Spreadsheet Modeling and

Decision Analysis
DSO 547
Prof Dasgupta
Lecture 4

Linear Programming
1

Agenda

Linear Programming recap of essentials

Excel Modeling tips for Linear Programming
Classwork
Homework Review

Copyright 2013 John

Wiley & Sons, Inc.

LP recap of essentials
We all face decision about how to use
limited resources such as:
Oil in the earth
Land for dumps
Time
Money
Workers

Mathematical Programming...
MP is a field of management science that
finds the optimal, or most efficient, way of
using limited resources to achieve the
objectives of an individual of a business.
a.k.a. Optimization

What is optimization?
Determining
the best values for a set of decisions
subject to a set of constraints
in order to maximize/minimize some objective function
Used to solve problems with:
Competing mechanisms
Resource allocation issues
Implementation/delivery constraints

A furniture company would like to determine

the quantity of chairs/desks/tables to manufacture
subject to production capacities and inventory limits
in order to maximize profit

Applications of Optimization

Determining Product Mix

Manufacturing
Routing and Logistics
Financial Planning

Characteristics of
Optimization Problems

Decisions
Constraints
Objectives

General Form of an Optimization Problem

MAX (or MIN): f0(X1, X2, , Xn)
Subject to: f1(X1, X2, , Xn)<=b1
:
fk(X1, X2, , Xn)>=bk
:
fm(X1, X2, , Xn)=bm
Note: If all the functions in an optimization are linear, the problem is a
Linear Programming (LP) problem

Classes of optimization problems

Optimization

Linear

Non-Linear

Requirements:
Objective formula is linear
All constraints are linear

Requirements:
(none)

We focus on LINEAR optimization problems

Guaranteed Solution
Computationally Efficient
Easy to construct

Model Classification
Linear optimization or linear programming
Objective and all constraints are linear functions of the
decision variables.

Nonlinear optimization or nonlinear programming

Either objective or a constraint (or both) are nonlinear
functions of the decision variables.

Techniques for solving linear models are more

powerful.
Use wherever possible.

Chapter 9

Copyright 2013 John

Wiley & Sons, Inc.

10

10

Linear Programming (LP) Problems

MAX (or MIN):

c1X1 + c2X2 + + cnXn

Subject to:

a11X1 + a12X2 + + a1nXn <= b1

:
ak1X1 + ak2X2 + + aknXn >=bk
:
am1X1 + am2X2 + + amnXn = bm

11

So what is linear?

The function used must fit the format:

f(x) = c1x1 + c2x2 + + cnxn

Distinct variable

Constant value
In math-speak:
1.
Additivity: each variable is a distinct term in the objective formula
2.
Proportionality contribution from each variable proportional to its magnitude
3.
Divisibility a fractional decision is (at least approximately) meaningful
Example: profit = ($100/unit)*(# sold) ($50/unit)(# made) (fixed cost)

12

12

Steps in LP problem formulation

1. Define the decision variables

managerial levers

2. Write the objective formula

optimization problem

as a linear function of these variables

3. Write the constraints

resource limitations
as a linear function of these variables

4. (Determine variable restrictions to be explored later)

Didnt work?
Redefine your decision variables in a clever way and try again!

13

13

An Example LP Problem
Blue Ridge Hot Tubs produces two types of hot tubs: AquaSpas & Hydro-Luxes.
Pumps
Labor
Tubing
Unit Profit

Aqua-Spa
1
9 hours
12 feet
$350

Hydro-Lux
1
6 hours
16 feet
$300

There are 200 pumps, 1566 hours of labor, and 2880

feet of tubing available.

14

5 Steps In Formulating LP Models:

1. Understand the problem.
2. Identify the decision variables.
X1=number of Aqua-Spas to produce
X2=number of Hydro-Luxes to produce

3. State the objective function as a linear

combination of the decision variables.
MAX: 350X1 + 300X2

15

5 Steps In Formulating LP Models

(continued)

4. State the constraints as linear combinations of the decision

variables.
1X1 + 1X2 <= 200 } pumps
9X1 + 6X2 <= 1566 } labor
12X1 + 16X2 <= 2880 } tubing
5. Identify any upper or lower bounds on the decision
variables.
X1 >= 0
X2 >= 0

16

LP Model for
Blue Ridge Hot Tubs
MAX: 350X1 + 300X2
S.T.: 1X1 + 1X2 <= 200
9X1 + 6X2 <= 1566
12X1 + 16X2 <= 2880
X1 >= 0
X2 >= 0

17

Solving LP Problems:
An Intuitive Approach
Idea: Each Aqua-Spa (X1) generates the highest unit profit ($350), so lets
make as many of them as possible!
How many would that be?
Let X2 = 0
1st constraint: 1X1 <= 200
2nd constraint: 9X1 <=1566 or X1 <=174
3rd constraint: 12X1 <= 2880 or X1 <= 240
If X2=0, the maximum value of X1 is 174 and the total profit is $350*174 +
$300*0 = $60,900
This solution is feasible, but is it optimal?
No!

18

Solving LP Problems:
A Graphical Approach
The constraints of an LP problem defines its
feasible region.
The best point in the feasible region is the
optimal solution to the problem.
For LP problems with 2 variables, it is easy to plot
the feasible region and find the optimal solution.

19

X2

Plotting the First Constraint

250

(0, 200)
200

boundary line of pump constraint

X1 + X2 = 200

150

100

50
(200, 0)
0
0

50

100

150

200

250

X1

X2

(0, 261)

Plotting the Second Constraint

250

boundary line of labor constraint

9X1 + 6X2 = 1566

200

150

100

50
(174, 0)
0

50

100

150

200

250

X1

Plotting the Third Constraint

X2
250

(0, 180)
200

150

boundary line of tubing constraint

12X1 + 16X2 = 2880

100
Feasible Region

50

(240, 0)
0
0

50

100

150

200

250

X1

Plotting A Level Curve of the

Objective Function

X2
250

200
(0, 116.67)

objective function

150

350X1 + 300X2 = 35000

100
(100, 0)

50

0
0

50

100

150

200

250

X1

A Second Level Curve of the

Objective Function

X2
250

(0, 175)
200

objective function
350X1 + 300X2 = 35000

objective function
350X1 + 300X2 = 52500

150

100

(150, 0)

50

0
0

50

100

150

200

2014 Cengage Learning. All Rights Reserved. May not be

scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.

250

X1

Using A Level Curve to Locate

the Optimal Solution

X2
250

objective function
350X1 + 300X2 = 35000

200

150
optimal solution
350X1 + 300X2 = 66100

100

objective function
350X1 + 300X2 = 52500

50

0
0

50

100

150

200

250

X1

Calculating the Optimal Solution

The optimal solution occurs where the pumps and labor
constraints intersect.
This occurs where:
X1 + X2 = 200
(1)
and 9X1 + 6X2 = 1566
(2)
From (1) we have, X2 = 200 -X1
(3)
Substituting (3) for X2 in (2) we have,
9X1 + 6 (200 -X1) = 1566
which reduces to X1 = 122
So the optimal solution is,
X1=122, X2=200-X1=78
Total Profit = $350*122 + $300*78 = $66,100

2014 Cengage Learning. All Rights Reserved. May not be

scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.

26

Enumerating The Corner Points

X2
250

obj. value = $54,000

(0, 180)

200

Note: This technique will not work if the

solution is unbounded.

obj. value = $64,000

150

(80, 120)
obj. value = $66,100
(122, 78)

100

50

obj. value = $60,900

(174, 0)

obj. value = $0
(0, 0)

0
0

50

100

150

200

250

X1

Summary of Graphical Solution

to LP Problems
1. Plot the boundary line of each constraint
2. Identify the feasible region
3. Locate the optimal solution by either:
a. Plotting level curves
b. Enumerating the extreme points

28

Sensitivity Analysis:
Understanding How Things Change
See file Blue Ridge Hot Tub

29

Special Conditions in LP Models

A number of anomalies can occur in LP
problems:
Alternate Optimal Solutions
Redundant Constraints
Unbounded Solutions
Infeasibility

30

Example of Alternate Optimal Solutions

X2
250

objective function level curve

450X1 + 300X2 = 78300

200

150

100

alternate optimal solutions

50

0
0

50

100

150

200

250

X1

X2

Example of a Redundant Constraint

250
boundary line of tubing constraint
200

boundary line of pump constraint

150
boundary line of labor constraint

100
Feasible Region

50

0
0

50

100

150

200

250

X1

X2

Example of an Unbounded Solution

1000

objective function
X1 + X2 = 600

800

-X1 + 2X2 = 400

objective function
X1 + X2 = 800

600

400

200
X1 + X2 = 400

0
0

200

400

600

800

1000

X1

Example of Infeasibility

X2
250

200

X1 + X2 = 200

feasible region for

second constraint

150

100
feasible region for
first constraint

50

X1 + X2 = 150

0
0

50

100

150

200

2014 Cengage Learning. All Rights Reserved. May not be

scanned, copied or duplicated, or posted to a publicly accessible
website, in whole or in part.

250

X1

Classwork - Example : Boat Manufacturer

A boat manufacturer facing unlimited demand wants to maximize profit.
They earn $1200 per sailboat sold, and $1000 per motorboat.

Per-unit parts needs and inventory follow this chart

Sailcloth
Glass Fiber
Engines

Sailboat
Unit Reqmt
4
8
0

Motorboat
Unit Reqmt
0
4
1

Inventory Total
400
1000
120

How many of each boat should they make?

35

35

Our solution, graphically

M

Maximize
(65, 120)

(0, 120)

1200S + 1000M

Subject to 4S + 0M 400
8S + 4M 1000
0S + 1M 120
S, M 0

[feasible zone]

(100, 0)

Which of these
constraints are
binding?

36

36

Excel Mini-Lesson: The

SUMPRODUCT Function
The SUMPRODUCT function in Excel takes the
pairwise products of two sets of numbers and
sums the products.
SUMPRODUCT(Array1,Array2)
Array1 references the first set of numbers.
Array2 references the second set of numbers.

The two arrays must have identical layouts and be

the same size.

Chapter 9

Copyright 2013 John

Wiley & Sons, Inc.

37

37

(Cont.)

38

38

Veerman Furniture Company

39

Example : An Allocation Model

Veerman Furniture Company (p. 221)
The company makes chairs, desks, tables.
Each product has estimated average labor inputs of hours per unit in
departments of fabrication, assembly, and shipping.
Total available labor in fabrication, assembly and shipping departments is capped,
based on each departments capacities
Additionally, estimated demand potential shows maximum unit sales, per
product

How do we maximize profit?

40

40

Dahlby Outfitters

41

Dahlby: A Covering Model

What is the business problem about?

We are a packaged goods company. Want to develop a new trail mix

product.
We have available a list of potential ingredients.
For each ingredient we know:
Cost per pound
Nutritional contribution in grams per pound
Finally, we seek to meet minimum overall nutritional requirements, in
order to cater to a particular customer segment.
How large of a package would meet these requirements?
42

42

Diaz Coffee Company

43

Example: A Blending Model

Diaz Coffee Company (p. 230)
We want to make at least 4 million lbs of coffee blend
Target characteristics are:
Minimum aroma rating of 78
Minimum strength rating of 16
The available export grade coffees are:
Bean

Aroma
Rating

Strength
Rating

Cost/lb.

Lbs available

Brazilian

75

15

$0.50

1,500,000

Colombian

60

20

$0.60

1,200,000

Peruvian

85

18

$0.70

2,000,000

44

44

Example: Advertising Mix

A cable television advertising campaign is aimed at three demographic groups:

single adult males, single adult females, and married couples.

The campaign requires 500,000 viewers among the single males, and 200,000
viewers in each of the other two groups.

Five channels are available, each with its own audience demographics. The table
below shows the number of viewers of each type per $1,000 of advertising for
each of the five channels.

Channel
Channel
Channel
Channel
Channel

1
2
3
4
5

Single
Men

Single
Women

Couples

300
100
0
2000
750

850
900
1200
0
500

1200
2000
800
200
500

That is, $2000 spent on channel 2 would reach 200 Single Men,
1800 Single Women, and 4,000 couples, etc.

What is the
optimization
problem?

45

45

Summary
Linear programming represents the most widely used
optimization technique in practice.
The special features of a linear program are a linear
objective function and linear constraints.
Linearity in the optimization model allows us to apply the
simplex method as a solution procedure, which in turn
guarantees finding a global optimum whenever an
optimum of any kind exists.
Therefore, when we have a choice, we are better off with
a linear formulation of a problem than with a nonlinear
formulation.

Chapter 9

Copyright 2013 John

Wiley & Sons, Inc.

46

46

Summary
While optimization is a powerful technique, we should not
assume that a solution that is optimal for a model is also
optimal for the real world.
Often, the realities of the application will force changes in
the optimal solution determined by the model.
One powerful method for making this translation is to look
for the pattern, or the economic priorities, in the optimal
solution.
These economic priorities are often more valuable to
decision makers than the precise solution to a particular
instance of the model.

Chapter 9

Copyright 2013 John

Wiley & Sons, Inc.

47

47