Binary Integer Programming

• The California Manufacturing Co. is

considering expansion by building a new
factory in either Los Angeles or San-
Francisco, or perhaps even in both cities.
It is also considering building at most one
new warehouse but the choice of location
is restricted to a city where a new factory
is being built. The co. would like to
maximize the NPV .
Decision Yes or Decision NPV Capital
No query Variables Required
1 Factory X1 9m 6m
at LA ?
2 Factory X2 5m 3m
at SF ?
3 Warehouse X3 6m 5m
At LA ?
4 Warehouse x4 4m 2m
At SF ?
Capital Available 10m
 Goods Products co.
 The R&D division of the goods products company has
developed three possible new products. However, to
avoid undue diversification of the co.’s product line,
management has imposed the following restrictions.
 Restriction-1. From 3 possible new products at most 2
should be chosen to be produced.
 Restriction-2. Just one of the two plants should be
chosen to be the sole producer of the new products.
 The production cost per unit of the each product would
be the essentially the same in two plants.
 Data
Production time used for each Production
unit produced time
P1 P2 P3 available
per week

Plant-1 3hrs 4hrs 2Hrs 30Hrs

Plant-2 4Hrs 6Hrs 2 Hrs 40Hrs
Unit 5 7 3 (in
Profit thousands)
Sales 7 5 9 (units per
Mixed Integer Model
A company has $250,000 to invest in 3 alternative
investments , house , land and bonds. She
wants to invest in an investment option so that it
will result highest return after a year. Each
house costs $50000 and will return a profit of
$9000 if sold at the end of one year , each acre
of land costs $12000 and will return a profit of
$1500 after a year. Each bond costs $8000 and
will earn $1000 if sold at the end of the year.
There are 4 houses , 15 acres of land and 20
bonds are available for purchase.
 Advertising Example
A corporation is developing its marketing plan for
next years new products. For 3 of these
products the decision has been made to
purchase a total of 5 TV spots for commercials
on National TV network. How to allocate 5 spots
to these 3 products with a max of 3 spots for
each product. Table shows the estimated impact
of allocating 0,1,2 and 3 spots to each product.
This impact is measured in terms of profit (in
units of million dollars) from additional sales that
would result from the spots , considering also
the cost of producing the commercial and
purchasing the spots.
 Data for the co.
No of TV Profit
spots Product
1 2 3

0 0 0 0
1 1 0 -1
2 3 2 2
3 3 3 4
 Credit Card Example
• A Bank receives credit card payments from 4 regions of the
country. The average daily amounts of payments mailed
from each region are as follows : West Rs 70,000 , North
Rs 50,000 , East Rs 60000, and South Rs 40000. The bank
must decide where their customers mail their payments. An
annual interest of 20% can be earned on cash received.
The Bank is considering of setting of payment centers in 4
cities (Mumbai , Delhi , Kolkata and Chennai). The average
number of days that elapse between the time a check is
mailed and it is credited to the account is given in the
table. The annual cost of running a lockbox is Rs 50,000.
Each region must send all its money to a single city.
Citibank wants to determine the lockbox configuration that
minimizes the sum of loss interest and lockbox costs.
Time for bank Lockbox Example
Mumbai Delhi Kolkata Chennai

West 2 6 8 8

North 6 2 5 5

East 8 5 2 5

South 8 5 5 2
 Facility location and Logistic
Planning at HUNTCO
• HUNTCO produces Tomato Sauce at 5 different plants.
The capacity of each plant is given in the table. The
tomato sauce is stored at one of the 3 warehouses. The
cost per ton of producing tomato sauce at each plant and
shipping to each warehouse is given in the table. Each
customer must receive the amount of sauce as given in
the table. The annual fixed cost of operating each plant
and warehouse is listed. Huntco’s goal is to minimize the
annual cost of meeting the customers demand. The co.
wants to determine which plants and warehouses to
open , as well as the optimal shipping plan.
• Capacities for Huntco(Table-1)
• Plant 1 2 3 4 5
• Tons 300 200 300 200 400
 Production and Shipping
Cost
Warehouse-1 Warehouse-2 Warehouse-3

Plant-1 800 1000 1200

Plant-2 700 500 700

Plant-3 800 600 500

Plant-4 500 600 700

Plant-5 700 600 500

Shipping cost to customers/
Customers requirements
Customer Customer Customer Customer
1 2 3 4
W-1 40 80 90 50

W-2 70 40 60 80

W-3 80 30 50 60
Customer
200 300 150 250
Requirement
Fixed annual cost

 Plant-1  35000
 Plant-2  45000
 Plant-3  40000
 Plant-4  42000
 Plant-5  40000
 Warehouse-1  40000
 Warehouse-2  20000
 Warehouse-3  60000
Manufacturing at –Durian Auto
 Dorian auto is considering manufacturing 3
types of cars compact midsized and large.
The resources required and the profits
yielded by each type of car are shown in the
table. At present 6000 tons of steel and
60000 hrs of labor available. If any cars of a
given type are produced , production of that
type of car will be economically feasible only
if 1000 cars of that type are produced.
Dorian wants a production schedule that
maximizes its profit.
 Data for Dorian Car Example
Compact Midsized Large

Steel Reqd 1.5 3 5

(in tons)
Labor reqd 30 25 40
(Hrs)
Profit 2000 3000 4000