Management Science and Information Management

Autumn 2021
Homework 2: Integer Programming

Assigned: Dec 2; Due: Dec 16, 6:30 pm.

Please post the assignment in pdf format with file name “Firstname Lastname MS HW2.pdf ”to TA Xuan
Zhou 2001110963@stu.pku.edu.cn.

In this homework, you will formulate several Integer Programming models.

Please pay attention to the following guidelines:
– When asked to “formulate” an optimization model, no computation is required, but you need to define
your decision variables, the objective function and the constraints of your problem mathematically.
– When asked to “implement” the model, you need to solve the model in Excel. In these instances, please
include in your submission: (i) a screenshot of your spreadsheet, (ii) a screenshot of your spreadsheet
with the formulas (obtained with Ctrl+∼), and (iii) the solver setting that you used.
– Please make sure to specify which variables are integer and/or binary in your formulations.

Problem 1: Facility Location [60 pts]

Beer & Co. produces and sells beer in the China. It targets 5 primary markets: Beijing, Shanghai,
Guangzhou, Chengdu, and Taiyuan. Based on market research, it expects to sell 12,000 thousand barrels
(denoted as 12,000 units) of beer per year, distributed as follows: 2,500 units in Beijing, 2,000 units in
Shanghai, 3,500 units in Guangzhou, 700 units in Chengdu and 3,300 units in Taiyuan. In order to enter the
market, it needs to plan the construction of its manufacturing facilities and the production and distribution
of the beer. It considers 4 facilities, with the construction cost, production cost and production capacity
reported in Table 1. The transportation cost between the potential facilities and the markets served are
reported in Table 2.

Table 1: Characteristics of each potential facility

Location Construction cost Production cost Capacity

Plant 1 $7,500,000 $10,000 /unit 4,500 unit/year
Plant 2 $6,000,000 $18,000 /unit 6,500 unit/year
Plant 3 $5,000,000 $15,000 /unit 2,500 unit/year
Plant 4 $9,000,000 $20,000 /unit 5,000 unit/year

Table 2: Transportation cost between cities ($ per unit)

Location Beijing Shanghai Guangzhou Chengdu Taiyuan

Plant 1 $5,400 $5,600 $6,000 $3,000 $7,000
Plant 2 $2,000 $5,000 $5,000 $4,000 $12,000
Plant 3 $7,000 $12,000 $11,000 $9,000 $12,000
Plant 4 $6,000 $3,000 $2,000 $5,000 $10,000

Let us first assume that the company aims to minimize facility construction cost only, while ensuring that,
in combination, the facilities will have enough capacity to serve the total customer demand. We disregard
production and transportation cost for now.

MSIM 2021 Assignment 2 1

 a. Formulate the problem as an integer programming model. [10 pts]
b. Create a spreadsheet model for this problem, and report the optimal solution. Comment briefly on the
intuition behind the solution. [10 pts]

We now account for production cost. We want to determine the set of facilities to build and the number
of beer to produce in each facility, to minimize the sum of construction cost and production cost, while
ensuring that enough beer will be produced across all the facilities to serve the total customer demand. We
still disregard transportation cost.

c. Formulate the new problem as an integer programming model. [10 pts]

d. Create a spreadsheet model for this problem, and report the optimal solution. Comment on its simi-
larities and differences with the solution in b. [10 pts]

Last, we want to determine the production plan that minimizes total cost. In other words, we need to
decide which facilities to build, how much beer to produce in each plant, and how much beer to transport
from each plant to each market in order to minimize the sum of facility construction cost, production cost
and transportation cost.

e. Formulate the new problem as an integer programming model. [10 pts]

f. Create a spreadsheet model for this problem, and report the optimal solution. Comment on its simi-
larities and differences with the solution in b. and d. [10 pts]

Problem 2: Startup Team Formation [40 pts]

You are considering forming a team with entrepreneurs for your startup company Driverless & Co. You
plan to form a founding team of 5 members (except yourself). You have narrowed down a lit of 10 candidates
from your collaborators, friends, and colleagues. Table 3 lists, for each candidate, your subjective score to
quantify their ability in “Technology”, “Management”, and “Team Spirit”.

Table 3: Scores for each candidate

Candidate Technology Management Team Spirit

1 8 6 9
2 7 8 9
3 9 7 6
4 9 5 8
5 8 9 6
6 7 6 9
7 7 8 6
8 8 5 8
9 7 7 7
10 6 9 8

You aim to form the team that maximizes the average score of technology. But in addition, you need to
comply with the following consideration:
– The average score of management across your team needs to be at least 6.0 and the average score of
team spirit needs to be at least 7.0.

MSIM 2021 Assignment 2 2

 – You need at least 3 members who are in charge of technology development, and at least 1 member who
are in charge of internal management. Candidates 1, 3, 4, 5, and 8 can take charge of the technology
development. Candidates 2, 5, 7, and 10 can take charge of the internal management.
– You need to select at least 1 candidate from previous employees of Uber UTG. Candidates 3, 4, and 8
are previous employees of Uber UTG.
– Due to earlier conflicts, Candidate 3 tell you that he would not join the team if Candidate 5 or
Candidate 7 is in the team.
– Candidate 4 and 8 are very good collaborators and they tell you that they can only join the team
together.

a. Formulate the problem of team formation as an integer programming model. [10 pts]
b. Create a spreadsheet model for this problem, and report the optimal solution. What is the selected
team? What is the average score of technology across all selected candidates? [10 pts]

c. Even though there is no direct way of performing sensitivity analyses in integer programming, you still
want to test the impact of the requirement of minimum values of the average scores of management
and team spirit. Vary these numbers and re-run your model a few times. Report the average score of
technology across all selected candidates as a function of these two values. [10 pts]

In many cases, a model is not only used to select the one absolute “best” solution, but to generate a
small number of “good” solutions—which can then be discussed among decision-makers. You now aim to
generate three solutions instead of a single one—even though they may not all maximize the average score
of technology. You revert here to the original case by ensuring that the average scores of management and
team spirit exceed 6.0 and 7.0, respectively.

d. Propose a methodology to generate the second-best solution and the third-best solution. Implement it
on your spreadsheet. What is the average score of technology across all selected candidates across the
three solutions? [10 pts]

MSIM 2021 Assignment 2 3