inear programming is a problem-solving approach developed to help managers make decisions. It is a powerful tool used by operations managers and other managers to obtain optimal solutions to problems that involve restrictions or limitations on their resources. These problems are referred to as constrained optimization problems. Numerous applications of linear programming can be found in today’s competitive business environment. It is increasingly important to make sure that a company’s limited resources are used in the most efficient way.
Linear programming is heavily used to minimize transportation and transshipment costs. Many transportation, transshipment and logistics problems fall into the category of problems known as minimum cost network flow model. All network flow problems can be represented by a collection of nodes and arcs. The nodes represent the suppliers, warehouses, or customers while the arcs represent suitable paths or routes between nodes. The transportation problem involves finding the lowest cost plan for distributing goods from multiple origins to multiple destinations that demand those goods. In the transshipment model, warehouses can be used as intermediaries to receive goods from suppliers and send them to customers.
In practice, opening a plant or a warehouse require fixed cost. Fixed cost is not a linear function; therefore, the use of binary variables (0, 1) will transform a non linear model into a linear one. This case study will help managers develop a spreadsheet model that will minimize total cost. Total cost involves production cost, shipping cost, and fixed cost. The model will also solve for which plant or warehouse to open in order to satisfy customer demand with the lowest cost possible.