Homework Problem Set #2 Part (a)

All problems are to be done individually.

Problem 1 (30 points)

Please consider the situation below.

Imagine you run a successful software company. You recently learned that one of your
most valuable employees has a serious alcohol problem. While he was a key player in the
development of several best-selling pieces of software over the last 3 years, recently he has
been coming to work extremely tired and irritable. Other employees complain that he is so
disruptive that not only is he not the asset he once was, but he actually keeps them from getting
their own work done. He is currently assigned to a very important new product under
development and some trusted employees have come to you with concerns that this project
could be in jeopardy. Some of his friends in the company have talked to him about getting help
for his problem, but that was months ago and things seem to be getting worse rather than
better.

Now that we have discussed the potential effects of problem frames, see if you can look
at this situation through many different frames on your own. Sometimes we do not have the
luxury of asking other people to help us generate alternative frames. In those cases, we should
be able to generate multiple frames on our own.

Please develop several distinct frames for this situation, then consider how these
different frames would change your objectives, your information seeking, and the options you
would consider. Briefly describe the different frames you could take on for this situation and
focus on what differences they would produce in objectives, information, and options. Do not
spend a lot of space on frame descriptions, but rather focus on new objectives, information or
options revealed by the different frames.

To be clear, frames are not simply solutions. When you describe a frame, you should be
describing what is unique about that frame’s objectives, information sought, and options
considered. If you choose to use different people’s perspectives to generate different frames,
please be sure to point out how those frames could change the CEO’s objectives, information
and options.

In no more than 2 pages, please list the frames you came up with, focusing on how each frame
changes the CEO’s objective, information seeking and possible actions. You will be graded on
the variety of frames (and associated considerations) you come up with rather than the depth of
description you provide.

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 Homework Problem Set #2 Part (b)

2. Gaussian Laminates Company (10 points)

Topics: Linear programming sensitivity analysis, production-transportation.

Difficulty: Medium to high

The Gaussian Laminates company operates three plants, designated A, B, and C, to

manufacture a laminate covering for kitchen counter-tops. The capacities (in thousands of sq.ft.)
and unit manufacturing costs (in dollars per thousand sq.ft.) of these plants are shown below:

Plant Capacity Unit mfg. cost

A 2,000 $25.50
B 3,000 $24.90
C 2,500 $25.30

The product is distributed within four marketing regions. Their requirements (in thousands of
sq.ft.) for the next year are shown below:

Region 1 Region 2 Region 3 Region 4

2,100 900 2,400 900

The shipping costs per thousand sq.ft. from the plants to the marketing regions are shown
below:
From to Region 1 to Region 2 to Region 3 to Region 4
Plant A $1.50 $2.10 $4.20 $3.75
Plant B $2.35 $3.55 $2.10 $2.85
Plant C $4.20 $3.10 $0.90 $1.70

The company wants to determine the quantities of laminate it should ship from each plant to
each marketing region in order to minimize the total manufacturing and transportation cost for the
year. The following LP model and its implementation in Excel are used to solve the problem. All
quantities are in thousands of sq.ft.

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 Homework Problem Set #2 Part (b)

LP Formulation:

Let cij denote the unit cost of manufacturing and shipping a unit (1,000 sq.ft.) of laminate from
plant i to marketing region j. For instance, cB3 is $24.90 + $2.10 = $27.00. Let Ki denote the annual
capacity at plant i and Dj denote the annual requirement at marketing region j. The decision
variables are:
xij = number of units of laminate to be produced at plant i for shipment to marketing region j.

C 4
min   c ij x ij (i.e., min cA1xA1 + cA2xA2 + ... + cC3xC3 + cC4xC4)
i  A j 1

s.t.
4
 x ij  K i i = A, B, C (Plant capacity) (e.g., xA1+ xA2+ xA3 + xA4  KA)
j 1
C
 x ij  D j j = 1, 2, 3, 4 (Demand req.) (e.g., xA2 + xB2 + xC2  D2)
i A
xij  0 for all i, j (nonnegativity)

Spreadsheet Solution

A B C D E F G H
1 gaussian.xls GAUSSIAN LAMINATES PROBLEM
2 Decision Models & Optimization
3 Homework #2 Total Cost
4 169,570
5 Shipment Quantity to to to to
6 Region 1 Region 2 Region 3 Region 4 Prodn Qty Capacity
7 from Plant A 1,100 900 0 0 2,000 <= 2,000
8 from Plant B 1,000 0 0 800 1,800 <= 3,000
9 from Plant C 0 0 2,400 100 2,500 <= 2,500
10 Total shipment 2,100 900 2,400 900
11 >= >= >= >=
12 Demand reqmts 2,100 900 2,400 900
13
14
15 Unit Transportation Cost from Unit Manufacturing
16 to Region 1 Region 2 Region 3 Region 4 Cost
17 from Plant A $1.50 $2.10 $4.20 $3.75 Plant A $25.50
18 Plant B $2.35 $3.55 $2.10 $2.85 Plant B $24.90
19 Plant C $4.20 $3.10 $0.90 $1.70 Plant C $25.30
20
21 Delivered Cost from
22 to Region 1 Region 2 Region 3 Region 4
23 from Plant A $27.00 $27.60 $29.70 $29.25
24 Plant B $27.25 $28.45 $27.00 $27.75
25 Plant C $29.50 $28.40 $26.20 $27.00

Decision variables: are in block B7:E9.

Objective Function: in cell F4 contains =sumproduct(B7:E9,B23:E25)
Constraints: left hand sides of capacity constraints are in block F7:F9; left hand sides of demand con-
straints are in block B10:E10.

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 Homework Problem Set #2 Part (b)

Sensitivity Report:

Changing Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$7 from Plant A to Region 1 1,100 0.00 27.00 0.25 0.6
$C$7 from Plant A to Region 2 900 0.00 27.60 0.6 27.85
$D$7 from Plant A to Region 3 0 3.00 29.70 1E+30 3
$E$7 from Plant A to Region 4 0 1.75 29.25 1E+30 1.75
$B$8 from Plant B to Region 1 1,000 0.00 27.25 0.6 0.25
$C$8 from Plant B to Region 2 0 0.60 28.45 1E+30 0.6
$D$8 from Plant B to Region 3 0 0.05 27.00 1E+30 0.05
$E$8 from Plant B to Region 4 800 0.00 27.75 0.05 0.75
$B$9 from Plant C to Region 1 0 3.00 29.50 1E+30 3
$C$9 from Plant C to Region 2 0 1.30 28.40 1E+30 1.3
$D$9 from Plant C to Region 3 2,400 0.00 26.20 0.05 26.95
$E$9 from Plant C to Region 4 100 0.00 27.00 0.75 0.05

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$F$7 from Plant A Production Qty 2,000 -0.25 2000 1000 1100
$F$8 from Plant B Production Qty 1,800 0.00 3000 1E+30 1200
$F$9 from Plant C Production Qty 2,500 -0.75 2500 800 100
$B$10 Total shipment to Region 1 2,100 27.25 2100 1200 1000
$C$10 Total shipment to Region 2 900 27.85 900 1100 900
$D$10 Total shipment to Region 3 2,400 26.95 2400 100 800
$E$10 Total shipment to Region 4 900 27.75 900 1200 800

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 Homework Problem Set #2 Part (b)

Use the spreadsheet solution and sensitivity report shown on the previous two pages to answer
each of the following questions. Each of the questions refers to the original problem formulation
and solution. The questions are not cumulative; i.e., they are to be considered independent of
each other.

Please note that the questions should be answered using only the printouts of the solution and
sensitivity-analysis that are included on the previous pages. You should not run various versions
of the LP to determine the answers.

a) Consider the effect of losing 100 units of production capacity at Plant A.

 Would it affect the total operating cost? If so, by how much? How do you know?
 Would the production and shipping plan change?

b) Consider the effect of a 50-cent increase in the unit transportation cost between Plant A and
Region 2.
 How would this increase affect the total operating cost? If so, by how much?
 Would the production and shipping plan change?

c) The demand requirements used in the model correspond to contracts for which prices and
quantities have long been settled and are not negotiable. As you are preparing a production
and shipping plan, the marketing department approaches you with a potential new contract
for 80 units to be shipped to Region 1 at a delivered price (Gaussian’s revenue) of $27.50 per
unit. Would additional revenue cover the associated manufacturing and transportation costs?
How do you know? Be specific in your reasoning.
d) The strategic planning department is considering the option of increasing the capacity of one
of its plants by the addition of an extra production line. Two types of lines are available: A
small line has a capacity of 500 units and involves a yearly fixed cost of $400. A large line has
a capacity of 800 units and involves a fixed cost of $550. Unit manufacturing costs would not
change; they would depend on the location as given in the first table.
 Should capacity be increased by the addition of one line?
 If so, which of the two types of lines is more attractive to Gaussian, and in which plant
should it be installed?
 Why do these choices represent the best option for Gaussian? Be specific in your
reasoning.

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 Homework Problem Set #2 Part (b)

3. A Staffing Problem (10 points)

Topic: Staff scheduling problem, multi-period “production”, LP formulation

Difficulty: medium to high

South Central Utilities has just announced the August 1st opening of its second nuclear generator
at its Baton Rouge, Louisiana, nuclear power plant. Its personnel department has been directed
to determine how many nuclear technicians need to be hired and trained over the remainder of
the year.

The plant currently employs 350 fully trained technicians and projects the following manpower
needs:

Month Labor Needed (in hours)

August 40,000
September 45,000
October 35,000
November 50,000
December 45,000

By Louisiana law, a reactor employee can actually work no more than 130 hours per month.
(Slightly over one hour per day is used for check-in and check-out record keeping and for daily
radiation health scans.) Policy at South Central Utilities also dictates that layoffs are not
acceptable in those months when the nuclear plant is overstaffed. So, if more trained employees
are available than are needed in any month, each worker is still fully paid, even though he or she
is not required to work the 130 hours. Training new employees is an important and costly
procedure. It takes one month of one-on-one classroom instruction before a new technician is
permitted to work alone in the reactor facility. Therefore, South Central must hire trainees one
month before they are actually needed. Each trainee teams up with a skilled nuclear technician
and requires 90 hours of that employee’s time, meaning that 90 hours less of the technician’s
time are available that month for actual reactor work.

Personnel department records indicate a turnover rate of trained technicians at 5 percent per
month. In other words, about 5 percent of the skilled employees at the start of any month resign
by the end of that month.

A trained technician earns an average monthly salary of $5,000 (regardless of the number of
hours worked, as noted earlier). Trainees are paid $3,000 during their one month of instruction.

Formulate a linear program to minimize total salaries paid and meet all the constraints.

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