A.

BHARGAVI (182001)
BBA in Transportation Management
National Rail and Transportation Institute

Yield Management: Transportation Modeling

Establishing initial Feasible solution: Vogel’s Approximation Method
Transportation Problem

Step 1: Find difference between two least cost cells for each row and column. Then select the
largest of the differences of both the rows and columns. Assign the largest quantity possible
among demand and supply in that row or column where the cost is minimum.
Tie: choose the one where the maximum quantity can be assigned considering the minimum cost
as well.

In this case largest of the difference is 3 for column 1 and quantity assigned to the minimum cost
($5) is 100 units.
Step 2: Eliminate the row or column that has been satisfied.
In this case, Row 1 is eliminated.

Step 3: Check whether all the demand and supply requirements are met. If YES, stop otherwise
repeat Step 1,2 and 3.
Here, all requirements are not met. So, repeating the steps again.
In this case largest of the difference is 3 for column 2 and quantity assigned to the minimum cost
($4) is 200 units.
In this case, Column 2 is eliminated.
But still, all requirements are not met.

In this case largest of the difference is 5 for row 1(remaining matrix) and quantity assigned to the
minimum cost ($3) is 100 units.
In this case, Row 1 is eliminated (remaining matrix).
There is still unmet demand.

In this case largest of the difference is 4 for row 1(remaining matrix) and quantity assigned to the
minimum cost ($5) is 100 units and the 200 units ($9) for the final demand left.
In this case, Row 1 is eliminated (remaining matrix).
Finally, all the demand is met in 4th iteration.
The after applying Vogel’s Approximation Method, matrix looks like this,

Now the total cost can be computed, by multiplying the units assigned to each cell with the cost
concerned. Therefore,
Total Cost = ($5x100)+($4x200)+($3x100)+($9x200)+($5x100) = $3900 ……………eq(i)
This is one of the feasible solutions but not necessarily the optimal solution.
Obtaining Optimal Solution: Modified Distribution Method (MODM)
Step 1: Check for Degeneracy
Check whether m+n-1 = no. of allocations. [here m – no. of rows, n – no. of columns]
Here, m+n-1 = 3+3-1 = 5 and no. of allocations = 5
Thus, this problem is non-degenerated.
Step 2: Optimality Test
Find the value of ui + vj = cij for all the occupied cells. [ ui – row no. of allocated cell
C11 = u1 + v1 = 5 vj – column no. of allocated cell
C22 = u2 + v2 = 4 cij – cost of allocated cell ]
C23 = u2 + v3 = 3
C31 = u3 + v1 = 9
C33 = u3 + v3 = 5
Let us take u1 = 0
Then we get v1 = 5, u2 = 2, v2 = 2, u3 = 4 and v3 = 1.
Step 3: Calculation of Opportunity Cost
Calculate penalty (opportunity cost) for all the unallocated cells,
by using the formula Pij = ui + vj – Cij [Pij – penalty for unallocated cells]
P12 = C12 – (u1 + v2) = 4-(0+2) = 2
P13 = C13 – (u1 + v3) = 3-(0+1) = 2
P21 = C21 – (u2 + v1) = 8-(2+5) = 1
P32 = C32 – (u3 + v2) = 7-(4+2) = 1
In this case all the Opportunity Costs > 0 (Positive values)
Thus, the solution obtained by Vogel’s Approximation Method is the Optimal solution with the
Optimal Cost of $3900 [from eq(i)].

Final Allocation