Transportation Method of linear programming- applied to the problems related to the study of the

efficient transportation routes i.e. how efficiently the product from different sources of production is
transported to the different destinations, such as the total transportation cost is minimum.
Origin- the place where the product is originated or manufactured for the ultimate sales
Destination- places where the product is required to be sold

Steps in Transportation Method of Linear Programming

1. Obtaining the initial feasible solution- identifying the solution that satisfies the requirements of
demand and supply.
 North-West Corner- basic variables are selected from the extreme left corner
 Least Cost Method- allocation begins with the cell which has the minimum cost
 Vogel’s Approximation Method (VAM)- an iterative procedure calculated to find out the
initial feasible solution of the transportation problem
m+n-1, where “m” is the number of rows while “n” is the number of columns.
2. Testing the optimality of the initial feasible solution.
 Stepping-stone Method- a procedure for finding the potential of any non-basic variables
(empty cells) in terms of the objective function
 Modified Distribution Method (MODI)- efficient method of checking the optimality of
the initial feasible solution
3. The final step is to revise the solution until the optimum solution is obtained.

Two Most Common Objectives of Transportation Problem

 Maximize the profit of transporting “n” units of product to the destination “y”
 Minimize the cost of shipping “n” units of product to the destination “y”

Note: The supply and demand should be equal and in case supply are more, the dummy source is added
in the table with demand being equal to the difference between supply and demand, and the cost
remains zero. Similarly, in case the demand is more than supply, then dummy destination or origin is
added to the table with the supply equal to the difference in quantity demanded and supplied and the
cost being zero.
Note: The Least Cost Method is considered to produce more optimal results than the North-west Corner
because it considers the shipping cost while making the allocation, whereas the North-West corner
method only considers the availability and supply requirement and allocation begin with the extreme
left corner, irrespective of the shipping cost.
Note: The Modified distribution method is an improvement over the stepping stone method since it can
be applied more efficiently when a large number of sources and destinations are involved, which
becomes quite difficult or tedious in case of stepping stone method. Modified distribution method
reduces the number of steps involved in the evaluation of empty cells, thereby minimizes the
complexity, and gives a straightforward computational scheme through which the opportunity cost of
each empty cell can be determined.
Linear Programming Applications
1. Production Scheduling
2. Media Selection
3. Financial Planning
4. Capital Budgeting
5. Transportation
6. Distribution System Design
7. Staffing

Marketing- communicating the value of a product, service, or brand to customers, for the purpose of
promoting or selling that product, service, or brand
Marketing Application
1. Media Selection- helps marketing managers to allocate a fixed advertising budget to various
advertising media
Media:
o Newspapers
o Magazines
o Radio
o Television
o Direct Mail
Objective of Media Selection:
o Maximize Reach
o Frequency
o Quality of Exposure
Restrictions:
o Company Policy
o Contract Requirement
o Media Availability
2. Marketing Research- a research to learn about
 Consumer Characteristics
 Attitudes
 Preferences

Marketing Research Firms- specialized in marketing research for client organization. Services they offer
includes:
 Designing the Study
 Conducting Market Surveys
 Analyzing the Data Collected
 Providing Summary Reports & Recommendations
Financial Application
In finance, linear programming can be applied in problem situations involving:
 Capital Budgeting
 Make-or-Buy Decisions
 Asset Allocation
 Portfolio Selection
 Financial Planning, and many more

Financial Application Problems

1. Portfolio Selection- portfolio selection problems involve situations in which a financial manager
must select specific investments for example stocks and bonds from a variety of investment
alternatives
o the objective function for portfolio selection problems usually is maximization of
expected return or minimization of risk
Constraints
The constraints usually reflect restrictions on the type of
o Permissible Investments
o State Laws
o Company Policy
o Maximum Permissible Risk, and so on
2. Financial Planning- an ongoing process to help you make sensible decisions about money that
can help you achieve your goals in life.

Operation Management Application

Managing and directing the physical and/or technical functions of a firm or organization, particularly
those relating to
 Development
 Production
 Manufacturing

1. Make-or-Buy Decision- determines how much of each of several component parts a company
should manufacture and how much it should purchase from an outside supplier
2. Production Scheduling- establishes an efficient low-cost production schedule for one or more
products over several time periods (weeks or months)
Advantages
o Can help to smooth the demand signal
o Protects lead time and helps book future deliveries
o Acts as a single communication tool to the business
o Helps the Supply chain prioritize requirement
o Helps stabilize production
 Disadvantages
o Complexity
o Cost
o Can be Skewed
o Lack of Flexibility
3. Workforce Assignment- workforce assignment problems frequently occur when production
managers must make decisions involving staffing requirements for a given planning period
4. Blending Problems- arise whenever a manager must decide how to blend two or more resources
to produce one or more products