Chemical Engineering Economics

Submitted to: Dr. Farhan Javed

Submitted by: Nimra Khalid
Reg No. : 2017-CH-441

University of Engineering & Technology, Lahore

FSD Campus
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Table of Contents
Transportation model ................................................................................................................................... 2
Transportation matrix ................................................................................................................................... 2
Assumptions in transportation model .......................................................................................................... 2
Methods ........................................................................................................................................................ 3
Algorithms ..................................................................................................................................................... 3
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Transportation model:
Transportation model a means of selecting the best way to distribute a product from a number of
factories or warehouses to a number of destinations so as to minimize transportation costs while
meeting customer’s requirements. The transportation model uses linear programming to analyze
such physical DISTRIBUTION management problems.

Transportation matrix:
It deals with sources where a supply of some commodity is available and destinations where the
commodity is demanded. The classic statement of the transportation problem uses a matrix with
the rows representing sources and columns representing destinations. The algorithms for solving
the problem are based on this matrix representation. The costs of shipping from sources to
destinations are indicated by the entries in the matrix. If shipment is impossible between a given
source and destination, a large cost of M is entered. This discourages the solution from using
such cells. Supplies and demands are shown along the margins of the matrix. As in the example,
the classic transportation problem has total supply equal to total demand.

Example:

Assumptions in transportation model

Transportation model makes the following basic assumptions:
Availability of commodity:
The supply available at different sources is equal to or more than the total demand of different
destinations when it is equal it is called a balanced problem

Transportation of commodity/terms:
The model assumes that all items can be conveniently transported from sources to destinations.

Certainty of per unit transportation cost:

There is a definite cost of transportation of items from sources to destinations.
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Independent cost per unit:

The per unit cost is independent of the quantity-transported from sources to destinations.
Transportation cost on any given route is proportional to the number of units transported.

Objective function:
The objective is to minimize the total transportation cost for the entire organization.

Methods
Methods to solve transportation model problems:
Procedure to solve the transportation problem is as follows:

Step 1: Formulate the Problem

Formulate the given problem and set up in a matrix form. Check whether the problem is a
balanced or unbalanced transportation problem. If unbalanced, add dummy source (row) or
dummy destination (column) as required.

Step 2: Obtain the Initial Feasible Solution

The initial feasible solution can be obtained by any of the following three methods:
1. Northwest Corner Method (NWC)
2. Least Cost Method (LCM)
3. Vogel’s Approximation Method (VAM)
The transportation cost of the initial basic feasible solution through Vogel’s approximation
method, VAM will be the least when compared to the other two methods which give the value
nearer to the optimal solution or optimal solution itself. Algorithms for all the three methods to
find the initial basic feasible solution are given.

Algorithms
Algorithm for North-West Corner Method (NWC)
Algorithm for North-West more born method is as follows:
i. Select the North-west (i.e., upper left) corner cell of the table and allocate the maximum
possible units between the supply and demand requirements. During allocation, the
transportation cost is completely discarded (not taken into consideration).
ii. Delete that row or column which has no values (fully exhausted) for supply or demand.
iii. Now, with the new reduced table, again select the north-west corner cell and allocate the
available values.
iv. Repeat steps (ii) and (iii) until all the supply and demand values are zero.
v. Obtain the initial basic feasible solution.
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Algorithm for Least Cost Method (LCM)

Algorithm for least cost method is as follows:
i. Select the smallest transportation cost cell available in the entire table and allocate the
supply and demand.
ii. Delete that row/column which has exhausted. The deleted row/column must not be
considered for further allocation.
iii. Again select the smallest cost cell in the existing table and allocate.
iv. Obtain the initial basic feasible solution.

Algorithm for Vogel’s Approximation Method (VAM)

Algorithm for Vogel’s approximation method is as follows:
i. Calculate penalties for each row and column by taking the difference between the
smallest cost and next highest cost available in that row/column. If there are two smallest
costs, then the penalty is zero.
ii. Select the row/column, which has the largest penalty and make an allocation in the cell
having the least cost in the selected row/column. If two or more equal penalties exist,
select one where a row/column contains minimum unit cost. If there is again a tie, select
one where maximum allocation can be made.
iii. Delete the row/column, which has satisfied the supply and demand.
iv. Repeat steps (i) and (ii) until the entire supply and demands are satisfied.
v. Obtain the initial basic feasible solution.