2018-2020

JAWAHARLAL NEHRU SCHOOL OF MANAGEMENT STUDIES

Assam University, Silchar

HOME ASSIGNMENT ON TRANSPORTATION PROBLEMS

CP-106: Statistical Methods for Decision Making

Submitted to:

Dr. Debomalya Ghose

Submitted by:

Roll No. 14 Binayak Barman

Roll No. 22 Deepraj Das

Roll No. 23 Deeptaman Ray

Roll No. 40 Pratik Purakayastha

Roll No. 60 Tanzim Ahmed Choudhury

TABLE OF CONTENTS
Introduction to the Topic 1
Need of the Study 3
Concept 5
A Deeper Look at the Transportation Problems 6-20
a) Types of Transportation problems ………………………………………………………………………...........
b) Numerical Discussion …………………………………………………………………………………………………….

CONCLUSION

References ……………………………………………………………………………………………………………………………….
 INTRODUCTION

A key problem that managers face is how to allocate scarce resources among various activities or
projects. So, to resolve that issue linear programming, a mathematical method of allocating
resources is applied. But while applying the linear method a problem arises in the physical
distribution of goods, termed as the Transportation Problem. The Transportation Problem
occupies that area of linear programming where there is a need of physical distribution
(transportation) of goods and services from the place of production to the place of consumption
i.e. from the supply origin to the demand destination. As because physical distribution involves
various channel of distribution (wholesalers, retailers, distributors etc.) so there is a need to
minimize the cost of transportation so as to increase profit or sales. So its main objective is to
deliver the goods and services within a stipulated time so as to satisfy the demand requirement
within the operating production capacity keeping cost a minimum possible level. Thus the
structure of transportation problem helps to identify optimal transportation routes along with the
units of commodity to be shipped in order to minimize the transportation cost. It emphasizes to
determine the amount to be shipped from each source to each destination so as to maintain the
supply and demand requirements at the lowest transportation cost. The transportation problem
can also be used in making location decisions. The model helps in locating a new facility, a
manufacturing plant or an office when two or more number of locations is under consideration.
The total transportation cost, distribution cost or shipping cost and production costs are to be
minimize by applying this model. Such problems can be solved by simplex method. However it
takes a lot of time because transportation problem involves a wide variety of variables and
constraints. In such a case, the two algorithms, namely stepping stone method and the MODI
(Modified Distribution Method) have been developed for solving such problems. The algorithms
for solving a transportation problem may be summarized into following steps:

Step 1: Formulate the problem and arrange the data in the matrix form: The formulation of the
transportation problem is similar to the LP Problem formulation. In transportation problem, the
objective function is the total transportation cost and the constraints are the amount of supply and
demand available at each source and destination, respectively.
Step 2: Obtain an initial feasible solution- Following methods are used to obtain an initial
solution:

 North-west Corner Method

 Least Cost Method, and
 Vogel’s Approximation(or penalty) Method

Step3:Test the initial solution for optimally-In this step,the Modified Distribution(MODI)
Method is discussed to test the optimality of the solution obtained in step 2. If the current
solution is optimal, then stop. Otherwise, determine a new improved solution.

Step4: Updating the solution- continue step 3 until best possible solution is reached.

There are two phases in it:

1. Finding the initial basic solution

2. Optimization of the initial basic feasible solution.
 NEED OF THE STUDY

Improvement in the transportation plan has significant impact to a company’s bottom-line.

Research has shown that a five percent reduction in transportation cost has similar impact as a 30
percent increase in sales. It is a means of sustain cost savings. Furthermore, improvement in
transportation usually leads to better service levels. By and large, transportation problem is
concerned with the task of distribution of goods from any supply points to any demand
destinations at the lowest total distribution cost possible. Each supply point has a certain supply
capacity and each destination has a certain level demand that has to be fulfilled. The cost of
transportation from one supply point to one destination varies linearly with the quantity supplied.
Indeed, transportation problem is approached as a linear programming problem which can be
solved by simplex method using linear programming.

Linear Programming is a powerful problem solving tool that aids management in making
decisions.

One of the most important and successful applications of quantitative analysis to solving
business problems has been in the physical distribution of products, commonly referred to as
transportation problems. Basically, the purpose is to minimize the cost of shipping goods from
one location to another so that the needs of each arrival area are met and every shipping location
operates within its capacity. However, quantitative analysis has been used for many problems
other than the physical distribution of goods. For example, it has been used to efficiently place
employees at certain jobs within an organization. (This application sometimes is called the
assignment problem.) We could set up a transportation problem and solve it using the simplex
method as with any LP problem (Using the Simplex Method to Solve Linear Programming
Maximization Problems), however, the special structure of the transportation problem allows us
to solve it with a faster, more economical algorithm than simplex. Problems of this type,
containing thousands of variables and constraints, can be solved in only a few seconds on a
computer. In fact, we can solve a relatively large transportation problem by hand.

Applications

• To minimize shipping costs from factories to warehouses or from warehouses to retails outlets.
• To determine lowest cost location of a new factory, warehouse or sales office.

• To determine minimum cost production schedule that satisfies firm’s demand and production
limitations.

An advantage to the transportation method is that the solution process involves only the main
variables; artificial variables are not required, as they are in the simplex process. In fact, after

applying the northwest corner rule, the problem is as far along as it would be using simplex after
eliminating the artificial variables. Simplex requires a minimum of iterations (each represented
by another simplex tableau) equal to the number of rows plus columns minus 1. This is the
minimum; many problems require more iterations. Calculations are much easier to obtain with a
new transportation table than a new simplex tableau. After practice, a relatively large
transportation problem can be solved by hand. This is not true when solving large LP problems
using the simplex method. Finally, some LP computer programs are set up to solve both

simplex and transportation problems. When the problems are introduced as transportation
problems, the computer algorithms can solve them much faster.

Although developed to solve problems in transporting goods from one location to another, the
transportation method can be used to solve other problems—such as the assignment example

above as long as the problem can be set up in the transportation problem form. However, the
study is limited to problems related to transportation with the help of initial feasible solution.
 CONCEPT

The concept of transportation problem is a specialized type of linear programming problem

which can be expressed as transfer of goods and services from various sending locations (also
known as supply origin) to various receiving locations (also known as demand destination) in
time with minimum possible cost so as to earn optimum profit by satisfying customers or
demand requirement with the supply of exact quantity of goods and services they want at the
right time. Suppose there are more than one center, called ‘origin’ from where the goods need to
be transported to more than one places called ‘destinations’ and the cost of transporting or
shipping from each of the origin to each of the ‘destination’ and the cost of transporting or
shipping from each of the origin to each of the destination being different and known. The
problem is to transport various amounts of goods and services from various origins to various
destinations in such a way that the cost of shipping or transportation is to be kept as minimum as
possible and to satisfy firm’s demand with the help of production limitations.
 TYPES OF TRANSPORTATION PROBLEMS :

Transportation problem can be classified into two types:-

1. Balanced Transportation Problems

2. Unbalanced Transportation Problems

1. Balanced Transportation Problems - When the total supplies of all the sources are
equal to the total demand of all destinations, the problem is a balanced transportation
problem.

2. Unbalanced Transportation Problems – When the total supply of all the sources is not
equal to the total demand of all destinations, the problem is an unbalanced transportation
problem.

Total supply ≠ Total demand

Demand Less than Supply

In real life, demand and supply requirements will rarely be equal. This is of variation in
production from the supplier end, and variation in forecast from the consumer end. Supply
variations maybe because of shortage of raw materials labour problems, Transportation Model
improper planning and scheduling. Demand variations may be because of change in customer
preference, change in prices and introduction of new products by competitors.

These unbalanced problems can be easily solved by introducing dummy sources and dummy

destinations. If the total supply is greater than the total demand, a dummy destination (dummy
column) with demand equal to the supply surplus is added. If the total demand is greater than the
total supply, a dummy source (dummy row) with supply equal to the demand surplus is added.
The unit transportation cost for the dummy column and dummy row are assigned zero values,
because no shipment is actually made in case of a dummy source and dummy destination.

Transportation Model with Supply Exceeding Demand

Solution: For the given problem, the total supply is not equal to the total demand.

The given problem is an unbalanced transportation problem. To convert the unbalanced

transportation problem into a balanced problem, add a dummy destination (dummy column). i.e.,
the demand of the dummy destination is equal to,

Thus, a dummy destination is added to the table, with a demand of 100 units. The modified table
is shown in Table which has been converted into a balanced transportation table. The unit costs
of transportation of dummy destinations are assigned as zero.

Dummy Destination Added

Similarly,

Demand Greater than Supply

Example: Convert the transportation problem shown in Table into a balanced problem.

Demand Exceeding Supply

Solution:  The given problem is,

The given problem is an unbalanced one. To convert it into a balanced transportation problem,
include a dummy source (dummy row) as shown in Table
 NUMERICALS

Let us take an example to discuss all the three methods of Transportation Problems

A balanced transportation problem

Depot

Booksk B
1
B
2
B
3
B
4
Supply
s

A c =2 c =3 c =5 c =1 a =8
1 11 12 13 14 1

A c =7 c =3 c =4 c =6 a =10
2 21 22 23 24 2

A c =4 c =1 c =7 c =2 a =20
3 31 32 33 34 3

Demand b =6 b =8 b =9 b =15 =38

1 2 3 4

Firstly, to solve any transportation problem the value of supply units must be equal to value of
units demanded. Here in our example as you can see the value of demand is equal to supply.
Hence we can proceed with the solution.

In order to find the solution of this transportation problem we have two steps given
below.

(A) Initial basic feasible solution

(B)Test for optimization.

We will consider only Step A for our solution

(A) Initial Basic Feasible Solution:

 There are three different methods to obtain the initial basic feasible solution viz.

(I) North-West corner rule

(II) Least Cost method

(III) Vogel’s approximation method

In the light of above problem let us discuss one by one.

Solution:

(I) North-West corner rule

In this method we distribute the available units in rows and column in such a way that the
sum will remain the same. We have to follow the steps given below.

(a) Start allocations from north-west corner, i.e., from (1,1) position. Here min (a 1, b1), i.e.,
min (8,6)=6 units. Therefore, the maximum possible units that can be allocated to this
position is 6, and write it as 6(2) in the (1,1) position of the table. This completes the
allocation in the first column and cross the other positions, i.e., (2,1) and (3,1) in the column.
Table 3

Depot
Books B
1
B
2
B
3
B
4
Supply

A 6(2) 8–6=2
1

A × 1 0
2

A × 20
3

Demand 6–6=0 8 9 15 32

After completion of step (a), come across the position (1,2). Here min (8–6,8)=2 units can be
allocated to this position and write it as 2(3). This completes the allocations in the first row and
cross the other positions, i.e., (1,3) and (1,4) in this row (see Table 4)

Table 4

Depot
Books B
1
B
2
B
3
B
4
Supply

A 6(2) 2(3) × × 2–2=0

1

A × 1 0
2

A × 20
3

Demand 0 8–2=6 9 15 30

(b) Now come to second row, here the position (2,1) is already been struck off, so consider
the position (2,2). Here min (10,8–2)=6 units can be allocated to this position and write it as
6(3). This completes the allocations in second column so strike off the position (3,2) (see
Table 5)
Table 5
 Depot
Book B
1
B
2
B
3
B
4
Supply

A 6(2) 2(3) × × 0
1

A × 6(3) 10–6=4
2

A × × 20
3

Demand 0 0 9 15 24

(c) Again consider the position (2,3). Here, min (10–6,9)=4 units can be allocated to this
position and write it as 4(4). This completes the allocations in second row so struck off the
position (2,4) (see Table 6).

Table 6

Depot
Book B
1
B
2
B
3
B
4
Supply

A 6(2) 2(3) × × 0
1

A × 6(3) 4(4) × 0
2

A × × 20
3

Demand 0 0 9–4=5 15 20
 (d) In the third row, positions (3,1) and (3,2) are already been struck off so consider the
position (3,3) and allocate it the maximum possible units, i.e., min (20,9–4)=5 units and write
it as 5(7). Finally, allocate the remaining units to the position (3,4), i.e., 15 units to this
position and write it as 15(2).

Keeping in mind all the allocations done in the above method complete the table as follows:
Table 7

Depot
Bookss B
1
B
2
B
3
B
4
Supply

A 6(2) 2(3) × × 8
1

A × 6(3) 4(4) × 1 0
2

A × × 5(7) 15(2) 20
3

Demand 6 8 9 15 38

From the above table calculate the cost of transportation as 6×2 + 2×3 + 6×3 + 4×4 + 5×7 +
15×2
=>12 + 6 + 18 + 16 + 35 + 30
=Rs. 117
i.e., Rs. 11700.

(II) Least cost method

(a) In this method we start with the lowest cost position. Here it is (1,4) and (3,2) positions,
allocate the maximum possible units to these positions, i.e., 8 units to the position (1,4) and 8
units to position (3,2), write them as 8(1) and 8(1) respectively, then strike off the other
positions in row 1 and also in column 2, since all the available units are distributed to these
positions.
Table 8
 Depot
Bookss B
1
B
2
B
3
B
4
Supply
s

A × × × 8(1) 0
1

A × 1 0
2

A 8(1) 12
3

Demand 6 0 9 7 22

(b) Consider the next higher cost positions, i.e., (1,1) and (3,4) positions, but the position
(1,1) is already been struck off so we can’t allocate any units to this position. Now allocate
the maximum possible units to position (3,4), i.e., 7 units as required by the place and write it
as 7(2). Hence the allocations in the column 4 is complete, so strike off the (2,4) position.

Table 9

Depot
Books B
1
B
2
B
3
B
4
Supply

A × × × 8(1) 0
1

A × × 1 0
2

A 8(1) 7(2) 5
3

Demand 6 0 9 0 15
(c) Again consider the next higher cost position, i.e., (1,2) and (2,2) positions, but these
positions are already been struck off so we cannot allocate any units to these positions.

(d) Consider the next higher positions, i.e., (2,3) and (3,1) positions, allocate the maximum
possible units to these positions, i.e., 9 units to position (2,3) and 5 units to position (3,1),
write them as 9(4) and 5(4) respectively. In this way allocation in column 3 is complete so
strike off the (3,3) position.

Table 10

Depot
Bookss B
1
B
2
B
3
B
4
Supply

A × × × 8(1) 0
1

A × 9(4) × 1
2

A 5(4) 8(1) × 7(2) 0

3

Demand 1 0 0 0 1

(e) Now only the position (2,1) remains and it automatically takes the alloation 1 to complete
the total in this row, therefore, write it as 1(7).

With the help of the above facts complete the allocation table as given below.
Table 11
 Depot
Books B
1
B
2
B
3
B
4
Supply

A × × × 8(1) 8
1

A 1(7) × 9(4) × 1 0
2

A 5(4) 8(1) × 7(2) 20

3

Demand 6 8 9 15 38

From the above facts, calculate the cost of transportation as

8×1 + 1×7 + 9×4 + 5×4 + 8×1 + 7×2

= 8 + 7 + 36 + 20 + 8 + 14

= 93

i.e., Rs. 9300.

(III) Vogel’s approximation method

(a1) Write the difference of minimum cost and next to minimum cost against each row in the
penalty column. (This difference is known as penalty).

(a2) Write the difference of minimum cost and next to minimum cost against each column in
the penalty row. (This difference is known as penalty).

We obtain the table as given below.

Table 12
 Depot

Books B
1
B
2
B
3
B
4
Supply Penalties

A (2) (3) (5) (1) 8 (1)

1

A (7) (3) (4) (6) 10 (1)

2

A (4) (1) (7) (2) 20 (1)

3

Demand 6 8 9 15 38

Penalties (2) (2) (1) (1)

↑
(b) Identify the maximum penalties. In this case it is at column one and at column two.
Consider any of the two columns, (here take first column) and allocate the maximum units to
the place where the cost is minimum (here the position (1,1) has minimum cost so allocate
the maximum possible units, i.e., 6 units to this positon). Now write the remaining stock in
row one. After removing the first column and then by repeating the step (a), we obtain as
follows:
Table 13
 Depot
Books B
2
B3
3
B
4
Supply Penaltes

A (3) (5) (1) 2 (2) ←

1

A (3) (4) (6) 10 (1)

2

A (1) (7) (2) 20 (1)

3

Demand 8 9 15 32

Penalties (2) (1) (1)

↑
(c) Identify the maximum penalties. In this case it is at row one and at column two. Consider
any of the two (let it be first row) and allocate the maximum possible units to the place where
the cost is minimum (here the position (1,4) has minimum cost so allocate the maximum
possible units, i.e., 2 units to this position). Now write the remaining stock in column four.
After removing the first row and by repeating the step(a), we obtain table 14 as given below.
Table 14
 Depot

Books B
2
B
3
B
4
Supply Penalties

A (3) (4) (6) 10 (1)

2

A (1) (7) (2) 20 (1)

3

Demand 8 9 13 30

Penalties (2) (3) (4)

d) Identify the maximum penalties. In this case it is at column four. Now allocate the maximum
possible units to the minimum cost position (here it is at (3,4) position and allocate maximum
possible units, i.e., 13 to this positon). Now write the remaining stock in row three. After
removing the fourth column and then by repeating the step (a) we obtain table 15 as given below.

Table 15
 Depot

Books B
2
B
3
Supply Penalties

A2 (3) (4) 10 (1)

A3 (1) (7) 7 (6)

Demand 8 9

Penalties (2) (3)

e) Identify the maximum penalties. In this case it is at row three. Now allocate the maximum
possible units to the minimum cost position (here it is at (3,2) position and allocate maximum
possible units, i.e., 7 to this position). Now in order to complete the sum, (2,2) position will take
1 unit and (2,3) position will be allocated 9 units.

f) Finally we can arrive at a solution as shown in Table 16.

Table 16
 Depot
Books B1 B2 B3 B4 Supply

A 6(2) 2(1) 8
1

A2 1(3) 9(4) 10

A3 7(1) 13(2) 20

Demand 6 8 9 15 38

From the above facts calculate the cost of transportation as

6×2 + 2×1 + 1×3 + 9×4 + 7×1 + 13×2
= 12 + 2 + 3 + 36 + 7 + 26
= 86
i.e., Rs. 8600.
Note:
After calculating the cost of transportation by the above three methods, one thing is clear that
Vogel’s approximation method gives an initial basic feasible solution which is much closer to the
optimal solution than the other two methods. It is always worthwhile to spend some time finding
a “good” initial solution because it can considerably reduce the total number of iterations
required to reach an optimal solution.
 CONCLUSION
Transport is essential to the business as well as the customers and consumers. For a business,
transportation plays the role of medium. A product which is produced by a business has to reach
its customers. For this purpose, transportation establishes a bridge between the seller/producer
and the buyer.

There are several means of transportation i.e. roadways, railways, and the airways..

In Silchar, if we observe the town post 10:00pm, then we can see hundreds of trucks passing
through. In Silchar, the roadways are considered to be the best mean for transportation.
Transporting goods through airways will incur more amount of cost which makes it the costliest
medium of all.

Earlier, we have come across the transportation problem that a business faces and the numerical
presentation of the same has been done. By this the problem of conveyance can be understood. It
is also important to upgrade the infrastructure of the place.
For example, a place would not be that great to initiate or do business which does not have
access to roads or railways.

Today we see so many e-businesses which are totally dependent on transportation. So it is crucial
for them to ensure the quality and availability of transportation so that all buyers can receive
their product within a stipulated time. Some of the examples of e-businesses are: Flipkart,
Amazon, Snapdeal, Myntra, Jabong, ebay etc.

India is globally seen as an emerging market. Hence it is important to the economy of the
country to mobilise the products as to fulfil the needs and wants of the consumers. This will
result to an efficient economic stability and growth. The economy is a cycle. The market forces
(Supply and Demand) are the driving forces of the market. The market basically is a place where
products are sold and bought. But the same products are not produced in this market. Rather, it is
produce elsewhere. Therefore, to sell a product, the seller has to bring it to the market. This
process of bringing the products to a place like market is known as transportation.

So, we can clearly understand how important and critical transportation is to a business and an
end user. We also laid down the aspects of transportation problem to a business and the economy
at large.
 References
[CITATION Dantzig \l 16393 ]

[CITATION Gup89 \l 16393 ]

[CITATION Kas \l 16393 ]

[ CITATION Nag06 \l 16393 ]

[ CITATION Pan10 \l 16393 ]

[ CITATION Rit09 \l 16393 ]

[ CITATION Mal02 \l 16393 ]

[ CITATION Win91 \l 16393 ]