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So far
KARMA Computer problem Galaxy Industries (space ray and zapper) Golden Electronics (GE45 and GE60) Advertising (Workday Ads and Sunday Ads) Financing Strategy (Model Y and Model Z from internal or external investment) Fabulous Nuts (regular, deluxe and holiday)
Production models
What else?
Funds management problem Staff scheduling problem (Chapter 3.3) Transportation and distribution problem (Chapter 3.5) Production and Inventory planning problem in multiple periods
Tritech Mortgage specializes in making first, second, and even third trust deed loans on residential properties and first trust deeds on commercial properties. Any funds not invested in mortgages are invested in an interest-bearing savings account. The following table gives the rate of return and the company s risk level for each possible type of loans. Loan Type First Trust Deeds Second Trust Deeds Third Trust Deeds Commercial Trust Deeds Savings Account Rate of Return 7.75% 11.25% 14.25% 8.75% 4.45% Risk 4 6 9 3 0
Tritech wishes to invest $68,000K in available funding so that: Yearly return is maximized At least $5,000K is to be available in a savings account for emergencies At least 80% of the money invested in trust deeds should be in residential properties At least 60% of the money invested in residential properties should be in first trust deeds The average risk should no exceed 5
In addition, a labor requirement must be met that employees work a five consecutive days followed by two days off. Thus, the allowable shifts are Monday through Friday, Tuesday through Saturday, Wednesday through Sunday, etc. Each employee earns $200 per week.
As the personnel manager of the restaurant, how would you develop a feasible staff schedule that ensures that staff needs are covered at a minimal weekly cost?
Mon (1)
Tue (2)
Wed (3)
Thu (4)
Fri (5)
Sat (6)
Sun (7)
Shift 1 (starting on Mon) will work on: Shift 2 (starting on Tue) will work on: Shift 3 (starting on Wed) will work on: Shift 4 (starting on Thu) will work on: Shift 5 (starting on Fri) will work on: Shift 6 (starting on Sat) will work on: Shift 7 (starting on Sun) will work on:
Let us try it
Warehouse
maximum supply
Retail store 90 1 70 2 3 4 40 50
200 80
$0.08 0.09 0.11 0.12 0.16 0.07 0.05 0.08 0.14 0.10 0.06
minimum demand
2 180 3
0.07
How would you schedule the transportation to minimize the total shipping cost?
Let us try it
Transportation extension
Warehouse 200
($0.5)
80
($0.4)
$0.08 0.09 0.11 0.12 0.16 0.07 0.05 0.08 0.14 0.10 0.06
Retail store 90 1 70 2 3 4 40 50
180
($0.3)
0.07
Now, how should you schedule the production and transportation to minimize your total shipping and production costs?
What changes?
Each unit is a full truckload. Minimum cost flow problem: figure out a best way to ship the product (meet the demand at the lowest cost).
A math model:
Decision variables:
Constraints:
Each sales/distribution center is responsible for a distinct region; the maximum demand and the average selling price for a region are given below.
Office Region Market price ($/ton) Demands (tons/yr) Newark N. America 55,500 150 So Paulo S. America 61,100 75 Rotterdam Eu / Af / ME 57,800 200 Tokyo Asia 62,650 100
Plant design, factor costs, and exchange rates affect production costs and each plant Annual Fixed costs are incurred regardless of the production volume.
Plant Data Newark Los Angeles Rotterdam Kuala Lumpur Unit cost ($ per ton) 34,900 32,200 38,350 23,400 Fixed costs ($ 000) 1,800 2,750 2,100 1,950 Capacity (tons/yr) 100 200 120 250
ai = available capacity at plant i (e.g., a2 = 200 tons) ci = unit cost at plant i (e.g., c3 = $38,350) tij = unit transportation cost from plant i to market j (e.g., t33 = 0, t42 = 18,450) dj = demand in market j (e.g., d1 = 150 tons)
N
j=1
S
j=2
R
j=3
T
j=4
The index i refers to plants, where 1 is Newark, 2 Los Angeles, 3 Rotterdam, and 4 Kuala Lumpur. The index j refers to markets, where 1 is Newark, 2 So Paulo, 3 Rotterdam, and 4 Tokyo.
Problem Statement Maximize annual profit contribution by determining the annual production and transportation schedule, ensuring that plant capacity and market demand limits are not exceeded.
Constraints in words
Capacity constraints: production at each plant must be less than capacity
(production at Newark plant) = (production at Los Angeles) = (production at Rotterdam) = (production at Kuala Lumpur) =
Demand constraints: cannot ship more than the demand in any market
(total shipped to Newark) = (total shipped to So Paulo) = (total shipped to Rotterdam) = (total shipped to Tokyo) =
Production capacity may not be exceeded x11 + x12 + x13 + x14 100 (capacity at Newark) x21 + x22 + x23 +x24 200 (capacity at Los Angeles) x31 + x32 + x33 + x34 120 (capacity at Rotterdam) x41 + x42 + x43 + x44 250 (capacity at Kuala Lumpur) Maximum demand may not be exceeded x11 + x21 + x31 + x41 150 (demand at Newark) x12 + x22 + x32 + x42 75 (demand at So Paulo) x13 + x23 + x33 + x43 200 (demand at Rotterdam) x14 + x24 + x34 + x44 100 (demand at Tokyo) Non-negativity xij 0 for all plants i and markets j
Which plant provides the most return from increased production capacity?
Which regional market affords the greatest benefit from increased demand?
Foresight Co. must meet fluctuating demand for its product. Demand for a month may be met either through production in that month and/or inventory carried from the previous month. Production capacity, unit production cost, and unit holding cost vary from month to month:
Month Demand (lb.) Production capacity Unit production cost Unit holding cost per month Jan 9,000 10,000 $14.50 $0.60 Feb 7,500 10,000 $15.25 $0.65 Mar 12,500 11,000 $16.00 $0.65 Apr 9,000 10,000 $16.70 $0.65 May 8,000 11,000 $17.25 $0.70 Jun 11,500 10,000 $17.00 $0.65
Holding costs apply to the amount left in inventory at the end of each month Backlogs are not allowed. The beginning inventory in Jan. is zero. Problem: Determine the production schedule that minimizes total production and holding cost while meeting demand in each month (from current production and/or inventory). Production in any month must not exceed capacity.
Objective function (in words) Minimize total production cost + holding cost over the 6-month horizon
( Note that total production cost can be easily expressed as: 14.5P1 + 15.25P2 + 16.00P3 + 16.70P4 + 17.25P5 + 17.00P6 We ll return to total holding cost later. )
/or inventory carried from the previous month (no backlogging of demand)
Production quantity must be nonnegative in each month
The demand for each month must be met from production that month and /or inventory carried from the previous month.
This is easy for the first month (Jan) since there is no beginning inventory: (Month 1) In month 2, we need to include the amount left over (if any) from month 1: (Month 2) Similarly in month 3, we need to include the ending inventory of month 2: (Month 3) Though we can carry on in this fashion, it becomes evident that we would gain considerable convenience by introducing additional (definitional) variables to represent the ending inventory for each month.
It is now easy to express the total holding cost in the objective function:
0.60 I1 + 0.65 I2 + 0.65 I3 + 0.65 I4 + 0.70 I5 + 0.65 I6
Complete LP formulation
Min 14.5P1 + 15.25P2 + 16.00P3 + 16.70P4 + 17.25P5 + 17.00P6 (production cost) + 0.60 I1 + 0.65 I2 + 0.65 I3 + 0.65 I4 + 0.70 I5 + 0.65 I6 (holding cost) S.t. P1 P4
10000; P2 10000; P3 11000; 10000; P5 11000; P6 10000 (production capacity)
I0 + P1 = 9000 + I1 (Month 1 inventory balance) I1 + P2 = 7500 + I2 (Month 2 inventory balance) I2 + P3 = 12500 + I3 (Month 3 inventory balance) I3 + P4 = 9000 + I4 (Month 4 inventory balance) I4 + P5 = 8000 + I5 (Month 5 inventory balance) I5 + P6 = 11500 + I6 (Month 6 inventory balance) I1 0, I2 0, , I6 0 P1 0, P2 0, , P6 0
(no backlogging allowed) (production must be nonnegative)
Can you see why the optimal solution will always set the last It variable to zero?
This is similar to flow balance constraints that arise in other applications, particularly those involving cash flows.
There can be growth or spoilage in the inventory from t to t+1
Inventories of invested cash in multi-period financial models Negative inventories of borrowings, which need to be repaid, with interest
Exam 1 Review
Format
4 6 computational questions, each may have several sub questions Open book and notes Ruler, calculator, textbook and class notes allowed No laptop No discussion with one another No cell phone Refer to the sample exam 1 on EEE
Need to know
Problem formulation
All the examples that were covered in the lectures except the last example on
Problem solving using graphs (for problems with two-decision variables) Interpretation of the info on the answer and sensitivity reports generated by Excel In the textbook:
Chapters 1, 2, 3 and 5
Formulation
Three steps:
Define decision variables Objective function (do not forget to specify maximize or minimize ) Constraints
Graphical analysis
Plot constraints and draw the feasible region Identify extreme points (one or more of them will be the optimal solution) Identify the optimal point:
Use the objective function
Set the objective function to an arbitrary value and move the line toward improvement direction Identify the optimal point and solve constraints which intersect at this point simultaneously
Plug values of optimal point into objective function the optimal OF value.
Sensitivity analysis
Type I change: coefficients (net profit, revenue or cost) in objective function
Calculate Range of Optimality Range of Optimality: predict the changes in the optimal solution and optimal
Sensitivity analysis
Type II change: the RHS of a constraint
Interpret Shadow Price of a constraint
Report is valid
Optimal solution
2X1 + 1X2 <= 1000 3X1 + 4X2 <= 2400 X1 + X2 <= 700 X1 - X2 <= 350
Sensitivity Report
Optimal solution
RHS of constraints