LP MODEL

Approach

Linear Programming involves the use of mathematical models to provide optimum solution
to certain types of problems.

1. Identify the unknowns in the problem and represent them by using decisions variables.
The decision variables may be represented by x and y or any other letter convenient to use.

Components of LP Models

2. State the objective function.

1. Objective function

3. Formulate the constraints in linear equations or inequalities.

2. Decision Variables

Types of Constraints

3. Constraints

1. Capacity Constraints: These are limits because of space, equipment or manpower

availability.

4. Parameters
Characteristics
The objective function which expresses the objective of the problem.
1. Maximize profit (Pmax)

2. Market Constraints: These are limits on how many products can be sold or used.
3. Availability Constraints: These are limits because of scarcity of raw materials, funds or
other resources.

2. Minimize cost (Cmin)

4. Quality or Blending Constraints: These are constraints that put limits on mixes of
ingredients, usually defining the quality of output products.

Decision variables represents choices of available resources to the decision makers in terms
of amounts of either inputs or outputs

5. Material Balance Constraints: These are constraints that define the output of some
process as a function of the inputs, often with a loss for scrap.

The constraints or limitations of resources such as the availability of raw materials,

processing time, market limitations and other resource restrictions.

Limitation

Explicit constraints
Implicit constraints
Parameters are the numerical values that are considered fixed in values, in which model is
solved using these values

SPECIAL SITUATIONS
1. Multiple solutions
2. No optimal solutions
Sample Scenario

1. Linearity the impact of decision variables is linear in constraints and the objective
function
2. Divisibility non=negative value of decision variables are acceptable
3. Certainty values of parameters are known and constant
4. non-negativity negative values of decision variables are unacceptable

CNM Chemicals located in Luisiana, Laguna makes two different products, Hand-Wash Gel
and Liquid Soap which pass through the mixing and the packaging departments. The mixing
department has 60 hours of work available each week, while the packaging department has
48 hours each week. Making a drum of Hand-Wash Gel needs 2 hours to mix and 4 hours to
pack, while it takes 4 hours to mix a drum of Liquid Soap and 2 hours to pack it. If the profit
generated per drum of HWG is P1000.00 and per drum of LS is P800.00, how many drums of
HWG and LS should be produced to obtain the maximum profit?

Methods

Solution:

Assumption on LP Models

1. Graphical Method
2. Simplex Method.

Sample Scenario

Limitations: such as the

Angels Taste Restaurant produces two different flavored espasol, Cassava and Malagkit
Rice (among their other products). The available raw materials available for these two
espasol are 90 kilograms and cooking time is 78 hours weekly. Cassava requires 2 kilograms
and 2 hours to cook, while malagkit needs 3 kilograms and 2 hours to cook. The market has
been surveyed and the marketing manger feels that no more than 45 kilos of cassava
espasol can be sold weekly. If the contribution to profit of each products are P60 and P50
respectively, how many kilos should be produced and sold to maximize the profit?

drawing of graphs and the relative impression of the graphical analysis

Solution:

Graphical Method
Makes use of graphs to arrive at the optimum solution.
The word optimum means maximum or minimum.

Problems
Jorizelle Mendoza, owner of Mendozas Poultry and Swine Farm in Luisiana, Laguna wants to
mix especially blended feed supplement for the farms chicken layers. On her first try she
want to mix 250 kilos of this mixture but chemical constraints dictates that no more than
200 kilos of ingredient P and at least 100 kilos of ingredients C should be used. If
ingredients P and C cost P40 per kilo and P30 per kilo respectively, how many kilos of each
of the two ingredients should be mixed to minimize the cost?
Solution:
Problem
Driz family owns two mills. The family policy dictates that the first mill should operate at
least as many hours as the second mill. The first mill operates at a maximum of 40 hours
per week and the second mill at a maximum of 60 hours per week. For each hour of
operation, the first mill can produce 3 tons of finished product, while The second mill can
produce 4 tons. The family has a contract to supply customers for at least 175 tons of
finished product. It costs P2000/ hour to operate the first mill and P4000/ hour for the
second mill. If the familys objective is to minimize the cost, how many hours in a week
should each mill operate to meet the contract?
Solution:
Simplex Method
1. Devised by George B. Dantzig in 1947
2. Highly efficient method of solving more complex linear programming problems.
3. The procedure that starts with an initial basic feasible solution.
4. It is an iterative process which means that in working toward an optimal solution.
Definition of Terms
Artificial variable- a computational device in linear programming to achieve an initial
solution to the problem.
Cj column- a column in the simplex tableau which contains the profit or cost per unit for the
variable in the solution. It is the objective function column.
Definition of Terms
Cj-Zj row- the row containing the net profit or loss occasioned by bringing one unit of a
variable into the solution of a linear programming problem.
Degeneracy- a condition resulting from a tie in the ratios determining the replaced row,
which produces a basic variable with a zero value.
Iterative process- a step by step process following a standard pattern.
Optimal column that column in any solution to a maximizing problem which has the
largest positive value in the Cj-Zj row or which has the largest negative value in a
minimizing problem.

Intersectional elements element which are common to both the optimal column and the
rows representing variables in the solution.
Pivot element the element in the entering column and the leaving row.
Pivoting the process of going from one simplex tableau to the next.
Solution Values column- the column in a simplex tableau indicating the quantities of the
values of the variables that are in solution.
Replaced row a row in the simplex tableau which is replaced by the variable entering the
new solution.
Simplex tableau a tabular format organizing the data of a linear programming problem,
and performing the computations of the simplex algorithm.
Slack variables variable added to less than or equal to constraints to convert them into
equations.
Variable column the column of entries under the heading solution variable in the simplex
tableau.
Zj row- the row containing the opportunity cost of bringing one unit of a variable into the
solution of a linear programming problem.
Simplex Procedure
1. Set up the linear programming model.
2. Identify the decision variables.
3. Formulate the objective function.
4. Formulate the equalities/inequalities describing the explicit constraints.
5. Convert the explicit constraints into equalities by adding slack and/or artificial variables.
a. For a less than or equal to constraint, add a slack variable that will represent the
constraint in the initial feasible solution.
b. For a strict equality constraint, add an artificial variable that will represent the constraint
in the initial feasible solution.
c. For a greater than or equal constraint, subtract a slack variable to convert it to equality
and add an artificial variable to represent the constraint in the initial feasible solution.
Artificial variables assign a very large coefficient denoted by M, Positive for minimization
and negative for maximization in the objective function.
5. Modify the objective function and the constraints so as to contain all the variables
including the slack and artificial variables added in converting them to equality.
6. Construct the first simplex tableau as composed of slack and artificial variables if there is
any.
7. Check for optimality. The current solution is optimal if:
For maximization, all values in the Cj-Zj row are zero or negative.

For minimization, all values in the Cj-Zj row are zero or positive.
8. Determine the entering variable into the next simplex tableau. The entering variable is
the variable associated with the largest positive or largest negative coefficient in the Cj-Zj
row. The column where the entering variable is located is the optimum column because it
has the largest positive or largest negative value.

The final product of a certain company has a requirement that it must weigh exactly one
thousand five hundred kilograms. The two raw used materials are A costing P20 per unit
and B costing P80 per unit. At least 140 units of B and no more than 200 units of A must be
used. Each unit of A weighs fifty kilograms and each unit B
Continued

9. Determine the outgoing variable. For each row, divide the values in the solution values
column by their corresponding values in the optimum column and choosing the smallest
positive ratio. Ignore any ratio that is negative or zero

weighs one hundred kilograms. How many kilograms of raw materials of each type should
be used for each unit of a final product if the objective of the company is to minimize the
cost?

10. Construct the next simplex tableau:

Solution

Compute the values for the replacing row.

Unbounded Solution

Identify the pivot element as the value in the intersection of the entering variable column
and the outgoing row.

An LP problem solve by the simplex method may also have an unbounded solution. The
cause will frequently be a mis-formulated constraint or incorrect data.

Get the values for the replacing row, dividing all the values in the outgoing variable row, by
the pivot element.

Constraints properly formulated will not usually result in an unbounded solution.

Slacks Variables

Multiple Solutions

SLACK VARIABLES are added:

An LP problem may have more that one optional solutions. Two or more basic solutions will
have the same optimum profit.

1. To convert the less than or equal to explicit constraints into equalities.

No Feasible Solutions

2. To provide an initial feasible solution, since the decision variables can not be used in the
initial feasible solution.

It is possible for the constraints equations to be inconsistent with any feasible solution.

Artificial Variables

The lack of a feasible solution generally indicates an error in formulating the problem or in
entering the data.

ARTIFICIAL VARIABLES are added:

Degeneracy

1. To convert the greater that or equal to explicit constraints to equalities and represent
it in the initial feasible solution.
2. To represent a strict equality constraints in the initial feasible solution.
Sample Scenario
Welgrant manufacturing in Tondo, Manila manufactures two different kinds of steel breakers,
standard and special. Components of these two breakers are processed by two different
machines, A and B. during the scheduling period, the production head found out that there
are twenty hours of machine A time available And thirty-five hours of machine B. To
complete one unit of the standard model needs one hour on machine A and one hour on
machine B, while it takes two hours on machine A and five hours on machine B to complete
one unit of the especial breaker. The company can sell all the units it can produce per
production period at a profit of P30 per standard breaker and P70 per especial breaker. If
the companys objective is to maximize profit, how many units of each breaker should be
produced and sold by the company?
Solution:
Sample Scenario

Degeneracy occurs when one or more of the solution variables equals zero.
It results when two or more variables are tied in the selection of the entering variable in the
simplex procedure.
When degeneracy occurs, it is theoretically possible for the simplex procedure to cycle back
to former solutions and never reach the optimum.
Limitations of LP
1. There are no guarantee that LP will give integer as solutions For example a solution
may give 7.56 units. In many instances, rounding off would give reasonably good
solutions, but in other situations such answer may be poor.
2. Another limitation of LP is that uncertainty is not allowed. The model may assume
values for constraints requirements when in reality such values may be unknown.
3. Another limitations is the assumption of linearity. Sometimes, the objective function or
the constraints are not linearly related to the variables.
Problems:
TRANSPORTATION MODEL

Transportation Problem
The transportation problem refers to the problem of selecting routed in a product
distribution network involving several product sources and several product-destination with
the objective of minimizing the total costs of transporting the goods and the time involved
as well as maximizing the profit.
Types of Transportation Problems
1. Balanced (supply equals demand)
2. Unbalanced
Demand is greater than the supply
Demand is less than the supply.

d. check for degeneracy by using the following formula:

NUC = NoC + NoR-1

Degeneracy exists when the solution does not conform to the above rule and if it does not
exist, proceed to the next step.
Where:
NUC = number of used cells
NoC = number of columns
NoR = number of rows

Methods
1. Stepping stone method, a special-purpose algorithm developed by W.W. cooper and A.
Charnes in 1953
2. Modified distribution method, a computationally easier method developed in 1955.
Stepping Stone
Special procedure for finding the transportation schedule that will give the minimum cost in
the distribution of homogeneous units of a product from several sources to different points
of destinations.
Procedures
Set up the transportation tableau
The transportation tableau serves as the framework in the presentation of data and
facilitates the search for improved solutions which contain all relevant data such as the
sources capacities, the destinations requirements, and the transportation cost per route.
Develop an initial solution
One of the procedures used to set up an initial feasible solution is the northwest rule. The
northwest corner rule is a systematic and popular procedure used to set up an initial
feasible solution.
Steps
a. Starting at the upper left-hand corner of the initial simplex tableau, the supply available
at any row must first be exhausted before moving down to the next row and the demands of
any column must first be satisfied before moving to the next column to the right.
b. Obtain an initial feasible solution by satisfying all the rim requirements, that is the sum of
each row or column is equal to its rim constraints of sources and demand constraints at
destinations in a transportation problem.
c. Compute its total transportation costs. The initial feasible solution obtained by mean of
using the northwest corner rule has a stair-step appearance.

Test the Solution for Improvement

Determine whether the total transportation costs can still be reduced. Reducing the total
transportation costs involves the evaluation of each unused squares in the tableau to find
out if its is more profitable to move the supply into one of them in order to determine
whether a better transportation schedule can be developed.

Methods for Improvement

1. Stepping stone method and the
2. Modified Distribution method

Steps
a. Choose the unused cell to be evaluated
b. Starting with the chosen unused cell, trace a closed loop path back to the original unused
cell.
In tracing a closed loop path, the path may skip over unused cells or over stone cells or may
cross over itself, but its corners may occur only at the stone cells and at the unused cell
being evaluated. There should only be one closed path for each unused cell being
evaluated.
c. Assign plus or minus signs alternately in either a clockwise or a counterclockwise
direction starting with a plus sign at the chosen unused cell. The positive and negative sign
represent the addition or subtraction of 1 unit to a cell.
d. Determine the improvement index of each unused cell. The improvement index is the net
change in costs that results from the changes made in tracing the closed path.
A negative improvement index in any of the unused cell indicates that the solution can still
be improved that is, a better solution is possible. However, if all the indices are
greater than or equal to zero, an optimal solution has been reached.

Develop the improved solution

Ri Kj = Cij

The negative improvement index represents the amount by which total transportation costs
could be reduced if that source-destination combination route is used.

Ri = computed value of row I

Steps
a. Choose the unused cell with the most negative improvement index.
b. Retrace the closed path in evaluating the improvement index of selected unused cell.
c. Choose the smallest stone in a negative positive on the closed path, add it to all cells on
the closed path with plus signs and subtract it from all cells on the path with minus signs.

Kj = computed value of column j

Cij = cost at stone cell ij
These values are used to evaluate the improvement indices of the unused cells of a
particular solution. Each solution may have different values of Ri and Kj which could be
positive, negative or Zero. Ri is always equal to zero (R1 = 0).
4. Then evaluate the improvement index of each of the unused cell using the formula:

Check for Optimality

Cij Rj Kj = Improvement Index of a particular solution

Look at the improvement indices of all the unused squares in that particular solution. If
there is still a negative improvement index, then the solution can still be improved, so
return to step3, and continue solving until an optimal solution is reached. In every solution,
the total transportation cost must be computed and compared with the transportation cost
of the previous solution.

5. Develop an improved solution.

Sample Scenario
DEMAND IS NOT EQUAL TO SUPPLY
This type is the unbalanced form of transportation problem in which the demand is not
equal to the supply. In an unbalanced problem the rim requirements for the rows and
columns are not balanced.
The method employed here is first to balanced the problem by creating a dummy source or
destinations which are fictitious and therefore has a zero transportation cost.
This fictitious source or destination serves the same purpose as the slack variable in the
simplex method. In setting up the transportation tableau an additional row or column is
added to handle the dummy, again the northwest corner rule is used to determine the initial
solution. The stepping stone or the MODI can be used.
MODI METHOD
The modified distribution method provides a more efficient procedure in the computation of
the improvement indices of the unused cells in a particular solution.
STEPS
1. Set up the transportation table. Provide an additional row for the computed Ri values,
and an additional column for the computed Kj values.
2. Develop the initial solution using the northwest corner rule. For each solution always
check the rim requirements and always compute the transportation costs.

Trace a closed path for the unused cell having the largest negative improvement index.
Assign plus and minus signs at alternative corners of the closed path starting with a plus
sign at the unused cell.
Choose the smallest stone in a negative position on the closed path, add it to all cells on the
closed path with plus signs and subtract from those with minus signs.The smallest stone in
a negative position on the closed path indicates the quantity that can be assigned to the
unused cell entering the new solution
Compute the total transportation costs. Check for degeneracy.
6. Repeat step3 until an optimal solution is obtained.
DEGENERACY
Degeneracy in transportation problems may occur either in the initial feasible solution or in
subsequent solutions.
DEGENERACY IN INITIAL SOLUTION
When degeneracy occurs in the initial solution it may be caused by an incorrectly
formulated problem or an error in the assignment of deliveries. In such cases, the initial
solution must be modified in such a way as to satisfy the rule of rim requirements minus 1.
When an error in the initial assignment by the northwest corner rule occurs resulting in
breaking the stair step pattern, the solution is modified by assigning a zero stone of one of
the unused cells un such a way that it maintains an unbroken chain of stone cells
maintaining the stair step appearance.
The zero stone added is merely a computational device used to modify the solution so that
it can be solved.
DEGENERACY IN SUBSEQUENT SOLUTIONS

3. Test the solution for improvement. For each solution check for degeneracy. Compute the
values of Ri and Kj for each solution using the

When degeneracy appears in subsequent solutions, modify solutions so as to satisfy the

rule of rim requirements 1.

formula:

THE ASSIGNMENT PROBLEM

Nomenclature

The assignment problem is a special case of linear programming problem in which the
assignment schedule is on a one-on-one basis, and in which in the assignment tableau the
number of rows equals the number columns.
The assignment method also known as Floods technique or Hungarian method of
assignment provides a much more efficient method of solving the transportation problem.
STEPS
1. Determine the opportunity table.
Opportunity cost refers to the cost of the opportunity sacrificed in exchange for
taking certain actions or decisions.
a. Subtract the lowest entry in each row of the given cost table from all entries in the
row.
b. Subtract the lowest entry in each column of the table obtained in part a from all
numbers in that column.
2. Determine whether an optimal assignment can be reached. The objective is to assign the
jobs to be the personnel or machine so as to minimize the total assignment cost. This
objective will be achieved if we can make an assignment schedule that will obtain a total
opportunity cost of zero.
Procedure
a. Draw the smallest number of straight horizontal and vertical lines passing through the
total-opportunity cost table covering all the zero cells.
b. If the number of lines is equal to the number of rows or columns, then an optimal solution
has been reached and an optimal assignment can already be made. However, if the number
of lines drawn is fewer than the number of rows or columns, then an optimal assignment
can not be made, therefore proceed to step 3.
Revise the total opportunity-cost table.

May be defined as an itemized list of current assets. Thus most firms consider inventory
as their largest current asset.
Understock Firm
a firm that decreases the invested capital per unit time but increases the frequency of
ordering as well as the risk of running out of stock
Overstock Firm
Requires higher invested capital per period but less occurrences of shortages and
placement of orders. This is why inventory management control is important part of the
business operation.
ABC ANALYSIS-a
simple procedure that can be used to classify items based on some measure of
importance (like annual sales in terms of pesos).
Class A items the top 50% of sales ( in pesos )
Class B items the items in between A and C
Class C items the bottom 50% of the items sold

Class A items
represent a small volume of expensive items and should receive the maximum analysis,
monitoring and tight inventory management since they rank highest on the importance
measure.
Class B items
are with a moderate form of inventory control
Class C items

a. Select the smallest number in the table not covered by a straight line and subtract
this number from all numbers not covered by straight line and add this number to the
numbers at the intersection of any two lines.

represent many casually with a tendency toward high inventory level, since not much
money is involved they are given the lowest priority in the application of inventory
control.

a. Test again for optimal solution described in step 2.

INVENTORY CONTROL

b. If the optimal assignment has bee reached, make the assignment and compute the
total assignment costs.

A operation management function that can be dealt with the strategic way of monitoring
the inventory of the resources of an organization that can be made successfully by
quantitative methods.

a. Test again for optimal solution described in step 2.

b. If the optimal assignment has bee reached, make the assignment and compute the
total assignment costs.

REPLINISHMENT ORDER
The amount of inventory needed when the inventory level falls to the REORDER POINT

Sample Scenario

ECONOMIC ORDER QUANTITY (EOQ)

INVENTORY MODELS

It represents the optimum amount that should de ordered every time an order is placed.

Inventory

INVENTORY COSTS

The cost incurred whenever the inventory stored in the proper storage or warehouse
ORDERING COSTS
The costs incurred in placing an order. It begins from the time the requisition is sent to
the purchasing department to the time goods are received and placed in inventory. It
includes the costs of issuing the purchase order and following it up and the cost of
stationary.
CARRYING ( or holding ) COSTSinclude taxes, insurance, interests on invested capital, handling, storage, maintenance,
depreciation, (or obsolescence ) and pilferages. Carrying Costs can be expressed as a
percentage of average inventory or as a cost per unit per period.
THE ECONOMIC ORDER QUANTITY (EOQ) WHEN DEMAND IS KNOWN AND
CONSTANT
Economic Order Quantity
The economic order quantity is the optimum amount to order that minimizes the total
inventory costs by analyzing its total costs.
Nomenclature
P - cost of placing an order
C - carrying cost expressed as a percentage of average inventory
A - annual total sales in pesos
D - annual total usage (demand) in units
R - price per unit
Qu - optimum number of units per order
Qn - optimum number of order per year
Ai average inventory
CC carrying cost

Assumptions
1. That the demand is known and constant.
2.
That when an order is placed the ordered units are received all at one time in a lot of
size Qu.
3.
And that estimation of cost figures of ordering and carrying cost are reasonably
accurate,.
QUANTITY DISCOUNTS
Quantity discounts refer to the offer of some manufacturers to lower the price per unit if a
larger quantity is purchased at one time

OC ordering cost

There are three basic elements to consider in evaluating whether or not to pursue or accept
a quantity discount.

Qd optimum number of day supply per order

Benefits

Qd optimum number of days supply per order

- Optimum peso value used per year
Formula

1. The benefit of the discount in reduced purchased cost

2. The cost of the discount in increased carrying cost
3. The benefit of the reduced number of orders per year
It is always possible to evaluate quantity discounts by considering all possible alternatives,
using EOQ formulas and the equation for total cost together with the stated discount.
Sample Scenario

Suppose that CNM Beverage Company has a beverage product that has a constant annual
demand rate of 7200 cases. A case of softdrinks costs CNM P580. ordering cost is P400 per
order and inventory carrying cost is charged at 25% of the cost per unit.
Identify the following aspects of the inventory policy:

Optimal number of order per year

Prior order quantity
Annual carrying cost and ordering costs
Total annual cost.

a. Economic Order Quantity

Scenario 3

b. Annual Carrying Cost

Jurizels Motors sets an annual demand of 3,000 units. Set-up costs is P250,000. The
company assembles at a cost of P125,000 per unit. The carrying cost is 20% of the average
inventory. Solve for:

c. Total Annual Cost

Scenario 2
AGP Elevator company has an annual sales of 90 elevators. Each inventory item has a value
of P1.5M. Ordering cost is P40,000 per order. Carrying cost is 25% of the average inventory
value. Find the following:

Optimum number of orders per year

The proper quantity
Annual ordering and carrying costs
Optimal total inventory cost per year.