LPP

INTRODUCTION

The term 'programming' means planning and it refers to a particular plan of action from amongst
several alternatives for maximizing profit or minimizing cost etc. Programming problems deal
with determining optimal allocation of limited resources to meet the given objectives, such as
least cost, maximum profit, highest margin or least time, when resources have alternative uses.

The term 'Linear' means that all inequations or equations used and the function to be maximized
or minimized are linear. That is why linear programming deals with that class of problems for
which all relations among the variables involved are linear. Formally, linear. programming deals
with the optimization (maximization or minimization) of a linear function of a number of
variables subjectto a number of conditions on the variables, in the form of linear inequations or
equations in variables involved. In this chapter, we shall discuss mathematical formulation. of
linear programming problems that arise in trade, industry, commerce and military operations. We
shall also discuss some elementary techniques to solve linear programming problems in two
variables only.

The following are a few important Linear Programming Problems(LPP) for the concpet of Linear
programming

Manufacturing Problems

The Manufacturing Problems are very important part of linear programming problems(LPP) ,
Here, we find the number of units of different products that is to be produced and sold by a
company/factory. Each product requires the following things - manpower, time, labour hour
permit of the product, warehouse space per unit of the output etc. to get the maximum profit.

Manufacturing problem - Example

Example: A manufacturer has 3 machines I, II and III installed in his factory. Machine I and II
are capable of being operated for at the most 12 hours, whereas machine III must be operated at
least for 5 hours a day. He produces only 2 items, each requiring the use of the three machines.

The number of hours required for producing 1 unit of each of the items A and B on the three
machines is given below.

Machine I Machine II Machine III

A 1 2 1
B 2 1 45
He makes a profit of Rs.60 on item A and Rs.40 on item B. Assuming that he can sell all that he
produces, how many of each item should he produce so as to maximize his profit?
Formulate the above problem as a linear programming problem.

Let 'x' be the number of items A and 'y' be the number of items B produced.

Total profit on production = 60x + 40y

The objective of the manufacturer is to maximize the profit.

Maximize z = 60x + 40y subject to the constraints

(Machine 1)

2x + y ≤ 12 (Machine 2)

x + 45 y ≥ 5 (Machine 3) and

x ≥ 0, y ≥ 0 (Non-negativity restrictions)

Diet Problem

We find the quantity of different kinds of nutrients, which should be included in a diet so as to
minimize the cost of the diet such that it contains a minimum amount of each nutrient.

Diet Problem - Example

linear programming example : A dietician wants to mix 2 types of food F1 and F2 in such a
way that the Vitamin contents of the mixture contain at least 8 units of Vitamin A and 11 units of
Vitamin B. Food F1 costs Rs.60/kg and food F2 costs Rs.80/kg. Food F1 contains 3 units/kg of
vitamin A and 5 units/kg of vitamin B, whereas food F2 contains 4 units/kg of vitamin A and 2
units/kg of vitamin B. Formulate the above problem as a linear programming problem to
minimize the cost of the mixture.

Formulate the above problem as a linear programming problem (LPP).

Let the mixture contain x kg of food F1 and y kg of food F2

Vitamin A Vitamin B Cost

F1 3 5 Rs.60
F2 4 2 Rs.80

The minimum requirement of vitamin A is 8 units. So 3x + 4y ≥ 8

Similarly the requirement of vitamin B is 11 units. So 5x + 2y ≥ 11

Also, x ≥ 0, y ≥ 0

Cost of purchasing 1 kg of food F1 is Rs. 60

Cost of purchasing 1 kg food F2 is Rs. 80

The total cost of producing x kg of food F1 and y kg of food F2 is = 60x + 80y, which is the
objective function.

Hence, the mathematical formulation of the problem is

Maximize z = 60x + 80y, subject to the constraints

3x + 4y ≥ 8, 5x + 2y ≥ 11 and x ≥ 0, y ≥ 0

Advantages of Linear Programming Problem

• The Linear Programming Problem technique helps to make the best possible
use of available productive resources (such as time, labour, machines etc.)
• The quality of decision making is improved by this technique because the
decisions are made objectively and not subjectively.
• By using this technique, wastage of resources like time and money may be
avoided.

Limitations of Linear Programming Problem

• Linear Programming Problem is applicable only to problems where the

constraints and objective function are linear i.e., where they can be
expressed as equations which represent straight lines. In real life situations,
when constraints or objective functions are not linear, this technique cannot
be used.
• Factors such as uncertainty, weather conditions etc. are not taken into
consideration.
• There may not be an integer as the solution, e.g., the number of men
required may be a fraction and the nearest integer may not be the optimal
solution.
ADVANTAGES AND DISADVANTAGES OF LINEAR PROGRAMMING

Linear programming has become nowadays, the mathematical technique most used in solving a
variety of problems related with management, from scheduling, media selection, financial
planning to capital budgeting, transportation and many others, with the special characteristic that
linear programming expect always to maximise or minimise some quantity.

Two possibilities appear at the solution of a linear-programming problem:

1-Simplex method, developed by Dr.Dantzing, this method is remarkable due to its efficiency and
calculating facility. The simplex method can be used where distributions method cannot.
Therefore the field of application is quite broad. In complex cases this method saves time and
effort by taking us to the optimal solution in a finite number of steps.

2-Graphically, this option will be developed in the later example.

By means of one example we are going to gradually check the advantages and disadvantages of
linear programming as a management aid.

First of all it is known that one of the main advantages of linear programming is that it fits
strictly with reality, as we will see, the example reflects this property.

Example:

I have designed this example searching for a high grade of reality, suppose we are running a
football club and launching a new merchandising campaign and we have to decide the quantity
of scarves and shirts produced, considering current constraints.

The sale prices of shirts and scarves are £35 and £10 respectively, also we know the maximum
annual manufacture capacity is 2000 units, secondly four times more time is needed to sew a
shirt compared with a scarf having at the most 2300 hours a year and finally space is limited up
to 2500 square inches, requiring shirts and scarves, 3 and 2 square inches respectively.

The first advantage is the calculation facility, as can be checked in the first step where we have
to model or formulate the problem. This is a process where verbal statement is translated to
mathematical statement; here this example is quite simple.

The incomes must be maximised knowing the different prices of scarves and shirts but some
limitations have been set which are called constraints, in this case limitations are related with
capacity, time and sales space.

Objective function: 35X+10Y

Constraints:
1-capacity x+y<=2000

2-time 4x+y<=2300

3-sales space 3x+2y<=2500

4-nonnegativity constraints x,y>=0

The next step can vary depending of the selected method; two options can be chosen such as
graphical or simplex algorithm. In this occasion we have selected the first option due to the fact
that only two variables are being studied, but this method sometimes cause objections.

The maximum profit is in the point where the second and third constraints intersect each other.
As a result is known that X=420 and Y=620 .

To draw the objective function we have suppose that we want to make the maximum profit equal
to 3000, but it means nothing, because we can choose any number, the slope of the line is the
matter that concerns us. If we move parallel the function toward larger objective function values,
the maximum profit point will be found when the line will be completely outside of the feasible
region. Then the largest value is the optimal solution.

It can be ascertained that in frequent occasions some variables are ignored in this sort of
problems (In our example trends and fashions have been ignored but maybe people prefer to buy
a shirt than a scarf for certain reasons).

Hence the problem is less rigorous and it lose accuracy and certainly, that become a
disadvantage, furthermore the model is static which means that it does not consider the changes
and the evolution of variables as time goes by. Another obstacle arises in the formulation process
which should be taken into account, values must be known with certainty.

Having seen the example it is obviously that talking in disadvantages terms functions lineality is
an important bound, it means that each decision variable appears in a separate term and has an
exponent of 1, so that non-lineal function cannot be used.

This example has been resolved by graphical method because it has only two variables, if it
would have had more than two variables we would have used the simplex method, due to the fact
of the impossibility of solving problems having more than two variables, with the graphical
method. Therefore this is another disadvantage of linear programming; graphical method can be
used only under determined conditions. There may be another two problems consisting of
numerous optimal solutions, this is not a simple matter despite the fact could seem a minor
concern, and the other problem could be infeasibility. When no solution to the linear
programming problem satisfies all the constraints, feasible region does not exist and therefore
any solution cannot be reached.

In this case the problem we have focused on is related with the portfolio selection area, one of
the varieties of applications where linear programming can be used, helping managers in
inventory design (in the example, number of scarves and shirts), in control and in capacity
planning. But this is not the only linear programming advantage, also it can be used in much
more different areas such as marketing (helping marketing managers in allocating a fixed
advertising budget to various advertising media), finance (resolving situations of capital
budgeting, financial planning an so on), product mix problems (problems based on blending
resources to produce 1 item, management must decide the quantity of each product), multiple
plant location studies (the new location will be where the total production and distribution cost
will be minimised), maximizing material utilization (determine the combination of cuts that will
meet requirements for the amounts of the different sizes with a minimum trim loss) and finally
data envelopment analysis (has been used in efficiency measure)

But there still are more advantages, linear programming analysis can help both with determining
whether management's plans are feasible and in unbounded cases where the value of the solution
is infinitely large, without violating any of the constraints, warning us that the problem is
improperly formulated.

As we can see, in the example, it does not occur, consequently there are finite solutions and
therefore we can ascertain that the problem is properly formulated.

It must be mentioned, another remarkable characteristic of linear programming problems such as,
the adapting facility to reality, which allows solving, by computer programs, problems with
thousands of variables and constraints.

The next step to analyse is what happens when we change the values of the objective function or
in the constraints. This is another advantage of using linear programming, when can check easily
how the results vary when we change the old coefficients for others. This is called sensitivity
analysis, which determines how changes affect the optimal solution to the original linear
programming problem. The range of values over which the current solution will remain optimal,
despite the change of the coefficients, is called range of optimality.

For example we suppose that the space for sales in the third constraint is reduced, now the
available space is 2499 square inches, therefore we have changed in one unit the right hand side
of the third constraint and as a result the solution has varied. The new results are X=420,2 and
Y=619,2 therefore it can be seen that the solutions have changed in 0.2 and in 0,8 respectively
these variations are called dual prices as well as implicit cost and shadow prices.

Dual prices can be used what will happen to the value of the objective function when we make a
one unit change in the right-hand side of the constraints. We have to take into account that dual
price is only operative for small variations.

In conclusion if we evaluate the pros and cons it can be ascertained that is not coincidence that
linear programming is the most used program in the management area ,despite it has several
arguments against, there are sound reasons which take us to select this method solving
management problems owing to the complexity of the problems that can be handled.
How To Successfully Launch A New Investment Product
Dana Dakin: Speech to the Investment Management Institute

Introducing an investment product is a high-risk proposition. If you don't succeed, you not only
lose money and momentum - you also put at risk your credibility in the marketplace.

In my experience, the firms that are consistently successful in launching new investment vehicles
leave nothing to chance. Early in the product development process they fully address several
basic issues. The following questions provide an effective framework for exploring these points.

Is the Product a Natural Extension of Your Firm's Capabilities?

In the investment business the best products, the most successful products, have a natural fit with
a firm. They are a direct outgrowth of key strengths and resources and therefore have built-in
credibility. One important reason successful firms continue to gain market share is because each
of their products bears this stamp of professional integrity, which helps a product earn quicker
acceptance and hold up under close scrutiny over the long haul.

Developing a "me, too" product can reflect poorly on your firm's integrity and ability. After all,
you're dealing in a sophisticated marketplace - one that steers clear of obvious opportunism and
greed.

It follows, then, that any new product you offer should be an honest reflection of who you are
and what you do best. You must be prepared to support it with the resources and marketing
commitment equivalent to that of your established, mainstay fare. And when you can clearly
demonstrate how the new offering matches your firm's capabilities, you build credibility for both
the product and your firm.

Are You Prepared to Confront the Product's Weaknesses?

There is no such thing as a perfect investment product. If there were, we would all be sitting
under the proverbial palm tree clipping coupons. All investment products have inherent risks and
it is vital to structure the sale to deal effectively with those risks by addressing them head-on,
fully and honestly, and by clearly demonstrating how they are controlled.

Too many firms say, "If they don't ask that question, they don't bring up that issue, we're home
free." The reality is quite the opposite: If they don't ask the question, they're more than likely
harboring it. You could easily end up not getting the business and never knowing why.

This leads to the problem of how to deal effectively with perceived risk specific to your product,
as opposed to inherent risk. I can't emphasize strongly enough the importance of identifying
negative market perceptions at the earliest possible time.
To do this, I recommend conducting qualitative market research during the early stages of a
product's development to gain the views of key opinion-makers and prospective buyers. In my
experience, this is the only way to acquire the honest understanding you need of how the
marketplace perceives both your product and your capability to offer it. You gain not only an
invaluable "gut" sense of where buyer concerns lie, but also the added bonus of uncovering what
the market perceives as your strengths. With this understanding, it becomes possible to develop
an unusually strong conceptual positioning for your product, one that is precisely targeted to
allay buyer doubts and reinforce positive impressions.

What Makes Your Product Different?

A lawyer's job is to make promises hard to pin down. A marketer must do precisely the opposite:
You need to dig as deep as you can to clearly explain what makes your product different.

I am not a proponent of "KISS." The premise of "Keep it simple, stupid" is that it's better to stay
safely on the surface: throw in the buzzwords, try for the sizzle, and hold the steak. This
superficial approach simply doesn't work anymore.

When the interest in professional investment management was just heating up, the firms who
were able to describe their investment approach in the most simplistic terms won a great deal of
business. That phase is behind us. As one plan sponsor recently told the third finalist in a contest
of four: "If I hear 'we believe in base hits, not home runs' one more time, you'll be asked to
leave."

We are now operating in a much more sophisticated marketing environment. Providing the
investor with clear, accurate information has become vital. You can't establish credibility in
today's marketplace without clarifying exactly what makes your product work and how it's
different.

While the plan sponsor or investment committee making the decision may not be formally
trained in investment theory, they are intelligent people. And the burden is on your shoulders to
educate them. You need to emphasize content, work on the logic and make even the most
complicated concepts absolutely clear.

Are You Willing to Stand Out From the Crowd?

One of the most repeated phrases in our business is "We like to maintain a low profile around
here." I knew the tide was finally turning when a Swiss bank admitted it had been too low profile
for too long. The environment is definitely changing in a major way.

Unfortunately, many good firms still use the desire to maintain a low profile as an excuse for not
doing quality marketing, for not moving ahead and presenting their products in a truly
compelling way. In these times, this trait almost inevitably leads to one result: dwindling market
share.
I believe part of the reason many people in this industry are unwilling to stand out with their
marketing material is because they are afraid of appearing "slick." Let's talk for a moment about
what slick really means.

Slick is delivering a visual promise that far exceeds the depth of the content inside. It's an ad, or
a brochure, or a quarterly report that's all dressed up with nothing to say. Slick materials waste a
prospect's time.

The alternative to slick is quality packaging built around a core of strong ideas. Effective
marketing materials counter key concerns, build on your strengths and clearly establish your
identity. Quality packing rises above the noise and commands attention because it communicates
who you are. It rewards the buyer's time.

Are You In for the Long Haul?

The marketplace has become a moving target that is changing more and more rapidly. As a
result, product acceptance has become highly volatile. This means two things. You must be able
to sustain a long-term marketing effort. And you must have the flexibility to adjust your
marketing relative to the prevailing level of market acceptance, always maintaining the muscle to
hit it hard when the interest is there.

The first step in making a long-term marketing commitment is to achieve consensus within your
organization. This requires that key people in every function are given the opportunity to
contribute their special expertise during the product development process and that they fully
understand the firm's goals for the new offering. This "buy-in" is vital.

Building on consensus, you can then begin to develop a powerful marketing program. In the
highly competitive consumer product market it's a well-known fact that frequent repetition of a
message - in a variety of media - is absolutely necessary to convince the buyer of a product's
benefits. The investment industry must now make this level of marketing commitment, which
represents a major change for our business. Effective marketing is not a one-shot deal.

Quality brochures, quality direct response campaigns, quality advertising all cost money. And
they also require your ongoing interest and energy. You cannot abdicate that responsibility. If
you do, even the best creative people will not be able to compensate for your lack of
commitment to your own product.

What Are You Waiting For?

How often have you heard people say, "Well, we don't want to move yet. We're not quite ready."
Usually that means their new product is in its final stage of development - it may in fact be ready
to go - but the marketing effort is at ground zero.

It's a sad truth, but in our business the right firms often fail to get the business because they pour
all of their resources into developing sound products and little or none into developing equally
sound marketing programs. This puts any product's success in certain jeopardy. Your marketing
team must be working immediately from a product's inception to achieve the momentum you
need to gain recognition and acceptance. Quality marketing takes time. It simply cannot be done
on a "catch-up" basis.

Our industry is at a critical juncture. The field is being flooded with contenders drawn to
investment management by the well-publicized opportunity to make big money. You can't brush
them aside, because they know how to market. They know how to sell.

For a good firm to keep its market share and to make that share grow, it is vital to step up
business-generating efforts and professionalize all communications. After all, the investment
business is, in large measure, a communications business. You need to begin giving the
communications process the same emphasis, and the same conviction, that you now bring to
managing money.

What Is a Product Mix?

A product mix consists of the various product lines that are offered for sale by a particular seller.
Sometimes referred to as product assortment, a true product mix has to do with the number of
product lines offered, the number and type of products offered in each line, and the relevance of
those products to the consumers who are presented with the opportunity to buy the products.
Retailers are often very concerned with the range of products they offer, since stock the right
product mix helps to ensure that the target market of consumers will be reached and sales
will be generated.

The goods offered in a supermarket are good examples of what goes into a viable product mix.
Many of the product lines have to do with food. Fresh produce is one type of product line, while
canned goods are another. Frozen foods represent a third line of products, while meats represent
still another grouping of products. While food products make up the core product lines in the
product mix, other items help to make the store more appealing to customers. By including
product lines like over the counter medications, cutlery, and food storage items, the supermarket
is able to provide an added incentive for customers to buy more of what they need at the one
location.

Businesses other the retailers also employ the concept of a product mix. Colleges and
universities are a prime example. These types of institutions offer a variety of degree programs,
which are essentially product lines in the overall mixture of products offered. Within those
product lines, individual courses serve as the products themselves that are necessary in order to
obtain the degree. By offering a wider range of degree programs, a university achieves a broader
product mix and thus is likely to attract a larger number of students.
Developing a product mix is not simply a matter of selecting a random range of products and
offering them for sale. Often, retailers and other businesses will look closely at how the various
product lines are associated with one another. When products are sold alongside other products
that can be used at the same time, the overall mix is seen as being unified and thus more
appealing to consumers. For example, if a retailer sells two or three brands of mops, it is usually
a good idea to also carry two or lines of products that can be used to mop floors, thus increasing
the potential for sales revenue by meeting more than one customer need.