Chapter 4

Network

Models
1
 4.1 Introduction
A network problem is one that can be
represented by...

8
6

9
10

Nodes

7 Arcs
10
Function on Arcs
2
 4.1 Introduction
• The importance of network models
– Many business problems lend themselves to a network
formulation.
– Optimal solutions of network problems are guaranteed integer
solutions, because of special mathematical structures. No
special restrictions are needed to ensure integrality.
– Network problems can be efficiently solved by compact
algorithms due to their special mathematical structure, even
for large scale models.

3
 Network Terminology
• Flow
– the amount sent from node i to node j, over an arc that connects them. The
following notation is used:
Xij = amount of flow
Uij = upper bound of the flow
Lij = lower bound of the flow
• Directed/undirected arcs
– when flow is allowed in one direction the arc is directed (marked by an
arrow). When flow is allowed in two directions, the arc is undirected (no
arrows).
• Adjacent nodes
– a node (j) is adjacent to another node (i) if an arc joins node i to node j.

4
 Network Terminology
• Path / Connected nodes
– Path :a collection of arcs formed by a series of adjacent nodes.
– The nodes are said to be connected if there is a path between them.
• Cycles / Trees / Spanning Trees
– Cycle : a path starting at a certain node and returning to
the same node without using any arc twice.
– Tree : a series of nodes that contain no cycles.
– Spanning tree : a tree that connects all the nodes in a network
( it consists of n -1 arcs).

5
4.2 The Transportation Problem
Transportation problems arise when a cost-effective
pattern is needed to ship items from origins that have
limited supply to destinations that have demand for the
goods.

6
 The Transportation Problem
• Problem definition

– There are m sources. Source i has a supply capacity of Si.

– There are n destinations. The demand at destination j is Dj.

– Objective:
Minimize the total shipping cost of supplying the
destinations with the required demand from the available
supplies at the sources. 7
 CARLTON PHARMACEUTICALS
• Carlton Pharmaceuticals supplies drugs and other medical
supplies.

• It has three plants in: Cleveland, Detroit, Greensboro.

• It has four distribution centers in:

Boston, Richmond, Atlanta, St. Louis.

• Management at Carlton would like to ship cases of a

certain vaccine as economically as possible.
8
 CARLTON PHARMACEUTICALS
• Data
– Unit shipping cost, supply, and demand
To
From Boston Richmond Atlanta St. Louis Supply
Cleveland $35 30 40 32 1200
Detroit 37 40 42 25 1000
Greensboro 40 15 20 28 800
Demand 1100 400 750 750

• Assumptions
– Unit shipping costs are constant.
– All the shipping occurs simultaneously.
– The only transportation considered is between sources and destinations.
– Total supply equals total demand.
9
CARLTON PHARMACEUTICALS
Network presentation

10
 Destinations

Sources Boston
D1=1100
35
Cleveland 30
S1=1200 32 40 Richmond

37 D2=400
40
Detroit 42
S2=1000 25
Atlanta
35
15 D3=750
20

Greensboro 28 St.Louis
S3= 800
D4=750 11
 CARLTON PHARMACEUTICALS –
Linear Programming Model

– The structure of the model is:

Minimize Total Shipping Cost
ST
[Amount shipped from a source]  [Supply at that source]
[Amount received at a destination] = [Demand at that destination]

– Decision variables
Xij = the number of cases shipped from plant i to warehouse j.
where: i=1 (Cleveland), 2 (Detroit), 3 (Greensboro)
j=1 (Boston), 2 (Richmond), 3 (Atlanta), 4(St.Louis)
12
Supply from Cleveland X11+X12+X13+X14 = 1200
The supply constraints
Supply from Detroit X21+X22+X23+X24 = 1000
Boston
Supply from Greensboro X31+X32+X33+X34 = 800
D1=1100
X11

Cleveland
X12
S1=1200 X31
X21
X13 Richmond
X14
D2=400
X22
X32
Detroit
S2=1000 X23
Atlanta
X24 D3=750
X33

Greensboro St.Louis
S3= 800 X34
D4=750
13
CARLTON PHARMACEUTICAL –
The complete mathematical model

Total shipment out of a supply node

cannot exceed the supply at the node.





=
=
=
=

Total shipment received at a destination 14

node, must equal the demand at that node.
CARLTON PHARMACEUTICALS
Spreadsheet

=SUMPRODUCT(B7:E9,B15:E17) =SUM(B7:E7)
Drag to cells G8:G9

=SUM(B7:E9)
Drag to cells C11:E11

15
CARLTON PHARMACEUTICALS
Spreadsheet

MINIMIZE Total Cost

SHIPMENTS

Demands are met

Supplies are not
exceeded

16
 CARLTON PHARMACEUTICALS
Spreadsheet - solution
CARLTON PHARMACEUTICALS

SOLUTION
MINIMUM COST 84000
SHIPMENTS (CASES)
BOSTON RICHMOND ATLANTA ST. LOUIS SHIPPED
CLEVELAND 850 350 1200
DETROIT 250 750 1000
GREENSBORO 50 750 800

RECEIVED 1100 400 750 750

INPUT COST (PER CASE)

BOSTON RICHMOND ATLANTA ST. LOUIS SUPPLY
CLEVELAND 35 30 40 32 1200
DETROIT 37 40 42 25 1000
GREENSBORO 40 15 20 28 800

DEMAND 1100 400 750 750 17

 CARLTON PHARMACEUTICALS
Sensitivity Report

Adjustable Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$7 CLEVELAND BOSTON 850 0 35 2 5
$C$7 CLEVELAND RICHMOND 350 0 30 5 17
$D$7 CLEVELAND ATLANTA 0 5 40 1E+30 5
$E$7 CLEVELAND ST. LOUIS 0 9 32 1E+30 9
$B$8 DETROIT BOSTON 250 0 37 5 2
$C$8 DETROIT RICHMOND
– Reduced
0
costs
8 40 1E+30 8
$D$8 DETROIT ATLANTA 0• The unit5shipment cost42 between
1E+30Cleveland and 5
$E$8 DETROIT ST. LOUIS 750 Atlanta must
0 be reduced
25 by at least
9 $5, 1E+30
before it
$B$9 GREENSBORO BOSTON 0 would 20 40
become economically 1E+30 20 it
feasible to utilize
$C$9 GREENSBORO RICHMOND 50 0 15 17 5
$D$9 GREENSBORO ATLANTA 750
• If this route
0
is used, the
20
total cost
5
will increase
1E+30
$E$9 GREENSBORO ST. LOUIS 0 by $5 for
20 each case shipped
28 between
1E+30 the two
20
cities.
18
 CARLTON PHARMACEUTICALS
Sensitivity Report

Adjustable Cells
Final Reduced Objective Allowable Allowable
Cell Name Value Cost Coefficient Increase Decrease
$B$7 CLEVELAND BOSTON 850 0 35 2 5
$C$7 CLEVELAND RICHMOND 350 0 30 5 17
$D$7 CLEVELAND ATLANTA 0 5 40 1E+30 5
$E$7 CLEVELAND ST. LOUIS 0 9 32 1E+30 9
$B$8 DETROIT BOSTON 250 0 37 5 2
–$C$8
Allowable
DETROITIncrease/Decrease
RICHMOND 0 8 40 1E+30 8
$D$8 DETROIT ATLANTA 0 5 42 1E+30 5
• This is the range
$E$8 DETROIT ST. LOUIS
of optimality. 750 0 25 9 1E+30
$B$9 • GREENSBORO
The unit shipment cost between Cleveland
BOSTON 0 and
20 40 1E+30 20
Boston may increase
$C$9 GREENSBORO RICHMONDup to $2 or 50
decrease up0to 15 17 5
$D$9 GREENSBORO ATLANTA
$5 with no change in the current750
optimal 0 20 5 1E+30
$E$9 GREENSBORO ST. LOUIS 0 20 28 1E+30 20
transportation plan.
19
 CARLTON PHARMACEUTICALS
Sensitivity Report

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$G$7 CLEVELAND SHIPPED 1200 -2 1200 250 0
$G$8 DETROIT SHIPPED 1000 0 1000 1E+30 0
$G$9 GREENSBORO SHIPPED 800 -17 800 250 0
$B$11 RECEIVED BOSTON 1100 37 1100 0 250
– Shadow
$C$11 RECEIVEDprices
RICHMOND 400 32 400 0 250
$D$11 RECEIVED ATLANTA 750 37 750 0 250
• For the plants,
$E$11 RECEIVED shadow prices 750
ST. LOUIS 25 750 0 750
convey the cost savings realized
for each extra case of vaccine
produced.
For each additional unit available
in Cleveland the total cost
reduces by $2.
20
 CARLTON PHARMACEUTICALS
Sensitivity Report

Constraints
Final Shadow Constraint Allowable Allowable
Cell Name Value Price R.H. Side Increase Decrease
$G$7 CLEVELAND SHIPPED 1200 -2 1200 250 0
$G$8 DETROIT SHIPPED 1000 0 1000 1E+30 0
$G$9 GREENSBORO SHIPPED 800 -17 800 250 0
$B$11 RECEIVED BOSTON 1100 37 1100 0 250
$C$11 RECEIVED RICHMOND 400 32 400 0 250
$D$11 RECEIVED ATLANTA 750 37 750 0 250
$E$11 RECEIVED ST. LOUIS 750 25 750 0 750
– Shadow prices
• For the warehouses demand, shadow
prices represent the cost savings for
less cases being demanded.
For each one unit decrease in
demanded in Boston, the total cost
decreases by $37. 21
 Modifications to the transportation problem
– Cases may arise that require modifications to the basic model.
• Blocked routes - shipments along certain routes are prohibited.
• Remedies:
– Assign a large objective coefficient to the route (C ij = 1,000,000)

22
 Modifications to the transportation problem
– Cases may arise that require modifications to the basic model.
• Blocked routes - shipments along certain routes are prohibited.
• Remedies:
– Assign a large objective coefficient to the route (C ij = 1,000,000)
– Add a constraint to Excel solver of the form X ij = 0

Shipments on a
Blocked Route
=0

23
 Modifications to the transportation problem
– Cases may arise that require modifications to the basic model.
• Blocked routes - shipments along certain routes are prohibited.
• Remedies:
– Assign a large objective coefficient to the route (Cij = 1,000,000)
– Add a constraint to Excel solver of the form Xij = 0 Only Feasible Routes
– Do not include the cell representing the rout in theIncluded in Changing Cells
Changing cells
Cell C9 is NOT Included

Shipments from Greensboro

to Cleveland are prohibited

24
 Modifications to the transportation problem
– Cases may arise that require modifications to the basic model.
• Minimum shipment - the amount shipped along a certain route must not fall below a pre-specified
level.
– Remedy: Add a constraint to Excel of the form Xij B
• Maximum shipment - an upper limit is placed on the amount shipped along a certain route.
– Remedy: Add a constraint to Excel of the form Xij B

25
 MONTPELIER SKI COMPANY
Using a Transportation model for production scheduling

– Montpelier is planning its production of skis for the months of

July, August, and September.
– Production capacity and unit production cost will change from
month to month.
– The company can use both regular time and overtime to produce skis.
– Production levels should meet both demand forecasts and end-of-
quarter inventory requirement.
– Management would like to schedule production to minimize its costs
for the quarter.

26
 MONTPELIER SKI COMPANY
• Data:
– Initial inventory = 200 pairs
– Ending inventory required =1200 pairs
– Production capacity for the next quarter = 400 pairs in regular time.
= 200 pairs in overtime.
– Holding cost rate is 3% per month per ski.

– Production capacity, and forecasted demand for this quarter

(in pairs of skis), and production cost per unit (by months)
Forecasted
Forecasted Production
Production Production
ProductionCosts
Costs
Month
Month Demand
Demand Capacity
Capacity Regular
RegularTime
Time Overtime
Overtime
July
July 400
400 1000
1000 25
25 3030
August
August 600
600 800
800 26
26 3232
September
September 1000
1000 400
400 29
29 3737
27
 MONTPELIER SKI COMPANY

• Analysis of demand:
– Net demand in July = 400 - 200 = 200 pairs
Initial inventory
In house inventory
– Net demand in August = 600
– Net demand in September = 1000 + 1200 = 2200 pairs
Forecasted demand
• Analysis of Supplies:
– Production capacities are thought of as supplies.
– There are two sets of “supplies”:
• Set 1- Regular time supply (production capacity)
• Set 2 - Overtime supply
28
 MONTPELIER SKI COMPANY
• Analysis of Unit costs
Unit cost = [Unit production cost] +
[Unit holding cost per month][the number of months stays in
inventory]
Example: A unit produced in July in regular time and sold in
September costs 25+ (3%)(25)(2 months) = $26.50

29
 Production
Month/period
July
Network representation Month
July 25 sold
1000 R/T
R/T 25.75
26.50 200
July July
500 30
O/T 30.90
+M
31.80 +M
+M
Production Capacity

Aug. +M 600
800 26 Aug.
R/T

Demand
26.78 +M
32 +M
Aug.
400 32.96 Sept. 2200
O/T
37
29
400 Sept.
R/T
300

200 Sept.
O/T 30
MONTPELIER SKI COMPANY - Spreadsheet

31
 MONTPELIER SKI COMPANY

• Summary of the optimal solution

– In July produce at capacity (1000 pairs in R/T, and 500 pairs in O/T). Store
1500-200 = 1300 at the end of July.
– In August, produce 800 pairs in R/T, and 300 in O/T. Store additional 800 +
300 - 600 = 500 pairs.
– In September, produce 400 pairs (clearly in R/T). With 1000 pairs
retail demand, there will be
(1300 + 500) + 400 - 1000 = 1200 pairs available for shipment to Ski
Chalet.

Inventory + Production - Demand

32
Copyright John Wiley & Sons, Inc. All rights
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or from the use of the information contained herein.

33
34
 Destinations

Sources Dallas
D1=45
8
Cleveland 6
S1=35 9 10 Atlanta

9 D2=20
12
Chicago 13
7 San
S2=50
Francisco
14 9 D3=30
16

Boston 5 Phila
S3= 40
D4=30 35