In this method, we have to add a new row above the table

for cost factors and a new column to the left of the table.

We make use of Vi for cost factors of supply, and Wj for cost

factors of demand. The key to the use of MODI is to utilize the
occupied cells for each Vi and Wj values, and then use these values
to calculate the net contribution of the vacant cells.
 iet us consider the RSV problem. The initial table with the
cost factors· row and column is shown below:

a a
a

  

 
 







 



 


 
 The initial distribution is the same as in the stepping stone
method, where the Northwest rule is utilized. Cost factors which are Vi
and Wj are added.

iet Cij = the shipping cost per unit to a particular occupied cell.

Vi + Wj = Cij

So each value of Vi and Wj (from occupied cells) is computed as

follows::
follows

V1 + W1 = 4 V2 + W2 = 24 V3 + W3 = 24
V2 + W1 = 16 V3 + W2 = 16
 We may assume a value for anyone of them, so we can
solve for the rest. Suppose V1 = 0, then we have:

0 + W1 = 4 V2 + W2 = 24 V3 + W3 = 24
W1 = 4 12 + W2 = 24 4 + W3 = 24
W2 = 12 W3 = 20

V2 + W1 = 16 V3 + W2 = 16
V2 + 4 = 16 V3 + 12 = 16
V1 = 4 V1 = 4
 T l I
( it t i ic t c st f ct r v l s)

a  a

a  

  

  
  












  



 


 
 To test for improvement, evaluate the vacant cells for the net
contribution to cost, by subtracting Vi and Wj from cost of vacant cells.


  

  






 

   

The improvement shows that some units must be transferred to

2-C. As in the stepping stone method, chose the least entry from used
cells having negative sign if taken as a rectangular order in the process
of improvement.
The affected cells are:









After the transfer of 143 units to 2-C the entries become:









 Table II

a  a

a  

  

  
  








  

  


 


 
4inding the values of the cost factors by using the occupied cells:

i 
 a  
a

 
a  

a 
a


 a 

a a

a 


a 
 a




 




 
Testing for Improvement (Table II)


  

   
   

  

Improvement shows that some units may be transferred to 1-B.

Affected cells are:








After the transfer we have:










 Table III

a  a
 a  

  

  

 








  

  


  


 
Computing the cost factors through the used cells

  

 a  
a 

 a


a  


 

a  



 a
 
a  

a

a  

a
 a  
 Testing for Improvement (Table III)


   


 

   

  

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' ($ !!! $& !!  ) &
' !!  !"(!!&)&&
!)$%  ! )&&! &$%  !'
 " !( ! !  !'  ! &
  & ) "*'+   ) $%
   &!'
Involved entries are:

 













After the transfer we have:

 









 

 Table IV

a  a
 a  

  

  
 








  

  


 



 
 Test for Improvement
Cost:
158 x 8 = 1,264 Vacant Cells:
41 x 16 = 656 1-A 4²0²0=4
143 x 16 = 2,288
133 x 8 = 1,064 1-C 8²0²0=8
46 x 16 = 736 2-B 24 ² 16 ² 8 = 0
Cost = P 6,008 3-C 24 ² 8 ² 0 = 16

Since there is no negative in the improvement, the above table is

optimum.
(4ormulate the decision)
 Summary of MODI Method

A. Add the cost factors to get the cost of the 
 , by
one value and solving for the rest.

B. Subtract the outside cost factors from the indicated cost of

the

 . The most negative result indicates the point
of destination for transfer.