Lecture W3 1
Lecture W3 1
Lecture W3 1
Thomas Vossen
Associate professor of Operations Management
Leeds School of Business, University of Colorado
Todays Agenda
Intro/Review
Linear Programming Models (LPs)
Examples of LPs
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Elements of LP Models
Quantities:
Decision variables How much/many to
produce/buy/hire/etc.
What we want to
decide?
Objective function Specified as
Linear Functions
How we will decide?
Constraints
What binds our
decision?
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Example
Blue Ridge Hot Tubs produces two types
of hot tubs: Aqua-Spas & Hydro-Luxes.
Aqua-Spa Hydro-Lux
Pumps 1 1
Labor 9 hours 6 hours
Tubing 12 feet 16 feet
Unit Profit $350 $300
Decision
Variables
X1, X2 0
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Using A Level Curve to Locate
the Optimal Solution
X2
25
0
objective
20 350X1function
+ 300X2 = 35000
0
15
0 optimal
10 solution
0 objective
function
350X 1 + 300X2 =
50 52500
0
0 10 15 20 25 X1
50 0 0 0 0
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Template Approach to formulating LPs
Common Templates:
Product mix problems
Transportation Problems
Blending problems
Covering/Packing problems (i.e. scheduling)
Problems that involve Decisions over Time
Network Problems
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Gasoline Blending
A company must decide upon the blends to be used for gasoline production.
Two gasolines must be blended according to the characteristics listed below.
The characteristics of the stocks from which the gasoline can be blended
are also shown below
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Workforce Planning
Consider a restaurant that is open seven days a
week. Based on past experience, the number of
workers needed on a particular day is given as
follows.
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Financial Portfolio Selection Problem
Consider a mortgage team with $100,000,000 to
finance various investments. There are five
categories of loans, each with an associated
return and risk (1-10, 1 best):
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Financial Portfolio Selection (Ctd.)
Any uninvested money goes into a savings account with
no risk and 3% return. The goal for the mortgage team
is to allocate the money to the categories so as to:
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Production over Time
SilComputer needs to meet the demand of its largest corporate
and educational customers for notebook computers over the
next four quarters (before its current model becomes obsolete).
SilComputer currently has 5,000 notebook computers in inventory.
Expected demand over the next four quarters for its notebook is
7,000; 15,000; 10,000; and 8,000.
SilComputer has sufficient capacity and material to produce up to
10,000 computers in each quarter at a cost of $2000 per notebook.
By using overtime, up to an additional 2,500 computers can be
produced at a cost of $2200 each.
Computers produced in a quarter can be used either to meet that
quarters demand, or be held in inventory for use later. Each
computer in inventory is charged $100 to reflect carrying costs.
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Investments over Time
We are going to manage an investment portfolio over a 6-year
time horizon. We begin with $1000, and at various times we can
invest in one or more of the following:
The question is how to slit the larger raw material rolls into
widths suitable for the brochures, using its paper as efficiently
as possible.
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Another Example: Regression
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Solving LPs using Excel Solver
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Spreadsheet Solvers
The company that makes the Solver
in Excel is Frontline Systems, Inc.
Check out their web site:
http://www.solver.com
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The Steps in Implementing
an LP Model in a Spreadsheet
1. Organize the data for the model on
the spreadsheet.
2. Reserve separate cells in the
spreadsheet for each decision
variable in the model.
3. Create a formula in a cell in the
spreadsheet that corresponds to the
objective function.
4. For each constraint, create a formula
in a separate cell in the spreadsheet
that corresponds to the left-hand side
(LHS) of the constraint.
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How Solver Views the Model
Target cell - the cell in the spreadsheet
that represents the objective function
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Lets do it
Create a spreadsheet model
for
Example 1: Diet Problem
Example 2: Transportation
Problem
Example 3: Workforce Planning
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Goals For Spreadsheet Design
Communication - A spreadsheet's primary business
purpose is communicating information to managers.
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Spreadsheet Design Guidelines - I
Organize the data, then build the
model around the data
Do not embed numeric constants in
formulas
Things which are logically related
should be physically related
Use formulas that can be copied
Column/rows totals should be close to
the columns/rows being totaled
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Spreadsheet Design Guidelines - II
The English-reading eye scans left
to right, top to bottom.
Use color, shading, borders and
protection to distinguish
changeable parameters from other
model elements.
Use text boxes, cell notes and
names to document various
elements of the model.
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Next Session
Case Study:
Kuwaits Al-Manakh Stock Market
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