Dire Dawa University

College of Business and Economics

Department of Management

Course Title: Quantitative techniques for decision making

Model: linear programming

Prepared By;

1. Abdulkadir Usman GSE/0084/11

2. Bereket
3. Hassen Bushra GSE/0097/11
4. Murad
5. Tigist Ababu GSE/0105/11
6. Tizibt Tekle GSE/0106/11

Submitted to:

Aschalew M. (Assistance Professor)

June, 2019

Dire Dawa, Ethiopia

Table of contents page

Chapter 1: Introduction
1.1. Linear programming model --------------------------------------------------- 1
1.2. Components of LP model ----------------------------------------------------- 1 -2
1.3. Background about the study organization ---------------------------------- 2 - 3
1.4. Objectives of the project ------------------------------------------------------ 3

Chapter 2: Actual practice of the company -----------------------------------------3- 5

2.1. Model Formulation--------------------------------------------------------- 5-6
2.2. Linear Programming Model Formulation Steps ---------------------- 6- 8

Chapter 3: Expected practice -------------------------------------------------------- 8

1.1. 3.1. Graphical Linear Programing Methods --------------------------------- 9- 11

1.5. Chapter 4: Major gaps between the current and expected practice---12

1.6. Chapter 5: Conclusions and Recommendations --------------------------- 12

 1. Introduction
1.1. Linear programming model
Linear Programming is Mathematical Programming that is concerned with efficient allocation of
limited resources to known activities with the objective of meeting a desired goal of
maximization of profit or minimization of cost. Linear programming determines the way to
achieve the best outcome (such as maximum profit or lowest cost) in a given mathematical
model and given some list of requirement as linear equation. Linear programming can be applied
to various fields of study. Most extensively, it is used in business and economic situation and
also in some industries it can be used include transportation, energy, telecommunications and
production or manufacturing companies. To this extent, linear programming has proved useful in
modeling diverse types of problems in planning, routing, scheduling assignment and design

Linear programming models are mathematical representations of LP problems. Linear

programming models have certain characteristics in common. Knowledge of these characteristics
enables us to recognize problems that are amenable to a solution using LP models, and to be able
to correctly formulate an LP model. These characteristics can be grouped as components and
assumptions. The components relate to the structure of a model, whereas the assumptions reveal
the conditions under which the model is valid.

1.2. Components of LP model

There are four major components of LP models including: Objective function, decision variables,
constraints and parameters.
Objective and Objective Function
The objective in problem solving is the criterion by which all decisions are evaluated. It provides
the focus for problem solving. In linear programming models, a single, quantifiable objective
must be specified by the decision maker. Because we are dealing with optimization, the objective
will be either maximization or minimization. Hence, every LP problem will be either
maximization or a minimization problem. Once the objective is specified, it becomes the
measure of effectiveness against which alternate solutions are judged. An LP model consists of a
mathematical statement of the objective called the objective function.

Decision variables
They represent unknown quantities to be solved for. The decision maker can control the value of
the objective, which is achieved through choices in the levels of decision variables. For example,
how much of each product should be produced in order to obtain the greatest profit?
Constraints
However, the ability of a decision maker to select values of the decision variables in an LP
problem is subject to certain restrictions or limits coming from a variety of sources. The
restrictions may reflect availabilities of resources (e.g., raw materials, labor time, etc.), legal or
contractual requirements (e.g., product standards, work standards, etc.), technological
requirements (e.g., necessary compressive strength or tensile strength) or they may reflect other
limits based on forecasts, customer orders, company policies, and so on. In LP model, the
restrictions are referred to as constraints. Only solutions that satisfy all constraints in a model are
acceptable and are referred to as feasible solutions. The optimal solution will be the one that
provides the best value for the objective function.
Constraints can be arranged into three groups:
System constraints – involve more than one decision variable,
Individual constraints – involve only one variable, and
Non-negativity constraints – specify that no variable will be allowed to take on a negative value.
The non-negativity constraints typically apply in an LP model.

Parameters
The objective function and the constraints consist of symbols that represent the decision
variables (e.g., X1, X2, etc.) and numerical values called parameters. The parameters are fixed
values that specify the impact that one unit of each decision variable will have on the objective
and on any constraint it pertains to as well as the numerical value of each constraint.

1.3. Background about the study organization

Konel soap & Detergent factory is one of private soap factory that is found in Dire Dawa
Administration. Initially the factory was organized by Ethiopian three business partners and the
factory started to build in 2015 G.C and started work in2017 G.C, at a moment the factory carries
more than 100 workers and more than 7 truck that transporting raw materials and products from
place to place. The company is a manufacturing company that produces bar soaps & liquid
detergent and their packaging materials such as plastic bottles. And in the near time the company
will start to produce shampoo.

We want to do LP model on manufacturing company, so konel industrial PLC also one of the
industry found in Dire Dawa city and also the marketing department head is willing to give the
information to us, so team decided to do the project on this company.
This study is conducted for three reasons.
 Firstly, there is no reliable and comprehensive study to examine the role of linear
programming in Konel industrial PLC.
 Secondly, it might pave the way forward for the company, to understand the different
roles of in the development process.
 Finally, this study advances the knowledge of linear programming in decision making.

1.4. Objectives of the project

The main objectives are:
 To formulate a linear programming model that would suggest a possible product-mix to
ensure optimum profit for Company.
 To highlight the peculiarities of using linear programming technique for the Company
and prove that despite obstacles, the application of the technique in determining the
product-mix of the company.
 To know about the constraints of the company regarding cost, resources.
 To identify the Major gaps between the current & expected practice and giving
Recommendations based on the finding.

Questions of Case Study

 How is the company currently making decision on the allocation of resources for the
production of its products to maximize its sales and profit?
 Whether the company uses qualitative decisions or employs mathematical/statistical
models or both?
 Whether the current method adopted in making decision is effective or not?
 Whether the resources available are sufficient for production of the products to satisfy the
demands of the customers?

Significance of the Case Study

It helps to understand the best way of making decisions using quantitative models in order to
determine its optimal product-mixes that can maximize its profits subject to the scarce resources
it has. The study will provide a deep understanding and insight of the applications of linear
programming models in the company and how to apply such models in practical way.

2. Actual practice of the company

The current practice of the company was reviewed by collecting data by different means and the
data was collected a quantitative data in nature and a qualitative data also taken by interviewing
the marketing department head and finalize the concepts relevant to the resources held and
consumed and the production volume of each product in the company. The relevant information
on the amount of resources used per unit of each product will be discussed on the following
sections.
 Table1. Similarity and difference of Soap and Detergent
Bar Soap Liquid Detergent

Soap are made from fat (oil) and alkali by saponification Detergent are carbonic compounds
process

They are not suitable for delicate clothes They are suitable for delicate clothes

They are cheap They are expensive

They are clean in hot water They are clean in both hot & cold water

A lot of water is needed to remove soap from the clothes Easily removed, less quantity of water is needed

Don’t produce lather with hard water and are notable Clean cloth in hard water
clean the cloth

Soap natural materials and foam scum when use in hard Synthetic material and do not scum in hard water
water

Table 2: Chemical component of the products

Products Resource used per unit of product
Ingredient 1

Ingredient 2

Ingredient 3

Ingredient 4

Ingredient 5

Ingredient 6
Liquid Surfactants Builders Bleaching Fillers Water Other minor
detergent -agents additives
Bar soap Sodium Water silicate perfume color agent
palmitate

Table3. Material balance on bar soap production

No Raw material Mass concentration in one batch(Kg)

1 Sodium palmitate 175

2 Dolomite 50

3 Sodium silicate 50

4 Water 15

5 Perfume 0.3
Table4. Material balance on Liquid detergent production
No Raw material Mass concentration in one batch(Kg)

1 Water 1575

2 CMC 12

3 LABSA 100

4 caustic soda 24

5 SLES 200

6 sodium sulphate 50

7 STTPP 15

8 CAB 20

9 perfume 4

The demand and profit earned from each product per month in the case of Konel industrial PLC;
Table 4
Table 4: Demand and profit earned.
Liquid detergent bar soap Remark
Demand 40,000 55,000
Profit 200,000 165,000

2.1. Model Formulation

In formulating a given decision problem in mathematical form, we should understand the
problem. While trying to understand the problem, the model should consist of linear
relationships representing a firm’s objectives and resource constraints. The way we approach the
problem is the same for a wide variety of decision making problems, and the size and complexity
of the problem may differ.
An LP model consists of the following parameters:
 Decision variables that are mathematical symbols representing levels of activity of an
operation.
 The objective function that is a linear mathematical relationship describing an objective
of the firm, in terms of decision variables, that is to be maximized or minimized.
 Constraints that are restrictions placed on the firm by the operating environment situated
in linear relationships with the decision variables.
  Parameters/cost coefficients that are numerical coefficients and constants used in the
objective function and constraint equations.

Basic Assumptions (Properties) of LP

Technically, there are five additional requirements of an LP:
1. We assume that conditions of certainty exist; that is, the numbers in the objective and
constraints are known with certainty and do not change during the period being studied.
2. We also assume that proportionality exists in the objective and constraints. This means
that if production of 1 unit of a product uses 3 h of a particular scarce resource, then
making 10 units of that product uses 30 h of the resource.
3. The third technical assumption deals with additivity, meaning that the total of all
activities equals the sum of the individual activities.
4. We make the divisibility assumption that solutions need not be in whole numbers
(integers). Instead, they are divisible and may take any fractional value.
5. Finally, we assume that all answers or variables are nonnegative. Negative values of
physical quantities are impossible; we simply cannot produce a negative number of soap
products.

2.2. Linear Programming Model Formulation Steps

In this section, we consider the steps involved in the mathematical formulation of the problem.
LP is a collection of the objective function, the set of constraints, and the set of nonnegative
constraints.

Product Mix
Organizations often produce similar services that use the same resources. For example, labor,
material cost, etc. because of limited resources available during any time period a decision must be
made concerning how much of each product to produce or make available. Linear programming
answers what mix of output will maximize profit given the availability of scarce resources.

KONEL Industrial PLC is engaged in the production of bar soap and liquid detergent, both of
these categories of product pass through labor and machine production processes: A liquid
detergent yields a contribution of Birr 200,000 and a bar soap contributes Birr 165,000. The time
required in the production of these two products in terms of hours for each of the processes is as
follows. If the capability of the company is (8 hrs x3 machine = 24 machine hours) & (8 hrs X
100 worker = 800 labor hours) and 3,000 Kg.
Requirement /unit Daily availability
Liquid soap solid soap
Labor hour 300 280 800 hours
Machine hour 10 8 24 hours
Raw material used per 2,000 290.3 3,000 Kg
unit of production
Step1. Identify decision variables
Since the products to be produced are solid and liquid soap using the available resource to attain
the objective set, we consider them as decision variables. This is because the organization‘s
problem here is how many of each product to produce in order to attain the objective, which
requires the management decision.
X1 = the number of liquid detergent to be produced.
X2= the number of bar soap to be produced
X3 = Raw materials used per unit production

Step2. Determine Objective Function

From the problem above, we understand that the problem is maximization problem.
Hence,
Zmax = 200,000X1+ 165,000X2
This is because, each product of X1 contributes Birr 200,000 and X2 contributes Birr 165,000 to
objective function

Step3. Identify constraints

Here we have two constraints: structural and non-negativity constraints. The structural constraint
is the amount of machine & labor hours available and availability of raw materials.

Step4. Determining Parameters

Parameters are already identified in the table of the problem.

10 X + 8 X ≤ 24 hrs- (machine hour constraints)

1 2

300X + 280X ≤ 800 hrs- (labor hour constraints)

1 2

2,000X1 + 290.3X2 ≤ 3,000 Kg (raw materials)

X1, X2 > 0
Step5. Building and validating the model
Zmax = 200,000X1+ 165,000X2
Subject to:
10 X + 8 X ≤ 24 hrs- (machine hour constraints)
1 2

300X + 280X ≤ 800 hrs- (labor hour constraints)

1 2

2,000X1 + 290.3X2 ≤ 3,000 Kg (raw materials)

X1, X2 > 0
3. Expected practice
Following the formulation of a mathematical model, the next stage in the application of LP to
decision making problem is to find the solution of the model. An optimal, as well as feasible
solution to an LP problem is obtained by choosing from several values of decision variables
x1,x2…xn , the one set of values that satisfy the given set of constraints simultaneously and also
provide the optimal values of the given objective function.
Liquid soap Solid soap
Profit per unit (in Birr) 5 3
Labor hour 300 280
Machine hour 10 8
Raw Material (Kg) 2,000 290.3
Availability of company resource
Resource Amount available
Labor hour 800 hour
Machine hour 24hour
Raw Material 3,000 Kg

3.1. Graphical Linear Programing Methods

Graphical linear programming is a relatively straightforward for determining the optimal solution to
certain linear programming problems involving only two decision variables. Although graphic
method is limited as a solution approach, it is very useful in the presentation of LP, in that it gives a
―picture‖ of how a solution is derived thus a better understanding of the solution. Moreover,
graphical methods provide a visual portrayal of many important concepts. In this method, the two
decision variables are considered as ordered pairs (X 1, X2), which represent a point in a plane, i.e, X 1
is represented on X-axis and X2 on Y-axis.

Zmax = 200,000X1+ 165,000X2

Subject to:
10 X + 8 X ≤ 24 hrs- (machine hour constraints)
1 2

300X + 280X ≤ 800 hrs- (labor hour constraints)

1 2

2,000X1 + 290.3X2 ≤ 3,000 Kg (raw materials)

X1, X2 > 0
Graphical solution method involves the following steps.
10 X + 8 X ≤ 24 hrs
1 2 300X + 280X ≤ 800 hrs
1 2 2,000X1 + 290.3X2 ≤ 3,000 Kg
(X1 = 0 ; X2= 3) (X1 = 0 ; X2= 2.8) (X1 = 0 ; X2= 10.33)
(X1 = 2.4 ; X2= 0) (X1 = 2.66 ; X2= 0) (X1 = 1.5 ; X2= 0)
Step1. Plot each of the constraints

12

10

Y
6
Y2
Y3
4

0
x1 x2
Step2. Identify the feasible region
The feasible region is the solution space that satisfies all the constraints simultaneously. It is the
intersection of the entire region represented by all constraints of the problem.

Step 2: Determine the Feasible Solution Area

The feasible solution area is determined by identifying the space that jointly satisfies the ≤
conditions of all three constraints:

12

10

Y
6
Y2
Y3
4

0
x1 x2

Step 3: Determine the Solution Points

The solution at a point can be determined by noting the constraint line intersects
10 X1 + 8 X2 ≤ 24 hrs 300X1 + 280X2 ≤ 800 hrs 2,000X1 + 290.3X2 ≤ 3,000 Kg
(X1 = 0 ; X2= 3) (X1 = 0 ; X2= 2.8) (X1 = 0 ; X2= 10.33)
(X1 = 2.4 ; X2= 0) (X1 = 2.66 ; X2= 0) (X1 = 1.5 ; X2= 0)

10 X1 + 8 X2 ≤ 24 hrs 300X1 + 280X2 ≤ 800 hrs

10 X1 + 8 X2 = 24 300X1 + 280X2 = 800
10X1 = 24 – 8x2 280X2 = 800 – 300 X1
X1 = 2.4 – 0.8x2 280X2 = 800 – 300 (2.4 – 0.8x2)
280X2 = 800 – 720 + 240X2
280X2 = 80 + 240X2
40X2 = 80
X2 = 2
X1 = 2.4 – 0.8x2
X1 = 2.4 + 0.8 (2)
X1 = 4
Objective function line for Z
Zmax = 200,000X1+ 165,000X2

12

10

Y
6 Y2
Y3
Y4
4

0
x1 x2

Step 4: Determine the Optimal Solution

The optimal solution is at point, where X1 = 4 and X2 = 2 is the optimal solution and solutions at
this point will be:
Zmax = 200,000X1+ 165,000X2
= 200,000 (4) + 165,000(2)
= 400,000 + 330,000
= 730,000
 4. Major gaps between the current and expected practice

Based on the data gathered and using the LP model the following gap identified between the
current practice the expected practice:
 The company was left with an idle labor and machine hour.
 The company it was not employing any quantitative model to forecast for their production
volume; rather the company was employing a simple trial and error and subjective
estimation. It led the company to misunderstand the existing demand for their products and to
produce less than its capacity and even than the existing local demand.
 The LPP model can be used for other companies for its profit maximization.

5. Conclusion and recommendation

Based on the findings, we suggest the following recommendations:

For company to forecast their production capacity and sale volume if they use the
quantitative models like LP, they can maximize their profit and also minimize the
coast of production.
Due to not utilizing the quantitative decision making process the company is
performing under capacity especially in machine & labor hours. It is clear that model
based decision is important for its accuracy and objectivity. But such decision making
approach was not widely used in practice. Qualitative decisions like subjective
estimation, intuition and trial and error were commonly used by company. It is time
to shift for the company to consider utilizing quantitative decision making technique
for production process.