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Production-mix decision linear programming | Free template

Production-mix decision is a free template that uses linear programming to determine which products to be produced when there are one or more bottlenecks in the process.

Bottlenecks are sections in a process that is limited in relation to other resources in the process. When it's full capacity in the process and there are higher demand during a period compared to what can be produced the firm must prioritize or choose which products to be manufactured. Some sections of the process may be more limited than others, and these sections are called bottlenecks or narrow sections.

When determining which products to be produced when there is limited capacity the usual decision rule is to choose the products and the volume that gives the maximum total profit (TCM). When it's full capacity utilization you do not take into account costs that are common to several products. If the bottlenecks or the high demand only is temporary there is no reason to eliminate the bottlenecks and increase capacity but if the company expects that the bottlenecks will be permanent, or that demand will be at the same high level or higher should the bottlenecks be eliminated and investments in more capacity should be made.

Production-mix decisions when there are bottlenecks are done in the short-term planning when there is no opportunity during the planning horizon to invest in new capacity. Production-mix decisions when there are narrow sections is done by using the mathematical technique called linear programming. Linear programming is a mathematical optimization model used to find the best solution and make it possible to take the best decision with respect to a goal function. Goal functions may be to maximize something, or to minimize something, when making production-mix decisions when there is bottlenecks the goal function is to maximize the total profit.

For an optimization problem, there are always limitations that affect the way in which the goal function can be achieved. These limitations must be taken into account when solving problems with linear programming. Limitations in the production-mix problem are product demand, section capacity, the volumes must be integers and positive and that the model should be linear.

You can use this template to make production-mix decisions when there are bottlenecks in the process. You enter data about the products and the capacity of each section and then use the problem solver in Excel to find the optimal solution.
Updated: 01-01-2015 | Created by

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Tags: decision making limited resources optimization model