BEST SIZE FOR REFINERY AND TANKERS THE PROBLEM

Is this an optimization problem? The answer is of course yes as it involved the

criterion minimum, that is, the problem should use a superlative criterion such as maximum or
the opposite like minimum to be called as an optimization problem. If there is no such term, the
problem may not even be an optimization problem at all. This is an optimization problem
involving overall cost minimization. In this problem the first step is to understand the problem
by identifying the unknowns, the data, and the conditions. For this case all the quantities are
given in the form of a complex formula as given below and it is the objective function.



Where the constants and coefficients have the following value in which the
variables q and t are to be chosen so that the total cost c (t, q) is minimized.



Here the single dependent optimization variable is called c (in units of dollars per
kiloliter - $/kL). There are n = 2 variables here, called q (bbl/day) and t (kL). Since these
correspond to physical quantities, it can be assumed that real numbers are involved and the
variable values must be non-negative. There are no explicit inequality constraints and equality
constraints in this problem and hence is a case of unconstrained optimization model where one
wishes to minimize.

Due to the complexity of the objective function and involvement of iterations the
model cannot be solved analytically and hence computational methods has to be employed.
But, is there a computer program available to solve the problem? The answer is yes. Now its
time to check for the correctness of the steps involved and execution of the code/algorithm
using the given data and if it is found to be correct then proceed to execution. While executing
the numerical tools like Excel solver and Matlab using the formula and code/algorithm it was
found that the solution for the given data is

t
opt
= 446958 kL is the optimal tanker size and
q
opt
= 179845 bbl/day is the optimal refinery capacity, with
c
min
= $17.88/kL as the minimum cost per kiloliter has been confirmed in more than one way
and different initial values were used for FindMinimum[ ], but the solution is always the
same.


Now, what if, some of the parameters are changed and see how the optimum
(minimum) value changes. This in general is called sensitivity analysis in optimization models
and is the study and analysis of the effects that changes in the coefficients and constants in a
model have on the solution.

For example, if the number of ports was to double from 2 to 4, then the minimum cost raised
from $17.88/kL to $18.15/kL which is very obvious of the fact that the minimum cost is directly
proportional to the number of ports.