Sun Oil - Data for Cost Minimization

Production and Transportation Cost (in

thousands of dollars per million units)
Supply &
Demand Regions
N. America (1) S. America (2) Europe (3) Asia (4) Africa (5)

N. America (1) 81 92 101 130 115

S. America (2) 117 77 108 98 100
Europe (3) 102 105 95 119 111
Asia (4) 115 125 90 59 74
Africa (5) 142 100 103 105 71
Demand 12 8 14 16 7
(millions units)

Note: The model is built step by step in each sheet. There are 10 sheets which take through the
In each sheet, in rows 1 to 3, I specify which rows and columns have been added in that
Use sheet 1 as your starting point. Move to sheet 2 and follow the steps in sheet 2. Once you finish that move on t
 Low Capacity High Capacity

Fixed cost Capacity Fixed cost Capacity

(in 1000s of (in millions of (in 1000s of (in millions
$) units) $) of units)
6,000 10 9,000 20
4,500 10 6,750 20
6,500 10 9,750 20
4,100 10 6,150 20
4,000 10 6,000 20

which take through the model step by step.

ave been added in that particular sheet so that you can view the progress step by step.
Once you finish that move on to sheet and so on.
Sun Oil - Decision Variables for Cost Minimization is added in this sheet.

Production and Transportation Cost (in

Supply & thousands of dollars per million units)
Demand
Regions N. America (1) S. America (2) Europe (3) Asia (4) Africa (5)

N. America (1) 81 92 101 130 115

S. America (2) 117 77 108 98 100
Europe (3) 102 105 95 119 111
Asia (4) 115 125 90 59 74
Africa (5) 142 100 103 105 71
Demand 12 8 14 16 7
(millions units)

Decision Variables

Demand Regions
Supply Regions

N. America S. America Europe Asia Africa

N. America
S. America
Europe
Asia
Africa
n this sheet. Cells N5 to N8 has the mathematical definition of decision variables
Rows 15 to 23 give the setup of the decision variables in Excel and the explanation.

Low Capacity High Capacity

Fixed cost Capacity Fixed cost Capacity

(in 1000s of (in millions of (in 1000s of (in millions of
$) units) $) units) Decision Variables
6,000 10 9,000 20 yil = 1 if plant i is open with low capac
4,500 10 6,750 20 yih = 1 if plant i is open with high capa
6,500 10 9,750 20 xij = quantity shipped (in millions of u
4,100 10 6,150 20
4,000 10 6,000 20

Low
capacity High capacity
Plant plant Cells C19 to G23 are the xij decision variables. For example, D21 denotes the numb
(1=open, (1=open,
0=closed) 0=closed)
Cells H19: H23 are the yil decision variables. For example, H22 denotes whether a l
Cells I19: I23 are the yih decision variables. For example, I23 denotes whether a hig
nd the explanation.

nt i is open with low capacity and 0 otherwise;i (i = 1,2,..5)

ant i is open with high capacity and 0 otherwise;i (i = 1,2,..5)
ty shipped (in millions of units) from plant i to market j (i = 1,2,..5 & j=1,2,…5)

example, D21 denotes the number of units transported from Europe to South America

xample, H22 denotes whether a low capacity plant should be opened in Asia or not. 0 denoting do NOT open a low capacity plant and 1 de
ample, I23 denotes whether a high capacity plant should be opened in Africa or not. 0 denoting do NOT open a high capacity plant and 1 d
w capacity plant and 1 denoting - open a low capacity plant in Asia.
gh capacity plant and 1 denoting - open a high capacity plant in Asia.
Sun Oil - Objective Function for Cost Minimization is added in this sheet.

Production and Transportation Cost (in

thousands of dollars per million units)
Supply & Demand
Regions
N. America (1) S. America (2) Europe (3) Asia (4)

N. America (1) 81 92 101 130

S. America (2) 117 77 108 98
Europe (3) 102 105 95 119
Asia (4) 115 125 90 59
Africa (5) 142 100 103 105
Demand (millions 12 8 14 16
units)

Decision Variables

Demand Regions
Supply Regions

N. America S. America Europe Asia

N. America
S. America
Europe
Asia
Africa

Objective function - =SUMPRODUCT(H6:H10,H19:H23)+SUMPRODUCT(J6:J10,I19:I23) + SUMP

Cell C25 has the value of the objective function. The formula for calculating the objective function in C25 is typed o
SUMPRODUCT(H6:H10, H19:H23) calculates the total fixed cost of opening low capacity plants. This is done by mu
SUMPRODUCT(J6:J10, I19:I23) calculates the total fixed cost of opening high capacity plants. This is done by multip
SUMPRODUCT(C6:G10, C19:G23) calculates the total cost of transporting goods from the supply regions to the dem
This multiplication is carried out for each supply and demand location.
dded in this sheet. Cells N5 to N8 has the mathematical statement of the objective function.
Row 25 gives the calculation of the objective function in Excel and the Excel formu
Rows 27 to 31 give detailed explanation for how the objective function formula is
(in
Low Capacity High Capacity
s)
Fixed cost Capacity Fixed cost Capacity
Africa (5) (in 1000s of (in millions of (in 1000s of (in millions of
$) units) $) units) Objective Function
115 6,000 10 9,000 20 yil = 16,000y1l
Minimize: if plant i+is4,500y2l
open wit+
100 4,500 10 6,750 20 yih =+16,750
9,000y1h if plant
y2hi is+open
9,750wiy
111 6,500 10 9,750 20 81x11 x+ij =92quantity
x12 + 101shipped
x13 + (in
130m
74 4,100 10 6,150 20 117 x21 + 77x22 + 108x23 + 98
71 4,000 10 6,000 20 102 x31 + 105xx32 + 95 x33 +…
7

Low
capacity High capacity
Plant plant
(1=open, (1=open,
Africa
0=closed) 0=closed)

SUMPRODUCT(J6:J10,I19:I23) + SUMPRODUCT(C6:G10,C19:G23)

he objective function in C25 is typed out in D25.

w capacity plants. This is done by multiplying the fixed cost of opening low capacity plants in the 5 continents (given in H6:H10) by the de
capacity plants. This is done by multiplying the fixed cost of opening high capacity plants in the 5 continents (given in J6:J10) by the decisio
ds from the supply regions to the demand regions. This is done by multiplying cost of transporting one unit from supply location i to dema
e objective function.
n in Excel and the Excel formula for calculation.
objective function formula is derived.

ve Function
e: 6,000y1l + 4,500y2l + 6,500y3l + 4,100y4l + 4,000y5l +
h + 6,750 y2h + 9,750 y3h + 6,150 y4h + 6,000 y5h +
92 x12 + 101 x13 + 130 x14 + 115 x15 +
+ 77x22 + 108x23 + 98 X24 + 100 x25 +
+ 105xx32 + 95 x33 +…. + 71 x55

ts (given in H6:H10) by the decision variables denoting whether to open a low capacity plant in a specific continent or not (given in H19:H2
(given in J6:J10) by the decision variables denoting whether to open a high capacity plant in a specific continent or not (given in I19:I23)
from supply location i to demand location j by the decision variable denoting how many units are transported from supply location i to dem
t or not (given in H19:H23)
r not (given in I19:I23)
m supply location i to demand location j.
Sun Oil - Supply Constraints for Cost Minimization is added in this sheet.

Production and Transportation Cost

Supply & (in thousands of dollars per million units)
Demand
Regions N. America (1) S. America (2) Europe (3) Asia (4) Africa (5)

N. America (1) 81 92 101 130 115

S. America (2) 117 77 108 98 100
Europe (3) 102 105 95 119 111
Asia (4) 115 125 90 59 74
Africa (5) 142 100 103 105 71
Demand 12 8 14 16 7
(millions units)

Decision Variables

Demand Regions
Supply
Regions
N. America S. America Europe Asia Africa

N. America
S. America
Europe
Asia
Africa

Objective functi -

Constraints Example: The LHS of the N.America s

Supply Region LHS inequality RHS This equals the amount transported f
N. America 0 <= 0 In other words this is sum(C19:G19)
S. America 0 <= 0 The RHS of the N.America constraint
Europe 0 <= 0 This equals the supply at the low capa
Asia 0 <= 0 This is I6*H19+K6*I19
Africa 0 <= 0 The inequality is of <type because am
dded in this sheet. Cells M5 to T10 has the mathematical statement of the supply constraints.
Rows 28 to 34 give detailed explanation for how the supply constraints are written in Excel

Low Capacity High Capacity

Capacity Capacity
Fixed cost (in Fixed cost
1000s of $)
(in millions of
(in 1000s of $)
(in millions of Supply Constraints
units) units)
6,000 10 9,000 20 N. America: x11 + x12 + x13 + x14 + x
4,500 10 6,750 20 S. America: x21 + x22 + x23 + x24 + x
6,500 10 9,750 20 Europe: x31 + x32 + x33 + x34 + x
4,100 10 6,150 20 Asia: x41 + x42 + x43 + x44 + x
4,000 10 6,000 20 Africa: x51 + x52 + x53 + x54 + x

Low capacity High capacity

Plant plant
(1=open, (1=open,
0=closed) 0=closed)

Example: The LHS of the N.America supply constraint is the total amount transported out of N.America.
This equals the amount transported from N.America to N.America(C19) + amount transported from N.America to S. America(D19) + amo
In other words this is sum(C19:G19)
The RHS of the N.America constraint is the total supply availablein N.America
This equals the supply at the low capacity plant(I6) if there is a low capacity plant(H19) + the supply at the high capacity plan(K6)t if there
This is I6*H19+K6*I19
The inequality is of <type because amounted transported out has to be at most equal to supply.
aints are written in Excel

+ x12 + x13 + x14 + x15 < 6,000 y1l + 9,000 y1h

+ x22 + x23 + x24 + x25 < 4,500 y2l + 6,750 y2h
+ x32 + x33 + x34 + x35 < 6,500 y3l + 9,750 y3h
+ x42 + x43 + x44 + x45 < 4,100 y4l + 6,150 y4h
+ x52 + x53 + x54 + x55 < 4,000 y5l + 6,000 y5h

to S. America(D19) + amount transported from N. America to Europe (E19) + amount transported from N.America to Asia(F19) + amount

capacity plan(K6)t if there is a high capacity plant(I19).

erica to Asia(F19) + amount transported from N. America to Africa (G19)
Sun Oil - Demand Constraints for Cost Minimization is added in this sheet.

Production and Transportation Cost

Supply & (in thousands of dollars per million units)
Demand
Regions N. America (1) S. America (2) Europe (3) Asia (4) Africa (5)

N. America (1) 81 92 101 130 115

S. America (2) 117 77 108 98 100
Europe (3) 102 105 95 119 111
Asia (4) 115 125 90 59 74
Africa (5) 142 100 103 105 71
Demand 12 8 14 16 7
(millions units)

Decision Variables

Demand Regions
Supply
Regions
N. America S. America Europe Asia Africa

N. America
S. America
Europe
Asia
Africa

Objective functi -

Constraints
Supply Region LHS inequality RHS
N. America 0 <= 0
S. America 0 <= 0
Europe 0 <= 0
Asia 0 <= 0
Africa 0 <= 0

Demand Region N. America S. America Europe Asia Africa

LHS 0 0 0 0 0
inequality = = = = =
RHS 12 8 14 16 7
added in this sheet. Cells M5 to R10 has the mathematical representation of the demand constraints
Rows 36 to 41 give detailed explanation for how the demand constraints are written in Excel

Low Capacity High Capacity

Capacity Capacity
Fixed cost (in Fixed cost
1000s of $)
(in millions of
(in 1000s of $)
(in millions of Demand Constraints
units) units)
6,000 10 9,000 20 N. America: x11 + x21 + x31 + x41 + x
4,500 10 6,750 20 S. America: x12 + x22 + x32 + x42 + x
6,500 10 9,750 20 Europe: x13 + x23 + x33 + x43 + x
4,100 10 6,150 20 Asia: x14 + x24 + x34 + x44 + x
4,000 10 6,000 20 Africa: x15 + x25 + x35 + x45 + x

Low capacity High capacity

Plant plant
(1=open, (1=open,
0=closed) 0=closed)

Example: The LHS of the demand constraint for Europe is the total amount transported to Europe
This equals amount transported from N.America to Europe(E19) plus amount transported from S. America to
In other words the LHS of the demand constraint for Europe is sum(E19:E23)
The RHS of the demand constraint for Europe is the actual demand at Europe which is given in cell E11 as 14.
hence the RHS of the demand constraint for Europe is E11.
All demand must be met and so the amount transported to Europe must equal demand at Europe.
nd constraints
raints are written in Excel

+ x21 + x31 + x41 + x51 = 12

+ x22 + x32 + x42 + x52 = 8
+ x23 + x33 + x43 + x53 = 14
+ x24 + x34 + x44 + x54 = 16
+ x25 + x35 + x45 + x55 = 7

rted to Europe
ported from S. America to Europe(E20) plus amount transported from Europe to Europe(E21) plus amount transported from Asia to Euro
h is given in cell E11 as 14.

mand at Europe.
ansported from Asia to Europe(E22) plus amount transported from Africa to Europe (E23)
Sun Oil - At most one facility in each continent is added in this sheet.

Production and Transportation Cost

Supply & (in thousands of dollars per million units)
Demand
Regions N. America (1) S. America (2) Europe (3) Asia (4) Africa (5)

N. America (1) 81 92 101 130 115

S. America (2) 117 77 108 98 100
Europe (3) 102 105 95 119 111
Asia (4) 115 125 90 59 74
Africa (5) 142 100 103 105 71
Demand 12 8 14 16 7
(millions units)

Decision Variables

Demand Regions
Supply
Regions
N. America S. America Europe Asia Africa

N. America
S. America
Europe
Asia
Africa

Objective functi -

Constraints
Supply Region LHS inequality RHS
N. America 0 <= 0
S. America 0 <= 0
Europe 0 <= 0
Asia 0 <= 0
Africa 0 <= 0

Demand Region N. America S. America Europe Asia Africa

LHS 0 0 0 0 0
inequality = = = = =
RHS 12 8 14 16 7

At most one of low or high capacity

Supply Region LHS inequality RHS
N. America 0 <= 1
S. America 0 <= 1
Europe 0 <= 1
Asia 0 <= 1
Africa 0 <= 1
d in this sheet. Cells M5 to R10 has the mathematical representation of the demand constraints
Rows 41 to 47 give detailed explanation for how the constraints that each continent can have

Low Capacity High Capacity

Capacity Capacity
Fixed cost (in Fixed cost
1000s of $)
(in millions of
(in 1000s of $)
(in millions of At most one facility in each continent
units) units)
6,000 10 9,000 20 N. America: y1l + y1h
4,500 10 6,750 20 S. America: y2l + y2h
6,500 10 9,750 20 Europe: y3l + y3h
4,100 10 6,150 20 Asia: y4l + y4h
4,000 10 6,000 20 Africa: y5l + y5h

Low capacity High capacity

Plant plant
(1=open, (1=open,
0=closed) 0=closed)
Example: There can be at most one facility in Asia. In other words there can be one low capacity plant (H22) or one high capac
In other words, the LHS of this constraint is = H22 + I22
Since there does not have to be any facility at all in Asia, the constraint is a < type constraint
The RHS says the max number of facilities in Asia is 1.
nd constraints
at each continent can have at most one production facility is added

y in each continent

< 1
< 1
< 1
< 1
< 1
nt (H22) or one high capacity plant (I22) in Asia.
Sun Oil - Cost Minimization. This includes the Solver window for Decision Varia

Production and Transportation Cost (in

thousands of dollars per million units)
Supply &
Demand Regions
N. America (1) S. America (2) Europe (3) Asia (4) Africa (5)

N. America (1) 81 92 101 130 115

S. America (2) 117 77 108 98 100
Europe (3) 102 105 95 119 111
Asia (4) 115 125 90 59 74
Africa (5) 142 100 103 105 71
Demand 12 8 14 16 7
(millions units)

Decision Variables

Demand Regions
Supply Regions
N. America S. America Europe Asia Africa

N. America
S. America
Europe
Asia
Africa

Objective functio -

Constraints
Supply Region LHS inequality RHS
N. America 0 <= 0
S. America 0 <= 0
Europe 0 <= 0
Asia 0 <= 0
Africa 0 <= 0

Demand Region N. America S. America Europe Asia Africa

LHS 0 0 0 0 0
inequality = = = = =
RHS 12 8 14 16 7

At most one of low or high capacity

Supply Region LHS inequality RHS
N. America 0 <= 1
S. America 0 <= 1
Europe 0 <= 1
Asia 0 <= 1
Africa 0 <= 1
ow for Decision Variables and Objective Function
Columns M to T show you how to input data into Ex

Low Capacity High Capacity

In Excel, from the menu bar on the top pick, "Data"
Capacity (in Fixed cost Capacity
Fixed cost
millions of (in 1000s of (in millions
(in 1000s of $)
units) $) of units)
6,000 10 9,000 20
4,500 10 6,750 20
6,500 10 9,750 20
4,100 10 6,150 20
4,000 10 6,000 20

Low capacity High capacity

Plant plant
(1=open, (1=open,
0=closed) 0=closed)

In the "Set Objective" cell, pick the cell in your Exce

In this sheet it is cell C25
This is a minimization problem. Hence pick "Min"
The "By changing Variable Cells" is where the decisi
In this Excel sheet the decision variables are in Cells
Select a solving method: Pick "Simplex LP".

Once you do all of this, your Excel Solver window lo

w you how to input data into Excel Solver for Decision Variables and Objective Function

nu bar on the top pick, "Data" and then "Solver", the following window opens up

" cell, pick the cell in your Excel sheet which has the objective function value.

n problem. Hence pick "Min"

iable Cells" is where the decision variables need to go.
e decision variables are in Cells B19: I23
od: Pick "Simplex LP".

s, your Excel Solver window looks like the picture below.

Sun Oil - Cost Minimization. This includes the Solver window for Constraints

Production and Transportation Cost (in

thousands of dollars per million units)
Supply & Demand
Regions
N. America (1) S. America (2) Europe (3) Asia (4) Africa (5)

N. America (1) 81 92 101 130 115

S. America (2) 117 77 108 98 100
Europe (3) 102 105 95 119 111
Asia (4) 115 125 90 59 74
Africa (5) 142 100 103 105 71
Demand (millions 12 8 14 16 7
units)

Decision Variables

Demand Regions
Supply Regions

N. America S. America Europe Asia Africa

N. America
S. America
Europe
Asia
Africa

Objective function -

Constraints
Supply Region LHS inequality RHS
N. America 0 <= 0
S. America 0 <= 0
Europe 0 <= 0
Asia 0 <= 0
Africa 0 <= 0

Demand Region N. America S. America Europe Asia Africa

LHS 0 0 0 0 0
inequality = = = = =
RHS 12 8 14 16 7

At most one of low or high capacity

Supply Region LHS inequality RHS
N. America 0 <= 1
S. America 0 <= 1
Europe 0 <= 1
Asia 0 <= 1
Africa 0 <= 1
w for Constraints
Columns M to T show you how to input data into Exce

Low Capacity High Capacity

The Solver window looks like the picture given below
decision variables, choose simplex LP and pick "Min".
Fixed cost Capacity (in Fixed cost Capacity (in
(in 1000s of millions of (in 1000s of millions of
$) units) $) units)
6,000 10 9,000 20
4,500 10 6,750 20
6,500 10 9,750 20
4,100 10 6,150 20
4,000 10 6,000 20

Low
capacity High capacity
Plant plant
(1=open, (1=open,
0=closed) 0=closed)

To add constraints, click on "Add". The following win

All supply constraints can be added together as they a

"Cell Reference" refers to the LHS of constraints.
The LHS of the supply constraints are in cells C30:C34
The supply constraints are all of < type. Hence pick <
"Constraint" in the "add constraint" window refers to
For the supply constraints, the RHS is given in celles E
Click on "Ok". The solver window now appears like th

Similarly let us add demand constraints. Once again c

In the "add constraint" window given below, fill in the

Also add the constraints that says that each continent

w you how to input data into Excel Solver for Constraints

ooks like the picture given below once you add, the objective function,
oose simplex LP and pick "Min". Next we add the constraints.

ick on "Add". The following window opens up.

can be added together as they are all of the < type.

rs to the LHS of constraints.
y constraints are in cells C30:C34. So select C30:C34 from the Excel sheet for "Cell reference".
ts are all of < type. Hence pick < in the "add constraint" window.
add constraint" window refers to the RHS of the constraints.
aints, the RHS is given in celles E30:E34. Select E30:E34 from the Excel sheet for "constraint"
lver window now appears like this.

emand constraints. Once again click on "Add"

t" window given below, fill in the details for the demand constraints as shown in the figure below.

nts that says that each continent can have at most one plant by adding a constraint again.
Sun Oil - Cost Minimization. This includes the completed Solver window and ho

Production and Transportation Cost (in

thousands of dollars per million units)
Supply & Demand
Regions
N. America (1) S. America (2) Europe (3) Asia (4) Africa (5)

N. America (1) 81 92 101 130 115

S. America (2) 117 77 108 98 100
Europe (3) 102 105 95 119 111
Asia (4) 115 125 90 59 74
Africa (5) 142 100 103 105 71
Demand (millions 12 8 14 16 7
units)

Decision Variables

Demand Regions
Supply Regions

N. America S. America Europe Asia Africa

N. America
S. America
Europe
Asia
Africa

Objective function -

Constraints
Supply Region LHS inequality RHS
N. America 0 <= 0
S. America 0 <= 0
Europe 0 <= 0
Asia 0 <= 0
Africa 0 <= 0

Demand Region N. America S. America Europe Asia Africa

LHS 0 0 0 0 0
inequality = = = = =
RHS 12 8 14 16 7

At most one of low or high capacity

Supply Region LHS inequality RHS
N. America 0 <= 1
S. America 0 <= 1
Europe 0 <= 1
Asia 0 <= 1
Africa 0 <= 1
lver window and how to solve the problem using Excel Solver.
Columns M to T show how to solve the problem using

Low Capacity High Capacity

Fixed cost Capacity (in Fixed cost Capacity (in

(in 1000s of millions of (in 1000s of millions of
$) units) $) units)
6,000 10 9,000 20
4,500 10 6,750 20
6,500 10 9,750 20
4,100 10 6,150 20
4,000 10 6,000 20

Once you click "ok", the Solver window looks like the

Low
capacity High capacity
Plant plant
(1=open, (1=open,
0=closed) 0=closed)

Next Click on "Solve".

w how to solve the problem using Excel Solver after adding the binary constraints

he Solver window looks like the picture given below.

Sun Oil - Cost Minimization. This includes the solution obtained from Excel Sol

Production and Transportation Cost (in

thousands of dollars per million units)
Supply & Demand
Regions
N. America (1) S. America (2) Europe (3) Asia (4) Africa (5)

N. America (1) 81 92 101 130 115

S. America (2) 117 77 108 98 100
Europe (3) 102 105 95 119 111
Asia (4) 115 125 90 59 74
Africa (5) 142 100 103 105 71
Demand (millions 12 8 14 16 7
units)

Decision Variables

Demand Regions
Supply Regions

N. America S. America Europe Asia Africa

N. America 0 0 0 0 0
S. America 12 8 0 0 0
Europe 0 0 0 0 0
Asia 1.776356839E-15 0 4 16 0
Africa 0 0 10 0 7

Objective function 23,751

Constraints
Supply Region LHS inequality RHS
N. America 0 <= 0
S. America 20 <= 20
Europe 0 <= 0
Asia 20 <= 20
Africa 17 <= 20

Demand Region N. America S. America Europe Asia Africa

LHS 12 8 14 16 7
inequality = = = = =
RHS 12 8 14 16 7

At most one of low or high capacity

Supply Region LHS inequality RHS
N. America 0 <= 1
S. America 1 <= 1
Europe 0 <= 1
Asia 1 <= 1
Africa 1 <= 1
ned from Excel Solver.
Columns M to T show you the window that opens up

Low Capacity High Capacity

Fixed cost Capacity (in Fixed cost Capacity (in

(in 1000s of millions of (in 1000s of millions of
$) units) $) units)
6,000 10 9,000 20
4,500 10 6,750 20
6,500 10 9,750 20
4,100 10 6,150 20
4,000 10 6,000 20

Low
capacity High capacity
Plant plant
(1=open, (1=open,
0=closed) 0=closed) The default choice is "Keep Solver Solution".
0 0 If you leave at default, the value of decision variables
0 1 The value of the objective function at optimality is giv
0 0
0 1
0 1
w you the window that opens up when you click on "Solve" in the Solver window.

"Keep Solver Solution".

lt, the value of decision variables in cells C19:I23 will change and give you value of the decision variables at optimality.
ctive function at optimality is given in Cell C25.