Binary Integer Programming

Applications of Binary Variables

Since binary variables only provide two choices, they are ideally suited to be
the decision variables when dealing with yes-or-no decisions.

Examples:
Should we undertake a particular fixed project?
Should we make a particular fixed investment?
Should we locate a facility in a particular site?

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 California Manufacturing Company

The California Manufacturing Company is a diversified company with several

factories and warehouses throughout California, but none yet in Los Angeles
or San Francisco.

A basic issue is whether to build a new factory in Los Angeles or San

Francisco, or perhaps even both.

Management is also considering building at most one new warehouse, but will
restrict the choice to a city where a new factory is being built.

Question: Should the California Manufacturing Company expand with

factories and/or warehouses in Los Angeles and/or San Francisco?

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 Data for California Manufacturing

Net Present Capital

Decision Yes-or-No Decision Value Required
Number Question Variable (Millions) (Millions)
1 Build a factory in Los Angeles? x1 $8 $6
2 Build a factory in San Francisco? x2 5 3
3 Build a warehouse in Los Angeles? x3 6 5
4 Build a warehouse in San Francisco? x4 4 2
Capital Available: $10 million

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 Binary Decision Variables

Decision Decision Possible Interpretation Interpretation

Number Variable Value of a Value of 1 of a Value of 0

Build a factory in Do not build

1 x1 0 or 1
Los Angeles this factory

Build a factory in Do not build

2 x2 0 or 1
San Francisco this factory

Build a warehouse in Do not build

3 x3 0 or 1
Los Angeles this warehouse

Build a warehouse in Do not build

4 x4 0 or 1
San Francisco this warehouse

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 Algebraic Formulation

Let x1 = 1 if build a factory in L.A.; 0 otherwise

x2 = 1 if build a factory in S.F.; 0 otherwise
x3 = 1 if build a warehouse in Los Angeles; 0 otherwise
x4 = 1 if build a warehouse in San Francisco; 0 otherwise

Maximize NPV = 8x1 + 5x2 + 6x3 + 4x4 ($millions)

subject to
Capital Spent: 6x1 + 3x2 + 5x3 + 2x4 10 ($millions)
Max 1 Warehouse: x3 + x 4 1
Warehouse only if Factory: x3 x 1
x4 x 2
and
x1, x2, x3, x4 are binary variables.

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 Spreadsheet Model

B C D E F G
3 NPV ($millions) LA SF
4 Warehouse 6 4
5
6 Factory 8 5
7
8 Capital Required
9 ($millions) LA SF
10 Warehouse 5 2 Capital Capital
11 Spent Available
12 Factory 6 3 9 <= 10
13
14 Total Maximum
15 Build? LA SF Warehouses Warehouses
16 Warehouse 0 0 0 <= 1
17 <= <=
18 Factory 1 1
19
20 Total NPV ($millions) 13

7-7
 Sensitivity Analysis with Solver Table

B C D E F G
23 Capital Available Warehouse Warehouse Factory Factory Total NPV
24 ($millions) in LA? in SF? in LA? in SF? ($millions)
25 0 0 1 1 13
26 5 0 1 0 1 9
27 6 0 1 0 1 9
28 7 0 1 0 1 9
29 8 0 1 0 1 9
30 9 0 0 1 1 13
31 10 0 0 1 1 13
32 11 0 1 1 1 17
33 12 0 1 1 1 17
34 13 0 1 1 1 17
35 14 1 0 1 1 19
36 15 1 0 1 1 19

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 Managements Conclusion

Managements initial tentative decision had been to make $10 million of

capital available.
With this much capital, the best plan would be to build a factory in both Los
Angeles and San Francisco, but no warehouses.
An advantage of this plan is that it only uses $9 million of this capital, which
frees up $1 million for other projects.
A heavy penalty (a reduction of $4 million in total net present value) would be
paid if the capital made available were to be reduced below $9 million.
Increasing the capital made available by $1 million (to $11 million) would
enable a substantial ($4 million) increase in the total net present value.
Management decides to do this.
With this much capital available, the best plan is to build a factory in both
cities and a warehouse in San Francisco.

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 Some Other Applications

Investment Analysis
Should we make a certain fixed investment?
Examples: Turkish Petroleum Refineries (1990), South African National Defense
Force (1997), Grantham, Mayo, Van Otterloo and Company (1999)

Site Selection
Should a certain site be selected for the location of a new facility?
Example: AT&T (1990)

Designing a Production and Distribution Network

Should a certain plant remain open? Should a certain site be selected for a new
plant? Should a distribution center remain open? Should a certain site be selected
for a new distribution center? Should a certain distribution center be assigned to
serve a certain market area?
Examples: Ault Foods (1994), Digital Equipment Corporation (1995)

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 Project Selection at Tazer Corp.

Tazer Corporation is searching for a new breakthrough drug.

Five potential research and development projects:

Project Up: Develop a more effect antidepressant that doesnt cause mood swings
Project Stable: Develop a drug that addresses manic depression
Project Choice: Develop a less intrusive birth control method for women
Project Hope: Develop a vaccine to prevent HIV infection
Project Release: Develop a more effective drug to lower blood pressure

$1.2 billion available for investment (enough for 2 or 3 projects)

Question: Which projects should be selected to research and develop?

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 Data for the Tazer Project Selection Problem

1 2 3 4 5
Up Stable Choice Hope Release

R&D 400 300 600 500 200

($million)

Success Rate 50% 35% 35% 20% 45%

Revenue if 1,400 1,200 2,200 3,000 600

Successful
($million)

Expected 300 120 170 100 70

Profit
($million)

7-12
 Algebraic Formulation of Tazer Project Selection

Let xi = 1 if approve project i; 0 otherwise (for i = 1, 2, 3, 4, and 5)

Maximize P = 300x1 + 120x2 + 170x3 + 100x4 + 70x5 ($million)

subject to

R&D Budget: 400x1 + 300x2 + 600x3 + 500x4 + 200x5 1,200 ($million)

and xi are binary (for i = 1, 2, 3, 4, and 5).

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 Spreadsheet for Tazer Project Selection Problem

A B C D E F G H I J
1 Tazer Corp. Project Se lection Problem
2
3
4 Up Stable Choice Hope Release Total Budget
5 R&D Investment ($million) 400 300 600 500 200 1200 <= 1200
6 Success Rate 50% 35% 35% 20% 45%
7 Revenue if Successful ($million)1400 1200 2200 3000 600
8 Expected Profit ($million) 300 120 170 100 70 540
9
10 Do Project? 1 0 1 0 1

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 Selection of Sites for Emergency Services:
The Caliente City Problem
Caliente City is growing rapidly and spreading well beyond its original borders

They still have only one fire station, located in the congested center of town

The result has been long delays in fire trucks reaching the outer part of the city

Goal: Develop a plan for locating multiple fire stations throughout the city

New Policy: Response Time 10 minutes

7-15
 Response Time and Cost Data for Caliente City

Fire Station in Tract

1 2 3 4 5 6 7 8
Response 1 2 8 18 9 23 22 16 28
times
2 9 3 10 12 16 14 21 25
(minutes)
for a fire in 3 17 8 4 20 21 8 22 17
tract
4 10 13 19 2 18 21 6 12
5 21 12 16 13 5 11 9 12
6 25 15 7 21 15 3 14 8
7 14 22 18 7 13 15 2 9
8 30 24 15 14 17 9 8 3
Cost of Station 350 250 450 300 50 400 300 200
($thousands)

7-16
 Algebraic Formulation of Caliente City Problem

Let xj = 1 if tract j is selected to receive a fire station; 0 otherwise (j = 1, 2, , 8)

Minimize C = 350x1 + 250x2 + 450x3 + 300x4 + 50x5 + 400x6 + 300x7 + 200x8

subject to

Tract 1: x1 + x2 + x4 1
Tract 2: x1 + x2 + x3 1
Tract 3: x2 + x3 + x6 1
Tract 4: x1 + x4 + x7 1
Tract 5: x5 + x7 1
Tract 6: x3 + x6 + x8 1
Tract 7: x4 + x7 + x8 1
Tract 8: x6 + x7 + x8 1

and xj are binary (for j = 1, 2, , 8).

7-17
Spreadsheet Model for Caliente City Problem
A B C D E F G H I J K L M N
1 Caliente City Fire Station Location Problem
2
3 Fire Station in Tract
4 1 2 3 4 5 6 7 8
5 1 2 8 18 9 23 22 16 28
6 Response 2 9 3 10 12 16 14 21 25
7 Times 3 17 8 4 20 21 8 22 17
8 (Minutes) 4 10 13 19 2 18 21 6 12
9 for a Fire 5 21 12 16 13 5 11 9 12
10 in Tract 6 25 15 7 21 15 3 14 8
11 7 14 22 18 7 13 15 2 9
12 8 30 24 15 14 17 9 8 3
13
14 Cost of Station 350 250 450 300 50 400 300 200
15 ($thousands) Number
16 Covering
17 1 1 1 0 1 0 0 0 0 1 >= 1
18 Response 2 1 1 1 0 0 0 0 0 1 >= 1
19 Time 3 0 1 1 0 0 1 0 0 1 >= 1
20 <= 4 1 0 0 1 0 0 1 0 1 >= 1
21 10 5 0 0 0 0 1 0 1 0 1 >= 1
22 Minutes? 6 0 0 1 0 0 1 0 1 1 >= 1
23 7 0 0 0 1 0 0 1 1 2 >= 1
24 8 0 0 0 0 0 1 1 1 2 >= 1
25
26 Total
27 Fire Station in Tract Cost
28 1 2 3 4 5 6 7 8 ($thousands)
29 Station in Tract? 0 1 0 0 0 0 1 1 750

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