Session 05

• Applications of LP
• An investment problem

• A Production and inventory planning problem

An Investment Problem: Retirement Planning Services,
Inc.
A client wishes to invest $750,000 in the following bonds.
 • No more than 25% can be invested in any

single company.

Investment • At least 50% should be invested in long-term

Restrictions bonds (maturing in 10+ years).

• No more than 35% can be invested in DynaStar,

Eagle Vision, and OptiPro.

 Defining the • X1 = amount of money to invest in Acme Chemical

Decision Variables • X2 = amount of money to invest in DynaStar

• X3 = amount of money to invest in Eagle Vision

• X4 = amount of money to invest in MicroModeling

• X5 = amount of money to invest in OptiPro

• X6 = amount of money to invest in Sabre Systems

Defining the
Objective  Maximize the total annual investment return
Function  MAX: .0865X1+ .095X2+ .10X3+ .0875X4+ .0925X5+ .09X6
 Defining the Constraints

• Total amount is invested

X1 + X2 + X3 + X4 + X5 + X6 = 750,000
• No more than 25% in any one investment
Xi <= 187,500, for all i
• 50% long term investment restriction.
X1 + X2 + X4 + X6 >= 375,000
• 35% Restriction on DynaStar, Eagle Vision, & OptiPro
X2 + X3 + X5 <= 262,500
• Nonnegativity conditions
Xi >= 0 for all i
Implementing
the Model
See file Fig3-22.xlsm
Inventory
Planning
Inventory Planning
@ SAGAR

• Beginning Inventory= 40 Demand = 100

• Unit Purchased = 80

Ending Inventory (EI)

= Beginning Inventory (BI) +
Purchased (P)- Demand(D)
A Production Planning Problem
The Upton Corporation
A Production Planning
Problem
The Upton Corporation
Beginning inventory = 2,750 units

Safety stock = 1,500 units

Unit carrying cost = 1.5% of unit production

cost
Maximum warehouse capacity = 6,000 units
Defining the
Decision Variables
Pi
• number of units to produce
in month i, i=1 to 6

Bi
• beginning inventory month i,
i=1 to 6
Defining the
Objective Function
• Minimize
• the total cost of production
• & inventory costs
• MIN:
• 240P1+250P2+265P3+285P4+280P5+260P6
• + 3.6(B1+B2)/2 + 3.75(B2+B3)/2 + 3.98(B3+B4)/2
• + 4.28(B4+B5)/2 + 4.20(B5+ B6)/2 + 3.9(B6+B7)/2

Note: The beginning inventory in any month is the same as the ending inventory in the previous month.
Defining the
Constraints - I • Production levels

2,000 <= P1 <= 4,000 } month 1

1,750 <= P2 <= 3,500 } month 2

2,000 <= P3 <= 4,000 } month 3

2,250 <= P4 <= 4,500 } month 4

2,000 <= P5 <= 4,000 } month 5

Defining the • Ending Inventory (EI = BI + P - D)
Constraints - II 1,500 < B1 + P1 - 1,000 < 6,000 } month 1

1,500 < B2 + P2 - 4,500 < 6,000 } month 2

1,500 < B3 + P3 - 6,000 < 6,000 } month 3

1,500 < B4 + P4 - 5,500 < 6,000 } month 4

1,500 < B5 + P5 - 3,500 < 6,000 } month 5

1,500 < B6 + P6 - 4,000 < 6,000 } month 6

 Defining the • Beginning Balances
Constraints -
B1 = 2750
III
B2 = B1 + P1 - 1,000

B3 = B2 + P2 - 4,500

B4 = B3 + P3 - 6,000

B5 = B4 + P4 - 5,500

Notice that the Bi can be B6 = B5 + P5 - 3,500

computed directly from the Pi.
Therefore, only the Pi need to B7 = B6 + P6 - 4,000
be identified as changing cells.
Implementing
the Model
See file Fig3-33.xlsm