Chapter 4 Linear Programming Applications

Blending Problem Portfolio Planning Problem Product Mix Problem Transportation Problem Data Envelopment Analysis Revenue Management

2005 Thomson/South-Western

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Make-or-Buy Decisions , P.150

The Janders Company markets various business and engineering product across Europe. Janders is preparing two new PADs (Personal Digital Assistant): one for the business market called the Financial Manager and one for the engineering market call the Technician. Each PDA has three components: a base, an electronic cartridge, and a faceplate or top. The same base is used for both products but the cartridges and tops are different. All components can be manufactured by the company or purchased from outside suppliers. The manufacturing costs and purchase prices for the components are summarized in the following table.

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Cost per Unit, Component Base Financial cartridge Technician cartridge Financial top Technician top Manufacture (regular time) 0.50 3.75 3.30 0.60 0.75 Purchase 0.60 4.00 3.90 0.65 0.78

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Company forecasters indicate that 3000 Financial Managers PDAs and 2000 Technicians PDAs will be needed for the next production period. However, manufacturing capacity is limited. The company has 200 hours of regular manufacturing time and 50 hours of overtime that can be scheduled for the calculators. Overtime involves a premium at the additional cost of 9 per hour. The next table shows manufacturing times (in minutes) for the components

2005 Thomson/South-Western

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Component Base Financial cartridge Technician cartridge Financial top Technician top

Manufacturing time (minutes) 1.0 3.0 2.5 1.0 1.5

The management wants to know how much of each several component parts a company should manufacture and how much it should purchase from an outside supplier Required Develop a model that can be used to assist the management in decision making.

2005 Thomson/South-Western

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Blending, P.167
The Delta Oil Company (DOC) operates in Nigeria and runs an oil refinery that blends three different petroleum components into two different fuels. The fuels are sold on to fuel companies around the world depending on demand and worldwide fuel prices. The company calculates its costs and profits using the US$. The company is trying to plan its daily production. Currently DOC estimates it can sell its regular fuel at $1 per litre and its premium fuel at $1.08 per litre. The cost of the three petroleum components are shown in the following table

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Petroleum component 1 2 3

Cost/litre $0.50 $0.60 $0.84

Maximum available 5,000 litres 10,000 litres 10,000 litres

Product specifications for the regular and premium fuels restrict the amounts of each component that can be used in each gasoline product. These restrictions are shown in the following table.
Product Regular Fuel Specifications At most 30% component 1 At least 40% component 2 At most 20% component 3 Premium Fuel At least 25% component 1 At most 40% component 2 At least 30% component 3

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Current commitments to customers require DOC to produce at least 10,000 litres of regular fuel each day.
Required Develop a model that can be used to assist the management in decision making.

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Portfolio Selection, P.180

Welte Mutual Fund just obtained 100,000 by converting industrial bonds to cash and is now looking for other investment opportunities for these funds. Based on Weltes current investments, the firms top financial analyst recommends that all the new investments be made in the oil industry, steel industry or in government bonds. Specifically, the analyst identified five investment opportunities and projected their annual rates of return. The investments and rates of return are presented in the following table.

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Investment Atlantic Oil Pacific Oil Midwest Steel Hiber Steel Government bonds

Projected rate of return 7.3 10.3 6.4 7.5 4.5

Management of Welte imposed the following investment guidelines. 1- Neither industry (oil or steel) should receive more than 50,000. 2- Government bonds should be at least 25 per cent of the steel industry investments. 3- the investment in Pacific Oil, the high-risk investment, cannot be more than 60 per cent of the total oil industry investment.
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Data Envelopment Analysis

The management of County Hospital wishes to compare the hospital relative performance against the performance of other hospitals in the same city. The following table indicate the inputs and outputs data.

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Hospital General Inputs Full Time staff Supply Cost Bed days available 285.2 123.8 106.72 48.14 43.1 253 41 162.3 128.7 64.21 34.62 27.11 148 27 275.7 348.5 104.1 36.72 45.98 175 23 210.4 154.1 104.04 33.16 56.46 160 84 University County City

Outputs
Number of in-patient Outpatient treated Nurses trained Paramedics trained

Develop a linear programming model that can be used to evaluate the performance of the County hospital
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End of Chapter 4

2005 Thomson/South-Western

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