Question

Describe two examples of how LP (Linear Programming) modeling can be applied to solve real-word managerial decision problems. What are some of the items you need to identify in order to formulate an LP model? How would you measure the effectiveness of LP modeling in managerial decision making in an organization?

Answer 1

Examples- Case of maximizing profit of a surveillance product store:

A linear function can be maximized or minimized.

• Selling minimum X number of units for an individual customer, example X can be > 5, 7 etc.

Above will drive more revenue in terms of more unit sold, hence can maximize the profit per customer

• Selling A category of surveillance system (in terms of technology/ size/ utility), with minimum 2% or 4% profit margin to any customer

Above will drive more profit margin for each product and category of product sold, hence can maximize the profit per product

Case of maximizing profit of a store:

• Objective of applying liner programming. For above example case- maximizing profit of a surveillance product store
• Constraints- like minimum number of products should be sold to any customer,

Or maximum profit margin/ limit for which store can sell a product to a customer

• Variables- set of quantities that need to be determined in order to solve the problem. Example- a store can only sell 100 products in a whole day as per the company’s policies

Or one sales man is allowed to sell maximum 20 products in a whole day

Or a manufacturing unit has capacity limited to produce 500 such products in a month

Measure the effectiveness of LP modelling:

• Crosscheck qualitatively and quantitatively if more revenue in terms of more units sold has occurred, hence can maximize the profit per customer
• Crosscheck qualitatively and quantitatively if more profit margin for each product and category of product sold has occurred, hence can maximize the profit per product