Production scheduling programs must be adjusted to various constraints, for example: production machine capacity, warehouse capacity, availability of raw materials, cost of goods, and others.
I tried to give an example of a solution to the cost of goods sold constraint using linear programming. I tried to determine the cost of goods manufactured (COGS) constraint because the production machine and warehouse constraints are already included in the COGS component. In addition, companies that dare to compete are companies that prioritize efficiency, so they are usually sensitive to increases in COGS without having to sacrifice consumer demand.
Scheduling programs with linear programming
There is a demand for goods for the next 6 months in the company after XnotY as follows:
The COGS in this example is assumed to be different every month. The assumptions we use are as follows (company conditions after X, not Y):
Production machine capacity is 1400 cartons per month.
Storage cost is Rp 20/month/carton.
Goods have an expiration period of 1 year, so demand can be fulfilled in the same month or the previous month.
Warehouse capacity should not exceed 2000 cartons.
The company wants the initial stock to always be above or equal to 200 cartons to anticipate additional demand.
Initial stock was 200 cartons, and the expected end stock in month six is also 200 cartons.
Leave Excel to make a table and create a formula for initial stock + production minus demand = final stock. Let’s think of linear programming because LP (linear programming) is a tool to solve problems like this. Although the results obtained later are not necessarily the best choice for management, the LP results are definitely the optimum conditions, depending on whether we make the mathematical equations correctly.
So let’s get it done!
The concept of this exercise is production cost minimization. So we will minimize the cost of production and warehouse to meet production;
The objective or goal that we want to use is
Min
200Q1 + 250Q2 + 300Q3 + 300Q4 + 350Q5 + 300Q6 + 20S1 + 20S2 + 20S3 + 20S4 + 20S5 + 20S6
Description: Q1: first production; Q2: second month production; Q3: third month production; Q4: fourth-month production; Q5: fifth-month production; Q6: sixth-month production S1: month one end balance; S2: month two end balance; S3: month three end balance; S4: month four end balance; S5: month five end balance; S6: month six end balance
After creating the objective, we start to describe the constraints of linear programming.
The production capacity cannot exceed 800. Therefore, the values Q11400, Q21400, Q31400, Q41400, Q51400, and Q61400
Demand can be met by previous production. We make this equation for each month. Which becomes:
200 + Q1 = 1200 + S1 (for the first month) >> Q1 + S1 = 1000
S1 + Q2 = 800 + S2 (for the second month) >> S1 + Q2 + S2 = 800
S2 + Q3 = 1500 + S3 (for the third month) >> S2 + Q3 + S3 = 1500
S3 + Q4 = 1500 + S4 (for the fourth month) >> S3 + Q4 + S4 = 1500
S4 + Q5 = 2000 + S5 (for the fifth month) >> S4 + Q5 + S5 = 2000
S5 + Q6 = 1200 + S6 (for the sixth month) >> S5 + Q6 + S6 = 1200
Warehouse capacity is 2000, so it becomes S1 < 2000, S2 < 2000, S3 < 2000, S4 < 2000, S5 < 2000, and S6 < 2000. Starting stock is always above 200: S1>200, S2>200, S3>200, S4>200, S5>200, and S6>200.
The end stock is expected to be 200. >> S6=200
So the constraints that we get are as follows:
Q1<1400
Q2 <1400
Q3 <1400
Q4<1400
Q5<1400
Q6<1400
Q1 – S1 = 1000
S1 + Q2 – S2 = 800
S2 + Q3 – S3 = 1500
S3 + Q4 – S4 = 1500
S4 + Q5 – S5 = 2000
S5 + Q6 – S6 = 1200
S1 <2000
S2<2000
S3<2000
S4<2000
S5<2000
S6<2000 S1>200
S2>200
S3>200
S4>200
S5>200
S6>200
s6=200
S6=200
Let’s run Lindo by writing the following command in the console:
Min
200Q1 + 250Q2 + 300Q3 + 300Q4 + 350Q5 + 300Q6 + 20S1 + 20S2 + 20S3 + 20S4 + 20S5 + 20S6
Subject to
Q1<1400
Q2 <1400
Q3 <1400
Q4<1400
Q5<1400
Q6<1400
Q1 – S1 = 1000
S1 + Q2 – S2 = 800
S2 + Q3 – S3 = 1500
S3 + Q4 – S4 = 1500
S4 + Q5 – S5 = 2000
S5 + Q6 – S6 = 1200
S1 <2000
S2<2000
S3<2000
S4<2000
S5<2000
S6<2000 S1>200
S2>200
S3>200
S4>200
S5>200
S6>200
s6=200
End
The inputs are as follows:
And we will get the following result:
It is not surprising if LP advises you to maximize production in the early months because in those months the COGS is low, especially with the warehouse receipt value assumed to be the same every month.
In the lindo output result, the total cost to be borne by the company AfterXnotY is Rp. 2,390,000 by producing 1400 cartons from month one to month five and 1200 cartons in month six.
Now let’s open Excel, use the initial balance addition and subtraction formula, and place the LP results in their respective positions. The following results were obtained:
The balance value is exactly what LP predicted.
Let’s assume the warehouse cost is not flat, but different every month as follows:
We change the linear programming objective without changing the constraints so that it becomes
Min
200Q1 + 250Q2 + 300Q3 + 300Q4 + 350Q5 + 300Q6 + 45S1 + 40S2 + 35S3 + 30S4 + 25S5 + 20S6
And the results are as follows:
The total cost increases to Rp 2,442,500 without changing the production combinations from month one to month 5. This happens because of the strict limitation on maximum production, so LP does not have many combinations.
The question arose when I created this article: what if our production capacity is not able to fulfill the demand? The answer is that LP cannot process the problem unless you add an “additional production” variable, which is different from the existing variables above. I say additional variable because usually additional production has a different COGS from the regular COGS. It could be that the additional production adds overtime or production in other places with a contract system. Of course, the COGS will be different.
In that case, you can add variables such as R1, R2, etc. With constraints that match the additional production conditions.
The results of linear programming are certainly not absolutely followed by policymakers or, for example, a manager in the company, but they can add important information about the optimum conditions so that they can take efficient actions without reducing the level of effectiveness.
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