Management Decision Making

(QM-501)

1
Introduction

2
 Topics

• Introduction to OR
• Terminology used in OR
• Linear programming
• Model Formulation
• A Maximization Model Example
• A Minimization Model Example
• Irregular Types of Linear Programming Models
• Characteristics of Linear Programming Problems
3
 Introduction to OR
• OR involves “research on operations”. Thus OR
applied to problems that concern how to conduct
and co-ordinate the operations with in the
organization.
• OR has been applied widely in areas of
manufacturing, transportation, construction,
telecommunication, financial planning, health care
etc etc.
• Research part of OR means that OR uses an
approach that resembles the way research is
conducted in any established scientific fields.

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 Terminolog
y
Feasible solution:
• Any solution LPP/ NLP which donot violate constraints are
called feasible solution.
• Feasible solution may be optimal (best) solution.
• Any LPP/NLP can have more than one feasible solution.
• Optimal solution to LPP/NLP must be a feasible solution.

Infeasible Solution:
• Any solution which violates at least one constraint is called
infeasible solution.
• Any LPP/NLP have infinite number of infeasible solution.
• Infeasible solution lies outside the bounded region.
5
Optimal Solution:
• It is a feasible solution that has the most favorable value of the
objective function.
• The most favorable mean the largest possible objective value
if the objective is to maximize and smallest value if the
objective is to minimize.
• A LPP/ NLP can have more than one Optimal solution.
Corner Point Feasible Solution:
• CPF is a solution that lies at the corner of the feasible region
• Every LPP with feasible solution and bounded feasible region
must possess CPF solutions and at least one optimal solution.
• The best CPF solution must be an optimal solution.
• If LPP has exactly one one optimal solution, it must be a CPF
solution.
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Bounded feasible Region:

• A bounded feasible region may be enclosed in a circle.

• A bounded feasible region will have both a maximum
value and a minimum value.

Unbounded Region:

• An unbounded feasible region can not be enclosed in a circle.

• If the coefficients on the objective function are all positive, then
an unbounded feasible region will have a minimum but no
maximum.

7
 Linear Programming: An Overview

• Linear programming is an analytical technique in which

linear algebraic relationships represent a firm’s decisions,
given a business objective, and resource constraints.
• Objectives of business decisions frequently involve
maximizing profit or minimizing costs.
• Steps in application of LPP:
– Identify problem as solvable by linear
programming.
– Formulate a mathematical model of the unstructured
problem.
– Solve the model.
– Implementation
8
 Model Formulation

• Decision variables - mathematical symbols

representing levels of activity of a firm.
• Objective function - a linear mathematical relationship
describing an objective of the firm, in terms of decision
variables - this function is to be maximized or minimized.
• Constraints – requirements or restrictions placed on the
firm by the operating environment, stated in linear
relationships of the decision variables.
• Parameters - numerical coefficients and constants used in
the objective function and constraints.

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Summary of Model Formulation Steps

Step 1 : Clearly define the decision variables

Step 2 : Construct the objective function

Step 3 : Formulate the constraints

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 LP Model Formulation
A Maximization Example
• Product mix problem - Beaver Creek Pottery
Company
• How many bowls and mugs should be produced to
maximize profits given labor and materials constraints?
• Product resource requirements and unit profit:

Resource Clay
Labor Requirements
Profit
Product
(hr/unit) (lb/unit) ($/unit)
Bowl 1 4 40
Mug 2 3 50

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Figure: Beaver Creek Pottery Company
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 LP Model Formulation
A Maximization Example

Resource 40 hrs of labor per day

Availability: 120 lbs of clay per
day
Decision
Variables x1 = number of bowls to produce per day
: x2 = number of mugs to produce per day
Objective Maximize Z = 40*x1 + 50*x2
Where Z = profit per day
Function:
1*x1 + 2*x2  40 hours of labor
Resource 4*x1 + 3*x2  120 pounds of clay
Constraints:
x1  0; x2  0
Non-Negativity 13
Constraints:
 Complete LP Model Formulation

Complete Linear Programming Model:

Maximize Z = 40*x1 + 50*x2

subject to: 1*x1 + 2*x2  40 (Labour Constraint) 4*x1

+ 3*x2  120(Raw material Constraint)
x1, x2  0 (Non-
negativity constraint)

14
 Feasible Solutions

• A feasible solution does not violate any of the constraints:

Example x1 = 5 bowls
x2 = 10 mugs
Z = 40*x1 + 50*x2 = 700
Labor constraint check:
1(5) + 2(10) = 25 < 40 hours, within constraint
Clay constraint check:
4(5) + 3(10) = 50 < 120 pounds, within
constraint

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 Infeasible Solutions

• An infeasible solution violates at least one of the

constraints:
Example x1 = 10 bowls
x2 = 20 mugs
Z = 1400
Labor constraint
check:
1(10) + 2(20) = 50
> 40 hours,
violates
constraint
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 Model Formulation

1. Product Mix problem

In a product-mix problem, there are two or more

products, competing for limited resources such as
limited production capacity/labor hours.

The problem is to find out which products to include

in the production plan and in what quantities these
should be produced (product mix) in order to
maximize profit, market share, or some other goal.

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Example 1: Product mix problem

RM: Raw Material

OE: Operating Expenses 18
For example: product P consists of two subassemblies. To
manufacture the first subassembly, one unit of RM1 passes through
machine A for 15 minutes. The output of machine A is moved to
machine C where it is processed for 10 minutes. The second
subassembly starts with RM2 processed in machine B for 15 minutes.
The output is taken to machine C for 5 minutes of processing. The two
subassemblies are joined with a purchased part in machine D. The
result is a finished unit of P. Product Q is manufactured by a similar
process as indicated in the figure.

The rectangle at the upper left indicates that one machine of each type
is available. Each machine operates for 2400 minutes per week. For
this case the operating expenses, not including the raw material cost
is $6000. This amount is expended regardless of amounts of P and Q
produced.

Our problems include the following: Find the product mix that
maximizes profit. 19
Formulation

There are many problems that might be posed regarding the PQ

situation, but we choose the problem of allocating the times available
on the machines to the manufacture of the two products. The decisions
involve the amounts of the two products.
P= amount of product p is produced
Q= amount of product q is produced
Maximize Z = 45*P + 60*Q - 6000
Subject to:
15*P + 10*Q <= 2400 (Constraint for M/C A)
15*P + 30*Q <= 2400 (Constraint for M/C B)
15*P + 5*Q <= 2400 (Constraint for M/C C)
10*P + 5*Q <= 2400 (Constraint for M/C D)
P <= 100 (Marketing Constraint)
Q <= 50 (Marketing Constraint )
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P,Q >=0 (Non-negativity constraints)
Example 2:

Diet/Blending problem
Another classic problem that can be modeled as a LP concerns blending
ingredients to obtain a product with certain characteristics. The
product must satisfy several nutrient restrictions.
final The
ingredients, their nutritive contents possible kilograms of
(in
kilograms of ingredient) and the unit cost are shown
nutrient
in the
per
following
table.
• The mixture must meet the following restrictions:
• Calcium — at least 0.8% but not more than 1.2%.
• Protein — at least 22%.
• Fiber — at most 5%.

The problem is to find the composition of the food mix that satisfies
these constraints while minimizing cost.
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 Nutritive content and price of ingredients

Ingredients Calcium Protein Fiber Unit cost

(kg/kg) (kg/kg) (cents/kg)
(kg/kg)
Limestone 0.38 0.0 0.0 10.0

Corn 0.001 0.09 0.02 30.5

Soyabean 0.002 0.5 0.08 90.0

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Formulation

L, C, S : proportions of limestone, corn, and soybean meal, respectively,

in the mixture
Objective function:
Because each decision variable is defined as a fraction of a kilogram, the
objective is to minimize the cost of providing one kilogram of feed mix.
Minimize Z = 10L + 30.5C + 90S
Subject to constraint:
0.38L + 0.001C + 0.002S >
0.008
0.38L + 0.001C + 0.002S <
0.012
0.09C + 0.50S > 0.22
0.02C + 0.08S < 0.05 23
Example 3:
Resource Allocation problem:

In this example, we consider a manufacturing

facility that produces five different products using
four machines. The scarce resources are the
times available on the machines and the
alternative activities are the individual production
volumes. The machine requirements in hours per
unit are given. The unit profits are also shown in
the table.

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The facility has four machines of type 1, five of type 2, three
of type 3 and seven of type 4. Each machine operates 40
hours per week. The problem is to determine the optimum
weekly production quantities for the products. The goal is to
maximize total profit.

Machine data and processing requirements (hrs./unit)

M/C Quantity Product 1 Product 2 Product 3 Product 4 Product 5
M1 4 1.2 1.3 0.7 0.0 0.5
M2 5 0.7 2.2 1.6 0.5 1.0
M3 3 0.9 0.7 1.3 1.0 0.8
M4 7 1.4 2.8 0.5 1.2 0.6
Profit —— 18 25 10 12 15 25
Formulation

Pj : quantity of product j produced, j = 1,...,5

Objective Function:
Maximize Z = 18P1+ 25P2 + 10P3 + 12P4 + 15P5

Subject to constraint:
1.2P1 + 1.3P2 + 0.7P3 + 0.0P4 + 0.5P5 < 160 (Constraint for M1)
0.7P1 + 2.2P2 + 1.6P3 + 0.5P4 + 1.0P5 < 200 (Constraint for
0.9P1 + 0.7P2 + 1.3P3 + 1.0P4 + 0.8P5 < 120 M2) (Constraint
1.4P1 + 2.8P2 + 0.5P3 + 1.2P4 + 0.6P5 < 280 for M3)
(Constraint for M4)
Non-negativity Constraint:
Pj > 0 for j = 1,...,5

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Irregular Types of Linear Programming Problems

• For some linear programming models, the general rules

do not apply.

• Special types of problems include those with:

– Multiple optimal solutions
– Infeasible solutions
– Unbounded solutions

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 An Infeasible Problem

Every possible solution

violates at least one
constraint:
Maximize Z = 5x1 + 3x2
subject to: 4x1 + 2x2  8
x1  4
x2  6
x1, x2  0

Figure: Graph of an Infeasible Problem 28

 An Unbounded Problem

Value of objective function

increases indefinitely:
Maximize Z = 4x1 + 2x2
subject to: x1  4
x2  2
x1, x2  0

Figure: Graph of an Unbounded Problem 29

 Bounded Feasible Region Area

Max. Z = 40x1 + 50x2

s.t. 1x1 + 2x2  40
4x1 + 3x2  120
x1, x2  0

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Figure: Feasible Solution
Characteristics of Linear Programming Problems

• A linear programming problem requires a decision - a

choice amongst alternative courses of action.
• The decision is represented in the model by decision
variables.
• The problem encompasses a goal, expressed as an
objective function, that the decision maker
wants to achieve.
• Constraints exist that limit the extent of achievement of
the objective.
• The objective and constraints must be definable by
linear mathematical functional relationships.

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Properties of Linear Programming Models

• Proportionality - The rate of change (slope) of the

objective function and constraint equations is constant.
• Additivity - Terms in the objective function and
constraint equations must be additive.
• Divisibility -Decision variables can take on any fractional
value and are therefore continuous as opposed to integer
in nature.
• Certainty - Values of all the model parameters are
assumed to be known with certainty (non-probabilistic).

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 Graphical Solution of LP Models

• Graphical solution is limited to linear programming

models containing only two decision variables (can be
used with three variables but only with great difficulty).

• Graphical methods provide visualization of how a

solution for a linear programming problem is obtained.

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 Coordinate Axes
Graphical Solution of Maximization Model

Maximize Z = $40x1 + $50x2

subject to: 1x1 + 2x2  40
4x1 + 3x2  120
x1, x2  0

Coordinates for Graphical Analysis 34

Practice Question 1:

The Apex Television Company has to decide on the number of

27- and 20-inch sets to be produced at one of its factories.
Market research indicates that at most 40 of the 27-inch sets and
10 of the 20-inch sets can be sold per month. The maximum
number of work-hours available is 500 per month. A 27-inch set
requires 20 work-hours and a 20-inch set requires 10 work-
hours. Each 27-inch set sold produces a profit of $120 and each
20-inch set produces a profit of $80. A wholesaler has agreed to
purchase all the television sets produced if the numbers do not
exceed the maxima indicated by the market research.
(a) Formulate a linear programming model for this problem.

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Solution:
x1 & x2 = nos. of 27 and 20-inch TV sets to be produced p.m.
The total profit per month is Z = 120 x1 + 80
x2.
The resource constraints are:
Number of 27-inch sets sold per month: x1  40
Number of 20-inch sets sold per month: x2  10
Work-hours availability: 20 x1 + 10 x2  500.
Nonnegativity constraints on TV sets produced:
x1  0
x2  0
LP model for this problem is
Maximize Z = 120 x1 + 80
x1
x2, subject to  40
x2  10
20 x1 + 10 x2  500
and x1  0, x2  39

0.