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Optimization Models for Managerial Decision

Session 10 Transportation

Use of Transportation Problem p
Balance demand and supply You have ‘m’ number of supply locations and ‘n’ number m n of demand locations You want to decide the transfer quantities form any supply location to any demand location l l ti t d d l ti You have ‘m’ number of suppliers selling same product and they have given price of the product for next ‘n’ months (supply and demand quantities are known to you) You need to decide how much will you buy from each supplier in each month to minimize purchase cost
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Use of Transportation Problem – Continued C ti d
You want to auction ‘m’ different sites to ‘n’ bidders and you asked per unit bidding price for each of the ‘m’ sites You need to maximize your revenue For a manufacturer, demand for next ‘n’ months, normal time ti capacity and overtime capacities and associated costs it d ti iti d i t d t per unit for next ‘n’ months and inventory holding costs are known Manufacturer needs to decide production plan that will minimize total costs of production and inventory holding
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Problem Formulation
Total supply points (i) m Total demand points (j) n Supply point ‘i’ can supply Si i Demand point ‘j’ can receive Dj Unit cost to transfer from supply point ‘i’ to demand point ‘j’ Cij Units transfers from supply point ‘i’ to demand point ‘j’ xijj Define Objective function/ Decision variables/ Constraints

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Transportation Problem – A Kind of Linear Programming Model Li P i M d l
Feasible solution Basic Solution (BS) For ‘m’ equations and ‘n’ variables (decision variables + m n ‘m’ variables associated with equations) Set n – m = 0 and solve to get ‘unique’ values of remaining ‘ ’ variables i i ‘m’ i bl These ‘m’ variables are “Basic variables” Maximum how many BS you can get? Will all ‘m’ variables give BS? Basic feasible solution BS where all variables are non-negative non negative Choosing pivot in minimization problem
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Transportation Problem – A Kind of LP Model Continue M d l – C ti
If all non-basic variables in objective row ≤ 0 Current BFS is optimal Why? If non-basic(s) > 0 Choose maximum positive Why? Wh ? Alternative optimal solution Non-basic = 0

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Types yp
Balanced Transportation Problem Total supply = Total demand Unbalanced Transportation Problem Total supply ≠ Total demand Balanced Transportation problem B l dT t ti bl Find Starting Basic Feasible Solution North-West corner/ Least cost/ Vogel’s approximation Check for optimality Transportation Simplex Method Find optimal solution
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Finding Starting Basic Feasible Solution S l ti (BFS)
How many equality constraints are there? In LP how to solve equality constraint? What is the degree of freedom of the problem? Do we need to use cost values to find initial BFS?

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North-West Corner Method – Steps p
Select North-West cell Allocate Minimum (Si, Dj) Cross out fulfilled column or row When Si = Dj Cross out only one row or column and put zero to others th Select North-West cell from the remaining Repeat Steps If all the rows and columns are crossed out STOP

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North-West Corner Method – Example E l
Supply 2 ? 2 ? 3 ? Demand 12 ? 8 ? 8 ? 4 ? 1 ? 4 ? 6 3 ? 3 ? 6 15 5 ? 5 10 6 5

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Issues
Why North-West corner method yields a BFS? Why North-West corner method generates (m + n – 1) basic variables? Limitation It does not use transportation cost May M result very high shipping costs lt hi h hi i t May require several iterations to find optimal solution Can we try least cost method? Does Least cost method generate BFS with relatively low shipping cost? Counter example
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Least Cost method – Counter Example p
Supply 6 ? 15 ? Demand 15 ? 5 ? 80 ? 15 5 7 ? 78 8 10

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Vogel’s Approximation Method – Steps g pp p
For each Row and Column Calculate the penalty for not choosing minimum cost Difference between Minimum and next to Minimum Select the maximum penalty among all rows and columns In minimum penalty row/ column Find i i Fi d minimum cost cell t ll Allocate Minimum (Si, Dj) Cross out that row/ column Repeat Steps with remaining cells If all the cells are allocated STOP
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Degenerate BFS g
In non-degenerate BFS Total Allocated cells = No of basic variables In any step, if any allocation satisfies row and column together

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How to Pivot a Transportation Problem p
Determine the variable that will enter “Basis” Find the “Loop” involving entering variable and some basic variables Determine the variable in the loop that will leave “Basis” When Wh a ordered sequence of at l t four different cells is d d f t least f diff t ll i called “Loop”? Any two consecutive cells lie in either same row or same column No three consecutive cells lie in same row or column Last cell in the sequence has common row or column with first cell
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Checking for Optimality – Transportation Simplex Method T t ti Si l M th d
Introducing dual variables Ui and Vj For allocated cells (basic cells) Ui + Vj = Cij For all non allocated cells (non basic cells) Find Ui + Vj – Cij Enter values in South-West corner How t fi d H to find Ui and Vj d Choose any Ui = 0 Calculate remaining Ui and Vj for basic variables For all non basic variables if Ui + Vj – Cij ≤ 0 Then initial BFS is optimal Else Determine entering “Non-basic variable”
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Transportation Simplex Method – Entering N b i E t i Non-basic variable i bl
Assign θ to most positive South-West corner value (this is entering non-basic variable) This quantity θ is required to be shifted from leaving basic cell to entering basic cell A loop is prepared for transferring quantities Find Fi d EVEN and ODD entries b counting cells present i d t i by ti ll t in loop (0, 1, 2…, 0 for non-basic) θ = Minimum of all ODD entries θ is subtracted from all ODD entries and added to all EVEN entries Recalculate Ui and Vj Find if new BFS is optimal
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Example p
Supply 8 ? 9 ? 14 ? Demand 45 ? 20 ? 9 ? 30 ? 12 ? 16 ? 30 6 ? 13 ? 5 40 10 ? 7 50 9 35

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Alternative Optimal Solution p
If one of the South-West entry of the optimal table is zero

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Other Issues
Unbalanced Transportation Problem Maximization Transportation problem Problem with prohibited roots Sensitivity analysis Change objective function coefficient of a non-basic variable Change objective function coefficient of a non-basic variable Increase a single supply by ∆ and a single demand by ∆
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Change Objective Function Coefficient of a N b i V i bl f Non-basic Variable
Change in non-basic variable Does not change right side of optimal table Current basis remains feasible As long as coefficient in optimal Row 0 is non-positive Current basis remains optimal C tb i i ti l In Transportation problem Remains feasible No change in Ui and Vj

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Change Objective Function Coefficient of a B i V i bl f Basic Variable
Change in basic variable coefficient Will change right hand side of optimal table Ui and Vj will change

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Increase a Single Supply by ∆ and a Single D Si l Demand b ∆ d by
If xij is basic variable Increase xij by ∆ If xij is non-basic variable Use “Loop” method to transfer ∆ to basic cells

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