Tutorial 2: Sensitivity Analysis

Problem 1 (Exam 2007): The Classic Furniture Company is trying to determine the
optimal quantities to make of six possible products: tables and chairs made of o
ak, cherry, and pine. The products are to be made using the following resources:
labour hours and three types of wood. The availability of each resource as well
as each item's resource usage (technological coefficients) are shown in the Excel
layout (Figure 1). Minimum production requirements are as follows: at least 3 e
ach of oak and cherry tables, at least 10 each of oak and cherry chairs, and at
least 5 pine chairs. The objective function coefficients in Figure 1 refer to th
e unit profit per item. The LP Sensitivity Report is shown in Figure 2.
Classic Furniture Company
Oak tables 3 75 7.5 200 Oak chairs 30 35 3.5 30 Cherry Cherry tables chairs 3 35
.56 90 60 9 240 1 1 1 1 1 6 36 180 40 Pine tables 0 45 4.5 Pine chairs 75 20 2
Number of units Profit per unit () Constraints Labour hours Oak (pounds) Cherry (
pounds) Pine (pounds) Min oak tables Min cherry tables Min oak chairs Min cherry
chairs Min pine chairs
5178.33 <- Objective 517.83 <= 1500 <= 2000 <= 3000 <= 3 >= 3 >= 30 >= 35.56 >=
75 >= LHS Sign 1000 1500 2000 3000 3 3 10 10 5 RHS
Figure 1: Excel layout
Microsoft Excel 11.0 Sensitivity Report
Adjustable Cells Cell $D$6 $E$6 $F$6 $G$6 $H$6 $I$6 Name Number of units Oak tab
les Number of units Oak chairs Number of units Cherry tables Number of units Che
rry chairs Number of units Pine tables Number of units Pine chairs Final Value 3
30 3 35.56 0 75 Reduced Cost 0 0 0 0 -45 0 Objective Coefficient 75 35 90 60 45
20 Allowable Increase 158.33 1E+30 310 1E+30 45 1E+30 Allowable Decrease 1E+30
23.75 1E+30 46.5 1E+30 10
Constraints Cell $J$9 $J$10 $J$11 $J$12 $J$13 $J$14 $J$15 $J$16 $J$17 Name Labou
r hours Oak (pounds) Cherry (pounds) Pine (pounds) Min oak tables Min cherry tab
les Min oak chairs Min cherry chairs Min pine chairs Final Value 517.83 1500 200
0 3000 3 3 30 35.56 75 Shadow Price 0 1.17 1.67 0.5 -158.33 -310 0 0 0 Constrain
t R.H. Side 1000 1500 2000 3000 3 3 10 10 5 Allowable Increase 1E+30 4132.86 289
3 9643.33 3 3.83 20 25.56 70 Allowable Decrease 482.17 600 920 2800 3 3 1E+30 1E
+30 1E+30
Figure 2: Sensitivity Report Answer each of the following questions, each of whi
ch is independent of the others.
a) What is the optimal solution? Which constraints are binding? b) Interpret the
shadow prices of the following three constraints: labour hours, the amount of c
herry wood available, and the minimum production quantity for oak tables. c) Sup
pose Classic Furniture are forced to produce at least one table in pine. What wo
uld be the impact on profit? d) Classic Furniture can purchase an additional 1,0
00 pounds of oak at a price of 0.75 per pound. Should Classic Furniture buy this
wood and do they need to change the current production plan? (Why?) What would b
e the impact on profit? e) Classic Furniture is considering the production of co
ffee tables. One coffee table would make a profit of 55 while its production requ
ires 30 pounds of oak, 10 pounds of cherry and 5 hours of labour. Should the com
pany produce coffee tables? Why (not)? f) It appears that Classic Furniture unde
restimated the profit of each item by 10%. Should Classic Furniture adapt the pr
oduction plan? Why (not)? g) Tables and chairs usually sell as sets. For each ty
pe of wood, the number of chairs produced should not exceed 10 times the number
of tables produced. What constraints should be added to the LP to reflect these
conditions? Does the current solution satisfy these constraints? Problem 2: (Exa
m 2005) Steelco has received an order for 100 tonnes of steel. The order must co
ntain at least 3.5 tonnes of nickel, at most 3 tonnes of carbon, and exactly 4 t
onnes of manganese. Steelco receives 200/tonne for the order. To fill the order,
Steelco can combine four alloys, whose chemical composition is given in Table 1.
Steelco wants to maximise profit (revenues costs). Formulate Steelco's problem as
an LP and solve it with Excel Solver. Table 1: Alloy composition and cost Alloy
1 6% 3% 8% 120 Alloy 2 3% 2% 3% 100 Alloy 3 2% 5% 2% 80 Alloy 4 1% 6% 1% 60
Nickel Carbon Manganese Cost/tonne
After solving Steelco's problem with excel solver, use the sensitivity report to a
nswer the following questions: a) What is the optimal solution? Which constraint
s are binding? b) In what range of cost values for alloy 2 does the current solu
tion remain optimal? Can you calculate the new profit if alloy 2 costs 90/tonne?
c) Interpret the shadow prices of the different constraints? d) Suppose the cost
per tonne of both alloy 2 and 4 decreases by 20. Will this change the optimal so
lution? Why or why not? Can you calculate the new profit?
e) Suppose the order should contain at least 3.55 tonnes of nickel. Would this c
hange affect the profit? What about the optimal solution? f) Suppose that Steelc
o can use also alloy 5. Alloy 5 costs 100/tonne and contains 2% of nickel, 1% of
carbon and 0.3% of manganese. Would you advise Steelco using alloy 5 in the orde
r? g) Suppose alloys 1, 2, 3 and 4 contain respectively 2%, 3%, 1% and 4% of sil
icon. The 100 tonne steel order should contain at most 2.5 tonnes of silicon. Sh
ould Steelco revise its production plan?
Steelco
No. of tons Selling price () Cost () Profit () Constraints Nickel constraint Carbon
constraint Manganese constraint Order size = 100 tons Alloy 1 25 200 120 80 0.0
6 0.03 0.08 1 Alloy 2 62.5 200 100 100 0.03 0.02 0.03 1 Alloy 3 0 200 85 115 0.0
2 0.05 0.02 1 Alloy 4 12.5 200 60 140 0.01 0.06 0.01 1
10000 3.5 2.75 4 100 LHS
<-- Objective >= <= = = Sign 3.5 3 4 100 RHS
Figure 3: Excel layout Steelco
Figure 4: Sensitivity report Steelco Problem 3 (4.22 & 4.23): The Good-to-Go Sui
tcase Company makes three kinds of suitcases: (1) Standard, (2) Deluxe and (3) L
uxury styles. Each suitcase goes through four production stages: (1) cutting and
colouring, (2) assembly, (3) finishing, and (4) quality and packaging. The tota
l number of hours available in each of these departments is 630, 600, 708, and 1
35 respectively.
Each Standard suitcase requires 0.7 hours of cutting and colouring, 0.5 hours of
assembly, 1 hour of finishing and 0.1 hours of quality and packaging. The corre
sponding numbers for each Deluxe suitcase are 1 hour, 0.83 hours, 0.67 hours, an
d 0.25 hours, respectively. Likewise, the corresponding numbers for each Luxury
suitcase are: 1 hour, 0.67 hours, 0.9 hours, and 0.4 hours, respectively. The sa
les revenue for each type of suitcase is as follows: Standard 36.05, Deluxe 39.5 a
nd Luxury 43.3. The material costs are Standard 6.25, Deluxe 7.5 and Luxury 8.5.The
hourly cost of labour for each department is: cutting & colouring 10, assembly 6,
finishing 9, and quality and packaging 8. a) Formulate an LP to determine how much
suitcases Good-to-Go should make so as to maximise profit. Enter this problem i
nto Excel and find the optimal solution. (Use the answer and sensitivity report
to answer the following questions.) b) What is the optimal production plan? Whic
h of the resources are scarce? c) Suppose Good-to-Go is considering a polishing
process, the cost of which would be added directly to the price. Each Standard s
uitcase would require 10 minutes of time of this treatment, each Deluxe suitcase
would need 15 minutes and each Luxury suitcase would need 20 minutes. Would the
current production plan change as a result of this additional process if 170 ho
urs of polishing time were available? Explain your answer. d) Suppose Good to-Go
is considering the possible introduction of two new products: the Compact model
and the Kiddo model (for children). Market research suggests that Good-to-Go can
sell the Compact model for no more than 30, whereas the Kiddo model would go for
as much as 37.5 to speciality toy stores. The amount of labour and the cost of r
aw materials for each possible new product are as follows: Cost Category Cutting
and colouring (hr.) Assembly (hr.) Finishing (hr.) Quality and packaging (hr.)
Raw materials () Compact 0.5 0.75 0.75 0.2 5 Kiddo 1.20 0.75 0.5 0.2 4.5
Would it be economically attractive to make any of these models? Explain your an
swer.