Development of linear programming model for optimization of product mix and maximization of profit: case of leather industry

Abstract

When the decisions are analytically supported they cannot be challenged and at the same time, the quality of decision increases. This paper is about proposing such a model which provides the analytical support to the decision for the selection of footwear articles to be produced. This paper aimed to suggest the analytically supported decision-making for deciding the number of pairs of different articles to be produced in a way that the cost and profit could be minimized and maximized respectively. This research was conducted at the ABC leather footwear company of Lahore Pakistan. The data was collected from the costing executive of the planning and costing department. Costing and profit analysis of the collected data was conducted in Microsoft Excel as per the company`s traditional method of calculations. The linear programming (LP) model was then formulated and implemented in Microsoft Excel by using solver add-in. Outputs of both the traditional method and LP model were compared. The comparison revealed that with 22% less production, 39% more profit could be earned if the selection of articles and their production quantity would be calculated accordingly. This model can be modified and used in fast-moving consumer goods (FMCGs) industries for making product mix strategies. A major limitation of the present developed model is that it is based on the scenario of the footwear industry so it cannot be used as general for other applications.