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    73 220 Lecture16

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    This document discusses several applications of integer programming models: 1) A capital budgeting problem where a company must select investment projects under a limited budget to maximize total net present value, subject to diversification policies. 2) A production planning problem where a company must determine an optimal product mix to maximize profits given fixed costs and limited resources. 3) A distribution system design problem where a company must decide which plants to keep open, and how many cars to distribute from each plant to warehouses, to minimize transportation and fixed operating costs. The document provides examples of integer programming models that can be used to formulate and solve these types of decision problems.

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    73 220 Lecture16

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    This document discusses several applications of integer programming models: 1) A capital budgeting problem where a company must select investment projects under a limited budget to maximize total net present value, subject to diversification policies. 2) A production planning problem where a company must determine an optimal product mix to maximize profits given fixed costs and limited resources. 3) A distribution system design problem where a company must decide which plants to keep open, and how many cars to distribute from each plant to warehouses, to minimize transportation and fixed operating costs. The document provides examples of integer programming models that can be used to formulate and solve these types of decision problems.

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    This document discusses several applications of integer programming models: 1) A capital budgeting problem where a company must select investment projects under a limited budget to maximize total net present value, subject to diversification policies. 2) A production planning problem where a company must determine an optimal product mix to maximize profits given fixed costs and limited resources. 3) A distribution system design problem where a company must decide which plants to keep open, and how many cars to distribute from each plant to warehouses, to minimize transportation and fixed operating costs. The document provides examples of integer programming models that can be used to formulate and solve these types of decision problems.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    48 views9 pages

    73 220 Lecture16

    Uploaded by

    api-26315128
    This document discusses several applications of integer programming models: 1) A capital budgeting problem where a company must select investment projects under a limited budget to maximize total net present value, subject to diversification policies. 2) A production planning problem where a company must determine an optimal product mix to maximize profits given fixed costs and limited resources. 3) A distribution system design problem where a company must decide which plants to keep open, and how many cars to distribute from each plant to warehouses, to minimize transportation and fixed operating costs. The document provides examples of integer programming models that can be used to formulate and solve these types of decision problems.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPT, PDF, TXT or read online from Scribd
    Download as ppt, pdf, or txt
    of 9

    Integer Programming: Applications

    73-220

    Lecture 16

    1
    Agenda
    ● Review of last class.
    – Applications of using binary decision
    variables.
    ● More IP applications
    – Capital budgeting
    – Fixed cost
    – Distribution design
    ● Next Class

    2
    Capital Budgeting: I
    ● Julie Schwasher, the Vice President of Finance for
    a major appliance manufacturer, has before her
    eight investment proposals submitted by various
    segments of the company for her approval or
    rejection. The columns of the table on the next
    slide summarize each proposal’s net present
    value (NPV) and capital requirements for each of
    the next five years. Although Julie finds all of the
    proposals attractive, she must reject some
    because of the limited capital. Julie’s objective is
    to maximize the total NPV of the approved
    proposals.

    3
    Capital Budgeting: II
    1 2 3 4 5 6 7 8 Availa
    NPV ($000) 15 19 11 70 13 25 16 30 ble
    1 7 9 0 3 5 0 Capita
    l
    Capit Year 20 10 20 30 50 40 50 80 230
    al 1 0 ($000)
    Year 20 10 10 30 10 20 40 30 100
    Requi
    2
    Year 20 0 10 30 10 20 10 20 50
    re-
    ment 3
    Year 20 0 10 20 10 20 10 0 50
    4
    Year 10 30 10 10 10 20 10 0 50
    5
    To diversify the investment, Julie has also the following
    policies: at most one of proposals 1, 2, and 3 can be approved.
    Exactly one of proposals 4, 5, and 6 must be approved. To
    approve proposal 8, Julie has to select proposal 7 first.
    Formulate an IP model for this capital budgeting problem.

    4
    Fixed Costs: I
    ● The ABC Company is planning its production for
    the next month. ABC has the capability to
    manufacture three different products, 1, 2, and 3.
    The table on the next slide gives the information
    about the amount of each of the three scarce
    resources consumed during the production of
    each unit of product 1, 2, and 3, the unit profit pi
    for product i, and a fixed setup cost of the
    production line ki when a product is actually
    produced.

    5
    Fixed Costs: II
    1 2 3
    Unit profit 35 50 40 Resource
    Fixed charge 1000 500 1500 Availability

    Resource 1 2 3 6 500
    Resource 2 8 2 3 400
    Resource 3 4 7 2 300

    ABC estimates it can sell its entire production, regardless of


    its product mix. Subject to the constraints on resource
    availabilities, ABC wishes to determine the optimal
    product mix – that is, the production levels for each of the
    three products that will maximize next month’s total profit.

    6
    Distribution System Design: I
    ● The Special Motors Corp (SMC) specializes in the
    production of a single type of car. SMC currently operates
    five plants that manufacture and assemble the cars and
    then distribute them to six regional warehouses. The top
    management of SMC feels that the closing of one or more
    plants would reduce fixed operating costs by more than
    the resulting increase in transportation costs from the
    remaining plants to the warehouses. The relevant fixed
    operating costs and transportation costs are summarized
    in the table on the next slide. We have to decide now
    which plants should remain open and, for each open
    plant, how many thousands of cars the plant should
    distribute to each of the six warehouses.

    7
    Distribution System Design: Data
    Transportation cost Producti Fixed
    ($000) on operating
    W W W W W W capacit cost
    1 2 3 4 5 6 y ($000)
    Plant 1 67 16 27 65 46 11 18 306
    2 (000
    Plant 2 58 78 39 4 20 48 24
    cars) 140
    Plant 3 17 96 57 20 38 32 27 200
    Plant 4 15 54 22 42 27 93 22 164
    Plant 5 37 66 28 20 12 72 31 88
    Deman 10 8 12 6 7 11
    d
    (000
    cars)

    8
    Next Class
    ● Do more questions from Chapter 8.

    ● Read Chapter 10. Project Scheduling

    YOU LEARN DECISION ANALYSIS BY


    DOING DECISION ANALYSIS!!

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