Decision-making Under Certainty: a Linear Programming Approach towards Optimal Product Mix Decisions—a Case Study in Amhara Pipe Factory

Abstract

Manufacturing organizations highly benefit from proper allocation of resources (working capital, raw materials, labor power, working times, machinery, etc.) to optimize a product mix which is useful for profit maximization. The main purpose of this study is to critically examine the products produced in Amhara Pipe Factory to certainly decide which of these products must be given more attention or produced more in order to maximize the profit. The products due considered are UPVC pipes, HDPE pipes and Geomembrane sheets. In the course of this study, linear programming technique will be used to make the best possible use of the total available productive resources of the factory (such as working time, raw material, machinery and equipment, and available labor power). Linear programming, an operations research technique is widely used in finding solutions to complex managerial decision problems, but Amhara Pipe Factory make more use of the trial-and-error method in making optimal product mix decisions. As such, the factory has been finding it difficult in allocating scarce resources in a manner that will ensure profit maximization. This study will be carried out to decide and arrive at the optimal product-mix of Amhara Pipe Factory. The production process of the firm will be formulated as a linear programming problem and the optimal product mix will be decided using POM-QM for Windows software.