OPTIMIZATION AND DECISION TECHNIQUES

Dr. Jasashwi Mandal

IIM Mumbai
SENSITIVITY ANALYSIS

2
SENSITIVITY ANALYSIS

 Sensitivity analysis (or post-optimality analysis) is used to determine how the

optimal solution is affected by changes, within specified ranges, in:
1. Objective function coefficients
2. Right-hand side (RHS) values
 How the variation in the output of a model (e.g., profit, cost, or optimal solution) is
affected by changes in the input parameters.
 It helps decision-makers understand how sensitive the results are to changes in
certain assumptions or variables, thereby assessing the robustness of the solution.
 Sensitivity analysis allows a manager to ask certain what-if questions about the
problem.

3
EXAMPLE
 Decision Variables How many standard and
S = number of Standard bags produced. deluxe bags to produce so that
D = number of Deluxe bags produced. profit is maximized?
 Objective
Maximize total profit: 10S + 9D
 Constraints
Hours required for all the operations should be less than the hours available.

4
OPTIMAL SOLUTION

7
S + 1D =
630 Dyeing Constraint
10

2
1S + 708 Finishing Constraint
D=
3

The exact location of the optimal solution

S = 540, D = 252 point is S = 540 and D = 252. The optimal
production quantities for Par, Inc., are 540
standard bags and 252 deluxe bags, with a
resulting profit contribution of 10*(540) +
9*(252) = $7,668.

5
EXCEL SOLUTION
 Objective: Maximize total profit: 10S + 9D = 7668

Final Reduced Objective Allowable Allowable

Cell Name Value Cost Coefficient Increase Decrease
$B$3 Decision Variables S 540 0 10 3.5 3.7
$C$3 Decision Variables D 252 0 9 5.285714286 2.333333333

Final Shadow Constraint Allowable Allowable

Cell Name Value Price R.H. Side Increase Decrease
$D$3 Constraints 630 4.375 630 52.36363636 134.4
$D$4 Constraints 480 0 600 1E+30 120
$D$5 Constraints 708 6.9375 708 192 128
$D$6 Constraints 117 0 135 1E+30 18

6
SENSITIVITY ANALYSIS

 Suppose profit of the standard golf bag (S) is decreased to $9 per unit.

 Is the above solution still optimal?

 What is the value of the objective function when the unit profit is decreased
to $9 per unit?

7
SENSITIVITY ANALYSIS
 Suppose profit of the standard golf bag (S) is decreased to $9 per unit.

Objective Cell (Max)

Cell Name Original Value Final Value
$B$3 Objective Function (Profit) S 7128 7128

Variable Cells
Cell Name Original Value Final Value Integer
$B$2 Decision Variables S 540 540 Contin
$C$2 Decision Variables D 252 252 Contin

Constraints
Cell Name Cell Value Formula Status Slack
$D$2 Decision Variables Constraints (Formula) 630 $D$2<=$G$2 Binding 0
Objective Function (Profit) Constraints
$D$3 (Formula) 480 $D$3<=$G$3 Not Binding 120
$D$4 Constraints (Formula) 708 $D$4<=$G$4 Binding 0
$D$5 Constraints (Formula) 117 $D$5<=$G$5 Not Binding 18

8
EXCEL SOLUTION
 Objective: Maximize total profit: 10S + 9D = 7668

Final Reduced Objective Allowable Allowable

Cell Name Value Cost Coefficient Increase Decrease
$B$3 Decision Variables S 540 0 10 3.5 3.7
$C$3 Decision Variables D 252 0 9 5.285714286 2.333333333

Final Shadow Constraint Allowable Allowable

Cell Name Value Price R.H. Side Increase Decrease
$D$3 Constraints 630 4.375 630 52.36363636 134.4
$D$4 Constraints 480 0 600 1E+30 120
$D$5 Constraints 708 6.9375 708 192 128
$D$6 Constraints 117 0 135 1E+30 18

9
RANGE OF OPTIMALITY

 Solution remains optimal as long as the objective function coefficient of S

is between 6.3 ( = 10 - 3.7) and 13.5 ( = 10 + 3.5).
 Since 9 is within this range, the optimal solution will not change.

 Optimal Profit = 9*540 + 9*252 = 7128

10
OBJECTIVE FUNCTION COEFFICIENTS

 How changes in the objective function coefficients might affect the optimal
solution.
 The range of optimality for each coefficient provides the range of values over
which the current solution will remain optimal.
 Managers should focus on those objective coefficients that have a narrow
range of optimality and coefficients near the endpoints of the range.

11
RANGE OF OPTIMALITY

 What is the range of optimality for

each coefficient provides the
range of values over which the
current solution will remain
optimal?
 Graphically, the limits of a range of
optimality are found by changing
the slope of the objective function
line within the limits of the slopes
of the binding constraint lines.

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RANGE OF OPTIMALITY

 Slope of an objective function line, Max (c1x1 + c2x2 ) is − 𝑐𝑐1/𝑐𝑐2

 Slope of a constraint, a1x1 + a2x2 = b, is −𝑎𝑎1/𝑎𝑎2.

 Objective function , Z = 10S + 9D

Range of optimality for c1
 Thus, z = c1S + 9D
 The slope of the objective function line is − 𝑐𝑐1/9.
 The slope of the first binding constraint, 7/10 S + D = 630, is −7/10
 The slope of the second binding constraint, S+ 2/3D = 708, is −3/2.

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RANGE OF OPTIMALITY

Range of optimality for c1

 Thus, z = c1S + 9D
 The slope of the objective function line is - c1/9.
 The slope of the first binding constraint, 7/10 S + D = 630, is - 7/10
 The slope of the second binding constraint, S+ 2/3D = 708, is - 3/2.
 Find the range of values for c1 (with c2 staying 9) such that the objective function line slope lies
between that of the two binding constraints:
3 𝑐𝑐1 7
− ≤− ≤−
2 9 10
Multiplying through by -9 (and reversing the inequalities):
6.3 ≤ 𝑐𝑐1 ≤ 13.5

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RANGE OF OPTIMALITY
Range of optimality for c2 ??
 Thus, z = 10S + 𝑐𝑐2 D
 The slope of the objective function line is – 10/c2.
 The slope of the first binding constraint, 7/10 S + D = 630, is - 7/10
 The slope of the second binding constraint, S+ 2/3D = 708, is - 3/2.
 Find the range of values for c2 (with c1 staying 10) such that the objective function line slope lies
between that of the two binding constraints:
3 10 7
− ≤− ≤−
2 𝑐𝑐2 10
Multiplying through by -1 (and reversing the inequalities), inverting and multiplying by 5:
20
≤ 𝑐𝑐2 ≤ 100 i.e., 6.667 ≤ 𝑐𝑐2 ≤ 14.285 𝑖𝑖. 𝑒𝑒., 9 − 2.333 ≤ 𝑐𝑐2 ≤ 9 + 5.285
3 7
15
EXCEL SOLUTION
 Objective: Maximize total profit: 10S + 9D = 7668

Final Reduced Objective Allowable Allowable

Cell Name Value Cost Coefficient Increase Decrease
$B$3 Decision Variables S 540 0 10 3.5 3.7
$C$3 Decision Variables D 252 0 9 5.285714286 2.333333333

Final Shadow Constraint Allowable Allowable

Cell Name Value Price R.H. Side Increase Decrease
$D$3 Constraints 630 4.375 630 52.36363636 134.4
$D$4 Constraints 480 0 600 1E+30 120
$D$5 Constraints 708 6.9375 708 192 128
$D$6 Constraints 117 0 135 1E+30 18

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SHADOW PRICE

 How a change in the right-hand side for a constraint might affect the feasible
region and perhaps cause a change in the optimal solution.
 The improvement in the value of the optimal solution per unit increase in the
right-hand side is called the Shadow Price.

17
EXCEL SOLUTION
 Objective: Maximize total profit: 10S + 9D = 7668

Final Reduced Objective Allowable Allowable

Cell Name Value Cost Coefficient Increase Decrease
$B$3 Decision Variables S 540 0 10 3.5 3.7
$C$3 Decision Variables D 252 0 9 5.285714286 2.333333333

Final Shadow Constraint Allowable Allowable

Cell Name Value Price R.H. Side Increase Decrease
$D$3 Constraints 630 4.38 630 52.36363636 134.4
$D$4 Constraints 480 0 600 1E+30 120
$D$5 Constraints 708 6.94 708 192 128
$D$6 Constraints 117 0 135 1E+30 18

 Binding Constraint? Non-binding Constraint?

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SHADOW PRICE

 Graphically, a shadow price is determined by adding +1 to the right hand side

value in question and then resolving for the optimal solution in terms of the same
two binding constraints.
 The shadow price for a nonbinding constraint is 0.

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SHADOW PRICE

 Constraint 1:
Change the RHS value of the Constraint 1 to 631 and resolve for the optimal
point determined by the first and third constraints:

7/10S+D = 631 and S +2/3D = 708

The solution is S = 538.75, D = 253.875.
Hence, the shadow price = znew - zold = 7672.375 - 7668 = 4.375.

20
SHADOW PRICE

 What will be the optimal profit if the RHS value of the Constraint 1 is
changed to 635?
 Shadow price = 4.375.
 znew = zold + Shadow price * Change in RHS = ??

21
RANGE OF FEASIBILITY

 The range of feasibility for a change in the right hand side value is the range
of values for this coefficient in which the original shadow price remains
constant.
 Graphically, the range of feasibility is determined by finding the values of a
right hand side coefficient such that the same two lines that determined the
original optimal solution continue to determine the optimal solution for the
problem.

22
EXCEL SOLUTION
 Objective: Maximize total profit: 10S + 9D = 7668

Final Reduced Objective Allowable Allowable

Cell Name Value Cost Coefficient Increase Decrease
$B$3 Decision Variables S 540 0 10 3.5 3.7
$C$3 Decision Variables D 252 0 9 5.285714286 2.333333333

Final Shadow Constraint Allowable Allowable

Cell Name Value Price R.H. Side Increase Decrease
$D$3 Constraints 630 4.375 630 52.36363636 134.4
$D$4 Constraints 480 0 600 1E+30 120
$D$5 Constraints 708 6.9375 708 192 128
$D$6 Constraints 117 0 135 1E+30 18

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SIMULTANEOUS CHANGES
 What will be the impact on the optimum objective value if both the coefficients of the objective
function are simultaneously changed?

 Objective: Maximize total profit: 10S + 9D = 7668

Final Reduced Objective Allowable Allowable

Cell Name Value Cost Coefficient Increase Decrease
$B$3 Decision Variables S 540 0 10 3.5 3.7
$C$3 Decision Variables D 252 0 9 5.285714286 2.333333333

Final Shadow Constraint Allowable Allowable

Cell Name Value Price R.H. Side Increase Decrease
$D$3 Constraints 630 4.375 630 52.36363636 134.4
$D$4 Constraints 480 0 600 1E+30 120
$D$5 Constraints 708 6.9375 708 192 128
$D$6 Constraints 117 0 135 1E+30 18

24
SIMULTANEOUS CHANGES

Range of Optimality and 100% Rule

 The 100% rule states that simultaneous changes in objective function coefficients will not
change the optimal solution as long as the sum of the percentages of the change divided by
the corresponding maximum allowable change in the range of optimality for each coefficient
does not exceed 100%.

25
SIMULTANEOUS CHANGES: CO-EFFICIENTS OF OBJECTIVE

 If simultaneously the per unit profit of S is decreased to $9 and the per unit profit of D is
increased to $10, would the current solution remain optimal?
 If c1 = 9, the amount c1 changed is 10 - 9 = 1.

 The maximum allowable decrease is 3.7 , so this is a 1/3.7 = 27.02% change.

 If c2 = 10, the amount that c2 changed is 10 – 9 = 1.

 The maximum allowable increase is 5.285, so this is a 1/5.285 = 18.92% change.

 The sum of the change percentages is 27.02% + 18.92% = 45.94%.

 Because this does not exceed 100%, the optimal solution would not change.

26
SIMULTANEOUS CHANGES: CO-EFFICIENTS OF OBJECTIVE

 If simultaneously the per unit profit of S is increased to $11 and the per unit profit of D is
reduced to $8, would the current solution remain optimal?
 If c1 = 11, the amount c1 changed is 11-10 = 1. The maximum allowable increase
is 3.5 , so this is a 1/3.5 = 28.57% change. If c2 = 8, the amount that c2 changed is 9 – 8
= 1. The maximum allowable decrease is 2.33, so this is a 1/2.33 = 42.91% change.
The sum of the change percentages is 28.57% + 42.91% = 71.48%. Because this does not
exceed 100%, the optimal solution would not change.

27
SIMULTANEOUS CHANGES
 Objective: Maximize total profit: 10S + 9D = 7668

Final Reduced Objective Allowable Allowable

Cell Name Value Cost Coefficient Increase Decrease
$B$3 Decision Variables S 540 0 10 3.5 3.7
$C$3 Decision Variables D 252 0 9 5.285714286 2.333333333

Final Shadow Constraint Allowable Allowable

Cell Name Value Price R.H. Side Increase Decrease
$D$3 Constraints 630 4.38 630 52.36363636 134.4
$D$4 Constraints 480 0 600 1E+30 120
$D$5 Constraints 708 6.94 708 192 128
$D$6 Constraints 117 0 135 1E+30 18

28
SIMULTANEOUS CHANGES: RHS

 If simultaneously the RHS of constraint 1 is increased to 640 and the RHS of constraint 3 is
reduced to 700, would the shadow price remain same?
 Change in RHS of constraint 1 = 640 - 630 = 10

 The maximum allowable increase is 52.36, so this is a 10/52.36 = 19.09% change.

 Change in RHS of constraint 3 = 708 - 700 = 8

 The maximum allowable decrease is 128, so this is 8/128 = 6.25% change

 The sum of the change percentages is 19.09% + 6.25% = 25.34%. Because this does not exceed
100%, the shadow price would not change.
 What is the optimal profit now?

29
SIMULTANEOUS CHANGES: RHS

 If simultaneously the RHS of constraint 1 is reduced to 600 and the RHS of constraint 3 is
increased to 730, would the shadow price remain same?
 What is the new optimal profit?

30
REDUCED COST
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$3 Decision Variables S 540 0 10 3.5 3.7
$C$3 Decision Variables D 252 0 9 5.285714286 2.333333333

 The reduced cost associated with a variable is equal to the shadow price for the
nonnegativity constraint associated with the variable. Reduced cost on variable
S is zero and on variable D is zero.
 The nonnegativity constraint is S >= 0. The current value of S is 540, so
changing the nonnegativity constraint to S >= 1 has no effect on the optimal
solution value. Because increasing the right-hand side by one unit has no effect
on the optimal objective function value, the shadow price (i.e., reduced cost) of
this nonnegativity constraint is zero.
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REDUCED COST - EXAMPLE

Maximization Problem:
Final Reduced Objective Allowable Allowable
Name Value Cost Coef Increase Decrease

D 0 -0.1 0.6 0.1 1.00E+30

E 32 0 0.3 1.00E+30 0.1

 If we change the constraint “D ≥ 0” to “D ≥ 1” the objective “increases” by -0.1

 If we change the constraint “E ≥ 0” to “E ≥ 1” the objective “increases” by 0.

33
LIMITS REPORT
Objective
Cell Name Value
$B$2 Objective Function (Profit) A 7668

Variable Lower Objective Upper Objective

Cell Name Value Limit Result Limit Result
$B$3 Decision Variables A 540 0 2268 540 7668
$C$3 Decision Variables B 252 0 5400 252 7668

 Lower limit of S is 0 and upper limit of S is 540.

 Lower limit of D is 0 and upper limit of D is 252.

 The target result for each lower limit tells us what value the objective function will take if that particular
decision variable drops to the lower limit and all other decision variables remain at the optimal value.
 The target result for each upper limit tells us what value the objective function will take if that particular
decision variable increases to the upper limit and all other decision variables remain at the optimal value.

34
PORTFOLIO SELECTION
 Winslow Savings has $20 million available for investment. It wishes to invest over the
next four months in such a way that it will maximize the total interest earned over the
four month period as well as have at least $10 million available at the start of the fifth
month for a high rise building venture in which it will be participating.
 For the time being, Winslow wishes to invest only in 2-month government bonds
(earning 2% over the 2-month period) and 3-month construction loans (earning 6% over
the 3-month period). Each of these is available each month for investment. Funds not
invested in these two investments are liquid and earn 0.75% per month when invested
locally.
 Formulate a linear program that will help Winslow Savings determine how to invest over
the next four months if at no time does it wish to have more than $8 million in either
government bonds or construction loans.

35
PORTFOLIO SELECTION

Define the Decision Variables

 Gi = amount of new investment in government bonds in month i (for i =
1, 2, 3, 4)
 Ci = amount of new investment in construction loans in month i (for i =
1, 2, 3, 4)
 Li = amount invested locally in month i, (for i = 1, 2, 3, 4)

36
PORTFOLIO SELECTION

Define the Objective Function

Maximize total interest earned in the 4-month period:
Max (interest rate on investment) * (amount invested) =
Max .02G1 + .02G2 + .02G3 + .02G4
+ .06C1 + .06C2 + .06C3 + .06C4
+ .0075L1 + .0075L2 + .0075L3 + .0075L4

37
PORTFOLIO SELECTION

Define the Constraints

 Month 1's total investment limited to $20 million:
(1) G1 + C1 + L1 = 20,000,000
 Month 2's total investment limited to principle and interest invested locally in
Month 1:
(2) G2 + C2 + L2 = 1.0075L1
or G2 + C2 - 1.0075L1 + L2 = 0

38
PORTFOLIO SELECTION

Define the Constraints (continued)

 Month 3's total investment amount limited to principle and interest invested in
government bonds in Month 1 and locally invested in Month 2:
(3) G3 + C3 + L3 = 1.02G1 + 1.0075L2
or - 1.02G1 + G3 + C3 - 1.0075L2 + L3 = 0

39
PORTFOLIO SELECTION

Define the Constraints

 Month 4's total investment limited to principle and interest invested in
construction loans in Month 1, government bonds in Month 2, and locally
invested in Month 3:
(4)G4 + C4 + L4 = 1.06C1 + 1.02G2 + 1.0075L3
 or - 1.02G2 + G4 - 1.06C1 + C4 - 1.0075L3 + L4 = 0

 $10 million must be available at start of Month 5:

(5)1.06C2 + 1.02G3 + 1.0075L4 > 10,000,000

40
PORTFOLIO SELECTION

Define the Constraints

 No more than $8 million in government bonds at any time:

(6) G1 < 8,000,000

(7) G1 + G2 < 8,000,000
(8) G2 + G3 < 8,000,000
(9) G3 + G4 < 8,000,000

41
PORTFOLIO SELECTION

Define the Constraints

 No more than $8 million in construction loans at any time:

(10) C1 < 8,000,000

(11) C1 + C2 < 8,000,000

(12) C1 + C2 + C3 < 8,000,000

(13) C2 + C3 + C4 < 8,000,000

42
PORTFOLIO SELECTION Solution
G1 G2 G3 G4 C1 C2 C3 C4 L1 L2 L3 L4 ← Names
Decision
Variables 8000000 0 5108614 2891386 8000000 0 0 8000000 4000000 4030000 7111611 4753562 ← Values

Obj function 0.02 0.02 0.02 0.02 0.06 0.06 0.06 0.06 0.0075 0.0075 0.0075 0.0075 1429213.8←Z

Coefficients LHS↓ RHS↓

1 0 0 0 1 0 0 0 1 0 0 0 20000000 = 20000000
0 1 0 0 0 1 0 0 -1.0075 1 0 0 0 = 0
-1.02 0 1 0 0 0 1 0 0 -1.0075 1 0 0 = 0
0 -1.02 0 1 -1.06 0 0 1 0 0 -1.0075 1 0 = 0
0 0 1.02 0 0 1.06 0 0 0 0 0 1.0075 10000000 >= 10000000
1 0 0 0 0 0 0 0 0 0 0 0 8000000 <= 8000000
1 1 0 0 0 0 0 0 0 0 0 0 8000000 <= 8000000
0 1 1 0 0 0 0 0 0 0 0 0 5108614 <= 8000000
0 0 1 1 0 0 0 0 0 0 0 0 8000000 <= 8000000
Constraints
0 0 0 0 1 0 0 0 0 0 0 0 8000000 <= 8000000
0 0 0 0 1 1 0 0 0 0 0 0 8000000 <= 8000000
0 0 0 0 1 1 1 0 0 0 0 0 8000000 <= 8000000
0 0 0 0 0 1 1 1 0 0 0 0 8000000 <= 8000000

43
PORTFOLIO SELECTION
Total interest earned = 1429214
Amount of new investment in government bonds in month 1 = 8000000
Amount of new investment in government bonds in month 2 = 0
Amount of new investment in government bonds in month 3 = 5108614
Amount of new investment in government bonds in month 4 = 2891386
Amount of new investment in construction loans in month 1 = 8000000
Amount of new investment in construction loans in month 2 = 0
Amount of new investment in construction loans in month 3 = 0
Amount of new investment in construction loans in month 4 = 8000000
Amount invested locally in month 1= 4000000

Amount invested locally in month 2= 4030000

Amount invested locally in month 3= 7111611

Amount invested locally in month 4= 4753562 44

PORTFOLIO SELECTION Solution
Constraints
Final Shadow Price Constraint Allowable Increase Allowable Decrease
Cell Name Value R.H. Side
$O$7 Constraint 1 20000000 0.038029 20000000 5019885 2841167
$O$8 Constraint 2 0 0.030302 0 5057534 2862476
$O$9 Constraint 3 0 0.022632 0 5095466 2883944
$O$10 Constraint 4 0 0.015019 0 5133682 2905574
$O$11 Constraint 5 10000000 -0.007463 10000000 2927366 5172184
$O$12 Constraint 6 8000000 0.000000 8000000 1E+30 0
$O$13 Constraint 7 8000000 0.005056 8000000 0 8000000
$O$14 Constraint 8 5108614 0.000000 8000000 1E+30 2891386
$O$15 Constraint 9 8000000 0.004981 8000000 2905574 5133682
$O$16 Constraint 10 8000000 0.037892 8000000 0 8000000
$O$17 Constraint 11 8000000 0.000000 8000000 1E+30 0
$O$18 Constraint 12 8000000 0.000000 8000000 1E+30 0
$O$19 Constraint 13 8000000 0.044981 8000000 2905574 5133682

45
PORTFOLIO SELECTION

Range of Feasibility
 Question:
 Suppose, month 1's total investment amount is increased to $21 million, how
much more interest can be earned?

46
PORTFOLIO SELECTION

Range of Feasibility
 Answer:
Shadow price for constraint 1 is 0.038029 and the maximum allowable increase is
5019885.
So, if we increase month 1's total investment amount by $1M
i.e. $1000000, then total earning would increase by
1000000 x 0.038029 = $38,029

47
PORTFOLIO SELECTION

Range of Feasibility
 Question:
Suppose, the firm wants to have $11 million at start of Month 5. Will this have
any effect on overall earning?

Answer:
Shadow price for constraint 5 is - 0.007463 and the maximum allowable increase
is 2927366.
So, if we increase the total requirement of the firm at the start of month 5 by
$1M i.e. $1000000, then total earning would decrease by
1000000 x 0.007463 = $7,463

48
OPERATIONS MANAGEMENT APPLICATIONS

 LP can be used in operations management to aid in decision-making about

product mix, production scheduling, staffing, inventory control, capacity
planning, and other issues.
 An important application of LP is multi-period planning such as production
scheduling.
 Usually the objective is to establish an efficient, low-cost production
schedule for one or more products over several time periods.
 Typical constraints include limitations on production capacity, labor capacity,
storage space, and more.

49
PRODUCTION SCHEDULING

 Chip Hoose is the owner of Hoose Custom Wheels. Chip has just received orders for
1,000 standard wheels and 1,250 deluxe wheels next month and for 800 standard
and 1,500 deluxe the following month. All orders must be filled.
 The cost of making standard wheels is $10 and deluxe wheels is $16. Over- time
rates are 50% higher. There are 1,000 hours of regular time and 500 hours of
overtime available each month. It takes 0.5 hour to make a standard wheel and 0.6
hour to make a deluxe wheel. The cost of storing a wheel from one month to the
next is $2.
 Minimize total production and inventory costs for standard and deluxe wheels.

50
PRODUCTION SCHEDULING
 Define the Decision Variables

We want to determine the regular-time and overtime production quantities in

each month for standard and deluxe wheels.

Month 1 Month 2
Wheel Reg. Time Overtime Reg. Time Overtime
Standard SR1 SO1 SR2 SO2
Deluxe DR1 DO1 DR2 DO2

We also want to determine the inventory quantities for standard and deluxe wheels.

SI = number of standard wheels held in inventory from month 1 to month 2

DI = number of deluxe wheels held in inventory from month 1 to month 2

51
PRODUCTION SCHEDULING
Define the Objective Function
We want to minimize total production and inventory costs for standard and
deluxe wheels.

Min (production cost per wheel)

x (number of wheels produced)
+ (inventory cost per wheel)
x (number of wheels in inventory)

Min 10SR1 + 15SO1 + 10SR2 + 15SO2

+ 16DR1 + 24DO1 + 16DR2 + 24DO2
+ 2SI + 2DI

52
PRODUCTION SCHEDULING

Production Month 1 = (Units Required) + (Units Stored)

Standard:
(1) SR1 + SO1 = 1,000 + SI or SR1 + SO1 - SI = 1,000
Deluxe:
(2) DR1 + DO1 = 1,250 + DI or DR1 + DO1 -–DI = 1,250

Production Month 2 = (Units Required) - (Units Stored)

Standard:
(3) SR2 + SO2 = 800 - SI or SR2 + SO2 + SI = 800
Deluxe:
(4) DR2 + DO2 = 1,500 - DI or DR2 + DO2 + DI = 1,500

53
PRODUCTION SCHEDULING

Reg. Hrs. Used Month 1 < Reg. Hrs. Avail. Month 1

(5) .5SR1 + .6DR1 < 1000
OT Hrs. Used Month 1 < OT Hrs. Avail. Month 1
(6) .5SO1 + .6DO1 < 500
Reg. Hrs. Used Month 2 < Reg. Hrs. Avail. Month 2
(7) .5SR2 + .6DR2 < 1000
OT Hrs. Used Month 2 < OT Hrs. Avail. Month 2
(8) .5SO2 + .6DO2 < 500

54
SOLUTION

Objective Function Value = 67500.000

Variable Value Reduced Cost
SR1 500.000 0.000
SO1 500.000 0.000
SR2 200.000 0.000
SO2 600.000 0.000
DR1 1250.000 0.000
DO1 0.000 2.000
DR2 1500.000 0.000
DO2 0.000 2.000
SI 0.000 2.000
DI 0.000 2.000

55
SOLUTION

Thus, the recommended production schedule is:

Month 1 Month 2
Reg. Time Overtime Reg. Time Overtime
Standard 500 500 200 600
Deluxe 1250 0 1500 0

No wheels are stored and the minimum total cost is

$67,500.

56
WORKFORCE ASSIGNMENT

National Wing Company (NWC) is gearing up for the new B-48

contract. NWC has agreed to produce 20 wings in April, 24 in May,
and 30 in June. Currently, NWC has 100 fully qualified workers.
A fully qualified worker can either be placed in production or can
train new recruits. A new recruit can be trained to be an apprentice in
one month.
After another month, the apprentice becomes a qualified worker.
Each trainer can train two recruits.

57
WORKFORCE ASSIGNMENT
 At the end of June, NWC wishes to have no recruits or apprentices, but have
at least 140 full-time workers. The production rate and salary per employee
type is listed below.

Type of Production Rate Wage

Employee (Wings/Month) Per Month
Production .6 $3,000
Trainer .3 $3,300
Apprentice .4 $2,600
Recruit .05 $2,200

58
WORKFORCE ASSIGNMENT

 Define the Decision Variables

Pi = number of producers in month i (where i = 1, 2, 3 for April, May,

Ti = number of trainers in month i June) (where i = 1, 2 for April, May)
Ai = number of apprentices in month i (where i = 2, 3 for May, June)
Ri = number of recruits in month i (where i = 1, 2 for April, May)

59
WORKFORCE ASSIGNMENT

 Define the Objective Function

Minimize total wage cost for producers, trainers, apprentices, and
recruits for April, May, and June:

Min 3000P1 + 3300T1 + 2200R1 + 3000P2 + 3300T2+ 2600A2+2200R2 +

3000P3 + 2600A3

60
WORKFORCE ASSIGNMENT
 Define the Constraints

Total production in Month 1 (April) must equal or exceed contract for Month 1:
(1).6P1 + .3T1 +.05R1 > 20

Total production in Months 1-2 (April, May) must equal or exceed total contracts for
Months 1-2:
(2).6P1 + .3T1 + .05R1 + .6P2 + .3T2 + .4A2 + .05R2 > 44

Total production in Months 1-3 (April, May, June) must equal or exceed total
contracts for Months 1-3:
(3).6P1+.3T1+.05R1+.6P2+.3T2+.4A2+.05R2 +.6P3+.4A3 > 74

61
WORKFORCE ASSIGNMENT

 Define the Constraints

The number of producers and trainers in a month must equal the number of
producers, trainers, and apprentices in the previous month:
(4) P1 - P2 + T1 - T2 = 0
(5) P2 - P3 + T2 + A2 = 0

The number of apprentices in a month must equal the number of recruits in the
previous month:
(6) A2 - R1 = 0
(7) A3 - R2 = 0

62
WORKFORCE ASSIGNMENT
 Define the Constraints
Each trainer can train two recruits:
(8)2T1 - R1 > 0
(9)2T2 - R2 > 0

In April there are 100 employees that can be producers or trainers:

(10)P1 + T1 = 100

At the end of June, there are to be at least 140 employees:

(11)P3 + A3 > 140

Non-negativity:
P1, T1, R1, P2, T2, A2, R2, P3, A3 > 0

63
WORKFORCE ASSIGNMENT

 Solution Summary
P1 = 100, T1 = 0, R1 = 0
P2 = 80, T2 = 20, A2 = 0, R2 = 40
P3 = 100, A3 = 40
Total Wage Cost = $1,098,000

64
DUALITY THEORY

 Every linear programming problem has an associated problem called the dual.
 Original problem is known as the primal.
 These relationships prove useful in a variety of ways.
Consider a maximization primal problem in standard form.
 Dual is a minimization problem.
 Dual uses same parameters in different locations.

65
DUALITY THEORY

Primal Problem
Dual Problem
n m
Maximize Z = ∑c x ,
j =1
j j Minimize W = ∑ bi yi ,
i =1

subject to subject to
n m

∑a x
j =1
ij j ≤ bi , 1, 2,..., m
for i = ∑a
i =1
ij yi ≥ c j , for j =
1, 2,..., n

and and
x j ≥ 0, 1, 2,..., n.
for j = yi ≥ 0, for i =
1, 2,..., m.

66
DUALITY THEORY
A manufacturing company produces two types of products, Product A and Product B. The
company wants to maximize its total profit while adhering to certain production constraints.

Primal Problem Dual Problem

Maximize Z 3 x1 + 5 x2 ,
= Minimize W =4 y1 + 12 y2 + 18 y3 ,
subject to subject to
x1 ≤ 4 Raw Material Constraint y1 + 3 y3 ≥ 3
2 x2 ≤ 12 Labor Hours Constraint 2 y2 + 2 y3 ≥ 5
3 x1 + 2 x2 ≤ 18 Machine Capacity Constraint and
and x1 ≥ 0, x2 ≥ 0. y1 ≥ 0, y2 ≥ 0, y3 ≥ 0.

 The dual problem determines the minimum total cost of acquiring resources to satisfy the
given profit constraints.
67
DUAL VALUE/DUAL PRICE/SHADOW PRICE
A manufacturing company produces two types of products, Product A and Product B. The
company wants to maximize its total profit while adhering to certain production constraints.

 Instead of focusing on production decisions, the company can

analyze how much additional raw material, labor hours, or Dual Problem
machine capacity is worth. Minimize W =4 y1 + 12 y2 + 18 y3 ,
 Dual problem determines the minimum total cost of subject to
acquiring resources to satisfy the given profit constraints.
y1 + 3 y3 ≥ 3
 Optimal dual values 𝑦𝑦1, y2 and y3 indicate how much profit 2 y2 + 2 y3 ≥ 5
increases per additional unit of each resource.
and
 Optimal y1 = Shadow price for raw material.
y1 ≥ 0, y2 ≥ 0, y3 ≥ 0.
 Optimal y2 = Shaodow price for labor hours

 Optimal y3 = Shadow price for machine capacity

68
WEAK DUALITY PROPERTY

 If x is a feasible solution for the primal problem and y is a feasible solution for the
dual problem, then cx ≤ yb.

STRONG DUALITY PROPERTY

 If x* is an optimal solution for the primal problem and y* is an optimal solution

for the dual problem, then cx* = y*b.

69
Complementary solutions property
 At each iteration, the simplex method simultaneously identifies a CPF solution x for the primal
problem and a complementary solution y for the dual problem, where cx = yb.
 If x is not optimal for the primal problem, then y is not feasible for the dual problem.

Complementary optimal solutions property

 At the final iteration, the simplex method simultaneously identifies an optimal solution x* for the
primal problem and a complementary optimal solution y* for the dual problem where cx* = y*b.
 The yi* are the shadow prices for the primal problem.

70
DUALITY THEOREM

 If one problem has feasible solutions and a bounded objective function, then so
does the other problem.
 If one problem has feasible solutions and an unbounded objective function,
then the other problem has no feasible solutions.
 If one problem has no feasible solutions, then the other problem either has no
feasible solutions or an unbounded objective function.

71