LINEAR PROGRAMING:

SIMPLEX METHOD THROUGH CASE STUDY

BY GROUP NO. 16
GROUP NO. 16

Serial Name ID
1 Shaily Barua 23-024
2 Minhajur Rahman Joy 23-106
3 Md. Foyez Alam 23-155
4 H. M. Rahat Fida 23-187
5 Md. Riaj Morshed 23-197
PART A:
THEORITECAL
BACKGROUND
DEFINITION AND CONCEPT

Linear programming (LP) is a mathematical technique for finding

optimal solutions to problems that can be expressed using linear
equations and inequalities.

George B Dantzing while working with US Air Force during

World War II, developed this technique, primarily for solving
military logistics problems.
COMPOTENTS

Components
of LP

Decision Objective Non-negativity

Constraints
variables function constraints

• These variables are • The objective of a • Constraints • The variables of

a set of quantities LP problem is to represent resource LP must always
that need to be maximize or to constraints, or the take non-negative
determined in order minimize some minimum or values (i.e., they
to solve the problem numerical value. maximum level of must be greater
• Maximize the value some activity or than or equal to
• These are called or minimize the condition zero)
decision variables cost of the project
because the problem
is to decide what
value each variable
should take
Steps Of Linear Programing Model Formulation

2. Formulate 3.Identify and 4. Include the

1. Identify the
the objective formulate the non-negativity
decision variables
function constraints. constraints
Assumptions of Linear Programing

The contribution of any decision variable to the objective function is

Proportionality
proportional to its value

Formulating a linear program to solve a problem assumes that data

Data
are available to specify the problem.

Since we are using continuous variables, the LP model assumes that

Divisibility
the decision variables can take on fractional variables.

The LP model assumes that all the constant terms, objective function
Certainty and constraint coefficients as well as the right-hand sides, are known
with absolute certainty and will not change.
Graphical Method of Linear Programing

A graphical method of linear programing is used for solving the problems by

finding out the maximum or minimum point of the intersection between the
objective function line and the feasible region on a graph

The process of solving linear programing problems graphically include

the following the steps:

1. Formulating the model

2. Plotting the constraints and finding the feasible region
3. Plotting the objective function and draw a line
4. Move the line parallel towards the direction that increase and
decrease the objective function value. .
Advantages of Linear Programing

1 Linear programming makes logical thinking and provides better insight

into business problems

2 Manager can select the best solution with the help of linear
programming by evaluating the cost and profit of various alternatives.

3 Linear programming provides an information base for optimum

allocation of scarce resources.

4 Linear programming assists in making adjustments according to

changing conditions
Limitations of Linear Programing

1 For large scale problems the computational difficulties are enormous

2 It may yield fractional value answers to decision variables

3 It is applicable to only static situation

4 Linear programming deals with single objective

Simplex Method

Simplex method is a systematic algebraic way of examining the corners of a

linear programming constraint set in search for optimal solution

To solve a linear programming model using the simplex method the

following steps are required:
1. Standard form
2. Introducing slack variables
3. Creating the tableau
4. Pivot variables
5. Creating a new tableau
6. Checking for optimality
7. Identify optimal value
Artificial Variable and Big M technique
 If the linear programming has minimization problem and equal-to or greater-than-or-
equal-to constraints, finding the initial table by using slack variables as basic variables
will not work.

 In that case ‘Artificial variable' and ‘Big M' techniques will be used to solve the
minimization problem.

Artificial variable: After converting the LP in to standard form artificial variables are used to
obtain an initial basic feasible solution. This variable has no physical meaning in the original
problem and is introduced solely for the purpose of obtaining a basic feasible solution.

Big M technique: Big M technique is used to prevent the artificial variables to come to the
optimal solution. ‘M’ is used as objective coefficient of Artificial variables which represents a
very large unreasonable number
Artificial Variable and Big M technique

Once the problem is in standard form-

 One needs to add slack variables to each less-than-or-equal-to constraint and

subtract surplus variables from each greater-than-or-equal-to constraint.

 Then artificial variables are added to all minimization and equal to constraints
with objective coefficient of +M in minimization problem and -M in maximization
problem.

 Only the slack variables and artificial variables will be used in the initial solution
as basic variables.
Technical Issues Associated with Simplex Method

The solution will be infeasible if artificial variables exist in the optimal

Infeasibility
solution as ‘M’ is a big unreasonable number.
Unboundedness exists if there is no non-negative ratio or all the ratio in
Unboundedness the undefined (60/0) form. In this case, it is impossible to find the
replacing row.

Whenever a non-basic variable has a zero entry in Cj-Zj row of an optimal

Multiple Solution table, then bringing that variable in the solution will give a solution which
is also optimal.

It refers to a condition sometimes encountered in solving a LP problem.

Degeneracy Whenever there is a tie in the ratios determining the replacing row, the
next tableau will give a degenerate solution.

The shadow price of constraint is referred as the change in optimal

Shadow Price/
objective function value per unit increase of a corresponding RHS
Dual Price coefficient.
PART B:
CASE STUDY
Introduction

Mr. Dinesh Karthik, the recently promoted Chief Operating Officer after 10 years of
dedicated service at Piaggio India Private Limited, was overcast with a gloomy
thought as the office bell rang marking the beginning of a rare 4-day vacation. This
year both the Independence Day & the Diwali holiday co-incidentally fell on either
side of the usual two-day weekends, extending it to four days. While both the
employees & his colleagues are really excited about the vacation and were
planning several holiday activities, Mr. Karthik remained anxious as the recent
findings from the semi-annual segmented performance report over-burdened his
mind.
Company Background

The story of Piaggio, the name means wasp in Italian, begins back in 1946, when
they manufactured their first motorized scooter under the company Piaggio & Co.
This is when the world first came to know the soon to be recognized worldwide
brand name Vespa.
Piaggio India Private Limited (PIPL), started its journey in 2012 with their famous
Vespa & Aprilia line up of scooters. Driven by their existing world-wide reputation of
providing reliable & affordable vehicles for daily commute, it didn’t take very long for
them to take a hold of the Indian motor vehicles market.
About the New CFO

Mr. Karthik joined PIPL as a young & energetic fresh graduate after completing his
M.Com. from the Delhi University. Since his early days, he has worked in close
collaboration with senior managers to oversee the commercial aspect of newly
launched SKUs in the market. He has been the witness to countless ups and
downs in the company history. His boss for the last four and a half years, the
recently retired former CFO, Mr. Ammartya Sannyal, was the prime figure behind
the mega success of the Vespa brand in India. To this date, Mr. Karthik still follows
the ideals set by his former boss & mentor Mr. Sannyal.
Trouble in Paradise

It was all going very well for the Vespa makers of India, the market share was well
consolidated, both top line & bottom-line growth were satisfactory & the customer
satisfaction about the company’s offerings were at an all time high. Until last year,
when several large-scale importers started to launch outsourced electric scooters.
Although there are several complications entailed with driving an electric scooter
over the traditional diesel operated ones, the low price of the electric ones started
to take away market shares.

The complications include:

• Close to none re-charging stations around the country.
• Mileage was not very good for a fully charged vehicles compared to full tank of
diesel.
• Batteries didn’t last very long & required changes once in almost every 12 months.
• Finding repairing shops & spare parts were very difficult.
Trouble in Paradise

Despite these shortcomings, these vehicles started to put a dent in Piaggio’s

market share as they cost nearly half of the price of a traditional Vespa. The
company is currently offering 3 types of vehicles in the Indian market, which are:
Vespa (Scooters), Aprilia (Bikes) & E-Vee (Newly launched electric scooter line-up).
Along with traditional vehicles, the company has started to produce modern electric
vehicles, under the brand name E-Vee.
Since its launch the customers have not responded as expected because of the
early-stage issues of the product development stage. This was one of the earliest
projects the new CFO approved after getting promoted. Mr. Karthik is at a
crossroads where his decision will impact thousands of stakeholders as well as the
company’s future. All the necessary facts & figures are available to him. He wants
to make an objective decision but he as hesitant whether or not his affection
towards the legacy his mentor built might influence him to make a wrong decision.
Trouble in Paradise
Bike Model
Process Involved
E-Vee Aprilia Vespa
Assembling 2 2.5 3
Painting 1.5 2 1
Testing 1 0.75 1.25
Available
≤ 4006 ≤ 2495 ≤ 1500
Work-Hours
*The profit per unit for each model is INR 4,500 (E-vee), 5,000 (Aprilia),
5,500 (Vespa)
Figure 1: An excerpt from the segmented performance report.

Weighing his options, Mr. Karthik came to realize that, he can either embrace the
future whole-heartedly to deal with the numerous challenges ahead to re-create the
glorious past of the company within a short period of time or opt for a gradual
transition towards electric vehicles because industry experts such as him believes
electric vehicles are the future.
The Way Ahead

After a restless few hour in the office pondering over the past challenges he has
seen has mentor deal with, Mr. Karthik suddenly knew what he had to do. He knew
if he didn’t make any progress in this matter, the thought in the back of his mind will
ruin his vacation days too. He had decided that he would not allow any personal
bias interfere in the objective decision-making process. So, he has to verify his
understandings with industry professionals. He made some last-minute calls to
make an appointment with a globally renowned consultancy firm as soon as the
office reopens.
So, consider yourself part of the envoy sent by the Globally Renowned Consultancy
Firm (GRCF), you have all the figures necessary available to you, what will be your
recommendations for Mr. Karthik. Should he upend his mentor’s legacy to create
his own landmark in the company’s history? Or is there any win-win solution that he
is not seeing?
PART B:
CASE SOLUTION
Case Solution
Case Solution

 The initial set of basic variables are S1,

S2, S3
 The initial set of non-basic variables are
A,B,C
 The coordinates of the corner of the
feasible region is A,B,C = 0,0,0 that
corresponds to the initial basic feasible
solution
 The entering variable is C since it has
the highest value of 5,500 in (Cj-Zj) row
 The exit variable is S3. The lowest ratio of
quantity and value in the optimum
column corresponds to S3.
 The key column is C and the key row is
S3.
 The pivot element is 1.25 (element in the
intersection of the key row “S3” and key
column “C”)
Case Solution

 The second set of basic variables are S1,

S2, C
 The second set of non-basic variables
are A,B, S3
 The entering variable is B since it has the
highest value of 1,700 in (Cj-Zj) row
 The exit variable is S1. The lowest ratio
of quantity and value in the optimum
column corresponds to S1.
 The key column is B and the key row is
S1.
 The pivot element is 0.7 (element in the
intersection of the key row “S1” and key
column “B”)
Case Solution

 The third set of basic variables are B, S2,

C
 The second set of non-basic variables
are A, S1 , S3
 The entering variable is A since it has the
highest value of 1,071 in (Cj-Zj) row
 The exit variable is S2. The lowest ratio
of quantity and value in the optimum
column corresponds to S2.
 The key column is A and the key row is
S2.
 The pivot element is 1.5 (element in the
intersection of the key row “S2” and key
column “A”)
Case Solution

There is no positive value in the (Cj-Zj) row. Therefore, further

improvement is not possible. Thus the optimal solution is reached.
Case Solution

As per the optimum solution,

Units to be
Bike Model Per Unit Profit Profit
produced
E-Vee 322 4500 1,449,000
Aprilia 764 5000 3,820,000
Vespa 484 5500 2,640,000
Total Profit 7,909,000
THANK YOU!