OR Case Study Analysis

-By Aditya Karam( 04), Gurjinder Singh(10), Deepti Sana(40), Kaushik Mandal(41), Pankaj Bajaj(59)

CASE 4.2 NEW FRONTIERS A Summary

Rob Richman, president of AmeriBank is bothered about the state of his bank. AmeriBank, a medium-sized bank with branches throughout the United States, is headed for dire economic straits. The bank is simply losing customers to nonbank and foreign bank competitors. Many American banks have been suffering significant losses because of increasing competition from nonbank and foreign bank competitors offering services typically in the domain of American banks. Rob has one strategy for distinguishing AmeriBank from its competitors is to improve services that nonbank and foreign bank competitors do not readily provide transaction services. Internet allows this convenient transaction method. Over the Internet, customers are able to perform transactions on their desktop computers either at home or at work. Rob needs to understand the market for Web banking and the services AmeriBank should provide over the Internet. Like balance inquiries, transactions, limitations, recapture a portion of the investment market by continuously running stock prices and allowing customers to make stock transactions over the Internet for a minimal fee. Rob has decided to outsource the survey project to a professional survey company. He has opened the project up for bidding by several survey companies and will award the project to the company which is willing to perform the survey for the least cost. Sophisticated Surveys is one of three survey companies competing for the project. Rob provided each survey company with a list of survey requirements to ensure that AmeriBank receives the needed information for planning the Web banking project.
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He tries to acquire information about the age groups of account holders, their internet usage ability, income levels, and investment behavior. AmeriBank wants to interview 2,000 customers with at least 20 percent from the first age group, at least 27.5 percent from the second age group, at least 15 percent from the third age group, and at least 15 percent from the fourth age group. Rob wants to ensure that the survey includes a mix of customers who know the Internet well and those that have less exposure to the Internet. To ensure that AmeriBank obtains the correct mix, he wants to interview at least 15 percent of customers from the Silicon Valley where Internet use is high, at least 35 percent of customers from big cities where Internet use is medium, and at least 20 percent of customers from small towns where Internet use is low. Sophisticated Surveys has performed an initial analysis of these survey requirements to determine the cost of surveying different populations. The costs per person surveyed are listed in the following table:

Region Silicon Valley Big cities Small towns

18 to 25 $4.75 $5.25 $6.50

26 to 40 $6.50 $5.75 $7.50

41 to 50 $6.50 $6.25 $7.50

51 and over $5.00 $6.25 $7.25

Sophisticated Surveys explores the forthcoming options cumulatively.

(a)Formulate a linear programming model to minimize costs while meeting all survey constraints imposed by AmeriBank. Ans. Let, X1 is the no of people from Silicon Valley under age group 18-25 X2 is the no of people from Silicon Valley under age group 26-40 X3 is the no of people from Silicon Valley under age group 41-50 X4 is the no of people from Silicon Valley above age group 51 X5 is the no of people from big-cities under age group 18-25 X6 is the no of people from big-cities under age group 26-40 X7 is the no of people from big-cities under age group 41-50 X8 is the no of people from big-cities above age group 51 X9 is the no of people from small towns under age group 18-25 X10 is the no of people from small towns under age group 26-40 X11 is the no of people from small towns under age group 41-50 X12 is the no of people from small towns above age group 51

Min z=4.75 x1+ 6.50 x2+ 6.50 x3+5 x4+5.25 x5+5.75 x6+ 6.25 x7+ 6.25 x8+ 6.50 x9+ 7.50 x10+ 7.50 x11+ 7.25 x12 Constraints: x1+ x2+ x3+ x4+ x5+ x6+ x7+ x8+ x9+ x10+ x11+ x12=2000 .(1) x1+ x2+ x3+ x4>=300... (2) x5+ x6+ x7+ x8>=700 . (3) x9+ x10+ x11+ x12=>400... (4) x1+x5+x9>=400 .. (5)
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x2+x6+x10>=5500. (6) x3+x7+x11>=300... (7) x4+ x8+ x12>= 300... (8) x1, x2, x3, x4, x5, x6, x7, x8, x9, x10, x11, x12>=0.....(9)

X1=600 X2=0 X3=0 X4=300 X5=0 X6=550 X7=150 X8=0 X9=250 X10=0 X11=150 X12=0

(b) If the profit margin for Sophisticated Surveys is 15 percent of cost, what bid will they submit? Ans. Given that the profit margin is 15%, Sophisticated Surveys will submit the following bid: = (2850+0+0+1500+0+3162.50+937.5+0+1625+0+1125+0)*1.15 $ = (11199.5)*1.15 $ =12879.4 $

(c) After submitting its bid, Sophisticated Surveys is informed that it has the lowest cost but that AmeriBank does not like the solution. Specifically, Rob feels that the selected survey population is not representative enough of the banking customer population. Rob wants at least 50 people of each age group surveyed in each region. What is the new bid made by Sophisticated Surveys? Ans. The additional constraints will look like: X1, x2, x3, x4, x5, x6, x7, x8, x9, x10, x11, x12 >50 The new bid will be: = (237.50+325+975+250+262.5+625+3125+1950+4500+375+362.5)1.15 =14935.6 $

(d) Rob feels that Sophisticated Surveys oversampled the 18- to 25-year-old population and the Silicon Valley population. He imposes a new constraint that no more than 600 individuals can be surveyed from the 18- to 25-year-old population and no more than 650 individuals can be surveyed from the Silicon Valley population. What is the new bid? Ans. In addition to 1st 20 constraints of the 1st bid these two constraints are added: X1+x5+x9<= 600 (21) X1+x2+x3+x4<=650. (22)

The new bid is= (11450)1.15 =1322.5 $

(e) When Sophisticated Surveys calculated the cost of reaching and surveying particular individuals, the company thought that reaching individuals in young population would be easiest. In a recently completed survey, however, Sophisticated Surveys learned that this assumption was wrong. The new costs for surveying the 18- to 25-year-old population are listed below:

Region survey cost per person Silicon Valley Big cities Small towns $6.50 $6.75 $7.00

Given the new costs, what is the new bid?

Ans. The new costs are as follows: x1=6.5$ x5=6.75 $ x9=7 $ As the constraints are changing we will see whether these changes in the current objective coefficient will have an effect on the final output or not. Is this current case we need to apply 100% Rule.

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From the above table we get the values of allowable increases of the decision variables (for X1, X5, X9): I1= (5.00-4.75) =0.25 & I5= (5.25-5.25) =0 & I9= (6.63-6.50) =0.13 & Now, R1=1.75/0.25=7.00 i.e. 700% R5=1.50/0= R9=0.50/0.13=3.8 i.e. 380% rj= more than 1000% So its far greater than 100%, the new z value will definitely. C1=6.50-4.75=1.75 C5=6.75-5.25=1.50 C9=7.00-6.50=0.50

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The new bid will be = (12012.5)*1.15 =13814.375 $

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(f) To ensure the desired sampling of individuals, Rob imposes even stricter requirements. He fixes the exact percentage of people that should be surveyed from each population. The requirements are listed below: 18 to 25 26 to 40 41 to 50 51 and over Silicon Valley Big cities Small towns 25% 35% 20% 20% 20% 50% 30%

By how much would these new requirements increase the cost of surveying for Sophisticated Surveys? Given the 15 percent profit margin, what would Sophisticated Surveys bid? Ans. In the light of these stricter requirements imposed, there will be no change in the objective function. Only a few constraints will be added. These have been given below: Min Z= 6.50 x1+ 6.50 x2+ 6.50 x3+5 x4+6.75 x5+5.75 x6+ 6.25 x7+ 6.25 x8+ 7.0 x9+ 7.50 x10+ 7.50 x11+ 7.25 x12 But all the constrains can be rewritten as follows: x1+ x2+ x3+ x4+ x5+ x6+ x7+ x8+ x9+ x10+ x11+ x12=2000.(1) x1+x5+x9=500.. (2) x2+x6+x10=700... (3) x3+x7+x11=400 (4) x4+x8+x12=400... (5) x1+ x2+ x3+ x4=400.. (6)
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x5+ x6+ x7+ x8=1000... (7) x9+ x10+ x11+ x12=600 (8)

Total cost :( 0+0+0+2000+0+4025+1875+0+3500+0+750)1.15 = (12150)*1.15 =13972.5 $

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