Problem #4 on Page 97

Problem Statement

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Dr. Parisays comments are in red.

Variables:
X1 = Number of ounces of Product 1 sold
X2 = Number of ounces of Product 2 sold
X21 = Number of ounces of Product 2 sold after producing Product 1
X31 = Number of ounces of Product 3 sold after producing Product 1
X32 = Number of ounces of Product 3 sold after producing Product 2
X4 = Number of pounds of raw materials

As mentioned in class:
a) It is better to select variable names that assist in later analysis. For example, instead of X4 you can
have RAW.
b) Variable X21 is defined as product 2 sold after processing product 1. It is better to define variable as
X12 as it is more common. The first index usually refers to start point or origin and the second index
usually refers to the end point or final product.
c) This graphical presentation from problem statement is a very good idea. However needs some
modifications. First of all you do not want to use figures/nodes and presentation that implies
Decision Tree. This problem is quite different from decision tree. For example, at node B it is
not two paths that are either/or. The two paths will be taken both (unlike decision tree). Next,
please eliminate the path on top. It is not related to the problem. Last, as this graph is a summary of
the problem, you can add information on hours needed (or any other) on each path. Then the figure
will be a complete summary problem and will assist more in problem formulation.
d) You need to provide some explanation on graph. What are the end values? I guess you have
mistake there.
e) You can change the graph to include the demand of each product too.

Visual Aid:
The table below is a visual aid in an effort to facilitate clear communication
Note: Although this visual aid may appear to be a decision tree, it is not. It is simply a diagram that shows the
available network paths.

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 Summary of the Problem

X1

X21
X4

X31

X2

X32

Proposed Solution

Objective Function:
OF: Z= Profit =Total Revenue processing costs purchase cost
Maximize Z = 10X1 + 20X2 + 20X21 + 30X31 + 30X32 26X4 1X21 2X31 6X32

Constraints: This is a good practice to mention the units used in each equation. It prevents possible
mistakes.
Maximum amount of Product 1 that can be sold (ounces): X1 5000
Maximum amount of Product 2 that can be sold (ounces): X2 + X21 5000

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Maximum amount of Product 3 that can be sold (ounces): X31 + X32 3000

Amt. of Product 1 available after raw material processing (ounces):3X4 = X1 + X21 + X31

Amount of Product 2 available after raw material processing (ounces): X4 = X2 + X32

Maximum labor hours available (hours): 2X4 + 2X21 + 3X31 + 1X32 25000

Sign Constraint:
X1 0, X2 0, X21 0, X31 0, X32 0, X4 0

Practical Conversion:

1lb = 16oz.

Unit = 1 oz. of product (product # specified where applicable)

WinQSB Input: not needed at this level of class

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WinQSB Output:

Sensitivity Analysis Motivation & Justification (Basic Variable):

From the WinQSB output above (Prev. Page), one will notice that the variable x21 (#oz prod 2 sold
after producing 1) has a real allowable min and a real allowable max. As a result, sensitivity analysis will be
performed on this left hand side entity.
Parisay: This is not a good reason to select a BV for SA. You usually select BV based on which one has the
highest value in the solution, which means a bit of change in the unit profit will result in a major change in Z

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value. You may also select a BV that you think there is more probability for its unit profit to change or its
current unit profit is close to one of the limits (min or max) and makes it critical for analysis. Therefore, I
would prefer unit profit of X1.

Sensitivity Analysis Input: not needed at this level of class

Sensitivity Analysis Output:

The table above indicates that if the #oz prod 2 sold after producing 1 increases from 19 to 24, the
maximum profit will increase to $156,500.00, a favorable difference of $8,750. The table above also indicates
that if the #oz prod 2 sold after producing 1 decreases from 19 to 2 (Parisay: not a practical amount, the
difference is 17 out of 19!!), the maximum profit will decrease to $118,000.00, an unfavorable difference of
$29,750. The other values can be neglected in an effort to see what would happen #oz prod 2 sold after
producing 1 goes to +/- infinity.

Sensitivity Analysis Motivation & Justification (Non-Basic Variable):

Varying x32 (#oz. of product 3 sold after producing product 2)

(Based on same WinQSB Inputs as above)

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 x32 (#oz. of product 3 sold after producing product 2) is a non-basic variable given the existing
conditions because we are currently not producing any product 3 after producing product 2. The reason this is
true is because it is more cost effective to produce product 3 after producing product 1. After producing
product 1, product 3 can be produced for only $2/oz. On the other hand if product 3 is produced after
producing product 2, the cost will be $6/oz.
Parisay: This is not a strong reason, if we could sell more of product 3 then we would have had some value
for X32. The best reason to select this is that this is the only NBV! Increasing the profit from 24 (current
coefficient) to 29 can be possible.

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Sensitivity Analysis Motivation & Justification (RHS Binding Constraint):

Varying Constraint 3 (3 (Max # oz. of product 3 that can be sold). The reason sensitivity analysis will be
performed on this value is because it has the highest shadow price. Shadow price in this case is defined to be
the increase in total revenue by producing 1 extra ounce of product.

Based on the above WinQSB table, the value of Constraint 3 (Max # oz. of product 3 that can be sold) can vary
between 0 and 5,000 oz.). Now, sensitivity analysis will be performed on this value, and will be taken to the
maximum allowable value.

WinQSB Input

WinQSB Output

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Based on the new WinQSB outputs above, one will notice that two output items change:
1. Total profit changes from $147,750 to $191,250 which is a $43,500 gain.
2. Max labor hours available does not change, but the number of labor hours used changes from
19,000 to 25,000 (which is the maximum value allowed based on constraints defined in the
problem statement)

When the noted change is made in the WinQSB input, total profit increases, and worker
utilization increases, and the maximum time available will be utilized. This is a key indicator that if
the constraint of the maximum # of oz. of product 3 that can be sold increases to 5,000 from 3,000, the
company will benefit. The team realizes that this constraint may be out of the companys control, but is
worth mentioning for the sake of communication and what-if scenarios.

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Sensitivity Analysis Motivation & Justification (Basic Variable): (Parisay: not needed, especially after future
discussions on SA)
Increase selling price of X31 from $28/oz. to $30. The motivation for performing this analysis on this
value is because product 3 (produced after product 1) has (Originally) the highest profit per unit. With this in
mind, the team was interested in seeing what would happen if the company decided to raise its selling price
by $2. The findings are that Total profit will increase by $6000.

WinQSB Input:

WinQSB Output:

Here, the team would like to indicate the how changing the value for a basic variable towards positive
infinity will affect the overall solution. Based on the original WinQSB output, one will notice that the allowable
range of values for the selling price for product 3 after producing product 1 is from $23/oz. to $infinity.
The justification for performing this sensitivity analysis is to demonstrate how changing this value
towards $infinity will result in no change of the final solution (with the exception of total profit).

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Report to Manager (I expected better report!!)

Dear Chemco Management,

The Industrial Engineering team has concluded their study involving the production of the three

manufactured perfumes produced at this facility. It is important to note that the analysis performed is to not

impact the form, fit, function or safety of the finished good. Based on the information provided; the team

performed various forms of analysis, and the findings are presented in this report.

Parisay: First mention Z and the original solution!!

Solution Summary

# lb of Raw Materials 3,250 lb

# ounces product 1 sold 5,000 oz.

# ounces product 2 sold 3,250 oz.

# ounces product 1 product 2 1,750 oz.

# ounces product 1 product 3 3,000 oz.

# ounces product 2 product 3 None

Maximum profit : $147,750.00

The first analysis that was performed was that of adjusting the selling price of x21 (Dont use

variable in report!!) (# of oz. of product 2 sold after producing product 1) this adjustment in selling price is to

lead to an increase of profit to $19 to $24 (rewrite! Explain why 24, that is 26% increase in unit profit. Is that

practical?). The $24 value for profit/unit sold is justified by the WinQSB software used by the team to perform

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their analysis. Based on calculations performed by this software, this is the maximum allowable (Does not

make sense for a manager. Why not more? Explain that the solution will change completely.) profit per unit

sold for product 2 after the production of product 1. After analyzing the data for this variable, the team

presents the following:

(This is not a clear sentence) #oz prod 2 sold after producing 1 increases from 19 to 24, the

maximum profit will increase to $156,500.00, a favorable difference of $8,750. The table above (where is the

table? Use better reference.) also indicates that if the #oz prod 2 sold after producing 1 decreases from 19

to 2 (justify such a major decrease from practical point of view), the maximum profit will decrease to

$118,000.00, an unfavorable difference of $29,750. The other values can be neglected in an effort to see what

would happen as the #oz prod 2 sold after producing 1 goes to +/- infinity.

The rest need modification as well.

A second analysis was performed on varying x32 (#oz. of product 3 sold after producing product 2). It is

important to note that x32 (#oz. of product 3 sold after producing product 2) is a non-basic variable given the

existing conditions because we are currently not producing any product 3 after producing product 2. The

reason this is true is because it is more cost effective to produce product 3 after producing product 1. After

producing product 1, product 3 can be produced for only $2/oz. On the other hand if product 3 is produced

after producing product 2, the cost will be $6/oz which is less favorable.

A third analysis was performed on varying constraint 3 (3 (Max # oz. of product 3 that can be sold). The

value of Constraint 3 (Max # oz. of product 3 that can be sold) can vary between 0 and 5,000 oz.). Now,

sensitivity analysis will be performed on this value, and will be taken to the maximum allowable value. The

reason sensitivity analysis will be performed on this value is because it has the highest shadow price. Shadow

price in this case is defined to be the increase in total revenue by producing 1 extra ounce of product. When

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the noted change is made in the WinQSB input, total profit increases, and worker utilization increases, and

the maximum time available will be utilized. This is a key indicator that if the constraint of the maximum # of

oz. of product 3 that can be sold increases to 5,000 from 3,000, the company will benefit. The team realizes

that this constraint may be out of the companys control, but is worth mentioning for the sake of

communication and what-if scenarios.

Furthermore, a fourth analysis was performed for the sake of thoroughness. Here, the team would like

to indicate the how changing the value for a basic variable towards positive infinity will affect the overall

solution. Based on the original WinQSB output, one will notice that the allowable range of values for the

selling price for product 3 after producing product 1 is from $23/oz. to $infinity.

The justification for performing this sensitivity analysis is to demonstrate how changing this value

towards $infinity will result in no change of the final solution (with the exception of total profit).

The motivation for performing this analysis on this value is because product 3 (produced after product

1) has (Originally) the highest profit per unit. With this in mind, the team was interested in seeing what would

happen if the company decided to raise its selling price by $2. The findings are that Total profit will increase by

$6000.

In closing, the team would like to emphasize their goal of performing analysis without changing the

original path network (Your study is not about changing any path of the process, it is given in the problem

statement based on production conditions.). Additionally, the team would like to communicate to

management that the initial conditions result in a total profit of $147,750.Based on analysis performed using

WinQSB software, the team has determined that if management is willing to consider a different production

plan and/or pricing scheme, the outcome of our analysis would vary.

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Please inform of any further questions or feedback.

Thanks,

The Industrial Engineering Team

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