by applying

elementary row operations of matrix algebra.

29

7. Iteration for improved solution:

(a) Replace outgoing variable with the entering variable and enter

relevant coefficients in Zj column.

(b) Compute the, Pivot row with reference to the newly entered

variable by dividing the old row quantities by the key element.

(c) New values for the other rows. In the revised simplex table, all

the other rows are recalculated as follows.

New row elements= Elements in the old row - [corresponding key

column element multiplied by the corresponding new element of the

revised row at (b) above.]

(e) Having obtained the revised simplex table, evaluate ∆j = Cj -Zj and

test for optimality as per step 3 above.

8. Check for optimality

Remark: A simplex solution for a maximization problem is optimal if and only if cj – z row contains only zeros and negative value

(i.e. if there are no positive values in the cj – z row).

The simplex solution for a minimization problem is optimal if C j-Z row contains

only zero and positive values (Cj-Z ≥ 0).

by examining ∆j or index row, the iteration stops at this point and

values. of bi's for corresponding variables in the product mix

column will indicate the values of the variables contributing

towards the objective function. The value of the objective function

can be then worked out by substituting these Values for

corresponding decision variables.

(b) If the solution is not optimal, proceed to Step 9.

9. Revise or improve the Solution-For this purpose, we repeat Step 4

to Step 7 till optimality conditions are fulfilled and solution is

obtained.

Rule for Ties. Whenever two similar values are encountered in index

row or ratio column, we select any column or ratio, but to reduce

computation effort, following can be helpful.

(a) For key column, select the left most tie element.

(b) For ratio, select nearest to the top.

function with a large positive coefficient so that they are quickly eliminated as we

proceed with the solution.

Note that: if the solution is not optimal the steps will be repeated again and again until

the optimal solution is obtained!

30

In maximization case the objective function is to maximize the revenue or

profit. Heere the constraints aree of the < type. There may be cases when

constraints are of > and also = type.

Example 1

Maximise Z = 30x1 + 40x2

Subject to, 60x1 + 120x2 < 12,000

8x1 + 5x2 < 600

3x1 + 4x2 < 500

x1, x2 > 0

Solution:

We convert the inequality into equations by adding slack variables.

Above statements can thus be written as follows.

60x1 + 120x2 + S1 = 12,000

8x1 + 5x2 + S2 = 600

3x1 + 4x2 + S3 = 500 and

x1, x2, S1, S2, S3 > 0.

where S1,S2, S3 are slack variables and objective function is re-written

as: Max. Z = 30x1 + 40x2 + 0.S2 + 0.S2 + 0.S3

Now there are five variables and three equations and hence to obtain

the solution, any two variables will have to be assigned zero value.

Moreover, to get a feasible solution, all the constraints must be satisfied.

To start with, let us assign x1 = 0; x2 = 0 (Both decision variables are

assigned zero values) Hence, S1 = 12,000

S2 = 600

S3 = 500 and Z=0

This can be written as initial simplex table 1

Key Row

Key Column

coefficients of the variables in the equations are written above. The initial

solution corresponding to unutilized resources S1, S2, S3 is shown at the

right under the column "quantity'. Since profit associated with each of

the slack variables is zero, the total profit at this stage is Zero

Entering variable

Since Cj - Zj is maximum at + 40, i.e., profit is more for each unit for

x2 variable, we introduce x2 into the solution. It is the marked as key

31

column and x2 becomes the entering variable. Dividing Quantities (bi's)

by the corresponding key elements of each row, we obtain the ratio

(bi/aij) column such as for row S1, it is 12,000 ÷ 120 = 100.

Leaving variable

For each unit of x2, 120 units of S1, 5 units of S2 and 4 units of S3 will

have to be utilized. Minimum unutilized capacity of material is 100, it

becomes outgoing variable. (This is required to be the least positive value

of ratio, which is obtained by dividing the values in bi column by the

corresponding elements in the key column). Here Key element

corresponds to x2 and S1 and its value is 120, The least ratio being 100

corresponding to S1, it becomes the' outgoing variable, replaced by x2.

Now each of the elements of the Key row is divided by Key element to get

x2 row in the new table. Thus we get the key row as follows:

40 x2 60/120 120/120 1/120 0 0 12,000/120

or 40 x2 ½ 1 1/120 0 0 100

relationship as follows:

Zj Cj 30 40 0 0 0 bi bi/aij

variable x1 x2 s1 s2 S3

40 x2 ½ 1 1/120 0 0 100 200

0 s2 11/2 0 -5/20 1 0 100 200/11

0 S3 1 0 -1/30 0 1 100 100

Cj-Zj 10 0 -1/3 0 0

an idle capacity of 100 units pertaining to S 2 arid S3 each. Since,

Maximum positive value for Cj - Zj being 10 corresponds to x1, it becomes

the entering variable. Ratios are calculated by dividing bi by aij i.e.,

corresponding key elements and are given in the last column. The

minimum positive value of ratio being 200/11, pertaining to S2, we

replace S2 by x1.

Iteration 2

32

Key column being that for xl and key row for S2 we get the key element as

11/2 and by dividing S2 row by the Key element, we get xl row in the new

table as follows:

Other rows are correspondingly obtained as in table I.Since all the values

of Cj - Zj are either negative or zeros, it is an optimal solution. Hence, the

optimal mix would be:

Quantity of item 1 (x1) = 200/11

Quantity of item 2 (x2) = 1,000/11

Total profit = 46, 000/11

By this iterative process, we obtain optimal solution of a maximising

problem and iteration stops when values of Cj - Zj < 0. This optimality

test is carried out at every stage to reach optimal solution.

resource of third constraint.

--.

Example 2

Solve the following problem by simplex method.

Max. Z = 8x 1 + 16x2

Subject to, x1 + x2 < 200

x2 < 125

3x1 + 6x2 < 900

and x1, x2 > 0

Solution:

Adding slack variables and arranging in the simplex table, we get

33

Simplex Initial Table

SIMPLEX TABLE II

.

SIMPLEX TABLE III

Now, all the values of ∆j being zero or negative, suggesting that the

solution is optimal and Z = 2,400 for x 1 = 50 and x2 = 125. S1

indicates surplus.

function, when constraints were of the type <. There may be cases when

constraints are of > or = type. When the objective function is of

minimization type, then simplex method needs some modification. We

have already discussed such a situation earlier, wherein use of slack and

artificial variables has been explained

1. Artificial variables have no economic significance and they are

introduced only to bring in the standard form of simplex method.

34

These variables, therefore, need be removed from the solution as soon

as they become non-basic.

have to ensure their zero value in the optional solution. This can be

done by assigning very large penalty (+M) for a minimisation problem,

so that these do not enter the solution.

3. If artificial variables cannot be removed from the solution, then the

solution so obtained is said to be Non-Feasible. This would indicate

that the resources of the system are not sufficient to meet the

expected demand.

4. Equality Constraints also can be handled by using artificial variables

to obtain initial solution.

form of the simplex algorithm by adding slack variables. But

difficulties would arise, when the initial basic feasible solution is not

easy to obtain. This can arise under two conditions

(i) when the constraints are of the type <

n

i.e, ∑ aij xj <bi where xj > 0

j=1

and right hand side constraints are negative i.e., bi < 0. In such cases,

even after adding non-negative slack variables Si, the initial solution so

obtained will be Si = -bi for some i. Since this violates the non-negative

conditions of the slack variables, it will not be a feasible solution.

(ii) When constraints are of the type >

n

i.e, ∑ aij xj > bi when xj > 0

j=1

inequalities into equalities i.e. ∑aij xj-Si = bi, and we will obtain the

initial solution as -Si = bi or Si = -bi, which again violates the non-

negative constraint of slack variables. In such a situation, we add

Artificial Variable Ai to get the initial basic feasible solution. These

variables, being of no economic consequences or significance, have

to be eliminated from the solution for obtaining optimal solution.

We use following methods for eliminating these artificial variables

from the solution.

1. Big M-method

2. Dual method

The dual method is discussed as a separate heading in the pages ahead.

However, there is also an alternative method of solving minimization

problem, initially by converting it into a maximization problem, solving it

and then reverting the answer to get the value of Z for minimizing

35

problem. This method is taken up here after Big M-method.

Big M-Method

In this method, we assign the coefficients of the artificial variables, as a

very large positive penalty i.e., +M for the minimisation problem. This is,

therefore called Big M-method.

The Big M-method for solving LP problem can be adopted as follows:

Step 1 : The standard simplex table can be obtained by adding

slack and artificial variables. Slack variables are assigned zero

coefficients and artificial variables assigned +M coefficients in the

objective function.

Step 2: We obtain initial basic feasible solution by assigning

zero value to the decision and slack variables.

simplex table as above and then values of ∆j = Cj - Zj are calculated. If

∆j ≥0, then the optimal solution has been obtained. If ∆j< 0, then we

select the largest negative value of ∆j and this column becomes the key

column indicating the entering variable.

Step 4: Determine the key row as in case of maximisation

problem i.e., selecting the lowest positive value of the ratio bi/aij,

obtained by dividing the value of quantity bi by corresponding

element of the key column. The key element is thus the point of

intersection of the key column and key row. The variable of the key

row becomes the outgoing variable.

Step 5: Repeat steps 3 and 4 to ensure optimal solution with

no artificial variable in the solution. If at least one artificial

variable is present in the basis with zero value and coefficient of M

in each Cj - Zj values is negative, the LP problem has no solution.

This basic solution will be treated as degenerate.

It at least one artificial variable is present in the basis with

positive value, and coefficient of M in each Cj - Zj values is non-

negative, then LP problem has no optimal basic feasible solution.

It is cal1ed pseudo-optimum solution. The Big M-method has

been demonstrated by solving Illustration 22.

Example 1

gram. Food B contains 30 units each of vitamin X and Y. The daily

minimum human requirements of vitamin X and Y are 900 and

1200units respectively. How many grams of each type of food should be

consumed so as to minimise the cost, if food A costs 60 cents per gram

and food B costs 80 cents per gram.

Solution:

LPP formulation is as follows

36

Min. Z = 60x1+ 80x2 (Total Cost)

Subject to, 20x1 + 30x2 > 900 (Vitamin X Constraint)

40x1 + 30x2 > 1,200 (Vitamin Y Constraint)

and x1, x2 > 0

Adding slack and artificial variables, we get

Subject to, 20x1 + 30x2 – S1 + A1 = 900

40x1 + 30x2 - S2 + A2 = 1,200

and x1, x2, S1, S2, A1, A2 > 0

Initial non-optimal solution is written as follows:

SIMPLEX TABLE I

Cj 60 80 0 0 M M Quantity Ration

Zj

Variables x1 x2 S1 S2 A1 A2 bi Bi/aij

M A1 20 30 -1 0 1 0 900 45

M A2 40 30 0 -1 0 1 1,200 30

∆j 60-60m 80-60m M M 0 0

similarly Ratio bi/aij = 30 is lowest positive value, hence it goes out.

SIMPLEX TABLE II

From the table it can be seen that x 2 becomes the entering variable and

A1 the leaving variable. The modified simplex table can be written as:

SIMPLEX TABLE III

Since all the values of ∆j are non-negative, we have reached the optimal

solution of the problem.

37

Hence the optimal solution is given by

x1 = 15 and x2= 20

and Minimum Z = 2,500.

The solution for a simplex procedure is unbounded if there are no non-negative ratios for

the quantity divided by substitution rates. I.e. Ratio .

Is identified where the objective function is parallel to one of the constraints.

With simplex this condition can be detected by examining the C-Z row of the final

tableau. If a zero appears in the column of a non-basic variable; i.e., a variable that is not

in solution; it can be concluded that an alternative solution occurs.

3. Degeneracy:

In some cases there will be a tie for the lowest non-negative ratio for quantity divided by

substitution rate. Such an occurrence is referred to as degeneracy because it is

theoretically possible for subsequent solutions to cycle (i.e., return to the pervious

solution). It will usually suffice to simply select one variable arbitrarily and proceed with

computations. But there are ways of dealing with ties in a specific fashion.

4. Case of infeasibility:

In the simplex approach, infeasibility can be recognized by the presence of an artificial

variable with a non-zero value in a solution that appears optimal (i.e., a tableau in which

the signs of the values in row C-Z indicate optimality).

the optimal solution. Thus, sensitivity analysis is carried out after the optimal solution is

found. It begins with the final simplex tableau. Its purpose is to explore how changes in

any of the parameters of a problem, such as the coefficients of the constraints,

coefficients of the objective function, or the right –hand side values, would affect the

solution.

Only the two types of changes are discussed below:

1. A change in the RHS of a Constraint

Here simultaneous changes are not contemplated. That is, a change in RHS of one

constraint is considered at a time. Our analysis in RHS change begins with the

shadow prices.

38

Shadow price: is a marginal value; it indicates the impact that a one unit

change in the value of the constraint would have on the value of the

objective function.

Shadow prices are the values in the Z-row of slack columns.

Example 1: A firm that assembles computers and computer equipment is about to start

production of two new micro computers. Each type of micro computer will require

assembly time, inspection time and storage space. The amount of each of these resources

that can be devoted to the production of the computers is limited. The manager of the

firm would like to determine the quantity of each of the microcomputers to produce in

order to maximize the profit generated by sales of these computers.

In order to develop a suitable model of the problem the manager has met with the design

and manufacturing head of the organization and obtained the following information:

Profit per unit $60 $50 -

Assembly time per 4 10 100 hours

unit (in hours)

Inspection time per 2 1 22 hours

unit (hours)

Storage space per unit 3 3 39 cubic feet

(Cubic feet)

Max Z: 60 x1+50 x2

Subject to:

Assembly time: 4x1+10 x2≤100

Inspection time: 2 x1+ x2≤22

Storage space: 3 x1+3 x2≤39

Non-negativity: x1, x2≥

Basis Cj 60 50 0 0 0 Quantity

X1 X2 S1 S2 S3

S1 0 0 0 1 6 -16/3 24

X1 60 1 0 0 1 -1/3 9

X2 50 0 1 0 -1 2/3 4

Z 60 50 0 10 40/3 740

Cj-Z 0 0 10 -40/3 0

Shadow prices

From the above tableau; the shadow prices are $ 0 for S 1, $10 for S2 and $40/3 for S3. This

tells us that if the amount of assembly time was increased by one hour, there would be no

effect on profit; if the inspection time was increased by one hour, the effect would be to

increase profit by $ 10, and if storage space was increased by one cubic foot, profit would

increase by $40/3. The reverse holds true. That is by using the negative shadow prices we

can determine how much a one- unit decrease in the amount of each constraint would

39

decrease profit. Hence, a one –unit decrease in inspection time would decrease profit by $

10 since its shadow price is $ 10. But a one –unit decrease in assembly time would have

no impact on profit and a one-unit decrease in storage space would decrease profit by $

40/3.

Remark: shadow prices do not tell us the extent to which the level of a scarce resource

can be changed and still have the same impact per unit.

In the above problem, the optimal solution was given by the intersection of inspection

time and storage space constraints. Thus, the shadow prices in the final simplex tableau

will remain the same so long as the same constraints give the intersection for the optimal

solution. For what range of changes in the RHS value of those constraints the current

shadow prices remain valid? This is answered by range of feasibility.

Range of Feasibility (Right hand side range)

The range of feasibility is the range over which the RHS value of a constraint can be

changed and still have the same shadow prices. To know this range, first calculate

feasibility ratio as:

≤ Constraint ≥ Constraint

Allowable RHS increase Smallest positive FR Smallest negative FR

Allowable RHS decrease Smallest negative FR Smallest positive FR

The effect of a RHS change in constraint on the objective function depends whether the

change leads to relaxation or tightening of the constraint. A

Relaxation and tightening of constraints

≤ Constraint ≥ Constraint

RHS increase Relaxation Tightening

RHS decrease Tightening Relaxation

For a less than or equal to (≤) constraint, an increase in RHS leads to relaxation

(increase) in the feasible solution area which is a favorable change. So an increase has a

positive sign attached to it. Conversely, a decrease is treated as negative.

For a greater than or equal to constraint, an increase in RHS leads to tightening of

feasible solution area and it is not a favorable change. So an increase has a negative sign

attached to it. Conversely, a decrease is treated as positive.

When a constraint is relaxed it will have a favorable effect on the objective

function. This means, if the problem is maximization, relaxation leads to a higher

objective function value. In minimization problems relaxation results in a lower

value of the objective function.

When a constraint is tightened, it results in a decrease in the value of the objective

function (in maximization) and an increase in the value of the objective function

(in minimization)

40

The impact of RHS change on the optimal solution

Basis Cj 60 50 0 0 0 Quantity

X1 X2 S1 S2 S3

S1 0 0 0 1 6 -16/3 24

X1 60 1 0 0 1 -1/3 9

X2 50 0 1 0 -1 2/3 4

Z 60 50 0 10 40/3 740

The values (coefficients) in the body of any simplex tableau are substitution rates. They

indicate how much and in what direction a one unit change in a column variable will

cause the current quantity value to change.

For example, the values in the S3 column tell us the following: A one unit increase in

storage space will cause S1 to decrease by 16/3 units, cause X1 to decrease by 1/3 units

and cause X2 to increase by 2/3 units and as a result cause the profit to increase by 40/3

dollars.

1. Compute the range of feasibility for the constraints in the above illustration.

2. The manager in the above problem is contemplating one of two possible changes in

the level of the storage constraint. One change would be an increase of 3 cubic feet in

its level and another change will be an increase of 8 cubic feet. Determine the revised

optimal solution for each possible change.

3. Suppose the manager in the above problem is contemplating a decrease in the

storage space due to an emergency situation. There are two possibilities being

considered, a decrease of 6 cubic feet and a decrease of 9 cubic feet; what will be the

impact on the optimal solution?

Solution

1.) i. Calculating feasibility ratio (FR): To calculate FR of a constraint, we need

only the quantity column and the substitution rates of the slack (surplus) variable of that constraint.

Substitution rates (S) Feasibility Ratios (FR)=Q/S

S1 (Q)

1 6 -16/3 24 24/1=24 ↓ 24/6=4 ↓ 24/(-16/3)=-4.5 ↑

↓ =Allowable decrease

Note that all of the constraints in our example are of ≤ type.

If there is no suitable negative/positive FR, then the allowable increase/decrease

is ∞ (undefined)

ii. Determining the range of feasibility: The range of feasibility is-

41

(Current RHS amount-allowable decrease) upto Current RHS amount + allowable

increase)

Constraint 1 (Assembly time): 100-24 upto 100+∞

:(76-∞ )

Constraint 2 (Inspection time: 22-4 upto 22+4

:(18-26)

Constraint 3 (Storage space): 39-6 upto 39+4.5

:(33-43.5)

Interpretation: Each hour decrease in assembly time will decrease the current profit

by Birr 0 (i.e no effect-indicated by shadow price) as long as the decrease is up to 24

hours. But if the assembly time decreases by more than 24 hours (or if the total available

assembly time is lower than 76 hours), the current shadow price will no longer be valid.

That is, the profit will be affected. But available assembly time can increase indefinitely

(=allowable increase is ∞ ) without affecting the current profit level.

decrease the current profit by $10, respectively as long as the total inspection

time is between 18 and 26 hours. Out side the range of feasibility, the current

shadow price ($10) will not be valid.

Finally, each cubic feet increase or decrease in storage space results in an increase or

decrease, respectively, of profit by $13.33 (i.e 40/3) as long as the total storage space is

between 33 and 43.5 cubic feet.

2.) Before analyzing the effect of constraint changes on the objective function, first check

whether the change contemplated is with in the allowable increase or decrease of that

constraint. If the change is with in the allowable increase or decrease, it is possible to

analyze the change by using the current shadow prices. Otherwise, the model must be

reworked again to know the effect.

Is a 3 cubic feet increase with in (≤) the allowable increase of the storage space

constraint? Yes it is, since the allowable increase is 4.5 cubic feet.

Thus the objective function will increase by $15 (i.e 4.5×10/3)

But an 8 cubic feet increase is not with in the allowable increase. Therefore, the

model must be reworked to know the increase in the objective function. In reworking the

model change the available storage space to 39+8=47 cubic feet and keep all other parts

of the model as they are.

3) A decrease of 6 cubic feet is with in the allowable decrease of the constraint (6≤6). The

objective function value will decrease by $20 (i.e 6×10/3). But a decrease of 8 cubic feet

is not with in the allowable decrease. So the model must be reworked to know the effect

on the objective function.

Dear distance learner! The second important change we will consider is the effect of

changes in the objective function coefficients.

There are two cases:

42

Case-I: A change in the objective function coefficient of a variable which is

not currently in solution: Range of insignificance

The range over which a non-basic variable’s objective function coefficient can change

without causing that variable to enter the solution mix is called its range of

insignificance.

function coefficient would have to increase by an amount that exceeds the Cj-Z

value for that variable in the final tableau in order for it to enter as a basic variable

in the optimal solution. Any lesser value of its objective function coefficient

would keep it out of solution.

In a minimization problem if a variable is not in solution, its objective function

coefficient would have to decrease by an amount that exceeds the Cj-Z value for

that variable in the final tableau in order for it to enter as a basic variable in the

optimal solution.

Example

Minimize 10X1+3X2

Subject to:

2X1+X2 80

2X1 +4X2 200

X1, X2 0

Final tableau:

Basics cj 10 3 0 0 Qty.

X1 X2 S1 S2

S2 0 6 0 -4 1 120

X2 3 2 1 -1 0 80

z 6 3 -3 0 240

cj-z 4 0 3 0

Solution

First note that x1 is non basic in the final table.

The cj-z value of x1 is 4. Therefore, The objective function coefficient of x1 (which is

10) should be decreased by at least 4 so that x1 can be basic variable. This means as long

as the coefficient of x1 decreases by any amount less than 4, it will not become basic. In

addition if its coefficient increases from its current level, up to any amount, it will remain

non basic

The range of insignificance of x1 is, therefore,

:its current OF coefficient-4 up to its current OF coefficient + ∞

:10-4 upto 10+ ∞

: (6-∞)

43

Case-II: Change in the objective function coefficient for a variable currently in

solution:

Range of optimality

The range over which the objective function coefficient of a variable that is in solution

(basic variable) can change without changing the optimal values of the decision variables

is called the range of optimality. Note that the objective function’s value will change.

Range of optimality is calculated for only original decision variables because

slack/surplus variables and artificial variables do not have any contribution for the

objective function.

For both maximization and minimization problems, the range of optimality is

calculated as follows:

The values in raw Cj-Z must be divided by the corresponding row values of the

variable in question. This will result in a series of ratios. The smallest positive

ratio will indicate the amount of allowable increase and the smallest negative

ratio will indicate the amount of decrease.

Example

Minimize 10X1+3X2

Subject to:

2X1+X2 80

2X1 +4X2 200

X1, X2 0

Final tableau

Basics cj 10 3 0 0 Qty.

X1 X2 S1 S2

S2 0 6 0 -4 1 120

X2 3 2 1 -1 0 80

Z 6 3 -3 0 240

cj-z 4 0 3 0

Solution

The basic variable in the last tableau is only X2. The range of

optimality for X2 is calculated as follows:

X2 row (B) 2 1 -1 0

A/B 4/2=2 ↑ 0 -3 ↓ ∞

: ↓ Allowable decrease

: (0-5)

Interpretation: The objective function coefficient of X2 can be between 0 and 5 without

changing the optimal values of the decision variables (i.e X1 =0, X2 =80). But the value

44

of the objective function will change. For instance if X2’ s coefficient is 4,

Min.Z=10×0+4×80=320.

Example 2

Minimize 20X1+12X2 +16X3

Subject to:

X1+X2 25

X2 – X3=0

X3 5

X1, X2 , X3 0

Required: Solve the above problem by simplex method and answer the following

questions.

a) What impact on the solution would a decrease of 10 units in the first constraint

have?

b) If the first constraint could be decreased by 10 units at a cost per unit of $15,

would it be worth while to do so? Explain.

c) What change in the coefficient of X3 in the objective function would cause it to

come in to solution?

d) If the cost coefficient of X1 is increased by $ 5, what impact would that have on

the quantities and on the values of the objective function in the final tableau?

Solution

Final tableau

Basics cj 10 12 16 0 0 Qty.

X1 X2 X3 S1 S3

X1 20 1 0 1 -1 0 25

X2 0 1 -1 0 0 0

12

S2 0 0 0 1 0 1 5

Z 20 12 8 -20 0 500

cj-z 0 0 8 20 0

Shadow prices

To answer (a) we should first calculate the range of feasibility of the first

constraint. Ranges of feasibility for the first and third constraint are calculated as

follows :

rates (S)

Quantity Constraint Constraint 3

S1 S3 (Q) 1

-1 0 25 -25 ↓ ∞

0 0 0 ∞↑ ∞↑

0 1 5 ∞ 5↓

45

↓ =Allowable decrease

Note that the first constraint is of ≥ type and the third constraint is of ≤ type.

Range of feasibility for first constraint: 25-25 up to 25+∞

:(0- ∞)

Range of feasibility for the third constraint: 5-5 up to 5+∞

:(0-∞)

a) A decrease of 10 units is with in the allowable decrease (i.e10 ≤ 25). The shadow

price of the constraint is -20. Therefore, if the constraint decreases (i.e relaxed) by

10 units, the cost will decrease by 20×10=$200. So the change will have a

favorable impact on the objective function.

b) Yes! As the shadow price of the constraint shows, each unit decrease in the

constraint will decrease the total cost by $20. Therefore, if we could decrease it by

paying only $15 per unit, it is worthwhile to do so. In short, any expenditure less

than $20 per unit will result in a net saving in cost.

c) X3 is a non basic variable. To come into the solution as a basic variable, its

objective function coefficient should decrease by at least 8, its cj-z value.

d) X1 is a basic variable in the final table. Thus, to know the effect of its cost

coefficient we should first calculate its range of optimality as follows:

cj-z (A) 0 0 8 20 0

X1 (B) 1 0 1 -1 0

A/B 0 ∞ 8↑ -20↓ ∞

Key: ↑= Allowable increase

↓ =Allowable decrease

Range of optimality: 20-20 upto 20+8

: (0-28)

The cost coefficient of X1 can increase upto $28 without causing any change in the

optimal value of the decision variables.

Since $5 is with in the allowable increase, it will not have any effect on the quantities

of the decision variables (i.e X1 =25, X2 =0, X3 =0). But the value of the objective

function will increase by 5×25=$75

another associated LPP, called dual. Primal for given problem and dual

are replicas of each other. The difference is while primal is a -

maximisation problem, the dual would be a minimisation problem or vice

versa.. Thus, Duality plays an important role in business transaction

analysis for the following reasons: .

1. It has an important economic interpretation.

2. It can help in computer capacity limitations.

3. It can ease the calculations for the minimisation or maximisation

problems, whose number of variables is large.

of the dual method.

46

1. Maximisation case can be turned into minimisation and vice versa

for ease of calculations, as for every primal, there exists a dual.

2. The optimal solution for the dual exists only where there exists an

optimal solution to its primal.

3. The dual of the dual is the primal.

4. The dual variables may assume negative values.

5. The value of the objective function of the optimal solution in both

the problems is the same.

2. profit/cost constants Cj in primal is replaced by resource (capacity)

constants bm.

3. all signs “<” in primal is replaced by sign “>” and vice versa.

4. in primal, constraint inequities are positioned from left to right ie.

a21 a22 a23 . . . . . . a2n

.

.

am1 am2 am3 . . . . . . amn

a11 a21 . . . . . . . . . . am1

a12 a22 . . . . . . . . . . . am2

a13 a23 . . . . . . . . . . . am3

. .

. .

a1n a2n . . . . . . . . . amn

in dual it is Y.

dual.

We also need to note that if any of the in equation in the above primal

problem is of the type >, then it becomes necessary to change it as < by

multiplying it by -1 on both the sides. The inequality signs in all the

constraints should be of the same type before proceeding for its dual.

47

2.4.3. Dual when Primal Problem is in Mixed Form:

Mixed Form means that the constraints inequalities are of the type >, = <

type. For such case we need to consider theorem 2 “if the i th primal

constraint is an equality, the i th dual variable will be unrestricted in

sign.”

Maximize Z= 6x1 + 5x2+10x3

s/t 4x1+ 5x2 + 7x3 < 5

3x1 + 7x3 < 10

2x1+ x2 + 8x3 = 20

2x2+ 9x3 > 5

Where xi > 0 for i=1,3 and x2 is unrestricted.

First of all we replace the unrestricted variable by two non-negative

variables. In the above problem let x2 = (x2’-x2”). Now it can be rewritten

as.

Maximize Z= 6x1 + 5(x2’-x2”)+ 10x3

s/t 4x1+5 (x2’-x2”) + 7x3 < 5

3x1 +7x3 < 10

2x1+ (x2’-x2”) + 8x3 = 20

-2(x2’-x2”) - 9x3 < -5

Where x1, x2’, x2”, x3 > 0

Note, in the last constraint we multiply both sides by -1 to make all in

equalities of similar type.

Its dual is,

Minimize Z * = 5y1+ 10y2+ 20y3- 5y4

s/t 4y1 + 3y2 + 2y3 >6

5y1 + y3 - 2y4 >5

- 5y1 – y3 + 2y4 > -5

7y1 + 7y2 + 8y3 – 9y4 >10

Where y1,y2,y4> 0 and y3 is unrestricted (it follows from theorem 2 above ]

Minimize Z * = 5y1+ 10y2+ 20y3 - 5y4

s/t 4y1 + 3y2+ 2y3 >6

5y1 + y3 -2y4 =5

7y1 + 7y2 + 8y3 - 9y4 > 10

Where y1, y2, y4 > 0 and y3 is unrestricted.

Example

Write a dual for a given primal.

Primal is Max. Z = 30x1+ 20x2

Subject to, 2x1,+ 3x2 < 45

4x1 + 5x2 < 85

x1, x2 > 0

48

Solution:

Taking y1, y2 as new variables for two constraints.

In Dual problem, it would be

Min. Z= 45y1 + 85y2

Subject to, 2y1 + 4y2 < 30

3y1 + 5y2 > 20

and y1, y2 > 0 .

In case, inequalities are not in the right direction, they should be

converted so. Like in a minimization problem, if the inequality is 2x 1 - x2

< 6, it should be changed to - 2x1 + x2 > -6 and problem is solved in the

normal manner. In Dual, the quantities become the objective function

and objective function gets into the constraints.

Exercise

Give the dual of the LP problem

Minimize Z= 2x1 + 3x2+ 4x3

s/t 2x1+ 3x2 + 5x3 > 2

3x1 + x2 + 7x3 = 3

x1+ 4x2 + 6x3 < 5

Where x1, x2, > 0 and x3 is unrestricted

Solution:

Since the variable x3 is unrestricted in sign, the given LP problem can be

transformed into standard primal form by substituting x 3 = x3’-x3”, where

x3’> 0, x3” > 0. Therefore standard primal problem becomes:

s/t - 2x1 - 3x2 -5(x3’-x3”)< -2

3x1 + x2 + 7(x3’-x3”)< 3

- 3x1 - x2 - 7(x3’-x3”)< -3

x1 + 4x2 + 6(x3’-x3”)< 5

where x1,x2, x3’, x3”> 0

The dual of given standard primal is

Minimize Z *y = -2y1+ 3(y2’-y2”)+ 5y3

s/t -2y1 + 3(y2’-y2”) + y3 > -2

-3y1 + (y2’-y2”) + 4y3 > -3

-5y1 + 7 (y2’-y2”) + 6y3 > -4

5y1 - 7(y2’-y2”) - 6y3 > 4

Where y1, y2, y2’-y2”, y3 > 0

s/t - 2y1 + 3y2 + y3 > -2

-3y1 + y2 + 4y3 > -3

5y1 -7y2 - 6y3 = 4

Where y1, y3 > 0 and y2 is unrestricted.

Comparison of the Primal and Dual Simplex Solution

49

Example: Find the dual form of the following problem (“the microcomputer problem,

see page 37)

Maximize Z: 60X1 + 50X2

Subject to:

4X1+ 10X2 100

2X1 + X2 22

3X1 + 3X2 39

X1, X2, X3 0

Solution

Subject to:

4y1 + 2y2 +3y3 60

10y1 + y2 +3y3 50

y1, y2, y3 0

Final tableau of primal solution to the micro computer problem:

Basics cj 60 50 0 0 0 Qty.

X1 x2 S1 S2 S3

s1 0 0 0 1 6 -16/3 24

X1 60 1 0 0 1 -1/3 9

X2 50 0 1 0 -1 2/3 4

z 60 50 0 10 40/3 740

Final tableau of dual solution:

Basics cj 100 27 39 0 0 M M Qty.

y1 y2 Y3 S1 S2 A1 A2

y2 22 -6 1 0 -1 1 1 -1 10

Z 76 22 39 -9 -4 9 4 740

Remark: solution quantities of the dual are equal to the shadow prices of the primal (i.e.,

40/3 and 10). Solution quantities of the primal (i.e., 24, 9 and 4) appear in the bottom row

of the dual. This implies that a slack variable in the dual and vice versa. Thus, we can

read the solution to the primal problem from the bottom row of the dual; in the first three

50

columns of the dual, which equate to slack equals 24 and the other two are zeros. Under

the dual’s slack columns, we can read the values of the primal decision variables. In

essence, the variables of the primal’s problem become the constraints of the dual problem

and vice versa.

The dual variables are termed as shadow prices of the constraints. These

can be named as marginal values or the opportunity costs of primal

resources. Hence, there is one dual variable for every constraint in the

primal and the change in the right hand side is proportional change in

the objective function.

Because of the same reason of one dual variable for every constraint,

the dual being non-zero, indicates full utilization of that resource. The

use of dual concept can be done in making decisions regarding change

in resources such as addition, deletion or trade-off of resources. Hence a

minimisation problem can also be solved by solving its dual as a

maximisation problem. Let us take the microcomputer problem and

illustrate the use of dual in evaluating:

a) The marginal value of resources ( constraints)

b) The potential impact of a new product

a) The marginal value of resources

In the micro computer problem considered, the variables Y 1, Y2 and Y3 are the marginal

values of scarce resources: assembly time, inspection time and storage space. The dual is

a minimization problem because the competitor wants to minimize the use of scarce

resources since the computer firm would base its charges on the amount of resources

required.

If our firm realistically considers the competitor’s offer to hire out facilities, the amount

of scarce resources that will be foregone must produce a return to the firm that is at least

equal to the foregone profit. Hence, the value of four assembly hours plus two inspection

hours plus three cubic feet of storage space that is given up when one unit of model -I is

scarified must be greater than or equal to $ 60. That is what is shown by the first

constraint of the dual. A similar interpretation is possible for the second constraint in the

dual.

The optimal dual solution always yields the same value of the objective function as the

primal optimal. In this case, it is 740. The implication is that the imputed value of the

resources that are required for the optimal solution equals the amount of profit that the

optimal solution would produce.

b)Adding a new product

For example, suppose the micro computer firm is considering a third mode that will yield

a profit of $70 per unit and this will require resources of 8 hours of assembly time, 4

hours of inspection time and 5 cubic feet of storage space per unit, what is the impact on

the current solution?

New constraint in the dual: 8y1+ 4y2+5y3 . The marginal values of resources required

for adding one units of the third model = 8(0) + 4 (10) + 5 (40/3) = $106.67. Thus, the

51

manager will not add the third model because its cost is greater than its profit

contribution ($106.67 .

UNIT SUMMARY

52

Exercise 2.2

53

1. In the microcomputer problem, what will be the effect of a 3-hour increase in

inspection time on the on the value of the objective function?

2. In the microcomputer problem, what is the effect of a 5 hour decrease in

inspection time on the objective function value?

3. Given the following LP problem and final tableaus for a simplex solution:

Max Z: 11 X1+ 10 X2 + 14 X3

Subject to:

4X2 – X3≤0

5X1+ 2X2+5X3≤72

X1≤ 13

X1 , X2 ,X3≥ 0

Basics Cj 11 10 14 0 0 0 Qty.

X1 X2 X3 S1 S2 S3

S3 0 1 0 0 0 0 1 13

Z 15 10 14 1 3 0 2/6

C-Z -4 0 0 -1 -3 0

4. Given this problem and final simplex table:

Min 10X1+ 3X2

Subject to:

2X1 + X2 80

Basics Cj 10 3 0 0 Q

X1 X2 S1 S2

S2 0 6 0 -4 1 120

X2 3 2 1 -1 0 80

Z 6 3 -3 0 240

Cj-Z 4 0 3 0

b) Graph the problem and show the range of feasibility for each constraint.

c) What would be the impact that a 10 unit decrease and a 20- unit increase in the

first constraint have on the optimal solution?

Subject to :

54

2X1+ 3X2 + 4X3 72

X1 + 3X2 +4X3 18

X1 , X2, X3 0

Final tableau

Basics cj 10 6 5 0 0 0 Qty.

X1 X2 X3 S1 S2 S3

b) Determine the range of optimality for the decision variables that are in solution.

c) By how much would the objective function coefficient of X3 have to increase

before it would come in to solution?

d) What is the range of insignificance of X3?

6. Given the following final tableau of LPM, determine the range over which the

objective function coefficient of X3 could change without changing the optimal solution.

Basics cj 120 105 112 0 0 0 Qty.

X1 X2 X3 S1 S2 S3

X1 1 0 0.06 0.14 -0.08 0 16.8

120

X2 105 0 1 1.10 -0.10 0.20 0 8.0

S3 0 0 0 0.88 -0.28 0.16 1 16.4

Z 120 105 122.7 6.3 11.4 0 2856

cj-z 0 0 -10.7 -6.3 -11.4 0

55

References

Nath Ram Nath & Co. publishers, Meerut , India).

2. Anand Sharma (2003), Quantitative techniques for Decision

Making , Himalaya Publishing House, Mumbai, India.

3. W.W. Garvin (1990), Introduction to Linear Programming, lrwin:

Home wood, USA

4. C.R. Kothari (1984), Quantitative Techniques (3rd edition), Vikas

Publishing House, New Delhi,India.

5. J K Sharma (2003): Operations Research, Theory and Application, Second

Edition.

56

UNIT THREE

TRANSPORTATION AND ASSIGNMENT PROBLEMS

Unit Introduction

Dear distance learner! In this unit two related OR models-transportation and assignment-

will be discussed. They can be considered as special cases of linear programming as they

can be solved with the general LP approach. However, it will be more time consuming

and costly to do so. Consequently specialized algorithms which fit to the unique

structures of transportation and assignment problems have been developed. Thus this

chapter discusses transportation and assignment algorithms, respectively.

Unit Objectives

Dear student! This unit is aimed at enabling you to:

Understand the meaning of transportation and assignment problems

Develop a general linear programming model for transportation and assignment

problems

Solve transportation and assignment problems by using transportation and

assignment algorithms

INTRODUCTION

A scooter production company produces scooters at the units situated at various places

(called origins) and supplies them to the places where the depot (called destination) are

situated. Here the availability as well as requirements of the various depots are finite and

constitute the limited resources. This type of problem is known as distribution or

transportation problem in which the key idea is to minimize the cost or the time of

transportation. In previous lessons we have considered a number of specific linear

programming problems. Transportation problems are also linear programming problems

and can be solved by simplex method but because of practical significance the

transportation problems are of special interest and it is tedious to solve them through

simplex method. Is there any alternative method to solve such problems?

SECTION OBJECTIVES

After completion of this section you will be able to:

1. Develop linear programming model for transportation problems

2. Find initial solution for transportation problems by:

i. North-West corner rule;

ii. Least-cost (Intuitive) method; and

3. Test the initial solution for optimality by:

i. Stepping-stone method

ii. Modified distribution method

The transportation model is a special class of linear programming that deals with

shipping a commodity from sources (e.g factories) to destinations (e.g warehouses). The

objective is to determine the transportation schedule that minimizes the total

transportation cost while satisfying supply and demand limits.

SECTION OVERVIEW

57

3.1 Assumptions of transportation model

3.2 Developing LPM for transportation problems

3.3 Solving transportation problems

3.3.1 Methods of finding initial solution

3.3.1 Methods of testing the initial solution for optimality

3.4 Special cases in transportation problems

3.4.1 Unbalanced problems

3.4.2 Multiple solutions in transportation

3.4.3 Degeneracy and transportation

3.4.4 Restricted transportation routes

3.4.5 Maximization problems

Normally, the transportation model assumes that:

i. Total supply from sources and total demand at destinations are equal

ii. Transportation cost per unit of goods are certainly known and proportional to the

number of units shipped on a given route.

iii. Goods are transported from only from sources to destinations. This means

shipments between/among the sources or destinations themselves are not allowed.

iv. The objective of the model is to minimize the total cost of transportation while

satisfying demand and supply constraints.

involves the transportation of a product from three plants of the company to three

distribution centers. The company has plants in Mekelle, Hawasa and Gambela. Monthly

production capacities of a certain product at these plants are as follows:

capacity (units)

1 Mekele 3000

2 Hawasa 4000

3 Gambela 2500

Total=9500 units

The Company distributes the product through three distribution centers located in Addis

Ababa, Gondar and Jijiga. A monthly forecast of demand for these distribution centers is

as follows:

Destination Distribution Center Monthly demand forecast

(units)

1 Addis Ababa 4500

2 Gondar 3500

3 Jijiga 1500

Total=9500 units

The following table indicates transportation cost (in Br.) per unit of the good from each

source to each destination along with the supply capacity and demand of the origins and

destinations:

Destination

58

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele (1) 3* 2 5 3000

* N.B The numbers in the corner of each cell indicate transportation cost per unit to that

cell. e.g 3* indicates that the cost of transporting one unit of the product from Mekele to

Addis Ababa is 3 Birr.

The company would like to determine how much product should be shipped from each

source to each destination in such a way that the demand of each destination is satisfied

with the available production at each source and the overall transportation cost is

minimized. Note that total demand and total supply are equal: 9500 units.

A general linear programming approach can be used to solve the above problem. Let us

see how the LP model can be developed for the problem. We will use double-subscripted

decision variables, with x11 denoting the number of units shipped from origin 1 (Mekele)

to destination 1 (Addis Ababa), x12 denoting the number of units shipped from origin

1(Mekele) to destination 2 (Gondar), and so on. In general the decision variables for a

transportation problem having m origins and n destinations are written as follows:

where i= 1,2,3,…,m and j= 1,2,3,…,n

Since the objective of the transportation problem is to minimize the total transportation

cost, we can use the transportation cost data provided in the above table to develop the

following cost expressions:

Transportation cost for units shipped from Mekele = 3x11 + 2x12 +5x13.

Transportation cost for units shipped from Hawasa = x21 + 3x22 +4x23

Transportation cost for units shipped from Gambela=4x31 + 5x32 +6x33.

The sum of the above cost expressions provides the objective function showing the total

transportation cost for ABC Company. Accordingly, the objective function is:

Min Z= 3x11 + 2x12 +5x13 + x21 + 3x22 +4x23 + 4x31 + 5x32 + 6x33

Constraints: Transportation problems have two major categories of constraints- supply

and demand. Let us first consider supply constraints. The capacity at Mekele plant is

3000 units. Since the number of units shipped from the Mekele plant is expressed as x 11 +

x12 +x13, the supply constraint for Mekele plant is:

59

x11 + x12 +x13 = 3000 Mekele supply

Similarly, the supply constraints of the Hawasa and Gambela plants can be written as:

x21 + x22 + x23 = 4000 Hawasa supply

x31 + x32 +x33 = 2500 Gambela supply

The same approach is used to develop the demand constraints. The demand at Addis

Ababa distribution center is 4500 units. This demand is satisfied with the goods shipped

from Mekele (x11 ), Hawasa (x21 ), and Gambela (x31 ) . Therefore the demand constraint

for Addis Ababa distribution center is:

Similarly, the demand constraints of Gondar and Jijiga distribution centers are:

x13 + x23 + x33 = 1500 Jijiga demand

Combining the objective function and constraints into one model results in the following

9-variable, 6-constraint linear programming model for the ABC transportation problem:

Min Z= 3x11 + 2x12 +5x13 + x21 + 3x22 +4x23 + 4x31 + 5x32 + 6x33

Subject to:

x11 + x12 +x13 = 3000

x21 + x22 + x23 = 4000

x31 + x32 +x33 = 2500

x11 + x21 + x31 = 4500

x12 + x22 + x32 = 3500

x13 + x23 + x33 = 1500

xij ≥0, for i= 1,2,3 and j= 1,2,3

Dear learner! Once the LPM is developed as above, it can be solved with the simplex

method we discussed in the previous chapter. However, as you can imagine, solving the

above model, with out the help of a computer, will be very cumbersome and time

consuming to say the least. What is more striking is the fact that the transportation

problem we are dealing with is relatively small in comparison to most of the

transportation problems you will face in the real business world. You may be wondering

“So how can we solve a large-size transportation problem involving, say 10 warehouses

(sources) and 15 retail shops (destinations), with the simplex approach?” Well, don’t

worry about that! What is expected of you (a human decision maker) is just to develop

the linear programming model using the approach we saw above. Thanks to technology,

highly efficient computer spreadsheets, like Microsoft Excel, which are widely available

these days, can be used to solve the LPM. We will not, however, discuss them here. We

suggest that you refer to reference books attached at the end of this chapter to familiarise

yourself with the use of MS Excel in solving LPM’s. By the way a 10-source, 15-

destination transportation problem will have 150 variables and 25 constraints!

In the next section, we will discuss the transportation algorithm which will enable us to

solve ABC Company’s transportation problem more easily than the general LPM

approach.

60

3.1.2 The Transportation Algorithm

Dear student! What do you think is an algorithm?

________________________________________________________________________

________________________________________________________________________

_______________________________________________________________

Well, in simple terms an algorithm is a series of steps which, by applying the same

mathematical rules, gradually lead to the final solution of a problem. For instance, the

simplex method discussed in the previous chapter is an algorithm. The same rules of

performing the row operations, of determining the entering variable and the leaving

variable are applied to subsequent simplex tables. We start from the initial solution (first

table) and gradually progress to the optimal solution (final table) by repetitively applying

the rules to consecutive simplex tables.

The transportation algorithm is similar to the simplex algorithm in that it starts from an

initial solution, evaluates the initial solution for optimality and , if the initial solution is

not optimal, progresses to the next solution until optimality condition is satisfied.

There are three methods of finding and initial solution for transportation problems. These

are:

a. Northwest-corner method

b. Least-cost method and

c. Vogel’s approximation method

The three methods generally differ in their complexity and the quality of the initial

solution (the transportation cost) they provide. While the north-west corner method is the

easiest one the Vogel’s approximation method is the most complex. But the Vogel’s

approximation method results in a better quality (i.e lower transportation cost) starting

solution. The least-cost method is generally mid way in both its complexity and the

quality of the starting solution it provides. However, even if you use any of the three

methods to find the initial solution, you will arrive at the same optimal solution. Thus,

for our discussion purpose, we will limit ourselves only to the first two methods: the

northwest-corner method and the least-cost method. We illustrate these methods with the

ABC Company’s transportation problem.

a) Northwest-corner method

The northwest-corner method starts at the northwest-corner cell (variable x11 , Mekele-

Addis Ababa route). Follow the following steps:

Step 1. Allocate as many units as possible to the selected cell. The allocated number of

units will be equal to the lower of the row supply and column demand since we cannot

assign more than what is demanded or what can be supplied.

Accordingly, 3000 units is assigned to cell11 (Mekele-A/Ababa cell) because 3000 is the

lower of the row supply (i.e 3000 units from Mekele) and the column demand (4500 units

of the A/Ababa distribution center). Step 1 results in the following changes in the

original table.

Destination

61

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele (1) 3 2 5 3000

3000

Hawasa (2) 1 3 4 4000

Step 2. Adjust the associated amounts of supply and demand by subtracting the allocated

amount (i.e 3000 units). Now, after the allocation, A/Ababa’s demand will be left with

1500 units (i.e 4500-3000) and the Mekele’s supply capacity will be zero (i.e 3000-3000).

Substitute the original supply and demand amounts by crossing out and replacing with

the adjusted amounts. Thus 4500 is crossed out (cancelled) and replaced with 1500.

Similarly 3000 is crossed out, the new supply amount will be 0, thus you don’t need to

write it. The following change is made as a result of step 2:

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele (1) 3 2 5 3000

3000

Hawasa (2) 1 3 4 4000

1500

Step 3: If exactly one supply and demand amount remains nonzero, make the allocation

to the cell at the intersection of the remaining supply and demand and finish. Otherwise,

move to the cell to the right ( if there is supply) or below (if there is demand) and repeat

step 1 and step 2 until exactly one nonzero supply or demand remains.

In our problem, there are still 3 nonzero demand amounts (the 3 distribution centers) and

2 nonzero supply amounts (Hawasa and Gambela). Therefore, we have to make the next

allocation to the cell below cell11, that is to the nonzero demand direction. Accordingly,

the next allocation will be to cell21 (Hawasa-A/Ababa route). Again, we adjust the

supply and demand amounts. This results in the following changes:

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

62

Mekele (1) 3 2 5 3000

3000

Hawasa (2) 1 3 4 4000

1500 2500

1500

Now the A/Ababa demand is zero, and the Hawasa supply remains 2500 units.

Thnext allocation will be made to the right of cell21, that is to cell22, resulting in the

following changes:

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele (1) 3 2 5 3000

3000

Hawasa (2) 1 3 4 4000

1500 2500 2500

1500 1000

making the necessary adjustments the following changes occur on the table:

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele (1) 3 2 5 3000

3000

Hawasa (2) 1 3 4 4000

1500 2500 2500

1000 1500

Demand 4500 3500 1500 9500

1500 1000

Finally, exactly one nonzero demand and supply amount remains (i.e the Jijiga

demand and the Gambela supply). Thus we make allocation to the cell at the

63

intersection of the remaining supply and demand amounts (cell33 ). Since both

supply and demand amounts are 1500 units, we can allocate 1500 units and finish.

The following table is the northwest-corner initial solution. The direction of the

arrows indicate the summary of the steps we followed.

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele (1) 3 2 5 3000

3000

Hawasa (2) 1 3 4 4000

1500 2500 2500

1000 1500 1500

Demand 4500 3500 1500 9500

1500 1000

Initial total cost: To find the total transportation cost, multiply transportation cost per

unit and the number of units in occupied cells, and add the results of all products.

With this method of finding the initial solution, we start by allocating to the cell with the

lowest cost, adjust the demand and supply amounts, and continue to make allocation to

the cell with the next lowest cost and so on until all demand is satisfied with the available

supply.

The northwest corner method does not utilize shipping costs, so it can yield an initial

solution that has a very high shipping cost. Then determining an optimal solution may

require several computations. The minimum-cost method uses the shipping costs in an

effort to produce an initial solution that has a lower total cost. Hopefully, fewer

computations will then be required to ﬁnd the problem’s optimal solution.

To find the initial solution by using this method, follow the following steps:

Step 1: ﬁnd the cell with the smallest shipping cost and assign as many units as possible. The

number of units that can be assigned is the lower of the row supply and column demand

amounts. If there are many (more than one) cells with the same lowest cost, first assign to the

cell in which the largest number of units can be assigned, then to the cell where the next

largest number of units can be made and so on.

In our problem, the minimum transportation cost per unit is Br.1, and the cell with that cost

is cell21 (i.e Hawasa-A/Ababa route).

Step 2. As in the northwest corner method adjust the associated amounts of supply and

demand by subtracting the allocated amount (i.e 4000 units).

The above two steps result in the following changes on the transportation table:

64

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele (1) 3 2 5 3000

4000

Gambela (3) 3 5 6 2500

500

Step 3: Then choose the cell with the lowest cost from the cells that do not lie in a zero

supply row or demand column with the minimum shipping cost and repeat step 1 and step 2.

Continue until there is only one cell that can be chosen. In other words, if exactly one supply

and demand amount remains nonzero, make the allocation to the cell at the intersection

of the remaining supply and demand and finish.

Now, since there are more than one nonzero demand and supply amounts left, we

should identify the next smallest cost. It is Br.2 (at cell12 ). 3000 units can be allocated,

resulting in the following changes after adjustment:

Destination

Origin Addis Gondar Jijiga Supply

Ababa (1) (2) (3)

Mekele (1) 3 2 5 3000

3000

Hawasa (2) 1 3 4 4000

4000

Gambela (3) 3 5 6 2500

500 500

The next smallest cost is Br.3 (at cell11 , cell22 , and cell31 ). However, we cannot

allocate to cell11 and cell22 .

Dear student! Why do you think we cannot make the allocation to those cells?

____________________________________________________________________

______________________________________________________________

Allocation cannot be made to cell11 and cell22 because the supply amounts (i.e the

Mekele and Hawasa supplies) are zero, thus there is no supply. Therefore, we have

65

to allocate to cell31. 500 units can be allocated, resulting in the following changes

after adjustment:

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele (1) 3 2 5 3000

3000

Hawasa (2) 1 3 4 4000

4000

Gambela (3) 3 5 6 2500

500 2000

Demand 4500 3500 1500 9500

500 500

The next smallest cost is Br.4 (at cell23). However, we cannot allocate to the cell

since there is no supply.

Birr 5 is the next smallest cost. There are two candidate cells, cell13 and cell32.

However we cannot allocate to cell13 as there is no supply left. Therefore we

make the allocation to cell32 , resulting in the following changes after

adjustments:

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele (1) 3 2 5 3000

3000

Hawasa (2) 1 3 4 4000

4000

Gambela (3) 3 5 6 2500

500 500 2000

1500

Demand 4500 3500 1500 9500

500 500

Finally, exactly one nonzero demand and supply amount remains (i.e the Jijiga

demand and the Gambela supply). Thus, 1500 units is allocated to cell33 and the

initial solution is as follows:

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

66

Mekele (1) 3 2 5 3000

3000

Hawasa (2) 1 3 4 4000

4000

Gambela (3) 3 5 6 2500

500 500 1500 2000

1500

Demand 4500 3500 1500 9500

500 500

Dear distance learner! As you can note from the results of the initial solutions found

using the two methods, the initial total cost found using the least-cost method is lower

than the one found using the northwest-corner method. Thus the least-cost method

generally provides a lower cost which is a better starting solution. However, this might

not be the case in all transportation problems.

Dear student! Our discussion so far has been on finding the starting solution for

transportation problems. After determining the initial solution (using either of the two

methods), we have to evaluate it to know whether it is the optimal solution. The purpose

of evaluation is to determine whether it is possible to decrease the current total

transportation cost by reallocating (shifting) certain units of a product from the occupied

cells to empty cells.

We can perform the evaluation process only if the number of occupied cells=m+n-1,

where m=number of rows (sources) and n=number of columns (destinations).

There are two methods of testing the initial solution for optimality. These are:

1.) Stepping-stone method and

2.) Modified distribution (MODI) Method

Note that in our example, the number of occupied cells =m+n-1 (i.e 5=3+3-1).

Therefore, it is possible to evaluate both the northwest-corner and stepping-stone initial

solutions.

We illustrate the two methods by taking the northwest-corner initial solution of ABC

Company’s transportation problem. The following table shows the northwest-corner

initial solution we found above.

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

67

Mekele (1) 3 2 5 3000

3000

Hawasa (2) 1 3 4 4000

1500 2500

Gambela (3) 3 5 6 2500

1000 1500

Demand 4500 3500 1500 9500

The stepping-stone method gets its name from the analogy that you

need a stepping-stone to put your feet on when you cross a

swampy area. Similarly, when we evaluate each empty cell by

using this method we will use occupied cells as stepping-stones.

2. Trace a closed path (closed loop) that starts and ends in the empty cell being

evaluated. You can follow either clock-wise or anti-clock wise direction to

form the path.

3. Place alternating ‘+’s and ‘-’s on this path. Start by placing a plus (+) sign on

the empty cell being evaluated. Place plus and minus signs only on

occupied cells except the empty cell being evaluated. The ‘+’s indicate that

certain amount of goods will be added to that cell. ‘-’s indicate that certain

units will be subtracted from that occupied cell.

N.B. There must be equal number of ‘+’s and ‘-’s in every row and

column of the transportation table. This is to ensure that each row supply

and column demand amount remains intact (unaffected).

ii. Add the cell cost of occupied cells with ‘-’ signs

iii. Calculate the difference between (i) and (ii) to find the net cell

evaluation result.

A negative cell evaluation result indicates the possible

decrease the current total transportation cost for each unit of

a product transferred to that cell. Therefore, negative cell

evaluation results are favorable.

A positive cell evaluation result indicates the possible

increase the current total transportation cost for each unit of

68

a product transferred to that cell. Positive cell evaluation

results are unfavorable.

5. Repeat step 1-step 4 for each empty cell in the transportation tableau. If all

cell evaluation results are positive, stop; optimality condition is

satisfied. Otherwise proceed to step 6. Optimal solution in a transportation

problem is reached when there is no any further improvement potential.

That means, the minimum-cost transportation schedule is found.

6. Reallocate to the cell with the largest improvement potential: To make the

reallocation, first identify empty cells with net negative cell evaluation

result and compare their cell evaluation value. The cell with the largest

negative net cell evaluation result is said to have the largest improvement

potential. That is, reallocation to that cell will lead to the largest reduction in

the total transportation cost.

The number of units that can be reallocated is equal to the smallest of the

number of units in the occupied cells which are on the corners of the closed

path used to evaluate the cell with the largest improvement potential. If

n=the number of units that can be reallocated, make the following changes on

cells at corners of the closed path of the current table and draw the next table:

i. Add n to cells with ‘+’ sign

ii. Subtract n from those cells with ‘-‘sign

iii. Leave other cells as they are.

Let us apply the above steps in our example and evaluate the 4 empty cells one

by one:

1) cell12 (C12 In short) : We start by placing a ‘+’ sign at C12. Since we have

one ‘+’ sign in the first row, there must be one ‘_’ sign in the same row. The

minus sign can be placed only on occupied cell in the row, cell11. The next

plus sign should be placed at c21 since c21 is the only other occupied cell

in the first row (other than c11). Finally the minus sign should be placed at

C22 to form the closed path.

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

69

Mekele (1) _ 3 + 2 5 3000

3000

Hawasa (2) + 1 _ 3 4 4000

1500 2500

Gambela (3) 3 5 6 2500

1000 1500

Demand 4500 3500 1500 9500

2 3

1 3

Note that: Except c21 all plus and minus signs are placed on occupied

cells

: There are equal number of plus and minus signs in all rows and

columns. That is: Row 1 (1 plus, 1 minus), Row 2 (1 plus, 1 minus), Row 3

(0 plus, 0 minus). Column 1 (1 plus 1 minus), Column 2 (1 plus, 1 minus),

Column 3 ( 0 plus, 0 minus)

2) Cell13:

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele (1) _ 3 2 + 5 3000

3000

Hawasa (2) + 1 _ 3 4 4000

1500 2500

Gambela (3) 3 + 5 _ 6 2500

1000 1500

Demand 4500 3500 1500 9500

5 6

5 3

1 3

result, favorable

70

3) Cell23 :

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele (1) 3 2 5 3000

3000

Hawasa (2) 1 _ 3 + 4 4000

1500 2500

Gambela (3) 3 + 5 _ 6 2500

1000 1500

Demand 4500 3500 1500 9500

4 6

5 3

favorable nor unfavorable, no effect on initial total cost

4) Cell31 :

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele (1) 3 2 5 3000

3000

Hawasa (2) _ 1 + 3 4 4000

1500 2500

Gambela (3) + 3 _ 5 6 2500

1000 1500

Demand 4500 3500 1500 9500

71

Cell evaluation (c31 ) + -

3 5

3 1

favorable nor unfavorable

To summarize, the cell evaluation results of the four empty cells- C12, C13, C23,

C31- are -3, -1, -1, and 0; respectively. This means each unit of the product

that is reallocated to the four cells will decrease the initial total cost (i.e Br.

32,000) by Br. 3, 1,1,and Br.0, respectively. Since our objective is to

minimize the total transportation cost, C12 is the most favorable one. It

has the largest improvement potential.

look at the closed path we use to evaluate this cell. In the path, the occupied cells

with the negative sign attached to them are C11 and C22. From these 2 cells, C22

has the lower number of units in it (2500 units Versus 3000 for C11 ). Therefore,

we add 2500 units to cells with a plus sign (i.e C12 and C21 ) and subtract 2500

units from those cells with a negative sign (i.e C11 and C22). Keeping other cells as

they are, the following table (Table II) is drawn:

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele 3 2 5 3000

(1) 500 2500

Hawasa 1 3 4 4000

(2) 4000

Gambela 3 5 6 2500

(3) 1000 1500

Demand 4500 3500 1500 9500

Now, total transportation cost= 3*500+2*2500+1*4000+5*1000+6*1500

= Br. 24,500

=Initial cost-(cell evaluation*number reallocated units)

=Br. 32,000-(3*2500)

=Br.32, 000-Br.7500

As we have said earlier, each unit of good reallocated to C12 reduces the initial

cost by Br.3 (the -3 cell evaluation result indicates this). Now, we have reallocated

2500 units, resulting in a Br.7,500 (i.e 3*2500) cost reduction.

72

But we did not yet know whether the solution we have found is optimal. The new

solution should be evaluated again. So we should evaluate each empty cell in the table-

Cell13, Cell22, Cell23, and Cell31- one by one.

1) Cell13 :

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele (1) 3 _ 2 + 5 3000

500 2500

Hawasa (2) 1 3 4 4000

4000

Gambela (3) 3 + 5 _ 6 2500

1000 1500

Demand 4500 3500 1500 9500

5 2

5 6

unfavorable

2) Cell22 :

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele (1) + 3 _ 2 5 3000

500 2500

Hawasa (2) _ 1 +3 4 4000

4000

Gambela (3) 3 5 6 2500

1000 1500

Demand 4500 3500 1500 9500

73

Cell evaluation (c22 ) + -

3 2

3 1

unfavorable

3) Cell23 :

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele (1) + 3 _ 2 5 3000

500 2500

Hawasa (2) _ 1 3 +4 4000

4000

Gambela (3) 3 + 5 _ 6 2500

1000 1500

Demand 4500 3500 1500 9500

4 6

5 2

3 1

unfavorable

4) Cell31 :

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele (1) _ 3 + 2 5 3000

500 2500

Hawasa (2) 1 3 4 4000

4000

Gambela (3) + 3 _ 5 6 2500

1000 1500

Demand 4500 3500 1500 9500

74

Cell evaluation (c31 ) + -

3 5

2 3

favorable

Again there is a cell- Cell31 – with an improvement potential. Therefore, we should

reallocate to it. 500 units should be reallocated, resulting in the following table, table III.

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele 3 2 5 3000

(1) 3000

Hawasa 1 3 4 4000

(2) 4000

Gambela 3 5 6 2500

(3) 500 500 1500

Demand 4500 3500 1500 9500

Total transportation cost= 2*3000+1*4000+3*500+5*500+6*1500

=Br.23, 000

=Br.24, 500-(3*500)

=Br.24,500-Br.1500

Again we have to evaluate the new solution to know whether it is optimal. The four

empty cells (Cell11, Cell13, Cell22, and Cell23 ) are evaluated as follows:

1) Cell11:

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele + 3 _ 2 5 3000

(1) 3000

Hawasa 1 3 4 4000

(2) 4000

Gambela _ 3 + 5 6 2500

(3) 500 500 1500

Demand 4500 3500 1500 9500

75

Cell evaluation (c11 ) + -

5 2

3 3

unfavorable

2) Cell13 :

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele 3 _ 2 + 5 3000

(1) 3000

Hawasa 1 3 4 4000

(2) 4000

Gambela 3 + 5 _ 6 2500

(3) 500 500 1500

Demand 4500 3500 1500 9500

5 6

5 2

unfavorable

3) Cell22 :

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele 3 2 5 3000

(1) 3000

Hawasa _ 1 + 3 4 4000

(2) 4000

Gambela + 3 _ 5 6 2500

(3) 500 500 1500

Demand 4500 3500 1500 9500

76

Cell evaluation (c11 ) + -

3 5

3 1

favorable nor unfavorable

4) Cell23 :

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele 3 2 5 3000

(1) 3000

Hawasa _ 1 3 + 4 4000

(2) 4000

Gambela + 3 5 _ 6 2500

(3) 500 500 1500

Demand 4500 3500 1500 9500

4 6

3 1

favorable nor unfavorable

solution is found. The minimum transportation cost is Birr 23,000. Table III

indicates the optimal transportation schedule.

Dear distance learner! As you can observe the optimal solution (Table III) and

the least-cost initial solution are the same. But this occurs just by chance in

our specific example. You should not assume that the least-cost initial

solution will always be the same to the final solution. Infact, the two are

different in most problems.

The MODI method requires that we define an index ui for each row of the tableau and an

index vj for each column of the tableau. Computing these row and column indices

77

requires that the cost coefficient for each occupied cell equal ui + vj . Thus, if Cij the cost

per unit from origin i to destination j, we have Cij = ui + vj for each occupied cell.

Steps in MODI method:

(i). Develop an initial feasible solution using one of the two methods- NWC or Least-cost

(ii). Setting the row index of the first row equal to zero: ul= 0. Compute successive ui

and vj values for each row and column such that ui + vj = Cij for each occupied cell.

(iii). Compute the net cell evaluation result (eij ) as cij – ui – vj for each empty cell. eij is

called net evaluation index.

(iv). Allocate as much as possible to the empty cell that has the largest improvement

potential. Allocate according to the stepping-stone path for the selected cell and develop

the next table.

(v). Repeat steps (ii) to (iv) in successive tables until all cell evaluation results (eij ) are

greater than or equal to zero; that is until there is no further improvement potential.

Let us return to the initial solution for ABC Company which we found using the

northwest-corner method and use MODI to evaluate it for further improvement potential.

The table, along with row and column indices, is repeated below for easy reference:

Ababa (1) (2) (3) indices

(ui )

Mekele (1) _ 3 + 2 3000 0

3000 5

Hawasa (2) + _ 4000 -2

1 3 4

1500 2500

Gambela 3 2500 0

(3) 5 6

1000 1500

Demand 4500 3500 1500 9500 -

Column 3 5 6 - -

indices (vj )

Table I. ABC Company’s NWC initial Solution-MODI Evaluation I

Step ii. Calculating row and column indices (ui and vj):

Requiring that ui + vj = Cij for all occupied cells in the initial solution leads to a system of

5 equations and 6 indices, or variables:

Mekele-A/Ababa u1 + v1 = 3

Hawasa-A/Ababa u2 + v1 = 1

Hawasa-Gondar u2 + v2 = 3

Gambela-Gondar u3 + v2 = 5

Gambela-Jijiga u3 + v3 = 6

With one more index (variable) available than equation in this system, we can freely

78

choose a value for one of the indices and then solve for others. We will always choose u1

= 0 and then solve for the values of the other indices. Setting u1 = 0, we obtain

0 + v1 = 3…v1=3

u2 + 3 = 1… u2 = -2

-2 + v2 = 3… v2 = 5

u3 + 5 = 5... u3 =0

0 + v3 = 6… v3 =6

The above row and column indices are indicated in the table.

Step iii. Calculating net evaluation index (eij )

= 2-0-5

= -3, favourable

Cell13 e13 = c13 – u1 – v3

= 5-0-6

= -1, favourable

Cell23 e23 = c23 – u2 – v3

= 4-(-2)-6

= 0, neither favourable nor unfavorable

Cell31 e31 = c31 – u3 – v1

= 3-0-3

= 0, neither favourable nor unfavorable

Dear student! Before we continue further, have you observed that the net evaluation

results we found above using MODI method for each empty cell are exactly the same to

those we found using the stepping-stone method? Go back to page 17 and compare the

results. When we are evaluating one table using the stepping-stone method and MODI

method the net evaluation results will ALWAYS be the same for each empty cell evaluated.

Cell12 has the highest improvement potential. Therefore, we have to reallocate to Cell12 .

How many units should be reallocated to it? We use the stepping-stone method, only for

Cell12, to determine the number of units that can be reallocated. The path is indicated in the

above table. 2500 units (i.e the lower of 2500 and 3000) can be reallocated, resulting in the

next table after adjustments.

Exercise: Calculate row and column indices. Check your answer in the following table.

(1) (2) (3) indices

(ui )

Mekele _ 3 + 2 5 3000 0

(1) 500 2500

79

Hawasa 1 3 4 4000 -2

(2) 4000

Gambela + 3 _ 5 6 2500 3

(3) 1000 1500

Demand 4500 3500 1500 9500 -

Column 3 2 3 - -

indices (vj )

= 5-0-3

= +2, unfavorable

Cell22 e22 = c22 – u2 – v2

= 3-(-2)-2

= +3, unfavourable

Cell23 e23 = c23 – u2 – v3

= 4-(-2)-3

= +3, unfavorable

Cell31 e31 = c31 – u3 – v1

= 3-3-3

= -3, favourable

Cell31 is the only cell with an improvement potential. The stepping-stone path

required to make the reallocation is indicated in the table above. As you can see,

500 units (i.e the lower of 500 and 1000) can be reallocated, resulting in the

following table:

Exercise: Calculate row and column indices. Check your answer in the following table.

Origin Addis Ababa Gondar (2) Jijiga (3) Supply Row indices

(1) (ui )

Mekele (1) 3 2 5 3000 0

3000

Hawasa(2) 1 3 4 4000 1

4000

Gambela(3) 3 5 6 2500 3

500 500 1500

Demand 4500 3500 1500 9500 -

Column indices(vj) 0 2 3 - -

80

Table III. ABC Company’s NWC initial Solution -MODI Evaluation, optimum solution

= 3-0-0

= +3, unfavorable

Cell13 e13 = c13 – u1 – v3

= 5-0-3

= +2, unfavourable

= 3-1-2

= 0, neither favourable nor unfavorable

Cell23 e23 = c23 – u2 – v3

= 4-1-3

= 0, neither favourable nor unfavourable

Now there is no empty cell with an improvement potential. Therefore, we can

conclude that the solution is optimal.

Total transportation cost= 2*3000+1*4000+3*500+5*500+6*1500

=Br.23, 000

following:

If the total supply is not equal to the total demand then the problem is known as

unbalanced transportation problem. If the total supply is more than the total demand,

we introduce an additional column, called dummy column, which will indicate the

surplus supply with transportation cost zero.

81

Similarly, if the total demand is more than the total supply, an additional row, called

dummy row, which represents unsatisfied demand with transportation cost zero, is

introduced in the table.

After introducing a dummy row or column, the problem is solved just like other

‘normal’ transportation problems.

to transport a certain product from its 2 plants to 3 warehouses . Assume that unit

transportation costs are in Birr.

To

Warehouse Warehouse Warehouse Supply

From I II III

Plant I 7 8 10 50

Plant II 9 7 8 60

Demand 70 30 40

Required:

a.) Show that the transportation problem is unbalanced and draw a transportation tableau

for the corresponding balanced problem.

b.) Find the initial solution using northwest-corner (NWC) method and, by using MODI

method of evaluation, find the optimal solution.

Solution

Total demand ≠ Total supply. Therefore the problem is unbalanced. The problem

should be converted into a balanced one before solving it. Since demand is greater

than supply, dummy row (i.e dummy plant) should be added to the table to balance

the problem. The dummy row’s amount=140-110=30 units. The balanced

transportation table should be as follows:

Table I

To

Warehouse Warehouse Warehouse Supply

From I II III

Plant I 7 8 10 50

82

Plant II 9 7 8 60

Dummy row 0 0 0 30

Demand 70 30 40 140

Now the problem is balanced since total demand (140)=total supply (140).

Note that transportation costs in the dummy row are zero(0) because there

will not be an actual shipment of goods from the dummy row. The purpose of

the dummy row here is to balance the problem and know the demand of

which warehouse will not be partially or completely satisfied at the optimal

solution..

To

Warehouse I Warehouse II Warehouse III Supply

From

Plant I 7 50 8 10 50

9 7 8 60 40 10

Plant II

20 30 10

0

Dummy row 0 0 30

30

70 20

Demand 30 40 30 140

=Birr 820

i. Cell12

To

Warehouse I Warehouse II Warehouse III Supply

From

Plant I _ 7 50 + 8 10 50

83

+ 9 _ 7 8 60 40 10

Plant II

20 30 10

0

Dummy row 0 0 30

30

70 20

Demand 30 40 30 140

8 7

9 7

unfavorable

ii. Cell13

To

Warehouse I Warehouse II Warehouse III Supply

From

Plant I _ 7 50 8 + 10 50

+ 9 7 _ 8 60 40 10

Plant II

20 30 10

0

Dummy row 0 0 30

30

70 20

Demand 30 40 30 140

10 8

9 7

unfavorable

iii. Cell31

To

Warehouse I Warehouse II Warehouse III Supply

From

84

Plant I 7 50 8 10 50

_ 9 7 +8 60 40 10

Plant II

20 30 10

_ 0

Dummy row + 0 0 30

30

70 20

Demand 30 40 30 140

0 0

8 9

iv. Cell32

To

Warehouse I Warehouse II Warehouse III Supply

From

Plant I 7 50 8 10 50

9 _ 7 +8 60 40 10

Plant II

20 30 10

_0

Dummy row 0 + 0 30

30

70 20

Demand 30 40 30 140

0 0

8 7

Cell31 is the only cell with an improvement potential. 20 units (the lower of 20 and

30) can be reallocated, resulting in the following table after reallocation:

85

To

Warehouse I Warehouse II Warehouse III Supply

From

7

Plant I 8 10 50

50

9 7 8

Plant II 60

30 30

0 0

Dummy row 0 30

20 10

Demand 70 30 40 140

is optimal.

i. Cell12

To

Warehouse I Warehouse II Warehouse III Supply

From

_ 7

Plant I + 8 10 50

50

9 _ 7 + 8

Plant II 60

30 30

+ 0 _ 0

Dummy row 0 30

20 10

Demand 70 30 40 140

86

Optimal Cost=7*50+7*30+8*30+0*20+0*30

=Birr 800

8 7

8 0

0 7

ii. Cell13

To

Warehouse Warehouse Warehouse Supply

From I II III

_ 7

Plant I 8 +10 50

50

9 7 8

Plant II 60

30 30

+ 0 _ 0

Dummy row 0 30

20 10

Demand 70 30 40 140

10 0

0 7

unfavorable

iii. Cell21

To

Warehouse I Warehouse II Warehouse III Supply

From

7

Plant I 8 10 50

50

87

+ 9 7 _ 8

Plant II 60

30 30

_ 0 + 0

Dummy row 0 30

20 10

Demand 70 30 40 140

9 8

0 0

iv. Cell34

To

Warehouse Warehouse Warehouse Supply

From I II III

7

Plant I 8 10 50

50

9 _ 7 + 8

Plant II 60

30 30

0 _ 0

Dummy row + 0 30

20 10

Demand 70 30 40 140

0 0

8 7

unfavorable

found is optimal.

At the optimal solution, Warehouse I gets only 50 units, and Warehouse III gets

only 30 units. Thus, the demand of the two warehouses is only partially fulfilled.

88

3.4.2 Multiple Optimum Solutions

This case occurs when there are more than one (multiple) optimal solutions. This

would be indicated when at one or more unoccupied (empty) cells have zero value

for the net evaluation result in the optimum solution.

Thus a reallocation to cell having a net cost change equal to zero will have no effect

on transportation cost. This reallocation will provide another solution with same

transportation cost, but the routes employed will be different from those for the

original optimal solution. This is important because they provide management with

added flexibility in decision making.

multiple-solution case. The zero (0) net evaluation result for Cell22 and Cell23 (in

both the MODI and Stepping-stone optimum solutions) indicate that reallocation can

be made to those cells without any change in the optimum (minimum) transportation

cost.

Let us take the optimum solution table and make reallocation to Cell23 to see the

effect. The required stepping-stone path is indicated in the table below:

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele 3 2 5 3000

(1) 3000

Hawasa _ 1 3 + 4 4000

(2) 4000

Gambela + 3 5 _ 6 2500

(3) 500 500 1500

Demand 4500 3500 1500 9500

As you can see from the table, 1500 units (i.e the lower of 1500 and 4000) can be

reallocated. After the reallocation, the table will look as follows:

Destination

Origin Addis Ababa Gondar Jijiga Supply

(1) (2) (3)

Mekele 3 2 5 3000

(1) 3000

Hawasa 1 3 4 4000

(2) 2500 1500

Gambela 3 5 6 2500

(3) 2000 500

Demand 4500 3500 1500 9500

89

Now, Total transportation cost= 2*3000+1*2500+4*1500+3*2000+5*500

=Br. 23,000

The total cost is after the reallocation is the same, indicating that the problem is

optimal.

Exercise: Show that reallocation to Cell22 will not result in any change in the total

transportation cost.

1 occupied cells, the problem is said to be a degenerate transportation problem.

a source and demand at a destination are exhausted (become zero) simultaneously

before the last allocation in any transportation table.

in one of the empty cells. However, not every empty cell is acceptable: The

cell where Δ is placed should enable the evaluation of all the remaining

empty cells. This means, we should be able to calculate all U i and Vj (in

MODI); or we should be able to form a closed loop for all the remaining

empty cells (in Stepping-stone method). There can be 2 or more appropriate

cells in which to place Δ.

The value of Δ is assumed to be so negligible (close to zero) that the supply

and demand amounts will not change.

After placing Δ in an appropriate cell, continue the evaluation just like other

‘normal’ transportation problems. However, adding or subtracting Δ from an

occupied cell will not change the number of units in that cell. When Δ is

added to an empty cell, the empty cell becomes an occupied cell; do not

leave the empty cell as it is!

To Supply (in

Town A Town B Town C tons)

From

90

Factory I 5 4 12 500

Factory II 8 6 10 600

Required:

Find the optimum transportation schedule by using NWC method for initial solution and

MODI for evaluation purpose. Assume that unit transportation costs are in Birr per ton of

a product.

Solution

To Supply (in

Town A Town B Town C tons) Row index

From (Ui)

5

Factory I 4 200 12 500 200 0

300

91

8 6 10

Factory II 250 2

X 250

3 5

Factory III 7 400 ?

400

450 250

Demand (in tons) 300 400 1500 -

Column index 5 4 ? - -

(Vj)

The number of occupied cell is fewer than m+n-1. The number of sources (i.e m)=3; the number

of destinations (i.e n)=3. Thus, m+n-1 is 3+3-1=5. Normally the number of occupied cell should be 5.

But it is only 4 in our case, indicating that the problem is degenerate.

The degeneracy arises because in making our third allocation, 250 units in Cell22 ,

both the supply from Factory II AND the demand of Town B are exhausted

simultaneously, leading to fewer occupied cells.

To avoid the degeneracy, we should place Δ in one of the empty cells. Dear student!

Which of the empty cells do you think is/are the appropriate place(s) for Δ? Well, you

may find the right place through trial-and-error. But there is a better way than trial-and-

error:

First, try to calculate Ui’s and Vj ‘s by using the current occupied cells. Remember our

formula: Cij = ui + vj., where Cij is the cost of occupied cells. By using the three

occupied cells, we can find the following indices:

U1 (which is 0 by default),

V1 (5-0=5)

V2 (4-0=4)

U2 (6-4=2)

We cannot find U3 and V3 currently (indicated by ? in the above table). Now, Δ can be

placed in any one of the empty cells in the column/row containing the question mark (?).

Accordingly, only the empty cell marked X (see the table above) is the wrong place for Δ.

Exercise: Place Δ in any one of the 4 appropriate cells and solve the problem like any

other nondegenerate, ‘normal problem’

To Supply (in

Town A Town B Town C tons)

From

5 4

Factory I 12 500 200

300 200

92

Factory II 8 6 10 250

250

3 7 5

Factory III 400

400

450 250

Demand (in tons) 300 400 1500

Dear learner! Our discussion of transportation problems has so far been based on the

assumption that all routes from sources to destinations can be used. However in the

real world a situation such as road hazards (snow, floods, etc), traffic regulation, road

maintenance, safety problems etc may arise. In such situations it is not possible to

transport goods from certain sources to certain destinations. In this case, the

restricted cell may either be completely crossed out or a very large per unit

transportation cost (M ) is assigned to it. After placing M to the prohibited cell, ignore

that cell from further analysis.

Exercise: Take ABC Company’s transportation problem. But, now assume that it is

not possible to transport the product from Gambela to Addis Ababa directly because

the route is not operational due to road maintenance taking place.

Required: Solve the transportation problem by using least-cost method for initial

solution and stepping method for evaluation. Check your answer below:

Solution

(1) (2) (3)

93

Mekele (1) 3 2 5 3000

3000

4000

500 1500 2000

500

Demand 4500 3500 1500 9500

500 500

Note that Addis Ababa’s demand is not fully satisfied (is short of 500 units)

because of the restriction. The 500 units are retained by the Gambela plant.

The problem is degenerate case.

(1) (2) (3)

Mekele 3 2 5 3000

(1) 3000

Hawasa 1 3 4 4000

(2) 4000

Gambela M 5 6 2500

(3) 500 1500

Although transportation model is usually used to minimize transportation cost, it can also

be used to get a solution with an objective of maximizing the total value or returns. Since

the criterion of optimality is maximization, the converse of the rule for minimization will

94

be used. The rule is: A solution is optimal if all opportunity costs for the unoccupied cell

are zero or positive.

the addition of one initial step in the process of finding the solution. That is, we must first

convert the maximization table into its equivalent minimization opportunity cost table.

This is done by subtracting every number in the maximization table from the largest

number in the table. The resulting table is called opportunity cost table.

Once the opportunity table is developed exactly the same methods of finding the initial

solution and evaluation are carried out on the opportunity cost table.

Example: Assume that Trans Ethiopia provides transportation service to three factories-

X, Y and Z- to transport their goods to four dealers spread all over the country. The

production capacities of these factories and the demand of the four dealers are given

below. Also given in the table are the transportation fees (in Br./quintal) Trans charges for

its service.

Dealer IV Supply

From (in

quintals)

Factory X 2 3 1 4 3000

Factory Y

5 4 3 4 2000

Factory Z

3 2 1 2 5000

quintals)

Required: Develop the opportunity cost table for Trans’s problem and find the

northwest-corner initial solution.

Solution

Develop opportunity cost table by minimizing every number in the table from the largest

number (5 in our example). The NWC initial solution is also indicated in the table below.

95

Opportunity Cost table

Dealer IV Supply (in

From quintals)

3 2

Factory X 4 1 3000

3000

Factory Y 0 1 2000

2 1

1000 1000 1000

Factory Z 2 3 4 3

5000 4500

500 2000 2500 2500

4000 1500

Demand (in 2000 2500 10,000

quintals) 1000 500

Exercise: Use MODI method for evaluation purpose and find the minimum

opportunity-cost (i.e maximum revenue) for Trans. Check your answer below

Dealer IV Supply (in

From quintals)

3 2 1

Factory X 4 3000

500 2500

Factory Y 0 2000

2 1

2000

Factory Z 2 3 4 3

5000

2000 1000 2000

4000 1500

Demand(quintals) 2000 2500 10,000

Minimum opportunity cost=Br.18500. To find the maximum revenue, use the original revenue figures, not

the opportunity costs.

96

MaximumRevenue=3*500+4*2500+5*2000+3*2000+2*1000+1*2000

Birr 31,500

Exercise 3-1

1.) Consider the following raw material transportation problem. Transportation costs are

in Birr per quintal of the raw material.

97

To

Plant I Plant II Plant III Supply (in

From quintals)

3 2

Supplier A 3 25

2

Supplier B 4 3 35

3 2 6

Supplier C 20

Demand (in 30 30 20 80

quintals)

b. Solve the problem by using NWC initial solution method and MODI evaluation

method.

factories to 2 distribution centers. Assume that the transportation costs are in Birr per ton

of the commodity. Use least-cost method for initial solution and MODI for evaluation

purpose.

To Supply (in

Jimma Nekemte tons)

From

Factory I 40 65 350

Factory II 70 30 400

tons)

3.) A cement company has three plants and four warehouses. The supply and

demand (in quintal) and the corresponding transportation costs (Br. per quintal) of

a raw material are given below.

To Supply

I II III IV

From (Tons)

98

A 5 10 4 5 10

B 6 8 7 2 25

C 4 2 5 7 20

Demand (tons) 25 10 15 5

a. Solve the above problem by using northwest-corner for initial solution and MODI

for evaluation purpose.

b. Does the problem have alternate optimal solution? If so, draw the alternate optimal

solution table.

facilities. The company ships the packs from the production facilities to four warehouses.

The table on the next slide shows the costs per pack to ship to the four warehouses.

To Seattle Supply

New York Phoenix Miami

From

19 3 7 21 100

Juarez

Seoul 15 21 18 6 300

Telaviv 11 14 15 22 200

Required: Find the optimum assignment schedule by using least-cost method for initial

solution and stepping-stone method for evaluation purpose.

5.) A large manufacturing company is closing three of its existing plants and intends to

transfer some of its more skilled employees to three plants that will remain open. The

number of employees available for transfer from each closing plant is as follows:

99

1 60

2 105

3 70

Total 235

The following number of employees can be accommodated at the tree plants remaininig

open.

A 45

B 90

C 35

Total 170

Each transferable employee will increase output per day at each plant as shown in the

following table. The company wants to transfer employees so as to ensure the maximum

increase in product output.

To

A B C

From

1 5 8 6

2 10 9 12

3 7 6 8

INTRODUCTION

100

_____________________________________________________________________

_____________________________________________________________________

________

machines, machines to job locations, salespersons to territories, drivers to vehicles,

instructors to courses, pilots to aircrafts, nurses to medical wards , etc. Assignment

problems are helpful tools in these and similar application areas.

SECTION OBJECTIVES

The objective of this section is to enable you:

Understand the structure of assignment problems

Develop linear programming model for assignment problems

Solve assignment problems by the Hungarian method of assignment

Identity and solve special cases of assignment problems

SECTION OVERVIEW

3.5 Structure of Assignment Problems

3.6 General LPM Formulation of Assignment Problems

3.7 Hungarian method of assignment

3.8 Special cases in assignment problems

3.8.1 Unbalanced assignment problems

3.8.2 Multiple solutions in assignment

3.8.3 Restricted Assignment

3.8.4 Maximization Assignment problems

at each “destination” and supply from each “source” is one. Thus, we assume that

one worker will be assigned to one machine; one job will be assigned to one

machine, and so on.

machines, or persons to jobs, etc without assigning a job or person more than once

and ensuring that all jobs are completed. The objective might be to minimize the

total time to complete a set of jobs, or to maximize skill ratings, maximize the total

satisfaction of the group, maximize the average score of students, minimize the cost

of the assignments, etc.

the following two basic requirements/constraints.

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3.6 General LPM Formulation of Assignment Problems

Consider m machines to which n jobs are assigned. No machine can either sit idle or

do more than one job. Every pair of machine and assigned job has a rating. This rating

may be cost, processing time, to finish the job. There will be n2 (n-squared) such

combinations of machines and jobs assigned. Thus, the optimization problem is to find

such job- machine combinations that optimize the sum of ratings among all.

represented by treating jobs as sources and the machines as destinations. The supply

available at each source is 1 and the demand required at each destination is 1.The

cost of assigning (transporting) job i to machine j is cij.

Example: Assume that a production manager wants to assign 3 jobs (m=3) to 3 machines (n=3).

Processing costs of each job in each machine is given below. For example, it costs Br.5 to process job

1 in machine 1, Br. 7 to process job 1 in machine 2…Br.16 to process job 3 in machine 3.

Required:

b. Find the optimum assignment schedule by using the Hungarian method of

assignment.

Solution

“destinations”

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Objective function:

Minimize Z= Min Z= 5x11 + 7x12 +9x13 +14x21 + 10x22 +12x23 + 15x31 + 13x32 + 16x33

Subject to:

x11 + x12 +x13 = 1

x21 + x22 + x23 = 1

x31 + x32 +x33 = 1

x11 + x21 + x31 = 1

x12 + x22 + x32 = 1

x13 + x23 + x33 = 1

xij ≥0, for i= 1,2,3 and j= 1,2,3

Once this problem is developed the problem can be solved with simplex approach, just

like transportation problems. The optimal solution to each decision variable in the above

assignment model will be as follows:

Xij= 0, if the job i is not assigned to machine j

1, if the job i is assigned to machine j

Even if assignment problems can be solved with the general LPM approach, the solution

will be found out using a more convenient algorithm called Hungarian method which

will be illustrated with our example.

Step 1: Row Reduction: Select the smallest value in each row. Subtract this value

from each value in that row and develop a new table. The new table is called row

reduction table.

In our example the smallest numbers in Row 1,Row 2 and Row 3 are 5,10, and

13;respectively.

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Step 2: Column Reduction: In the row reduction table, select the smallest value in each

column (0, 0, and 2, respectively in our example). Subtract this value from each value in

that column and develop a new table. The new table is called column reduction table.

Step 3: On the column reduction table, draw a minimum number of horizontal and

vertical lines through some of the rows and columns, such that all zero values are

crossed out.

3.1) If the minimum number of lines required to cover all zeros is equal to the

number of rows, stop. Optimality condition is satisfied. Make the optimal assignment

as follows:

i. First count the number of zero’s in each row. If there is a row with only one zero,

encircle that zero and cancel all other zero’s in the encircled zero’s column. If all

assignments cannot be made in this way, proceed to ii

ii. Count the number of zero’s in each column. If there is a column with only one

zero, encircle that zero and cancel all other zero’s in the encircled zero’s row.

N.B: The number of encircled zero’s must be equal to the number of rows/columns,

that is, all jobs must be assigned to all machines by assigning one job to one

machine.

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3.2) If the minimum number of lines required covering all zeros is not equal to the

number of rows identify the smallest number from the uncovered numbers. If there are

more than one smallest numbers, just select any one of them. Let θ be the smallest

number. Make the following changes on the column reduction table and draw a new

table.

i. Add θ to those numbers at the intersection of two lines (i.e numbers covered by a

vertical and horizontal line)

ii. Subtract θ from the uncovered numbers

iii. Leave numbers that are crossed out by only one line as they are.

Step 4: Repeat Step 3 in subsequent tables until the optimality condition is satisfied.

In our example, the minimum number of lines required to cover all the zero’s in the

column reduction table is 3 which is equal to the number of rows. Therefore, optimal

assignment can be made (indicated by the bold 0’s in the column reduction table above)

as follows:

Total cost is 5+12+13 = 30.

Processing time (in minutes) for each job in each machine is provided in the table.

Table 0

Machines

Jobs 1 2 3 4 Row

minimum

A 1 4 6 3 1

B 9 7 10 9 7

C 4 5 11 7 4

D 8 7 8 5 5

Required: Find the optimum assignment schedule by using the Hungarian method

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Solution

Machines

Jobs 1 2 3 4

A 0 3 5 2

B 2 0 3 2

C 0 1 7 3

D 3 2 3 0

Column 0 0 3 0

Minimum

Machines

Jobs 1 2 3 4

A 0 3 2 2

B 2 0 0 2

C 0 1 4 3

D 3 2 0 0

θ= 1

The minimum number of lines required to cover all the 4 zero’s in the column

reduction table is 3, which is less than 4 (i.e the number of rows). Thus a

feasible assignment is not possible at this moment.

Apply step 3.2 in the column reduction table. The minimum uncovered

number (θ) is 1. After applying step 3.2 the following table results

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Table 3

Machines

Jobs 1 2 3 4

A 0 2 1 1

B 3 0xx 0 2

C 0x 0 3 2

D 4 2 0xxx 0

to cover all zeros. Optimality condition is satisfied.

row. Row 1 has only one zero, so that 0 is encircled (indicated by bold in

the table above) and the 0 at Cell31 is cancelled (0x).

When the 0 in row 3 is cancelled, only 1 zero will be left in the row;

encircle the remaining zero and cancel the 0 at Cell22 (0xx).

When the 0 at Cell22 is cancelled, only 1 zero will be left in the row;

encircle the remaining zero and cancel the 0 at Cell43 (0xxx).

Note that there is only one encircled (bold) zero in each row and each column.

machine 4

Dear learner! Like transportation problems assignment problems can have the following

special cases:

2. Multiple solutions in assignment

3. Restricted Assignment

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4. Maximization Assignment problems

The Hungarian method of assignment requires that the number of columns and rows in

the assignment matrix be equal. However, when the given cost matrix is not a square

matrix, the assignment problem is called an unbalanced problem. In such cases a dummy

row (s) or column (s) are added in the matrix (with zeros as the cost elements) to make it

a square matrix. After making the given cost matrix a square matrix, the Hungarian

method is used to solve the problem.

programs. The following table shows the time (in hours) required by each programmer to

write each program.

Programs

Programmer 1 2 3 4

John 4 1.5 2 3

Kumar 2 2 1 3

Required: Find the optimum assignment schedule by using the Hungarian method.

Solution.

Programs

Programmer 1 2 3 4

John 4 1.5 2 3

Kumar 2 2 1 3

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Tut 2.5 3 1.5 1

Dummy 0 0 0 0

Programs

Programmer 1 2 3 4

Kumar 1 1 0 2

Dummy 0 0 0 0

Programs

Programmer 1 2 3 4

Kumar 1 1 0 2

Dummy 0 0 0 0

Program 1 will not be written.

Multiple solutions arise when, at step 3 of assignment, there are more than one 0’s in

more than one row and column of the optimal assignment table. Such situation

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indicates multiple optimal solutions with the same optimal value of objective function

(total cost, processing time, etc). In such cases the more suitable solution may be

considered by the decision-maker.

Example: Solve the following assignment problem by the Hungarian method and show

that it has multiple solutions. Check your answer below. Processing time (hours) of jobs

in machines is given.

Machines

Jobs 1 2 3

A 2 4 6

B 5 3 3

C 3 2 2

Solution

Machines

Jobs 1 2 3

A 0 2 4

B 2 0 0

C 1 0 0

Machines

Jobs 1 2 3

A 0 2 4

B 2 0 0

C 1 0 0

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In the optimal table, there are two 0’s in two rows (Row 2 and Row 3) and two

columns (Column 2 and Column 3) at the same time, indicating that the problem

has multiple solutions. There are two possible assignments in this case.

Optimal Assignment I:

Total processing time=2+ 3+2 =7 hours.

Total processing time=2+ 3+2 =7 hours.

In certain instances, it may happen that a particular match or pairing may be either

undesirable or otherwise unacceptable. For example, an employee may not have the

skills necessary to perform a particular job or a machine may not be equipped to handle a

particular operation. In such cases, the cost of performing that particular activity by a

particular resource is considered to be very large (written as M or ¥ ) so as to prohibit

the entry of this pair of employee-job into the final solution.

When such a restriction is present, a letter (M) is often placed in the table in the

that contains M is ignored throughout the analysis. That is, M is not used in any

reductions, nor is any value added to it or subtracted from it during the course of

the analysis.

3 departments of a manufacturing organization- Assembly, Quality control, and

Packaging. However, Tigist cannot be assigned to Assembly department because of the

labor intensiveness of the job and her pregnancy. Because of differences in skill,

experience and educational background the payments of the employees vary. The table

below shows the daily wages (in Birr) for the three workers in the departments.

Departments

control

Alemayehu 50 45 48

Tigist M 46 50

Tiruwork 55 52 50

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Required: Find the minimum-cost assignment schedule by using the Hungarian

method.

Solution

Step 1. Row reduction table…Table I

Departments

control

Alemayehu 5 0 3

Tigist M 0 4

Tiruwork 5 2 0

Departments

control

Alemayehu 0 0 3

Tigist M 0 4

Tiruwork 0 2 0

cover all 0’s . Therefore, optimal assignment can be made.

Optimal assignment: Alemayehu to Assembly, Tigist to quality control, and

Tiruwork to packaging.

: Minimum daily wage (for the 3 workers)= 50+46+50= 146

Birr.

There may arise situations when the assignment problem calls for maximization of profit,

revenue, etc as the objective function. Such problem may be solved by converting the

given maximization problem into a minimization problem by the following procedure:

i. Find the largest number (profit, revenue, etc) in the entire table.

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ii. Subtract each entry in the original table from the largest profit coefficient and

develop opportunity cost table.

The transformed assignment problem so obtained can be solved by using the Hungarian

method.

Example: Assume that the head of management department wants to assign 3 instructors

to 3 courses. From previous studies, the department head determines that average score of

students taking the 3 courses offered by the instructors are as given in the table below.

Required: Find the optimal assignment schedule that maximizes the average score of

students in the 3 courses

Course

Instructor 1 2 3

A 60 65 75

B 80 70 67

C 67 82 73

ii. Subtract each entry in the original table from the largest score (from 82) and

develop “ opportunity cost” table.

Course

Instructor 1 2 3

A 22 17 7

B 2 12 15

C 15 0 9

Course

Instructor 1 2 3

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A 15 10 0

B 0 10 13

C 15 0 9

Column reduction table

Course

Instructor 1 2 3

A 15 10 0

B 0 10 13

C 15 0 9

A minimum of 3 lines are required to cover all zero’s, indicating that optimal

assignment can be made.

Instructor C to Course 2. Total score= 75+80+82=237; And Average

score=237/3=79.

UNIT SUMMARY

Dear distance learner! In this unit we have seen two related OR model-the transportation

and assignment problems- which have interesting applications in business. Both problems

can be approached with the general LPM. However, we usually use specialized

algorithms for each one.

The transportation algorithm involves the following procedures:

1. To set up the transportation table.

2. Examine whether total supply equals total demand. If not, introduce a dummy

row/column having all its cost elements as zero and Supply/Demand as the (+ive)

difference of supply and demand.

3. To find an initial basic feasible solution by using northwest-corner or least-cost

method. An initial solution for a TP with m sources and n destinations must include

m+n–1 occupied cells. If the number of occupied cells at any transportation table is fewer

than m+n-1, the problem is a case of degeneracy. Degeneracy is solved by filling one or

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more empty cells (until the occupied cells=m+n-1) with an artificial variable (like Δ) and

proceeding with the solution process like any other “normal” problem.

4. To obtain an optimal solution by making successive improvements to initial basic

feasible solution until no further decrease in the transportation cost is possible. An

optimal solution is one where there is no other set of transportation routes that will

further reduce the total transportation cost. Thus, we have to evaluate each unoccupied

cell in the transportation table in terms of an opportunity of reducing total transportation

cost. An unoccupied cell with the largest negative net evaluation value (cost) is selected

to include in the new set of transportation routes (allocations). This value indicates the

per unit cost reduction that can be achieved by raising the shipment allocation in the

unoccupied cell from its present level of zero. We can use the stepping-stone or MODI

method for evaluation. They differ in their approaches, but will give exactly the same

results and use the same testing strategy.

1. Set up the assignment table.

2. Examine whether the number of rows (the assigned) is equal to the number of columns

(the assignee). If not, introduce dummy row or column, which ever is appropriate, and

balance the problem. All the dummy row/column costs are zero, indicating that no actual

assignment will be made in reality.

3. Identify the minimum number each row of the balanced assignment table and subtract

it from every number in the row, draw row reduction table

4. Identify the minimum number in each column of the row reduction table and draw

column reduction table.

5. Cover all zero’s in the column reduction table by horizontal and/or vertical lines. If the

minimum number of lines required to cover all zero’s is equal to the number of rows, stop

and make the optimal assignment. Otherwise, identify the smallest number from the

uncovered numbers, add it to those numbers covered by two lines and subtract it from

uncovered numbers. Develop the new table.

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6. Repeat step 5 until the number of lines required is equal to the number of rows.

(solved by introducing dummy row/column), maximization problems (solved by initially

developing opportunity cost table), restricted transportation and assignment (solved by

assigning a very large number, M, to the restricted cell and ignoring the cell from further

analysis, and multiple optimal solutions. Degeneracy exists only in transportation

problems.

References

1.W. J. Stevenson (1991); Introduction to Management Science, Richard D. Irwin Inc., USA

2. Anderson, Sweeney, and Williams (1997), An Introduction to Management Science:

Quantitative Approaches to Decision Making (8th ed.), West Publishing. Co, USA.

3. Jeffrey D. Camm and James R. Evans (1996) Management Science: Modeling, Analysis

and Interpretation, South Western College Publishing, USA

4. Taha, Hamdy A. (2002), Operations Research:An Introduction (7 th edition), Pearson

Education,Inc. India

5. Eppen, Gould and Shmidt (1988), Quantitative Concepts for Management:Decision

Making Without Algorithms(3rd edition), Prentice Hall, USA

6. J K Sharma (2003): Operations Research, Theory and Application, Second Edition.

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Exercise 3-2

1.) A marketing manager in XYZ Company wants to assign 4 salespersons to 4

regions. The table below summarizes the expected monthly sales revenue (in 1000’s

of Br.) that can be generated by each sales person in each region.

Required: Find the assignment schedule that maximizes expected sales revenue.

What is the expected total revenue?

Regions

Sales 1 2 3 4

Person

Alemu 50 40 35 42

Bedada 35 30 29 27

Chaltu 28 40 25 38

Ahmed 26 35 30 34

2.)A contractor pays his subcontractors a fixed fee plus mileage for work performed.

On a given day the contractor is faced with three electrical jobs associated with

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various projects. Given below are the distances (in miles) between the

subcontractors and the projects.

Projects

Subcontractors W X Y

Westside 50 36 36

Federated 20 30 18

Goliath 35 32 20

Universal 25 25 14

3.) Determine the optimal assignment schedule for the following problem. Costs of

assignment (Br.) are given.

Machines

Operators 1 2 3 4

A 30 45 35 49

B 44 43 47 48

C 30 45 35 49

D 50 35 40 47

4.) A computer center has three programmers. The center wants three application

programs to be developed. Programmer 2 cannot be assigned to develop Program B. The

head of the computer center, after studying carefully the programs to be developed,

estimates the computer time in minutes required by the experts for the application

programs as follows. Assign the programmers to the programs in such a way that the total

computer time is minimum.

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Programs

ProgrammersA B C

1 120 100 80

2 80 - 110

5.) Nyala Steel Industries has four jobs to be completed. Each machine must be assigned

to complete one job. The time required to setup each machine for completing each job is

shown in the table below. Determine the assignment schedule that minimizes the total

setup time needed to complete the four jobs.

Time (Hours)

Machine 1 14 5 8 7

Machine 2 2 12 6 5

Machine 3 7 8 3 9

Machine 4 2 4 6 10

UNIT SIX

GAME THEORY

UNIT OBJECTIVES

After a thorough study of this unit, you will be able to:

Define strategy

Understand the nature of game theory

Develop acquaintance with types of games

Define saddle point

Explain pure strategies

Comprehend mixed strategies

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understand dominance property

UNIT INTRODUCTION

Decision makers are often faced with situations of conflict and competition which

involve two or more rational opponents. Their results are not solely dependent on their

own decisions but are influenced by what the rival does. War between nations, sports

competitions, market rivalry and competition, negotiations between trade unions and the

management and so on are typical of such situations. The aim of each participant in such

conflicts would be to ascertain what each one can expect to gain in view of the opposing

interests. The theory of games provides an insight in to such problems.

Cognizant to the above fact, we need to be well acquainted with the fundamentals of

game theory in making winning decisions in case of conflicting situations in the business

environment. This unit is devoted to explain game theory to make you a better decision

maker by being watchdog of competitions. To this end, the unit is organized in to two

sections. In the first section, you will learn about assumptions, definitions and

classifications of games; pure strategies and saddle points. The second section is devoted

to mixed strategies & the rule of dominance.

Games and Pure Strategies

Section Objectives:

Up on completing this section, you will be able to:

- Elaborate basic assumptions of games

- Define game theory

- Understand the types of games

- Determine saddle points

- Differentiate pure strategies

Section Overview:

6.1 Assumptions and Definitions games

6.2 Classification of games

6.3 Pure strategies and saddle point

Competition is the watch word of modern of life. We say that a competitive solution

exists if two or more individuals make decision in a situation that involves conflicting

interest in which the outcome is controlled by the decision of all the concerned parties. A

competitive solution is called a game. The term game represents a conflict between two

or more parties. A situation is called a game when it possesses the following properties:

I. The number of competitors is finite.

II. There is a conflict in interests between the participants.

III. Each of the participants has a finite set of possible courses of action.

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IV. The rules governing these choices are specified and known to all players, a play of

the game results when each of the players chooses a single course of action from the

courses available to him/her.

V. The outcome of the game is affected by the choices made by all the players.

VI. The outcome for all specific set of choices by all of the players is known in advance

and numerically defined.

The outcome of a play consists of a particular set of courses of action undertaken by the

competitors. Each outcome determines a set of payments (Positive, Negative or Zero) one

to each competitor.

Game theory, therefore, is theory that examines the choices of optimal strategies in

conflict situations, where it is concerned with general analysis of strategic interactions.

Economists call game theory as psychologists’ call the theory of social situations, which

is an accurate description of what game theory is about. Most researches in game theory

focuses on how groups of people interact. There are two main branches of game theory:

i.e. Co-operative and non co-operative game theory. Cooperation is more likely to occur

in repeated or many move games, which are more realistic in the real world. In such

games (repeated games) the best strategy is that of to do to your opponent what he/she

has done to you. This is begun by cooperating and continuing to cooperate as long as

your opponent cooperates. If a given firm betrays you after some time he/she agreed to

cooperate, the next time the other opponent waits to betray back. So that for any optimal

cooperation to be applied there must be a hope that cooperation will induce further

cooperation in the future. Among other conditions, it must be assumed that the game is

repeated indefinitely, or at a least a very large and uncertain number of times. If the game

is played for a finite number of times, each firm has an incentive to cooperate in the final

period because it cannot be harmed by retaliation. Each firm knows thus and will not

cooperate on the next- to- the last move. In an effort to gain a competitive advantage by

being the first to start cheating, the entire situation will be unravel (there will be no

confusion) and cheating begins from the first move.

The following conditions should be met other than infinite number of games for an

optimal cooperative game type to be applied. These are:

Stable set of players for the cooperative behavior to develop.

A small number of players to keep track of what each are doing.

Each firm can quickly detect and is willing and able to quickly retaliate for

cheating by other firms.

Demand and cost conditions are relatively stable.

Under conflicting situations, the theory of game generally concerned with the denial

analysis of strategic interactions where we apply it to the study of economic behavior in

different market situations like oligopolistic markets.

Non- Cooperative game theory deals largely with how intelligent enough individuals

interact with one another in an effort to achieve their own goals. Most of the time,

competitive rival industrial, manufacturing as well as service rendering firms compete

one another and try to choose their optimal strategies in non- cooperative styles and select

their optimal strategies given the strategies chosen by the competitive firms.

The term strategy is defined as a complete set of plan of actions specifying precisely

what the player will do under every possible future contingency that might occur during

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the play of the game. That is, strategy of a player is the decision rule he/she uses for

making a choice from his/her list of courses of actions. Strategy can be classified as:

1. Pure strategy

2. Mixed strategy

A strategy is called pure if one knows in advance of the play that it is certain to be

adopted irrespective of the strategy the other player might choose. The optimal strategy

mixture for each player may be determined by assigning to each strategy, its probability

of being selected. These strategies so determined are called mixed strategy because they

are probabilistic combination of available choices of strategy. Mixed strategy is denoted

by the set S=(x1, x2 ….xn); where xj is probability of choosing the course j such that xj

> 0, for j=1, 2…..n and x1 + x2+…… + xn = 1.

It is evident that pure strategy is a special case of mixed strategy. In the case where all but

one xj is zero, a player may be able to choose only n pure strategy but he has an infinite

number of mixed strategies to choose from.

Payoff is the outcome of playing the game that generates rewards or benefits for the

player. The pay of matrix is a table that gives the payoff from all strategies open to the

firm and the rivals’ responses. Moreover, a payoff matrix is a table showing the amount

received by the player named at the left hand side after all possible plays of the game.

The payment is made by the player named at the top of the table. A pay off table

represents the conditional values associated with all the possible combinations of the acts

and the events. If player A has m-courses of actions and player B has n- courses of

actions, then a payoff matrix can constructed using the following steps.

i. Row designations for each matrix are the course of actions available to A.

ii. Column designations for each matrix are the course of actions available to B.

iii. With a two person zero sum game, the cell entries in B’s payoff matrix will be

the negative of the corresponding entries in A’s payoff matrix and the matrices

will be shown below:

Player B

1 2 3 …….j………...n

a11 a12 a13…. .a1j….. …..a1n

Player A a21 a22 a23 …..a2j ……....a2n A’s payoff matrix

: : : : .

am1 am2 am3…...amj……....amn

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Player B

1 2 3 j n

1 -a11 - a12 a13……-a1j……..-a1

Player A 2 -a21 -a22 -a23…...-a2j… …...-a2

: : : : : ;

i -ai1 -ai2 -ai3……-ai .......-ain

Games are classified according to the number of players involved, the sum of the gains

and losses, and the number of strategies employed in the game.

1. Two – person games and n-person games: In two person games, the players may

have many possible choices open to them for each play of the game, but the

number of players remains only two. Hence it is called a two person game. In case

of more than two persons, the game is generally called n-person game.

2. Zero Sum Game: A zero sum game is one in which the sum of the payment to all

the competitors is zero for every possible outcome of the game is in a game if the

sum of the points won equals the sum of the points lost.

3. Two person zero sum game: A game with two players, where the gain of one

player equals the loss to the other is known as a two person zero sum game. It is

also called a rectangular game because their payoff matrix is in the rectangular

form. The characteristics of this game are :

i) Only two players participate in the game.

ii) Each player has a finite number of strategies to use.

iii) Each specific strategy results in a payoff.

iv) Total payoff to the two players at the end of each play is zero.

This principle is used for the selection of optimal strategies by two players. Consider two

players A and B; A is a player who wishes to maximize his Minimum gain in the strategy

to minimize his losses. Since A would like to maximize his minimum gain, we obtain for

player A, the value called Maximin value and the corresponding strategy is called the

Maximin strategy.

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On the other hand, since player B wishes to minimize his losses, a value called the

minimax value which is the minimum of the maximum losses is found. The

corresponding strategy is called the minimax strategy. When these two are equal

(Maximin value = Minimax value), the corresponding strategies are called optimal

strategy and the game is said to have saddle point. The value of the game is given by the

saddle point.

The selection of Maximin and Minimax strategies by A and B is based upon the so called

Maximin-Minimax principle which guarantees the best of the worst results.

Saddle point: a saddle point is a position in the payoff matrix where the maximum of row

minima coincides with the minimum of column maxima. The payoff at the saddle point is

called the value of the game.

We shall denote the Maximin value by ұ, the minimax value of the game by ŷ and the

value of the game by Y.

Maximin value = Minimax value = 0, i.e., if ұ = ŷ = 0

ii.) A game is said to be strictly determinable if;

Maximin value = Minimax value ≠ 0; ұ = ŷ = Y.

Example 6.1: Solve the game whose pay off matrix is given by:

Player B

Player A

Solution: Player B

Row minima

Player A

Column maxima 1 5 1

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Maxi (minimum) = Max (1, -4, -1) = 1

Mini (maximum) = Min (1, 5, 1) = 1

That is, Maximin value ұ = 1= Minimax value ŷ

Therefore; Saddle point exists. The value of the game is the saddle point which is 1. The

optimal strategy is the position of the saddle point and is given by (A1, B1).

Example 6.2:

Determine which of the following two people zero sum games are strictly determinable

and fair. Given; the optimum strategy for each player in the case of strictly determinable

games.

Player B

(a) Player B (b) B1 B2

B1 B2 A1 1 1

A1 -5 2 Player A

Player A

A2 -7 -4 A2 4 -3

Mini (maximum) = ŷ = min (-5, 2) = -5

Solution:

a)

Player B

B1 B2 Row minima

Player A A1 -5 2 -5

A2 -7 -4 -7

Column maxima -5 2

Since ұ = ŷ = -5, the game is strictly determinable, there exist a saddle point= -5. Hence

the value of the game is -5. The optimal strategy is the position of the saddle point given

by (A1, B1).

Player B

b) B1 B2 Row minimum

A1 1 1 1

Player A

A2 4 -3 -3

Column maximum 4 1

Mini (maximum) = ŷ = min (4, 1) = 1

Since ұ = ŷ = 1 ≠ 0, the game is strictly determinable. The value of the game is 1.The

optimal strategy is (A1, B2).

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Exercise 6-1

1. Determine which of the following two people zero sum games are strictly determinable

and fair. Give the optimum strategies for each player in the case of strictly determinable

games.

a) b)

Player B Player B

Player A 5 0 Player A 0 2

0 2 -1 4

Player A

Player B -1 2 -2

6 4 -6

Determine the best strategies for players A and B and also the value of the game for them.

Is this game (i) fair, (ii) strictly determinable?

3. Define a game.

4. Explain a saddle point.

5. What is meant by Minimax and Maximin?

6. What is a pure strategy?

Section Objectives:

Up on completing this section, you will be able to:

- Distinguish mixed strategies

- Identify dominance property

- Determine value of games without saddle point

Section Overview:

6.4 Mixed Strategies: Games Without saddle point

6.5 Dominance property

126

6.4 Mixed Strategies: Games without Saddle

Points

A game without saddle point can be solved by various solutions methods.

Pure strategy is a strategy in which each agent marked a specific choice and stick to it. If

the agents are allowed to randomize their strategies to assign probabilities to each choice

according to the probability, we call this strategy a mixed strategy.

Example 1. Consider a 2x2 two person zero sum game without any saddle point having

the payoff matrix for player A;

B1 B2

A1 a11 a12

A2 a21 a22

The optimal mixed strategies;

SA= A1 A2 and SB =

B1 B2

P1 P2

q1 q2

Where p1 = a22 - a21 ; p1+ p2=1 → p2 = 1- p1

(a11 + a22) - (a12 + a21)

(a11 + a22) - (a12 + a21)

(a11 + a22) - (a12 + a21)

Example 6.4:

Solve the following game and determine the value of the game.

B

4 -4

A

-4 4

127

Solution: It is clear that the payoff matrix does not possess any saddle point. The players

will use mixed strategies. The optimum mixed strategy for the players are :

SA= A1 A2 , P1 + P2 = 1 and SB =

B1 B2 , q1 + q2 = 1

P1 P2

q1 q2

(a11 + a22) - (a12 + a21) (4 + 4 – (-4-4)

p2 = 1 – p1 = 1 – ½ = ½

(a11 + a22) - (a12 + a21) 4 + 4 – (-4-4)

q2 = 1- q1 = 1- ½ = ½

Therefore; the optimum strategy is SA = (½, ½); SB = ( ½ , ½ )

The value of the game is y = a22 a11 - a12a21 = (4x4) – ( -4 x (-4) ) = 0

(a11 + a22) - (a12 + a21) (4 + 4) – (-4+ (-4))

Example 6.5:

In a game of matching coins with two players suppose A wins one unit of value when

there are two heads, wins nothing when there are two tails and losses ½ unit of value

when there are one head and one tail. Determine the payoff matrix, the best strategies for

each player and the value of game to A.

Solution:

The payoff matrix for the player A is given by:

Player B

H T

H 1 -1/2

Player A

T -1/2 0

A1 a11 a12

A2 a21 a22

SA= A1 A2 and SB =

B1 B2

P1 P2

128

q1 q2

(a11 + a22) - (a12 + a21)

= 0 – (-1/2)

1+ 0 – (- ½ – ½ )

= ½ /2 = ¼

p2 = 1 – p1 = 1 – ¼ = ¾

(a11 + a22) - (a12 + a21)

= 0 – (- ½ )

1+ 0 – (- ½ – ½ )

= ½ /2 = ¼

q2 = 1 – q1 = 1 – ¼ = ¾

1 + 0 – (- ½ - - ½)

y = - ¼ /2 = - 1/8

The optimum mixed strategy is given by:

SA = (¼, ¾); and SB = (¼, ¾)

Sometimes it is observed that one of the pure strategies of either player is always inferior

to at least one of the remaining ones. The superior strategies are said to dominate the

other inferior ones. In such case of dominance, we can reduce the size of payoff matrix

by deleting those strategies which are dominated by others. The general rule for

dominance is:

i) If all elements of a row, say kth row, are less than or equal to corresponding

elements of any row other row say rth row, then kth row is dominant by the rth

row.

ii) If all elements of a column, say kth column, are less than or equal to

corresponding elements of any other column say r th column , then the kth

column is dominated by the rth column.

iii) Dominated rows and columns may be deleted to reduce the size of the payoff

matrix as the optimal strategies will remain unaffected.

iv) If some linear combinations if some rows dominates i th row, then the ith row

will be deleted. Similar arguments follow for column.

Example 6

Player B

3 -2 4

Player A -1 4 2

2 2 6

129

Solution:

In the given payoff matrix, the entire elements in the third column are greater than or

equal to the corresponding elements in the first column. Therefore, column 3 is

dominated by first column. Delete column 3. The reduced payoff matrix is given by:

Player B

3 -2

Player A -1 4

2 2

Since no row (or column) dominates another row (or column). The 3 x 2 game could now

be solved in simplest ways.

Unit Summary

The theory of games deals with decision making under conditions of competition or

conflict. The players have the same objective but conflicting interests. In the world of

business, striving for greater market share by the different competitors is a typical game

situation. Games are classifies according to the number of players and according to

whether the gains of one player are equal to the losses of the other or not. The simplest

130

form of game is the two-person zero sum game , implying that there are only two

participants who may be individuals , groups or organizations, and that the gains of one

are the losses of the other.

An optimal strategy guarantees a player the best payoff regardless of the strategies

adopted by the opponent. Two-person zero sum games have pure strategies for the

players if a saddle point exists, that is a single optimal strategy for both the players.

Where no saddle point exists, players have to use mixed strategies. A strategy is said to

dominate another if the payoffs it yields are higher than the payoffs of the other strategy

no matter what strategy the opponent adopts. Dominated strategies can be eliminated

from the game.

Game theory has limited practical use at present because of the assumptions made. These

are not totally realistic. Situations are not as simplistic. When there are more than two

players, some of them may negotiate or collaborate against another player. Such

situations are complex and cannot be dealt with the game theory in its present form.

Exercise 6-2

2. Explain dominance property.

131

3. For a game with the following payoff matrix, determine the optimal strategy and

the value of the game.

B

6 -3

A

-3 0

B

2 5

A

4 1

Player B

1 7 2

Player A 6 2 7

5 1 6

References

Inc.

2. J K Sharma (2003): Operations Research, Theory and Application, Second

Edition.

132

3. M.P. Gupta R.B. Khanna (2004), Quantitative Techniques for Decision

Making New Delhi.

4. Anderson, Sweeney, and Williams (2003), An Introduction to

Management Science: Quantitative Approaches to Decision Making, 5th

ed. west publishing. Co.

5. Gupta Pram Kumar (2007), Operations Research, S. Chard and Company

LTD. New Delhi, India.

6. Jeffrey D. Camm and James R. Evans; Management Science: Modeling,

Analysis and Interpretation, South Western College Publishing.

7. Harvey M. Wagner; Principles of Operations Research, Prentice Hall

International Inc.

8. Kant Swamp, P.K. Gupta and Man Mohan; Operations Research;

McGraw Hill International.

133

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