Problem Formulation:

Decision Variables:

There are two types of decision variables for this problem. Firstly, we need to define decision
variables for the number of desks made. After that we will define the decision variables for the
order quantity of different parts each month.

Number of Desks Produced:

P1 = Number of desks produced in July

P2 = Number of desks produced in August

P3 = Number of desks produced in September

P4 = Number of desks produced in October

P5 = Number of desks produced in November

P6 = Number of desks produced in December

Order Quantity of Different Parts each Month:

Part A:

A1 = Number of Part A ordered in March

A2 = Number of Part A ordered in April

A3 = Number of Part A ordered in May

A4 = Number of Part A ordered in June

A5 = Number of Part A ordered in July

A6 = Number of Part A ordered in August

A7 = Number of Part A ordered in September

A8 = Number of Part A ordered in October

A9 = Number of Part A ordered in November

A10 = Number of Part A ordered in December

Part B:

B1 = Number of Part B ordered in March

B2 = Number of Part B ordered in April

B3 = Number of Part B ordered in May

B4 = Number of Part B ordered in June

B5 = Number of Part B ordered in July

B6 = Number of Part B ordered in August

B7 = Number of Part B ordered in September

B8 = Number of Part B ordered in October

B9 = Number of Part B ordered in November

B10 = Number of Part B ordered in December

Part C:

C1 = Number of Part C ordered in March

C2 = Number of Part C ordered in April

C3 = Number of Part C ordered in May

C4 = Number of Part C ordered in June

C5 = Number of Part C ordered in July

C6 = Number of Part C ordered in August

C7 = Number of Part C ordered in September

C8 = Number of Part C ordered in October

C9 = Number of Part C ordered in November

C10 = Number of Part C ordered in December

Part D:

D1 = Number of Part D ordered in March

D2 = Number of Part D ordered in April

D3 = Number of Part D ordered in May

D4 = Number of Part D ordered in June

D5 = Number of Part D ordered in July

D6 = Number of Part D ordered in August

D7 = Number of Part D ordered in September

D8 = Number of Part D ordered in October

D9 = Number of Part D ordered in November

D10 = Number of Part D ordered in December

Part E:

E1 = Number of Part E ordered in March

E2 = Number of Part E ordered in April

E3 = Number of Part E ordered in May

E4 = Number of Part E ordered in June

E5 = Number of Part E ordered in July

E6 = Number of Part E ordered in August

E7 = Number of Part E ordered in September

E8 = Number of Part E ordered in October

E9 = Number of Part E ordered in November

E10 = Number of Part E ordered in December

Objective Function:

The objective function is to maximize the profit by determining the optimum number of parts
each month. Since Profit = Total Revenue – Total Costs, we first need to find the total costs and
total revenue to find the overall profit.

Inventory Cost:

Inventory cost is the cost incurred for storing unused inventory until it is utilized in the
production of the desks. The inventory costs for Part A, B, C, D, and E are 5, 8 4, 7, and 2 per
unit respectively in Saudi Riyals.

Total inventory cost is calculated by multiplying the ending inventory of each of the parts for
each month with respective per unit costs and adding all of them together. We first need to define
variables for starting and ending inventory of each part for each of the months and then calculate
the ending inventory for each month.

Part A:

The starting inventory for part A for the month of July was given to be 100

Starting Inventory of Part A in July = SA1 = 100 + A4

Ending Inventory of Part A in July = EA1 = SA1 – (2*P1)

Starting Inventory of Part A in August = SA2 = EA1 + A5

Ending Inventory of Part A in August = EA2 = SA2 – (2*P2)

Starting Inventory of Part A in September = SA3 = EA2 + A6

Ending Inventory of Part A in September = EA3 = SA3 – (2*P3)

Starting Inventory of Part A in October = SA4 = EA3 + A7

Ending Inventory of Part A in October = EA4 = SA4 – (2*P4)

Starting Inventory of Part A in November = SA5 = EA4 + A8

Ending Inventory of Part A in November = EA5 = SA5 – (2*P5)

Starting Inventory of Part A in December = SA6 = EA5 + A9

Ending Inventory of Part A in December = EA6 = SA6 – (2*P6)

Part B:

The starting inventory for part B for the month of July was given to be 30

Starting Inventory of Part B in July = SB1 = 30 + B3

Ending Inventory of Part B in July = EB1 = SB1 – (1*P1)

Starting Inventory of Part B in August = SB2 = EB1 + B4

Ending Inventory of Part B in August = EB2 = SB2 – (1*P2)

Starting Inventory of Part B in September = SB3 = EB2 + B5

Ending Inventory of Part B in September = EB3 = SB3 – (1*P3)

Starting Inventory of Part B in October = SB4 = EB3 + B6

Ending Inventory of Part B in October = EB4 = SB4 – (1*P4)

Starting Inventory of Part B in November = SB5 = EB4 + B7

Ending Inventory of Part B in November = EB5 = SB5 – (1*P5)

Starting Inventory of Part B in December = SB6 = EB5 + B8

Ending Inventory of Part B in December = EB6 = SB6 – (1*P6)

Part C:

The starting inventory for part C for the month of July was given to be 0

Starting Inventory of Part C in July = SC1 = 0 + C3

Ending Inventory of Part C in July = EC1 = SC1 – (3*P1)

Starting Inventory of Part C in August = SC2 = EC1 + C4

Ending Inventory of Part C in August = EC2 = SC2 – (3*P2)

Starting Inventory of Part C in September = SC3 = EC2 + C5

Ending Inventory of Part C in September = EC3 = SC3 – (3*P3)

Starting Inventory of Part C in October = SC4 = EC3 + C6

Ending Inventory of Part C in October = EC4 = SC4 – (3*P4)

Starting Inventory of Part C in November = SC5 = EC4 + C7

Ending Inventory of Part C in November = EC5 = SC5 – (3*P5)

Starting Inventory of Part C in December = SC6 = EC5 + C8

Ending Inventory of Part C in December = EC6 = SC6 – (3*P6)

Part D:

The starting inventory for part D for the month of July was given to be 40

Starting Inventory of Part D in July = SD1 = 40 + D2

Ending Inventory of Part D in July = ED1 = SD1 – [1*(SC1 – EC1)]

Starting Inventory of Part D in August = SD2 = ED1 + D3

Ending Inventory of Part D in August = ED2 = SD2 – [1*(SC2 – EC2)]

Starting Inventory of Part D in September = SD3 = ED2 + D4

Ending Inventory of Part D in September = ED3 = SD3 – [1*(SC3 – EC3)]

Starting Inventory of Part D in October = SD4 = ED3 + D5

Ending Inventory of Part D in October = ED4 = SD4 – [1*(SC4 – EC4)]

Starting Inventory of Part D in November = SD5 = ED4 + D6

Ending Inventory of Part D in November = ED5 = SD5 – [1*(SC5 – EC5)]

Starting Inventory of Part D in December = SD6 = ED5 + D7

Ending Inventory of Part D in December = ED6 = SD6 – [1*(SC6 – EC6)]

Part E:

The starting inventory for part E for the month of July was given to be 0

Starting Inventory of Part E in July = SE1 = 0 + E1

Ending Inventory of Part E in July = EE1 = SE1 – [2*(SC1 – EC1)]

Starting Inventory of Part E in August = SE2 = EE1 + E2

Ending Inventory of Part E in August = EE2 = SE2 – [2*(SC2 – EC2)]

Starting Inventory of Part E in September = SE3 = EE2 + E3

Ending Inventory of Part E in September = EE3 = SE3 – [2*(SC3 – EC3)]

Starting Inventory of Part E in October = SE4 = EE3 + E4

Ending Inventory of Part E in October = EE4 = SE4 – [2*(SC4 – EC4)]

Starting Inventory of Part E in November = SE5 = EE4 + E5

Ending Inventory of Part E in November = EE5 = SE5 – [2*(SC5 – EC5)]

Starting Inventory of Part E in December = SE6 = EE5 + E6

Ending Inventory of Part E in December = EE6 = SE6 – [2*(SC6 – EC6)]

Ending Inventory Cost for July:

I1 = (5*EA1) + (8*EB1) + (4*EC1) + (7*ED1) + (2*EE1)

Ending Inventory Cost for August:

I2 = (5*EA2) + (8*EB2) + (4*EC2) + (7*ED2) + (2*EE2)

Ending Inventory Cost for September:

I3 = (5*EA3) + (8*EB3) + (4*EC3) + (7*ED3) + (2*EE3)

Ending Inventory Cost for October:

I4 = (5*EA4) + (8*EB4) + (4*EC4) + (7*ED4) + (2*EE4)

Ending Inventory Cost for November:

I5 = (5*EA5) + (8*EB5) + (4*EC5) + (7*ED5) + (2*EE5)

Ending Inventory Cost for December:

I6 = (5*EA6) + (8*EB6) + (4*EC6) + (7*ED6) + (2*EE6)
Total Inventory Cost:

To calculate total inventory cost we sum the ending inventory costs for each month.

Total Inventory Cost = TI = I1 + I2 + I3 + I4 + I5 + I6

Desks Production Cost:

Now we need to calculate the total cost of producing all the desks. To calculate to the total cost
of production of desks, we find the cost of producing desks each month and then add them
together. The cost of producing one desk for the month of July is 400 SR, for August is 400 SR,
for September is 450 SR, for October is 500 SR, for November is 600 SR, for December is 600
SR.

Desks Production Cost = DP = (400*P1) + (400*P2) + (450*P3) + (500*P4) + (600*P5) +

(600*P6)

Parts Production Cost:

Now we calculate the production cost of parts ordered. To do this, we need to multiply all of the
parts ordered each month with their respective per unit costs for each month and add all of them
together.

The cost of production of each part for each month is given in the table below:

The calculation will start from the month of March and end in December. So, for example, A1,
B1, C1… shows the number of part A, B, C… ordered in March.
Parts Production Cost = PP = (A1*0) + (A2*0) + (A3*0) + (A4*170) + (A5*140) + (A6*150) +
(A7*140) + (A8*130) + (A9*160) + (A10*0) + (B1*0) + (B2*0) + (B3*220) + (B4*215) +
(B5*205) + (B6*195) + (B7*200) + (B8*200) + (B9*0) + (B10*0) + (C1*0) + (C2*0) +
(C3*70) + (C4*80) + (C5*90) + (C6*20) + (C7*80) + (C8*80) + (C9*0) + (C10*0) + (D1*0) +
(D2*110) + (D3*130) + (D4*170) + (D5*210) + (D6*180) + (D7*190) + (D8*0) + (D9*0) +
(D10*0) + (E1*50) + (E2*40) + (E3*55) + (E4*45) + (E5*60) + (E6*35) + (E7*0) + (E8*0) +
(E9*0) + (E10*0)

Total Cost:

The total cost of this model is calculated by adding together the inventory cost, desks production
cost, and parts production cost.

Total Cost = TC = TI + DP + PP

Revenue Generated:

The revenue generated per desk is 3000 SR. To calculate the total revenue generated, we need to
sum the total number of desks produced in each month and multiply that sum by 3000.

Revenue Generated = RG = (P1 + P2 + P3 + P4 + P5 + P6) * 3000

Total Profit (Objective Function):

As stated earlier, the objective function for the company is to maximize the profit. The formula
for profit is Profit = Revenue – Total Costs. So, the objective function is as follows:

Total Profit:

MAX RG – TC

Constraints:

Availability of Parts:

These constraints are used to ensure that there are enough parts available in the starting inventory
of each month to satisfy the production demands for that month. The right-hand side of these
constraints shows that the least number of parts that must be present in the starting inventory of
each month. The right-hand side is calculated by multiplying the number of parts required for
one desk with the total number of desks produced. While for part D and E, their right-hand side
is calculated by multiplying the number of parts required to assemble one part C with the total
number of part C required.

SA1 >= 240

SB1 >= 120

SC1 >= 360

SD1 >= 360

SE1 >= 720

SA2 >= 320

SB2 >= 160

SC2 >= 480

SD2 >= 490

SE2 >= 960

SA3 >= 420

SB3 >= 210

SC3 >= 630

SD3 >= 630

SE3 >= 1260

SA4 >= 460

SB4 >= 230

SC4 >= 690

SD4 >= 690

SE4 >= 1380

SA5 >= 620

SB5 >= 310

SC5 >= 930

SD5 >= 930

SE5 >= 1860

SA6 >= 720

SB6 >= 360

SC6 >= 1080

SD6 >= 1080

SE6 >= 2160

Desks Produced Equal to Demand:

These constraints ensure that the number of desks produced is equal to their forecasted demand.
The right-hand side of these constraints is equal to the forecasted demand of the desks for each
month.

P1 = 120

P2 = 160

P3 = 210

P4 = 230

P5 = 310

P6 = 360

Unavailability of Parts Production:

The parts to produce desks can only be ordered in specified months. These constraints ensure
that no order is placed in the month in which order/production of parts is unavailable. The right-
hand side of these constraints is equal to zero which makes sure that no order is placed in the
months other than the specified ones.

A1, A2, A3, A10, B1, B2, B9, B10, C1, C2, C9, C10, D1, D8, D9, D10, E7, E8, E9, E10 = 0

Minimum Order Policy for Part A:

There is an order policy for part A that the minimum amount ordered can be 500. To implement
this order policy into the model, we constraint the number of part A ordered each month to be
greater than or equal to 500. The right-hand side in these constraints is 500 which makes sure
that the number of part A ordered each month is at least 500.

A4, A5, A6, A7, A8, A9 >= 500

Part D Ordered according to Part C:

These constraints ensure that the number of part D are ordered in such amount that the sum of
part D ordered, and its ending inventory (starting from July) is greater than or equal to part C for
that month. The rationale behind this is that one unit of part D is used for each unit of part C. The
right-hand side of this constraint is equal to number of part C ordered for that month minus the
ending inventory of D starting from July. This makes sure that the amount ordered for part D
when added to the ending inventory of part D become greater than or equal to the starting
inventory of part C. It is shown below:

Number of part D ordered + Ending inventory of part D >= Number of part C ordered

Therefore,

Number of part D ordered >= Number of part C ordered – Ending inventory of part D

The constraints are as follows:

For the month of July 40 units of part D are already present.

D2 >= C3 – 40

D3 >= C4 – ED1

D4 >= C5 – ED2
D5 >= C6 – ED3

D6 >= C7 – ED4

D7 >= C8 – ED5

Part E Ordered according to Part C:

The sum of number of part E ordered and its ending inventory (starting from July) for each
month should be greater than or equal to twice the amount of part C ordered each month. To
implement this, we have defined these constraints. The reason behind it is that 2 units of part E
are used to produce one unit of part C. The right-hand side of this constraint is equal to twice the
number of part C ordered for that month minus the ending inventory of E starting from July. This
makes sure that the amount ordered for part E when added to the ending inventory of part E
become greater than or equal to twice the starting inventory of part C. Following the same
pattern as for part D, the constraints are as follows:

E1 >= 2*C3

E2 >= 2*C4 – EE1

E3 >= 2*C5 – EE2

E4 >= 2*C6 – EE3

E5 >= 2*C7 – EE4

E6 >= 2*C8 – EE5

Integer Variables:

All the decision variables need to be integers because the number of desks produced, and parts
ordered cannot be fractional numbers.

P1, P2, P3, P4, P5, P6, A1, A2, A3, A4, A5, A6, A7, A8, A9, A10, B1, B2, B3, B4, B5, B6, B7,
B8, B9, B10, C1, C2, C3, C4, C5, C6, C7, C8, C9, C10, D1, D2, D3, D4, D5, D6, D7, D8, D9,
D10, E1, E2, E3, E4, E5, E6, E7, E8, E9, E10 = integer
Non-negativity constraints:

All the decision variables need to be non-negative because number of desks produced, and parts
ordered cannot be negative.

P1, P2, P3, P4, P5, P6, A1, A2, A3, A4, A5, A6, A7, A8, A9, A10, B1, B2, B3, B4, B5, B6, B7,
B8, B9, B10, C1, C2, C3, C4, C5, C6, C7, C8, C9, C10, D1, D2, D3, D4, D5, D6, D7, D8, D9,
D10, E1, E2, E3, E4, E5, E6, E7, E8, E9, E10 >= 0