CHAPTER 3

Linear Programming
Modeling Applications with
Computer Analyses in Excel

PowerPoint presentation to accompany

Balakrishnan/Render/Stair
Managerial Decision Modeling with Spreadsheets, 3/e
© 2013 Pearson Education, Inc. publishing as Prentice Hall 3-1
 LEARNING OBJECTIVES

1. Model a wide variety of linear

programming (LP) problems.
2. Understand major business application
areas for LP problems, including
manufacturing, marketing, finance,
employee staffing, transportation,
blending, and multiperiod planning.
3. Gain experience in setting up and
solving LP problems using Excel’s
Solver.
© 2013 Pearson Education, Inc. publishing as Prentice Hall 3-2
 LP and Managerial Decisions
• Product mix
• Make-buy
• Media selection
• Marketing research
• Portfolio selection
• Shipping and transportation
• Allocation decisions
• Ingredient blending
• Multiperiod scheduling
© 2013 Pearson Education, Inc. publishing as Prentice Hall 3-3
 Steps in the Process
• Define the decision variables
• Formulate the LP model using the
decision variables
• Write the objective function equation
• Write each of the constraint equations
• Implement the model in Excel
• Solve with Excel’s Solver

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 Manufacturing Applications
• Product Mix Problem
• Fifth Avenue Industries
• Produce four types of ties
• Maximize profit
Yards available
Material Cost per yard
per month
Silk $20 1,000

Polyester $ 6 2,000

Cotton $ 9 1,250

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 Product Mix Problem
Type of Tie
Silk Polyester Blend 1 Blend 2
Selling Price $6.70 $3.55 $4.31 $4.81
Monthly
6,000 10,000 13,000 6,000
Minimum
Monthly
7,000 14,000 16,000 8,500
Maximum
Total material
0.125 0.08 0.10 0.10
(yards per tie)

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 Product Mix Problem
Type of Tie
Material Blend 1 Blend 2
Silk Polyester
(50/50) (30/70)

Silk 0.125 0 0 0

Polyester 0 0.08 0.05 0.03

Cotton 0 0 0.05 0.07

Total yards 0.125 0.08 0.10 0.10

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 Product Mix Problem
• Decision Variables
S = number of silk ties to make per
month
P = number of polyester ties to make
per month
B1 = number of poly-cotton blend 1 ties
to make per month
B2 = number of poly-cotton blend 2 ties
to make per month

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 Product Mix Problem
Objective Function
Maximize profit = $3.45S + $2.32P + $2.81B1 + $3.25B2

subject to
0.125S ≤ 1,000 (yards of silk)
0.08P + 0.05B1 + 0.03B2 ≤ 2,000 (yards of polyester)
0.05B1 + 0.07B2 ≤ 1,250 (yards of cotton)
S ≥ 6,000 (contract minimum for all silk)
S ≤ 7,000 (maximum demand for all silk)
P ≥ 10,000 (contract minimum for all polyester)
P ≤ 14,000 (maximum demand for all polyester)
B1 ≥ 13,000 (contract minimum for blend 1)
B1 ≤ 16,000 (maximum demand for blend 1)
B2 ≥ 6,000 (contract minimum for blend 2)
B2 ≤ 8,500 (maximum demand for blend 2)
S, P, B1, B2 ≥ 0 (nonnegativity)

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 Solving the Problem

Screenshot 3-1A

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 Solving the Problem

Screenshot 3-1B(1)

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 Solving the Problem

Screenshot 3-1B(2)

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 Make-Buy Decision
• New problem formulation and decision
variables
S = number of all-silk ties to make (in-house) per month
P = number of all-polyester ties to make (in-house) per month
B1 = number of poly-cotton blend 1 ties to make (in-house) per month
B2 = number of poly-cotton blend 2 ties to make (in-house) per month

So = number of all-silk ties to outsource (buy) per month

Po = number of all-polyester ties to outsource (buy) per month
B1o = number of poly-cotton blend 1 ties to outsource (buy) per month
B2o = number of poly-cotton blend 2 ties to outsource (buy) per month

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 Make-Buy Decision
Objective Function elements

Revenue = $6.70(S + So) +$3.55(P + Po)

+ $4.31(B1 + B1o) + $4.81(B2 + B2o)
Labor cost = $0.75(S + P + B1 +B2)
Material cost = $2.50S + $0.48P + $0.75B1 + $0.81B2
Outsourcing cost = $4.25So + $2.00Po + $2.50B1o + $2.20B2o

Objective Function

Maximize profit = revenue – labor cost – material cost

– outsourcing cost

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 Make-Buy Decision
Objective Function

Maximize profit = revenue – labor cost – material cost

– outsourcing cost
subject to

0.125S ≤ 1,000 (yards of silk)

0.08P + 0.05B1 + 0.03B2 ≤ 2,000 (yards of polyester)
0.05B1 + 0.07B2 ≤ 1,250 (yards of cotton)
S + So = 7,000 (required demand for all-silk)
P + Po = 14,000 (required demand for
all-polyester)
B1 + B1o = 16,000 (required demand for blend 1)
B2 + B2o = 8,500 (required demand for blend 2)
S, P, B1, B2, So, Po, B1o, B2o ≥ 0 (nonnegativity)

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 Solving the Problem

Screenshot 3-2

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 Media Selection Problem
• Win Big Gambling Club advertising
• Decision variables
T = number of 1-minute television spots taken each
week
N = number of full-page daily newspaper ads taken
each week
P = number of 30-second prime time radio spots
taken each week
A = number of 1-minute afternoon radio spots
taken each week

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 Media Selection Problem

Table 3.3

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 Media Selection Problem
Objective:

Maximize audience coverage = 5,000T + 8,500N + 2,400P + 2,800A

subject to

T ≤ 12 (max TV spots/week)
N ≤ 5 (max newspaper ads/week)
P ≤ 25 (max 30-second radio
spots/week)
A ≤ 20 (max 1-minute radio spots/week)
800T + 925N + 290P + 380A ≤ 8,000 (weekly advertising budget)
P+A ≥ 5 (min radio spots contracted)
290P + 380A ≤ 1,800 (max dollars spent on radio)
T, N, P, A ≥ 0 (nonnegativity)

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 Solving the Problem

Screenshot 3-3

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 Marketing Applications
• Marketing Research Problem
• MSA survey decision variables
B1 = number surveyed who are ≤ 30 years of age and live in a
border state
B2 = number surveyed who are 31–50 years of age and live in a
border state
B3 = number surveyed who are ≥ 51 years of age and live in a
border state
N1 = number surveyed who are ≤ 30 years of age and do not live
in a border state
N2 = number surveyed who are 31–50 years of age and do not
live in a border state
N3 = number surveyed who are ≥ 51 years of age and do not live
in a border state
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 Marketing Research Problem
Objective Function

Minimize total interview cost = $7.50B1 + $6.80B2 + $5.50B3

+ $6.90N1 + $7.25N2 + $6.10N3

subject to

B1 + B2 + B3 + N1 + N2 + N3 ≥ 2,300 (total number surveyed)

B1 + N1 ≥ 1,000 (persons 30 years or younger)
B2 + N2 ≥ 600 (persons 31–50 in age)
B1 + B2 + B3 ≥ 0.15(B1 + B2 + B3+ N1 + N2 + N3) (border states)
N1 ≥ 0.5(B1 + N1) (≤ 30 years, not border state)
B3 ≤ 0.2(B3 + N3) (51+ years and border state)
B1, B2, B3, N1, N2, N3 ≥ 0 (nonnegativity)

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 Marketing Research Problem
• Cost data
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

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 Solving the Problem

Screenshot 3-4

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 Finance Applications
• Portfolio Selection Problem
• International City Trust investment
decisions

INVESTMENT INTEREST EARNED RISK SCORE

Trade credits 7% 1.7
Corporate bonds 10% 1.2
Gold stocks 19% 3.7
Platinum stocks 12% 2.4
Mortgage securities 8% 2.0
Construction loans 14% 2.9

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 Portfolio Selection Problem
• Decision variables
T = dollars invested in trade credit
B = dollars invested in corporate bonds
G = dollars invested in gold stocks
P = dollars invested in platinum stocks
M = dollars invested in mortgage securities
C = dollars invested in construction loans

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 Portfolio Selection Problem
Objective function
Maximize dollars of interest earned = 0.07T + 0.10B + 0.19G
+ 0.12P + 0.08M + 0.14C
subject to
T + B + G + P + M + C ≤ 5,000,000
T ≤ 0.25(T + B + G + P + M + C)
B ≤ 0.25(T + B + G + P + M + C)
G ≤ 0.25(T + B + G + P + M + C)
P ≤ 0.25(T + B + G + P + M + C)
M ≤ 0.25(T + B + G + P + M + C)
C ≤ 0.25(T + B + G + P + M + C)
G+P ≥ 0.30(T + B + G + P + M + C)
T+B ≥ 0.45(T + B + G + P + M + C)
1.7T + 1.2B + 3.7G + 2.4P + 2.0M + 2.9C
≤2
T+B+G+P+M+C
T+B+G+P+M+C ≥0

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 Solving the Problem

Screenshot 3-5A

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 Solving the Problem

Screenshot 3-5B

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 Employee Staffing
• Labor Planning Problem
• Hong Kong Bank staffing requirements
TIME PERIOD NUMBER REQUIRED
9 a.m.–10 a.m. 10
10 a.m.–11 a.m. 12
11 a.m.–Noon 14
Noon–1 p.m. 16
1 p.m.–2 p.m. 18
2 p.m.–3 p.m. 17
3 p.m.–4 p.m. 15
4 p.m.–5 p.m. 10

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 Labor Planning Problem
• Decision variables
F = number of full-time tellers (all starting at 9 a.m.)
P = number of part-timers, starting at 9 a.m. (leaving at 1 p.m.)
P1 = number of part-timers, starting at 10 a.m. (leaving at 2 p.m.)
P2 = number of part-timers, starting at 11 a.m. (leaving at 3 p.m.)
P3 = number of part-timers, starting at noon (leaving at 4 p.m.)
P4 = number of part-timers, starting at 1 p.m. (leaving at 5 p.m.)

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 Labor Planning Problem
Objective Function

Minimize total daily personnel cost = $90F + $28(P1 + P2 + P3 + P4 + P5)

subject to
F + P1 ≥ 10 (9 a.m. – 10 a.m. requirement)
F + P1 + P2 ≥ 12 (10 a.m. – 11 a.m. requirement)
0.5F + P1 + P2 + P2 ≥ 14 (11 a.m. – 12 noon requirement)
0.5F + P1 + P2 + P3 + P4 ≥ 16 (12 noon – 1 p.m. requirement)
F + P2 + P3 + P4 + P5 ≥ 18 (1 p.m. – 2 p.m. requirement)
F + P3 + P4 + P5 ≤ 17 (2 p.m. – 3 p.m. requirement)
F + P4 + P5 ≤ 17 (3 p.m. – 4 p.m. requirement)
F + P5 ≤ 17 (4 p.m. – 5 p.m. requirement)
F ≤ 12 (full time tellers available)
4P1 + 4P2 + 4P3 + 4P4 + 4P5 ≤ 56 (part time worker hours)
F, P1, P2, P3, P4, P5 ≥ 0 (nonnegativity)

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 Solving the Problem

Screenshot 3-6

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 Transportation Applications
• Vehicle Loading Problem
• Goodman Shipping

Table 3.7

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 Vehicle Loading Problem
Objective Function

Maximize load value = $3.10W1 + $3.20W2 + $3.45W3 + $4.15W4

+ $3.25W5 + $2.75W6
subject to
W1 + W2 + W3 + W4 + W5 + W6 ≤ 15,000 (weight limit of truck)
0.125W1 + 0.064W2 + 0.144W3
+ 0.448W4 + 0.048W5 + 0,018W6 ≤ 1,300 (volume limit of truck)
W1 ≤ 5,000 (item 1 availability)
W2 ≤ 4,500 (item 2 availability)
W3 ≤ 3,000 (item 3 availability)
W4 ≤ 3,500 (item 4 availability)
W5 ≤ 4,000 (item 5 availability)
W6 ≤ 3,500 (item 6 availability)
W1 + W2 + W3 + W4 + W5 + W6 ≥ 0 (nonnegativity)

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 Solving the Problem

Screenshot 3-7A

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 Vehicle Loading Problem
Objective Function (Alternate Model)
Maximize load value = $3.10(W11 + W12) + $3.20(W21 + W22) + $3.45(W31 + W32)
+ $4.15(W41 + W42) + $3.25(W51 + W52) + $2.75(W61 + W62)
subject to
W11 + W21 + W31 + W41 + W51 + W61 ≤ 10,000 (weight limit of truck 1)
0.125W11 + 0.064W21 + 0.144W31
+ 0.448W41 + 0.048W51 + 0,018W61 ≤ 900 (volume limit of truck 1)
W12 + W22 + W32 + W42 + W52 + W62 ≤ 10,000 (weight limit of truck 2)
0.125W12 + 0.064W22 + 0.144W32
+ 0.448W42 + 0.048W52 + 0,018W62 ≤ 900 (volume limit of truck 2)
W11 + W12 ≤ 5,000 (item 1 availability)
W21 + W22 ≤ 4,500 (item 2 availability)
W31 + W32 ≤ 3,000 (item 3 availability)
W41 + W42 ≤ 3,500 (item 4 availability)
W51 + W52 ≤ 4,000 (item 5 availability)
W61 + W62 ≤ 3,500 (item 6 availability)
W11 + W21 + W31 = W12 + W22 + W32
+ W41 + W51 + W61 + W42 + W52 + W62 (same weight in both trucks)
W11, W21, W31, W41, W51, W61,
W12, W22, W32, W42, W52, W62 ≥ 0 (nonnegativity)
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 Solving the Problem

Screenshot 3-7B

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 Solving the Problem

Screenshot 3-8

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 Blending Applications
• Diet Problem
• Whole Food’s Natural Cereal grain
blending data

COST PER POUND PROTEIN RIBOFLAVIN PHOSPHORUS MAGNESIUM

GRAIN (cents) (units/lb) (units/lb) (units/lb) (units/lb)
A 33 22 16 8 5
B 47 28 14 7 0
B 38 21 25 9 6

Table 3.8

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 Diet Problem
• Decision variables
A = pounds of grain A to use in one 2-
ounce serving of cereal
B = pounds of grain B to use in one 2-
ounce serving of cereal
C = pounds of grain C to use in one 2-
ounce serving of cereal

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 Diet Problem
Objective Function

Minimize total cost of mixing

a 2-ounce serving of cereal = $0.33A + $0.47B + $0.38C

subject to

22A + 28B + 21C ≥ 3 (protein units)

16A + 14B + 25C ≥ 2 (riboflavin units)
8A + 7B + 9C ≥ 1 (phosphorus units)
5A + 6C ≥ 0.425 (magnesium units)
A+B+C = 0.125 (total mix)
A, B, C ≥ 0 (nonnegativity)

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 Solving the Problem

Screenshot 3-9

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 Blending Problem
• Low Knock Oil data
CRUDE OIL COMPOUND COMPOUND COMPOUND COST/ AVAIL.
TYPE A (%) B (%) C (%) BARREL (barrels)
X100 35 25 35 $86 15,000
X200 50 30 15 $92 32,000
X300 60 20 15 $95 24,000

Table 3.9

GASOLINE COMPOUND COMPOUND COMPOUND DEMAND

TYPE A B C (barrels)
Premium ≥ 55% ≤ 23% 14,000
Regular ≥ 25% ≤ 35% 22,000
Economy ≥ 40% ≤ 25% 25,000

Table 3.10
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 Blending Problem
• Decision variables
P1 = barrels of X100 crude blended to produce the premium grade
P2 = barrels of X200 crude blended to produce the premium grade
P3 = barrels of X300 crude blended to produce the premium grade
R1 = barrels of X100 crude blended to produce the regular grade
R2 = barrels of X200 crude blended to produce the regular grade
R3 = barrels of X300 crude blended to produce the regular grade
E1 = barrels of X100 crude blended to produce the economy grade
E2 = barrels of X200 crude blended to produce the economy grade
E3 = barrels of X300 crude blended to produce the economy grade

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 Blending Problem
Objective Function

Minimize total cost = $86(P1 + R1 + E1) + $92(P2 + R2 + E2)

+ $95(P3 + R3 + E3)

subject to

P1 + R1 + E1 ≤ 15,000 (availability of X100 crude oil)

P2 + R2 + E2 ≤ 32,000 (availability of X200 crude oil)
P3 + R3 + E3 ≤ 24,000 (availability of X300 crude oil)
P1 + P2 + P3 ≥ 14,000 (demand for premium gasoline)
R1 + R2 + R3 ≥ 22,000 (demand for regular gasoline)
E1 + E2 + E3 ≥ 25,000 (demand for economy gasoline)
P1, R1, E1,
P2, R2, E2,
P3, R3, E3 ≥ 0 (nonnegativity)

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 Solving the Problem

Screenshot 3-10

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 Multiperiod Applications
• Production Scheduling Problem
• Greenberg Motors order schedule

MODEL JANUARY FEBRUARY MARCH APRIL

GM3A 800 700 1,000 1,100
GM3B 1,000 1,200 1,400 1,400

Table 3.11

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 Production Scheduling
• Greenberg Motors data
UNIT COST UNIT COST HOLDING ENDING LABOR
MODEL (Jan – Feb) (Mar - Apr) COST INVENTORY HOURS
GM3A $10 $11 $0.18 450 1.3
GM3B $6 $6.60 $0.13 300 0.9

Table 3.11

Maximum inventory = 3,300 units

No layoff policy
2,240 labor regular hours available each month
320 maximum additional labor hours available each month

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 Production Scheduling
Decision variables

Pat = number of model GM3A motors produced in month t

(t = 1, 2, 3, 4 for January–April)
PBt = number of model GM3B motors produced in month t

Objective function

Minimize total costs = cost of production + cost of carrying inventory

= 10PA1 + 10PA2 + 11PA3 + 11PA4 + 6PB1
+ 6PB2 + 6.60PB3 + 6.60PB4 + 0.18IA1
+ 0.18IA2 + 0.18IA3 + 0.18IA4 + 0.13IB1
+ 0.13IB2 + 0.13IB3 + 0.13IB4

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 Production Scheduling

Balance equation

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 Production Scheduling
subject to
0 + PA1 – 800 = IA1 (GM3A motors in Jan)
0 + PB1 – 1,000 = IB1 (GM3B motors in Jan)
IA1 + PA2 – 700 = IA2 (GM3A motors in Feb)
IB1 + PB2 – 1,200 = IB2 (GM3B motors in Feb)
IA2 + PA3 – 1,000 = IA3 (GM3A motors in Mar)
IB2 + PB3 – 1,400 = IB3 (GM3B motors in Mar)
IA3 + PA4 – 1,100 = IA4 (GM3A motors in Apr)
IB3 + PB4 – 1,400 = IB4 (GM3B motors in Apr)
IA4 = 450 (ending inventory GM3A)
IB4 = 300 (ending inventory GM3B)
IA1 + IB1 ≤ 3,300 (max inventory Jan)
IA2 + IB2 ≤ 3,300 (max inventory Feb)
IA3 + IB3 ≤ 3,300 (max inventory Mar)
IA4 + IB4 ≤ 3,300 (max inventory Apr)
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 Production Scheduling
subject to
1.3PA1 + 0.9PB1 ≥ 2,240 (Jan labor minimum)
1.3PA1 + 0.9PB1 ≤ 2,560 (Jan labor maximum)
1.3PA2 + 0.9PB2 ≥ 2,240 (Feb labor minimum)
1.3PA2 + 0.9PB2 ≤ 2,560 (Feb labor maximum)
1.3PA3 + 0.9PB3 ≥ 2,240 (Mar labor minimum)
1.3PA3 + 0.9PB3 ≤ 2,560 (Mar labor maximum)
1.3PA4 + 0.9PB4 ≥ 2,240 (Apr labor minimum)
1.3PA4 + 0.9PB4 ≤ 2,560 (Apr labor maximum)
All variables ≥ 0 (nonnegativity)

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 Solving the Problem
Screenshot 3-11A

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 Solving the Problem
Screenshot 3-11A

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 Production Scheduling
• Greenberg Motors Solution
PRODUCTION SCHEDULE JANUARY FEBRUARY MARCH APRIL
Units of GM3A produced 1,276.92 1,138.46 842.31 792.31
Units of GM3B produced 1,000.00 1,200.00 1,400.00 1,700.00
Inventory of GM3A carried 479.92 915.38 757.60 450.00
Inventory of GM3B carried 0.00 0.00 0.00 0.00
Labor hours required 2,560.00 2,560.00 2,355.00 2,560.00

Table 3.12

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 Solving the Problem

Screenshot 3-11B

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 Sinking Fund Problem
• Larry Fredendall’s investment plan
YEAR $ NEEDED
3 $20,000
4 $22,000
5 $24,000
6 $26,000
Table 3.13

CHOICE ROI MATURITY

A 5% 1 year
B 13% 2 years
C 28% 3 years
D 40% 4 years Table 3.14

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 Sinking Fund Problem
• Decision variables
A1 = $ amount invested in choice A at the start of year 1
B1 = $ amount invested in choice B at the start of year 1
C1 = $ amount invested in choice C at the start of year 1
D1 = $ amount invested in choice D at the start of year 1
A2 = $ amount invested in choice A at the start of year 2
B2 = $ amount invested in choice B at the start of year 2
C2 = $ amount invested in choice C at the start of year 2
D2 = $ amount invested in choice D at the start of year 2
A3 = $ amount invested in choice A at the start of year 3
C3 = $ amount invested in choice C at the start of year 3
A4 = $ amount invested in choice A at the start of year 4
B4 = $ amount invested in choice B at the start of year 4
A5 = $ amount invested in choice A at the start of year 5

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 Sinking Fund Problem

Balance equation

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 Sinking Fund Problem
Objective function

Minimize A1 + B1 + C1 + D1

subject to

A2 + B2 + C2 + D2 = 1.05A1 (yr 2 cash flow)

A3 + B3 + C3 + 20,000 = 1.13B1 + 1.05A2 (yr 3 cash flow)
A4 + B4 + 22,000 = 1.28C1 + 1.13B2 + 1.05A3 (yr 4 cash flow)
A5 + 24,000 = 1.4D1 + 1.28C2 + 1.13B3 + 1.05A4 (yr 5 cash flow)
26,000 = 1.4D2 + 1.28C3 + 1.13B4 + 1.05A5 (yr 6 cash flow)
C1 + D1 ≤ 0.2(A1 + B1 + C1 + D1) (yr 1 risk)
C1 + D1 + C2 + D2 ≤ 0.2(B1 + C1 + D1 + A2 + B2 + C2 + D2) (yr 2 risk)
C1 + D1 + C2 + D2 + C3 ≤ 0.2(C1 + D1 + B2 + C2 + D2 + A3 + B3 + C3) (yr 3 risk)
D1 + C2 + D2 + C3 ≤ 0.2(D1 + C2 + D2 + B3 + C3 + A4 + B4) (yr 4 risk)
D2 + C3 ≤ 0.2(D2 + C3 + B4 + A5) (yr 5 risk)

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 Solving the Problem

Screenshot 3-12

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