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# IE 416: Operations Research I

Fall 2010

Source of the problem statement: W. L. Winston, " Operations Research, Application and Algorithms" Solution by student groups (formulation was given) Dr. Parisays comments are in red.

Sunco Oil, Problem 1, pg 97 Problem Statement Sunco Oil has three different processes that can be used to manufacture various types of gasoline. Each process involves blending oils in the company's catalytic cracker. Running process 1 for an hour costs \$5 and requires 2 barrels of crude oil 1 and 3 barrels of crude oil 2. The output from running process 1 for an hour is 2 barrels of gas 1 and 1 barrel of gas 2. Running process 2 for an hour costs \$4 and requires 1 barrel of crude 1 and 3 barrels of crude 2. The output from running process 2 for an hour is 3 barrels of gas 2. Running process 3 for an hour costs \$1 and requires 2 barrels of crude 2 and 3 barrels of gas 2. The output from running process 3 for an hour is 2 barrels of gas 3. Each week, 200 barrels of crude 1, at \$2 /barrel, and 300 barrels of crude 2, at \$3/barrel, may be purchased. All gas produced can be sold at the following per-barrel prices: gas 1, \$9; gas 2, \$10, gas 3, \$24. Formulate an LP whose solution will maximize revenues less costs. Assume that only 100 hours of time on the catalytic cracker are available each week.

Summary Table Input Run Time Process 1 Process 2 Process 3 1 hr 1 hr 1 hr Run Cost \$5 \$4 \$1 Crude Oil 1 2 1 0 Crude Oil 2 3 3 2 Gas 2 Gas 1 2 0 0 Output Gas 2 1 3 0 Gas 3 0 0 2

0 0 3

Max

100 hrs/week -

200

300

Cost

\$2/barrel

\$3/barrel

Selling Price

\$9

\$10

\$24

Decision Variables These variable names could be confusing when used in formula as there is space between letters. For example you can change Hrs to run P1 to HrsToRunP1. Even more confusing in formula is for example # of C1 to buy. It is better to use your constraint name rather than C1 and C2 to assist with analysis later on. Hrs to run P1 = Process 1 running hours Hrs to run P2 = Process 2 running hours Hrs to run P3 = Process 3 running hours # of C1 to buy = Barrels of Crude Oil 1 purchased # of C2 to buy = Barrels of Crude Oil 2 purchased # of G2 to sold = Barrels of Gas 2 sold (not re-used)

Objective Function The goal of the objective function is to maximize profit, and this can be done by subtracting purchase cost and operating cost by the revenues. Objective: maximize profit (revenue purchase costs operating costs)

Max Z= (9*2* Hrs to run P1 + 10*1*# of G2 to sold +24*2* Hrs to run P3) (2*# of C1 to buy + 3*# of C2 to buy) (5 Hrs to run P1 + 4 Hrs to run P2 + Hrs to run P3)

MaxZ = 13 * Hrs to run P1 4 * Hrs to run P2 + 47 * Hrs to run P3 2 * # of C1 to buy 3 * # of C2 to buy + 10 * # of G2 to sold

Constraints Crude 1 purchase: # of C1 to buy 2 * Hrs to run P1 - Hrs to run P2 = 0 Crude 2 purchase: # of C2 to buy 3 * Hrs to run P1 3 * Hrs to run P2 2 * Hrs to run P3 = 0 Gas 3 production: Produced= sold + re-used in process 2 Hrs to run P1 + 3 * Hrs to run P2 - # of G2 to sold 3 * Hrs to run P3 = 0 Process time Limit: Hrs to run P1 + Hrs to run P2 + Hrs to run P3 100 Max Crude 1: # of C1 to buy 200 Max Crude 2: # of C2 to buy 300

## WinQSB Problem Specification

WinQSB Input

WinQSB Output

After performing the calculations in WinQSB, we have obtained the obtimal solution of z= 1500, hours to run process 1 = 0, hours to run process 2 = 100, hours to run process 3 = 0, number of C1 to buy = 100, and number of C2 to buy = 300 and number of G2 sold = 300.

Sensitivity Analysis (O.F) This sensitivity analysis is not clear and most probably has mistake. It is hard to find out what is the mistake because of variable names. If you are selecting # of C1 to buy then its coefficient is its cost and -2. You need to explain motivation for selecting these SA.

We perform sensitivity analysis on the objective function, changing the values number (cost not number) of C1 to be bought per week. Notice that you made mistake in your explanation, and I guess it is because of how you defined your variable names!!

## Sensitivity Analysis (O.F) Graphical Summary

Sensitivity Analysis (RHS) Problem Specification You need to explain motivation for selecting these SA. We also perform sensitivity analysis on the right hand side of the constraint which limit the hours for the process to run per week.

## Sensitivity Analysis (RHS) Graphical Summary

Objective Function Coefficient (OBJ) SA: You need to explain motivation for selecting these SA. These decision variables do not match the previous tables!! Be consistant. Poor job!

SA for Process 1 Running Hours (OBJ): You need to explain motivation for selecting these SA. This is based on another solution that was wrong!!! Be consistent!

Right Hand Side SA: You need to explain motivation for selecting these SA. These constraint names do not match the previous tables!! Be consistant. Poor job!

## SA for Constraint on Maximum Amount available for Crude Oil 1:

Report to the Manager Is this a group effort for report to the manager?!! Dear Manager, After performing calculations on the data, Sunco Oil should be able to maximize revenue to \$1500 per week. (What is this?!! This is an expected value, which means that the actual value will not be exactly the same as the value that we have calculated.) In order to obtain the maximized profit, Sunco Oil will need to spend 100 hours each week to run process 2, buy 100 barrels of Crude 1, buy 300 barrels of Crude 2 and sell 300 barrels of gas 2. (What is this?!! Again, these are only expected values, meaning that they are averages of a number of possible values.)

Production/Purchase Amount 100 hours Process 1 Running Hours 0 Process 2 Running Hours 0 Process 3 Running Hours 200 barrels Barrels of Crude Oil 1 300 barrels Barrels of Crude Oil 2 100 barrels Barrels of Gas 2 (to sell) Profit: \$1,000 What is the table above?!! What is the source of it? Repeat the report below. As this table shows, we will make our maximum profit of \$1,000 by using the maximum amount of Crude Oils 1 and 2, and using all of these resources to run Process 1 only. The analysis performed shows all of the constraints in place are binding, meaning there is no room for flexibility to change which Process we run for how long. We have also performed sensitivity analysis on the case, where we want to find out the changes that the revenue will have if the amount of crude 1 purchased per week varies. From the sensitivity analysis output summary and the graphical summary, we can see that the revenue decreases if the number of crude 1 purchased increases per week. We performed another sensitivity analysis on the right hand side of the constraint which limits the number of hours that can be used per week. The result shows that when Sunco Oil slightly increases the number of hours from 100 to 120 hours per week, they will be expected to gain an increase in revenue to \$1560 per week. However, if the number of hours allowed to be used per week decreases, the revenue will correspond and reduce as well. If we had the budget to invest more into materials or time, we would want to invest in increasing the maximum amount of Crude Oil 2 available or invest in finding a way to have more time on the catalytic cracker each week. For every additional barrel of Crude Oil 2 that is available, we could increase our profit by \$1.67. For every additional hour that we could have and use on the catalytic cracker, we would increase our profits by \$5.00 for each additional hour. If one of these routes were chosen, the optimal solutions would change, and further analysis would need to be performed based on these new constraints in order to find our maximum profit again.

Variable

10