Linear Programming

Modeling Examples
 Applications of Linear Programming

• A Product Mix Example

1.

• A Diet Example
2.

• An Investment Example
3.

• A Marketing Example
4.

• A Data Envelopment Analysis Example

5.
 A Product Mix Example
• Quick Screen is a clothing manufacturing company
that specializes in producing shirts and sweat-shirts.
• The items produced includes two sweat-shirts, one with
silk screen printing on the front and one with print with
both sides, and two T-shirts of same configuration.

• The company has to complete all production within

72 hours, at which time a trailer truck will pick up the
shirts.
 A Product Mix Example Contd…
• The truck has enough capacity to accommodate 1,200
standard size boxes.
• A standard-size box holds 12 T-shirts, and a box of 12
sweat-shirts is three times the size of a standard box.

• The company has budgeted $25,000 for the

production run.

• It has 500 dozen blank sweat-shirts and T-shirts each

in stock, ready for production.
 A Product Mix Example Contd…
The resource requirements, unit costs, and profit per
dozen for each type of shirt are shown in table below:
Processing Time Cost per Dozen Profit per Dozen
(hr.) per Dozen

Sweartshirt - F 0.10 $36 $ 90

Sweartshirt – B/F 0.25 48 125

T-shirt -F 0.08 25 45

T-shirt –B/F 0.21 35 65

A Product Mix Example Contd…
 A Product Mix Example: Model Construction

Decision Variables: (no. of dozens(boxes) of each type)

x1 = sweatshirts, front printing
x2 = sweatshirts, back and front printing
x3 = T-shirts, front printing
x4 = T-shirts, back and front printing
Objective Function:
Maximize Z = $90x1 + $125x2 + $45x3 + $65x4
Model Constraints:
0.10x1 + 0.25x2+ 0.08x3 + 0.21x4  72 hr
3x1 + 3x2 + x3 + x4  1,200 boxes
$36x1 + $48x2 + $25x3 + $35x4  $25,000
x1 + x2  500 dozen sweatshirts
x3 + x4  500 dozen T-shirts
A Product Mix Example: Computer Solution
A Diet Example
 A Diet Example

• Breathtakers, a health and fitness center, operates a

morning fitness program for senior citizens.

• The program includes aerobic exercise, either

swimming or step exercise followed by a healthy
breakfast in the dining room.
• Breathtakers’ dieticians wants to develop a breakfast that will
be high in calories, calcium, proteins and fiber, which are
especially important to senior citizens, but low in fat and
cholesterol.
• She also wants to minimize cost.
 A Diet Example : Data and Problem definition

Breakfast Food Fat Cholesterol Iron Calcium Protein Fiber Cost

Cal (g) (mg) (mg) (mg) (g) (g) ($)
1. Bran cereal (cup) 90 0 0 6 20 3 5 0.18
2. Dry cereal (cup) 110 2 0 4 48 4 2 0.22
3. Oatmeal (cup) 100 2 0 2 12 5 3 0.10
4. Oat bran (cup) 90 2 0 3 8 6 4 0.12
5. Egg 75 5 270 1 30 7 0 0.10
6. Bacon (slice) 35 3 8 0 0 2 0 0.09
7. Orange 65 0 0 1 52 1 1 0.40
8. Milk-2% (cup) 100 4 12 0 250 9 0 0.16
9. Orange juice (cup) 120 0 0 0 3 1 0 0.50
10. Wheat toast (slice) 65 1 0 1 26 3 3 0.07

Breakfast to include at least 420 calories, 5 milligrams of iron, 400

milligrams of calcium, 20 grams of protein, 12 grams of fiber, and
must have no more than 20 grams of fat and 30 milligrams of
cholesterol.
 A Diet Example: Model Construction

x1 = cups of bran cereal

x2 = cups of dry cereal
x3 = cups of oatmeal
x4 = cups of oat bran
x5 = eggs
x6 = slices of bacon
x7 = oranges
x8 = cups of milk
x9 = cups of orange juice
x10 = slices of wheat toast
 A Diet Example: Model Formulation

Minimize Z = 0.18x1 + 0.22x2 + 0.10x3 + 0.12x4 + 0.10x5 + 0.09x6

+ 0.40x7 + 0.16x8 + 0.50x9 + 0.07x10
subject to:
90x1 + 110x2 + 100x3 + 90x4 + 75x5 + 35x6 + 65x7
+ 100x8 + 120x9 + 65x10  420
2x2 + 2x3 + 2x4 + 5x5 + 3x6 + 4x8 + x10  20
270x5 + 8x6 + 12x8  30
6x1 + 4x2 + 2x3 + 3x4+ x5 + x7 + x10  5
20x1 + 48x2 + 12x3 + 8x4+ 30x5 + 52x7 + 250x8
+ 3x9 + 26x10  400
3x1 + 4x2 + 5x3 + 6x4 + 7x5 + 2x6 + x7+ 9x8+ x9 + 3x10  20
5x1 + 2x2 + 3x3 + 4x4+ x7 + 3x10  12
A Diet Example: Computer Solution
An Investment Example
 An Investment Example
• Kathleen Allen, an individual investor, has $ 70,000
to divide among several investments.
• The alternative investments are:
 Municipal bonds with an 8.5% annual return.
 Certificates of deposit with 5% of return.
 Treasury bills with a 6.5% of return.
 Growth stock fund with a 13% annual return

• The investments are all evaluated after one year. However,

each investment alternative has a different perceived risk
to the investor; thus it is advisable to diversify.
 An Investment Example Contd…
• The following guidelines have been established for
diversifying the investments and lessening the risk
perceived by the investor:
1. No more than 20% of the total investment should be in
municipal bonds.
2. The amount invested in certificates of deposit should not
exceed the amount invested in the other three alternatives.
3. At least 30 % of the investment should be in treasury bills
and certificates of deposit.
4. To be safe, more should be invested in CDs and treasury
bills than in municipal bonds and the growth stock fund,
by a ratio of at least 1.2 to 1.
 An Investment Example: Model Construction

• Kathleen wants to invest the entire $ 70,000

Four decision variables represent the monetary

amount invested in each investment alternative:

x1 = amount invested in municipal bonds ($)

x2 = amount invested in certificates of deposit ($)
x3 = amount invested in treasury bills ($)
x4 = amount invested in growth stock fund($)
 An Investment Example: Model Formulation

Maximize Z = $0.085x1 + 0.05x2 + 0.065 x3+ 0.130x4

subject to:
x1  14,000
x2 - x 1 - x 3 - x 4  0
x2 + x3  21,000
-1.2x1 + x2 + x3 - 1.2 x4  0
x1 + x2 + x3 + x4 = 70,000
x1 , x2 , x3 , x4  0
An Investment Example: Model Solution
A Marketing Example
 A Marketing Example
• The Biggs Department Store chain has hired an
advertising firm to determine the types and amount of
advertising it should invest in for its stores.
• The three types of advertising available are:
1. Television
2. Radio commercials
3. Newspaper ads
• The retail chain desires to know the number of each
type of advertisement it should purchase in order to
maximize exposure.
 A Marketing Example contd..
• It is estimated that each add or commercial will reach
the following potential audience and cost the following
amount:

Exposure Cost
(people/ad or
commercial)
Television 20,000 $15,000
Commercial
Radio 12,000 6,000
Commercial
Newspaper Ad 9,000 4,000
 A Marketing Example contd..
• The company must consider the following resource
constraints:
• The budget limit for advertising is $ 100,000.
• The television station has time available for 4
commercials.
• The radio station has time available for 10
commercials.
• The newspaper has space available for 7 ads.
• The advertising agency has time and staff available
for producing no more than a total of 15 commercials
and/or ads.
 A Marketing Example: Model Summary

Maximize Z = 20,000x1 + 12,000x2 + 9,000x3

subject to:
15,000x1 + 6,000x 2+ 4,000x3  100,000
x1  4
x2  10
x3  7
x1 + x2 + x3  15
x1, x2, x3  0
where
x1 = Number of Television Commercial
x2 = Number of Radio Commercial
x3 = Number of Newspaper Ads
A Data Envelopment Analysis
(DEA) Example
 Efficiency of Bank Branches
• Management of large, nationally known bank wanted
to improve the operations at the branch level.

• A total of 182 branch banks located in four major

cities were selected for the study. Data Envelopment
analysis (DEA) was used to determine which
branches were operating inefficiently.
• The DEA model compared the actual operating results
of each branch with those of all other branches.
 Efficiency of Bank Branches
• A less-productive branch was one that required more
resources to produce the same output as the best
performing branches.
• The best-performing branches are identified by a
DEA efficiency rating of 100% (E = 1.00). The
inefficient or less-productive branches are identified
by an efficiency rating less than 100% (E <1.00).

• Inputs for each branch – number of teller full-time

equivalents, the number of parking spaces, the
number of ATMs and advertising expense per
customer
 Efficiency of Bank Branches
• Outputs – amount of loans (direct, indirect,
commercial and equity), the amount of deposits
(checking, savings and CDs), the average number of
accounts per customer, and the customer satisfaction
score based on a quarterly customer survey.
• Data were collected over six consecutive quarters to
determine how the branches were operating over
time.
• The solution to the linear programming model
showed that 92 out of 182 branches were fully
efficient.
 Efficiency of Bank Branches
• Only five branches - fell below 70% efficiency level,
• 25 % of branches – efficiency score b/w 80 -89 %

• DEA identified the specific branches that were

relatively inefficient and provided insights as to how
as these branches could improve productivity.
A Data Envelopment Analysis (DEA) Example

• DEA is a linear programming application that

compares a number of service units of the same type
– such as banks, hospitals, restaurants, and schools-
based on their input (resources) and outputs.

• The model solution result indicates whether a

particular unit is less productive, or inefficient,
compared to other units

• For example, DEA has compared hospitals where

inputs include hospital beds and staff size and outputs
include patient days for different age group.
 Evaluating the Performance of Hospitals

• The hospital administrators at General Hospital,

University Hospital, and State Hospital have been
meeting to discuss ways in which they can help one
another improve the performance at each of their
hospitals.
• A consultant suggested that they consider using DEA
to measure the performance of all four hospitals.
• In discussing how this evaluation could be done, the
three input measures and four output measures were
indentified.
 DEA Example Contd….
Input Measures

1. Number of full-time equivalent (FTE) nonphysician personnel.

2. The amount spent on suplies.
3. The number of bed-days available.

Output Measures

1. Patient-days of service under Medicare.

2. Patient-days of service not under Medicare.
3. Number of nurses trained.
4. Number of interns trained.
 DEA Example Contd….

Annual Resources Consumed (Inputs) by the four hospitals

Input General University County State
Measure
FTE 285.20 162.30 275.70 210.40
nonphysicians

Supply 123.80 128.70 348.50 154.10

Expense ($
1000s)
Bed-days 106.72 64.21 104.10 104.04
available
(1000s)
 DEA Example Contd….
Annual Services Provided(Outputs) by the four hospitals
Output General University County State
Measure
Medicare 48.14 34.62 36.72 33.16
patient-days
(1000s)
Non- 43.14 27.11 45.98 56.46
Medicare
patient-days
(1000s)

Nurses 253 148 175 160

trained

Interns 41 27 23 84
trained
 DEA Example Contd….
• In this application of DEA, a linear programming
model will be developed for each hospital whose
efficiency is to be evaluated,

• To illustrate the modeling process, we will formulate

a linear program that can be used to determine the
relative efficiency of County Hospital.

• First, using a linear programming model, we

construct a hypothetical composite hospital, based on
the outputs and inputs for all operating units with the
same goals.
 DEA Linear Programming Model
• To determine the weight that each hospital will have in
computing the outputs and inputs for the composite
hospital, we use the following decision variables:

wg = weights applied to input and outputs for General Hospital.

wu = weights applied to input and outputs for University Hospital.
wc = weights applied to input and outputs for County Hospital.
ws = weights applied to input and outputs for State Hospital.

The DEA approach requires that sum of these weights equal 1.

wg + wu + wc + ws = 1
 DEA Linear Programming Model
• As stated previously, for each output measure, the output for
the composite hospital is determined by computing a weighted
average of the corresponding outputs for all four hospitals. For
instance for output measure 1, the number of patient days of
service under Medicare, the output for the composite hospital is

Mediacre patient-days Medicare patient-days wg + Medicare patient-days wu

=
for composite hospital for General Hospital for University Hospital

Medicare patient-days wc + Medicare patient-days ws

for County Hospital for State Hospital

Mediacre patient-days
= 48.14wg + 34.62 wu + 36.72 wc + 33.16 ws
for composite hospital
 DEA Linear Programming Model
• For each of the four output measures, we need to write a
constraint that requires the output for the composite
hospital to be greater than or equal to the output for county
hospital. Thus, the general form of output constraint is

 Output for the   Output for the 

  
 Composite Hospital   County Hospital 
Because the number of Medicare patient-days for County Hospital
is 36.72, the output constraint corresponding to the number of
Medicare patient-days is

48.14wg  34.62wu  36.72wc  33.16ws  36.72

 DEA Linear Programming Model

• In a similar fashion, we formulated a constraint for

each of the other three output measures, with the
results as shown:

43.10 wg  27.11wu  45.98wc  56.46 ws  45.98 Non-Medicare

253wg  148wu  175wc  160 ws  175 Nurses
41wg  27 wu  23wc  84ws  23 Interns
 DEA Linear Programming Model
• Next, we need to consider the constraints needed to model
the relationship between the inputs for the composite
hospital and the resources available to composite hospital.
The, the general form of input constraint is

 Input for the   Resources available to 

  
 Composite Hospital   the Composite Hospital 
 DEA Linear Programming Model
• For each input measure, the input for composite hospital is
a weighted average of the corresponding input for each of
the four hospitals. Thus, for input measure 1, the number of
FTE nonphysicians, the input for the component hospital is

FTE nonphysicians FTE nonphysicians wg + FTE nonphysicians wu

=
for composite hospital for General Hospital for University Hospital

FTE nonphysicians wc +FTE nonphysicians ws

for County Hospital for State Hospital

FTE nonphysicians
= 285.20wg + 162.30 wu + 275.70 wc + 210.40 ws
for composite hospital
 DEA Linear Programming Model
• To complete the formulation of the input constraints,
we must write expressions for the right-hand-sides
values for each constraint.
• Note that the right hand side values are the resources
available to the composite hospital.
• Thus the following decision variable is introduced.

E = the fraction of County Hospital input available to the

Composite hospital
 DEA Linear Programming Model
• Thus we can now write the input constraints for the
three input measures as follows:

285.20wg  162.30wu  275.70wc  210.40ws  275.70 E FTE nonphysicians

123.80wg  128.70wu  348.50wc  154.10ws  348.50 E Supplies
106.72wg  64.21wu  104.10wc  104.04 ws  104.10 E Bed-days

If a solution with E < 1 can be found, the composite hospital does

not need as many resources as county hospital needs to produce the
same level of output.
 DEA Linear Programming Model
• The DEA efficiency conclusion is based on the optimal
objective function value for E. the decision rule is as
follows:
• If E = 1, the composite hospital requires as much
input as County hospital does. There is no
evidence that county hospital is inefficient.

• If E < 1, the composite hospital requires less input to

obtain the output achieved by County
Hospital. The Composite Hospital is more
efficient; thus county Hospital can be judged
relatively inefficient,
 DEA: Model Formulation
Min E
s.t.
wg  wu  wc  ws  1
48.14 wg  34.62 wu  36.72 wc  33.16 ws  36.72
43.10 wg  27.11wu  45.98wc  56.46 ws  45.98
253wg  148wu  175wc  160 ws  175
41wg  27 wu  23wc  84 ws  23
275.70 E  285.20 wg  162.30 wu  275.70 wc  210.40 ws  0
348.50 E  123.80 wg  128.70 wu  348.50 wc  154.10 ws  0
104.10 E  106.72 wg  64.21wu  104.10 wc  104.04 ws  0
E,wg ,wu,wc,ws  0
 DEA: Model Solution

Variable Value

E 0.9052379
WG 0.2122662
WU 0.2604472
WC 0.000000
WS 0.5272867

Since E = 0.905, therefore, we conclude that County Hospital is

inefficient.
End