Business Models

and Application

LINEAR PROGRAMMING – BASIC CONCEPTS

 Chapter 2. Linear Programming – Basic Concepts

1. Linear Programming concepts

2. A Case Study: The Wyndor Glass Co. Product-Mix Problem

3. Formulating the Wyndor problem on a spreadsheet and solving by

excel’s solver

4. The mathematical model in the spreadsheet

5. The graphical method for solving two-variable problems

6. A minimization example - the profit & Gambit Co. advertising-mix

problem
2.1. Linear Programming Concepts
• The manager of any operation regularly must make
decisions about how to allocate their resources to
various activities to best meet organizational
objectives

• Linear programming is powerful problem-solving tool

that aids management in making such decisions

• The resources being allocated to activities can be, for

example, money, different kinds of personnels, and
different kinds of machinery and equipment

• The activities needing these resources might be production, marketing, financial, or

some their other activities. They are competing for the same resources
2.1. Linear Programming Concepts
• The basic approach for linear programming is to formulate a mathematical model
called the linear programming model to represent the problem and then to
analyze this model
• Linear programming model includes:
✓ Decision variables to represent the
decisions to be made
✓ Constraints to represent the restrictions
on feasible values of these decisions
variables
✓ Objective function that expresses the
overall measure of performance for the
problem
2.2. A Case Study: The Wyndor Glass Co. Product-Mix Problem
• The Wyndor Glass Co. produces high-quality glass products, including windows and
glass doors
• The company has three plants that simultaneously produce the components of its
products:
o Plant 1 produces aluminum frames and hardware
o Plant 2 produces wood frames
o Plant 3 produces the glass and assembles the windows and doors
• Top manager has decided to discontinue unprofitable products and releasing
production capacity to launch the two new products:
o Door: requires production capacity in Plants 1 and 3
o Window: requires production capacity in Plants 2 and 3
• Management now needs to address
➢ Should the company launching these two new products?
➢ If so, what should the product mix – the number of units of each
produced per week - for the two new products?
2.2. A Case Study: The Wyndor Glass Co. Product-Mix Problem

❖ Identify the problem

• The company wanted to know: which combination of production rates
(the number of units produced per week) for two products would maximize the
total profit?
• Three questions need to be answered to begin the process of using the
spreadsheet to formulate a mathematical model:
➢ What are the decisions to be made?
➢ What are the constraints of these decisions?
➢ What is the overall measure of performance of these decisions?
2.2. A Case Study: The Wyndor Glass Co. Product-Mix Problem
• Base on three questions, identifies the information it needs to gather to conduct this
study:
➢ Available production capacity in each of the plants
➢ How much of the production capacity in each plant would be needed
by each product
➢ Profitability of each product
• Summary of the information obtained as follows:
Production time used
for each unit produced Available per
Plant
(hours) week (hours)
Doors Windows
Plant 1 1 0 4
Plant 2 0 2 12
Plant 3 3 2 18
Unit profit $300 $500
2.3 Formulate linear programming model

❖ Formulate linear programming model

• Base on the information obtained, formulating linear programming model to
represent the problem and solve the problem, it will give answers to the
company in which combination of production rates for two new products
would maximize the total profit

• Spreadsheet provide a powerful

and intuitive tool for displaying and
analyzing the problems. Therefore, it
will be applied in the process of
formulating and solving the linear
programming model for Wyndor Glass
Co
2.3 Formulate linear programming model

• Base on the information obtained, formulating linear programming model to

represent the problem and solve the problem, it will give answers to the
company in which combination of production rates for two new products
would maximize the total profit

• Spreadsheet provide a powerful

and intuitive tool for displaying and
analyzing the problems. Therefore, it
will be applied in the process of
formulating and solving the linear
programming model for Wyndor Glass
Co
2.3 Formulate linear programming model
❖ Formulate linear programming model
• Set cells B8 and C8 as the units
• Consequently, the Excel equations for the
produced that will satisfy all
cells in column B and C are:
requirements (results)
• B12=B8*B3 C12 = C8*C3
• B13=B8*B4 C13 = C8*C4
• B14=B8*B5 C14 = C8*C5
• B15=B8*B6 C15 = C8*C6

• Consequently, the Excel equations for the

cells in column D are:
• D12=B12+C12 D13= B13+C13
• D14=B14+C14 D15=B15+C15
2.3 Formulate linear programming model
❖ Solving by Solver Excel: Data/Solver
2.3 Formulate linear programming model
❖ Set solver parameters as below
2.3 Formulate linear programming model

❖ Note: add integer constraints (as needed) and seclect a solving method (simplex LP)
2.3 Formulate linear programming model

❖ Identified type of cell in the spreadsheet

• Data cells: cells showing the data

• Changing cells: containing the decisions to be made

• Objective cells: contain the overall measure of performance for the

decisions in the changing cells

• Output cells: show quantities that are calculated from the changing cells

• Constraints: describes a restriction on the feasible values for the levels of

the activities, where a constraint commonly is displayed by having an
output cell on the left, a mathematical sign (=<; >=; =; …)
2.3 Formulate linear programming model
❖ Identified type of cell in the spreadsheet
2.4 The mathematical model in the spreadsheet

❖ Formulating the Wyndor Model Algebraically

• Gather the relevant data

• Identify the decisions to be made (the production rates for the two new
products)

• Identify the constraints on these decisions (the production time used in

the respective plants cannot exceed the amount available)

• Identify the overall measure of performance for these decisions (the

total profit from the two products)

• Convert the verbal description of the constraints and measure of

performance into quantitative expressions in terms of the data and
decisions
2.4 The mathematical model in the spreadsheet
❖ Formulating the Wyndor Model Algebraically
• We introduce algebraic symbols to represent the measure of performance and
the decisions. Let:
o P = Profit (total profit per week from the two products, in dollars)
o D = number of doors (number of the special new doors to be produced
per week)
o W = number of windows (number of the special new windows to be
produced per week)
• Algebraic Model
o Choose the values of D and W so as to maximize: P = 300D + 500W
o D = number of doors (number of the special new doors to be produced
per week)
o Subject to satisfying all the following constraints:
o D≤4
o 2W ≤ 12
o 3D + 2W ≤ 18 and D ≥ 0 W ≥ 0 ; D and W must be integers
2.5 The graphical method for solving two-variable problems

Graphical method

❑ To find the optimal solution (the best feasible solution), we first need to
display graphically where the feasible solutions are
❑ To do this, we must consider each constraint, identify the solutions graphically
that are permitted by that constraint, and then combine this
information to identify the solutions permitted by all the constraints
❑ The solutions permitted by all the constraints are the feasible solutions
and the portion of the two-dimensional graph where the feasible solutions
lie is referred to as the feasible region
2.5 The graphical method for solving two-variable problems

o P = 300D + 500W ➔ Max

oD ≤ 4
o 2W ≤ 12
o 3D + 2W ≤ 18
oD ≥ 0 W ≥ 0
o D and W must be integers
2.5 The graphical method for solving two-variable problems

o P = 300D + 500W ➔ Max

oD ≤ 4
o 2W ≤ 12
o 3D + 2W ≤ 18
oD ≥ 0 W ≥ 0
o D and W must be integers
2.6 A minimization example-the profit & gambit Co. Advertising-mix problem
Planning an Advertising Campaign
• The Profit & Gambit Co. produces cleaning products for home use
• Highly competitive market
• Continually struggles to increase its small market share
• Management has decided to undertake a major new advertising campaign
that will focus on the following three key products
✓ A spray prewash stain remover
✓ A liquid laundry detergent
✓ A powder laundry detergent
• This campaign will use both television and the print media. Management has set
the following goals for the campaign
➢ Sales of the stain remover should increase by at least 3 percent
➢ Sales of the liquid detergent should increase by at least 18 percent
➢ Sales of the powder detergent should increase by at least 4 percent
2.6 A minimization example-the profit & gambit Co. Advertising-mix problem
Planning an Advertising Campaign
• The estimated increase in sales for each unit of advertising in the respective
outlets. (A unit is a standard block of advertising that Profit & Gambit commonly
purchases, but other amounts also are allowed.) The bottom row of the table
shows the cost per unit of advertising for each of the two outlets

Increase in Sales per Unit Minimum

Product of Advertising Required
Increase
Television Print Media
Stain remover 0% 1% 3%
Liquid detergent 3% 2% 18%
Powder detergent -1% 4% 4%
Unit cost $1 million $2 million
2.6 A minimization example-the profit & gambit Co. Advertising-mix problem

❖ Formulating
• We introduce algebraic symbols to represent the measure of performance and
the decisions. Let:
o C = Cost (total advertising cost, in million dollars)
o TV = Number of units of advertising on television
o PM = Number of units of advertising in the print media
• Algebraic Model
o Choose the values of TV and PM so as to minimize: C = 1TV + 2PM
(million dollars)
o Subject to satisfying all the following constraints:
o PM ≤ 3
o 3TV+ 2PM ≤ 18
o -TV + 4PM≤ 4 and TV ≥ 0 PM ≥ 0 ; TV and PM must be integers
2.6 A minimization example-the profit & gambit Co. Advertising-mix problem
❖ Solving by Excel’s solver
2.6 A minimization example-the profit & gambit Co. Advertising-mix problem

❖ The algebraic version

Summary

❖ Formulating on a spreadsheet and solving by excel’s solver

➢ Data cells
➢ Set objective
➢ By changing variable cells
➢ Constraints
➢ Note: coloring; unit ➔ Total; formulation;…
❖ The mathematical model in the spreadsheet
➢ Introduce algebraic symbols to represent the measure of performance and
the decisions
➢ Write the Algebraic Model: Choose the values to minimize/maximize set
objective; Subject to satisfying all the constraints.
❖ The graphical method for solving two-variable problems