Operational Research

CASE STUDY GROUP-6

1. Workload Balancing Rishabh Surana

2. Production Strategy Riddhima Kartik
3. Hart Venture Capital RajveerSinh Chauhan
4. Product Mix Shobhit Garg
5. Investment Strategy Ronak Sani
WORKLOAD BALANCING

DIGITAL IMAGING (DI)

PHOTO PRINTERS

(AN INTRODUCTION TO MANAGEMENT SCIENCE)

PG: 84-85
 DI Printers

 Digital Imaging (DI) produces photo printers for both

professional and consumer markets. The company recently
introduced two new models of color photo printers namely
DI-910 model and DI-950 model.

Features DI- 910 DI – 950

Photo Size 4” * 6” Borderless 13” * 19” Borderless

Time Taken / Print 37 seconds Faster than DI-910

Profit / Unit $ 42 $ 87
 Manufacturing

 The company has two manufacturing lines to assemble, test and pack
the printers.

 LINE 1 - Performs assembly operation

 LINE 2 - Performs testing and packaging part

Line DI- 910 DI – 950 Time Available /

Shift
Line – 1 3 mins 6 mins $ 480

Line - 2 4 mins 2 mins $ 480

Profit / Unit $ 42 $ 87
 Objective Functions

 Decision Variables
Let, X - Number of units of DI-910 model produced in each shift.
Let, Y - Number of units of DI-950 model produced in each shift.

 Objective
The company’s objective is to maximize its profit from overall
production.

 Objective Function
Z (Max.) = 42(X) + 87(Y)
 Constraints

 Subject To :
For Line 1
3X + 6Y <= 480
For Line 2
4X + 2Y <= 480
Non-Negativity Constraints
X >= 0
Y >= 0
 1 (a).
Recommended number of units of each printer to be produced to maximize
the profit :

No. of DI-910 model printers to be produced i.e. X = 0

No. of DI-950 model printers to be produced i.e. Y = 80
Z(Max.) = 42 (0) * 87 (80)  6960

 Now while producing 80 DI-950 printers :

Time used in Assembly Line = 6 X 80 = 480 minutes

Time used in Testing & Packaging = 2 X 80 = 160 minutes

 Time i.e. not utilised in Testing & Packaging = 480 – 160 = 320
minutes

 Line -2 i.e. Testing & Packaging is Idle for 320 minutes/shift

Area under ABCD Optimal solution i.e.
is the feasible region Z(max) is at A = 6960
 (b).

Possible reasons for not implementing the recommendation :

Thus, management may not be manufacturing only DI-
950 model printers as :

 Resources on Line 2 will not be utilized fully as there will be an

idle time of 320 minutes (more than half of the total time of the
shift).
 Production/Supply of DI-950 model printers may be in excess of
market demand.
 Demand of DI-910 model printers will be left unfulfilled.
Solution from Management Scientist Software
 2.

DI Company wants to produce as many DI-910

model printers as DI-950 model printers :
 Now in this case, a new constraint will further be added to the original
problem :
X >= Y, or
X – Y >= 0
We will achieve our optimal point at :
X = 53.33
Y = 53.33
But since production of printers can not be done in this way,
the company would produce :
X = 54
Y = 53
Z(Max.) = 42 (54) * 87 (53)  6880
Feasible region is ABCD
Optimal point at A (x=54,y=53)
Max. profit i.e. Zmax = 6880
Solution from Management Scientist Software
 3.

Analysis of resource utilization on Line 1 and Line 2 in reference to

solution developed in part (2) :

Time used in Assembly line = (3 X 54) + (6 X 53) = 480

minutes
Time used in Testing & Packaging = (4 X 54) + (2 X 53) = 322
minutes

 Time i.e. not utilized in Testing & Packaging =

480 – 322 = 158 minutes

Now as there is a lot of time in Line 2 still unused, the main

concern for the company would be how to utilize this unused
time in a productive manner so that it add value to the
company as well as its profits.
 4.
Management wants to limit the time difference between both the lines
by 30 minutes or less :

In this case, a new constraint will be added to the original problem :

(3X + 6Y ) – (4X + 2Y) <= 30, or
- X + 4Y <= 30

 Through Management Scientist Software, the new calculated values will

be :
X = 96.667
Y = 31.667
Z(Max.) = 42(96.667) + 87(31.667)  6815

 Time consumed in Line 1 = (3 X 96.667) + (6 X 31.667) = 480 minutes

 Time consumed in Line-2 = (4 X 96.667) + (2 X 31.667) = 450 minutes
Time Difference = 480 – 450  30 minutes
Solution from Management Scientist Software
Feasible region is ABCD
Optimal solution is at A (x=96.667,y=31.667)
Max. profit i.e. Zmax= 6815
 Now again since the production of printers can not be
done in this way, the company would produce :
X = 98
Y = 31
Z(Max.) = 42 (98) * 87 (31)  6813

 Time consumed in Line 1 = (3 X 98) + (6 X 31) = 480 minutes

 Time consumed in Line-2 = (4 X 98) + (2 X 31) = 454 minutes
Time Difference = 480 – 454  26 minutes
 5.

Objective is to maximize the number of printers

produced :
Since the objective of the company has changed from maximizing profits to maximizing
production, the objective function would also change :
New Objective Function :
Z(Max.) = X + Y
 Through Management Scientist Software, the new calculated values will
be :
X = 106.227
Y = 26.667
For convenience in production, the company would produce :
X = 106
Y = 27
Z(Max.) = 42 (106) * 87 (26)  6801
 Time consumed in line-1 = (3 X 106) + (6 X 27) = 480 minutes
 Time consumed in line-2 = (4 X 106) + (2 X 27) = 478 minutes
Solution from Management Scientist Software
 PRODUCTION STRATEGY

BETTER FITNESS INC. (BFI)

EXERCISE EQUIPMENT MANUFACTURING

(AN INTRODUCTION TO MANAGEMENT SCIENCE)

PG: 85-86
 Components of Machines

Two machines are to be Manufactured :

 Body Plus 100

1. Frame Unit
2. Press Station
3. Pec-Dec Station

 Body Plus 200

1. Frame Unit
2. Press Station
3. Pec-Dec Station
4. Leg Press Station
 Activities Involved in Manufacturing

 There are various activities involved in per unit

manufacturing of ‘Body Plus 100’ and ‘Body Plus 200’ :

 Machining and Welding

 Painting and Finishing
 Assembling, Packaging and Testing

 Three of these activities take separate time for both the

machines
 Body Plus 100

Machine & Painting & Assembling, Raw Packaging

Welding Finishing Testing & Material Cost
Time Time Packaging Cost ($)
(Hrs) (Hrs) (Hrs) ($)

Frame Unit 4 2 450

Press Station 2 1 2 300 50

Pec-Dec Station 2 2 250

Total 8 5 2 1000 50
 Body Plus 200

Machine & Painting & Assembling, Raw Packaging

Welding Finishing Testing & Material Cost
Time Time Packaging Cost ($)
(Hrs) (Hrs) (Hrs) ($)

Frame Unit 5 4 650

Press Station 3 2 400

2 75
Pec-Dec Station 2 2 250

Leg Press 2 2 200

Station

Total 12 10 2 1500 75
 Process Time

Machine & Welding Painting & Finishing Assembling, Testing

Time Time & Packaging Time

Labor Cost / Hour $ 20 $ 15 $ 12

For the Next Production Period Management Estimates the Hours and Labor Cost

Total Time (Hrs) Cost / Hour

Machine & Welding Time 600 20

Painting & Finishing Time 450 15

Assembling, Testing and Packaging Time 140 12

 Manufacturing Cost

Body Plus 100 Body Plus 200

 Retail Price = $ 2400  Retail Price = $ 3500

 Labor Cost = (20*8)+(15*5)+(12*2)  Labor Cost = (20*12)+(15*10)+(12*2)

= $ 259 = $ 414

 Raw Material Cost = $ 1000 + $ 50  Raw Material Cost = $ 1500 + $ 75

= $ 1050 = $ 1575

 Dealer Price = 0.70*2400 = $1680  Dealer Price = 0.70*3500 = $ 2450

(Because Dealer can purchase at 70%) (Because Dealer can purchase at 70%)
 .  .
 Profit

Body Plus 100 Body Plus 200

 Total Cost = RM cost + Labor Cost  Total Cost = RM cost + Labor Cost

 Total = $ 1050 + $ 259  Total = $ 1575 + $ 414

= $ 1309 = $ 1989

 Price Sold = $ 1680  Price Sold = $ 2450

 Profit = $ 1680 - $ 1309  Profit = $ 2450 - $ 1989

= $ 371 = $ 461
 .  .
 LPP
A. Decision Variable
 X = No. of Units of Body Plus 100 to be produced
 Y = No. of Units of Body Plus 200 to be produced

B. LPP Equation (Profit Maximization)

 Max Z = 371 X + 461 Y

C. Constraints
1. Machine & Welding Hours :
1. 8 X + 12 Y <= 600
2. Painting & Finishing Hours :
1. 5 X + 10 Y <= 450
3. Assembly & Packaging Hours :
1. 2 X + 2 Y <= 140
4. Y >= 0.25 (X + Y)
5. Non – Negative Constraints :
X >=0 ; Y >= 0
Plotted Graph
 1.

 The Optimal Solution is from one among the Feasible region points

Points Max Z Solution

A 0 , 45 20,745

B 30 , 30 Z = 371 X + 461 Y 24,960

C 50 , 16.667 26,233.48 Optimal Solution

 Hence, the recommended number of machines are :

 Body Plus 100 = 50
 Body Plus 200 = 16
 2.

 If the constraint of “producing atleast 25% of Body Plus 200” is

removed.

 Then the graph shall be plotted for the following constraints:

1. Machine & Welding Hours :
1. 8 X + 12 Y <= 600
2. Painting & Finishing Hours :
1. 5 X + 10 Y <= 450
3. Assembly & Packaging Hours :
1. 2 X + 2 Y <= 140
4. Non – Negative Constraints :
X >=0 ; Y >= 0
New Graph
 New Solution

 The Optimal Solution is from one among the Feasible region points

Points Max Z Solution

A 0 , 45 20,745

B 30 , 30 24,960
Z = 371 X + 461 Y Optimal Solution
C 60 , 10 26,870

D 70 , 0 25,970
 Hence, the recommended number of machines are :
 Body Plus 100 = 60
 Body Plus 200 = 10
 The Profit Margin Increases by
= $ 26,870 - $ 26,233.48
= $ 636.52
 3.

 We can see that the “Upper Limit” in ‘X’ is not fixed, whereas in ‘Y’ it is
1113 units
 When looking at the Objective function Coefficient ranges we see that
the objective function yields maximum profits (1113 units) by selling
only Body Plus 200.
 Also, the reduced costs of manufacturing only Body Plus 200 is 652.
 Therefore, the efforts should be expended, in Body Plus 200 to yield
maximum profit.
Software Solution
 HART VENTURE CAPITAL

HART VENTURE CAPITAL (HVC)

VENTURE CAPITAL FOR SOFTWARE
DEVELOPMENT

(AN INTRODUCTION TO MANAGEMENT SCIENCE)

PG: 86-87
 Objective Function

Decision Variables
 X1= Percentage of fund invested in Security systems.
 X2= Percentage of fund invested in Market analysis.

Objective Function
 To maximize the net present value of the total investment in Security
systems and Market analysis.
 Max Z= X1/100(1,800,000)+X2/100(1,600,000)

Constraints
 X1/100(600,000)+X2/100(500,000)<=800,000
 X1/100(600,000)+X2/100(300,000)<=700,000
 X1/100(250,000)+X2/100(400,000)<=500,000
 Non negativity condition X1,X2>=0
Year Security System Market Analysis Max Availability

1 6 , 00 , 000 5 , 00 , 000 8 , 00 , 000

2 6 , 00 , 000 3 , 50 , 000 7 , 00 , 000

3 2 , 50 , 000 4 , 00 , 000 5 , 00 , 000

 Graph

1.8
Y = Percentage of investment in market analysis

1.6

1.4

1.2

1 600000X+500000Y<800000
600000X+350000Y<700000
0.8 250000X+400000Y<500000

0.6

0.4

0.2

0
0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2
X = Percentage of investment in security system
 1.

 HVC should invest 60.87% in Security systems and 86.95%

in Market analysis.

 Net present value of total investment is $2,486,956.522

 2.

 Capital Allocation Plan :

Year 1 Year 2 Year 3

Security Systems $ 3, 65, 220 $ 3, 65, 220 $ 1, 52, 175

Market Analysis $ 4, 34, 750 $ 3, 04, 325 $ 3, 47, 800

Slack Funds $ 30 $ 30, 455 $ 25

 3.

 Assuming that the additional $100000 is made available to

HVC to be invested in any year.

 HVC should choose to invest these funds in these

proportions in the two projects

 The following effects will take place :

A. % invested funded for Security Systems will become 68%
B. % invested funded for Market Analysis will become 82%
C. Net Present Value will become $2536000.
 Year 1 Year 2 Year 3

Security Systems $ 4, 08, 000 $ 4, 08, 000 $ 1, 70, 000

Market Analysis $ 4, 10, 000 $ 2, 87, 000 $ 3, 28, 000

Slack Funds $ 82, 000 $ 5, 000 $ 2, 000

 4.

 Assuming the additional $100000 is committed for

the first year itself, the capital allocation plan is

 For Security systems:

1. Year 1 = $413,112
2. Year 2 = $413,112
3. Year 2 = $172,130
 For market analysis:
1. Year 1 = $409,835
2. Year 2 = $286,884
3. Year 2 = $327,868
 5.

 As we saw, when an additional $100000 is invested,

the net present value goes up by $49140 with a slack
of $89000. These slack funds may be reinvested in
lucrative options available with HVC.
 PRODUCT MIX

TJ’S INC.
NUT MIXES FOR SALE TO GROCERY
CHAINS

(AN INTRODUCTION TO MANAGEMENT SCIENCE)

PG: 151-152
 Problem

 TJ’s Incorporated makes three nut mixes for sale to grocery chains located in
the southeast. The three mixes, referred to as the Regular Mix, the Deluxe Mix,
and the Holiday Mix, are made by mixing different percentages of types of nuts.

 In preparation for the fall season, TJ’s has just purchased the following
shipments of nuts at the prices shown :

Type of Nut Shipment Amount Cost per Shipment

Almond 6000 7500

Brazil 7500 7125

Filbert 7500 6750

Pecan 6000 7200

Walnut 7500 7875

Percentage of Nuts Regular Mix Deluxe Mix Holiday Mix
Almonds 15 % 20 % 25 %
Brazil Nuts 25 % 20 % 15 %
Filberts 25 % 20 % 15 %
Pecans 10 % 20 % 25 %
Walnuts 25 % 20 % 20 %

Type of Mix Profit Contribution Orders

Per Unit
Regular Mix $ 1.65 10, 000
Deluxe Mix $ 2.00 3, 000
Holiday Mix $ 2.25 5, 000
 Managerial Report

Perform an analysis of TJ’s product mix problem, and prepare a report for
TJ’s president that summarizes your finding. Be sure to include
information and analysis on the following:

1. The cost per pound of the nuts included in the Regular, Deluxe, and
Holiday mixes.
2. The optimal product mix and the total profit contribution.
3. Recommendations regarding how the total profit contribution can be
increased if additional quantities of nuts can be purchased.
4. A recommendation as to whether TJ’s should purchase an additional
1,000 pounds of almonds for $1,000 from a supplier who overbought.
5. Recommendations on how profit contribution could be increased (if
at all) if TJ’s does not satisfy all existing orders.
 L.P.P Formulation

Decision variables :

 R = pounds of Regular Mix

 D = pounds of Deluxe Mix
 H = pounds of Holiday Mix

Objective function :

 Z = 1.65R + 2.00D + 2.25H - 36450

 Constraints

 R > 10000
 D > 3000
 H > 5000

 .15R + .20D + .25H < 6000

 .15R + .20D + .15H < 7500

 .15R + .20D + .15H < 7500

 .10R + .20D + .25H < 6000

 .25R + .20D + .20H < 7500

 R, D, H > 0
S
o M
S
l a
c S
u n
i o
t a f
i e
g t
o n
e w
n t
m a
i r
F e
s e
r n
o t
t
m
 Interpretation
 The Objective Function Value : optimal solution - maximum profit -
$61375.
 Subtract $36450 from the original Objective Function Value
 Subtract the total cost per shipment of the different nuts,
 Optimal Solution - maximum profits - $24935.
 Optimal decision production = 17500 of regular mix,10625 of deluxe mix,
and 5000 of holiday mix.
 Optimal solution exceeds the customer orders for regular Mix by 7500
pounds
 Optimal solution exceeds the customer orders for deluxe Mix by 7625
pounds
 Holiday mix binding constraint(zero surplus)
 The negative dual price indicates that increasing the customer orders for
Holiday mix from 5000 to 5001 pounds will actually decrease the profit
contribution by $0.18.
 Recommendations

 Increase the quantity of almonds and walnuts purchased by Tj’s and

increase their profit contribution at rate of $8.5 per pound of almonds
and $1.5 per pound of walnuts.
 No more buying of brazil nuts, filberts and pecans.
 Almonds - For each additional pound purchased the profit would
increase @ $8.5 for 583 pounds.
 Walnuts - For each additional pound purchased the profit would
increase @ $1.5 for 250 pounds.
 Dual price of -.175 for the pounds of holiday mix indicate the desire to
reduce the production of this mix.
 The range of feasibility indicates the need to reduce the customer
orders to zero and the value of reduction @ $.18 per pound.
INVESTMENT STRATEGY

J.D. WILLIAMS INC.

INVESTMENT ADVISORY FIRM

(AN INTRODUCTION TO MANAGEMENT SCIENCE)

PG: 152-153
 Objective Function

The Case talks about an Investment Advisory firm having more than $120
million of funds with numerous clients.
The problem at hand is about an $800,000 new investment which is to be
invested in three portfolios
Therefore

Decision Variables:
X1=Investment in growth fund
X2=Investment in income fund
X3=Investment in money market fund

Objective Function:
Maximize Z= 0.18X1+0.125X2+0.075X3
 Constraints

Subject to:

1) -0.8 X1+0.2 X2+0.2 X3<0

2) -0.6 X1+0.4 X2+0.4 X3>0
3) 0.2 X1-0.8 X2+0.2 X3<0
4) 0.5 X1-0.5 X2+0.5 X3>0
5) 0.3 X1+0.3 X2-0.7 X3<0
6) 1 X1+1 X2+1 X3=800000
7) 0.05 X1+0.02 X2-0.04 X3<0
 Solution

LINEAR PROGRAMMING PROBLEM

Max Z = 0.18 X1+0.125 X2+0.075 X3

OPTIMAL SOLUTION

Objective Function Value = 94133.333

Variable Value Reduced Costs
-------------- --------------- ------------------
X1 248888.889 0.000
X2 160000.000 0.000
X3 391111.111 0.000
Constraint Slack/Surplus Dual Prices
-------------- --------------- ------------------
1 88888.889 0.000
2 71111.111 0.000
3 0.000 0.020
4 240000.000 0.000
5 151111.111 0.000
6 0.000 0.118
7 0.000 1.167
OBJECTIVE COEFFICIENT RANGES

Variable Lower Limit Current Value Upper Limit

------------ --------------- --------------- ---------------
X1 0.150 0.180 No Upper Limit
X2 No Lower Limit 0.125 0.145
X3 0.015 0.075 0.180

RIGHT HAND SIDE RANGES

Constraint Lower Limit Current Value Upper Limit

------------ --------------- --------------- ---------------
1 -88888.889 0.000 No Upper Limit
2 No Lower Limit 0.000 71111.111
3 -133333.333 0.000 106666.667
4 No Lower Limit 0.000 240000.000
5 -151111.111 0.000 No Upper Limit
6 0.000 800000.000 No Upper Limit
7 -8000.000 0.000 6400.000
 1.

From the above solution out of 800,000 the

investment should be as follows:
Growth Fund: $248888.889
Income Fund: $160000.000
Money Market Fund: $391111.111

The annual growth anticipated from the investment

recommendation is $94133.333
 2.

 If the clients risk index increased from 0.05 to 0.055

 The new yield index would increase by $4666.67 to

$98800
 3 (a).

If the annual yield for growth fund is decreased to 16% for

Growth then the investment recommendation would be
as follows

Growth fund :$248890; Change: 1.111

Income Fund :$160000; Change: 0
Money Market Fund :$391110 ; Change: 0

The value of yield per year is $89155.650 from $94133.333

with a change of $4977.68
 3 (b).

If the annual yield for growth fund is decreased to 14% for

Growth then the investment recommendation would be as
follows

Growth fund :$160000; Change: $88888.889

Income Fund :$293335; Change: $133335
Money Market Fund :$346665 ;Change: $44446.11

The value of yield per year is $85066.750.650 from

$94133.333 with a change of $9066.583
 4.

 According to the question there will be an additional constraint added

as:
X1<=X2
i.e., X1-X2<=0

With the following constraints added the investment recommendation

is as follows :
Growth fund :$213334; Change: $35554.889
Income Fund :$213334; Change: $53334
Money Market Fund :$373332; Change: $17779.11

The value of yield per year is $93066.770 from $94133.333 with a change
of $1066.563
 5.

 Yes the asset allocation model can be used can be used for
any number of clients as long as the values of

Growth Fund is above 15%

Income Fund is below 14.5%
Money market Fund is in between 1.5% to 18%
 Bibliography & Reference

 An Introduction to Management Science :

Quantitative Approaches to Decision Making

 The Management Scientist Version 6.0 Software