Operations Management: Creating

Value Along the Supply Chain

Second Canadian Edition
Russell, Taylor, Bayley, Castillo

Chapter 14 Supplement

Operational Decision-Making Tools: Linear

Programming
© John Wiley and Sons, Inc.
Learning Objectives

1. Formulate a basic linear programming model including the definition of

decision variables, objective function, and constraints.
2. Determine the optimal solution for a linear programming model with
two decision variables using the graphical solution method.
3. Calculate unused or surplus resources given a model solution and
provide an overview of the simplex method.
4. Solve a linear programming model using Excel.
5. Interpret the sensitivity report from an Excel linear programming
solution and perform sensitivity analysis.

© John Wiley and Sons, Inc. 2

Linear Programming (LP)

• A model consisting of linear relationships representing a firm’s

objective and resource constraints
• A mathematical modeling technique which determines a level of
operational activity in order to achieve an objective, subject to
restrictions called constraints

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Types of LP (1 of 3)
Linear Programming OM Application
Model Type
Aggregate production Determines the resource capacity needed to meet demand over an immediate
planning time horizon, including units produced, workers hired and fired, and inventory.
(See Chapter 14.)
Product mix Mix of different products to produce that will maximize profit or minimize cost
given resource constraints such as material, labor, budget, etc.
Transportation Logistical flow of items (goods or services) from sources to destinations, for
example, truckloads of goods from plants to warehouses. (See the Supplement to
Chapter 11.)
Trans-shipment Flow of items from sources to destinations with intermediate points; for example,
shipping from plant to distribution centre and then to stores. (See the Supplement
to Chapter 11.)

© John Wiley and Sons, Inc. 4

Types of LP (2 of 3)
Linear Programming OM Application
Model Type
Assignment Assigns work to limited resources, called “loading;” for example, assigning jobs or
workers to different machines. (See Chapter 17.)
Multiperiod scheduling Schedules regular and overtime production, plus inventory to carry over, to meet
demand in future periods.
Blend Determines “recipe” requirements; for example, how to blend different petroleum
components to produce different grades of gasoline and other petroleum
products.
Diet Menu of food items that meets nutritional or other requirements; for example,
hospital or school cafeteria menus.
Investment/capital Financial model that determines amount to invest in different alternatives given
budgeting return objectives and constraints for risk, diversity, etc.; for example, how much to
invest in new plant, facilities, or equipment.

© John Wiley and Sons, Inc. 5

Types of LP (3 of 3)
Linear Programming OM Application
Model Type
Data envelopment Compares service units of the same type—banks, hospitals, schools— based on
analysis (DEA) their resources and outputs to see which units are less productive or inefficient.
Shortest route Shortest routes from sources to destinations; for example, the shortest highway
truck route from coast to coast.
Maximal flow Maximizes the amount of flow from sources to destinations; for example, the flow
of work-in-process through an assembly operation.
Trim-loss Determines patterns to cut sheet items to minimize waste; for example, cutting
lumber, film, cloth, glass, etc.
Facility location Selects facility locations based on constraints such as fixed, operating, and
shipping costs, production capacity, etc.
Set covering Selection of facilities that can service a set of other facilities; for example, the
selection of distribution hubs that will be able to deliver packages to a set of cities.

© John Wiley and Sons, Inc. 6

LP Model Formulation (1 of 2)

• Decision variables
o symbols representing levels of activity of an operation
• Objective function
o linear relationship for the objective of an operation
o most frequent business objective is to maximize profit
o most frequent objective of individual operational units (such as a
production or packaging department) is to minimize cost
• Constraint
o linear relationship representing a restriction on decision making

© John Wiley and Sons, Inc. 7

LP Model Formulation (2 of 2)
Maximize or minimize  Z = c1 x1 +  + cn xn
subject to
a11 x1  a12 x2    a1n xn  , ,   b1
a21 x1  a22 x2    a2 n xn  , ,   b2

where
am1 x1  am2 x2    amn xn  , ,   bm
xj = decision variables
xi  0
bi = constraint levels
cj = objective function coefficients
aij = constraint coefficients
m = total number of constraints
n = total number of decision variables

© John Wiley and Sons, Inc. 8

Highlands Craft Store (1 of 2)

Product Resource Requirements: Labor (hr/unit) Resource Requirements: Clay Revenue ($/unit)
(kg/unit)
Bowl 1 4 40
Mug 2 3 50

There are 40 hours of labor and 120 kg of clay available each day.
Decision variables
X1 = number of bowls to produce
X2 = number of mugs to produce

© John Wiley and Sons, Inc. 9

Highlands Craft Store (2 of 2)

Maximize Z = $40 x1 + 50 x2
Subject to
x1 + 2x2  40 hr (labor constraint)
4x1 + 3x2  120 lb (clay constraint)
x 1 , x2  0
Solution is x1 = 24 bowls x2 = 8 mugs
Revenue = $1,360

© John Wiley and Sons, Inc. 10

Graphical Solution Method (1 of 2)

Method of solving linear programming problem using a graph

1. Plot model constraint on a set of coordinates in a plane
2. Identify the feasible solution space on the graph where all constraints
are satisfied simultaneously
3. Plot objective function to find the point on boundary of this space that
maximizes (or minimizes) value of objective function

© John Wiley and Sons, Inc. 11

Graphical Solution Method (2 of 2)

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Computing Optimal Values
 x1 + 2 x2 = 40
  4 x1  + 3x2  = 120
  4 x1  + 8 x2  = 160
 4 x1  3x2  = 120
  5x2  = 40
x2  = 8

x1  + 2 8  = 40
 x1   = 24
Z = $40(24) + $50(8) $1,360
© John Wiley and Sons, Inc. 13
Extreme Corner Points

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Objective Function

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Minimization Problem

Brand Chemical Contribution: Nitrogen (kg/bag) Chemical Contribution: Phosphate (kg/bag)

Gro-plus 2 4
Crop-Fast 4 3

Minimize Z = $6x1 + 3x2

subject to
2x1 + 3x2 ≥ 16 kg of nitrogen
4x1 + 3x2 ≥ 24 kg of phosphate
x1, x2 ≥ 0
© John Wiley and Sons, Inc. 16
Graphical Solution

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Simplex Method

• Mathematical procedure for solving LP problems

• Follow a set of steps to reach optimal solution
• Slack variables added to ≤ constraints to represent unused resources
o x1 + 2x2 + s1 = 40 hours of labour
o 4x1 + 3x2 + s2 = 120 kg of clay
• Surplus variables subtracted from ≥ constraints to represent excess
above resource requirement.
o 2x1 + 4x2 ≥ 16 is transformed into
o 2x1 + 4x2 − s1 = 16
• Slack/surplus variables have a 0 coefficient in the objective function
o Z = $40x1 + $50x2 + 0s1 + 0s2
© John Wiley and Sons, Inc. 18
Linear Programming Model Solution

• Simplex Method
o Mathematical procedure fro solving linear programming problem
according to a set of steps
• Slack Variable
o Variable added to a linear programming constraint to make it an
equality
• Surplus Variable
o Variable subtracted from a model constraint in a linear programming
model to make it an equality

© John Wiley and Sons, Inc. 19

Solution Points With Slack Variables

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Solution Points With Surplus Variables

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Solving LP Problems with Excel (1 of 2)

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Solving LP Problems with Excel (2 of 2)

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LP Solution

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Sensitivity Analysis

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Sensitivity Range for Labor Hours

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