73 220 Lecture07

Linear Programming:
Applications III
73-220
Lecture 07
1
Agenda
● Review for Last Class
– Understand the standard approaches to LP
formulation both mathematically and in
spreadsheet.
– Staff scheduling
– Blending problem
● More Applications
– Media selection
– Production and inventory planning
● Next Class
2
Media Selection Problem
Relax-and-Enjoy Lake Development Corporation is
developing a lakeside community at a privately
owned lake. The primary market for the lakeside lots
and homes includes all middle- and upper-income
families within approximately 100 miles of the
development. Relax-and-Enjoy has employed the
advertising firm of Boone, Phillips, and Jackson
(BP&J) to design the promotional campaign.
After considering possible advertising media and the
market to be covered, BP&J recommended five
media for next month. BP&J collected data on the #
of potential customers reached, the cost per ad, the
max number of times each medium is available, and
the exposure quality rating for each of the five media
3
Media Slection (Cont’d)
Advertising # of Cost Max Expos
media potential per Times ure
custome Ad availab qualit
1. Daytime TV rs
1000 ($)
1500 le
15 per y
65
reached month units/a
2. Evening TV 2000 3000 10 90
d
3. Daily 1500 400 25 40
Newspaper
4. Sunday 2500 1000 4 60
Newspaper
5. Radio News 300 100 30 20
Relax-and-Enjoy provided BP&J with an advertising budget
of $30,000 for the next month’s campaign. In addition,
Relax-and-Enjoy imposed the following restrictions on how
BP&J may allocate these funds: At least 10 TV
commercials must be used, at least 50,000 potential
customers must be reached, and 4
Media Selection (Cont’d)
no more than $18,000 may be spent on TV ads.
What advertising media selection plan should be
recommended so that the exposure quality can
be maximized? Formulate a linear programming
(LP) model and solve it in Excel Solver.
5
Production and Inventory Planning:
Background
A widespread application of linear programming is
production and inventory planning. The primary
inputs to the production and inventory planning
process are the demand forecasts for the next
several time periods (e.g., the next six months). The
primary outputs are the planned production and
inventory levels for each of the upcoming time
periods that will satisfy the forecasted demand in
the most economical way. Good production and
inventory planning is important because its outputs
are in turn the inputs to other business plans; such
as raw materials procurement, personnel
scheduling, and cash management. To illustrate a
6
Production and Inventory Planning
The Samsong electronics company, a manufacturer of
DVD players, wants to plan its production and inventory
levels for the next six months. Its demand forecasts for
the next six months are given in the second column of
the the table on the next slide. Samsong desires a plan
that satisfies this demand with no backlogging; that is,
all demand must be met in the month that it occurs.
Owing to fluctuations in the costs of such things as raw
materials, components, labor and utilities, a DVD’s unit
cost of production will vary from month to month. The
third column in the table on the next slide specifies
Samson’s forecasts of each month’s unit production
costs.
Samsong’s maximum production level also fluctuates
from month to month, owing to such things as
differences in each month’s required maintenance and 7
monthly production level. The fourth and fifth columns
of the following table contain each month’s maximum
and minimum production levels, respectively.
M Dema Unit Producti Producti
onth nd production on level on level
1 1000 $460 cost (max) 3500
7000 (min)
2 4000 $470 5000 2500
3 6000 $480 4000 2000
4 5000 $500 8000 4000
5 3000 $500 6000 3000
6 2000 $490 3000 1500
8
Samsong currently has 3500 DVDs in inventory. To
ensure sufficient safety stock, Samsong has specified
2500 DVDs as the minimum permissible inventory level
at the end of any month. Given the available storage
space, Samsong’s maximum permissible inventory level
at the end of any month is 7000 DVDs.
Samsong’s accounting department has estimated that it
costs $8 per month to hold a DVD in inventory, including
the opportunity cost of forgone interest. Furthermore,
the accounting department recommends that Samsong
compute each month’s inventory costs by multiplying
the $8 per month figure by the average of the month’s
starting and ending inventory levels.
Given the above data, Samsong’s goal is to find
production and inventory levels for each month that will
minimize the total cost (total production costs plus total 9
Next Class
● Do more questions from Chap. 4. Review
the applications we discussed in class
and become familiar with the production
and inventory equation.
● More applications will be discussed in

class.
– Financial planning problem
10

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Linear Programming:

● More applications will be discussed in

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