Name: Gautham YB Reddy Roll No.

CCBMDO/19-20/A59 Course: CCBMDO-16

INTRODUCTION TO QUANTITATIVE METHODS

ASSIGNMENT - LP FORMULATION

Objective: To minimize the total leasing costs for meeting the warehouse space
requirements.

Following are given:-

1. Space required in a particular month

Month 1 2 3 4 5
Required Space (in Sq Ft) 30000 20000 40000 10000 50000

2. Cost of leasing per Sq Ft based on the leasing period

Leasing Period (Months) 1 2 3 4 5

Cost ($) per Sq Feet Leased $65 $100 $135 $160 $190
Therefore, it is clear that the additional cost of leasing space for additional months is much less than
renewing the lease on a monthly basis.

3. There is an intermediate option of changing the total amount of space leased

by adding a lease or expiring a lease.

LP MODEL FORMULATION

CONSIDERATIONS:

(a) Number of spaces that can be leased in the 1st month with different lease
periods = 5 (Each of 1 month, 2 month, 3 month, 4 month and 5 month lease
periods). Similarly, in the 5th month there would be only 1space leased with a
lease period of 1 month. (In general, number of leases possible in pth month =
6-p).

(b) Minimum space required in a particular month would be the constraint in

the LP model.

(c) Money paid for the lease once cannot be reimbursed if the warehouse
decides to short-close the lease before the lease period.

DECISION VARIABLES:

Let, Xpq = Space leased out by Web Mercantile in a particular month "p" for a lease
period "q"

Where,
p = 1 , 2, 3, 4, 5
q = 1, …… (6 - p)
Therefore, the decision variables can be tabulated as

Lease Lease Lease Lease

Options to Lease Out the Lease Period 5
Period 1 Period 2 Period 3 Period 4
Space(s) Months
Month Months Months Months
Month 1 X11 X12 X13 X14 X15
Month 2 X21 X22 X23 X24 -
Month 3 X31 X32 X33 - -
Month 4 X41 X42 - - -
Month 5 X51 - - - -

OBJECTIVE FUNCTION : MINIMIZE TOTAL COST OF LEASING SPACE

MINIMIZE Z:

65 x (X11 + X21 + X31 + X41 + X51) +
100 x (X12 + X22 + X32 + X42) +
135 x (X13 +X23 + X33) +
160 x (X14 + X24) +
190 x (X15)
[Cost of all spaces leased for 1 month
lease period]
[Cost of all spaces leased for 2 months
lease period]
[Cost of all spaces leased for 3 months
lease period]
[Cost of all spaces leased for 4 months
lease period]
[Cost of space leased for 5 months lease
period]

CONSTRAINTS:

Min Space required in 1st Month

X11 + X12 + X13 + X14 + X15 ≥ 30000

Min Space required in 2nd Month

X12 + X13 + X14 + X15 + X21 + X22 + X23 + X24 ≥ 20000

Min Space required in 3rd Month

X13 + X14 + X15 + X22 + X23 + X24 + X31 + X32 + X33 ≥ 40000

Min Space required in 4th Month

X14 + X15 + X23 + X24 + X32 + X33 + X41 + X42 ≥ 10000

Min Space required in 5th Month

X15 + X24 + X33 + X42 + X51 ≥ 50000

All spaces (if leased) will be positive

X11 ≥ 0, X12 ≥ 0, X13 ≥ 0, X14 ≥ 0, X15 ≥ 0, X21 ≥ 0, X22 ≥ 0, X23 ≥ 0, X24 ≥ 0, X31 ≥ 0,
X32 ≥ 0, X33 ≥ 0, X41 ≥ 0, X42 ≥ 0, X51 ≥ 0
(i.e Xpq ≥ 0 for p = 1,2,3,4,5 and q= 1,…..,(6-p))

The LP Model thus obtained has been solved by Simplex method of linear programming
using the Excel Solver. The entries in the excel sheet are placed at Annexure.
Based on the solution obtained to the LP model using Simplex LP algorithm in Excel
Solver, following is observed:-

(a) The minimum leasing cost is $ 76,50,000.

(b) In the 1st month, 30000 Sq ft can be leased for 5 months lease period.

(c) In the 2nd month, neither additional space is leased nor any lease expires.
Also, additional space of 10000 Sq ft is retained in the 2nd month when the
minimum space requirement is 20000 Sq ft.

(d) In the 3rd month, additional space of 10000 Sq ft is leased for a period of 1
month to meet the minimum space requirement of 40000 Sq ft.

(e) In the 4th month, neither additional space is leased nor any lease expires.
Also, additional space of 20000 Sq ft is retained in the 4th month when the
minimum space requirement is 10000 Sq ft.

(f) In the 5th month, additional space of 20000 Sq ft is leased to meet the
minimum space requirement of 50000 Sq ft.

Space
Options to Lease Lease Lease Lease Lease Required
Lease Out the Period 1 Period 2 Period 3 Period 4 Period 5 by the
Space(s) Month Months Months Months Months Ware-
house
Month 1 0 0 0 0 30000 30000
Month 2 0 0 0 0 - 20000
Month 3 10000 0 0 - - 40000
Month 4 0 0 - - - 10000
Month 5 20000 - - - - 50000
 ANNEXURE

COEFFICIENTS OF OBJECTIVE FUNCTIONS AND THE CONSTRAINTS FOR

LP MODEL OF MINIMIZING COST OF LEASING IN EXCEL

OBJECTIVE FUNCTION TO MINIMISE LEASING COST LEASING COST

65 100 135 160 190 65 100 135 160 65 100 135 65 100 65 76,50,000

X11 X12 X13 X14 X15 X21 X22 X23 X24 X31 X32 X33 X41 X42 X51

0 0 0 0 30000 0 0 0 0 10000 0 0 0 0 20000

CONSTRAINTS
LHS RHS
Space for
1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 30000 ≥ 30000
Month 1
Space for
0 1 1 1 1 1 1 1 1 0 0 0 0 0 0 30000 ≥ 20000
Month 2
Space for
0 0 1 1 1 0 1 1 1 1 1 1 0 0 0 40000 ≥ 40000
Month 3
Space for
0 0 0 1 1 0 0 1 1 0 1 1 1 1 0 30000 ≥ 10000
Month 4
Space for
0 0 0 0 1 0 0 0 1 0 0 1 0 1 1 50000 ≥ 50000
Month 5
X11≥0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ≥ 0
X12≥0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 ≥ 0
X13≥0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 0 ≥ 0
X14≥0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 0 0 ≥ 0
X15≥0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 30000 ≥ 0
X21≥0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 0 ≥ 0
X22≥0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 0 ≥ 0
X23≥0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 0 ≥ 0
X24≥0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 0 0 ≥ 0
X31≥0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 10000 ≥ 0
X32≥0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 0 ≥ 0
X33≥0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 0 ≥ 0
X41≥0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 0 ≥ 0
X42≥0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 0 0 ≥ 0
X51≥0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 20000 ≥ 0