IE3120

Manufacturing Logistics
Tutorial 2
14-15 Sep 2010

Ding Yi
 Problem 3.13
 Mr. Meadows Cookie Company makes a variety of chocolate
chip cookies in the plant in Albion, Michigan. Based on
orders received and forecasts of buying habits, it is
estimated that the demand for the next four months is 850,
1260, 510, and 980, expressed in thousands of cookies.
During a 46-day period when there were 120 workers, the
company produced 1.7 million cookies. Assume that the
number of workdays over the four months are respectively
26, 24, 20, and 16. There are currently 100 workers
employed, and there is no starting inventory of cookies.

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 a. What is the minimum constant workforce required to
meet demand over the next four months?
1,700,000
K  307.971
46 120
A B C=B×K
Month Number of Working Days Number of Units Produced per Worker
1 26 8,007.246
2 24 7,391.304
3 20 6,159.42
4 16 4,927.536

A B C D E = C/D
Forecast Cumulative Net Cumulative Number of Ratio
Month Demand Demand Units Produced per Worker (rounded up)
1 850,000 850,000 8,007.246 107
2 1,260,000 2,110,000 15,398.55 138
3 510,000 2,620,000 21,557.97 122
4 980,000 3,600,000 26,485.506 136

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 10000

9000
Cumulative Demands

8000

7000

6000

5000

4000

3000

2000

1000

0
0 20 40 60 80 100 120 140
Cumulative Days

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 b. Assume that cI =10 cents per cookie per month, cH =$100,
and cF = $200. Evaluate the cost of the plan derived in part
(a).

A B C = B×138 D E F=D-E
Number of
Units Produced Monthly Cumulative Cumulative
Month per Worker Production Production Demand Ending Inventory
1 8,007.246 1,105,000 1,105,000 850,000 255,000
2 7,391.304 1,020,000 2,125,000 2,110,000 15,000
3 6,159.42 850,000 2,975,000 2,620,000 355,000
4 4,927.536 680,000 3,655,000 3,600,000 55,000
Total 680,000

Cost = (100)(138-100) + (.1)(680,000) = $71,800

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 Problem 7
 We have two products. Demands are given as follows:
Month 1 2 3
Product 1 500 800 1000
Product 2 700 600 900

On the average, one worker can produce 7 units of product 1 per

month or 10 for product 2. Workforce can be shared among the
two products. Assume that there are currently 150 workers.
Hiring cost is $500 per worker and firing cost is $1000 per
worker. Inventory cost is $8 per unit per period. The regular
time costs are $12 per hour and the overtime costs are $20 per
hour. Assume that a worker works 8 hours a day, 20 days a
month. Subcontracting costs are $600 per unit for product 1 and
$500 per unit for product 2. Suppose workers are allowed to be
idle at no additional cost. Formulate the problem as a linear
program (LP) so as to minimize the total cost.
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Cost Parameters and Given Information

cH = Cost of hiring one worker

cF = Cost of Firing one worker
cI = Cost of holding one unit of stock for one period
cRi = Cost of producing one unit of product i on regular time
cOi = Incremental cost of producing one unit of product i on overtime
cUi = Idle cost of producing one unit of product i
cSi = Cost to subcontract one unit of production i
nt = Number of production days in period t
Ki =Number of aggregate units of product i produced by one worker in one day
W0 = Initial workforce at the start of the planning horizon
I0 = Initial inventory at the start of the planning horizon
Dti = Forecast of demand for product i in period t

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 Cost Parameters and Given Information

cH  $500, cF  $1000, cI  $8, n1  n2  n3  20

(20)(8) (20)(8)
cR1  ($12)  $274.3, cO1  ($20)  $274.3  $182.8,
7 7
(20)(8) (20)(8)
cR 2  ($12)  $192, cO 2  ($20)  $192  $128,
10 10
cS 1  $600, cS 2  $500,
cu1  $274.3, cu 2  $192,
7 10
K1   0.35, K 2   0.5,
20 20
W0  150, I 0  0,
D11  500, D21  800, D31  1000,
D12  700, D22  600, D32  900

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 Problem Variables

Wti = Workforce level of product i in period t,

Pti = Production level of product i in period t,
Iti = Inventory level of product i in period t,
Ht = Number of workers hired in period t,
Ft = Number of workers fired in period t,
Oti = Overtime production of product i in units in period t,
Uti = Worker idle time of product i in units in period t,
Sti = Number of units of product i subcontracted from outside.

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Problem Constraints

1. Conservation of workforce 3. Constraints relating production

constraints levels to workforce levels
W11  W12  150  H1  F1 P11  7W11  O11  U11
W21  W22  W11  W12  H 2  F2 P21  7W21  O21  U 21
W31  W32  W21  W22  H 3  F3 P31  7W31  O31  U 31

2. Conservation of units production P12  10W12  O12  U12

I11  0  P11  S11  500 P22  10W22  O22  U 22
I 21  I11  P21  S 21  800 P32  10W32  O32  U 32
I 31  I 21  P31  S 31  1000

I12  0  P12  S12  700

I 22  I12  P22  S 22  600
I 32  I 22  P32  S 32  900

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The LP is:
3
Minimize [500H
t 1
t  1000 Ft  8( I t1  I t 2 )  274.3Pt1  192 Pt 2  182.8Ot1

 128Ot 2  600St1  500St 2  274.3U t1  192U t 2 ]

Subject to
W11  W12  150  H1 -F1
W21  W22  W11  W12  H 2 -F2
W31  W32  W21  W22  H 3 -F3

I11  0  P11  S11  500 P11  7W11  O11  U11

I12  0  P12  S12  700 P21  7W21  O21  U 21
I 21  I11  P21  S 21  800 P31  7W31  O31  U 31
I 22  I12  P22  S 22  600 P12  10W12  O12  U12
I 31  I 21  P31  S31  1000 P22  10W22  O22  U 22
I 32  I 22  P32  S32  900 P32  10W32  O32  U 32

Wti , Pti , Iti , Ht , Ft , Oti ,Uti , Sti  0 t = 1, 2, 3

i = 1, 2
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 Problem 3.33
 The Paris Paint Company is in the process of planning labor
force requirements and production level for the next four
quarters. The marketing department has provided
production with the following forecasts of demand for
Paris Paint over the next year: 380, 630, 220, 160 (in
thousands of gallons).

Assume that there are currently 280 employees with the

company. Employees are hired for at least one full quarter.
Hiring costs amount to $1,200 per employee and firing
costs are $2,500 per employee. Inventory costs are $1 per
gallon per quarter. It is estimated that one worker
produces 1,000 gallons of paint each quarter.

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 Assume that Paris currently has 80,000 gallons of paint in
inventory and would like to end the year with an inventory
of at least 20,000 gallons.

Suppose that the plant has the capacity to employ a

maximum of 370 workers. Suppose that regular-time
employee costs are $12.50 per hour. Assume seven-hour
days, five-day weeks, and four-week months. Overtime is
paid on a time-and-a-half basis. Subcontracting is available
at a cost of $7 per gallon of paint produced. Overtime is
limited to three hours per employee per day, and no more
than 100,000 gallons can be subcontracted in any quarter.
Determine a policy that meets the demand, and the cost of
that policy. (Assume stock-outs are not allowed.)

Note: Do not use LP.

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 Given Information
 Hiring cost = $1,200 per employee
 Firing cost = $2,500 per employee
 Holding cost = $1 per gallon per quarter
 Regular-time employee cost = $12.50 per hour
 Overtime employee cost = $12.5 ×1.5 = $18.75 per hour
 Subcontracting cost = $7 per gallon
 K =1,000 gallons per worker per quarter
 Initial workforce = 280
 Initial inventory = 80,000 gallons
 Ending inventory = 20,000 gallons
 Overtime limit = 3 hours per employee per day
 Maximum subcontracting amount = 100,000 gallons per quarter
 Demand = 380, 630, 220, 160 thousand gallons
 Maximum number of employees = 370

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Zero Inventory Plan
Regular- Net Ending
Quar. Workers Hire Fire Overtime Subcontract
time Demand Inventory
1 280 20 - 300,000 - - 300,000 0
2 370 70 - 370,000 158,571 100,000 630,000 -1429
3 220 - 150 220,000 - - 220,000 0
4 180 - 40 180,000 - - 180,000 0

 Maximum subcontracting amount = 100,000 gallons/quarter

 Maximum number of employees = 370
 Maximum production on overtime = 370,000×3/7 = 158571 gallons/quarter

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Constant Workforce Plan
Cumulative Net Cum. Production per Ratio
Quarter
Demand Worker* (rounded up)
1 300,000 1,000 300
2 930,000 2,000 465
3 1150,000 3,000 384
4 1330,000 4,000 333

*Equal working days in each quarter

 Maximum number of employees = 370

 Maintain a constant workforce level at 370 and work on

overtime or subcontract to cover the demand in the 2nd quarter.

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Mixed Strategy
 Assume a maximum of 370 workers are employed in each quarter.

Production Cum. Net Cum. Net Ending

Quarter
Level Production Demand Demand Inventory
1 370 370 300 300 70
2 370 740 630 930 -190
3 370 1110 220 1150 -40
4 370 1480 180 1330 150
*in 1000 gallons

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 Subcontracting:
Maximum subcontracting amount: 100,000 gallons
Cost per gallon: $7

 Working overtime:
– Maximum gallons produced per quarter by overtime:
370,000 ×3/7 = 158571 gallons
– Regular-time employee costs per quarter per employee:
12.5 ×7 ×5 ×4 ×3 = $5250
– Regular-time employee costs per gallon:
5250/1000 = $5.25
– Overtime employee costs per gallon:
5.25 ×1.5 = $7.875 > $7

 Subcontract as many as possible and produce the rest by overtime.

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 Production Net Ending
Quar. Hire Fire Subcontract Overtime
Level Demand Inventory
1 90 - 370 - - 300 70
2 - - 370 100 90 630 0
3 - - 370 - - 220 150
4 - - 370 - - 180 340

 Hiring cost: 1200 ×90 = $108000

 Regular-time cost: 370 ×5250 ×4 = $7770000
 Subcontracting cost: 100000 ×7 = $700000
 Overtime cost: 90000 ×7.875 = $708750
 Holding cost: (70 + 150 + 340 + 20) ×1000 × 1 = $580000
 Total: $9,866,750

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 Problem 3.35

 a. Formulate Problem 3.33 as a linear program.

 b. Solve the linear program. Round the variables and

determine the cost of the resulting plan.

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Problem Variables Given Information

Wt = Workforce level in period t, cR = $5.250 per gallon

Pt = Production level in period t, cO = 0.5cR= $2.625 per gallon

cS = $7 per gallon
It = Inventory level of in period t,
cU = $5.250 per gallon
Ht = Number of workers hired in period t,
cH = $1200
Ft = Number of workers fired in period t,
cF = $2500
Ot = Overtime production in gallons in cI = $1 per gallon/quarter
period t, K = 1,000 gallons/(quarter*worker)
Ut = Worker idle time in gallons in period t, W0 = 280
St = Number of gallons subcontracted in I0 = 80,000
period t.

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 4
Minimize 1200 H t  2500 Ft  I t  5.250 Pt  2.625Ot  5.250U t  7 St 
t 1

Subject to:
(A) W1 = W0 + H1 - F1 (B) P1 = 1000W1 + O1 - U1
W2 = W1 + H2 - F2 P2 = 1000W2 + O2 - U2
W3 = W2 + H3 - F3 P3 = 1000W3 + O3 - U3
W4 = W3 + H4 - F4 P4 = 1000W4 + O4 - U4

(C) I1 = I0 + P1 + S1 - 380000
I2 = I1 + P2 + S2 - 630000
I3 = I2 + P3 + S3 - 220000
I4 = I3 + P4 + S4 - 160000

(D) I0 = 80000 (E) Wt  370

I4 ≥ 20000 St  100000
W0 = 280 Ot (3/7)(1000Wt)

(F) Ht, Ft, It, Pt, Ot, St, Wt, Ut,  0 1t4

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 Automotive Battery Problem
 You have just been made corporate vice president in charge of
manufacturing for an automotive components company and are
directly in charge of assigning products to plants. Among many
other products, the firm makes automotive batteries in three
grades: heavy-duty, standard, and economy. The unit net profits
and maximum daily demand for these products are given in the
first table below. The firm has three locations where the
batteries can be produced. The maximum assembly capacities,
for any mix of battery grades, are given in the second table
below. The number of batteries that can be produced at a
location is limited by the amount of suitably formulated lead the
location can produce. The lead requirement for each grade of
battery and the maximum lead production for each location are
also given in the following tables.

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 Lead
Unit Profit Maximum Demand
Product Requirements
($/battery) (batteries/day)
(lbs/battery)
Heavy-duty 12 700 21
Standard 10 900 17
Economy 7 450 14

Plant Assembly Capacity Maximum Lead

Location (batteries/day) Production (lbs/day)
1 550 10,000
2 750 7,000
3 225 4,200

You may make necessary assumptions if needed. No need

to solve the problem.

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 a. Formulate a linear program that allocates production of
the three grades among the three locations in a manner
that maximizes profit.
Define xhj = production level of heavy-duty batteries at plant j
xsj = production level of standard batteries at plant j
xej = production level of economy batteries at plant j

Max 12(xh1+ xh2+ xh3) + 10(xs1+ xs2+ xs3) + 7(xe1+ xe2+ xe3 )
Subject to:
Demand Lead production capacity Assembly capacity:
xh1+ xh2+ xh3 <= 700 21xh1+ 17xs1+ 14xe1 <= 10000 xh1+ xs1+ xe1 <= 550
xs1+ xs2+ xs3 <= 900 21xh2+ 17xs2+14 xe2 <= 7000 xh2+ xs2+ xe2 <= 750
xe1+ xe2+ xe3 <= 450 21xh3+ 17xs3+14 xe3 <= 4200 xh3+ xs3+ xe3 <= 225

xij >= 0, i = h, s, e; j = 1,2,3

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 b. Suppose company policy requires that the fraction of
capacity (units scheduled/assembly capacity) be the same
at all locations. Show how to modify your LP to incorporate
this constraint.

Replace assembly capacity constraints by

F = fraction of capacity at each plant.

Assembly capacity:
xh1+ xs1+ xe1 = 550F
xh2+ xs2+ xe2 = 750F
xh3+ xs3+ xe3 = 225F,

where 0 <= F <= 1

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 c. Suppose company policy dictates that at least 50 percent
of the batteries produced must be heavy-duty. Show how to
modify your LP to incorporate this constraint.

Add constraint
xh1+ xh2+ xh3 ≥ xs1 + xs2 + xs3 + xe1 + xe2 + xe3

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