Introduction To Quantitative Analysis

Chapter 1
Introduction to Quantitative
Analysis
Chapter Outline
1.1 Introduction
1.2 What Is Quantitative Analysis?
1.3 The Quantitative Analysis Approach
1.4 How to Develop a Quantitative Analysis Model
1.5 Possible Problems in the Quantitative Analysis
Approach
1.6 Implementation
1-2
Introduction
• Mathematical tools have been used for

thousands of years.
• Quantitative analysis can be applied to a wide
variety of problems.
– It’s not enough to just know the mathematics of a
technique.
– One must understand the specific applicability of
the technique, its limitations, and its assumptions.
1-3
What is Quantitative Analysis?
Quantitative analysis is a scientific approach to managerial
decision making in which raw data are processed and
manipulated to produce meaningful information.
• uses a scientific approach to decision making
• Whim, emotions, and guesswork are not part of the
quantitative analysis approach
Quantitative Meaningful
Raw Data
Analysis Information
1-4
What is Quantitative Analysis?
• Quantitative factors are data that can be accurately

calculated.
• Examples include:
– Different investment alternatives
– Interest rates
– Inventory levels
– Demand
– Labor cost
• Qualitative factors are more difficult to quantify but
affect the decision process.
• Examples include:
– The weather
– State and federal legislation
– Technological breakthroughs.
1-5
The Quantitative Analysis Approach
Defining the Problem
Developing a Model
Acquiring Input Data
Developing a Solution
Testing the Solution
Analyzing the Results
Implementing the Results

1-6
Defining the Problem
Develop a clear and concise statement that gives
direction and meaning to subsequent steps.
– This may be the most important and difficult step.
– It is essential to go beyond symptoms and identify true
causes.
– It may be necessary to concentrate on only a few of the
problems
– selecting the right problems is very important
1-7
Developing a Model
Quantitative analysis models are realistic, solvable,
and understandable mathematical representations
of a situation.
$ Sales
$ Advertising
There are different types of models:
Scale models Schematic

models
1-8
Models generally contain variables and parameters.
– variables are the decision variables and are generally
unknown.
• How many items should be ordered for inventory?
– Parameters are known quantities that are a part of the
model.
• What is the holding cost of the inventory?
1-9
Acquiring Input Data
Input data must be accurate – GIGO rule:
Garbage In
Process
Garbage Out
Data may come from a variety of sources such as company reports, company
documents, interviews, on-site direct measurement, or statistical sampling.
1-10
Developing a Solution
The best (optimal) solution to a problem is found
by manipulating the model variables until a
solution is found that is practical and can be
implemented.
Common techniques are
– Solving equations.
– Trial and error – trying various approaches and
picking the best result.
– Complete enumeration – trying all possible values.
– Using an algorithm – a series of repeating steps to
reach a solution.
1-11
Testing the Solution
Both input data and the model should be tested for
accuracy before analysis and implementation.
– New data can be collected to test the model.
– Results should be logical, consistent, and represent the
real situation.
1-12
Analyzing the Results
Determine the implications of the solution:
– Implementing results often requires change in an
organization.
– The impact of actions or changes needs to be studied
and understood before implementation.
Sensitivity analysis determines how much the
results will change if the model or input data
changes.
 Sensitive models should be very thoroughly tested.
1-13
Implementing the Results
Implementation incorporates the solution into the
company.
– Implementation can be very difficult.
– People may be resistant to changes.
– Many quantitative analysis efforts have failed
because a good, workable solution was not properly
implemented.
Changes occur over time, so even successful

implementations must be monitored to determine
if modifications are necessary.
1-14
MODELING IN THE REAL WORLD
Quantitative analysis models are used
extensively by real organizations to solve real
problems.
– In the real world, quantitative analysis
models can be complex, expensive, and
difficult to sell.
– Following the steps in the process is an
important component of success.
1-15
How To Develop a Quantitative Analysis Model
A mathematical model of profit:
Profit = Revenue – Expenses
1-16
How To Develop a Quantitative Analysis Model
Expenses can be represented as the sum of fixed and variable costs.
Variable costs are the product of unit costs times the number of units.
Profit = Revenue – (Fixed cost + Variable cost)
Profit = (Selling price per unit)(number of units sold) – [Fixed cost +

(Variable costs per unit)(Number of units sold)]
Profit = sX – [f + vX]
Profit = sX – f – vX
where
s = selling price per unit v = variable cost per unit
f = fixed cost X = number of units sold
1-17
Example
The company buys, sells, and repairs old clocks. Rebuilt springs sell for $10 per
unit. Fixed cost of equipment to build springs is $1,000. Variable cost for spring
material is $5 per unit.
s = 10 f = 1,000 v=5
Number of spring sets sold = X
Profits = sX – f – vX
If sales = 0, profits = -f = –$1,000.

If sales = 1,000, profits = [(10)(1,000) – 1,000 – (5)(1,000)]
= $4,000
1-18
Example
Companies are often interested in the break-even point (BEP). The BEP is the
number of units sold that will result in $0 profit.
0 = sX – f – vX, or 0 = (s – v)X – f
Solving for X, we have
f = (s – v)X
f
X= s–v
Fixed cost
BEP =
(Selling price per unit) – (Variable cost per unit)
1-19
Example
Companies are often interested in their break-even point (BEP). The BEP is the
BEP for this example
number of units sold that will result in $0 profit.
BEP = $1,000/($10 – $5) = 200 units

0 = sX – f – vX, or 0 = (s – v)X – f
Solvingoffor
Sales less we have
X, than 200 units of rebuilt springs will result in a loss.
f = (s springs
Sales of over 200 units of rebuilt – v)X will result in a profit.
f
X= s–v
1-20
Advantages of Mathematical Modeling
1. Models can accurately represent reality.
2. Models can help a decision maker formulate
problems.
3. Models can give us insight and information.
4. Models can save time and money in decision
making and problem solving.
5. A model may be the only way to solve large or
complex problems in a timely fashion.
6. A model can be used to communicate problems
and solutions to others.
1-21
Models Categorized by Risk
• Mathematical models that do not involve
risk are called deterministic models.
– All of the values used in the model are
known with complete certainty.
• Mathematical models that involve risk,
chance, or uncertainty are called
probabilistic models.
– Values used in the model are estimates
based on probabilities.
1-22
Chapter 2
Linear Programming Models:
Graphical and Computer Methods

Chapter Outline
2.1 Introduction
2.2 Requirements of a Linear Programming Problem
2.3 Formulating LP Problems
2.4 Graphical Solution to an LP Problem
2.5 Solving ABC Furniture’s LP Problem using QM in
Excel
2.6 Solving Minimization Problems
2.7 Four Special Cases in LP
2.8 Sensitivity Analysis
2-24
Introduction
• Many management decisions involve trying to
make the most effective use of limited resources.
• Linear programming (LP) is a widely used
mathematical modeling technique designed to
help managers in planning and decision making
relative to resource allocation.
– This belongs to the broader field of
mathematical programming.
– In this sense, programming refers to modeling
and solving a problem mathematically.
2-25
Requirements of a Linear
Programming Problem
• All LP problems have 4 properties in common:
1. All problems seek to maximize or minimize
some quantity (the OBJECTIVE FUNCTION).
2. Restrictions or CONSTRAINTS that limit the
degree to which we can pursue our objective
are present.
3. There must be alternative courses of action
from which to choose.
4. The objective and constraints in problems
must be expressed in terms of LINEAR
equations or inequalities.
2-26
Basic Assumptions of LP
• We assume conditions of certainty exist and
– numbers in the objective and constraints are known with
certainty and
– do not change during the period being studied.
• We assume proportionality exists in the objective and
constraints.
• We assume additively in that the total of all activities
equals the sum of the individual activities.
• We assume divisibility in that solutions need not be
whole numbers.
• All answers or variables are nonnegative.
2-27
LP Properties and Assumptions
PROPERTIES OF LINEAR PROGRAMS

1. One objective function
2. One or more constraints
3. Alternative courses of action
4. Objective function and constraints are linear
– proportionality and divisibility
5. Certainty
6. Divisibility
7. Nonnegative variables
2-28
FORMULATING LP PROBLEMS
• Formulating a linear program involves developing a
mathematical model to represent the managerial problem.
• The steps in formulating a linear program are:
1. Completely understand the managerial problem being
faced.
2. Identify the objective and the constraints.
3. Define the decision variables.
4. Use the decision variables to write mathematical
expressions for the objective function and the
constraints.
2-29
Formulating LP Problems(Example)
• One of the most common LP applications is the
product mix problem.
• Two or more products are produced using limited
resources such as personnel, machines, and raw
materials.
• The profit that the firm seeks to maximize is based on
the profit contribution per unit of each product.
• The company would like to determine how many
units of each product it should produce so as to
maximize overall profit given its limited resources.
2-30
ABC Furniture Company(Example)
 The ABC Furniture Company produces inexpensive TABLES
and CHAIRS.
 Processes are similar in that both require a certain amount of
hours of CARPENTRY WORK and in the PAINTING AND
VARNISHING DEPARTMENT.
 Each TABLE takes 4 hours of carpentry and
2 hours of painting and varnishing.
 Each CHAIR requires 3 of carpentry and
1 hour of painting and varnishing.
 There are
 240 hours of carpentry time and
 100 hours of painting and varnishing time available.
 Each TABLE yields a profit of $70 and each CHAIR a profit of
$50.
2-31
ABC Furniture Company Data
The company wants to determine the best
combination of tables and chairs to produce
to reach the maximum profit.
HOURS REQUIRED TO
PRODUCE 1 UNIT
(T) (C) AVAILABLE HOURS
DEPARTMENT TABLES CHAIRS THIS WEEK
Carpentry 4 3 240
Painting and varnishing 2 1 100
Profit per unit $70 $50
2-32
ABC Furniture Company
 The objective is to:
Maximize profit
 The constraints are:
1. The hours of carpentry time used cannot
exceed 240 hours per week.
2. The hours of painting and varnishing time used
cannot exceed 100 hours per week.
 The decision variables representing the actual
decisions we will make are:
T = number of tables to be produced per week.
C = number of chairs to be produced per week.
2-33
 We create the LP objective function in terms of T and C:

Maximize profit = $70T + $50C
 Develop mathematical relationships for the two
constraints:
 For carpentry, total time used is:
(4 hours per table)(Number of tables produced)
+ (3 hours per chair)(Number of chairs produced).
 We know that:
Carpentry time used ≤ Carpentry time available.
4T + 3C ≤ 240 (hours of carpentry time)
2-34
 Similarly,
Painting and varnishing time used
≤ Painting and varnishing time available.
2 T + 1C ≤ 100 (hours of painting and varnishing time)
This means that each table produced requires two hours of

painting and varnishing time.
 Both of these constraints restrict production capacity and affect total profit.
2-35
The values for T and C must be nonnegative.
T ≥ 0 (number of tables produced is greater than or equal

to 0)
C ≥ 0 (number of chairs produced is greater than or
equal to 0)
The complete problem stated mathematically:

subject to
4T + 3C ≤ 240 (carpentry constraint)

2T + 1C ≤ 100 (painting and varnishing constraint)
T, C ≥ 0 (nonnegativity constraint)
2-36
GRAPHICAL SOLUTION to LP Problem
 The easiest way to solve a small LP problems is

graphically.
 The graphical method only works when there are
just two decision variables.
 When there are more than two variables, a more
complex approach is needed as it is not possible to
plot the solution on a two-dimensional graph.
 The graphical method provides valuable insight
into how other approaches work.
2-37
Graphical Representation of a Constraint
Quadrant Containing All Positive Values

C
100 –
– This Axis Represents the Constraint T ≥ 0
80 –
Number of Chairs
–
60 –
–
40 –
This Axis Represents the
– Constraint C ≥ 0
20 –
–
|– | | | | | | | | | | |
0 20 40 60 80 100 T
Number of Tables
2-38
• The first step in solving the problem is to identify a

set or region of feasible solutions.
• To do this we plot each constraint equation on a
graph.
• We start by graphing the equality portion of the
constraint equations:
4T + 3C = 240
• We solve for the axis intercepts and draw the line.
2-39
• When ABC company produces no tables, the

carpentry constraint is:
4(0) + 3C = 240
3C = 240
C = 80
• Similarly for no chairs:
4T + 3(0) = 240
4T = 240
T = 60
• This line is shown on the following graph:
2-40
Graph of carpentry constraint equation
100 –
–
80 – (T = 0, C = 80)
Number of Chairs
–
60 –
–
40 –
–
(T = 60, C = 0)
20 –
–
|– | | | | | | | | | | |
0 20 40 60 80 100 T
2-41 Number of Tables
Region that Satisfies the Carpentry Constraint
C
 Any point on or below the
100 – constraint plot will not
– violate the restriction.
80 –  Any point above the plot
will violate the restriction.
Number of Chairs
–
60 –
–
(30, 40) (70, 40)
40 –
–
20 –
– (30, 20)
|– | | | | | | | | | | |
0 20 40 60 80 100 T
Number of Tables
2-42
• The point (30, 40) lies on the plot and exactly

satisfies the constraint
4(30) + 3(40) = 240.
• The point (30, 20) lies below the plot and satisfies
the constraint
4(30) + 3(20) = 180.
• The point (70, 40) lies above the plot and does
not satisfy the constraint
4(70) + 3(40) = 400.
2-43
Region that Satisfies the Painting and Varnishing Constraint
100 – (T = 0, C = 100)
–
80 –
Number of Chairs
–
60 –
–
40 –
–
(T = 50, C = 0)
20 –
–
|– | | | | | | | | | | |
0 20 40 60 80 100 T
• To produce tables and chairs, both departments must

be used.
• We need to find a solution that satisfies both
constraints simultaneously.
• A new graph shows both constraint plots.
• The feasible region (or area of feasible solutions) is
where all constraints are satisfied.
• Any point inside this region is a feasible solution.
• Any point outside the region is an infeasible solution.
2-45
Feasible Solution Region for the ABC Furniture Company
Problem
C
100 –
–
80 – Painting/Varnishing Constraint
Number of Chairs
–
60 –
–
40 –
–
Carpentry Constraint
20 – Feasible
–
Region
|– | | | | | | | | | | |
0 20 40 60 80 100 T
Number of Tables
2-46
• For the point (30, 20)

Carpentry 4T + 3C ≤ 240 hours available

constraint (4)(30) + (3)(20) = 180 hours used
Painting 2T + 1C ≤ 100 hours available 
 For the point (70, 40)

constraint (4)(70) + (3)(40) = 400 hours used 
Painting 2T + 1C ≤ 100 hours available
2-47
• For the point (50, 5)


Painting 2T + 1C ≤ 100 hours available

2-48
ISOPROFIT LINE Solution Method
• Once the feasible region has been graphed, we need to
find the optimal solution from the many possible solutions.
• The speediest way to do this is to use the isoprofit line
method.
• Starting with a small but possible profit value, we graph the
objective function.
• We move the objective function line in the direction of
increasing profit while maintaining the slope.
• The last point it touches in the feasible region is the
optimal solution.
2-49
Isoprofit Line Solution Method
• For ABC Furniture, choose a profit of $2,100.
• The objective function is then
$2,100 = 70T + 50C
• Solving for the axis intercepts, we can draw the graph.
• This is obviously not the best possible solution.
• Further graphs can be created using larger profits.
• The further we move from the origin, the larger the profit
will be.
• The highest profit ($4,100) will be generated when the
isoprofit line passes through the point (30, 40).
2-50
Profit line of $2,100 Plotted for the ABC Furniture Company
100 –
–
80 –
Number of Chairs
–
60 –
– $2,100 = $70T + $50C
(0, 42)
40 –
–
(30, 0)
20 –
–
|– | | | | | | | | | | |
0 20 40 60 80 100 T
Four Isoprofit Lines Plotted for ABC Furniture Company
100 –
–
$3,500 = $70T + $50C
80 –
Number of Chairs
– $2,800 = $70T + $50C

60 –
– $2,100 = $70T + $50C
40 –
– $4,200 = $70T + $50C
20 –
–
|– | | | | | | | | | | |
0 20 40 60 80 100 T
Optimal Solution to ABC Furniture problem
100 –
–
80 –
Maximum Profit Line
Number of Chairs
–
60 – Optimal Solution Point
– (T = 30, C = 40)
40 –
– $4,100 = $70T + $50C
20 –
–
|– | | | | | | | | | | |
0 20 40 60 80 100 T
CORNER POINT Solution Method
• A second approach to solving LP problems
employs the corner point method.
• It involves looking at the profit at every corner
point of the feasible region.
• The mathematical theory behind LP is that the
optimal solution must lie at one of the corner
points, or extreme point, in the feasible region.
• For ABC Furniture, the feasible region is a four-
sided polygon with four corner points labeled 1, 2,
3, and 4 on the graph.
2-54
Corner Point Solution Method
Four Corner Points of the Feasible Region
100 –
2 –
80 –
Number of Chairs
–
60 –
–
3
40 –
–
20 –
–
1 |– | | | | | | | | | | |
0 20 40 60 80 100 T
4
2-55
Number of Tables
 To find the coordinates for Point 3 accurately we have to solve
for the intersection of the two constraint lines.
 Using the simultaneous equations method, we multiply the
painting equation by –2 and add it to the carpentry equation
4T + 3C = 240 (carpentry line)
– 4T – 2C = –200 (painting line)
C= 40
 Substituting 40 for C in either of the original equations allows us to

determine the value of T.
4T + (3)(40) = 240 (carpentry line)
4T + 120 = 240
T= 30
2-56
Point 1 : (T = 0, C = 0) Profit = $70(0) + $50(0) = $0
Point 2 : (T = 0, C = 80) Profit = $70(0) + $50(80) = $4,000
Point 4 : (T = 50, C = 0) Profit = $70(50) + $50(0) = $3,500
Point 3 : (T = 30, C = 40) Profit = $70(30) + $50(40) = $4,100
Because Point 3 returns the highest profit,

this is the optimal solution.
2-57
Summary of Graphical Solution Methods
ISOPROFIT METHOD
1. Graph all constraints and find the feasible region.

2. Select a specific profit (or cost) line and graph it to find the slope.
3. Move the objective function line in the direction of increasing profit (or decreasing
cost) while maintaining the slope. The last point it touches in the feasible region is
the optimal solution.
4. Find the values of the decision variables at this last point and compute the profit
(or cost).
CORNER POINT METHOD
1. Graph all constraints and find the feasible region.
2. Find the corner points of the feasible reason.
3. Compute the profit (or cost) at each of the feasible corner points.
4. Select the corner point with the best value of the objective function found in Step
3. This is the optimal solution.
2-58
Solving ABC Furniture’s LP Problem
Using QM for Windows and Excel
• Most organizations have access to software to solve
big LP problems.
• While there are differences between software
implementations, the approach each takes towards
handling LP is basically the same.
• Once you are experienced in dealing with
computerized LP algorithms, you can easily adjust to
minor changes.
259
Using QM for Windows
 First select the Linear Programming

module.
 Specify the number of constraints (non-
negativity is assumed).
 Specify the number of decision variables.
 Specify whether the objective is to be
maximized or minimized.
 For ABC Furniture problem there are two
constraints, two decision variables, and the
objective is to maximize profit.
2-60
QM for Windows Linear Programming Computer

screen for Input of Data
2-61
QM for Windows Data Input for ABC

Furniture Problem
2-62
QM for Windows Output for ABC Furniture Problem
2-63
QM for Windows Graphical Output for ABC Furniture Problem
2-64
Using Excel’s Solver Command to Solve LP
Problems
 The Solver tool in Excel can be used to

find solutions to:
 LP problems.
 Integer programming problems.
 Noninteger programming problems.
 Solver is limited to 200 variables and
100 constraints.
2-65
Using Solver to Solve the ABC Furniture Problem
 Recall the model for ABC Furniture is:

Subject to 4T + 3C ≤ 240
2T + 1C ≤ 100
 To use Solver, it is necessary to enter
formulas based on the initial model.
2-66
1. Enter the variable names, the coefficients

for the objective function and constraints,
and the right-hand-side values for each of
the constraints.
2. Designate specific cells for the values of the
decision variables.
3. Write a formula to calculate the value of
the objective function.
4. Write a formula to compute the left-hand
sides of each of the constraints.
2-67
Excel Data Input for the ABC Furniture Example
2-68
Formulas for the ABC Furniture Example
2-69
Excel Spreadsheet for the ABC Furniture Example
2-70
 Once the model has been entered, the following

steps can be used to solve the problem.
1. In the Set Objective box, enter the cell

address for the total profit.
2. In the By Changing Cells box, enter the
cell addresses for the variable values.
3. Click Max for a maximization problem
and Min for a minimization problem.
2-71
Using Solver to Solve the ABC
Furniture Problem
4. Check the box for Make Unconstrained Variables
Non-negative.
5. Click the Select Solving Method button and select
Simplex LP from the menu that appears.
6. Click Add to add the constraints.
7. In the dialog box that appears, enter the cell
references for the left-hand-side values, the type
of equation, and the right-hand-side values.
8. Click Solve.
2-72
Furniture Problem
Starting Solver
2-73
Using Solver to Solve ABC Furniture
Problem
Solver Parameters
Dialog Box
2-74
Using Solver to Solve ABC Furniture
Problem
Solver Add Constraint Dialog Box
2-75
Furniture Problem
Solver Results Dialog Box
2-76
Furniture Problem
Solution Found by Solver
2-77
Solving Minimization Problems
• Many LP problems involve minimizing an objective
such as cost instead of maximizing a profit
function.
• Minimization problems can be solved graphically
by first setting up the feasible solution region and
then using either the corner point method or an
isocost line approach (which is analogous to the
isoprofit approach in maximization problems) to
find the values of the decision variables (e.g., X1
and X2) that yield the minimum cost.
2-78
Holiday Meal Turkey Ranch
The Holiday Meal Turkey Ranch is considering buying two
different brands of turkey feed and blending them to provide
a good, low-cost diet for its turkeys
Let
X1 = number of pounds of brand 1 feed purchased
X2 = number of pounds of brand 2 feed purchased
Minimize cost (in cents) = 2X1 + 3X2
subject to:
5X1+ 10X2 ≥ 90 ounces (ingredient constraint A)
4X1 + 3X2 ≥ 48 ounces (ingredient constraint B)
0.5X1 ≥ 1.5 ounces (ingredient constraint C)
X1 ≥ 0 (nonnegativity constraint)
X2 ≥ 0 (nonnegativity constraint)
2-79
Holiday Meal Turkey Ranch data
COMPOSITION OF EACH POUND

OF FEED (OZ.) MINIMUM MONTHLY
REQUIREMENT PER
INGREDIENT BRAND 1 FEED BRAND 2 FEED TURKEY (OZ.)
A 5 10 90
B 4 3 48
C 0.5 0 1.5
Cost per pound 2 cents 3 cents
2-80
• Use the corner point method.

• First construct the feasible solution
region.
• The optimal solution will lie at one
of the corners as it would in a
maximization problem.
2-81
Feasible Region for the Holiday Meal Turkey
Ranch Problem
X2
–
20 –
Ingredient C Constraint
Pounds of Brand 2
15 –
Feasible Region
a
10 –
Ingredient B Constraint
5–
b Ingredient A Constraint
0|– | | | c | |
5 10 15 20 25 X1
Pounds of Brand 1
2-82
• Solve for the values of the three corner points.
• Point a is the intersection of ingredient constraints C and B.
4X1 + 3X2 = 48
X1 = 3
• Substituting 3 in the first equation, we find X2 = 12.
• Solving for point b with basic algebra we find X1 = 8.4 and
X2 = 4.8.
• Solving for point c we find X1 = 18 and X2 = 0.
2-83
Substituting these value back into the objective
function we find
Cost = 2X1 + 3X2
Cost at point a = 2(3) + 3(12) = 42
Cost at point b = 2(8.4) + 3(4.8) = 31.2
Cost at point c = 2(18) + 3(0) = 36
The lowest cost solution is to purchase 8.4 pounds of

brand 1 feed and 4.8 pounds of brand 2 feed for a
total cost of 31.2 cents per turkey.
2-84
Graphical Solution to the Holiday Meal Turkey Ranch Problem
Using the Isocost Approach
X2
–
Feasible Region
20 –
Pounds of Brand 2
15 –
10 –
5–
(X1 = 8.4, X2 = 4.8)

0|– | | | | |
5 10 15 20 25 X1
2-85
Pounds of Brand 1
Solving the Holiday Meal Turkey Ranch Problem
2-86
Excel 2010 Spreadsheet for the Holiday Meal Turkey Ranch
problem
2-87
Excel 2010 Solution to the Holiday Meal Turkey Ranch
Problem
2-88
Special Cases in LP
• Four special cases and difficulties arise
at times when using the graphical
approach to solving LP problems.
– No feasible solution
– Unboundedness
– Redundancy
– Alternate Optimal Solutions
2-89
Four Special Cases in LP
No feasible solution
– This exists when there is no solution to
the problem that satisfies all the
constraint equations.
– No feasible solution region exists.
– This is a common occurrence in the real
world.
– Generally one or more constraints are
relaxed until a solution is found.
2-90
A problem with no feasible solution
X2
8–
–
6–
–
Region Satisfying
4– Third Constraint
–
2–
–
0– | | | | | | | | | |
2 4 6 8 X1
Region Satisfying First Two Constraints
2-91
Unboundedness
– Sometimes a linear program will not have a finite
solution.
– In a maximization problem, one or more solution
variables, and the profit, can be made infinitely
large without violating any constraints.
– In a graphical solution, the feasible region will be
open ended.
– This usually means the problem has been
formulated improperly.
2-92
A Feasible Region That is Unbounded to the Right
X2
X1 ≥ 5
15 –
X2 ≤ 10
10 –
Feasible Region
5–
X1 + 2X2 ≥ 15
0 |– | | | |
5 10 15 X1
2-93
Redundancy
– A redundant constraint is one that does not affect the
feasible solution region.
– One or more constraints may be binding.
– This is a very common occurrence in the real world.
– It causes no particular problems, but eliminating
redundant constraints simplifies the model.
2-94
Problem with a Redundant Constraint
X2
30 –
25 –
2X1 + X2 ≤ 30
20 –
Redundant
Constraint
15 –
X1 ≤ 25
10 –
X1 + X2 ≤ 20
Feasible
5–
Region
0– | | | | | |
5 10 15 20 25 30 X1
2-95
Alternate Optimal Solutions
– Occasionally two or more optimal solutions may exist.
– Graphically this occurs when the objective function’s
isoprofit or isocost line runs perfectly parallel to one of
the constraints.
– This actually allows management great flexibility in
deciding which combination to select as the profit is
the same at each alternate solution.
2-96
Example of Alternate Optimal Solutions
X2
8–
7–
6 –A
Optimal Solution Consists of All
5– Combinations of X1 and X2 Along the AB
Segment
4–
3– Isoprofit Line for $8
2–
B Isoprofit Line for $12 Overlays
1 – Feasible Line Segment AB
Region
0– | | | | | | | |
1 2 3 4 5 6 7 8 X1
2-97
Sensitivity Analysis
• Optimal solutions to LP problems thus far have been found
under what are called deterministic assumptions.
• This means that we assume complete certainty in the data
and relationships of a problem.
• But in the real world, conditions are dynamic and
changing.
• We can analyze how sensitive a deterministic solution is to
changes in the assumptions of the model.
• This is called sensitivity analysis, postoptimality analysis,
parametric programming, or optimality analysis.
2-98
Sensitivity Analysis
• Sensitivity analysis often involves a series of WHAT-IF?
questions concerning constraints, variable coefficients,
and the objective function.
• One way to do this is the trial-and-error method
where values are changed and the entire model is
resolved.
• The preferred way is to use an analytic postoptimality
analysis.
• After a problem has been solved, we determine a
range of changes in problem parameters that will not
affect the optimal solution or change the variables in
the solution. 2-99
High Note Sound Company
• The High Note Sound Company manufactures quality CD
players and stereo receivers.
• Products require a certain amount of skilled artisanship
which is in limited supply.
• The firm has formulated the following product mix LP
model.
Maximize profit = $50X1 + $120X2
Subject to 2X1 + 4X2 ≤ 80 (hours of electrician’s time available)
3X1 + 1X2 ≤ 60 (hours of audio technician’s time
available)
X1, X2 ≥ 0
2-100
High Note Sound Company
The High Note Sound Company Graphical Solution
X2
(receivers)
60 –
– Optimal Solution at Point a

X1 = 0 CD Players
40 – X2 = 20 Receivers
Profits = $2,400
a = (0, 20) –
b = (16, 12)
20 –
Isoprofit Line: $2,400 = 50X1 + 120X2
10 –
0– | | | | | |
10 20 30 40 50 60 X1
c = (20, 0) (CD players)
2-101
Changes in the
Objective Function Coefficient
• In real-life problems, contribution rates in the objective

functions fluctuate periodically.
• Graphically, this means that although the feasible solution
region remains exactly the same, the slope of the isoprofit
or isocost line will change.
• We can often make modest increases or decreases in the
objective function coefficient of any variable without
changing the current optimal corner point.
• We need to know how much an objective function
coefficient can change before the optimal solution would
be at a different corner point.
2-102
Changes in the
Objective Function Coefficient
Changes in the Receiver Contribution Coefficients
X2
40 –
Profit Line for 50X1 + 80X2
(Passes through Point b)
30 –
Old Profit Line for 50X1 + 120X2
(Passes through Point a)
20 –
b
a Profit Line for 50X1 + 150X2
10 – (Passes through Point a)
| |
c | | | |
0–
10 20 30 40 50 60 X1
2-103
QM for Windows and Changes in Objective
Function Coefficients
Input and Sensitivity Analysis for High Note Sound Data Using
QM For Windows
2-104
Excel Solver and Changes in Objective
Excel 2010 Spreadsheet for High Note Sound Company
2-105
Excel Solver and Changes in Objective Function
Coefficients
Excel 2010 Solution and Solver Results Window for High Note Sound Company
2-106
Excel Solver and Changes in Objective
Excel 2010 Sensitivity Report for High Note Sound Company
2-107
Changes in the
Technological Coefficients
• Changes in the technological coefficients often reflect

changes in the state of technology.
• If the amount of resources needed to produce a product
changes, coefficients in the constraint equations will
change.
• This does not change the objective function, but it can
produce a significant change in the shape of the feasible
region.
• This may cause a change in the optimal solution.
2-108
Changes in the
Technological Coefficients
Change in the Technological Coefficients for the High Note
Sound Company
(a) Original Problem (b) Change in Circled (c) Change in Circled
Coefficient Coefficient
X2 X2 X2
60 – 60 – 60 –
3X1 + 1X2 ≤ 60 2 X1 + 1X2 ≤ 60 3X1 + 1X2 ≤ 60

Stereo Receivers
40 – 40 – 40 –
Optimal Still Optimal
Solution Optimal Solution
20 –a 20 –a 20 –
d
b
2X1 + 4X2 ≤ 80 2X1 + 4X2 ≤ 80 16 f g 2X1 + 5 X2 ≤ 80
– |c | | – |e | | | – |c | |
0 20 40 X1 0 20 30 40 X1 0 20 40 X1
CD Players
2-109
Changes in Resources or Right-Hand-
Side Values
• The right-hand-side values of the constraints often

represent resources available to the firm.
• If additional resources were available, a higher
total profit could be realized.
• Sensitivity analysis about resources will help
answer questions about how much should be paid
for additional resources and how much more of a
resource would be useful.
2-110
Side Values
• If the right-hand side of a constraint is changed, the

feasible region will change (unless the constraint is
redundant).
• Often the optimal solution will change.
• The amount of change in the objective function value that
results from a unit change in one of the resources available
is called the dual price or dual value .
• The dual price for a constraint is the improvement in the
objective function value that results from a one-unit
increase in the right-hand side of the constraint.
2-111
Side Values
• However, the amount of possible increase in the right-

hand side of a resource is limited.
• If the number of hours increased beyond the upper bound,
then the objective function would no longer increase by
the dual price.
• There would simply be excess (slack) hours of a resource or
the objective function may change by an amount different
from the dual price.
• The dual price is relevant only within limits.
2-112
Changes in the Electricians’ Time Resource for the High
Note Sound Company
X2 (a)
60 –
40 –
Constraint Representing 60 Hours of Audio
Technician’s Time Resource
a
25 –
20 – b Changed Constraint Representing 100 Hours of
Electrician’s Time Resource
– | c | | |
0 20 40 50 60 X1
2-113
Changes in the Electricians’ Time Resource for the High
Note Sound Company
X2 (b)
60 –
40 –
Constraint Representing 60 Hours of Audio
Technician’s Time Resource
20 – Changed Constraint Representing 60 Hours of

a Electrician’s Time Resource
15 –
b
– c | | | |
0 20 30 40 60 X1
2-114
Changes in the Electricians’ Time Resource for the High Note
Sound Company
X2 (c)
60 –
Changed Constraint Representing 240 Hours of
Electrician’s Time Resource
40 –
Constraint
Representing
20 – 60 Hours of Audio
Technician’s
Time Resource
– | | | | | |
0 20 40 60 80 100 120
X1
2-115
QM for Windows and Changes in Right-Hand-Side
Values
Sensitivity Analysis for High Note Sound Company Using QM
for Windows
2-116
Excel Solver and Changes in Right-Hand-
Side Values
Excel 2010 Sensitivity Analysis for High Note Sound Company
2-117
Chapter 3
Linear Programming Applications

Chapter Outline
3.1 Introduction
3.2 Marketing Applications
3.3 Manufacturing Applications
3.4 Employee Scheduling Applications
3.5 Financial Applications
3.6 Ingredient Blending Applications
3.7 Transportation Applications
3-119
Introduction
• The graphical method of LP is useful for
understanding how to formulate and
solve small LP problems.
• There are many types of problems that
can be solved using LP.
• The principles developed here are
applicable to larger problems.
3-120
Marketing Applications
• Linear programming models have been used in the
advertising field as a decision aid in selecting an
effective media mix.
• Media selection problems can be approached with LP
from two perspectives:
– Maximize AUDIENCE EXPOSURE.
– Minimize ADVERTISING COSTS.
• For instance, consider the case of WIN BIG
GAMBLING CLUB having advertizing budget
• The money is to be allocated among four
promotional media:
– TV spots,
– newspaper ads, and
– two types of radio advertisements.
3-121
Win BIG GAMBLING CLUB
• The WIN BIG GAMBLING Club promotes gambling
junkets to the Bahamas.
• It has $8,000 per week to spend on advertising.
• Its goal is to reach the largest possible high-
potential AUDIENCE.
• MEDIA TYPES and AUDIENCE figures are shown in
the following table.
• It needs to place AT LEAST FIVE radio spots per
week.
• No more than $1,800 can be spent on radio
advertising each week.
3-122
Win Big Gambling Club
Advertising options
AUDIENCE COST PER MAXIMUM ADS

MEDIUM REACHED PER AD AD ($) PER WEEK
TV spot (1 minute) 5,000 800 12
Daily newspaper (full-
8,500 925 5
page ad)
Radio spot (30
2,400 290 25
seconds, prime time)
Radio spot (1 minute,
2,800 380 20
afternoon)
3-123
Win Big Gambling Club
THE PROBLEM FORMULATION IS
X1 = number of 1-minute TV spots each week
X2 = number of daily paper ads each week
X3 = number of 30-second radio spots each week
X4 = number of 1-minute radio spots each week
Objective:
Maximize audience coverage = 5,000X1 + 8,500X2 + 2,400X3 + 2,800X4
Subject to X1 ≤ 12 (max TV spots/wk)
X2 ≤ 5 (max newspaper ads/wk)
X3 ≤ 25 (max 30-sec radio spots ads/wk)
X4 ≤ 20 (max newspaper ads/wk)
800X1 + 925X2 + 290X3 + 380X4 ≤ $8,000 (weekly advertising budget)
X3 + X4 ≥ 5 (min radio spots contracted)
290X3 + 380X4 ≤ $1,800 (max dollars spent on radio)
X1, X2, X3, X4 ≥ 0
3-124
Win Big Gambling Club Solution in
Excel 2010
3-125
Marketing Research
• Linear programming has also been applied to
marketing research problems and the area of
consumer research.
• Statistical pollsters can use LP to help make
strategy decisions.
• For instance consider the research conducted by
Management Sciences Association
3-126
• Management Sciences Associates (MSA) is a marketing
research firm.
• MSA determines that it must fulfill several requirements in
order to draw statistically valid conclusions:
– Survey at least 2,300 U.S. households.
– Survey at least 1,000 households whose heads are 30 years of age
or younger.
– Survey at least 600 households whose heads are between 31 and
50 years of age.
– Ensure that at least 15% of those surveyed live in a state that
borders on Mexico.
– Ensure that no more than 20% of those surveyed who are 51
years of age or over live in a state that borders on Mexico.
3-127
• MSA decides that all surveys should be conducted in
person.
• It estimates the costs of reaching people in each age and
region category are as follows:
COST PER PERSON SURVEYED ($)

REGION AGE ≤ 30 AGE 31-50 AGE ≥ 51
State bordering Mexico $7.50 $6.80 $5.50

State not bordering Mexico $6.90 $7.25 $6.10
3-128
• MSA’s goal is to meet the sampling
requirements at the least possible cost.
• The decision variables are:
X1 = number of 30 or younger and in a border state
X2 = number of 31-50 and in a border state
X3 = number 51 or older and in a border state
X4 = number 30 or younger and not in a border state
X5 = number of 31-50 and not in a border state
X6 = number 51 or older and not in a border state
3-129
Objective function
Minimize total = $7.50X1 + $6.80X2 + $5.50X3
interview costs + $6.90X4 + $7.25X5 + $6.10X6
subject to
X1 + X2 + X3 + X4 + X5 + X6 ≥ 2,300 (total households)
X1 + X4 ≥ 1,000 (households 30 or younger)
X2 + X5 ≥ 600 (households 31-50)
X1 + X2 + X3 ≥ 0.15(X1 + X2+ X3 + X4 + X5 + X6) (border states)
X3 ≤ 0.20(X3 + X6) (limit on age group 51+ who can live in
border state)
X1, X2, X3, X4, X5, X6 ≥ 0
3-130
MSA Solution in Excel 2010
3-131
• The following table summarizes the results of the MSA
analysis.
• It will cost MSA $15,166 to conduct this research.
REGION AGE ≤ 30 AGE 31-50 AGE ≥ 51
State bordering Mexico 0 600 140

State not bordering Mexico 1,000 0 560
3-132
Manufacturing Applications
• Production Mix
– LP can be used to plan the optimal mix of
products to manufacture.
– Company must meet a myriad of
constraints, ranging from financial concerns
to sales demand to material contracts to
union labor demands.
– Its primary goal is to generate the largest
profit possible.
3-133
FIFTH AVENUE INDUSTRIES
• FIFTH AVENUE INDUSTRIES produces four varieties of ties:
– One is expensive all-silk
– One is all-polyester
– Two are polyester and cotton blends
• The table below shows the cost and availability of the
three materials used in the production process:
MATERIAL AVAILABLE PER

MATERIAL COST PER YARD ($) MONTH (YARDS)
Silk 24 1,200
Polyester 6 3,000
Cotton 9 1,600
3-134
• The firm has contracts with several major department
store chains to supply ties.
• Contracts require a minimum number of ties but may be
increased if demand increases.
• Fifth Avenue’s GOAL is to maximize monthly profit given
the following decision variables.
X1 = number of all-silk ties produced per month

X2 = number all-polyester ties
X3 = number of blend 1 polyester-cotton ties
X4 = number of blend 2 silk-cotton ties
3-135
FIFTH AVENUE INDUSTRIES Data
MATERIAL
SELLING MONTHLY REQUIRED
VARIETY PRICE PER TIE CONTRACT MONTHLY PER TIE MATERIAL
OF TIE ($) MINIMUM DEMAND (YARDS) REQUIREMENTS
All silk 19.24 5,000 7,000 0.125 100% silk
All
polyester 8.70 10,000 14,000 0.08 100% polyester
Poly –
50% polyester – 50%
cotton 9.52 13,000 16,000 0.10 cotton
blend 1
Silk-cotton 60% silk - 40%

blend 2 10.64 5,000 8,500 0.11 cotton
3-136
• Fifth Avenue also has to calculate profit per tie for
the objective function.
MATERIAL MATERIAL
SELLING PRICE REQUIRED PER TIE COST PER COST PER TIE PROFIT PER
VARIETY OF TIE PER TIE ($) (YARDS) YARD ($) ($) TIE ($)
All silk $19.24 0.125 $24 $3.00 $16.24
All polyester $8.70 0.08 $6 $0.48 $8.22
Poly-cotton
$9.52 0.05 $6 $0.30
blend 1
0.05 $9 $0.45 $8.77
Silk – cotton
$10.64 0.06 $24 $1.44
blend 2
0.06 $9 $0.54 $8.66

3-137
The complete Fifth Avenue Industries Model
Objective function
Maximize profit = $16.24X1 + $8.22X2 + $8.77X3 + $8.66X4
Subject to 0.125X1+ 0.066X4 ≤ 1200 (yds of silk)
0.08X2 + 0.05X3 ≤ 3,000 (yds of polyester)
0.05X3 + 0.44X4 ≤ 1,600 (yds of cotton)
X1 ≥ 5,000 (contract min for silk)
X1 ≤ 7,000 (contract min)
X2 ≥ 10,000 (contract min for all polyester)
X2 ≤ 14,000 (contract max)
X3 ≥ 13,000 (contract mini for blend 1)
X4 ≥ 5,000 (contract mini for blend 2)
X1, X2, X3, X4 ≥ 0
3-138
Fifth Avenue Solution in Excel 2010
3-139
MANUFACTURING APPLICATIONS
• Production Scheduling
– Setting a low-cost production schedule over a period of
weeks or months is a difficult and important
management task.
– Important factors include labor capacity, inventory and
storage costs, space limitations, product demand, and
labor relations.
– When more than one product is produced, the
scheduling process can be quite complex.
– The problem resembles the product mix model for
each time period in the future.
3-140
Greenberg Motors
• Greenberg Motors, Inc. manufactures two different
electric motors for sale under contract to Drexel Corp.
• Drexel places orders three times a year for four months at
a time.
• Demand varies month to month as shown below.
• Greenberg wants to develop its production plan for the
next four months.
MODEL JANUARY FEBRUARY MARCH APRIL

GM3A 800 700 1,000 1,100
GM3B 1,000 1,200 1,400 1,400
3-141
Greenberg Motors
• Production planning at Greenberg must consider four
factors:
– Desirability of producing the same number of motors
each month to simplify planning and scheduling.
– Necessity to keep inventory carrying costs down.
– Warehouse limitations.
– Its no-lay-off policy.
• LP is a useful tool for creating a minimum total cost
schedule the resolves conflicts between these factors.
3-142
Greenberg Motors
Ai = Number of model GM3A motors produced in month i
(i = 1, 2, 3, 4 for January – April)
Bi = Number of model GM3B motors produced in month i
 It costs $20 to produce a GM3A and $15 to produce a GM3B

 Both costs increase by 10% on March 1, thus
Cost of production = $20A1 + $20A2 + $22A3 + $22A4

+ $15B1 + $15B2 + $16.50B3 + $16.50B4
3-143
Greenberg Motors
• We can use the same approach to create the portion of the objective
function dealing with inventory carrying costs.
IAi= Units of GM3A left in inventory at the end of month i
IBi= Units of GM3B left in inventory at the end of month i
 The carrying cost for GM3A motors is $0.36 per unit per
month and the GM3B costs $0.26 per unit per month.
 Monthly ending inventory levels are used for the average
inventory level.
Cost of carrying inventory = $0.36A1 + $0.36A2 + $0.36A3 + 0.36A4
+ $0.26B1 + $0.26B2 + $0.26B3 + $0.26B4
3-144
Greenberg Motors
We combine these two for the objective function:
Minimize total cost = $20A1 + $20A2 + $22A3 + 22A4
+ $15B1 + $15B2 + $16.50B3 + $16.50B4
+ $0.36IA1 + $0.36IA2 + $0.36IA3 + 0.36IA4
+ $0.26IB1 + $0.26IB2 + $0.26IB3 + $0.26IB4
End of month inventory is calculated using this relationship:

Inventory Sales to
at the end + Current Inventory at Drexel this
month’s – the end of =
of last this month month
month production
3-145
Greenberg Motors
• Greenberg is starting a new four-month production cycle
with a change in design specification that left no old
motors in stock on January 1.
• Given January demand for both motors:
IA1 = 0 + A1 – 800
IB1 = 0 + B1 – 1,000
 Rewritten as January’s constraints:
A1 – IA1 = 800
B1 – IB1 = 1,000
3-146
Greenberg Motors
Constraints for February, March, and April:
A2 + IA1 – IA2 = 700 February GM3A demand
B2 + IB1 – IB2 = 1,200 February GM3B demand
A3 + IA2 – IA3 = 1,000 March GM3A demand
B3 + IB2 – IB3 = 1,400 March GM3B demand
A4 + IA3 – IA4 = 1,100 April GM3A demand
B4 + IB3 – IB4 = 1,400 April GM3B demand
And constraints for April’s ending inventory:

IA4 = 450
IB4 = 300
3-147
Greenberg Motors
• We also need constraints for warehouse space:
IA1 + IB1 ≤ 3,300
IA2 + IB2 ≤ 3,300
IA3 + IB3 ≤ 3,300
IA4 + IB4 ≤ 3,300
 No worker is ever laid off so Greenberg has a base
employment level of 2,240 labor hours per month.
 By adding temporary workers, available labor hours can be
increased to 2,560 hours per month.
 Each GM3A motor requires 1.3 labor hours and each
GM3B requires 0.9 hours.
3-148
Greenberg Motors
Labor hour constraints:
1.3A1 + 0.9B1 ≥ 2,240 (January min hrs/month)
1.3A1 + 0.9B1 ≤ 2,560 (January max hrs/month)
1.3A2 + 0.9B2 ≥ 2,240 (February labor min)
1.3A2 + 0.9B2 ≤ 2,560 (February labor max)
1.3A3 + 0.9B3 ≥ 2,240 (March labor min)
1.3A3 + 0.9B3 ≤ 2,560 (March labor max)
1.3A4 + 0.9B4 ≥ 2,240 (April labor min)
1.3A4 + 0.9B4 ≤ 2,560 (April labor max)
All variables ≥0 Nonnegativity constraints
3-149
Greenberg Motors Solution in Excel 2010
3-150
Greenberg Motors
Solution to Greenberg Motors Problem
PRODUCTION SCHEDULE JANUARY FEBRUARY MARCH APRIL
Units GM3A produced 1,277 223 1,758 792
Units GM3B produced 1,000 2,522 78 1,700
Inventory GM3A carried 477 0 758 450
Inventory GM3B carried 0 1,322 0 300
Labor hours required 2,560 2,560 2,355 2,560
 Total cost for this four month period is $169,294.90.

 Complete model has 16 variables and 22 constraints.
3-151
Employee Scheduling Applications
 Labor Planning
These problems address staffing
needs over a particular time.
They are especially useful when
there is some flexibility in
assigning workers that require
overlapping or interchangeable
talents.
3-152
Hong Kong Bank of Commerce and Industry
 Hong Kong Bank of Commerce and Industry has

requirements for between 10 and 18 tellers depending on
the time of day.
 Lunch time from noon to 2 pm is generally the busiest.
 The bank employs 12 full-time tellers but has many part-
time workers available.
 Part-time workers must put in exactly four hours per day,
can start anytime between 9 am and 1 pm, and are
inexpensive.
 Full-time workers work from 9 am to 3 pm and have 1
hour for lunch.
3-153
Labor requirements for Hong Kong Bank of Commerce and

Industry
TIME PERIOD NUMBER OF TELLERS REQUIRED

9 am – 10 am 10
10 am – 11 am 12
11 am – Noon 14
Noon – 1 pm 16
1 pm – 2 pm 18
2 pm – 3 pm 17
3 pm – 4 pm 15
4 pm – 5 pm 10
3-154
 Part-time hours are limited to a maximum

of 50% of the day’s total requirements.
 Part-timers earn $8 per hour on average.
 Full-timers earn $100 per day on average.
 The bank wants a schedule that will
minimize total personnel costs.
 It will release one or more of its part-time
tellers if it is profitable to do so.
3-155
Let
F = full-time tellers
P1 = part-timers starting at 9 am (leaving at 1 pm)
P4 = part-timers starting at noon (leaving at 4 pm)
P5 = part-timers starting at 1 pm (leaving at 5 pm)
3-156
Objective:
Minimize total daily
personnel cost = $100F + $32(P1 + P2 + P3 + P4 + P5)
subject to:
F + P1 ≥ 10 (9 am – 10 am needs)
F + P1 + P 2 ≥ 12 (10 am – 11 am needs)
0.5F + P1 + P2 + P3 ≥ 14 (11 am – noon needs)
0.5F + P1 + P2 + P3 + P4 ≥ 16 (noon – 1 pm needs)
F + P 2 + P3 + P4 + P5 ≥ 18 (1 pm – 2 pm needs)
F + P3 + P4 + P5 ≥ 17 (2 pm – 3 pm needs)
F + P4 + P5 ≥ 15 (3 pm – 4 pm needs)
F + P5 ≥ 10 (4 pm – 5 pm needs)
F ≤ 12 (12 full-time tellers)
4P1 + 4P2 + 4P3 + 4P4 + 4P5 ≤ 0.50(112) (max 50% part-timers)
P1, P2, P3, P4, P5 ≥0
3-157
 There are several alternate optimal schedules Hong Kong

Bank can follow:
 F = 10, P2 = 2, P3 = 7, P4 = 5, P1, P5 = 0
 F = 10, P1 = 6, P2 = 1, P3 = 2, P4 = 5, P5 = 0
 The cost of either of these two policies is $1,448 per day.
3-158
Labor Planning Solution in Excel 2010
3-159
Financial Applications
• Portfolio Selection
– Bank, investment funds, and insurance
companies often have to select specific
investments from a variety of alternatives.
– The manager’s overall objective is generally to
maximize the potential return on the
investment given a set of legal, policy, or risk
restraints.
3-160
International City Trust
• International City Trust (ICT) invests in short-term trade
credits, corporate bonds, gold stocks, and construction
loans.
• The board of directors has placed limits on how much can
be invested in each area:
INTEREST MAXIMUM INVESTMENT

INVESTMENT EARNED (%) ($ MILLIONS)
Trade credit 7 1.0
Corporate bonds 11 2.5
Gold stocks 19 1.5
Construction loans 15 1.8
3-161
• ICT has $5 million to invest and wants to
accomplish two things:
– Maximize the return on investment over the
next six months.
– Satisfy the diversification requirements set by
the board.
• The board has also decided that at least 55% of
the funds must be invested in gold stocks and
construction loans and no less than 15% be
invested in trade credit.
3-162
The variables in the model are:
X1 = dollars invested in trade credit

X2 = dollars invested in corporate bonds
X3 = dollars invested in gold stocks
X4 = dollars invested in construction loans
3-163
Objective:
Maximize
dollars of = 0.07X1 + 0.11X2 + 0.19X3 + 0.15X4
interest
earned
X1 ≤ 1,000,000
subject to:
X2 ≤ 2,500,000
X3 ≤ 1,500,000
X4 ≤ 1,800,000
X3 + X4 ≥ 0.55(X1 + X2 + X3 + X4)
X1 ≥ 0.15(X1 + X2 + X3 + X4)
X1 + X2 + X3 + X4 ≤ 5,000,000
X1, X2, X3, X4 ≥ 0
3-164
• The optimal solution to the ICT is to make the following
investments:
X1 = $750,000
X2 = $950,000
X3 = $1,500,000
X4 = $1,800,000
• The total interest earned with this plan is $712,000.
3-165
ICT Portfolio Solution in Excel 2010
3-166
Truck Loading Problem
• Truck Loading Problem
– The truck loading problem involves deciding which
items to load on a truck so as to maximize the value of
a load shipped.
– Goodman Shipping has to ship the following six items:
ITEM VALUE ($) WEIGHT (POUNDS)

1 22,500 7,500
2 24,000 7,500
3 8,000 3,000
4 9,500 3,500
5 11,500 4,000
6 9,750 3,500
3-167
Goodman Shipping
• The objective is to maximize the value of items loaded into
the truck.
• The truck has a capacity of 10,000 pounds.
• The decision variable is:
Xi = proportion of each item i loaded on the truck
3-168
Goodman Shipping
Objective:
Maximize $22,500X1 + $24,000X2 + $8,000X3
=
load value + $9,500X4 + $11,500X5 + $9,750X6
subject to
7,500X1 + 7,500X2 + 3,000X3
+ 3,500X4 + 4,000X5 + 3,500X6 ≤ 10,000 lb capacity
X1 ≤1
X2 ≤1
X3 ≤1
X4 ≤1
X5 ≤1
X6 ≤1
X1, X2, X3, X4, X5, X6 ≥0
3-169
Goodman Truck Loading Solution in
Excel
3-170
Goodman Shipping
• The Goodman Shipping problem raises an interesting
issue:
– The solution calls for one third of Item 1 to be loaded on the
truck.
– What if Item 1 cannot be divided into smaller pieces?
• Rounding down leaves unused capacity on the truck and
results in a value of $24,000.
• Rounding up is not possible since this would exceed the
capacity of the truck.
• Using integer programming, in which the solution is
required to contain only integers, the solution is to load
one unit of Items 3, 4, and 6 for a value of $27,250.
3-171
Ingredient Blending Applications
• Diet Problems
– This is one of the earliest LP applications, and is used
to determine the most economical diet for hospital
patients.
– This is also known as the feed mix problem.
3-172
Whole Food Nutrition Center
• The Whole Food Nutrition Center uses three bulk grains to

blend a natural cereal.
• It advertises that the cereal meets the U.S. Recommended
Daily Allowance (USRDA) for four key nutrients.
• It wants to select the blend that will meet the
requirements at the minimum cost.
NUTRIENT USRDA
Protein 3 units
Riboflavin 2 units
Phosphorus 1 unit
Magnesium 0.425 unit
3-173
Let
XA = pounds of grain A in one 2-ounce serving of cereal
XB = pounds of grain B in one 2-ounce serving of cereal
XC = pounds of grain C in one 2-ounce serving of cereal
Whole Food’s Natural Cereal requirements:

COST PER PROTEIN RIBOFLAVIN PHOSPHOROUS MAGNESIUM
GRAIN POUND (CENTS) (UNITS/LB) (UNITS/LB) (UNITS/LB) (UNITS/LB)
A 33 22 16 8 5
B 47 28 14 7 0
C 38 21 25 9 6
3-174
The objective is:

Minimize total cost of mixing a 2-
ounce serving = $0.33XA + $0.47XB + $0.38XC
subject to
22XA + 28XB + 21XC ≥ 3 (protein units)
16XA + 14XB + 25XC ≥ 2 (riboflavin units)
8XA + 7XB + 9XC ≥ 1 (phosphorous units)
5XA + 0XB + 6XC ≥ 0.425 (magnesium units)
XA + XB + XC = 0.125 (total mix)
X A , XB , XC ≥ 0
3-175
Whole Food Diet Solution in Excel 2010
3-176
Ingredient Blending Applications
• Ingredient Mix and Blending Problems

– Diet and feed mix problems are special cases of a more
general class of problems known as ingredient or
blending problems.
– Blending problems arise when decisions must be made
regarding the blending of two or more resources to
produce one or more product.
– Resources may contain essential ingredients that must
be blended so that a specified percentage is in the final
mix.
3-177
Low Knock Oil Company
• The Low Knock Oil Company produces two grades of cut-
rate gasoline for industrial distribution.
• The two grades, regular and economy, are created by
blending two different types of crude oil.
• The crude oil differs in cost and in its content of crucial
ingredients.
CRUDE OIL TYPE INGREDIENT A (%) INGREDIENT B (%) COST/BARREL ($)

X100 35 55 30.00
X220 60 25 34.80
3-178
The firm lets
X1 = barrels of crude X100 blended to produce the refined regular
X2 = barrels of crude X100 blended to produce the refined economy
X3 = barrels of crude X220 blended to produce the refined regular
X4 = barrels of crude X220 blended to produce the refined economy
The objective function is

Minimize cost = $30X1 + $30X2 + $34.80X3 + $34.80X4
3-179
Problem formulation
At least 45% of each barrel of regular must be ingredient A
(X1 + X3) = total amount of crude blended to produce the refined
regular gasoline demand
Thus,
0.45(X1 + X3) = amount of ingredient A required
But:
0.35X1 + 0.60X3 = amount of ingredient A in refined regular gas
So
0.35X1 + 0.60X3 ≥ 0.45X1 + 0.45X3
or
– 0.10X1 + 0.15X3 ≥ 0 (ingredient A in regular constraint)
3-180
Problem formulation
Minimize cost = 30X1 + 30X2 + 34.80X3 + 34.80X4

subject to X1 + X3 ≥ 25,000
X2 + X4 ≥ 32,000
– 0.10X1 + 0.15X3 ≥0
0.05X2 – 0.25X4 ≤ 0
X1, X2, X3, X4 ≥ 0
3-181
Low Knock Oil Solution in Excel 2010
3-182
Transportation Applications
• Shipping Problem
– The transportation or shipping problem involves
determining the amount of goods or items to be
transported from a number of origins to a number of
destinations.
– The objective usually is to minimize total shipping costs or
distances.
– This is a specific case of LP and a special algorithm has
been developed to solve it.
3-183
Top Speed Bicycle Company
• The Top Speed Bicycle Co. manufactures and markets a line
of 4-speed bicycles.
• The firm has final assembly plants in two cities where labor
costs are low.
• It has three major warehouses near large markets.
• The sales requirements for the next year are:
– New York – 10,000 bicycles
– Chicago – 8,000 bicycles
– Los Angeles – 15,000 bicycles
• The factory capacities are:
– New Orleans – 20,000 bicycles
– Omaha – 15,000 bicycles
3-184
The cost of shipping bicycles from the plants to the
warehouses is different for each plant and warehouse:
TO
FROM NEW YORK CHICAGO LOS ANGELES
New Orleans $2 $3 $5
Omaha $3 $1 $4
The company wants to develop a shipping schedule that will

minimize its total annual cost.
3-185
Network Representation of the Transportation Problem with Costs, Demands, and
Supplies
3-186
The double subscript variables will represent the origin factory
and the destination warehouse:
Xij = bicycles shipped from factory i to warehouse j
So:
X11 = number of bicycles shipped from New Orleans to New York
X12 = number of bicycles shipped from New Orleans to Chicago
X13 = number of bicycles shipped from New Orleans to Los Angeles
X21 = number of bicycles shipped from Omaha to New York
X22 = number of bicycles shipped from Omaha to Chicago
X23 = number of bicycles shipped from Omaha to Los Angeles
3-187
Objective:
Minimize
total shipping
costs = 2X11 + 3X12 + 5X13 + 3X21 + 1X22 + 4X23
subject to X11 + X21 = 10,000 (New York demand)

X12 + X22 = 8,000 (Chicago demand)
X13 + X23 = 15,000 (Los Angeles demand)
X11 + X12 + X13 ≤ 20,000 (New Orleans factory supply)
X21 + X22 + X23 ≤ 15,000 (Omaha factory supply)
All variables ≥ 0
3-188
Top Speed Bicycle Company Solution in
Excel 2010
3-189
Top Speed Bicycle solution:
TO
FROM NEW YORK CHICAGO LOS ANGELES
New Orleans 10,000 0 8,000
Omaha 0 8,000 7,000
• Total shipping cost equals $96,000.

• Transportation problems are a special case of LP as the
coefficients for every variable in the constraint equations
equal 1.
3-190
Chapter 4
Integer Programming, Goal

Programming, and Nonlinear
Programming
Chapter Outline
4.1 Introduction
4.2 Integer Programming
4.3 Modeling with 0-1 (Binary) Variables
4.4 Goal Programming
4.5 Nonlinear Programming
4-192
Introduction
• Not every problem faced by businesses can easily fit into a
neat linear programming context.
• A large number of business problems can be solved only if
variables have integer values.
• Many business problems have multiple objectives, and goal
programming is an extension to LP that can permit multiple
objectives
• Linear programming requires linear models, and nonlinear
programming allows objectives and constraints to be
nonlinear.
4-193
Integer Programming
• An integer programming model is one where one or more
of the decision variables has to take on an integer value in
the final solution.
• There are three types of integer programming problems:
1. Pure integer programming where all variables have
integer values .
2. Mixed-integer programming where some but not all
of the variables will have integer values.
3. Zero-one integer programming are special cases in
which all the decision variables must have integer
solution values of 0 or 1.
4-194
HARRISON ELECTRIC COMPANY:
Example of Integer Programming
• The Company produces TWO PRODUCTS popular with
HOME RENOVATORS, OLD-FASHIONED CHANDELIERS and
CEILING FANS.
• Both the chandeliers and fans require a two-step
production process involving wiring and assembly.
• It takes about 2 hours to wire each chandelier and 3 hours
to wire a ceiling fan.
• Final assembly of the chandeliers and fans requires 6 and
5 hours, respectively.
• The production capability is such that only 12 hours of
wiring time and 30 hours of assembly time are available.
4-195
• Each chandelier produced nets the firm $7 and each fan $6.
• Harrison’s production mix decision can be formulated using
LP as follows:
subject to 2X1 + 3X2 ≤ 12 (wiring hours)
6X1 + 5X2 ≤ 30 (assembly hours)
X1, X2 ≥ 0 (nonnegativity)
where
X1 = number of chandeliers produced
X2 = number of ceiling fans produced
4-196
Harrison Electric Problem
4-197
• The production planner recognizes this is an integer

problem.
• His first attempt at solving it is to round the values to
X1 = 4 and X2 = 2.
• However, this is not feasible.
• Rounding X2 down to 1 gives a feasible solution, but it
may not be optimal.
• This could be solved using the enumeration method,
but enumeration is generally not possible for large
problems.
4-198
Integer Solutions to the Harrison Electric Company
CHANDELIERS (X )
Problem PROFIT ($7X + $6X )
CEILING FANS (X )
1 2 1 2
0 0 $0
1 0 7
2 0 14
3 0 21
4 0 28
5 0 35 Optimal solution to
0 1 6 integer programming
problem
1 1 13
2 1 20
3 1 27
4 1 34 Solution if rounding
0 2 12 is used
1 2 19
2 2 26
3 2 33
0 3 18
1 3 25
4-199
0 4 24
HARRISON ELECTRIC COMPANY
• The rounding solution of X1 = 4, X2 = 1 gives a

profit of $34.
• The optimal solution of X1 = 5, X2 = 0 gives a
profit of $35.
• The optimal integer solution is less than the
optimal LP solution.
• An integer solution can never be better than the
LP solution and is usually a lesser solution.
4-200
Using Software to Solve the Harrison Integer
Programming Problem
QM for Windows Input Screen for Harrison Electric Problem
4-201
Programming Problem
QM for Windows Solution Screen for Harrison Electric
Problem
4-202
Programming Problem
Excel 2010 Solver Solution for Harrison Electric Problem
4-203
Mixed-Integer Programming Problem
Example
• There are many situations in which some of the variables

are restricted to be integers and some are not.
• BAGWELL CHEMICAL COMPANY produces two industrial
chemicals.
• Xyline must be produced in 50-pound bags.
• Hexall is sold by the pound and can be produced in any
quantity.
• Both xyline and hexall are composed of three ingredients
– A, B, and C.
• BAGWELL sells xyline for $85 a bag and hexall for $1.50
per pound.
4-204
Example
AMOUNT OF
AMOUNT PER 50-POUND AMOUNT PER POUND INGREDIENTS
BAG OF XYLINE (LB) OF HEXALL (LB) AVAILABLE
30 0.5 2,000 lb–ingredient A
18 0.4 800 lb–ingredient B
2 0.1 200 lb–ingredient C
• Bagwell wants to maximize profit.

• Let X = number of 50-pound bags of xyline.
• Let Y = number of pounds of hexall.
• This is a mixed-integer programming problem as Y is not
required to be an integer.
4-205
Example
The model is:
Maximize profit = $85X + $1.50Y

subject to 30X + 0.5Y ≤ 2,000
18X + 0.4Y ≤ 800
2X + 0.1Y ≤ 200
X, Y ≥ 0 and X integer
4-206
Example
QM for Windows Solution for Bagwell Chemical Problem
4-207
Example
Excel 2010 Solver Solution for Bagwell Chemical Problem
4-208
Modeling With 0-1 (Binary) Variables
• We can demonstrate how 0-1 variables can be used

to model several diverse situations.
• Typically a 0-1 variable is assigned a value of 0 if a
certain condition is not met and a 1 if the condition
is met.
• This is also called a binary variable.
4-209
Capital Budgeting Example
• A common capital budgeting problem is selecting from a set
of possible projects when budget limitations make it
impossible to select them all.
• A 0-1 variable is defined for each project.
• Quemo Chemical Company is considering three possible
improvement projects for its plant:
– A new catalytic converter.
– A new software program for controlling operations.
– Expanding the storage warehouse.
• It can not do them all
• It wants to maximize net present value of projects
undertaken.
4-210
Quemo Chemical Capital Budgeting
Quemo Chemical Company information
PROJECT NET PRESENT VALUE YEAR 1 YEAR 2

Catalytic Converter $25,000 $8,000 $7,000
Software $18,000 $6,000 $4,000
Warehouse expansion $32,000 $12,000 $8,000
Available funds $20,000 $16,000
The basic model is:

Maximize net present value of projects undertaken subject to
Total funds used in year 1 ≤ $20,000

Total funds used in year 2 ≤ $16,000
4-211
The decision variables are:
X1 = 1 if catalytic converter project is funded

0 otherwise
X2 = 1 if software project is funded
0 otherwise
X3 = 1 if warehouse expansion project is funded
0 otherwise
The mathematical statement of the integer programming

problem becomes:
Maximize NPV = 25,000X1 + 18,000X2 + 32,000X3
subject to 8,000X1 + 6,000X2 + 12,000X3 ≤ 20,000
7,000X1 + 4,000X2 + 8,000X3 ≤ 16,000
X1, X2, X3 = 0 or 1
4-212
Excel 2010 Solver Solution for Quemo Chemical Problem
4-213
Quemo Chemical Budgeting Capital
• This is solved with computer software, and the
optimal solution is X1 = 1, X2 = 0, and X3 = 1 with an
objective function value of 57,000.
• This means that Quemo Chemical should fund the
catalytic converter and warehouse expansion
projects only.
• The net present value of these investments will be
$57,000.
4-214
Limiting the Number of Alternatives
Selected
• One common use of 0-1 variables involves limiting the
number of projects or items that are selected from a group.
• Suppose Quemo Chemical is required to select no more than
two of the three projects regardless of the funds available.
• This would require adding a constraint:
X1 + X2 + X3 ≤ 2
• If they had to fund exactly two projects the constraint would
be:
X1 + X2 + X3 = 2
4-215
Dependent Selections
• At times the selection of one project depends on the
selection of another project.
• Suppose Quemo’s catalytic converter could only be
purchased if the software was purchased.
• The following constraint would force this to occur:
X1 ≤ X2 or X1 – X2 ≤ 0
• If we wished for the catalytic converter and software
projects to either both be selected or both not be selected,
the constraint would be:
X1 = X2 or X1 – X2 = 0
4-216
Fixed-Charge Problem Example
• Often businesses are faced with decisions involving a fixed

charge that will affect the cost of future operations.
• Sitka Manufacturing is planning to build at least one new
plant and three cities are being considered in:
– Baytown, Texas
– Lake Charles, Louisiana
– Mobile, Alabama
• Once the plant or plants are built, the company wants to have
capacity to produce at least 38,000 units each year.
4-217
Fixed-Charge Problem
Fixed and variable costs for Sitka Manufacturing
ANNUAL VARIABLE COST ANNUAL

SITE FIXED COST PER UNIT CAPACITY
Baytown, TX $340,000 $32 21,000
Lake Charles, LA $270,000 $33 20,000
Mobile, AL $290,000 $30 19,000
4-218
Define the decision variables as:
X1 = 1 if factory is built in Baytown

0 otherwise
X2 = 1 factory is built in Lake Charles

0 otherwise
X3 = 1 if factory is built in Mobile

0 otherwise
X4 = number of units produced at Baytown plant
X5 = number of units produced at Lake Charles plant
X6 = number of units produced at Mobile plant
4-219
The integer programming formulation becomes
Minimize cost = 340,000X1 + 270,000X2 + 290,000X3
+ 32X4 + 33X5 + 30X6
subject to X4 + X5 + X6 ≥ 38,000
X4 ≤ 21,000X1
X5 ≤ 20,000X2
X6 ≤ 19,000X3
X1, X2, X3 = 0 or 1;
X4, X5, X6 ≥ 0 and integer
The optimal solution is
X1 = 0, X2 = 1, X3 = 1, X4 = 0, X5 = 19,000, X6 = 19,000
Objective function value = $1,757,000
4-220
Excel 2010 Solver Solution for Sitka Manufacturing Problem
4-221
Financial Investment Example
• Simkin, Simkin, and Steinberg specialize in recommending oil

stock portfolios for wealthy clients.
• One client has the following specifications:
– At least two Texas firms must be in the portfolio.
– No more than one investment can be made in a foreign oil company.
– One of the two California oil stocks must be purchased.
• The client has $3 million to invest and wants to buy large
blocks of shares.
4-222
Financial Investment
Oil investment opportunities

EXPECTED ANNUAL COST FOR BLOCK
STOCK COMPANY NAME RETURN ($1,000s) OF SHARES ($1,000s)
1 Trans-Texas Oil 50 480
2 British Petroleum 80 540
3 Dutch Shell 90 680
4 Houston Drilling 120 1,000
5 Texas Petroleum 110 700
6 San Diego Oil 40 510
7 California Petro 75 900
4-223
Model formulation:
Maximize return = 50X1 + 80X2 + 90X3 + 120X4 + 110X5 + 40X6 + 75X7
subject to
X1 + X 4 + X5 ≥ 2 (Texas constraint)
X2+ X3 ≤ 1 (foreign oil constraint)
X 6 + X7 = 1 (California constraint)
480X1 + 540X2 + 680X3 + 1,000X4 + 700X5
+ 510X6 + 900X7 ≤ 3,000 ($3 million limit)
All variables must be 0 or 1
4-224
Excel 2010 Solver Solution for Financial Investment Problem
4-225
Goal Programming
• Firms often have more than one goal.
• In linear and integer programming methods the objective
function is measured in one dimension only.
• It is not possible for LP to have multiple goals unless they
are all measured in the same units, and this is a highly
unusual situation.
• An important technique that has been developed to
supplement LP is called goal programming.
4-226
Goal Programming
• Typically goals set by management can be achieved only at
the expense of other goals.
• A hierarchy of importance needs to be established so that
higher-priority goals are satisfied before lower-priority
goals are addressed.
• It is not always possible to satisfy every goal so goal
programming attempts to reach a satisfactory level of
multiple objectives.
• The main difference is in the objective function where goal
programming tries to minimize the deviations between
goals and what we can actually achieve within the given
constraints.
4-227
Example of Goal Programming: Harrison Electric
Company Revisited
The LP formulation for the Harrison Electric problem is:

subject to 2X1 + 3X2 ≤ 12 (wiring hours)
X1, X2 ≥ 0
where
X1 = number of chandeliers produced
X2 = number of ceiling fans produced
4-228
Company Revisited
• Harrison is moving to a new location and feels that

maximizing profit is not a realistic objective.
• Management sets a profit level of $30 that would be
satisfactory during this period.
• The goal programming problem is to find the production
mix that achieves this goal as closely as possible given the
production time constraints.
• We need to define two deviational variables:
d1– = underachievement of the profit target
d1+ = overachievement of the profit target
4-229
Company Revisited
We can now state the Harrison Electric problem as a single-

goal programming model:
Minimize under or overachievement of

profit target = d1– + d1+
subject to $7X1 + $6X2 + d1– – d1+ = $30 (profit goal constraint)

2X1 + 3X2 ≤ 12 (wiring hours)
X1, X2, d1–, d1+ ≥ 0
4-230
Extension to Equally Important Multiple
Goals
• Suppose Harrison’s management wants to achieve several
goals that are equal in priority:
Goal 1: to produce a profit of $30 if possible during the
production period.
Goal 2: to fully utilize the available wiring department hours.
Goal 3: to avoid overtime in the assembly department.
Goal 4: to meet a contract requirement to produce at least
seven ceiling fans.
4-231
Goals
The deviational variables are:

d1– = underachievement of the profit target
d1+ = overachievement of the profit target
d2– = idle time in the wiring department (underutilization)
d2+ = overtime in the wiring department (overutilization)
d3– = idle time in the assembly department (underutilization)
d3+ = overtime in the assembly department (overutilization)
d4– = underachievement of the ceiling fan goal
d4+ = overachievement of the ceiling fan goal
4-232
Goals
Because management is unconcerned about d1+, d2+, d3–, and

d4+ these may be omitted from the objective function.
• The new objective function and constraints are:
Minimize total deviation = d1– + d2– + d3+ + d4–
subject to 7X1 + 6X2 + d1– – d1+ = 30 (profit constraint)

2X1 + 3X2 + d2– – d2+ = 12 (wiring hours)
6X1 + 5X2 + d3– – d3+ = 30 (assembly hours)
X2 + d4– – d4+ = 7 (ceiling fan constraint)
All Xi, di variables ≥ 0
4-233
Ranking Goals with Priority Levels
• In most goal programming problems, one goal will be more

important than another, which will in turn be more important
than a third.
• Higher-order goals are satisfied before lower-order goals.
• Priorities (Pi’s) are assigned to each deviational variable with
the ranking so that P1 is the most important goal, P2 the next
most important, P3 the third, and so on.
4-234
Harrison Electric has set the following priorities for their four
goals:
GOAL PRIORITY
Reach a profit as much above $30 as possible P1
Fully use wiring department hours available P2
Avoid assembly department overtime P3
Produce at least seven ceiling fans P4
4-235
• This effectively means that each goal is infinitely more

important than the next lower goal.
• With the ranking of goals considered, the new objective
function is:
Minimize total deviation = P1d1– + P2d2– + P3d3+ + P4d4–
Constraints remain identical to the previous formulation.
4-236
Goal Programming with Weighted
Goals
• Normally priority levels in goal programming assume that
each level is infinitely more important than the level below it.
• Sometimes a goal may be only two or three times more
important than another.
• Instead of placing these goals on different levels, we place
them on the same level but with different weights.
• The coefficients of the deviation variables in the objective
function include both the priority level and the weight.
4-237
Goal Programming with Weighted
Goals
• Suppose Harrison decides to add another goal of producing at
least two chandeliers.
• The goal of producing seven ceiling fans is considered twice as
important as this goal.
• The goal of two chandeliers is assigned a weight of 1 and the
goal of seven ceiling fans is assigned a weight of 2 and both of
these will be priority level 4.
• The new constraint and objective function are:
X1 + d5– – d5+ = 2 (chandeliers)
Minimize = P1d1– + P2d2– + P3d3+ + P4(2d4–) + P4d5–
4-238
Using QM for Windows to Solve
Harrison’s Problem
Harrison Electric’s Goal Programming Analysis Using QM for Windows: Inputs
4-239
Using QM for Windows to Solve
Harrison’s Problem
Summary Screen for Harrison Electric’s Goal Programming Analysis Using QM for
Windows
4-240
Nonlinear Programming
• The methods seen so far have assumed that the objective
function and constraints are linear.
• Terms such as X13, 1/X2, log X3, or 5X1X2 are not allowed.
• But there are many nonlinear relationships in the real world
that would require the objective function, constraint equations,
or both to be nonlinear.
• Excel can be used to solve these nonlinear programming (NLP)
problems.
• One disadvantage of NLP is that the solution yielded may only
be a local optimum, rather than a global optimum.
– In other words, it may be an optimum over a particular
range, but not overall.
4-241
Nonlinear Objective Function and Linear
Constraints
• The Great Western Appliance Company sells two models of
toaster ovens, the Microtoaster (X1) and the Self-Clean
Toaster Oven (X2).
• They earn a profit of $28 for each Microtoaster no matter the
number of units sold.
• For the Self-Clean oven, profits increase as more units are
sold due to a fixed overhead.
– The profit function for the Self-Clean over may be expressed as:
21X2 + 0.25X22
4-242
Constraints
The objective function is nonlinear and there are two linear
constraints on production capacity and sales time available.
Maximize profit = 28X1 + 21X2 + 0.25X22

subject to X1 + 21X2 ≤ 1,000 (units of production
capacity)
0.5X1 + 0.4X2 ≤ 500 (hours of sales time
available)
X1, X2 ≥ 0
When an objective function contains a squared term and the problem constraints
are linear, it is called a quadratic programming problem.
4-243
Constraints
Excel 2010 Solver Solution for Great Western Appliance NLP
Problem
4-244
Both Nonlinear Objective Function and
Nonlinear Constraints
• The annual profit at a medium-sized (200-400 beds) Hospicare
Corporation hospital depends on the number of medical
patients admitted (X1) and the number of surgical patients
admitted (X2).
• The objective function for the hospital is nonlinear.
• They have identified three constraints, two of which are
nonlinear.
– Nursing capacity - nonlinear
– X-ray capacity - nonlinear
– Marketing budget required
4-245
The objective function and constraint equations for this

problem are:
Maximize profit = $13X1 + $6X1X2 + $5X2 + $1/X2
subject to 2X12 + 4X2 ≤ 90 (nursing capacity in thousands of
labor-days)
X1 + X23 ≤ 75 (x-ray capacity in thousands)
8X1 – 2X2 ≤ 61 (marketing budget required in
thousands of $)
4-246
Excel 2010 Solution for Hospicare’s NLP Problem
4-247
Linear Objective Function and Nonlinear
Constraints
• Thermlock Corp. produces massive rubber washers and
gaskets like the type used to seal joints on the NASA Space
Shuttles.
• It combines two ingredients, rubber (X1) and oil (X2).
• The cost of the industrial quality rubber is $5 per pound and
the cost of high viscosity oil is $7 per pound.
• Two of the three constraints are nonlinear.
4-248
Constraints
The firm’s objective function and constraints are:
Minimize costs = $5X1 + $7X2

subject to 3X1 + 0.25X12 + 4X2 + 0.3X22 ≥ 125 (hardness
constraint)
13X1 + X13 ≥ 80 (tensile
strength)
0.7X1 + X2 ≥ 17 (elasticity)
4-249
Constraints
Excel 2010 Solution for Thermlock NLP Problem
4-250
Chapter 5
Transportation and Assignment

Models
Learning Objectives
After completing this chapter, students will be able to:
1. Structure LP problems using the
transportation, transshipment and
assignment models.
2. Use the northwest corner and stepping-
stone methods.
3. Solve facility location and other application
problems with transportation models.
4. Solve assignment problems with the
Hungarian (matrix reduction) method.
5-252
Chapter Outline
5.1 Introduction
5.2 The Transportation Problem
5.3 The Assignment Problem
5.4 The Transshipment Problem
5.5 The Transportation Algorithm
5.6 Special Situations with the Transportation
Algorithm
5.7 Facility Location Analysis
5.8 The Assignment Algorithm
5.9 Special Situations with the Assignment Algorithm
5-253
Introduction
• In this chapter we will explore three special linear
programming models:
– The transportation problem.
– The assignment problem.
– The transshipment problem.
• These problems are members of a category of LP
techniques called network flow problems.
5-254
The Transportation Problem
• The transportation problem deals with the
distribution of goods from several points of supply
(sources) to a number of points of demand
(destinations).
• Usually we are given the capacity of goods at each
source and the requirements at each destination.
• Typically the objective is to minimize total
transportation and production costs.
5-255
• The Executive Furniture Corporation manufactures office

desks at three locations: Des Moines, Evansville, and Fort
Lauderdale.
• The firm distributes the desks through regional warehouses
located in Boston, Albuquerque, and Cleveland.
5-256
Network Representation of a Transportation Problem, with Costs,
Demands and Supplies
Executive Furniture Company
Factories Warehouses
Supply (Sources) (Destinations) Demand
$5
100 Units Des Moines Albuquerque 300 Units
$4
$3
$8
300 Units Evansville $4 Boston 200 Units
$3
$9
$7
300 Units Fort Lauderdale Cleveland 200 Units
$5
5-257
Linear Programming for the Transportation
Example
• Let Xij = number of units shipped from source i to destination

j,
– Where:
• i = 1, 2, 3, with 1 = Des Moines, 2 = Evansville, and 3 = Fort Lauderdale
• j = 1, 2, 3, with 1 = Albuquerque, 2 = Boston, and 3 = Cleveland.
5-258
Linear Programming for the
Transportation Example
• Minimize total cost = 5X11 + 4X12 + 3X13 +
8X21 + 4X22 + 3X23
+ 9X31 +7X32 + 5X33
• Subject to:
– X11 + X12 + X13 ≤ 100 (Des Moines supply)
– X21 + X22 + X23 ≤ 300 (Evansville supply)
– X31 + X32 + X33 ≤ 300 (Fort Lauderdale supply)
– X11 + X21 + X31 = 300 (Albuquerque demand)
– X12 + X22 + X32 = 200 (Boston demand)
– X13 + X23 + X33 = 200 (Cleveland demand)
– Xij ≥ 0 for all i and j.
5-259
Executive Furniture Corporation Solution in
Excel 2010
5-260
A General LP Model for Transportation
Problems
• Let:
– Xij = number of units shipped from source i to
destination j.
– cij = cost of one unit from source i to destination j.
– si = supply at source i.
– dj = demand at destination j.
5-261
A General LP Model for Transportation
Problems
Minimize cost =
Subject to:
i = 1, 2,…, m.
j = 1, 2, …, n.
xij ≥ 0 for all i and j.
5-262
The Assignment Problem
• This type of problem determines the most
efficient assignment of people to particular
tasks, etc.
• Objective is typically to minimize total cost or
total task time.
5-263
Linear Program for Assignment
Example
• The Fix-it Shop has just received three new
repair projects that must be repaired
quickly: a radio, a toaster oven, and a
coffee table.
• Three workers with different talents are
able to do the jobs.
• The owner estimates the cost in wages if
the workers are assigned to each of the
three jobs.
• Objective: minimize total cost.
5-264
Example of an Assignment Problem in a
Transportation Network Format
5-265
Example
Let:
– Xij = 1 if person i is assigned to project j, or
0 otherwise.
Where:
– i = 1,2,3 with 1 = Adams, 2 = Brown, and 3 = Cooper
– j = 1,2,3, with 1 = Project 1, 2 = Project 2, and 3 = Project 3.
5-266
Example
Minimize total cost = 11X11 + 14X12 +
6X13 + 8X21 + 10X22 + 11X23 + 9X31
+ 12X32 + 7X33
Subject to:
– X11 + X12 + X13 ≤ 1
– X21 + X22 + X23 ≤ 1
– X31 + X32 + X33 ≤ 1
– X11 + X21 + X31 = 1
– X12 + X22 + X32 = 1
– X13 + X23 + X33 = 1
– Xij = 0 or 1 for all i and j
5-267
Fix-it Shop Solution in Excel 2010
5-268
Example
• X13 = 1, so Adams is assigned to project 3.
• X22 = 1, so Brown is assigned to project 2.
• X31 = 1, so Cooper is assigned to project 3.
• Total cost of the repairs is $25.
5-269
Transshipment Applications
When the items are being moved from a source to a destination
through an intermediate point (a transshipment point), the
problem is called a transshipment problem.
Distribution Centers
– Frosty Machines manufactures snow blowers in Toronto and Detroit.
– These are shipped to regional distribution centers in Chicago and Buffalo.
– From there they are shipped to supply houses in New York, Philadelphia,
and St Louis.
– Shipping costs vary by location and destination.
– Snow blowers cannot be shipped directly from the factories to the
supply houses.
5-270
Network Representation of
Transshipment Example
5-271
Frosty Machines Transshipment Data
TO
NEW YORK
FROM CHICAGO BUFFALO CITY PHILADELPHIA ST LOUIS SUPPLY
Toronto $4 $7 — — — 800
Detroit $5 $7 — — — 700
Chicago — — $6 $4 $5 —
Buffalo — — $2 $3 $4 —
Demand — — 450 350 300
Frosty would like to minimize the transportation costs associated with

shipping snow blowers to meet the demands at the supply centers given
the supplies available.
5-272
A description of the problem would be to minimize
cost subject to:
1. The number of units shipped from Toronto is not more than 800.
2. The number of units shipped from Detroit is not more than 700.
3. The number of units shipped to New York is 450.
4. The number of units shipped to Philadelphia is 350.
5. The number of units shipped to St Louis is 300.
6. The number of units shipped out of Chicago is equal to the
number of units shipped into Chicago.
7. The number of units shipped out of Buffalo is equal to the
number of units shipped into Buffalo.
5-273
The decision variables should represent the number of units shipped
from each source to the transshipment points and from there to the final
destinations.
X13 = the number of units shipped from Toronto to Chicago
X14 = the number of units shipped from Toronto to Buffalo
X23 = the number of units shipped from Detroit to Chicago
X24 = the number of units shipped from Detroit to Buffalo
X35 = the number of units shipped from Chicago to New York
X36 = the number of units shipped from Chicago to Philadelphia
X37 = the number of units shipped from Chicago to St Louis
X45 = the number of units shipped from Buffalo to New York
X46 = the number of units shipped from Buffalo to Philadelphia
X47 = the number of units shipped from Buffalo to St Louis
5-274
The linear program is:
Minimize cost = 4X13 + 7X14 + 5X23 + 7X24 + 6X35 + 4X36 + 5X37 + 2X45 + 3X46 + 4X47
subject to
X13 + X14 ≤ 800 (supply at Toronto)
X23 + X24 ≤ 700 (supply at Detroit)
X35 + X45 = 450 (demand at New York)
X36 + X46 = 350 (demand at Philadelphia)
X37 + X47 = 300 (demand at St Louis)
X13 + X23 = X35 + X36 + X37 (shipping through Chicago)
X14 + X24 = X45 + X46 + X47 (shipping through Buffalo)
Xij ≥ 0 for all i and j (nonnegativity)
5-275
Solution to Frosty Machines
Transshipment Problem
5-276
The Transportation Algorithm
• This is an iterative procedure in which a solution to a
transportation problem is found and evaluated using
a special procedure to determine whether the
solution is optimal.
– When the solution is optimal, the process stops.
– If not, then a new solution is generated.
5-277
Transportation Table for Executive Furniture
Corporation
Des Moines
capacity
constraint
TO WAREHOUSE WAREHOUSE WAREHOUSE

AT AT AT FACTORY
FROM ALBUQUERQUE BOSTON CLEVELAND CAPACITY
DES MOINES $5 $4 $3
100
FACTORY
EVANSVILLE $8 $4 $3
300
FACTORY
FORT LAUDERDALE $9 $7 $5
300
FACTORY
WAREHOUSE
300 200 200 700
REQUIREMENTS
Cell representing a source-
Total supply to-destination (Evansville to
Cost of shipping 1 unit from Fort Cleveland Cleveland) shipping
and demand
Lauderdale factory to Boston warehouse assignment that could be
warehouse demand made
5-278
Developing an Initial Solution: Northwest
Corner Rule
• Once we have arranged the data in a table, we must
establish an initial feasible solution.
• One systematic approach is known as the northwest
corner rule.
• Start in the upper left-hand cell and allocate units to
shipping routes as follows:
1. Exhaust the supply (factory capacity) of each row before moving
down to the next row.
2. Exhaust the demand (warehouse) requirements of each column
before moving to the right to the next column.
3. Check that all supply and demand requirements are met.
• This problem takes five steps to make the initial shipping
assignments.
5-279
Corner Rule
1. Beginning in the upper left hand corner, we assign 100
units from Des Moines to Albuquerque. This exhaust the
supply from Des Moines but leaves Albuquerque 200
desks short. We move to the second row in the same
column.
TO ALBUQUERQUE BOSTON CLEVELAND FACTORY
FROM (A) (B) (C) CAPACITY
DES MOINES $5 $4 $3
100 100
(D)
EVANSVILLE $8 $4 $3
300
(E)
300
(F)
WAREHOUSE
300 200 200 700
REQUIREMENTS
5-280
Corner Rule
2. Assign 200 units from Evansville to Albuquerque. This
meets Albuquerque’s demand. Evansville has 100 units
remaining so we move to the right to the next column of
the second row.
DES MOINES $5 $4 $3
100 100
(D)
EVANSVILLE $8 $4 $3
200 300
(E)
300
(F)
WAREHOUSE
300 200 200 700
REQUIREMENTS
5-281
Corner Rule
3. Assign 100 units from Evansville to Boston. The Evansville
supply has now been exhausted but Boston is still 100
units short. We move down vertically to the next row in
the Boston column.
DES MOINES $5 $4 $3
100 100
(D)
EVANSVILLE $8 $4 $3
200 100 300
(E)
300
(F)
WAREHOUSE
300 200 200 700
REQUIREMENTS
5-282
Corner Rule
4. Assign 100 units from Fort Lauderdale to Boston. This
fulfills Boston’s demand and Fort Lauderdale still has 200
units available.

DES MOINES $5 $4 $3
100 100
(D)
EVANSVILLE $8 $4 $3
200 100 300
(E)
100 300
(F)
WAREHOUSE
300 200 200 700
REQUIREMENTS
5-283
Corner Rule
5. Assign 200 units from Fort Lauderdale to Cleveland. This
exhausts Fort Lauderdale’s supply and Cleveland’s
demand. The initial shipment schedule is now complete.

DES MOINES $5 $4 $3
100 100
(D)
EVANSVILLE $8 $4 $3
200 100 300
(E)
100 200 300
(F)
WAREHOUSE
300 200 200 700
REQUIREMENTS
5-284
Corner Rule
The cost of this shipping assignment:
ROUTE
UNITS PER UNIT TOTAL
FROM TO SHIPPED x COST ($) = COST ($)
D A 100 5 500
E A 200 8 1,600
E B 100 4 400
F B 100 7 700
F C 200 5 1,000
4,200
This solution is feasible but we need to check to see if it is optimal.
5-285
Stepping-Stone Method: Finding a Least
Cost Solution
• The stepping-stone method is an iterative

technique for moving from an initial feasible
solution to an optimal feasible solution.
• There are two distinct parts to the process:
– Testing the current solution to determine if improvement
is possible.
– Making changes to the current solution to obtain an
improved solution.
• This process continues until the optimal solution is
reached.
5-286
Stepping-Stone Method: Finding a Least
Cost Solution
• There is one very important rule: The number of occupied
routes (or squares) must always be equal to one less than
the sum of the number of rows plus the number of
columns
– In the Executive Furniture problem this means the initial solution
must have 3 + 3 – 1 = 5 squares used.
Occupied shipping = Number

+ Number
–1 of
routes (squares) of rows columns
 When the number of occupied rows is less than this, the solution is called
degenerate.
5-287
Testing the Solution for Possible
Improvement
• The stepping-stone method works by testing each

unused square in the transportation table to see
what would happen to total shipping costs if one
unit of the product were tentatively shipped on
an unused route.
• There are five steps in the process.
5-288
Five Steps to Test Unused Squares with the
Stepping-Stone Method
1. Select an unused square to evaluate.
2. Beginning at this square, trace a closed path back to the
original square via squares that are currently being used with
only horizontal or vertical moves allowed.
3. Beginning with a plus (+) sign at the unused square, place
alternate minus (–) signs and plus signs on each corner square
of the closed path just traced.
5-289
4. Calculate an improvement index by adding together the unit
cost figures found in each square containing a plus sign and
then subtracting the unit costs in each square containing a
minus sign.
5. Repeat steps 1 to 4 until an improvement index has been
calculated for all unused squares. If all indices computed are
greater than or equal to zero, an optimal solution has been
reached. If not, it is possible to improve the current solution
and decrease total shipping costs.
5-290
For the Executive Furniture Corporation data:
Steps 1 and 2. Beginning with Des Moines–Boston route we trace a closed path
using only currently occupied squares, alternately placing plus and minus signs in
the corners of the path.
 In a closed path, only squares currently used for

shipping can be used in turning corners.
 Only one closed route is possible for each square we
wish to test.
5-291
Step 3. Test the cost-effectiveness of the Des Moines–Boston
shipping route by pretending that we are shipping one desk
from Des Moines to Boston. Put a plus in that box.
 But if we ship one more unit out of Des Moines we will be sending out 101
units.
 Since the Des Moines factory capacity is only 100, we must ship fewer desks
from Des Moines to Albuquerque so place a minus sign in that box.
 But that leaves Albuquerque one unit short so increase the shipment from
Evansville to Albuquerque by one unit and so on until the entire closed path is
completed.
5-292
Warehouse A Warehouse B
Evaluating the unused Des Moines–
$5 $4
Boston shipping route Factory
D 100
– +
+ $8 – $4
Factory
E 200 100
TO
ALBUQUERQUE BOSTON CLEVELAND FACTORY
FROM CAPACITY
$5 $4 $3
DES MOINES 100 100
$8 $4 $3
EVANSVILLE 200 100 300
$9 $7 $5
FORT LAUDERDALE 100 200 300
WAREHOUSE
300 200 200 700
REQUIREMENTS
5-293
99 $5 $4
D 100 1
– +
+ $8 – $4
Factory 201 99
E 200 100
TO FACTORY
ALBUQUERQUE BOSTON CLEVELAND
FROM CAPACITY
$5 $4 $3
DES MOINES 100 100
$8 $4 $3
$9 $7 $5
WAREHOUSE
300 200 200 700
REQUIREMENTS
5-294
99 $5 $4
D 100 1
– +
+ $8 – $4
Factory 201 99
E 200 100
TO FACTORY
FROM Result of
CAPACITY Proposed Shift
$5 $4 $3
in Allocation
DES MOINES 100 100
= 1 x $4
$8 $4 $3
– 1 x $5
EVANSVILLE 200 100 300 + 1 x $8
– 1 x $4 = +$3
$9 $7 $5
WAREHOUSE
300 200 200 700
REQUIREMENTS
5-295
Step 4. Now compute an improvement index (Iij) for the Des

Moines–Boston route.
Add the costs in the squares with plus signs and subtract the costs in the squares
with minus signs:
Des Moines–Boston
index = IDB = +$4 – $5 + $5 – $4 = + $3
This means for every desk shipped via the Des Moines–Boston route, total
transportation cost will increase by $3 over their current level.
5-296
Step 5. Now examine the Des Moines–Cleveland unused route

which is slightly more difficult to draw.
 Again, only turn corners at squares that represent existing routes.

 Pass through the Evansville–Cleveland square but we can not turn there or
put a + or – sign.
 The closed path we will use is:
+ DC – DA + EA – EB + FB – FC
5-297
Evaluating the Des Moines–Cleveland Shipping Route
TO FACTORY
FROM CAPACITY
$5 $4 Start $3
DES MOINES 100 100
– +
$8 $4 $3
+ –
$9 $7 $5
+ –
WAREHOUSE
300 200 200 700
REQUIREMENTS
Des Moines–Cleveland
improvement index = IDC = + $3 – $5 + $8 – $4 + $7 – $5 = + $4
5-298
Opening the Des Moines–Cleveland route will not lower our total shipping costs.
Evaluating the other two routes we find:
The closed path is

Evansville-
Cleveland index +=ECIEC = + $3 – $4 + $7 – $5 = + $1
– EB + FB – FC
The
Fort closed path is
Lauderdale–
Albuquerque index + FA= I–FAFB
= ++ $9
EB –– $7
EA + $4 – $8 = – $2
Opening the Fort Lauderdale-Albuquerque route will lower our total
transportation costs.
5-299
Obtaining an Improved Solution
• In the Executive Furniture problem there is only one unused

route with a negative index (Fort Lauderdale-Albuquerque).
– If there was more than one route with a negative index, we would
choose the one with the largest improvement
• We now want to ship the maximum allowable number of
units on the new route
• The quantity to ship is found by referring to the closed path of
plus and minus signs for the new route and selecting the
smallest number found in those squares containing minus
signs.
5-300
• To obtain a new solution, that number is added to all squares

on the closed path with plus signs and subtracted from all
squares the closed path with minus signs.
• All other squares are unchanged.
• In this case, the maximum number that can be shipped is 100
desks as this is the smallest value in a box with a negative sign
(FB route).
• We add 100 units to the FA and EB routes and subtract 100
from FB and EA routes.
• This leaves balanced rows and columns and an improved
solution.
5-301
Stepping-Stone Path Used to Evaluate Route F-A

TO FACTORY
A B C
FROM CAPACITY
$5 $4 $3
D 100 100
$8 $4 $3
E 200 100 300
– +
$9 $7 $5
F 100 200 300
+ –
WAREHOUSE
300 200 200 700
REQUIREMENTS
5-302
Second Solution to the Executive Furniture Problem
TO FACTORY
A B C
FROM CAPACITY
$5 $4 $3
D 100 100
$8 $4 $3
E 100 200 300
$9 $7 $5
F 100 200 300
WAREHOUSE
300 200 200 700
REQUIREMENTS
Total shipping costs have been reduced by (100 units) x ($2 saved per unit) and
now equals $4,000.
5-303
• This second solution may or may not be optimal.

• To determine whether further improvement is possible,
we return to the first five steps to test each square that is
now unused.
• The four new improvement indices are:
D to B = IDB = + $4 – $5 + $8 – $4 = + $3
(closed path: + DB – DA + EA – EB)
D to C = IDC = + $3 – $5 + $9 – $5 = + $2
(closed path: + DC – DA + FA – FC)
E to C = IEC = + $3 – $8 + $9 – $5 = – $1
(closed path: + EC – EA + FA – FC)
F to B = IFB = + $7 – $4 + $8 – $9 = + $2
(closed path: + FB – EB + EA – FA)
5-304
Path to Evaluate the E-C Route
TO FACTORY
A B C
FROM CAPACITY
$5 $4 $3
D 100 100
$8 $4 Start $3
E 100 200 300
– +
$9 $7 $5
F 100 200 300
+ –
WAREHOUSE
300 200 200 700
REQUIREMENTS
An improvement can be made by shipping the maximum allowable

number of units from E to C.
5-305
Total cost of third solution:
ROUTE
DESKS PER UNIT TOTAL
FROM TO SHIPPED x COST ($) = COST ($)
D A 100 5 500
E B 200 4 800
E C 100 3 300
F A 200 9 1,800
F C 100 5 500
3,900
5-306
Third and optimal solution:
TO FACTORY
A B C
FROM CAPACITY
$5 $4 $3
D 100 100
$8 $4 $3
E 200 100 300
$9 $7 $5
F 200 100 300
WAREHOUSE
300 200 200 700
REQUIREMENTS
5-307
This solution is optimal as the improvement indices that can

be computed are all greater than or equal to zero.
D to B = IDB = + $4 – $5 + $9 – $5 + $3 – $4 = + $2
(closed path: + DB – DA + FA – FC + EC – EB)
D to C = IDC = + $3 – $5 + $9 – $5 = + $2
(closed path: + DC – DA + FA – FC)
E to A = IEA = + $8 – $9 + $5 – $3 = + $1
(closed path: + EA – FA + FC – EC)
F to B = IFB = + $7 – $5 + $3 – $4 = + $1
(closed path: + FB – FC + EC – EB)
5-308
Summary of Steps in Transportation Algorithm
(Minimization)
1. Set up a balanced transportation table.

2. Develop initial solution using the northwest corner
method method.
3. Calculate an improvement index for each empty cell using
the stepping-stone method. If improvement indices are all
nonnegative, stop as the optimal solution has been found.
If any index is negative, continue to step 4.
4. Select the cell with the improvement index indicating the
greatest decrease in cost. Fill this cell using the stepping-
stone path and go to step 3.
5-309
Unbalanced Transportation Problems
• In real-life problems, total demand is frequently not equal to

total supply.
• These unbalanced problems can be handled easily by
introducing dummy sources or dummy destinations.
• If total supply is greater than total demand, a dummy
destination (warehouse), with demand exactly equal to the
surplus, is created.
• If total demand is greater than total supply, we introduce a
dummy source (factory) with a supply equal to the excess of
demand over supply.
5--310
Special Situations with the Transportation
Algorithm
• Unbalanced Transportation Problems
– In either case, shipping cost coefficients of zero are assigned to each
dummy location or route as no goods will actually be shipped.
– Any units assigned to a dummy destination represent excess capacity.
– Any units assigned to a dummy source represent unmet demand.
5-311
Demand Less Than Supply
• Suppose that the Des Moines factory increases its rate of
production from 100 to 250 desks.
• The firm is now able to supply a total of 850 desks each
period.
• Warehouse requirements remain the same (700) so the row
and column totals do not balance.
• We add a dummy column that will represent a fake
warehouse requiring 150 desks.
• This is somewhat analogous to adding a slack variable.
• We use the stepping-stone method to find the optimal
solution.
5-312
Demand Less Than Supply
Initial Solution to an Unbalanced Problem Where Demand is
Less Than Supply
TO DUMMY TOTAL
FROM
A B C WAREHOUSE AVAILABLE
$5 $4 $3 0
D 250 250
$8 $4 $3 0
E 50 200 50 300
$9 $7 $5 0
F 150 150 300
WAREHOUSE
300 200 200 150 850
REQUIREMENTS
Total cost = 250($5) + 50($8) + 200($4) + 50($3) + 150($5) + 150(0) = $3,350
New Des Moines

capacity
5-313
Demand Greater than Supply
 The second type of unbalanced condition occurs when total demand is
greater than total supply.
 In this case we need to add a dummy row representing a fake factory.
 The new factory will have a supply exactly equal to the difference between
total demand and total real supply.
 The shipping costs from the dummy factory to each destination will be zero.
5-314
Unbalanced Transportation Table for Happy Sound Stereo Company

FROM A B C PLANT SUPPLY
$6 $4 $9
PLANT W 200
$10 $5 $8
PLANT X 175
$12 $7 $6
PLANT Y 75
Totals do
WAREHOUSE 450
DEMAND
250 100 150 not
500
balance
5-315
Initial Solution to an Unbalanced Problem in Which Demand is Greater Than
Supply

PLANT SUPPLY
FROM A B C
$6 $4 $9
PLANT W 200 200
$10 $5 $8
PLANT X 50 100 25 175
$12 $7 $6
PLANT Y 75 75
0 0 0
PLANT Y 50 50
WAREHOUSE
250 100 150 500
DEMAND
Total cost of initial solution = 200($6) + 50($10) + 100($5) + 25($8) + 75($6)

+ $50(0) = $2,850
5-316
Degeneracy in Transportation Problems
• Degeneracy occurs when the number of occupied squares

or routes in a transportation table solution is less than the
number of rows plus the number of columns minus 1.
• Such a situation may arise in the initial solution or in any
subsequent solution.
• Degeneracy requires a special procedure to correct the
problem since there are not enough occupied squares to
trace a closed path for each unused route and it would be
impossible to apply the stepping-stone method.
5-317
Degeneracy in Transportation Problems
• To handle degenerate problems, create an artificially

occupied cell.
• That is, place a zero (representing a fake shipment) in one
of the unused squares and then treat that square as if it
were occupied.
• The square chosen must be in such a position as to allow
all stepping-stone paths to be closed.
• There is usually a good deal of flexibility in selecting the
unused square that will receive the zero.
5-318
Degeneracy in an Initial Solution
• The Martin Shipping Company example illustrates degeneracy

in an initial solution.
• It has three warehouses which supply three major retail
customers.
• Applying the northwest corner rule the initial solution has
only four occupied squares
• To correct this problem, place a zero in an unused square,
typically one adjacent to the last filled cell.
5-319
Degeneracy in an Initial Solution
Initial Solution of a Degenerate Problem

TO WAREHOUSE
CUSTOMER 1 CUSTOMER 2 CUSTOMER 3
FROM SUPPLY
$8 $2 $6
WAREHOUSE 1 100 0 100
$10 $9 $9
WAREHOUSE 2 0 100 20 120
$7 $10 $7
WAREHOUSE 3 80 80
CUSTOMER
100 100 100 300
DEMAND
Possible choices of cells

to address the
degenerate solution
5-320
Degeneracy During Later
Solution Stages
• A transportation problem can become degenerate after

the initial solution stage if the filling of an empty square
results in two or more cells becoming empty
simultaneously.
• This problem can occur when two or more cells with
minus signs tie for the lowest quantity.
• To correct this problem, place a zero in one of the
previously filled cells so that only one cell becomes empty.
5-321
Solution Stages
Bagwell Paint Example

– After one iteration, the cost analysis at Bagwell Paint
produced a transportation table that was not
degenerate but was not optimal.
– The improvement indices are:
factory A – warehouse 2 index = +2

factory A – warehouse 3 index = +1
factory B – warehouse 3 index = –15
factory C – warehouse 2 index = +11
Only route with a

negative index
5-322
Solution Stages
Bagwell Paint Transportation Table

FACTORY
FROM 1 2 3
CAPACITY
$8 $5 $16
FACTORY A 70 70
$15 $10 $7
FACTORY B 50 80 130
$3 $9 $10
FACTORY C 30 50 80
WAREHOUSE
150 80 50 280
REQUIREMENT
5-323
Solution Stages
Tracing a Closed Path for the Factory B – Warehouse 3 Route
TO
WAREHOUSE 1 WAREHOUSE 3
FROM
$15 $7
FACTORY B 50
– +
$3 $10
FACTORY C 30 50
+ –
 This would cause two cells to drop to zero.

 We need to place an artificial zero in one of these cells to avoid degeneracy.
5-324
More Than One Optimal Solution
• It is possible for a transportation problem to have multiple
optimal solutions.
• This happens when one or more of the improvement
indices is zero in the optimal solution.
– This means that it is possible to design alternative shipping routes
with the same total shipping cost.
– The alternate optimal solution can be found by shipping the most
to this unused square using a stepping-stone path.
• In the real world, alternate optimal solutions provide
management with greater flexibility in selecting and using
resources.
5-325
Maximization Transportation Problems
• If the objective in a transportation problem is to maximize

profit, a minor change is required in the transportation
algorithm.
• Now the optimal solution is reached when all the
improvement indices are negative or zero.
• The cell with the largest positive improvement index is
selected to be filled using a stepping-stone path.
• This new solution is evaluated and the process continues
until there are no positive improvement indices.
5-326
Unacceptable Or Prohibited Routes
• At times there are transportation problems in which one of

the sources is unable to ship to one or more of the
destinations.
– The problem is said to have an unacceptable or prohibited route.
• In a minimization problem, such a prohibited route is assigned
a very high cost to prevent this route from ever being used in
the optimal solution.
• In a maximization problem, the very high cost used in
minimization problems is given a negative sign, turning it into
a very bad profit.
5-327
Facility Location Analysis
• The transportation method is especially useful in helping a
firm to decide where to locate a new factory or warehouse.
• Each alternative location should be analyzed within the
framework of one overall distribution system.
• The new location that yields the minimum cost for the entire
system is the one that should be chosen.
5-328
Locating a New Factory for Hardgrave
Machine Company
• Hardgrave Machine produces computer components at three
plants and ships to four warehouses.
• The plants have not been able to keep up with demand so the
firm wants to build a new plant.
• Two sites are being considered, Seattle and Birmingham.
• Data has been collected for each possible location. Which
new location will yield the lowest cost for the firm in
combination with the existing plants and warehouses?
5-329
Machine Company
Hardgrave’s Demand and Supply Data
MONTHLY
DEMAND PRODUCTION MONTHLY COST TO PRODUCE
WAREHOUSE (UNITS) PLANT SUPPLY ONE UNIT ($)
Detroit 10,000 Cincinnati 15,000 48
Dallas 12,000 Salt Lake 6,000 50
New York 15,000 Pittsburgh 14,000 52
Los Angeles 9,000 35,000
46,000
Supply needed from new plant = 46,000 – 35,000 = 11,000 units per month
ESTIMATED PRODUCTION COST

PER UNIT AT PROPOSED PLANTS
Seattle $53
Birmingham $49
5-330
Machine Company
Hardgrave’s Shipping Costs
TO LOS
FROM DETROIT DALLAS NEW YORK ANGELES
CINCINNATI $25 $55 $40 $60
SALT LAKE 35 30 50 40
PITTSBURGH 36 45 26 66
SEATTLE 60 38 65 27
BIRMINGHAM 35 30 41 50
5-331
Machine Company
Birmingham Plant Optimal Solution: Total Hardgrave Cost is
$3,741,000
TO LOS FACTORY
FROM DETROIT DALLAS NEW YORK ANGELES CAPACITY
73 103 88 108
CINCINNATI 10,000 1,000 4,000 15,000
85 80 100 90
SALT LAKE 1,000 5,000 6,000
88 97 78 118
PITTSBURGH 14,000 14,000
84 79 90 99
BIRMINGHAM 11,000 11,000
WAREHOUSE
10,000 12,000 15,000 9,000 46,000
REQUIREMENT
5-332
Machine Company
Seattle Plant Optimal Solution: Total Hardgrave Cost is $3,704,000.
TO LOS FACTORY
FROM DETROIT DALLAS NEW YORK ANGELES CAPACITY
73 103 88 108
CINCINNATI 10,000 4,000 1,000 15,000
85 80 100 90
SALT LAKE 6,000 6,000
88 97 78 118
PITTSBURGH 14,000 14,000
113 91 118 80
SEATTLE 2,000 9,000 11,000
WAREHOUSE
10,000 12,000 15,000 9,000 46,000
REQUIREMENT
5-333
Machine Company
• By comparing the total system costs of the two

alternatives, Hardgrave can select the lowest cost option:
– The Birmingham location yields a total system cost of $3,741,000.
– The Seattle location yields a total system cost of $3,704,000.
• With the lower total system cost, the Seattle location is
favored.
• Excel QM can also be used as a solution tool.
5-334
Excel QM Solution for Facility Location
Example
5-335
The Assignment Algorithm
• The second special-purpose LP algorithm is the
assignment method.
• Each assignment problem has associated with it a table, or
matrix.
• Generally, the rows contain the objects or people we wish
to assign, and the columns comprise the tasks or things to
which we want them assigned.
• The numbers in the table are the costs associated with
each particular assignment.
• An assignment problem can be viewed as a transportation
problem in which the capacity from each source is 1 and
the demand at each destination is 1.
5-336
Assignment Model Approach
• The Fix-It Shop has three rush projects to repair.
• The shop has three repair persons with different talents
and abilities.
• The owner has estimates of wage costs for each worker
for each project.
• The owner’s objective is to assign the three project to the
workers in a way that will result in the lowest cost to the
shop.
• Each project will be assigned exclusively to one worker.
5-337
Estimated Project Repair Costs for the Fix-It Shop Assignment
Problem
PROJECT
PERSON 1 2 3
Adams $11 $14 $6
Brown 8 10 11
Cooper 9 12 7
5-338
Summary of Fix-It Shop Assignment Alternatives and Costs
PRODUCT ASSIGNMENT
LABOR TOTAL
1 2 3
COSTS ($) COSTS ($)
Adams Brown Cooper 11 + 10 + 7 28
Adams Cooper Brown 11 + 12 + 11 34
Brown Adams Cooper 8 + 14 + 7 29
Brown Cooper Adams 8 + 12 + 6 26
Cooper Adams Brown 9 + 14 + 11 34
Cooper Brown Adams 9 + 10 + 6 25
5-339
The Hungarian Method (Flood’s
Technique)
• The Hungarian method is an efficient method of finding
the optimal solution to an assignment problem without
having to make direct comparisons of every option.
• It operates on the principle of matrix reduction.
• By subtracting and adding appropriate numbers in the
cost table or matrix, we can reduce the problem to a
matrix of opportunity costs.
• Opportunity costs show the relative penalty associated
with assigning any person to a project as opposed to
making the best assignment.
• We want to make assignment so that the opportunity cost
for each assignment is zero.
5-340
Three Steps of the Assignment Method
1. Find the opportunity cost table by:

(a) Subtracting the smallest number in each row of the
original cost table or matrix from every number in
that row.
(b) Then subtracting the smallest number in each column
of the table obtained in part (a) from every number
in that column.
2. Test the table resulting from step 1 to see whether an
optimal assignment can be made by drawing the
minimum number of vertical and horizontal straight lines
necessary to cover all the zeros in the table. If the
number of lines is less than the number of rows or
columns, proceed to step 3.
5-341
Three Steps of the Assignment Method
3. Revise the opportunity cost table by subtracting the

smallest number not covered by a line from all numbers
not covered by a straight line. This same number is also
added to every number lying at the intersection of any
two lines. Return to step 2 and continue the cycle until
an optimal assignment is possible.
5-342
Steps in the
Assignment
Method
5-343
Technique)
• Step 1: Find the opportunity cost table.

– We can compute row opportunity costs and column
opportunity costs.
– What we need is the total opportunity cost.
– We derive this by taking the row opportunity costs and
subtract the smallest number in that column from each
number in that column.
5-344
Technique)
Cost of Each Person-Project Row Opportunity Cost Table for the
Fix-it Shop Step 1, Part (a)
Assignment for the Fix-it
Shop Problem
PROJECT PROJECT
PERSON 1 2 3 PERSON 1 2 3
Adams $11 $14 $6 Adams $5 $8 $0
Brown 8 10 11 Brown 0 2 3
Cooper 9 12 7 Cooper 2 5 0
The opportunity cost of assigning Cooper to project 2 is $12 – $7 = $5.
5-345
Technique)
Derive the total opportunity costs by taking the costs in Table
and subtract the smallest number in each column from each
number in that column.
Total Opportunity Cost Table for the Fix-it Shop Step 1, Part (b)
PROJECT
PERSON 1 2 3
Adams $5 $6 $0
Brown 0 0 3
Cooper 2 3 0
5-346
Technique)
• Step 2: Test for the optimal assignment.
– We want to assign workers to projects in such a way
that the total labor costs are at a minimum.
– We would like to have a total assigned opportunity cost
of zero.
– The test to determine if we have reached an optimal
solution is simple.
– We find the minimum number of straight lines
necessary to cover all the zeros in the table.
– If the number of lines equals the number of rows or
columns, an optimal solution has been reached.
5-347
Technique)
Test for Optimal Solution to Fix-it Shop Problem
PROJECT
PERSON 1 2 3
Adams $5 $6 $0
Brown 0 0 3 Covering line 1
Cooper 2 3 0
Covering line 2
This requires only two lines to cover the zeros so the solution is not optimal.
5-348
Technique)
• Step 3: Revise the opportunity-cost table.
– We subtract the smallest number not covered by a line
from all numbers not covered by a straight line.
– The same number is added to every number lying at
the intersection of any two lines.
– We then return to step 2 to test this new table.
5-349
Technique)
Revised Opportunity Cost Table for the Fix-it Shop Problem
PROJECT
PERSON 1 2 3
Adams $3 $4 $0
Brown 0 0 5
Cooper 0 1 0
5-350
Technique)
Optimality Test on the Revised Fix-it Shop Opportunity Cost Table
PROJECT
PERSON 1 2 3
Adams $3 $4 $0
Brown 0 0 5 Covering line 2
Cooper 0 1 0
Covering line 1 Covering line 3
This requires three lines to cover the zeros so the solution is optimal.
5-351
Making the Final Assignment
• The optimal assignment is Adams to project 3, Brown to
project 2, and Cooper to project 1.
• For larger problems one approach to making the final
assignment is to select a row or column that contains only one
zero.
– Make the assignment to that cell and rule out its row and column.
– Follow this same approach for all the remaining cells.
5-352
Total labor costs of this assignment are:
ASSIGNMENT COST ($)
Adams to project 3 6
Brown to project 2 10
Cooper to project 1 9
Total cost 25
5-353
Making the Final Fix-it Shop Assignments
(A) FIRST (B) SECOND (C) THIRD

ASSIGNMENT ASSIGNMENT ASSIGNMENT
1 2 3 1 2 3 1 2 3
Adams 3 4 0 Adams 3 4 0 Adams 3 4 0
Brown 0 0 5 Brown 0 0 5 Brown 0 0 5
Cooper 0 1 0 Cooper 0 1 0 Cooper 0 1 0
5-354
Excel QM Solution for Fix-It Shop Assignment
Problem
5-355
Unbalanced Assignment Problems
• Often the number of people or objects to be assigned does

not equal the number of tasks or clients or machines listed in
the columns, and the problem is unbalanced.
• When this occurs, and there are more rows than columns,
simply add a dummy column or task.
• If the number of tasks exceeds the number of people
available, we add a dummy row.
• Since the dummy task or person is nonexistent, we enter
zeros in its row or column as the cost or time estimate.
5-356
Unbalanced Assignment Problems
• Suppose the Fix-It Shop has another worker available.
• The shop owner still has the same basic problem of
assigning workers to projects, but the problem now needs
a dummy column to balance the four workers and three
projects.
PROJECT
PERSON 1 2 3 DUMMY
Adams $11 $14 $6 $0
Brown 8 10 11 0
Cooper 9 12 7 0
Davis 10 13 8 0
5-357
Maximization Assignment Problems
• Some assignment problems are phrased in terms of

maximizing the payoff, profit, or effectiveness.
• It is easy to obtain an equivalent minimization problem by
converting all numbers in the table to opportunity costs.
• This is brought about by subtracting every number in the
original payoff table from the largest single number in that
table.
• Transformed entries represent opportunity costs.
• Once the optimal assignment has been found, the total
payoff is found by adding the original payoffs of those cells
that are in the optimal assignment.
5-358
• The British navy wishes to assign four ships to patrol four

sectors of the North Sea.
• Ships are rated for their probable efficiency in each sector.
• The commander wants to determine patrol assignments
producing the greatest overall efficiencies.
5-359
Efficiencies of British Ships in Patrol Sectors

SECTOR
SHIP A B C D
1 20 60 50 55
2 60 30 80 75
3 80 100 90 80
4 65 80 75 70
5-360
Opportunity Costs of British Ships

SECTOR
SHIP A B C D
1 80 40 50 45
2 40 70 20 25
3 20 0 10 20
4 35 20 25 30
5-361
• Convert the maximization efficiency table into a

minimizing opportunity cost table by subtracting each
rating from 100, the largest rating in the whole table.
• The smallest number in each row is subtracted from every
number in that row and the smallest number in each
column is subtracted from every number in that column.
• The minimum number of lines needed to cover the zeros
in the table is four, so this represents an optimal solution.
5-362
Row Opportunity Costs for the British Navy Problem
SECTOR
SHIP A B C D
1 40 0 10 5
2 20 50 0 5
3 20 0 10 20
4 15 0 5 10
5-363
Total Opportunity Costs for the British Navy Problem
SECTOR
SHIP A B C D
1 25 0 10 0
2 5 50 0 0
3 5 0 10 15
4 0 0 5 5
5-364
The overall efficiency
ASSIGNMENT EFFICIENCY
Ship 1 to sector D 55
Ship 2 to sector C 80
Ship 3 to sector B 100
Ship 4 to sector A 65
Total efficiency 300
5-365
Chapter 6
Network Models
Learning Objectives
1. Connect all points of a network while minimizing
total distance using the minimal-spanning tree
technique.
2. Determine the maximum flow through a network
using the maximal-flow technique and linear
programming.
3. Find the shortest path through a network using the
shortest-route technique and linear programming.
4. Understand the important role of software in solving
network problems.
6-367
Introduction
• This chapter covers three network models that can be used to
solve a variety of problems.
• The minimal-spanning tree technique determines a path
through a network that connects all the points while
minimizing the total distance.
• The maximal-flow technique finds the maximum flow of any
quantity or substance through a network.
• The shortest-route technique can find the shortest path
through a network.
6-368
Introduction
• Large scale problems may require hundreds or
thousands of iterations making efficient
computer programs a necessity.
• All types of networks use a common
terminology.
• The points on a network are called nodes and
may be represented as circles of squares.
• The lines connecting the nodes are called arcs.
6-369
Minimal-Spanning Tree Technique
• The minimal-spanning tree technique involves connecting all

the points of a network together while minimizing the
distance between them.
• The Lauderdale Construction Company is developing a
housing project.
• It wants to determine the least expensive way to provide
water and power to each house.
• There are eight houses in the project and the distance
between them is shown in Figure .
6-370
Network for Lauderdale Construction
3
2 5
4
3
5
3 7
7
1 2 2
3
3 8
5 1
2 6
6
4
Gulf
6-371
Steps for the Minimal-Spanning Tree Technique
1. Select any node in the network.

2. Connect this node to the nearest node that minimizes the
total distance.
3. Considering all the nodes that are now connected, find
and connect the nearest node that is not connected. If
there is a tie, select one arbitrarily. A tie suggests there
may be more than one optimal solution.
4. Repeat the third step until all nodes are connected.
6-372
Lauderdale Construction Company
• Start by arbitrarily selecting node 1.

• The nearest node is node 3 at a distance of 2 (200 feet) and
we connect those nodes.
• Considering nodes 1 and 3, we look for the next nearest node.
• This is node 4, the closest to node 3.
• We connect those nodes.
• We now look for the nearest unconnected node to nodes 1, 3,
and 4.
• This is either node 2 or node 6.
• We pick node 2 and connect it to node 3.
6-373
• Following this same process we connect from node 2 to node

5.
• We then connect node 3 to node 6.
• Node 6 will connect to node 8.
• The last connection to be made is node 8 to node 7.
• The total distance is found by adding up the distances in the
arcs used in the spanning tree:
2 + 2 + 3 + 3 + 3 + 1 + 2 = 16 (or 1,600 feet)
6-374
First Iteration for Lauderdale Construction
6-375
Second and Third Iterations for Lauderdale Construction
6-376
Fourth and Fifth Iterations for Lauderdale Construction
6-377
Sixth and Seventh (Final) Iterations for Lauderdale
Construction
6-378
Summary of Steps in Lauderdale Construction Minimal-
Spanning Tree Problem
Step Connected Unconnected Closest Un- Arc Arc Total

Nodes Nodes connected Selected Length Distance
Node
1 1 2,3,4,5,6,7,8 3 1-3 2 2
2 1,3 2,4,5,6,7,8 4 3-4 2 4
3 1,3,4 2,5,6,7,8 2 or 6 2-3 3 7
4 1,2,3,4 5,6,7,8 5 or 6 2-5 3 10
5 1,2,3,4,5 6,7,8 6 3-6 3 13
6 1,2,3,4,5,6 7,8 8 6-8 1 14
7 1,2,3,4,5,6,8 7 7 7-8 2 16
6-379
QM for Windows Solution for Lauderdale Construction
Company Minimal Spanning Tree Problem
6-380
Maximal-Flow Technique
• The maximal-flow technique allows us to determine the
maximum amount of a material that can flow through a
network.
• Waukesha, Wisconsin is in the process of developing a road
system for the downtown area.
• Town leaders want to determine the maximum number of
cars that can flow through the town from west to east.
• The road network is shown in Figure .
• The numbers by the nodes indicate the number of cars that
can flow from the node.
6-381
Road network for Waukesha
Capacity in Hundreds of
Cars per Hour
2
1 2 2 East
1 1 6 Point
3 0
West 2
Point 1
10 0 1 1
4
1
6
1
3 5
0 2
3
6-382
Four steps of the Maximal-Flow Technique
1. Pick any path from the start (source) to the finish
(sink) with some flow. If no path with flow exists, then
the optimal solution has been found.
2. Find the arc on this path with the smallest flow
capacity available. Call this capacity C. This represents
the maximum additional capacity that can be
allocated to this route.
6-383
Four steps of the Maximal-Flow Technique
3. For each node on this path, decrease the flow
capacity in the direction of flow by the amount C. For
each node on the path, increase the flow capacity in
the reverse direction by the amount C.
4. Repeat these steps until an increase in flow is no
longer possible.
6-384
• We start by arbitrarily picking the path 1–2–6 which is at
the top of the network.
• The maximum flow is 2 units from node 2 to node 6.
• The path capacity is adjusted by adding 2 to the
westbound flows and subtracting 2 from the eastbound
flows.
• The result is the new path in Figure which shows the
new relative capacity of the path at this stage.
6-385
Capacity Adjustment for Path 1–2–6 Iteration 1
Add 2
2
1 2 2
6
3
1 Subtract 2
Old Path
0
3 2 4
6
1
1
New Path
6-386
• We repeat this process by picking the path 1–2–4–6.
• The maximum capacity along this path is 1.
• The path capacity is adjusted by adding 1 to the
westbound flows and subtracting 1 from the eastbound
flows.
• The result is the new path in Figure
• We repeat this process by picking the path 1–3–5–6.
• The maximum capacity along this path is 2.
• The Figure shows this adjusted path.
6-387
Second Iteration for Waukesha Road System
3 Add 1
2
1 1 6
1
1
1 1 0
4 2 4
4 0 6
0 2
Subtract 1 0
1 2
Old Path 10 0 2 0
4
1
6
1
3 5
0 2
3
New Network
6-388
Third and Final Iteration for Waukesha Road System
0
4 2 4
0 2 6
0 2
1 2
8 0 2 0
4
1
4
3
3 5
2 0
3
6-389
• There are no more paths from nodes 1 to 6 with unused
capacity so this represents a final iteration.
• The maximum flow through this network is 500 cars.
PATH FLOW (CARS PER HOUR)
1–2–6 200
1–2–4–6 100
1–3–5–6 200
Total 500
6-390
Linear Programming for Maximal Flow
• Define the variables as:
– Xij = flow from node i to node j.
• Goal: Maximize Flow = X61
6-391
Linear Programming for Maximal Flow
Constraints
X12 ≤ 3 X13 ≤ 10 X14 ≤ 2
X21 ≤ 1 X24 ≤ 1 X26 ≤ 2
X34 ≤ 3 X35 ≤ 2 X42 ≤ 1
X43 ≤ 1 X46 ≤ 1 X53 ≤ 1
X56 ≤ 1 X62 ≤ 2 X64 ≤ 1
6-392
Linear Program for Maximal Flow
Constraints continued:
X61 = X12 + X13 + X14 or X61 – X12 – X13 – X14 =0
X12+X42+X62 = X21+X24+X26 or X12+X42+X62-X21-X24-X26 = 0
X13+X43+X53 = X34 +X35 or X13+X43+X53-X34-X35 =0
X14+X24+
X34+X64 = X42 + X43 + X46 or X14+X24 +X34+X64
– X42 – X43 – X53 = 0
X35 = X56 + X53 or X35 – X53 – X56 =0
X26+X46+X56 = X61 or X26 + X46 + X56 – X61 =0
Xij ≥0 and integer
This problems can now be solved in QM for Windows or using Excel Solver.
6-393
QM for Windows Solution for Waukesha Road Network
Maximal Flow Problem
6-394
Shortest-Route Problem
• The shortest-route technique identifies how a person or item
can travel from one location to another while minimizing the
total distance traveled.
• It finds the shortest route to a series of destinations.
• Ray Design, Inc. transports beds, chairs, and other furniture
from the factory to the warehouse.
• The company would like to find the route with the shortest
distance.
• The road network is shown in Figure
6-395
Roads from Ray’s Plant to Warehouse
200
2 4
Plant
50 150
1 6
40
3 5 Warehouse
6-396
Steps of the shortest-route technique:
1. Find the nearest node to the origin (plant). Put the
distance in a box by the node.
2. Find the next-nearest node to the origin and put the
distance in a box by the node. Several paths may have to
be checked to find the nearest node.
3. Repeat this process until you have gone through the
entire network. The last distance at the ending node will
be the distance of the shortest route.
6-397
Shortest-Route Technique
• We can see that the nearest node to the plant is node 2.
• We connect these two nodes.
• After investigation, we find node 3 is the next nearest
node but there are two possible paths.
• The shortest path is 1–2–3 with a distance of 150.
• We repeat the process and find the next node is node 5 by
going through node 3.
• The next nearest node is either 4 or 6 and 6 turns out to
be closer.
• The shortest path is 1–2–3–5–6 with a distance of 290
miles.
6-398
First Iteration for Ray Design
100
200
2 4
Plant
50 150
1 6
40
3 5 Warehouse
6-399
Second Iteration for Ray Design
100
200
2 4
Plant
50 150
1 6
40
150
3 5 Warehouse
6-400
Third Iteration for Ray Design
100
200
2 4
Plant
1 50 150 6
40
3 5 Warehouse
190
150
6-401
Fourth and Final Iteration for Ray Design
100
200
2 4
Plant
290
1 50 150 6
40
3 5 Warehouse
150 190
6-402
Linear Program for Shortest-Route
Problem
• Objective is to minimize the total distance
(cost) from the start to finish.
• Variables:
Xij = 1 if arc from node i to node j is selected
= 0 otherwise.
• It is helpful to view this as a transshipment
problem.
6-403
Linear Program for Shortest-Route
Problem
Minimize distance =
100X12 + 200X13 + 50X23 + 50X32 + 200X24 + 200X42 +
100X25 + 100X52 + 40X35 + 40X53 + 150X45 + 150X54 +
100X46 + 100X56
Subject to:
X12 + X13 =1 Node 1

X12 + X32 – X23 – X24 – X25 =0 Node 2
X13 + X23 – X32 – X35 =0 Node 3
X24 + X54 – X42 – X45 – X46 =0 Node 4
X25 + X35 + X45 – X52 – X53 – X54 – X56 =0 Node 5
X46 + X56 =1 Node 6
All variables = 0 or 1
This problems can now be solved in QM for Windows or using Excel Solver.
6-404
QM for Windows Input Screen for Ray Design,
Inc., Shortest-Route Problem
6-405
QM for Windows Solution Screen for Ray Design, Inc.,
6-406
Chapter 7
Project Management
Learning Objectives
1. Understand how to plan, monitor, and control
projects with the use of PERT and CPM.
2. Determine earliest start, earliest finish, latest start,
latest finish, and slack times for each activity, along
with the total project completion time.
3. Reduce total project time at the least total cost by
crashing the network using manual or linear
programming techniques.
4. Understand the important role of software in project
management.
7-408
Introduction
• Managing large-scale, complicated projects
effectively is a difficult problem and the stakes
are high.
• The first step in planning and scheduling a
project is to develop the work breakdown
structure.
• Time, cost, resource requirements,
predecessors, and people required are
identified for each activity.
• A schedule for the project then can be
developed. 7-409
Introduction
• The program evaluation and review technique
(PERT) and the critical path method (CPM) are two
popular quantitative analysis techniques to help
plan, schedule, monitor, and control projects.
• Originally the approaches differed in how they
estimated activity times.
– PERT used three time estimates to develop a probabilistic estimate
of completion time.
– CPM was a more deterministic technique.
• They have become so similar they are commonly
considered one technique, PERT/CPM.
7-410
Six Steps of PERT/CPM
1. Define the project and all of its significant activities or tasks.
2. Develop the relationships among the activities and decide
which activities must precede others.
3. Draw the network connecting all of the activities.
4. Assign time and/or cost estimates to each activity.
5. Compute the longest time path through the network; this is
called the critical path.
6. Use the network to help plan, schedule, monitor, and
control the project.
The critical path is important since any delay in these activities can delay the
completion of the project.
7-411
PERT/CPM
Given the large number of tasks in a project, it is easy to see
why the following questions are important:
1. When will the entire project be completed?
2. What are the critical activities or tasks in the project, that is, the
ones that will delay the entire project if they are late?
3. Which are the non-critical activities, that is, the ones that can run
late without delaying the entire project’s completion?
4. If there are three time estimates, what is the probability that the
project will be completed by a specific date?
7-412
PERT/CPM
5. At any particular date, is the project on schedule, behind
schedule, or ahead of schedule?
6. On any given date, is the money spent equal to, less than, or
greater than the budgeted amount?
7. Are there enough resources available to finish the project on
time?
7-413
General Foundry Example of PERT/CPM
• General Foundry, Inc. has long been trying to avoid the

expense of installing air pollution control equipment.
• The local environmental protection group has recently
given the foundry 16 weeks to install a complex air filter
system on its main smokestack.
• General Foundry was warned that it will be forced to close
unless the device is installed in the allotted period.
• They want to make sure that installation of the filtering
system progresses smoothly and on time.
7-414
Activities and immediate predecessors for General Foundry
IMMEDIATE
ACTIVITY DESCRIPTION
PREDECESSORS
A Build internal components —
B Modify roof and floor —
C Construct collection stack A
D Pour concrete and install frame B
E Build high-temperature burner C
F Install control system C
G Install air pollution device D, E
H Inspect and test F, G
7-415
Drawing the PERT/CPM Network
• There are two common techniques for drawing PERT

networks.
• Activity-on-node (AON) where the nodes represent
activities.
• Activity-on-arc (AOA) where the arcs are used to represent
the activities.
• The AON approach is easier and more commonly found in
software packages.
• One node represents the start of the project, one node for
the end of the project, and nodes for each of the
activities.
• The arcs are used to show the predecessors for each
activity.
7-416
Network for General Foundry
7-417
Activity Times
• In some situations, activity times are known with certainty.
• The CPM assigns just one time estimate to each activity and
this is used to find the critical path.
• In many projects there is uncertainty about activity times.
• PERT employs a probability distribution based on three time
estimates for each activity, and a weighted average of these
estimates is used for the time estimate and this is used to
determine the critical path.
– PERT often assumes time estimates follow a beta probability
distribution.
7-418
Activity Times
The time estimates in PERT are:
Optimistic time (a) = time an activity will take if everything

goes as well as possible. There should
be only a small probability (say, 1/100) of
this occurring.
Pessimistic time (b) = time an activity would take assuming
very unfavorable conditions. There
should also be only a small probability
that the activity will really take this long.
Most likely time (m) = most realistic time estimate to complete
the activity
7-419
Activity Times
Beta Probability Distribution with Three Time Estimates
7-420
Activity Times
To find the expected activity time (t), the beta distribution
weights the estimates as follows:
a  4m  b
t
6
To compute the dispersion or variance of activity completion time, we use the

formula:
ba
2
Variance   
 6 
7-421
Activity Times
Time estimates (weeks) for General Foundry
MOST EXPECTED
OPTIMISTIC, PROBABLE, PESSIMISTIC, TIME, VARIANCE,
ACTIVITY a m b t = [(a + 4m + b)/6] [(b – a)/6]2
A 1 2 3 2 4/36
B 2 3 4 3 4/36
C 1 2 3 2 4/36
D 2 4 6 4 16/36
E 1 4 7 4 36/36
F 1 2 9 3 64/36
G 3 4 11 5 64/36
H 1 2 3 2 4/36
25
7-422
How to Find the Critical Path
• We accept the expected completion time for each task as the
actual time for now.
• The total of 25 weeks in Table does not take into account the
obvious fact that some of the tasks could be taking place at
the same time.
• To find out how long the project will take we perform the
critical path analysis for the network.
• The critical path is the longest path through the network.
7-423
General Foundry’s Network With Expected Activity Times
7-424
To find the critical path, we need to determine the following
quantities for each activity in the network.
1. Earliest start time (ES): the earliest time an activity can begin
without violation of immediate predecessor requirements.
2. Earliest finish time (EF): the earliest time at which an activity
can end.
3. Latest start time (LS): the latest time an activity can begin
without delaying the entire project.
4. Latest finish time (LF): the latest time an activity can end
without delaying the entire project.
7-425
In the nodes, the activity time and the early and late start
and finish times are represented in the following manner.
ACTIVITY t
ES EF
LS LF
Earliest times are computed as:
Earliest finish time = Earliest start time

+ Expected activity time
EF = ES + t
Earliest start = Largest of the earliest finish times of
immediate predecessors
ES = Largest EF of immediate predecessors
7-426
• At the start of the project we set the time to zero.
• Thus ES = 0 for both A and B.
A t =2
ES = 0 EF = 0 + 2 = 2
Start
B t =3
ES = 0 EF = 0 + 3 = 3
7-427
General Foundry’s Earliest Start (ES) and Earliest Finish (EF)
times
7-428
Latest times are computed as
Latest start time = Latest finish time
– Expected activity time
LS = LF – t
Latest finish time = Smallest of latest start times

for following activities
LF = Smallest LS of following activities
For activity H:
LS = LF – t = 15 – 2 = 13 weeks
7-429
General Foundry’s Latest Start (LS) and Latest Finish (LF) times
7-430
• Once ES, LS, EF, and LF have been determined, it is a
simple matter to find the amount of slack time that each
activity has:
Slack = LS – ES, or Slack = LF – EF
• From Table we see activities A, C, E, G, and H have no slack
time.
• These are called critical activities and they are said to be
on the critical path.
• The total project completion time is 15 weeks.
• Industrial managers call this a boundary timetable.
7-431
General Foundry’s Schedule and Slack Times
EARLIEST EARLIEST LATEST LATEST ON

START, FINISH, START, FINISH, SLACK, CRITICAL
ACTIVITY ES EF LS LF LS – ES PATH?
A 0 2 0 2 0 Yes
B 0 3 1 4 1 No
C 2 4 2 4 0 Yes
D 3 7 4 8 1 No
E 4 8 4 8 0 Yes
F 4 7 10 13 6 No
G 8 13 8 13 0 Yes
H 13 15 13 15 0 Yes
7-432
General Foundry’s Critical Path
7-433
Probability of Project Completion
• The critical path analysis helped determine the expected

project completion time of 15 weeks.
• But variation in activities on the critical path can affect
overall project completion, and this is a major concern.
• If the project is not complete in 16 weeks, the foundry will
have to close.
• PERT uses the variance of critical path activities to help
determine the variance of the overall project.
variances of activities on the

Project variance = ∑ critical path
7-434
• From Table 12.2 we know that
ACTIVITY VARIANCE
A 4/36
C 4/36
E 36/36
G 64/36
H 4/36
 Hence, the project variance is
Project variance = 4/36 + 4/36 + 36/36 + 64/36 + 4/36 = 112/36 = 3.111
7-435
• We know the standard deviation is just the square root of

the variance, so:
Project standard deviation   T  Project variance

 3.11  1.76 weeks
 We assume activity times are independent and that total project completion
time is normally distributed.
7-436
Probability Distribution for Project Completion
Times
7-437
The standard normal equation can be applied as follows:
Due date  Expected date of completion

Z
T
16 weeks  15 weeks
  0.57
1.76 weeks
 From Appendix A we find the probability of 0.71566 associated with this Z
value.
 That means the probability this project can be completed in 16 weeks or less
is 0.716.
7-438
Probability of General Foundry Meeting the 16-
week Deadline
7-439
What PERT Was Able to Provide
• PERT has been able to provide the project manager with
several valuable pieces of information.
• The project’s expected completion date is 15 weeks.
• There is a 71.6% chance that the equipment will be in
place within the 16-week deadline.
• Five activities (A, C, E, G, H) are on the critical path.
• Three activities (B, D, F) are not critical but have some
slack time built in.
• A detailed schedule of activity starting and ending dates
has been made available.
7-440
Using Excel QM in the General Foundry
Example
Excel QM Initialization Screen for General Foundry Example with Three Time
Estimates
7-441
Using Excel QM in the General Foundry
Example
Excel QM Input Screen and Solution for General Foundry Example with Three
Time Estimates
7-442
Sensitivity Analysis and
Project Management
• The time required to complete an activity can vary from
the projected or expected time.
• If the activity is on the critical path, the completion time
of the project will change.
• This will also have an impact on ES, EF, LS, and LF times for
other activities.
• The exact impact depends on the relationship between
the various activities.
• A predecessor activity is one that must be accomplished
before the given activity can be started.
• A successor activity is one that can be started only after
the given activity is finished.
7-443
Sensitivity Analysis and
Project Management
Impact of an Increase (Decrease) in an Activity Time for a
Critical Path Activity
SUCCESSOR PARALLEL PREDECESSOR
ACTIVITY TIME ACTIVITY ACTIVITY ACTIVITY
Earliest start Increase (decrease) No change No change
Earliest finish Increase (decrease) No change No change
Latest start Increase (decrease) Increase (decrease) No change
Latest finish Increase (decrease) Increase (decrease) No change
Slack No change Increase (decrease) No change
7-444
PERT/COST
• Although PERT is an excellent method of monitoring and
controlling project length, it does not consider the very
important factor of project cost.
• PERT/Cost is a modification of PERT that allows a manager to
plan, schedule, monitor, and control cost as well as time.
• Using PERT/Cost to plan, schedule, monitor, and control
project cost helps accomplish the sixth and final step of PERT.
7-445
Planning and Scheduling Project Costs: Budgeting
Process
• The overall approach in the budgeting process of a

project is to determine how much is to be spent
every week or month.
• This can be accomplished in four basic budgeting
steps:
7-446
Four Steps of the Budgeting Process
1. Identify all costs associated with each of the activities

then add these costs together to get one estimated cost
or budget for each activity.
2. In large projects, activities can be combined into larger
work packages. A work package is simply a logical
collection of activities.
3. Convert the budgeted cost per activity into a cost per
time period by assuming that the cost of completing any
activity is spent at a uniform rate over time.
4. Using the ES and LS times, find out how much money
should be spent during each week or month to finish the
project by the date desired.
7-447
Budgeting for General Foundry
• The Gantt chart in Figure illustrates this process.

• The horizontal bars shown when each activity will be
performed based on its ES-EF times.
• We determine how much will be spent on each activity during
each week and fill these amounts into a chart in place of the
bars.
• The following two tables show the activity costs and budgeted
cost for the General Foundry project.
7-448
Gantt chart General Foundry project
7-449
Activity costs for General Foundry, Inc.
EARLIEST LATEST TOTAL BUDGETED
START, START, EXPECTED BUDGETED COST PER
ACTIVITY ES LS TIME, t COST ($) WEEK ($)
A 0 0 2 22,000 11,000
B 0 1 3 30,000 10,000
C 2 2 2 26,000 13,000
D 3 4 4 48,000 12,000
E 4 4 4 56,000 14,000
F 4 10 3 30,000 10,000
G 8 8 5 80,000 16,000
H 13 13 2 16,000 8,000
Total 308,000
7-450
Budgeted Cost (Thousands of Dollars) for General
Foundry, Inc., Using Earliest Start Times
WEEK
ACTIVITY 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 TOTAL
A 11 11 22
B 10 10 10 30
C 13 13 26
D 12 12 12 12 48
E 14 14 14 14 56
F 10 10 10 30
G 16 16 16 16 16 80
H 8 8 16
308
Total per week 21 21 23 25 36 36 36 14 16 16 16 16 16 8 8
Total to date 21 42 65 90 126 162 198 212 228 244 260 276 292 300 308
7-451
• It is also possible to prepare a budget based on the latest

starting time.
• This budget will delay the expenditure of funds until the last
possible moment.
• The following table shows the latest start budget for the
General Foundry project.
• The two tables form a budget range.
• Any budget can be chosen between these two values
depending on when the company wants to actually spend the
money.
• The budget ranges are plotted in Figure
7-452
Budgeted Cost (Thousands of Dollars) for General
Foundry, Inc., Using Latest Start Times
WEEK
ACTIVITY 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 TOTAL
A 11 11 22
B 10 10 10 30
C 13 13 26
D 12 12 12 12 48
E 14 14 14 14 56
F 10 10 10 30
G 16 16 16 16 16 80
H 8 8 16
308
Total per week 11 21 23 23 26 26 26 26 16 16 26 26 26 8 8
Total to date 11 32 55 78 104 130 156 182 198 214 240 266 292 300 308
7-453
Budget Ranges for General Foundry
7-454
Monitoring and Controlling Project Costs
• Costs are monitored and controlled to ensure the project is

progressing on schedule and that cost overruns are kept to a
minimum.
• The status of the entire project should be checked
periodically.
• The following table shows the state of the project in the sixth
week.
• It can be used the answer questions about the schedule and
costs so far.
7-455
Monitoring and Controlling Budgeted Cost
VALUE OF
TOTAL WORK ACTIVITY
BUDGETED PERCENT OF COMPLETED ACTUAL DIFFERENCE
ACTIVITY COST ($) COMPLETION ($) COST ($) ($)
A 22,000 100 22,000 20,000 –2,000
B 30,000 100 30,000 36,000 6,000
C 26,000 100 26,000 26,000 0
D 48,000 10 4,800 6,000 1,200
E 56,000 20 11,200 20,000 8,800
F 30,000 20 6,000 4,000 –2,000
G 80,000 0 0 0 0
H 16,000 0 0 0 0
Total 100,000 112,000 12,000
Overrun
7-456
Monitoring and Controlling Project Costs
The value of work completed, or the cost to date for any

activity, can be computed as follows:
Value of work (Percentage of work complete)
completed = x (Total activity budget)
The activity difference is also of interest:
Activity difference = Actual cost

– Value of work completed
A negative activity difference is a cost underrun and a positive activity difference

is a cost overrun.
7-457
Project Crashing
• Projects will sometimes have deadlines that are
impossible to meet using normal procedures.
• By using exceptional methods it may be possible to
finish the project in less time than normally required
at a greater cost.
• Reducing a project’s completion time is called
crashing.
7-458
Project Crashing
• Crashing a project starts with using the normal time to create
the critical path.
• The normal cost is the cost for completing the activity using
normal procedures.
• If the project will not meet the required deadline,
extraordinary measures must be taken.
– The crash time is the shortest possible activity time and will require
additional resources.
– The crash cost is the price of completing the activity in the earlier-
than-normal time.
7-459
Four Steps to Project Crashing
1. Find the normal critical path and identify the
critical activities.
2. Compute the crash cost per week (or other time
period) for all activities in the network using the
formula:
Crash cost – Normal cost

Crash cost/Time period = Normal time – Crash time
7-460
Four Steps to Project Crashing
3. Select the activity on the critical path with the
smallest crash cost per week and crash this
activity to the maximum extent possible or to
the point at which your desired deadline has
been reached.
4. Check to be sure that the critical path you were
crashing is still critical. If the critical path is still
the longest path through the network, return to
step 3. If not, find the new critical path and
return to step 2.
7-461
General Foundry
• Suppose that General Foundry has been given 14 weeks
instead of 16 weeks to install the new equipment.
• The critical path for the project is 15 weeks.
• What options does the firm have?
– The normal and crash times and costs are shown in Table .
– Crash costs are assumed to be linear and Figure shows the crash
cost for activity B.
• Crashing activities B and A will shorten the completion
time to 14 but it creates a second critical path.
• Any further crashing must be done to both critical paths.
7-462
General Foundry
Normal and Crash Data for General Foundry, Inc.
TIME (WEEKS) COST ($) CRASH
COST PER CRITICAL
ACTIVITY NORMAL CRASH NORMAL CRASH WEEK ($) PATH?
A 2 1 22,000 23,000 1,000 Yes
B 3 1 30,000 34,000 2,000 No
C 2 1 26,000 27,000 1,000 Yes
D 4 3 48,000 49,000 1,000 No
E 4 2 56,000 58,000 1,000 Yes
F 3 2 30,000 30,500 500 No
G 5 2 80,000 86,000 2,000 Yes
H 2 1 16,000 19,000 3,000 Yes
7-463
General Foundry
Crash and Normal Times and Costs for Activity B
7-464
Project Crashing with
Linear Programming
• Linear programming is another approach to finding
the best project crashing schedule.
• The data needed are derived from the normal and
crash data for General Foundry and the project
network with activity times.
7-465
Linear Programming
General Foundry’s Network With Activity Times
7-466
Linear Programming
The decision variables for the problem are:
XA = EF for activity A
XB = EF for activity B
XC = EF for activity C
XD = EF for activity D
XE = EF for activity E
XF = EF for activity F
XG = EF for activity G
XH = EF for activity H
Xstart = start time for project (usually 0)
Xfinish = earliest finish time for the project
7-467
Linear Programming
• Additional decision variables for the problem are:
Y = the number of weeks that each activity is crashed.
YA = the number of weeks activity A is crashed and so forth up to YH.
 The objective function is
Minimize crash cost = 1,000YA + 2,000YB + 1,000YC + 1,000YD +

1,000YE + 500YF + 2,000YG + 3,000YH
7-468
Linear Programming
• Crash time constraints  This completion constraint specifies
that the last event must take place
ensure activities are not before the project deadline:
crashed more than is
allowed.
YA ≤1
YB ≤2
Xfinish ≤ 12
YC ≤1
YD ≤1
 This constraint indicates the project
YE ≤2
is finished when activity H is
YF ≤1 finished:
YG ≤3
YH ≤1
Xfinish ≥ XH
7-469
Linear Programming
Constraints describing the network have the form:
EF time ≥ EF time for predecessor + Activity time
EF ≥ EFpredecessor + (t – Y), or
X ≥ Xpredecessor + (t – Y)
For activity A, XA ≥ Xstart + (2 – YA) or XA – Xstart + YA ≥ 2

For activity B, XB ≥ Xstart + (3 – YB) or XB – Xstart + YB ≥ 3
For activity C, XC ≥ XA + (2 – YC) or XC – XA + YC ≥ 2
For activity D, XD ≥ XB + (4 – YD) or XD – XB + YD ≥ 4
For activity E, XE ≥ XC + (4 – YE) or XE – XC + YE ≥ 4
For activity F, XF ≥ XC + (3 – YF) or XF – XC + YF ≥ 3
For activity G, XG ≥ XD + (5 – YG) or XG – XD + YG ≥ 5
For activity G, XG ≥ XE + (5 – YG) or XG – XE + YG ≥ 5
For activity H, XH ≥ XF + (2 – YH) or XH – XF + YH ≥ 2
For activity H, XH ≥ XG + (2 – YH) or XH – XG + YH ≥ 2
7-470
Solution to Crashing Problem Using Solver in
Excel
7-471
Other Topics in Project Management
• Subprojects
– For extremely large projects, an activity may be made of
several smaller sub-activities which can be viewed as a
smaller project or subproject of the original .
• Milestones
– Major events in a project are often referred to as
milestones and may be reflected in Gantt charts and PERT
charts to highlight the importance of reaching these
events.
7-472
Other Topics in Project Management
• Resource Leveling
– Resource leveling adjusts the activity start away from
the early start so that resource utilization is more
evenly distributed over time.
• Software
– There are many project management software
packages on the market for both personal computers
and larger mainframe machines.
– Most of these create PERT charts and Gantt charts and
can be used to develop budget schedules, adjust future
start times, and level resource utilization.
7-473
Chapter 8
Waiting Lines and Queuing Theory

Models
Learning Objectives
1. Describe the trade-off curves for cost-of-waiting
time and cost of service.
2. Understand the three parts of a queuing system: the
calling population, the queue itself, and the service
facility.
3. Describe the basic queuing system configurations.
4. Understand the assumptions of the common models
dealt with in this chapter.
5. Analyze a variety of operating characteristics of
waiting lines.
8-475
Chapter Outline
8.1 Introduction
8.2 Waiting Line Costs
8.3 Characteristics of a Queuing System
8.4 Single-Channel Queuing Model with Poisson
Arrivals and Exponential Service Times (M/M/1)
8.5 Multichannel Queuing Model with Poisson Arrivals
and Exponential Service Times (M/M/m)
8-476
Chapter Outline
8.6 Constant Service Time Model (M/D/1)
8.7 Finite Population Model (M/M/1 with Finite
Source)
8.8 Some General Operating Characteristic
Relationships
8.9 More Complex Queuing Models and the Use of
Simulation
8-477
Introduction
• Queuing theory is the study of waiting lines.
• It is one of the oldest and most widely used
quantitative analysis techniques.
• The three basic components of a queuing
process are arrivals, service facilities, and
the actual waiting line.
• Analytical models of waiting lines can help
managers evaluate the cost and
effectiveness of service systems.
8-478
Waiting Line Costs
• Most waiting line problems are focused

on finding the ideal level of service a firm
should provide.
• In most cases, this service level is
something management can control.
• When an organization does have control,
they often try to find the balance
between two extremes.
8-479
Waiting Line Costs
• There is generally a trade-off between cost of
providing service and cost of waiting time.
– A large staff and many service facilities generally
results in high levels of service but have high costs.
– Having the minimum number of service facilities
keeps service cost down but may result in
dissatisfied customers.
• Service facilities are evaluated on their total expected
cost which is the sum of service costs and waiting
costs.
• Organizations typically want to find the service level
that minimizes the total 8-480
expected cost.
Queuing Costs and Service Levels
8-481
Three Rivers Shipping Company
• Three Rivers Shipping operates a docking facility on the

Ohio River.
• An average of 5 ships arrive to unload their cargos each
shift.
• Idle ships are expensive.
• More staff can be hired to unload the ships, but that is
expensive as well.
• Three Rivers Shipping Company wants to determine the
optimal number of teams of stevedores to employ each
shift to obtain the minimum total expected cost.
8-482
Three Rivers Shipping Company Waiting Line
Cost Analysis
NUMBER OF TEAMS OF STEVEDORES
WORKING
1 2 3 4
(a) Average number of ships arriving 5 5 5 5
per shift
(b) Average time each ship waits to 7 4 3 2
be unloaded (hours)
(c) Total ship hours lost per shift 35 20 15 10
(a x b)
(d) Estimated cost per hour of idle $1,000 $1,000 $1,000 $1,000
ship time
(e) Value of ship’s lost time or waiting $35,000 $20,000 $15,000 $10,000
cost (c x d)
(f) Stevedore team salary or service $6,000 $12,000 $18,000 $24,000
cost
(g) Total expected cost (e + f) $41,000 $32,000 $33,000 $34,000
Optimal cost
8-483
Characteristics of a Queuing System
• There are three parts to a queuing system:

1. The arrivals or inputs to the system (sometimes referred
to as the calling population).
2. The queue or waiting line itself.
3. The service facility.
• These components have their own characteristics
that must be examined before mathematical models
can be developed.
8-484
Arrival Characteristics have three major

characteristics: size, pattern, and behavior.
– The size of the calling population can be either
unlimited (essentially infinite) or limited (finite).
– The pattern of arrivals can arrive according to a
known pattern or can arrive randomly.
• Random arrivals generally follow a Poisson
distribution.
8-485
Behavior of arrivals
– Most queuing models assume customers are
patient and will wait in the queue until they
are served and do not switch lines.
– Balking refers to customers who refuse to join
the queue.
– Reneging customers enter the queue but
become impatient and leave without receiving
their service.
– That these behaviors exist is a strong argument
for the use of queuing theory to managing
waiting lines.
8-486
Waiting Line Characteristics

– Waiting lines can be either limited or unlimited.
– Queue discipline refers to the rule by which customers in
the line receive service.
• The most common rule is first-in, first-out (FIFO).
• Other rules are possible and may be based on other important
characteristics.
– Other rules can be applied to select which customers
enter which queue, but may apply FIFO once they are in
the queue.
8-487
Service Facility Characteristics

– Basic queuing system configurations:
• Service systems are classified in terms of the
number of channels, or servers, and the number of
phases, or service stops.
• A single-channel system with one server is quite
common.
• Multichannel systems exist when multiple servers
are fed by one common waiting line.
• In a single-phase system, the customer receives
service form just one server.
• In a multiphase system, the customer has to go
through more than one server.
8-488
Four
basic
queuing
system
configur
ations
8-489
Service time distribution

– Service patterns can be either constant or random.
– Constant service times are often machine controlled.
– More often, service times are randomly distributed
according to a negative exponential probability
distribution.
– Analysts should observe, collect, and plot service time
data to ensure that the observations fit the assumed
distributions when applying these models.
8-490
Identifying Models Using
Kendall Notation
• D. G. Kendall developed a notation for queuing models
that specifies the pattern of arrival, the service time
distribution, and the number of channels.
• Notation takes the form:
Arrival Service time Number of service

distribution distribution channels open
 Specific letters are used to represent probability distributions.
M = Poisson distribution for number of occurrences
D = constant (deterministic) rate
G = general distribution with known mean and variance
8-491
Identifying Models Using
Kendall Notation
• A single-channel model with Poisson arrivals and
exponential service times would be represented by:
M/M/1
• If a second channel is added the notation would read:
M/M/2
• A three-channel system with Poisson arrivals and constant
service time would be
M/D/3
• A four-channel system with Poisson arrivals and normally
distributed service times would be
M/G/4
8-492
Single-Channel Model, Poisson Arrivals, Exponential
Service Times (M/M/1)
Assumptions of the model:

– Arrivals are served on a FIFO basis.
– There is no balking or reneging.
– Arrivals are independent of each other but the arrival
rate is constant over time.
– Arrivals follow a Poisson distribution.
– Service times are variable and independent but the
average is known.
– Service times follow a negative exponential distribution.
– Average service rate is greater than the average arrival
rate.
8-493
• When these assumptions are met, we can

develop a series of equations that define
the queue’s operating characteristics.
• Queuing Equations:
Let
= mean number of arrivals per time period

= mean number of customers or units served per time period
The arrival rate and the service rate must be defined for the same time
period.
8-494
1. The average number of customers or units in the system,

L:

L
 
2. The average time a customer spends in the system, W:
1
W

3. The average number of customers in the queue, Lq:
2
Lq 
(   )
8-495
4. The average time a customer spends waiting in the queue,

Wq:

Wq 
(   )
5. The utilization factor for the system, , the probability the service facility is
being used:



8-496
6. The percent idle time, P0, or the probability no one is in

the system:

P0  1 

7. The probability that the number of customers in

the system is greater than k, Pn>k:
k 1

Pn k  

8-497
ARNOLD’S MUFFLER SHOP
Example
• Arnold’s mechanic can install mufflers at a rate of 3 per
hour.
• Customers arrive at a rate of 2 per hour.
• So:
 = 2 cars arriving per hour
 = 3 cars serviced per hour
 2 2
L    2 cars in the system
  32 1
on average
1 1
W   1 hour that an average car
  32
spends in the system
8-498
Example
2 22 4
Lq     1.33 cars waiting in line on
 (    ) 3(3  2) 3(1) average
 2
Wq   hour  40 minutes average
(   ) 3 waiting time per car
 2
    0.67  percentage of time
 3 mechanic is busy
 2
P0  1   1   0.33  probability that there are 0
 3 cars in the system
8-499
Example
Probability of more than k cars in the system
k Pn>k = (2/3)k+1
0 0.667 Note that this is equal to 1 – P0 = 1 – 0.33 = 0.667

1 0.444
2 0.296
3 0.198 Implies that there is a 19.8% chance that more
than 3 cars are in the system
4 0.132
5 0.088
6 0.058
7 0.039
8-500
Excel QM Solution to Arnold’s Muffler Example
8-501
Example
• Introducing costs into the model:
– Arnold wants to do an economic analysis of the
queuing system and determine the waiting cost
and service cost.
– The total service cost is:
Total service = (Number of channels)

cost x (Cost per channel)
Total service = mCs
cost
8-502
Example
Waiting cost when the cost is based on time in the system:
Total waiting (Total time spent waiting by all

=
cost arrivals) x (Cost of waiting)
(Number of arrivals) x (Average wait
=
per arrival)Cw
Total waiting
cost = (W)Cw
If waiting time cost is based on time in the queue:

Total = (Wq)Cw
waiting cost 8-503
Example
So the total cost of the queuing system when based

on time in the system is:
Total cost = Total service cost + Total waiting cost

Total cost = mCs + WCw
And when based on time in the queue:
Total cost = mCs + WqCw

8-504
Example
• Arnold estimates the cost of customer waiting time in line
is $50 per hour.
Total daily = (8 hours per day)WqCw

waiting cost = (8)(2)(2/ )($50) = $533.33
3
 Arnold has identified the mechanics wage $7 per hour as the service cost.
Total daily = (8 hours per day)mCs

service cost = (8)(1)($15) = $120
 So the total cost of the system is:

Total daily cost of
= $533.33 + $120 = $653.33
the queuing system 8-505
Example
• Arnold is thinking about hiring a different mechanic who
can install mufflers at a faster rate.
• The new operating characteristics would be:
 = 2 cars arriving per hour
 = 4 cars serviced per hour
 2 2
L    1 car in the system on
  42 2 the average
1 1
W   1/2 hour that an average car
  42 spends in the system
8-506
Example
2 22 4
Lq     1/2 car waiting in line on
 (    ) 4( 4  2) 8(1) the average
 1
Wq   hour  15 minutes average
(   ) 4 waiting time per car
 2
    0.5  percentage of time
 4 mechanic is busy
 2
P0  1   1   0.5  probability that there are 0
 4 cars in the system
8-507
Example
Probability of more than k cars in the system
k Pn>k = (2/4)k+1
0 0.500
1 0.250
2 0.125
3 0.062
4 0.031
5 0.016
6 0.008
7 0.004
8-508
Example
• The customer waiting cost is the same $50 per hour:
Total daily = (8 hours per day)WqCw

waiting
= (8)(2)(1/4)($50) = $200.00
cost
 The new mechanic is more expensive at $20 per hour:
Total daily = (8 hours per day)mCs

service cost
= (8)(1)($20) = $160
 So the total cost of the system is:
Total daily cost of the
queuing system = $200 + $160 = $360
8-509
Example
• The total time spent waiting for the 16 customers per day
was formerly:
(16 cars per day) x (2/3 hour per car) = 10.67 hours
• It is now:
(16 cars per day) x (1/4 hour per car) = 4 hours
• The total daily system costs are less with the new
mechanic resulting in significant savings:
$653.33 – $360 = $293.33
8-510
Enhancing the Queuing Environment
• Reducing waiting time is not the only way to reduce

waiting cost.
• Reducing the unit waiting cost (Cw) will also reduce
total waiting cost.
• This might be less expensive to achieve than
reducing either W or Wq.
8-511
Multichannel Queuing Model with Poisson Arrivals
and Exponential Service Times (M/M/m)
Assumptions of the model:

– Arrivals are served on a FIFO basis.
– There is no balking or reneging.
– Arrivals are independent of each other but the arrival
rate is constant over time.
– Arrivals follow a Poisson distribution.
– Service times are variable and independent but the
average is known.
– Service times follow a negative exponential distribution.
– The average service rate is greater than the average
arrival rate.
8-512
Multichannel Queuing Model with Poisson Arrivals and
Exponential Service Times (M/M/m)
• Equations for the multichannel queuing model:
• Let
m = number of channels open
 = average arrival rate
 = average service rate at each channel
1. The probability that there are zero customers in

the system is:
1
P0  for m  
nm1 1    n
 1    m m
       
 n0 n!     m!    m  
8-513
Multichannel Model, Poisson Arrivals, Exponential
Service Times (M/M/m)
2. The average number of customers or units in the system
 ( /  )  m
L P 
( m  1)! ( m   ) 2 0

3. The average time a unit spends in the waiting line or being served, in the system
 ( /  ) 1 L m
W P  
( m  1)! ( m   ) 2 0
 
8-514
Multichannel Model, Poisson Arrivals, Exponential
Service Times (M/M/m)
4. The average number of customers or units in line waiting
for service

Lq  L 

5. The average number of customers or units in line waiting for service
1 Lq
Wq  W  
 
6. The average number of customers or units in line waiting for service


m
8-515
Example Revisited
• Arnold wants to investigate opening a second garage bay.
• He would hire a second worker who works at the same
rate as his first worker.
• The customer arrival rate remains the same.
1
P0  for m  
 n  m 1
1 
n
 1  m
m
   
n!   
   
 n 0  m!    m  
1
P0   0.5
 1 21 n
 1  2  2(3)
2
     
 n 0 n!  3   2!  3  2(3)  2
 probability of 0 cars in8-516
the system
Example Revisited
• Average number of cars in the system

 ( /  ) m 
L P
(m  1)!(m   ) 2 0

2(3)(2 / 3) 2 1 2
L ( )   0.75
(1)![2(3)  2] 2 3
2
 Average time a car spends in the system
L 3
W  hour  22 1 minutes
 8 8-517
2
Example Revisited
• Average number of cars in the queue

 3 2 1
Lq  L      0.083
 4 3 12
 Average time a car spends in the queue
1
0.083 Lq
Wq  W     0.0415 hour  2 1 minutes
  2 2
8-518
Example Revisited
• Adding the second service bay reduces the waiting time in
line but will increase the service cost as a second
mechanic needs to be hired.
Total daily waiting cost = (8 hours per day)WqCw
= (8)(2)(0.0415)($50) = $33.20
Total daily service cost = (8 hours per day)mCs

= (8)(2)($15) = $240
 So the total cost of the system is
Total system cost = $33.20 + $240 = $273.20
 This is the cheapest option: open the second bay and hire a second worker at
the same $15 rate.
8-519
Effect of Service Level on Arnold’s Operating
Characteristics
LEVEL OF SERVICE
ONE TWO ONE FAST
OPERATING MECHANIC MECHANICS MECHANIC
CHARACTERISTIC =3  = 3 FOR BOTH =4
Probability that the system
0.33 0.50 0.50
is empty (P0)
Average number of cars in
2 cars 0.75 cars 1 car
the system (L)
Average time spent in the
60 minutes 22.5 minutes 30 minutes
system (W)
Average number of cars in
1.33 cars 0.083 car 0.50 car
the queue (Lq)
Average time spent in the
40 minutes 2.5 minutes 15 minutes
queue (Wq)
8-520
Excel QM Solution to Arnold’s Muffler
Multichannel Example
8-521
Constant Service Time Model (M/D/1)
• Constant service times are used when customers or

units are processed according to a fixed cycle.
• The values for Lq, Wq, L, and W are always less than
they would be for models with variable service time.
• In fact both average queue length and average
waiting time are halved in constant service rate
models.
8-522
1. Average length of the queue
2
Lq 
2 (    )
2. Average waiting time in the queue

Wq 
2 (    )
8-523
3. Average number of customers in the system

L  Lq 

4. Average time in the system
1
W  Wq 

8-524
GARCIA-GOLDING RECYCLING, INC.
Example
• The company collects and compacts aluminum cans
and glass bottles.
• Trucks arrive at an average rate of 8 per hour (Poisson
distribution).
• Truck drivers wait about 15 minutes before they
empty their load.
• Drivers and trucks cost $60 per hour.
• A new automated machine can process truckloads at
a constant rate of 12 per hour.
• A new compactor would be amortized at $3 per truck
unloaded.
8-525
Analysis of cost versus benefit of the purchase

Current waiting cost/trip = (1/4 hour waiting time)($60/hour cost)
= $15/trip
New system:  = 8 trucks/hour arriving
 = 12 trucks/hour served
Average waiting
time in queue = Wq = 1/12 hour
Waiting cost/trip
with new compactor = (1/12 hour wait)($60/hour cost) = $5/trip
Savings with
new equipment = $15 (current system) – $5 (new system)
= $10 per trip
Cost of new equipment
amortized = $3/trip
Net savings = $7/trip
8-526
Excel QM Solution for Constant Service Time Model
with Garcia-Golding Recycling Example
8-527
Finite Population Model
(M/M/1 with Finite Source)
• When the population of potential customers is limited,
the models are different.
• There is now a dependent relationship between the
length of the queue and the arrival rate.
• The model has the following assumptions:
1. There is only one server.
2. The population of units seeking service is finite.
3. Arrivals follow a Poisson distribution and service
times are exponentially distributed.
4. Customers are served on a first-come, first-served
basis.
8-528
Equations for the finite population model:

Using  = mean arrival rate,  = mean service rate, and N
= size of the population, the operating characteristics
are:
1. Probability that the system is empty:

1
P0 
N!   
N n
  
n  0 ( N  n)!   
8-529
2. Average length of the queue:
  
Lq  N   1  P0 
  
3. Average number of customers (units) in the system:
L  Lq  1 P0 
4. Average waiting time in the queue:
Lq
Wq 
( N  L)
8-530
5. Average time in the system:
1
W  Wq 

6. Probability of n units in the system:
N!   
n
Pn    P0 for n  0,1,..., N
 N  n!   
8-531
Department of Commerce
• The Department of Commerce has five printers that each

need repair after about 20 hours of work.
• Breakdowns will follow a Poisson distribution.
• The technician can service a printer in an average of about
2 hours, following an exponential distribution.
• Therefore:
 = 1/20 = 0.05 printer/hour
 = 1/2 = 0.50 printer/hour
8-532
DEPARTMENT OF COMMERCE
Example
1. 1
P0  n
 0.564
5
5!  0.05 
  
n  0 (5  n)!  0.5 
2.
 0.05  0.5 
Lq  5   1  P0   0.2 printer
 0.05 
3. L  0.2  1 0.564   0.64 printer
8-533
DEPARTMENT OF COMMERCE
Example
4. 0.2 0.2
Wq    0.91 hour
(5  0.64 )0.05  0.22
1
5. W  0.91   2.91 hours
0.50
If printer downtime costs $120 per hour and the technician is paid $25 per hour,
the total cost is:
Total (Average number of printers down)

hourly = (Cost per downtime hour)
cost + Cost per technician hour
= (0.64)($120) + $25 = $101.80
8-534
Excel QM For Finite Population Model with Department
of Commerce Example
8-535
Some General Operating Characteristic
Relationships
• Certain relationships exist among specific operating
characteristics for any queuing system in a steady state.
• A steady state condition exists when a system is in its
normal stabilized condition, usually after an initial
transient state.
• The first of these are referred to as Little’s Flow Equations:
L = W (or W = L/)
Lq = Wq (or Wq = Lq/)
 And
W = Wq + 1/
8-536
More Complex Queuing Models and the Use of
Simulation
• In the real world there are often variations from basic
queuing models.
• Computer simulation can be used to solve these more
complex problems.
• Simulation allows the analysis of controllable factors.
• Simulation should be used when standard queuing models
provide only a poor approximation of the actual service
system.
8-537
Thanks
SEID T.

Introduction To Quantitative Analysis

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Introduction To Quantitative Analysis

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Chapter 1

• Mathematical tools have been used for

• Quantitative factors are data that can be accurately

Acquiring Input Data

Testing the Solution

Analyzing the Results

Implementing the Results

Scale models Schematic

Input data must be accurate – GIGO rule:

Changes occur over time, so even successful

A mathematical model of profit:

Profit = Revenue – Expenses

Profit = Revenue – (Fixed cost + Variable cost)

Profit = (Selling price per unit)(number of units sold) – [Fixed cost +

If sales = 0, profits = -f = –$1,000.

BEP = $1,000/($10 – $5) = 200 units

Linear Programming Models:

Graphical and Computer Methods

PROPERTIES OF LINEAR PROGRAMS

Painting and varnishing 2 1 100

Profit per unit $70 $50

 We create the LP objective function in terms of T and C:

This means that each table produced requires two hours of

T ≥ 0 (number of tables produced is greater than or equal

The complete problem stated mathematically:

Maximize profit = $70T + $50C

4T + 3C ≤ 240 (carpentry constraint)

 The easiest way to solve a small LP problems is

Quadrant Containing All Positive Values

• The first step in solving the problem is to identify a

• When ABC company produces no tables, the

Graph of carpentry constraint equation

• The point (30, 40) lies on the plot and exactly

• To produce tables and chairs, both departments must

• For the point (30, 20)

 For the point (70, 40)

• For the point (50, 5)

Painting 2T + 1C ≤ 100 hours available

– $2,800 = $70T + $50C

 Substituting 40 for C in either of the original equations allows us to

Because Point 3 returns the highest profit,

1. Graph all constraints and find the feasible region.

CORNER POINT METHOD

1. Graph all constraints and find the feasible region.

2. Find the corner points of the feasible reason.

 First select the Linear Programming

QM for Windows Linear Programming Computer

QM for Windows Data Input for ABC

QM for Windows Output for ABC Furniture Problem

 The Solver tool in Excel can be used to

 Recall the model for ABC Furniture is:

1. Enter the variable names, the coefficients

Excel Data Input for the ABC Furniture Example

Formulas for the ABC Furniture Example

Excel Spreadsheet for the ABC Furniture Example

 Once the model has been entered, the following

1. In the Set Objective box, enter the cell

COMPOSITION OF EACH POUND

• Use the corner point method.

The lowest cost solution is to purchase 8.4 pounds of

(X1 = 8.4, X2 = 4.8)

3– Isoprofit Line for $8