GROUP 5

OPERATIONS RESEARCH PROEJCT

Agastya Ramesh B17126

Kartik Somani B17145

Puneet Kathuria B17158

Shubham Sharan B17172

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Table of Contents
INTRODUCTION ........................................................................................................................... 2
PROBLEM FORMULATION ............................................................................................................ 3
PROBLEM SOLUTION .................................................................................................................... 5
λ - method ........................................................................................................................................... 5
Average – method............................................................................................................................... 7
Comparison between the two methods ............................................................................................. 8
SENSITIVITY ANALYSIS.................................................................................................................. 9
PROBLEM FORMULATION AND SOLUTION ON EXCEL .................................................................. 11

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INTRODUCTION
Supply chain management is one of the most researched and discussed topics. In the last few years, it
has gain much higher importance due to the increasing level of automation and impact of IoT in the
logistics industry. This sector over the last 20 years has attracted a very high attention over in response
to a highly competitive marketplace. Moreover, the cost of cutting and increase the margins and
delivering value to customers.

A supply chain is an integrated system, which synchronizes a series of inter-related business processes
in order to transform the acquired raw materials by adding value to these products. These products
are then distributed to either retailers or customers. The supply chain in the 21st century also involves
exchange of information among various business entities such as suppliers, manufacturers,
distributors, 3PL and retailers.

So, solving and proposing a best-fit model for any company involves a lot of structuring, involving
cost optimization and maximizing the value delivered to the consumers. LP model approach
develops a comprehensive deterministic model, which helps in minimizing the annual cost of the
supply chain and also helps in determining the right locations to supply to customers.

The problem we evaluated in the section below is as follows:

We need to supply High-Quality Steel to six countries. We have two plant locations, one on
the west coast of India (Mundra) and other on east cost of India (Paradip). The data of profit,
transportation cost, advertising cost and brand value generated per unit of production is
available for each country. We leveraged multi objective linear programming model to
formulate the supply chain from suppliers to consumers. The model is validated and solved
using excel software. Sensitivity analysis on the proposed model is conducted in order to draw
useful conclusions regarding the factors that play the most important role in the efficiency of
the supply chain.

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A Saudi Arabia Mundra

B Oman Mundra
C Egypt Mundra
D Thailand Paradip
E Malaysia Paradip
F Singapore Paradip

(Map and Table: Representing the plant locations and the countries to be supplied the products, A-F represent
the nomenclature used in the Linear Model below for ease of reference)

PROBLEM FORMULATION
There are 6 project locations and they have been designated as A, B, C, D, E and F. Countries A, B and
C are catered to by the Mundra port and countries D, E and F are catered to by the Paradip port. The
data of profit, transportation cost, advertising cost and brand value generated per unit of production
is available for each country and they are as follows:

A B C D E F
Profit/Unit 210 220 225 228 208 160
Transportation cost/Unit 10 12 15 18 13 12
Advertising cost/Unit 40 45 50 55 35 40
Brand Value/Unit 12 15 12 13 14 15

Decision variables
The decision variables are taken as the amount produced for each country and are X1, X2, X3, X4, X5
and X6 for countries A, B, C, D, E and F respectively.

Objective functions
There are four objectives in this problem:

1. Maximizing total profit

Maximize: 210𝑋1 + 220𝑋2 + 225𝑋3 + 228𝑋4 + 208𝑋5 + 160𝑋6

2. Minimizing the total transportation cost

Minimize: 10𝑋1 + 12𝑋2 + 15𝑋3 + 18𝑋4 + 13𝑋5 + 12𝑋6

3. Minimizing the total advertising cost

Minimize: 40𝑋1 + 45𝑋2 + 50𝑋3 + 55𝑋4 + 35𝑋5 + 40𝑋6

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4. Maximizing total brand value

Maximize: 12𝑋1 + 15𝑋2 + 12𝑋3 + 13𝑋4 + 14𝑋5 + 15𝑋6

Constraints

1. Factory production constraint

Two sets of 3 countries each are catered to by 2 ports separately. Each port is served by one factory
and each factory has a maximum capacity given as follows:

𝑋1 + 𝑋2 + 𝑋3 ≤ 75000
𝑋4 + 𝑋5 + 𝑋6 ≤ 50000

2. Minimum supply constraint

Each country requires a certain minimum level of supply as follows:

𝑋𝑖 ≥ 10000 (𝑖: 1 → 6)
3. Brand value consistency constraint

In order to keep the brand value of the firm consistent across countries and to avoid factories’
excessive reliance on one country’s demand, there is a constraint, which specifies that the sum of
supply of two countries from a factory shall always be greater than the third country’s supply.

Factory 1

𝑋1 + 𝑋2 − 𝑋3 ≥ 0
𝑋2 + 𝑋3 − 𝑋1 ≥ 0
𝑋1 + 𝑋3 − 𝑋2 ≥ 0
Factory 2

𝑋4 + 𝑋5 − 𝑋6 ≥ 0
𝑋4 + 𝑋6 − 𝑋5 ≥ 0
𝑋5 + 𝑋6 − 𝑋4 ≥ 0

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PROBLEM SOLUTION
λ - method
1. Objective Functions

Project Locations
A B C D E F
Profit/Unit (Max) 210 220 225 228 208 160
Transportation cost/Unit (Min) 10 12 15 18 13 12
Advertising cost/Unit (Min) 40 45 50 55 35 40
Brand Value/Unit (Max) 12 15 12 13 14 15

2. Constraints

Decision Variables
X1 X2 X3 X4 X5 X6 Constraints Value
Total Production from Mundra 1 1 1 <= 75000
Total Production from Paradip 1 1 1 <= 50000
Minimum needs to be sent 1 1 -1 >= 0
Minimum needs to be sent 1 -1 1 >= 0
Minimum needs to be sent -1 1 1 >= 0
Minimum needs to be sent 1 1 -1 >= 0
Minimum needs to be sent 1 -1 1 >= 0
Minimum needs to be sent -1 1 1 >= 0
Minimum Supply to Country A 1 >= 10000
Minimum Supply to Country B 1 >= 10000
Minimum Supply to Country C 1 >= 10000
Minimum Supply to Country D 1 >= 10000
Minimum Supply to Country E 1 >= 10000
Minimum Supply to Country F 1 >= 10000

3. Optimizing the individual objectives

All the objectives are optimized individually to get the range of the objective functions,
which will be further, used for normalization.
Values associated with each objective function are:

Project Locations
A B C D E F
Profit (Max) 10000 27500 37500 25000 15000 10000
Transportation cost (Min) 10000 10000 10000 10000 10000 10000
Advertising cost (Min) 10000 10000 10000 10000 10000 10000
Brand Value (Max) 27500 37500 10000 10000 15000 25000

Interpretation: In order to maximize profits, the amount sent to A, B, C, D, E, F is given in the

first row.

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Objective 1 Objective 2 Objective 3 Objective 4

Profit (Max) 27,007,500 12,510,000 12,510,000 25,675,000

Transportation cost
(Min) 1,757,500 800,000 800,000 1,550,000

Advertising cost (Min) 5,812,500 2,650,000 2,650,000 5,362,500

Brand Value (Max) 1,667,500 810,000 810,000 1,727,500

Interpretation: The first column here represents the values of all the constraints obtained
after maximizing the first constraints (profit). The values in bold represents the objective that
is optimized in the column.

4. Finding the range of the objective functions

Max Min Max - Min

Profit (Max) 27007500 12510000 14497500
Transportation cost (Min) 1757500 800000 957500
Advertising cost (Min) 5812500 2650000 3162500
Brand Value (Max) 1727500 810000 917500

5. Normalizing the objective functions

To get an optimal point where all the objective functions converge, we will have to
normalize the objective functions.
For maximizing objective:

For minimizing objective:

The new objective function will be to maximize λ. Here, λ shows the degree of overlap
between the objective functions. More is the λ, more the objective function converges
towards a common point. The individual objective functions will act as additional constraints.

A B C D E F λ
Maximization Function 0 0 0 0 0 0 1
λ<=µ1 -210 -220 -225 -228 -208 -160 14497500 <= -12510000
λ<=µ2 10 12 15 18 13 12 957500 <= 1757500
λ<=µ3 40 45 50 55 35 40 3162500 <= 5812500
λ<=µ4 -12 -15 -12 -13 -14 -15 917500 <= -810000

The table shows the new objective function and the additional constraints.

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6. Solving the new objective function

By maximizing lambda, we get the following:

A B C D E F λ
Objective 0 0 0 0 0 0 1
Values obtained 10000 27439.14 17439.14 10000 20000 10000 0.524

Results –

 λ = 0.524, implies 52.4% overlap between the objective functions

 The capacity of the plant is unutilized.

Actual capacity Production

Plant 1 75,000 54,878.28
Plant 2 50,000 40,000.00
 The values of U1, U2, U3, U4 and the objective functions are:

Values Corresponding U values

Profit (Max) 20,100,417 0.5236
Transportation cost (Min) 1,250,857 0.5291
Advertising cost (Min) 4,156,718 0.5236
Brand Value (Max) 1,300,857 0.5350

Average – method
Average methods takes into account the individual weightages of the objective function and then
reaches a convergence point.

All the steps are same, with some difference from normalization.

1. Normalizing the objective functions

Using the same method with giving equal weights to all the objective functions, we get:

A B C D E F µ1 µ2 µ3 µ4
0 0 0 0 0 0 0.25 0.25 0.25 0.25 Max
Weights
-210 -220 -225 -228 -208 -160 14497500 0 0 0 <= -12510000
10 12 15 18 13 12 0 957500 0 0 <= 1757500
40 45 50 55 35 40 0 0 3162500 <= 5812500
-12 -15 -12 -13 -14 -15 0 0 0 917500 <= -810000
2. Solving the new objective function

A B C D µ1 E µ2 F
µ3 µ4
Objective 0 0 0 0 0 0 0.25 0.25 0.25 0.25 Max 0.5737
Values 27500 37500 10000 10000 25000 15000 0.9412 0.2063 0.1581 0.9891

Results -

 Equivalent λ = 0.5737, implies 57.37% overlap between the objective functions

 The capacity of the plant is fully utilized.

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Actual capacity Production

Plant 1 75,000 75,000
Plant 2 50,000 50,000
 The values of U1, U2, U3, U4 and the objective functions are:

Values Corresponding U values

Profit (Max) 26,155,000 0.9412
Transportation cost (Min) 1,560,000 0.2063
Advertising cost (Min) 5,312,500 0.1581
Brand Value (Max) 1,717,500 0.9891

Comparison between the two methods

 λ comparison

λ-method Average method

λ 0.524 0.5737
λ value in the average method is more, thus the degree of convergence in the average
method is more and it is preferred.
 Capacity Utilization

Actual capacity Production (λ-method) Production (Average method)

Plant 1 75,000 54,878.28 75,000
Plant 2 50,000 40,000.00 50,000
Full utilization of the plant capacity in average method, thus it is the preferred method.
 Comparison of the U1, U2, U3, U4 values

λ-method Average method

U1 0.5236 0.9412
U2 0.5291 0.2063
U3 0.5236 0.1581
U4 0.5350 0.9891
U1, U2 objective functions are better explained by the average method, while U2, U3
objective functions are better explained by the λ-method.
It depends on the manager to decide which method to choose. If he wants to maximize the
profit and the brand value, it is advised to with the average method.
 Values of Objective functions

λ-method Average method

Profit (Max) 20,100,417 26,155,000
Transportation cost (Min) 1,250,857 1,560,000
Advertising cost (Min) 4,156,718 5,312,500
Brand Value (Max) 1,300,857 1,717,500
In order to maximize the profit and the brand value, average method should be used. In
order to minimize the transportation cost and the advertising cost, λ-method should be
used.

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SENSITIVITY ANALYSIS
Based on the comparison between the two methods discussed in the previous section, we felt that
‘Average Method’ would be the better method of the two because maximizing the profit and brand
value is of more essence to the company right now. In addition, resource utilization is achieved more
in Average Method.

Thus, we did the sensitivity analysis on the ‘Average Method’, whose results are as given below:

First table

Variable Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$26 A 27500 0 0 7.24321E-08 1.83733E-06
$C$26 B 37500 0 0 1E+30 7.24321E-08
$D$26 C 10000 0 0 1.83733E-06 1E+30
$E$26 D 10000 0 0 2.12469E-06 1E+30
$F$26 E 25000 0 0 1E+30 6.8941E-07
$G$26 F 15000 0 0 6.8941E-07 1.79156E-06
$H$26 µ1 0.941196758 0 0.25 0.452981539 0.070579194
$I$26 µ2 0.206266319 0 0.25 0.034676862 0.25
$J$26 µ3 0.158102767 0 0.25 0.045813296 0.25
$K$26 µ4 0.989100817 0 0.25 0.632533369 0.022152147

The above table signifies the ‘Variable Cells’ table, which mainly talks about the optimality of the
solutions. Our primary focus is on behaviour of the decision variables A, B, C, D, E and F. As we can
see from the above table, considering we give equal weightage (equal importance) to all the
objective functions that have been defined, for all the decision variables, even if we increase the
value of their respective objective coefficients to ‘infinity’ or decrease it to ‘-ve infinity’, the optimal
value of the decision variables won’t be affected. This means that the production firm can have full
faith on these values and follow it to achieve maximum benefits from the present resources.

However, for µ1, µ2, µ3 and µ4, there is a certain range in which their respective objective
coefficients, i.e. the weights given to all the objective functions can be changed; else, we would have
to solve the given scenario again, which means the value of the decision variables will be affected.
The ranges of all the weights are mentioned below:

Variable Present Value Allowable Allowable

Upper Range Lower Range
µ1 0.25 0.702981539 0.179420806
µ2 0.25 0.284676862 0
µ3 0.25 0.295813296 0
µ4 0.25 0.882533369 0.227847853
Thus, if we change the weights of all the objective functions in the given range (one at a time), there
will be no change in the optimal value of the decision variables and the final values will stand
corrected.

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Second table

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$N$12 <= 75000 1.15426E-06 75000 11764.70588 35000
$N$13 <= 50000 8.9578E-07 50000 13333.33333 10000
$N$14 >= 55000 0 0 55000 1E+30
$N$15 >= 0 -3.6216E-08 0 20000 35000
$N$16 >= 20000 0 0 20000 1E+30
$N$17 >= 20000 0 0 20000 1E+30
$N$18 >= 0 -3.44705E-07 0 20000 10000
$N$19 >= 30000 0 0 30000 1E+30
$N$20 >= 27500 0 10000 17500 1E+30
$N$21 >= 37500 0 10000 27500 1E+30
$N$22 >= 10000 -1.83733E-06 10000 17500 10000
$N$23 >= 10000 -2.12469E-06 10000 5000 10000
$N$24 >= 25000 0 10000 15000 1E+30
$N$25 >= 15000 0 10000 5000 1E+30
$N$7 <= -12510000 1.72444E-08 -12510000 1E+30 13645000
$N$8 <= 1757500 2.61097E-07 1757500 1E+30 197500
$N$9 <= 5812500 7.90514E-08 5812500 1E+30 500000
$N$10 <= -810000 2.7248E-07 -810000 1E+30 907500

The above table caters to the ‘Constraints’ that we mentioned for our analysis. Shadow price signifies
the value change in the objective solution for every unit change in a single Right Hand Side constraint.
As we know, when there is a slack or surplus in any constraint, it becomes a non-binding constraint
and there exists no value of Shadow Price. However, in such cases as well, we need to keep in mind
that the value of the Right Hand Side Constraint should be within the allowable range; else, the
problem would need to be solved again.

Based on the above table, a few key points that can be observed are:

 We see that full capacity utilization is achieved for the production firm based on the first two
rows of the table. Thus, the firm will achieve highest efficiency in such a scenario in terms of
production.
 The minimum supply of steel (10000 tonnes) would go to country C and D, while Country B
will get the highest supply of steel (37500 tonnes).
 The above point can be validated through the rows 3 to 8. We see that the sum of tonnes
supplied to A and B is significantly higher than C (Row 3), which means that it would be better
for the production facility in Mundra to focus more on countries A and B. Similarly, for the
production facility in Paradip, they should focus more on country D, as compared to E and F.
 Based on the value of Shadow Prices across the table, we see that most of the constraints
would not make an impact on the optimal solution of ‘λ’, if the R.H side value of constraints
were changed. However, in case of the constraints on ‘Total Production going from the two
production facilities’ (Row 1 and 2), there would be a change in the optimal value of ‘λ’, for
every unit change in R.H value of the respective constraints.

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PROBLEM FORMULATION AND SOLUTION ON EXCEL

OPR
Project_BMC_Group 5.xlsx

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