Table of Contents

Chapter 6 (Network Optimization Problems)

Minimum-Cost Flow Problems (Section 6.1) 6.2–6.12

A Case Study: The BMZ Maximum Flow Problem (Section 6.2) 6.13–6.16
Maximum Flow Problems (Section 6.3) 6.17–6.21
Shortest Path Problems: Littletown Fire Department (Section 6.4) 6.22–6.25
Shortest Path Problems: General Characteristics (Section 6.4) 6.26–6.27
Shortest Path Problems: Minimizing Sarah’s Total Cost (Section 6.4) 6.28–6.31
Shortest Path Problems: Minimizing Quick’s Total Time (Section 6.4) 6.32–6.36

McGraw-Hill/Irwin 6.1 © The McGraw-Hill Companies, Inc., 2013

 Distribution Unlimited Co. Problem

• The Distribution Unlimited Co. has two factories producing a product that
needs to be shipped to two warehouses
– Factory 1 produces 80 units.
– Factory 2 produces 70 units.
– Warehouse 1 needs 60 units.
– Warehouse 2 needs 90 units.

• There are rail links directly from Factory 1 to Warehouse 1 and Factory 2 to
Warehouse 2.

• Independent truckers are available to ship up to 50 units from each factory to

the distribution center, and then 50 units from the distribution center to each
warehouse.

Question: How many units (truckloads) should be shipped along each

shipping lane?

McGraw-Hill/Irwin 6.2 © The McGraw-Hill Companies, Inc., 2013

 The Distribution Network

80 units F1 W1 60 units
produced needed

DC

70 units W2 90 units
F2
produced needed

McGraw-Hill/Irwin 6.3 © The McGraw-Hill Companies, Inc., 2013

 Data for Distribution Network

80 units $700/unit 60 units

produced F1 W1 needed
$300/unit $200/unit
[50 units max.] [50 units max.]
DC
[50 units max.] [50 units max.]
$500/unit $400/unit
70 units $1,000/unit 90 units
produced F2 W2 needed

McGraw-Hill/Irwin 6.4 © The McGraw-Hill Companies, Inc., 2013

 A Network Model

[80] [- 60]
$700
F1 W1
$300 $200
[50] [0] [50]
DC
$500 $400
[50] [50]
$1,000
F2 W2
[70] [- 90]

McGraw-Hill/Irwin 6.5 © The McGraw-Hill Companies, Inc., 2013

 The Optimal Solution

[80] [- 60]
(30)
F1 W1
(50) (30)
[0]

DC
(30) (50)
(40)
F2 W2
[70] [- 90]

McGraw-Hill/Irwin 6.6 © The McGraw-Hill Companies, Inc., 2013

 Terminology for Minimum-Cost Flow Problems

1. The model for any minimum-cost flow problem is represented by a network

with flow passing through it.
2. The circles in the network are called nodes.
3. Each node where the net amount of flow generated (outflow minus inflow) is a
fixed positive number is a supply node.
4. Each node where the net amount of flow generated is a fixed negative number
is a demand node.
5. Any node where the net amount of flow generated is fixed at zero is a
transshipment node. Having the amount of flow out of the node equal the
amount of flow into the node is referred to as conservation of flow.
6. The arrows in the network are called arcs.
7. The maximum amount of flow allowed through an arc is referred to as the
capacity of that arc.

McGraw-Hill/Irwin 6.7 © The McGraw-Hill Companies, Inc., 2013

 Assumptions of a Minimum-Cost Flow Problem

1. At least one of the nodes is a supply node.

2. At least one of the other nodes is a demand node.
3. All the remaining nodes are transshipment nodes.
4. Flow through an arc is only allowed in the direction indicated by the
arrowhead, where the maximum amount of flow is given by the capacity of
that arc. (If flow can occur in both directions, this would be represented by a
pair of arcs pointing in opposite directions.)
5. The network has enough arcs with sufficient capacity to enable all the flow
generated at the supply nodes to reach all the demand nodes.
6. The cost of the flow through each arc is proportional to the amount of that
flow, where the cost per unit flow is known.
7. The objective is to minimize the total cost of sending the available supply
through the network to satisfy the given demand. (An alternative objective is
to maximize the total profit from doing this.)

McGraw-Hill/Irwin 6.8 © The McGraw-Hill Companies, Inc., 2013

 Properties of Minimum-Cost Flow Problems

• The Feasible Solutions Property: Under the previous assumptions, a

minimum-cost flow problem will have feasible solutions if and only if the sum
of the supplies from its supply nodes equals the sum of the demands at its
demand nodes.

• The Integer Solutions Property: As long as all the supplies, demands, and
arc capacities have integer values, any minimum-cost flow problem with
feasible solutions is guaranteed to have an optimal solution with integer values
for all its flow quantities.

McGraw-Hill/Irwin 6.9 © The McGraw-Hill Companies, Inc., 2013

 Spreadsheet Model

B C D E F G H I J K L
3 From To Ship Capacity Unit Cost Nodes Net Flow Supply/Demand
4 F1 W1 30 $700 F1 80 = 80
5 F1 DC 50 <= 50 $300 F2 70 = 70
6 DC W1 30 <= 50 $200 DC 0 = 0
7 DC W2 50 <= 50 $400 W1 -60 = -60
8 F2 DC 30 <= 50 $400 W2 -90 = -90
9 F2 W2 40 $900
10
11 Total Cost $110,000

J
3 Net Flow
4 =SUMIF(From,I4,Ship)-SUMIF(To,I4,Ship)
5 =SUMIF(From,I5,Ship)-SUMIF(To,I5,Ship)
6 =SUMIF(From,I6,Ship)-SUMIF(To,I6,Ship)
7 =SUMIF(From,I7,Ship)-SUMIF(To,I7,Ship)
8 =SUMIF(From,I8,Ship)-SUMIF(To,I8,Ship)

McGraw-Hill/Irwin 6.10 © The McGraw-Hill Companies, Inc., 2013

 The SUMIF Function

• The SUMIF formula can be used to simplify the node flow constraints.

=SUMIF(Range A, x, Range B)

• For each quantity in (Range A) that equals x, SUMIF sums the corresponding
entries in (Range B).

• The net outflow (flow out – flow in) from node x is then

=SUMIF(“From labels”, x, “Flow”) – SUMIF(“To labels”, x, “Flow”)

McGraw-Hill/Irwin 6.11 © The McGraw-Hill Companies, Inc., 2013

 Typical Applications of Minimum-Cost Flow Problems

Kind of Supply Transshipment Demand

Application Nodes Nodes Nodes

Operation of a Intermediate storage

Sources of goods Customers
distribution network facilities

Solid waste Sources of solid

Processing facilities Landfill locations
management waste

Operation of a Intermediate
Vendors Processing facilities
supply network warehouses

Coordinating product Production of a Market for a specific

Plants
mixes at plants specific product product

Cash flow Sources of cash at a Short-term Needs for cash at a

management specific time investment options specific time

McGraw-Hill/Irwin 6.12 © The McGraw-Hill Companies, Inc., 2013

 The BMZ Maximum Flow Problem

• The BMZ Company is a European manufacturer of luxury automobiles. Its

exports to the United States are particularly important.

• BMZ cars are becoming especially popular in California, so it is particularly

important to keep the Los Angeles center well supplied with replacement parts
for repairing these cars.

• BMZ needs to execute a plan quickly for shipping as much as possible from
the main factory in Stuttgart, Germany to the distribution center in Los
Angeles over the next month.

• The limiting factor on how much can be shipped is the limited capacity of the
company’s distribution network.

Question: How many units should be sent through each shipping lane to
maximize the total units flowing from Stuttgart to Los Angeles?

McGraw-Hill/Irwin 6.13 © The McGraw-Hill Companies, Inc., 2013

 The BMZ Distribution Network

RO Rotterdam
[60 units max.]

[50 units max.]

New York NY {40 units max.]

BO ST Stuttgart
[70 units max.]
Bordeaux
[40 units max.]
[80 units max.] [50 units max.]

LA New Orleans LI
Los Angeles Lisbon
[70 units max] NO [30 units max.]

McGraw-Hill/Irwin 6.14 © The McGraw-Hill Companies, Inc., 2013

 A Network Model for BMZ

RO

[60]

NY [50]

[80]
[40]

LA BO ST
[70]

[50]
[70]

NO
[40]

[30]

LI

McGraw-Hill/Irwin 6.15 © The McGraw-Hill Companies, Inc., 2013

 Spreadsheet Model for BMZ

B C D E F G H I J K
3 From To Ship Capacity Nodes Net Flow Supply/Demand
4 Stuttgart Rotterdam 50 <= 50 Stuttgart 150
5 Stuttgart Bordeaux 70 <= 70 Rotterdam 0 = 0
6 Stuttgart Lisbon 30 <= 40 Bordeaux 0 = 0
7 Rotterdam New York 50 <= 60 Lisbon 0 = 0
8 Bordeaux New York 30 <= 40 New York 0 = 0
9 Bordeaux New Orleans 40 <= 50 New Orleans 0 = 0
10 Lisbon New Orleans 30 <= 30 Los Angeles -150
11 New York Los Angeles 80 <= 80
12 New Orleans Los Angeles 70 <= 70
13
14 Maximum Flow 150

McGraw-Hill/Irwin 6.16 © The McGraw-Hill Companies, Inc., 2013

 Assumptions of Maximum Flow Problems

1. All flow through the network originates at one node, called the source, and
terminates at one other node, called the sink. (The source and sink in the BMZ
problem are the factory and the distribution center, respectively.)

2. All the remaining nodes are transshipment nodes.

3. Flow through an arc is only allowed in the direction indicated by the

arrowhead, where the maximum amount of flow is given by the capacity of
that arc. At the source, all arcs point away from the node. At the sink, all arcs
point into the node.

4. The objective is to maximize the total amount of flow from the source to the
sink. This amount is measured in either of two equivalent ways, namely, either
the amount leaving the source or the amount entering the sink.

McGraw-Hill/Irwin 6.17 © The McGraw-Hill Companies, Inc., 2013

 BMZ with Multiple Supply and Demand Points

• BMZ has a second, smaller factory in Berlin.

• The distribution center in Seattle has the capability of supplying parts to the
customers of the distribution center in Los Angeles when shortages occur at
the latter center.

Question: How many units should be sent through each shipping lane to
maximize the total units flowing from Stuttgart and Berlin to Los Angeles
and Seattle?

McGraw-Hill/Irwin 6.18 © The McGraw-Hill Companies, Inc., 2013

 Network Model for The Expanded BMZ Problem

HA

[40]
BN [60]
[30]
[20]

SE RO BE
[20]
[40]
[60]
NY [50]
[10]

[40]
[80]
LA BO ST
[70]

[50]
[70]
NO
[40]
[30]

LI

McGraw-Hill/Irwin 6.19 © The McGraw-Hill Companies, Inc., 2013

 Spreadsheet Model

B C D E F G H I J K
3 From To Ship Capacity Nodes Net Flow Supply/Demand
4 Stuttgart Rotterdam 40 <= 50 Stuttgart 140
5 Stuttgart Bordeaux 70 <= 70 Berlin 80
6 Stuttgart Lisbon 30 <= 40 Hamburg 0 = 0
7 Berlin Rotterdam 20 <= 20 Rotterdam 0 = 0
8 Berlin Hamburg 60 <= 60 Bordeaux 0 = 0
9 Rotterdam New York 60 <= 60 Lisbon 0 = 0
10 Bordeaux New York 30 <= 40 Boston 0 = 0
11 Bordeaux New Orleans 40 <= 50 New York 0 = 0
12 Lisbon New Orleans 30 <= 30 New Orleans 0 = 0
13 Hamburg New York 30 <= 30 Los Angeles -160
14 Hamburg Boston 30 <= 40 Seattle -60
15 New Orleans Los Angeles 70 <= 70
16 New York Los Angeles 80 <= 80
17 New York Seattle 40 <= 40
18 Boston Los Angeles 10 <= 10
19 Boston Seattle 20 <= 20
20
21 Maximum Flow 220

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 Some Applications of Maximum Flow Problems

1. Maximize the flow through a distribution network, as for BMZ.

2. Maximize the flow through a company’s supply network from its vendors to
its processing facilities.

3. Maximize the flow of oil through a system of pipelines.

4. Maximize the flow of water through a system of aqueducts.

5. Maximize the flow of vehicles through a transportation network.

McGraw-Hill/Irwin 6.21 © The McGraw-Hill Companies, Inc., 2013

 Littletown Fire Department

• Littletown is a small town in a rural area.

• Its fire department serves a relatively large geographical area that includes
many farming communities.

• Since there are numerous roads throughout the area, many possible routes may
be available for traveling to any given farming community.

Question: Which route from the fire station to a certain farming community
minimizes the total number of miles?

McGraw-Hill/Irwin 6.22 © The McGraw-Hill Companies, Inc., 2013

 The Littletown Road System

A F 4

1 D 3 6
3 4 6
Fire 6 Farming
B 3 G Community
Station
5 5
E 2
2
4
4 C 7 H 7

McGraw-Hill/Irwin 6.23 © The McGraw-Hill Companies, Inc., 2013

 The Network Representation

A F
6 8
4
3 1 D 3
4 6
(Origin) 6 G 6
O B 3 T (Destination)
5 5
4 2 E 2 7
4
7
C H

McGraw-Hill/Irwin 6.24 © The McGraw-Hill Companies, Inc., 2013

 Spreadsheet Model
B C D E F G H I J K
3 From To On Route Distance Nodes Net Flow Supply/Demand
4 Fire St. A 1 3 Fire St. 1 = 1
5 Fire St. B 0 6 A 0 = 0
6 Fire St. C 0 4 B 0 = 0
7 A B 1 1 C 0 = 0
8 A D 0 6 D 0 = 0
9 B A 0 1 E 0 = 0
10 B C 0 2 F 0 = 0
11 B D 0 4 G 0 = 0
12 B E 1 5 H 0 = 0
13 C B 0 2 Farm Com. -1 = -1
14 C E 0 7
15 D E 0 3
16 D F 0 8
17 E D 0 3
18 E F 1 6
19 E G 0 5
20 E H 0 4
21 F G 0 3
22 F Farm Com. 1 4
23 G F 0 3
24 G H 0 2
25 G Farm Com. 0 6
26 H G 0 2
27 H Farm Com. 0 7
28
29 Total Distance 19

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 Assumptions of a Shortest Path Problem

1. You need to choose a path through the network that starts at a certain node,
called the origin, and ends at another certain node, called the destination.

2. The lines connecting certain pairs of nodes commonly are links (which allow
travel in either direction), although arcs (which only permit travel in one
direction) also are allowed.

3. Associated with each link (or arc) is a nonnegative number called its length.
(Be aware that the drawing of each link in the network typically makes no
effort to show its true length other than giving the correct number next to the
link.)

4. The objective is to find the shortest path (the path with the minimum total
length) from the origin to the destination.

McGraw-Hill/Irwin 6.26 © The McGraw-Hill Companies, Inc., 2013

 Applications of Shortest Path Problems

1. Minimize the total distance traveled.

2. Minimize the total cost of a sequence of activities.

3. Minimize the total time of a sequence of activities.

McGraw-Hill/Irwin 6.27 © The McGraw-Hill Companies, Inc., 2013

 Minimizing Total Cost: Sarah’s Car Fund

• Sarah has just graduated from high school.

• As a graduation present, her parents have given her a car fund of $21,000 to
help purchase and maintain a three-year-old used car for college.

• Since operating and maintenance costs go up rapidly as the car ages, Sarah
may trade in her car on another three-year-old car one or more times during
the next three summers if it will minimize her total net cost. (At the end of the
four years of college, her parents will trade in the current used car on a new
car for Sarah.)

Question: When should Sarah trade in her car (if at all) during the next three
summers?

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 Sarah’s Cost Data

Operating and Maintenance Costs Trade-in Value at End

for Ownership Year of Ownership Year

Purchase
Price 1 2 3 4 1 2 3 4

$12,000 $2,000 $3,000 $4,500 $6,500 $8,500 $6,500 $4,500 $3,000

McGraw-Hill/Irwin 6.29 © The McGraw-Hill Companies, Inc., 2013

 Shortest Path Formulation

25,000

17,000
10,500
10,500

(Origin) 0 1 2 3 4 (Destination)
5,500 5,500 5,500 5,500

10,500

17,000

McGraw-Hill/Irwin 6.30 © The McGraw-Hill Companies, Inc., 2013

 Spreadsheet Model

B C D E F G H I J
3 Operating & Trade-in Value Purchase
4 Maint. Cost at End of Year Price
5 Year 1 $2,000 $8,500 $12,000
6 Year 2 $3,000 $6,500
7 Year 3 $4,500 $4,500
8 Year 4 $6,500 $3,000
9
10
11 From To On Route Cost Nodes Net Flow Supply/Demand
12 Year 0 Year 1 0 $5,500 Year 0 1 = 1
13 Year 0 Year 2 1 $10,500 Year 1 0 = 0
14 Year 0 Year 3 0 $17,000 Year 2 0 = 0
15 Year 0 Year 4 0 $25,000 Year 3 0 = 0
16 Year 1 Year 2 0 $5,500 Year 4 -1 = -1
17 Year 1 Year 3 0 $10,500
18 Year 1 Year 4 0 $17,000
19 Year 2 Year 3 0 $5,500
20 Year 2 Year 4 1 $10,500
21 Year 3 Year 4 0 $5,500
22
23 Total Cost $21,000

McGraw-Hill/Irwin 6.31 © The McGraw-Hill Companies, Inc., 2013

 Minimizing Total Time: Quick Company

• The Quick Company has learned that a competitor is planning to come out
with a new kind of product with great sales potential.

• Quick has been working on a similar product that had been scheduled to come
to market in 20 months.

• Quick’s management wishes to rush the product out to meet the competition.

• Each of four remaining phases can be conducted at a normal pace, at a priority

pace, or at crash level to expedite completion. However, the normal pace has
been ruled out as too slow for the last three phases.

• $30 million is available for all four phases.

Question: At what pace should each of the four phases be conducted?

McGraw-Hill/Irwin 6.32 © The McGraw-Hill Companies, Inc., 2013

 Time and Cost of the Four Phases

Remaining Design of Initiate Production

Level Research Development Mfg. System and Distribution
Normal 5 months — — —
Priority 4 months 3 months 5 months 2 months
Crash 2 months 2 months 3 months 1 month

Remaining Design of Initiate Production

Level Research Development Mfg. System and Distribution
Normal $3 million — — —
Priority 6 million $6 million $9 million $3 million
Crash 9 million 9 million 12 million 6 million

McGraw-Hill/Irwin 6.33 © The McGraw-Hill Companies, Inc., 2013

 Shortest Path Formulation
,

5 2
3 y) 2, 21 (Priority) 3, 12(Priority) 4, 9
ri o rit (C 3
(P 0

(C
1, 27 2 ras

1 h)
r
h)

as
(C
) r a sh
5 al ) 2, 18 5 2 4, 6
m ) (Priority) 3, 9 0
o r 3 ri ty (Priority)
(N 4 o (C 3
1, 24 (Pri r as (Destination)

(C
(Origin) 0, 30 T

1 h)
(Priority) (C 2 h)

ra
0

s
(C 2 ra
ra s s h 2, 15 5 3, 6 2 4, 3
h) ) (Priority) ((Priority)
3 i ty ) (C 3 0
ir or ra

(C
1, 21

1 s h)
s h)

ra
(C (P2
r as 2
h ) 2, 12 5 3, 3 4, 0
(Priority) (Priority)

McGraw-Hill/Irwin 6.34 © The McGraw-Hill Companies, Inc., 2013

 Spreadsheet Model
B C D E F G H I J K
3 From To On Route Time Nodes Net Flow Supply/Demand
4 (0, 30) (1, 27) 0 5 (0, 30) 1 = 1
5 (0, 30) (1, 24) 0 4 (1, 27) 0 = 0
6 (0, 30) (1, 21) 1 2 (1, 24) 0 = 0
7 (1, 27) (2, 21) 0 3 (1, 21) 0 = 0
8 (1, 27) (2, 18) 0 2 (2, 21) 0 = 0
9 (1, 24) (2, 18) 0 3 (2, 18) 0 = 0
10 (1, 24) (2, 15) 0 2 (2, 15) 0 = 0
11 (1, 21) (2, 15) 1 3 (2, 12) 0 = 0
12 (1, 21) (2, 12) 0 2 (3, 12) 0 = 0
13 (2, 21) (3, 12) 0 5 (3, 9) 0 = 0
14 (2, 21) (3, 9) 0 3 (3, 6) 0 = 0
15 (2, 18) (3, 9) 0 5 (3, 3) 0 = 0
16 (2, 18) (3, 6) 0 3 (4, 9) 0 = 0
17 (2, 15) (3, 6) 0 5 (4, 6) 0 = 0
18 (2, 15) (3, 3) 1 3 (4, 3) 0 = 0
19 (2, 12) (3, 3) 0 5 (4, 0) 0 = 0
20 (3, 12) (4, 9) 0 2 (T) -1 = -1
21 (3, 12) (4, 6) 0 1
22 (3, 9) (4, 6) 0 2
23 (3, 9) (4, 3) 0 1
24 (3, 6) (4, 3) 0 2
25 (3, 6) (4, 0) 0 1
26 (3, 3) (4, 0) 1 2
27 (4, 9) (T) 0 0
28 (4, 6) (T) 0 0
29 (4, 3) (T) 0 0
30 (4, 0) (T) 1 0
31
32 Total Time 10

McGraw-Hill/Irwin 6.35 © The McGraw-Hill Companies, Inc., 2013

 The Optimal Solution

Phase Level Time Cost

Remaining research Crash 2 months $9 million

Development Priority 3 months 6 million

Design of manufacturing system Crash 3 months 12 million

Initiate production and distribution Priority 2 months 3 million

Total 10 months $30 million

McGraw-Hill/Irwin 6.36 © The McGraw-Hill Companies, Inc., 2013