Quantitative Methods II Course Project 1

Title:

Under the guidance of:

Dr. Vinay Yadav & Dr. Sujeet Kr. Singh

Prepared by:
Group 4, Section A
Neha Roy MBA20032
Piyush Chawla MBA20034
Raafeeq Dawara MBA20035
Rahul MBA20036
Rashi Joshi MBA20037
Ravi Mahawar MBA20038
Ritu Tiwari MBA20039
Ritvika Bhadoria MBA20040
Rohit Dhania MBA20042

December 2020
Quantitative Methods II Course Project 2

Acknowledgment

We would like to extend our gratitude to Dr. Vinay Yadav and Dr. Sujeet Kr. Singh for his
invaluable lessons on Quantitative Methods II as well as their aspiring guidance and
illuminating views on several concepts on linear programming that helped us develop and
progress in the project. We are also grateful to Indian Institute of Management Jammu for
providing the opportunity and resources to work on this project.
Quantitative Methods II Course Project 3

Contents

Sl.No. Particulars Page No.

1. Introduction 4

2. Methodology 5

3. Results and Discussions 7

4. Conclusions 8

5. Bibliography 9
Quantitative Methods II Course Project 4

Introduction
In the contemporary world, there have been changes in the buying behaviour of the
customers. People find comfort in placing orders online for the products that they want to
purchase. Thus, the businesses are trying to modify their business models to offer
convenience to their customers. For this purpose, we are trying to simulate this real-life
business scenario into a hypothetical business unit to understand the various constraints that
businesses face and bridge the gap. In our project, we will be working upon Vit-RUN Pvt.
Ltd., a hypothetical business entity which wants to bring changes in their existing business
model to cater to the needs of the customers, thereby retaining or increasing its market share.
Vit-RUN Pvt. Ltd. is a popular chain of retail outlets in Patnipur city which offers apparels
and accessories for men, women, and kids. Currently it has eight retail outlets in the outskirts
of Patnipur. However, due to the steep competition that it faces from giant e-commerce units
like Myntra, Amazon, Flipkart, etc., it is considering various options to address the
continuous changes in the buying habits of its existing customers. So, they are planning to
come up with a business model that provides the customers to buy the products from these
retail outlets from the comfort of their homes. Vit-RUN Pvt. Ltd. is planning to launch an
app, which will be accessed by the customers to purchase any kind of apparel or accessories
that they want to purchase from their retail stores. Once the order is placed, Vit-RUN Pvt.
Ltd. will check the delivery address of the customer and then decide which retail outlet will
process the purchase and deliver the products to the customer. The decision of allotting the
retail outlet will be based on the minimum cost of delivery.

Motivation:
The motivation behind developing this new business model for the company is to ensure it
adapts to the changes and retain the customers by putting minimum efforts in the delivery
process. Efficient delivery system will also lead to optimal consumption of fuel and energy.
Since the company initially did not have a home delivery network in place, the new business
model will also help them to generate more employment.

Objective:
The objective of this project is to utilise the various concepts that we have learned in
Operation Research and extend our learnings to develop business model which helps to
reduce the costs incurred in delivering the products to the customers from the retail outlets in
the outskirts of Patnipur.

Problem statement:
The company, Vit-RUN is planning to launch an app in order to cater the customer online. In
doing so the company is facing issues in efficiently delivering to the customers. The company
has 8 retail stores located in the outskirts of the city. The transportation process needs to be
designed in a way that it is minimises cost keeping various factors under consideration. The
solution must be such that the limited supply that each store can provide is taken into
consideration and at the same time, each region’s demand can be met.
Quantitative Methods II Course Project 5

Methodology
Assumptions:
The data that we have taken is self-generated in nature, which is about the problem faced by
Vit-RUN Pvt. Ltd. in previous scenarios.
1. The expense that is taken into consideration is only about the delivery cost. All other forms
of costs are ignored.
2. There is no sudden increase in demand and supply of our product over any day.
3.If there is any increase in demand then exact supplies are matched to meet the demands.

Linear Programming Problem:

The problem statement that we have identified is a linear programming problem, which
consists of a linear function, called objective function, that can be either maximized or
minimized subjected to certain constraints which are linear equations or inequalities. The
variables involved should be non-negative or zero.

Simplex Method:
This method is an algebraic procedure and is used to solve linear programming problems by
hand or by LINGO, using slack variables, tableaus, in which sequence of repetitive
operations are carried out to find the optimal solution of the problem. To solve the small
problem, this approach is used. For complex problems with several variables, this approach is
much faster than other algorithms for solving linear problems. The graphical method will fail
when there are more than three variables, so instead of using that Simplex method is used to
solve problems quite efficiently. It is used in various applications in economics, like in
optimizing the price given supply and demand. It allows to improve the solution at each step.

LINGO:
To develop our business model, we have used LINGO, which is a modelling software
designed to build and solve Linear, Non-Linear and Integer optimization problems/models.
With its straightforward and powerful modelling language, it offers a comprehensive
environment for building and editing models along with extensive built-in solvers.

Brief of selected solution technique:

Our objective is to minimise the delivery cost function, that is minimise z, where
z=120*xa1 + 150*xa2 + 171*xa3 + 122*xa4 + 130*xa5 + 170*xa6 + 106*xa7 + 111*xa8 + 100*xb1
+ 120*xb2 + 136*xb3 + 142*xb4 + 123*xb5 + 143*xb6 + 169*xb7 + 100*xb8 + 110*xc1 + 153*xc2 +
164*xc3 + 170*xc4 + 131*xc5 + 164*xc6 + 147*xc7 + 140*xc8 + 140*xd1 + 120*xd2 + 119*xd3 +
125*xd4 + 112*xd5 + 170*xd6 + 139*xd7 + 102*xd8 + 150*xe1 + 174*xe2 + 132*xe3 + 170*xe4 +
155*xe5 + 159*xe6 + 144*xe7 + 136*xe8
Quantitative Methods II Course Project 6

subjected to constraints-
xa1+xa2+ xa3+ xa4+ xa5+ xa6+ xa7+ xa8+ =1000
xb1+ xb2+ xb3+ xb4+ xb5+ xb6+ xb7+ xb8=1050
xc1+ xc2+ xc3+ xc4+ xc5+ xc6+ xc7+ xc8=1500
xd1+ xd2+ xd3+ xd4+ xd5+ xd6+ xd7+ xd8=1200
xe1+ xe2+ xe3+ xe4+ xe5+ xe6+ xe7+ xe8=1000
xa1+ xb1+ xc1+ xd1+ xe1=678
xa2+ xb2+ xc2+ xd2+ xe2=702
xa3+ xb3+ xc3+ xd3+ xe3=700
xa4+ xb4+ xc4+ xd4+ xe4=750
xa5+ xb5 + xc5+ xd5+ xe5=680
xa6+ xb6+ xc6+ xd6+ xe6=804
xa7+ xb7+ xc7+ xd7+ xe7=746
xa8+ xb8+ xc8+ xd8+ xe9=690
xa1>=0; xa2>=0; xa3>=0; xa4>=0; xa5>=0; xa6>=0; xa7>=0; xa8>=0; xb1>=0; xb2>=0; xb3>=0;
xb4>=0; xb5>=0; xb6>=0; xb7>=0; xb8>=0; xc1>=0; xc2>=0; xc3>=0; xc4>=0; xc5>=0; xc6>=0;
xc7>=0; xc8>=0; xd1>=0; xd2>=0; xd3>=0; xd4>=0; xd5>=0; xd6>=0; xd7>=0; xd8>=0; xe1>=0;
xe2>=0; x xe3>=0; xe4>=0; xe5>=0; xe6>=0; xe7>=0; xe8>=0
where,
xji denotes number of deliveries that ith retail outlet will deliver to the jth region,
where i denotes the number of stores, i = 1,2,3,4,5,6,7,8
and j denotes the sub-divisions of the city, j = a (Civil Lines), b (Model Town), c (Raja
Palace), d (CP), e (South Campus)

Brief description of data:

We have generated dummy data to analyse the problem and subsequently optimise it, and the
same model can be used in similar real-life business scenarios. We have generated the data
which consists of price per delivery from the eight outlets to the different customers in the
five sub-divisions- CP, Civil Lines, Raja Palace, South Campus and Model Town. The
demand column and the supply row contain information about the number of products
demanded by the customers in various sub-divisions and supplied by the eight retail outlets,
respectively.
The data has been generated while considering the following assumptions-
1. All the products (apparels and accessories) that Vit-RUN Pvt. Ltd. sells are available
in all the eight outlets.
Quantitative Methods II Course Project 7

2. The prices of the different products are same across all the retail outlets.
3. The demand remains uniform throughout the week, i.e., there is no sudden surge or
fall in demand of the products.
4. Patnipur city is divided into five divisions- CP, Civil Lines, Raja Palace, South
Campus, and Model Town. All the customers of Vit-RUN Pvt. Ltd. belong to one of
these divisions.
5. Each delivery will involve only one product.
6. Each customer has a distinct address.
7. Each customer orders only one product.

Results and Discussions

Figure 1. Data displayed in three table from the excel sheet used for calculation
Presentation and analysis of results:
Table 1 in Figure 1 represents the demand of the customers from the 5 sub-divisions and the
supply by each outlet. The cells in the light green region denote the price per delivery from
Quantitative Methods II Course Project 8

the outlet to the customer in a specific region, for example 120 denotes the price per delivery
from store 1 to Civil Lines, and so on.
From Table 2 in Figure 1, we can infer that since the demand of Civil Lines is 1000 products,
so LINGO has provided us a solution from which we deduce that not every store needs to
deliver products to the region to meet its demand. For example, only 4th and 7th store can
participate in meeting the demands of customers from Civil Lines to minimise the cost, and
so on. Thus, the solution has been obtained in such a way that the limited supply that each
store can provide is taken into consideration and at the same time, each region’s demand can
be met.
Table 3 has certain pink-shaded cells which represent the total cost the store will incur in
delivering the products to the different regions. For example, store 4 will incur Rs. 30,988
(122*254) for delivering the products to Civil Lines customers, and so on.

Important findings and results:

Using this business model, the total cost incurred by Vit-RUN Pvt. Ltd. in delivering their
products to the customers in the various regions of Patnipur will be Rs. 7,04,122. In the
absence of the business model, the total cost would have been Rs. 9,00,210. Thus, the
business model that we have developed can help the company optimise their delivery costs
and thus it can be extended to real-life businesses who want to optimise their costs to achieve
operational excellence. The solution that we have obtained also ensures that the limited
supply that each store can provide is taken into consideration and at the same time, each
region’s demand can be met.

Conclusion
The analysis of the problem statement conveys us about the various parameters that
businesses take into consideration while adapting new business models. In this case, Vit-
RUN Pvt. Ltd. wants to offer its customers the convenience of purchasing the apparels and
accessories at the comfort of their homes and for this, the company wishes to start delivering
the products to the customers. The most significant cost that it would incur would be the
delivery costs, and in order to minimise their costs to earn good margin of profits, the linear
programming method comes to the rescue. We found that there is a significant difference in
the costs before and after the implementation of the model. The company can save Rs.
1,96,088 which it can invest in other aspects of the business which will help in the expansion
of the business network. The model will help the company to become cost-efficient and enjoy
a sustainable business experience.

Future prospects of the project:

Since it is a hypothetical business model, it can be extrapolated to similar businesses to
achieve operational efficiency. This will help sustain the business model by catering to the
needs of their customers in both retail outlets as well as online platforms. This will also help
to expand the network within the city as well as offer the services in other cities and towns.
Quantitative Methods II Course Project 9

This model is based on various assumptions, and considering the real-time scenario, this may
require certain improvisations and amendments according to achieve the desired returns.
Quantitative Methods II Course Project 10

Bibliography
Hillier, F.S., Lieberman, G. J., Nag, B. & Preetam, B. (2019) Introduction to Operations

Research (Tenth Edition). McGraw Hill Education (India) Private Limited. ISBN

978-93-392-2185-0

Murthy, R. M. (2007) Operations Research (Second Edition). New Age International (P)

Limited, Publishers. ISBN 978-81-224-2944-2

Mahto, D. (2012, December 1) Essentials of Operations Research, Chapter 2. Retrieved from

https://www.researchgate.net/publication/297715752 Last accessed on December 30,

2020