MGTS 5120 Assignment 1.

Materials requirements planning (MRP) systems are computerized planning and control systems for manufacturing operations. They are used to manage raw materials and work-in-progress inventories. Since their introduction in the mid-1960s, MRP systems have made it possible to simultaneously reduce inventories and improve customer service (Schroeder, 1989). The operations manager for a company that produces a defense product wishes to obtain an MRP system. He has narrowed his choices to three different MRP vendors, X, Y, and Z, whose systems cost $5,000, $4,000, and $3,000, respectively. In addition, each vendor charges a fee for implementing the system (e.g., adapting the system to fit the purchasers needs, installing the system, and debugging the system); the size of the fee depends primarily on the extent to which the system must be modified to meet the purchasers needs. Systems X, Y, and Z are similar and would require basically the same modifications, but the implementation fees charged by the vendors differ significantly. These fees are described in the table. The manager, in consultation with the vendors, has determined that the probability of a major modification being required is .3, the probability of a moderate modification is .5, and the probability of a minor modification is .2. This uncertainty concerning the extent of the modification required exists because the operations manager has not finalized the specifications of the system he desires and the vendors will not specify the extent of the modification required until after the specifications have been made. Extent of Modification Major Moderate Minor Implementation Fee X Y Z $3,000 $4,000 $6,000 1,000 1,400 2,000 200 400 500

According to the expected payoff criterion, which MRP system should the manager purchase? Explain. 2. A dispatcher classifies each truckload of apricots purchased by Yellow Giant under contract from local orchards as underripe, ripe, or overripe. She must then decide whether a particular truckload will be used for dried apricots (D) or for apricot preserves (P). A truckload of apricots used for preserves yields a profit of $6,000 if the fruit has a high sugar content, but only $4,000 if the sugar content is low (because costly extra sugar must be added). Regardless of sugar content, a truckload of dried apricots yields a profit of $5,000. In either case, the actual sugar content can be determined only during final processing.

The probabilities are .3 for an underripe truckload, .5 for a ripe one, and .2 for an overripe one. The following probabilities for sugar content have been established for given levels of ripeness. Sugar Content Low High Underripe 0.9 0.1 1.0 Ripe 0.4 0.6 1.0 Overripe 0.2 0.8 1.0

Construct the dispatchers decision tree diagram, determine the optimal strategy or strategies for handling a truckload of apricots (i.e. whether to use for preserves or dried apricots). Determine all relevant expected payoffs. 3. An oil explorer, commonly called a wildcatter, must decide whether to drill a well or sell his rights to a particular exploration site. The desirability of drilling depends upon whether there is oil beneath the surface. Before drilling, the wildcatter has the option of taking seismographic readings which will give him further geological and geophysical information. This information will enable him to deduce whether subsurface structures usually associated with oil fields exist in this particular location. However, some uncertainty about the presence of oil will still exist after seismic testing because oil is sometimes found where no subsurface structure is detected and vice versa. The wildcatter estimates that the cost of drilling a well would be $250,000 (in net present value terms, after making allowance for all taxes). The yield that would be expected from a typical oil well is estimated to be $1,200,000 (in net present value terms, net of all taxes and operating costs but excluding drilling costs). Seismic tests would cost $50,000 per test. The wildcatter could sell his rights for $230,000 before either drilling or testing. However, if he should decide to carry out seismographic readings and no subsurface structure is indicated, the site will be considered almost worthless by other wildcatters, in which case he will barely be able to sell the rights for $10,000. If substructure is indicated by the test, he can sell his rights for $300,000. If no oil is found, the value of the exploration site is considered to be zero. The probability of getting oil from the site without any test is 30 percent. If he carries out the seismic test, he feels that the test will indicate subsurface structure with a 40 percent probability. In case of structure, he can drill with a 65 percent change of finding oil. In the case of no structure, he can drill with a 75 percent chance of finding the well dry. What should the wildcatter do? Draw a decision tree to solve the problem. 4. A newsstand receives its weekly order of Glimpse magazine on Monday and cannot reorder. Each copy costs $0.45 and sells for $0.75. Unsold copies may be returned the following week for a $0.30 rebate. When the newsstand runs out of copies and cannot supply a customer, it estimates its goodwill loss as $0.60 in future profits, figuring that the customer will take her business elsewhere for a couple of weeks, on the average. Demand has been remarkable constant, ranging between 7 and 10 copies, as shown in the accompanying table. Demand, copies Fraction of time 7 0.30 8 0.40 9 0.20 10 0.10

(a) Construct a payoff table and use it to determine the optimal number of copies to stock and the expected profit. (b) Construct an opportunity loss table and find the optimal number of copies to stock and EOL. (c) How much would it be worth to know the exact demand each week? What would be the expected profit if this were possible? 5. Carlos International manufactures blue jeans. Three brands are considered: A, B, and C. The manufacture of brand A requires 2 minutes machine time, 30 minutes labor, and costs $7. Brand B requires 2.5 minutes machine time, 40 minutes labor, and costs $10 to produce. Finally, Brand C, the tope of the line, requires 3 minutes machine time, 1 hour labour, and costs $13 to produce. Brand A sells for $12, Brand B for $14, and Brand C for $20. The company works on a weekly schedule of 5 days, with 2 shifts of 7.5 hours (net time) each. It has 4 machines available for production and 50 employees on each shift. Its weekly manufacturing budget is $10,000. Its declared objective is profit maximization. a) Formulate the problem as a linear program. 6. Atlantic Chemical produces three products, A, B, and C, which can be extracted and blended from three ores: b1, which costs $2 a ton and up to 1,000 tons of which is available a month; b2, which costs $1.50 a ton and up to 800 tons a month are available; and b3, which costs $3 a ton and is available in unlimited quantities. The company wishes to determine how much of each product to make from the available ores so as to maximize the profit from the overall operation. The requirements on the ores are as follows: Product A requires: Product B requires: Product C requires: 5 tons b1, 10 tons b2, 10 tons b3 7 tons b1, 8 tons b2, 5 tons b3 10 tons b1, 5 tons b2, 0 (none) tons b3 per ton of product per ton of product per ton of product

Sales price per ton: A=$130, B=$140, C=$100. a) What important assumption, which is not usually implied in an LP problem, is necessary to formulate this problem in LP terms? b) Formulate as a linear programming problem.

7. Consider the linear program: Min s.t. x1 + 2x2 x1 + 2x2 < 21 2x1 + x2 > 7 3x1 + 1.5x2 < 21 -2x1 + 6x2 > 0 x1 , x2 > 0

a) Find the optimal solution and the value of the objective function. b) Determine the amount of slack or surplus for each constraint. c) Suppose that the objective function is changed to max 5x1 + 2x2. Find the optimal solution and the value of the objective function. 8. The BugOff Chemical Company manufactures three pesticides Ant-Cant, Boll-Toll, and Caterpillar-Chiller at respective profits of $5, $6, and $7 per gallon. BugOff must decide what quantities of each pesticide to produce. Regardless of brand, each gallon requires 100 milligrams (.1 gram) of catalyst. Every gallon of Ant-Cant and Caterpillar-Chiller requires 1/10 gallon of malathion, and each gallon of Boll-Toll and Caterpillar-Chiller must contain 2/10 gallon of parathion. Seasonal requirements dictate that the quantity of Ant-Cant may exceed the quantity of Boll-Toll by no more than 500 gallons. The available ingredients are 1,000 grams of catalyst, 1,000 gallons of malathion, and 2,000 gallons of parathion. BugOff wishes to produce the most profitable quantities of each pesticide. Formulate this problem as a linear program.