Singapore Management University OPIM 101 Management Science Final Exam 1 (Trial) Time allowed: 2 hours Instructions to Candidates

1) Fill in your name, ID and Group number below. 2) Answer all 4 questions. 3) Write legibly; pencil may be used. 4) Write your answers in the blank spaces provided after each question (or part of a question) 5) This paper consists of 11 pages. Formulas are given on page 11.

Name: Student ID: Group: ______________________________ ______________________________

Question 1 2 3 4

Marks

Max Marks 22 20 28 30

Total

100

1a) An internet retailer has three warehouses and three major distribution centers located around its country. Items are shipped directly from the warehouses to the distribution centers. The transportation costs ($/unit) between warehouses and distribution centers, the supply at the warehouses, and the demand at the distribution centers are shown in the following table: Warehouse 1 2 3 Demand A $12 8 9 60 Distribution Centers B $11 6 10 100 Supply C $7 14 12 50 70 80 50

Formulate a linear programming model to minimize total transportation costs. (10 marks) Solution:

1b) (contd) In addition, each of the distribution centers can also be used as an intermediate transshipment point. The transportation costs ($/unit) between the distribution centers are Warehouse A B C A $1 7 Distribution Centers B $8 2

C $3 2 -

Formulate a linear programming model to minimize total transportation/transshipment costs. (12 marks) Solution:

2a) Given the following network, with the indicated flow capacities along each branch, determine the maximum flow from source node 1 to destination node 7 and the flow along each branch: Network 3
7

2
12

0 4

7
0 2

10

0 12

3 5 4

10

1 15
18

3 1

5
14 3

9 0

4
5

(10 marks) Solution:

7

D1
0 4

2
12

7
0 2

10 1
18

0 12

3 5 4

10

15

3 1

5
14 3

9 0

4
5

D2
0 4

2
12

7
0 2

10 1
18

0 12

3 5 4

10

15

3 1

5
14 3

9 0

4
5 7

2
12

0 4

D3
7

0 2

10 1
18

0 12

3 5 4

10

15

3 1

5
14 3

9 0

4
5 7

2
12

0 4

D4
7

0 2

10 1
18

0 12

3 5 4

10

15

3 1

5
14 3

9 0

4
5

2b) Formulate the linear programming model to solve for the maximal flow problem in network 3. (10 marks) Solution:

3) Max Textile Mill was inspected by OSHA and found to be in violation of a number of safety regulations. The OSHA inspectors ordered the mill to alter some existing machinery to make it safer (add safety guads, etc.); purchase some new machinery to replace older, dangerous machinery; and relocate some machinery to make safer passages and unobstructed entrances and exits. OSHA gave the mill only 35 weeks to make the changes; if the changes were not made by then, the mill would be fined $300,000. The mill determined the activities in a CPM/PERT network that would have to be completed and then estimated the indicated activity times, as shown in the following table: Activity Activity Description a b c d e f g h i j k
Order new machinery Plan new physical layout Determine safety changes Receive equipment Hire new employees Make plant alternations Make changes in machinery Train new employees Install new machinery Relocate old machinery Conduct employee safety orientation

Activity Predecessor a a b c d,e d,e,f d,e,f,g h,i,j

a 1 2 1 4 3 10 5 2 1 2 2

Time Estimates (weeks) m 2 5 3 10 7 15 9 3 4 5 2

b 3 8 5 25 12 25 14 7 6 10 2

Determine the following: a) Construct the project network for this project and expected activity times (5 marks) b) Earliest and latest activity times, activity slacks and Critical path. (7 marks) c) Expected project duration and variance. (3 marks) d) The probability that the mill will be fined $300,000. (3marks) e) In order to focus on certain safety regulations, Max Textile decided to abandon certain activities. Ignoring activities b, c, f, g, j, draw the resultant network. Using the expected activity times computed in (i), formulate a linear programming model to find the minimum project duration. (10 marks) Solution:

4a) John wants to open a new dealership. He has three offers: 1. from a foreign compact car company 2. from a full size car company 3. from a truck company The success of each type of dealership will depend on availability of gasoline during the next few years. The profit from each type of dealership, given the probability of the availability of the gas is given in the following payoff table: Dealership Offer 1 2 3 Gas Shortage 0.6 $300,000 -$100,000 $120,000 Gas Surplus 0.4 $150,000 $600,000 $170,000

i) John is a pessimistic person. Suppose he has no information on the probabilities of the states of nature, which decision criterion will you suggest John to use and what will be his decision? ii) Compute the expected opportunity loss for each decision. iii) Considering the distribution of the gasoline availability, determine which type of dealership John should purchase. iv) Compute EVPI. (12 marks) Solution:

b) John is considering hiring a petroleum analyst to determine the future availability of gasoline. The analyst will report either a shortage of surplus will occur. The probability that the analyst will indicate a shortage, given that a shortage actually occurs is 0.90. The probability that the analyst will indicate a surplus, given that a surplus actually occurs is 0.70. Given that the analyst indicates a shortage, there is a probability of 0.818 that there is an actual shortage. Given that the analyst indicates a surplus, there is a probability of 0.824 that there is an actual surplus. i) Present the decision tree. (12 marks) ii) Determine the decision strategy John should follow, the expected value of this strategy, and the maximum amount John should pay for the analyst's service. (6 marks) Solution:

10

Given Formulas

11