Chapter 3

Linear Programming Applications

The process of problem

formulation
Production Problem
Marketing and media applications
Financial Applications
Transportation Problem

The process of problem formulation

1.
2.
3.

4.
5.
6.
7.

Provide a detailed verbal description of the

problem
Determine the overall objective that appears
to be relevant.
Determine the factors (constraints) that
appear to restrict the attainment of the
objective function.
Define the decision variables and state their
units of measurement.
Using these decision variables, formulate an
objective function.
Formulate a mathematical equations for each
of the identified constraints.
Check the entire formulation to ensure

Production Problem
The demand for a particular item for a Cosmopolitan
Company is known to be:
Month
January Februa Marc April
ry
h
Demand
100
110
120
110
The production capacity and the cost per unit in these
months is, respectively:
Month

January Februa Marc

ry
h
120
150
150

April

Producti
100
on
and the storage cost is $5 per month.
Cost ($)
9
10
8
7
At the beginning of January there are 50 items in store,
and there should be 80 items left in store at the end of
April.
Formulate a linear program to find the best production
level for each month.

Production Problem
Let xi be the amount of production in month i (i=1,2,3,4)
Production capacity constraints:
x1 120

x2 150
x3 150
x4 100

Amount left over at the end of each month

(positive)
End of January :50+x1-100 >=0 x1-50 0

End of February: x1-50+x2-110 >=0 x1+x2-160 0

End of March: x1+x2-160+x3-120 >= 0 x1+x2+x3-280

0
End of April: x1+x2+x3-280+x4-110 >= 80
x1+x2+x3+x4-390 80

Production Problem

Objective function:
Production Cost= 9x1+10x2+8x3+7x4

Storage Cost = 5 [(x1-50)+(x1+x2-160)+

(x1+x2+x3-280)+(x1+x2+x3+x4-390)]

Minimize Z = Production Cost + Storage Cost

= 29x1+25x2+18x3+13x4-4400

Non-Negativity Constraint : x1, x2, x3, x4 0

Marketing Applications

One application of linear programming in

marketing is media selection.
LP can be used to help marketing managers
allocate a fixed budget to various advertising
media.
The objective is to maximize reach, frequency,
and quality of exposure.
Restrictions on the allowable allocation usually
arise during consideration of company policy,
contract requirements, and media availability.

Media Selection
SMM Company recently developed a new
instant
salad machine, has $282,000 to spend on
advertising. The product is to be initially test
marketed in the Dallas
area. The money is to be spent on
a TV advertising blitz during one
weekend
(Friday,
Saturday,
and
The three
options
available
Sunday)
in November.
are: daytime
advertising,
evening news advertising, and
Sunday game-time advertising. A mixture of oneminute TV spots is desired.

Media Selection
Estimated Audience
Ad Type
Reached With Each Ad
Cost
Per Ad
Daytime
3,000
$5,000
Evening News
4,000
$7,000
SMM Game
wants to take75,000
out at least one ad
of each
Sunday
$100,000
type (daytime, evening-news, and game-time).
Further, there are only two game-time ad spots
available. There are ten daytime spots and six
evening news spots available daily. SMM wants
to have at least 5 ads per day, but spend no
more than $50,000 on Friday and no more than
$75,000 on Saturday.

Media Selection
Define the Decision
DFRVariables
= number of daytime ads on Friday
DSA = number of daytime ads on Saturday
DSU =
number of daytime ads on Sunday
EFR =
number of evening ads on Friday
ESA =
number of evening ads on Saturday
ESU =
number of evening ads on Sunday
GSU =
number of game-time ads on Sunday

Media Selection

Define the Objective

Function
Maximize the total audience reached:
Max (audience reached per ad of each
type)
x (number of ads used of each
type)
Max 3000DFR +3000DSA +3000DSU
+4000EFR
+4000ESA +4000ESU +75000GSU

Media Selection

Define the Constraints

Take out at least one ad of each type:
(1) DFR + DSA + DSU > 1
(2) EFR + ESA + ESU > 1
(3) GSU > 1
Ten daytime spots available:
(4) DFR < 10
(5) DSA < 10
(6) DSU < 10
Six evening news spots available:
(7) EFR < 6
(8) ESA < 6
(9) ESU < 6

Media Selection
Define the Constraints
(continued)
Only
two Sunday game-time ad spots available:
(10) GSU < 2

At least 5 ads per day:

(11) DFR + EFR > 5
(12) DSA + ESA > 5
(13) DSU + ESU + GSU > 5
Spend no more than $50,000 on Friday:
(14) 5000DFR + 7000EFR < 50000

Media Selection

Define the Constraints

(continued)
Spend no more than $75,000 on Saturday:
(15) 5000DSA + 7000ESA < 75000
Spend no more than $282,000 in total:
(16) 5000DFR + 5000DSA + 5000DSU +
7000EFR
+ 7000ESA + 7000ESU + 100000GSU7
< 282000
Non-negativity:
DFR, DSA, DSU, EFR, ESA, ESU, GSU > 0

Media Selection

The Management Scientist

Solution
Objective Function Value =
Variable
Costs
DFR
0.000
DSA
0.000
DSU
0.000
EFR
0.000
ESA
0.000

Value
8.000
5.000
2.000
0.000
0.000

199000.000
Reduced

Media Selection
Solution Summary
Total new audience reached =
199,000
Number of daytime ads on Friday
=
Number of daytime ads on Saturday =
Number of daytime ads on Sunday =
Number of evening ads on Friday = 0
Number of evening ads on Saturday =
Number of evening ads on Sunday
Number of game-time ads on Sunday=

8
5
2
0
= 1
2

Financial Planning
A bank makes four kinds of loans to its personal customers
and these loans yield the following annual interest rates to
the bank:
First mortgage 14%
Second mortgage 20%
Home improvement 20%
Personal overdraft 10%
The bank has a maximum foreseeable lending capability of
250 BD million and is further constrained by the policies:
1. First mortgages must be at least 55% of all
mortgages
issued and at least 25% of all loans issued
(in BD terms)
2. Second mortgages cannot exceed 28% of all loans
issued (in BD terms)
3. To avoid public displeasure and the introduction of a
new windfall tax the average interest rate on all loans
must not exceed 15%.
Formulate the bank's loan problem as an LP so as to
maximize interest income whilst satisfying the policy

Financial Planning
Define the Decision Variables
Essentially we are interested in the amount
(in BD) the bank has loaned to customers in
each of the four different areas (not in the
actual number of such loans). Hence let
xi = amount loaned in area i in million of BD
(where i=1 corresponds to first mortgages,
i=2 to second mortgages i=3 to home
improvement, and i=4 to personal overdraft)

Financial Planning

Define the Objective Function

To maximize interest income (which is given above)

Maximize Z=0.14x1 + 0.20x2 + 0.20x3 + 0.10x4
Define the Constraints
(a) Limit on amount lent
x1 + x2 + x3 + x4 250

(b) Policy condition 1

x1 0.55(x1 + x2)
i.e. first mortgages >= 0.55(total mortgage lending)
and also
x1 0.25(x1 + x2 + x3 + x4)
i.e. first mortgages >= 0.25(total loans)

Financial Planning

Define the Constraints (continued)

c) policy condition 2
x2 0.28(x1 + x2 + x3 + x4)
d) policy condition 3
we know that the total annual interest is 0.14x1
+ 0.20x2 + 0.20x3 + 0.10x4 on total loans of (x1
+ x2 + x3 + x4). Hence the constraint relating to
policy condition (3) is:
0.14x1 + 0.20x2 + 0.20x3 + 0.10x4 0.15(x1 + x2
+ x3 + x4)
Non-Negativity Constraint:
xi 0 (i=1,2,3,4)

Transportation Problem

The transportation problem seeks to

minimize the total shipping costs of
transporting goods from m origins (each with
a supply si) to n destinations (each with a
demand dj), when the unit shipping cost
from an origin, i, to a destination, j, is cij.

The network representation for a

transportation problem with two sources and
three destinations is given on the next slide.

Transportation Problem

Network Representation

s1

s2

c1
1

Sources

c23

d1

d2

d3

c12

c13
c21
2

c22

Destinations

Transportation Problem

Steel Mills in three cities produce the following amounts

of steel:
Location
Production (tons)

Demand (tons)

150

210

320

These mills supply steel to four cities, where

manufacturing plants have the following demands:
Plants

190

70

180

240

The cost of sending 1 tons of steel from a production

location to a plant depends on the distance the truck
must travel.
The problem is to determine how many tons of steel to
transport from each production mill to each
manufacturing plant on a weekly basis to minimize the
total cost of transportation.

Transportation tableau
A transportation problem is specified by the supply, the
demand, and the shipping costs. So the relevant data
can be summarized in a transportation tableau. The
transportation tableau implicitly expresses the supply
and demand constraints and the shipping cost between
each demand and supply point.
From
To Plant
A

1
$14

2
$9

3
$16

4
$18

Supply (tons)
150

$11

$8

$7

$16

210

$16

$12

$10

$22

320

Demand (tons)

190

70

180

240

23

Transportation Problem
Decision Variable:
Let Xij = number of tons of steel shipped from location
i to plant j (i = A, B, C; j = 1, 2, 3, 4)
Objective function
Transportation costs of steel shipped from location A
= 14 XA1 + 9 XA2 +16 XA3 +18 XA4

Transportation costs of steel shipped from location B

= 11 XB1 + 8 XB2 + 7 XB3 +16 XB4
Transportation costs of steel shipped from location C
= 16 XC1 + 12 XC2+ 10 XC3+22 XC4
Therefore, the objective function is:
Minimize 14 XA1 + 9 XA2 +16 XA3 +18 XA4 + 11 XB1 + 8 XB2
+ 7 XB3
+16 XB4 + 16 XC1 + 12 XC2+ 10 XC3+22 XC4

24

Transportation Problem
3. Supply Constraints
Since each supply point has a limited
production capacity;
XA1 + XA2 + XA3 + XA4 150
XB1 + XB2 + XB3 + XB4 210
XC1 + XC2+ XC3+ XC4 320

25

Transportation Problem
4. Demand Constraints
Since each supply point has a limited
production capacity;
XA1 + XB1 + XC1 190
XA2 + XB2 + XC2 70
XA3 + XB3 + XC3 180
XA4 + XB4 + XC4 240
5. Sign Constraints
Xij 0 (i= A,B,C; j= 1,2,3,4)
26