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Sunco Blending Problem:

Systems Engineering Approach


By: Dr. Parisay
Source of the problem: page 86, W. L. Winston, "Operations Research, Application and
Algorithms", 4th Edition, Thomson Learning, 2004, ISBN: 0-534-38058-1

Content:
1- Problem Statement and its Summary
2 - Systems Engineering Approach

1- Problem Statement and its Summary


Sunco Oil manufactures three types of gasoline (gas 1, gas 2, gas 3). Each type is
produced by blending three types of crude oil (crude 1, crude 2, crude 3). The sales
prices per barrel of gasoline are as follows:

Sales price Purchase


per Barrel Price per
Barrel
Gas 1 $70 Crude 1 $45
Gas 2 $60 Crude 2 $35
Gas 3 $50 Crude 3 $25

Sunco can purchase up to 5000 barrels of each type of crude oil.

The three types of gasoline differ in their octane rating and sulfur content. The crude oil
blends to form gas 1 must have an average octane rating of at least 10 and contain at most
1% sulfur. The crude oil blended to form gas 2 must have an average octane rating of at
least 8 and contain at most 2% sulfur. The crude oil blended to form gas 3 must have an
octane rating of at least 6 and contain at most 1% sulfur. The octane rating and the sulfur
content of the three types of oil are:

Octane Sulfur
Rating Content
Crude 1 12 0.5%
Crude 2 6 2.0%
Crude 3 8 3.0%

Sunco’s customers require the following amounts of each gasoline: gas 1- 3000
barrels/day, gas 2- 2000 barrels/day, and gas 3- 1000 barrels/day. The company considers
it an obligation to meet these demands. Sunco also has the option of advertising to
stimulate demand for its products. Each dollar spent daily in advertising a particular type

1
of gas increases the daily demand for that type of gas by 10 barrels. For example, if
Sunco decides to spend $20 daily in advertising gas 2, the daily demand for gas 2 will
increase by 20(10) = 200 barrels. Formulate an LP that will enable Sunco to maximize
daily profits (profits= revenue – costs).

Summary of the problem:

Sulfur Octane Sales Meet GAS Amount of each oil $


price demand prod used for each gas used
$/barrel Barrel/day uced for
ad
At most At least $70 3000 1 ? ? ? ?
1% 10
At most At least 60 2000 2 ? ? ? ?
2% 8
At most At least 50 1000 3 ? ? ? ?
1% 6
OIL used 1 2 3
Purchase price $/barrel $45 35 25
Available oil, max barrel/day 5000 5000 5000
Octane rating 12 6 8
Sulfur content 0.5% 2.0% 3.0%

* for each type of gas: 1 $ ad/day will increase demand by 10 barrel/day


* $4 to transform 1 barrel oil into one barrel gas
* Max gas to produce 14000 barrel /day

2- Systems Engineering Approach


You can look at this problem from Systems Engineering point of view!!!

a) Define needs (goals, problem) and objectives.


The need is to produce the demanded gases (products) as efficient as possible.
The objective will be to maximize the profit considering given limitations. This
objective is measured as $ amount (Ratio scale).

b) Define input and output of the system.


Input:
Information on amount of oils available and their costs and quality (sulfur
and octane)
Information on sales price of gases and required quality and amount

2
Information on other limitations such as maximum total gas being
produced, labor hours available
Information on advertising and transformation costs
Output:
Information on amount of each type of oil used for each type of gas
Information on total maximum profit and advertising budget needed
Information on how constraints are met
Information that will assist in sensitivity analysis

c) Define endogenous and exogenous factors.


Endogenous factors:
Cost of transforming oil to gas, selling price of each gas type,
effectiveness of advertising (generated demand per $1 of ad), maximum
gas produced (capacity of production)
Exogenous factors:
Quality requirements (octane and sulfur) for each gas, quality (octane and
sulfur) of available oils, purchase price of oils (unless it is possible to
negotiate the cost or find another supplier)

d) Define a suitable model.


Linear Programming (LP) model is suitable by creating linear constraints and
linear objective function. Then we can use software to solve the problem.

e) This type of problem is usually one time decision. However, if the problem is
repeated under the same exact conditions, the output (max O.F.) would be the same
(fixed).
We always can change input to check its effect on output for sensitivity analysis. From
this respect you may consider this system as the one that input and output are not fixed.

Updated: Sept 2010