Logistics and Facility Location

N Siva Prasad
 Logistics
• The art and science of obtaining, producing
and distributing material and products to
proper place and in the required quantity.
• Some of the factors considered could be cost
of transportation, cost of inventory, speed of
delivery and flexibility to react to changes.
 Transportation Modes
• Highway(truck)
• Water(Ship)
• Air
• Rail(trains)
• Pipelines
• Hand Delivery
 Warehouse Design
• Consolidation Warehouses
– Shipments from various sources are pulled
together and combined into larger shipments
• Cross-docking
– Larger shipments are broken down into small
shipments for local delivery in an area
• Hub-and-Spoke Systems
– Systems that combine the idea of consolidation
and that of Cross-Docking
 Plant Location Methods
• Locational Cost-Profit-Volume analysis
– Break even point wrt volume
• Factor Rating Systems
– Rating different factors with numerical allocation and
deciding on final comparison
• Transportation Method(Linear Programming)
– Maximising profit or
– Minimising Cost
• Centroid Method
– It considers parameters of existing facilities ( location
and volume of goods)
 Location Selection- Factors
• Identifying a
– Country
– Region
– Community
– Site
 Locating Logistics Facilities
• Influencing parameters for selecting a location
– Type of product or service
– Proximity to customers
– Business Climate
– Total Costs
– Infrastructure
– Quality of Labour
– Suppliers
– Other Facilities
– Free Trade Zones
 Locating Logistics Facilities Contd…
• Political risk
• Government Barriers
• Trading Blocks
• Environmental Regulation
• Host Community
• Competitive Advantage
 Factors and Rating
• Proximity to customers 200
• Fuel availability------ 100
• Labour 200
• Climate 50
• Water supply 75
• Transport 100
• Living Conditions 100
 Factors and Rating
Proximity to customers 200

Fuel availability------ 100

Labour 200

Climate 50

Water supply 75

Transport 100

Living Conditions 100

 Factors and Rating
Delhi Mumbai Chennai

Proximity to customers 200 180 160 150

Fuel availability------ 100 90 85 75

120 100 160

Labour 200

35 45 45
Climate 50

50 45 35
Water supply 75

65 85 80
Transport 100

60 50 80
Living Conditions 100
 Centroid Method
A(10,100) W(?,?)

W(40,60)

B(30,50)

C(80,30)
• A(10,100)→
• B(30,50)→
• C(80,30)→
• W(?,?)
(10+30+80)/3→W(X) →40.0
(100+50+30)/3→W(Y)→60
• A(10,100)→1000(qty)
• B(30,50)→1000
• C(80,30)→ 1000

(10+30+80)/3→Z(X) →40.0
(100+50+30)/3→Z(Y)→60
• A(10,100)→10
• B(30,50)(10000)
• C(80,30) (100000)

(10*10+30*10000+80*100000)/(10+100
00+100000)→Z(X) →?
• Z(Y)→?
 Centroid Method
• Plant A (150,75) coordinates(X,Y)
• Plant B (100,300)
• Plant C (275,380)

• Requirement (Ri) per year A=6000,B=8200 and C=7000

• X coordinate of new plant/supply unit=
∑XiRi/ ∑Ri=
(150*6000+100*8200+275*7000)/(6000+8200+7000)=
171.9 and
• Y co-ordinate will be 262.7
Locational Cost-Profit-Volume Analysis
• Total Cost= Fixed Cost+ Variable cost
Total cost= FC+ v X Q
FC= Fixed cost
Q= volume or quantity of product
v= variable cost per unit of production
• Variable cost is a function of product quantity
 Cost-Profit-Volume Example
Locatio Fixed Variable cost per Total Breakeven Qty
n cost(Rs) unit(Rs) Cost(50
00,1000
0)

A 2,50,000 11

B 1,00,000 30
C 1,50,000 20
D 2,00,000 35

-Assume quantities of 1500, 5000, 10000 etc.

-Find out break even point between different
alternatives( ex: A and B)
-What is the condition for “D” to be an option for
location?
 Cost-Profit-Volume Example
Locatio Fixed Variable cost per Total Breakeven Qty
n cost(Rs) unit(Rs) Cost(15
00,5000,
10000)

A 2,50,000 11=Fc+V*Q
250000+11*1500
B 1,00,000 30→145000
C 1,50,000 20→180000
D 2,00,000 35→252500

-Assume quantities of 1500, 5000, 10000 etc.

-Find out break even point between different
alternatives( ex: A and B)
-What is the condition for “D” to be an option for
location?
 Cost-Profit-Volume Example
Locatio Fixed Variable cost per Total Breakeven Qty
n cost(Rs) unit(Rs) Cost(50
00,1000
0)
A 2,50,000 11=Fc+V*Q 305000, A&B→150000/19=7895
250000+11*1500 360000 250000+11*q=100000+30*q
B 1,00,000 30→145000 250000,
400000
C 1,50,000 20→180000 250000, A&C→100000/9=11111
350000
D 2,00,000 35→252500 375000,
550000

-Assume quantities of 1500, 5000, 10000 etc.

-Find out break even point between different
alternatives( ex: A and B)
-What is the condition for “D” to be an option for
location?
 D

B C

In
Lakhs

Quantity→
 Locating Service Facilities
• Factors Considered????
– Type of service
– Local population
– Age group?
– Income?
– Habits?.........
 NCP-1
• Chapter
– Till and including Facility Location
• MCQ, Online???
• Date: ???
• +1 mark for each
• 20 mts , 20 questions, 20 marks( weightage
20)
• No negative Marking( as of now)
Supply Chain Strategy

N Siva Prasad
 Types of Products
• Functional products
– Products of basic need
– Do not change over time
– Stable and predictable demand
– Long life cycle
– High competition
– Less profit margin
• Innovative products
– New fashion goods
– New facilities
– Highly customised and targeted group
– Uncertain life cycle but generally short
– Higher profit margin
– Un-predictable demand
– Could be un stable demand

Summary: The demand characteristics and supply characteristics vary for these two.
Hau Lee’s Uncertainty Framework
 Hau Lee’s –supply chain strategies
• Efficient supply chains
– Highest cost efficiency is the goal
• Risk-hedging supply chains
– Pooling and sharing resources in supply chain
– Risk sharing or distribution
• Responsive supply chains
– Responsive and flexible to customer needs
– (build to order type)
• Agile supply chains
– Combination of hedged and responsive supply chains
 Service Supply Chains
• They tend to be hubs and not chains( product
flows going in both directions)
• They tend to be short and almost interact with
customers/consumers directly
• Service providers can not treat suppliers who are
customers the same way they would treat
suppliers who are not customers.
• Service operations need to be flexible enough to
handle the variations of customer supplied
inputs. ( as they are customer centric)
 Outsourcing
• It is the act of moving some of a firm’s internal
activities and decision responsibility to outside
providers
• Outsourcing allows a firm to focus on activities
that represents its core activities.(???)
 Outsourcing
• Organisation driven reasons
• Improvement driven reasons
• Financially driven reasons
• Revenue driven reasons
• Cost driven reasons
• Employee driven reasons
 Mass Customisation
• Principle 1: A product should be designed so it
consists of independent modules that can be
assembled into different forms of the product
easily and inexpensively
• Principle 2: Manufacturing and service
processes should be designed so that they
consist of independent modules that can be
moved or rearranged easily to support
different distribution network designs
 Mass Customisation
• Principle 3: The supply network- the positioning
of inventory and the location, number and
structure of service, manufacturing and
distribution facilities- should be designed to
provide two capabilities.
– First, it must be able to supply the basic product to
the facilities performing the customisation in a cost-
effective manner
– Second, it must have the flexibility and the
responsiveness to take individual customers’ orders
and deliver the finished, customised goods quickly
 Total Cost
• Procurement cost
• Owning cost
• Disposal cost
Bull Whip Effect
 Sourcing/purchasing-system design
matrix
• Sourcing/purchasing-system design matrix
– Request for proposal (RFPs)
– Request for bid and reverse auction ( E-bids)
– Electronic catalogue ( gifts, awards, stationery
etc.)
– Vendor managed inventory( customer specifies
max and/or min limits and rest is left to vendor) (
diesel in DG sets of mobile towers)
Sourcing/Purchasing Design Matrix
 Supply Chain Performance
• Measures:
– Inventory turnover= Cost of goods sold/average
aggregate inventory value
– Weeks of Supply= (Average aggregate inventory
value/cost of goods sold) * 52 weeks

Note: These are mathematical inverse of each other

Higher inventory turn over is a sign of positive
growth/status of company
 Case Study
• ZARA- Is it future ready?
Operations Strategy

N Siva Prasad
 Operations Strategy
• It is about setting broad policies and plans for
using the resources of a firm to best support
its long term competitive strategy
• It is part of corporate strategy and should
cater for probable changes likely to occur.
• It is part of planning process that coordinates
operational goals anticipating future needs
 Competitive Dimensions
• Cost or Price
• Quality
• Delivery Speed
• Delivery Reliability
• Coping with Changes in demands
• Flexibility and New-Product Introduction
Speed
 Product Specific Criteria
• Technical Liaison and support
• Meeting a launch date
• Supplier after-sale support
• Other dimensions( cosmetic options,
customisation etc.)
 Order Winners and Order Qualifiers
• Order qualifiers are those dimensions that are
necessary for a firm’s products to be considered
for purchase by customers
– Features customers will not forego

• Order winners are criteria used by customers to

differentiate the products and services of one
firm from those of other firms
– Features that customers use to determine which
product to ultimately purchase
 Qualifiers
• List for following products:
– Car
– Umbrella
• List for following services:
– Knowledge transfer
– Transporting household goods
 Winners
• List for following products:
– Car
– Umbrella
• List for following services:
– Knowledge transfer
– Transporting household goods
 Decision variables
• Trade-offs( straddling)
• Order Qualifiers and Order Winners
• Fitting Operational activities to strategy
• A framework for operations and supply strategy
• Productivity measurement
– Output/Input
– Partial productivity measure( one factor is taken as input)
– Multifactor productivity measure( more than one factor is
taken into account)
– Total factor measure of productivity ( all factors are taken
into consideration)
 Productivity Measurement
• Productivity is a measure of how well resources are
used
• Productivity =
• Productivity is a relative measure
– Must be compared to something else to be meaningful
• Operations can be compared to each other
• Firms can be compared to other firms
• Partial productivity measures compare output to a
single input
• Multifactor productivity measures compare output to a
group of inputs
• Total productivity measures compare output to all
inputs
 Productivity
• Production line: Printing of Books
– Out put: 5000 copies
– Paper consumed: 250 reams
• Paper cost: Rs 500 per ream
– Electricity consumed: 7500 KWH
• Rate: 24 rupees per KWH
– Manpower used: 650 man-hours
• Labour cost/rate: Rs100 per man hour
-----Find partial productivity wrt each of inputs
---- What should be the price of each book in such a way
that the productivity is 200% ?
• Copies per ream
• Copies per man-hour
• Copies per KWH
• Combination of any two
• Convert all into cost for final answer
 Trade-Offs
• Management must decide which parameters of
performance are critical and concentrate resources
on those characteristics
• For example, a firm that is focused on low-cost
production may not be capable of quickly introducing
new products
• Straddling – seeking to match a successful
competitor by adding features, services, or
technology to existing activities
– Often a risky strategy
 Sustainable Strategy
• The firm’s strategy describes how it will create and
sustain value for its current shareholders
– Shareholders – individuals or companies that legally own
one or more shares of stock in the company
– Stakeholders – individuals or organizations who are
directly or indirectly influenced by the actions of the firm
• Adding a sustainability requirement means meeting
value goals without compromising the ability of future
generations to meet their own needs
• Triple bottom line – evaluating the firm against social,
economic, and environmental criteria
2-13
Triple Bottom Line
OPERATIONS STRATEGY
Dr. Venkateswara Rao Korasiga
• Vertical Integration
• Formulating Business Strategy
• Competitive Strategies
• Order Qualifiers and Order Winners
• Aligning Functional Strategies to Business Strategy
• Single-Factor and Multi-Factor Productivity
Levels of corporate Strategy
Definition of Corporate Strategy
• Corporate Strategy can be explained as the management plan formulated
by the highest level of organization echelon, to direct and operate the
entire business organization. It alludes to the master plan that leads the
firm towards the success. So the more the aptness in the degree of the
corporate level strategy, the higher will be the chances of firm’s success in
the market.
• Corporate Strategy is the essence of strategic planning process. It
determines the growth objective of the company, i.e. direction, timing,
extent and pace of the firm’s growth. It highlights the pattern of business
moves and goals concerning strategic interest, in different business units,
product lines, customer groups, etc. It defines how the firm will remain
sustainable in the long run.
Key Differences Between Business Strategy
and Corporate Strategy
• The fundamental differences between corporate and business strategy are explained in the points hereunder:
1. Business Strategy can be viewed as the strategy designed by the business managers to improvise the overall performance of the firm. On the other hand,
Corporate Strategy is the one expressed in the mission statement of the company, which describes the business type and ultimate goal of the organization.
2. Business Strategy is framed by middle-level management which comprises of division, unit or departmental managers. Conversely, corporate strategy is
formulated by top level managers, i.e. board of directors, CEO, and managing director.
3. The nature of business strategy is executive and governing, whereas the corporate strategy is deterministic and legislative.
4. While the business strategy is a short term strategy, corporate strategy is a long term one.
5. The business strategies aim at selecting the business plan to fulfil the objectives of the organization. As against, the corporate strategy focuses on the business
selection in which the company wants to compete in the marketplace.
6. Business strategy is concerned with a particular unit or division. Unlike corporate strategy which focuses on the entire organization, comprising of various
business units or divisions.
7. The business strategy focuses on competing successfully in the market place with other firms. On the contrary, corporate strategy stresses on increasing
profitability and business growth.
8. Business Strategy has an introverted approach, i.e. it is concerned with the internal working of the organization. In contrast, Corporate Strategy uses
extroverted approach, which links the business with its environment.
9. At the business level, strategies which are employed by the organization includes, Cost Leadership, Focus and Differentiation. On the other hand, at the
corporate level, the strategies used are Expansion, Stability and Retrenchment.
Conclusions
• The strategy is the management’s plan for improving the performance
of the firm and gaining a competitive advantage. At the business
level, the strategies are more about developing and sustaining
competitive advantage for the products offered by the enterprise. It is
concerned with positioning the business against competitors, in the
marketplace.
• Conversely, at the corporate level, the strategy is all about formulating
strategies to maximizing profitability and exploring new business
opportunities.
 Transportation

VAM
(Vogel’s Approximation Method)
And MoDi
 Vogel’s Approximation Method
•Find the difference between lowest two costs ( least and the next )
in each row and column( opportunity /penalty cost)

•Select the row or column where the value is maximum.

•Allot as many as possible in the lowest cost cell of row or column.

•Re-tabulate with rest of figures

•Continue this process till complete allotment is done

•Note: this is also approximate solution and is normally better than

NW method

•Need to be checked for optimisation.

 D1 D2 D3
Step-1

A 4 2 8 10 4-2=2

B 3 4 7 22
4-3=1

C 2 1 3 28
2-1=1

25 15 20 60

Step-1 3-2=1 2-1=1 7-3=4

 D1 D2 D3 Step-I

A 4 2 8 10 4-2=2

B 3 4 7 22
4-3=1

C 2 1 3 28 = 8
20 2-1=1

25 15 20 =0 60

Step-I 3-2=1 2-1=1 7-3=4

 D1 D2 D3 Step-I Step-II

A 4 2 8 10 4-2=2 4-2=2

B 3 4 7 22 4-3=1
4-3=1

C 2 1 3 28 = 8
20 2-1=1 2-1=1
25 15 20 =0 60

Step-I 3-2=1 2-1=1 7-3=4

Step-II 3-2=1 2-1=1 -------

 D1 D2 D3 Step-I Step-II

A 4 2 8 10 0
10 4-2=2 4-2=2

B 3 4 7 22 4-3=1
4-3=1

C 2 1 3 28 = 8
20 2-1=1 2-1=1
25 15 5 20 =0 60

Step-I 3-2=1 2-1=1 7-3=4

Step-II 3-2=1 2-1=1 -------

 D1 D2 D3 Step-I Step-II Step-III

A 4 2 8 10 0
10 4-2=2 4-2=2 ----

B 3 4 7 22 4-3=1 4-3=1
4-3=1

C 2 1 3 28 = 8
20 2-1=1 2-1=1 2-1=1
25 15 5 20 =0 60

Step-I 3-2=1 2-1=1 7-3=4

Step-II 3-2=1 2-1=1 -------

Step-III 3-2=1 4-1=3 -------
 D1 D2 D3 Step-I Step-II Step-III

A 4 2 8 10 0
10 4-2=2 4-2=2 ----

B 3 4 7 22 4-3=1 4-3=1
4-3=1

C 2 1 3 28 = 8 3
5 20 2-1=1 2-1=1 2-1=1
25 15 5 0 20 =0 60

Step-I 3-2=1 2-1=1 7-3=4

Step-II 3-2=1 2-1=1 -------

Step-III 3-2=1 4-1=3 -------
 D1 D2 D3 Step-I Step-II Step-III

A 4 2 8 10 0
10 4-2=2 4-2=2 ----

B 3 4 7 22 0
22 4-3=1
4-3=1 4-3=1

C 2 1 3 28 = 8 3 0
3 5 20 2-1=1 2-1=1 2-1=1
25 22 0 15 5 0 20 =0 60

Step-I 3-2=1 2-1=1 7-3=4

Step-II 3-2=1 2-1=1 -------

Step-III 3-2=1 4-1=3 -------
 MoDi or UV method
• Check for degeneration condition(step-1)
• Non-degeneracy is a necessary condition for optimal solution
• Number of cells occupied should be Rows+Columns-1

• Consider the cells occupied

• Calculate row and column values with the costs of these cells
• Cij=Ui+Vj(C=cell cost value,U=row value and V= column Value)
• Start with U1=0
• Find all rows and column values

• Consider unoccupied cells

• find the improvement index of each Un-Occupied cell with row and
column values
• UC index=C ij-Ui-Vj
• The solution is considered optimal if all these values are non-negative
• Select highest negative value and shift quantities(maximum possible)
from occupied cells to this while maintaining balance between supply
and demand
• Repeat the process again from step 1 till optimal solution is found
10
 D1 D2 D3

A 4 2 8 10

B 3 4 7 22

C 2 1 3 28

25 15 20 60
 D1 D2 D3

A 4 2 8 10

B 3 4 7 22

C 2 1 3 28

25 15 20 60
 D1 D2 D3

A 4 2 8 10

B 3 4 7 22

C 2 1 3 28

25 15 20 60

AD1-AD2-CD2-CD1-AD1→+4-2+1-2
AD3-CD3-CD2-AD2-AD3→+8-3+1-2
BD2-CD2-CD1-BD1-BD2→+4-1+2-3

BD3-CD3-CD1-BD1-BD3→+7-3+2-3
 D1 D2 D3

A 4 2 8 10

B 3 4 7 22

C 2 1 3 28

25 15 20 60

U1=0
 D1 D2 D3 Step-I Step-II

A 4 2 8 10 =0 4-2=2 4-2=2
10
B 3 4 7 22 4-3=1
4-3=1

C 2 1 3 28 = 8
20 2-1=1 2-1=1

25 15 = 5 20 =0 60

Step-I 3-2=1 2-1=1 7-3=4

Step-II 3-2=1 2-1=1 --------
 D1 D2 D3 Step-I Step-II Step-III

A 4 2 8 10 =0 4-2=2 4-2=2 -------

10
B 3 4 7 22
4-3=1 4-3=1 4-3=1

C 2 1 3 28 = 8
20 2-1=1 2-1=1 2-1=1

25 15 = 5 20 =0 60

Step-I 3-2=1 2-1=1 7-3=4

Step-II 3-2=1 2-1=1 --------
Step-III 3-2=1 4-1=3 --------
 D1 D2 D3 Step-I Step-II Step-III

A 4 2 8 10 =0 4-2=2 4-2=2 -------

10
B 3 4 7 22
4-3=1 4-3=1 4-3=1

C 2 1 3 28 = 8 =3
20
5 2-1=1 2-1=1 2-1=1

25 15 = 5 =0 20 =0 60

Step-I 3-2=1 2-1=1 7-3=4

Step-II 3-2=1 2-1=1 --------
Step-III 3-2=1 4-1=3 --------
 D1 D2 D3 Step-I Step-II Step-III

A 4 2 8 10 =0 4-2=2 4-2=2 -------

10
B 3 4 7 22 =0
4-3=1 4-3=1 4-3=1
22
C 2 1 3 28 = 8 =3
2-1=1 2-1=1 2-1=1
5 20 =0
3
25 =22 =0 15 = 5 =0 20 =0 60

Step-I 3-2=1 2-1=1 7-3=4

Step-II 3-2=1 2-1=1 --------
Step-III 3-2=1 4-1=3 --------
Transportation and Assignment

N Siva Prasad

1
 Introduction
• Assume A,B,C,D are the source stations(
Supply stations)
• P, Q and R are the destination stations(
Demand stations or warehouses)
• Maximum capacity of each sourcing and
demanding stations are given.
• Cost of shifting one unit from each of these
sources to different destinations are given.

2
 R

C
P
B

3
 Transportation Models
• Deals with the distribution of goods from
several points of supply (sources) to a number
of points of demand ( destinations).
• It can also be used when a firm is trying to
decide where to locate a new facility. (
warehouse, factory or sales office etc.)

4
 Transportation
• Define the problem: Table is made with demand
and supply destinations
• If total quantity of demand and supply are equal
it is balanced situation else it is unbalanced
• Initial feasible solution is determined by using
North-West corner method or Least Cost Method
or Vogel’s approximation method
• Solution is optimised through Stepping Stone
method or MODI ( MOdified DIstribution )
approach
Note: Goal is to minimise the transportation cost.
5
 D-1 D-2 D-3

S-1 8 5 10 100

S-2 7 4 6 120

S-3 2 1 5 80

130 70 100

6
 D-1 D-2 D-3

S-1 8 5 10 100

S-2 7 4 6 120

S-3 2 1 5 80

130 70 100

7
 Northwest Corner Rule ( initial
solution)
• Start from upper left most cell( North-west)
• Exhaust the supply( factory capacity) at each
row before moving down to next row.
• Exhaust the requirements(warehouse) of each
column before moving to the right to the next
column
• Check that all supply and demands are met.
Note: this is not optimal solution
8
 D-1 D-2 D-3

S-1 8 5 10 100

S-2 7 4 6 120

S-3 2 1 5 80

130 70 100

9
 Least Cost Method
• Select the “lowest cost” cell.
• Allocate as much as possible in that cell
while fulfilling the supply and demand limits
• in that row/column, find the remaining
quantities.
• Repeat the steps till all items of supply are
allocated to demand destinations

10
 D-1 D-2 D-3

S-1 8 5 10 100

S-2 7 4 6 120

S-3 2 1 5 80

130 70 100

11
 D-1 D-2 D-3

S-1 8 5 10 100

S-2 7 4 6 120

S-3 2 1 5 80

130 70 100

12
 Vogel’s approximation method
• Find the difference between lowest two costs in each
row and column( opportunity cost)
• Select the row or column where the value is maximum.
• Allot as many as possible in the lowest cell of row or
column.
• Re-tabulate with rest of figures
• Continue this process till complete allotment is done
Note: this is also approximate solution and is better than
NW method
Need to be checked for optimisation.

13
 D-1 D-2 D-3

S-1 8 5 10 100

S-2 7 4 6 120

S-3 2 1 5 80

130 70 100

14
 D-1 D-2 D-3
S-1 10 100
30 70
3,3,3
30,0
S-2 4 120
20 100
2,2,3
20
0

S-3 1 5 80 1,--
80
0
130 70 3,1,1 100
5,1,1 0 1,4,--
50,30,0 0 15
 D-1 D-2 D-3

S-1 8 5 10 100

S-2 7 4 6 120

S-3 2 1 5 80

130 70 100

16
 Stepping Stone Method
( From basic feasible solution)
• Number of occupied routes(cells) must always
be equal to one less than the sum of total
rows and columns.
• ( if not it is called degenerate)
• It is a necessary condition for optimal solution

17
Stepping Stone method for opimisation

18
 SSM- Steps
•Select unused cell. If one unit from occupied cell( in
that row or column) is shifted to this cell the cost will
be increased by difference of unused cell and the
target cell for movement
•In order to balance the demand and supply, the cycle
should complete by returning back to original cell.
•Path should be ONLY through occupied cells
•Path moves horizontally and vertically alternatively
•Place + sign and – sign starting from selected unused
cell in all the cells during the path
•Find Path improvement index
•If path index is negative, move allotment to the blank
cell following the path identified and maintaining
balance of supply and demand
19
 D-1 D-2 D-3

S-1 5 10 100
100 8

S-2 4 120
20 7 100 6

S-3 5 80
10 2 70 1

130 70 100

20
S1D2→S3D2→S3D1→S1D1→S1D2
+5-1+2-8= -2

D-1 D-2 D-3

S-1 5 10 100
100 8

S-2 4 120
20 7 100 6

S-3 5 80
10 2 70 1

130 70 100

21
S1D3→S2D3→S2D1→S1D1→S1D3
+10 -6 +7 -8 = +3

D-1 D-2 D-3

S-1 5 10 100
100 8

S-2 4 120
20 7 100 6

S-3 5 80
10 2 70 1

130 70 100

22
 D-1 D-2 D-3

S-1 5 10 100
100 8

S-2 4 120
20 7 100 6

S-3 5 80
10 2 70 1

130 70 100

23
 D-1 D-2 D-3

S-1 5 10 100
100 8

S-2 4 120
20 7 100 6

S-3 5 80
10 2 70 1

130 70 100

24
S1D2→S3D2→S3D1→S1D1→S1D2
+5-1+2-8= -2

D-1 D-2 D-3

S-1 5 10 100
100 8 70
30
S-2 4 120
20 7 100 6

S-3 5 80
10 2 70 1
80 0

130 70 100
25
 Store A Store B Store C Store D

5 4 6 3

Fac 1 13

6 5 3 4

Fac 2 11

2 5 4 6

Fac 3 18

3 2 5 4

Fac 4 8

15 10 13 12 50
26
 Store A Store B Store C Store D

5 4 6 3
0
Fac 1 13 13

6 5 3 4
9 0
2 9
Fac 2 11

2 5 4 6

Fac 3 18

3 2 5 4

Fac 4 8

15 10 13 12 50
2 0 1 27
 NW Corner Method

5 4 6 3
Fac 1 13 13
6 5 3 4
Fac 2 2 9 11
2 5 4 6
Fac 3 1 13 4 18
3 2 5 4
Fac 4 8 8

15 10 13 12 50
Store A Store B Store C Store D

28
 Least Cost Method

5 4 6 3
Fac 1 X 1 X 12 13
6 5 3 4
Fac 2 X X 11 X 11
2 5 4 6
Fac 3 15 1 2 X 18
3 2 5 4
Fac 4 X 8 X X 8

15 10 13 12 50
29
 Vogel's Approx. Method

Step 1 step2 step 3 step 4 step 5

5 4 6 3 1 1 1 1 1
Fac 1 1(5) 12(4) 13
6 5 3 4 1 1 1 1
Fac 2 11(3) 11
2 5 4 6 2 1 1 1 1
Fac 3 15(1) 1(5) 2(5) 18
3 2 5 4 1 2
Fac 4 8(2) 8

15 10 13 12 50
Store A Store B Store C Store D
step1 1=3-2 2=4-2 1 1
step2 2 1 1
step 3 1 1 1
step 4 1 1
Step 5 1 1

30
 Transportation-formulation of table

From/to Patna Lucknow Pune Chennai Fac.Supply

25 35 36 60
Faridabad 15
56 30 25 25
Gurgaon 6
40 50 80 90
Rohtak 14
30 40 56 75
Sonipat 11
Requirements 10 12 15 9 46

31
 NW Corner method
From/to Patna LucknowPune Chennai Fac.Supply
Faridabad 10 5 15
Gurgaon 6 6
Rohtak 1 13 14
Sonipat 2 9 11
Requirements 10 12 15 9 46

32
 Transportation-(LCM)

From/to Patna Lucknow Pune Chennai Fac.Supply

25 35 36 60
Faridabad 15
56 30 25 25
Gurgaon 6
40 50 80 90
Rohtak 14
30 40 56 75
Sonipat 11
Requirements 10 12 15 9 46

33
 Transportation-formulation of table

From/to Patna Lucknow Pune Chennai Fac.Supply

25 35 36 60
Faridabad 15
56 30 25 25
Gurgaon 6
40 50 80 90
Rohtak 14
30 40 56 75
Sonipat 11
Requirements 10 12 15 9 46

34
From/to Patna LucknowPune Chennai Fac.Supply
Faridabad 15 10-->35-25

25

35

36

60
Gurgaon 6 0-->25-25

56

30

25

25
Rohtak 14 10-->50-40

40

50

80

90
Sonipat 11 10-->40-30

30

40

56

75
Requirements 10 12 15 9 46
5-->(30-25) 5-->(35-30) 11-->36-25 35-->60-25

35
 VAM-Example

From/toPatna Lucknow Pune Chennai Fac.Supply

a b
Faridabad 25 35 36 60 15 10-->35-25 10
Gurgaon 56 30 25 25 6 0-->25-25
Rohtak 40 50 80 90 14 10-->50-40 10 10
Sonipat 30 40 56 75 11 10-->40-30 10 10
Requirements 10 12 15 9 46
a 5-->(30-25) 5-->(35-30)11-->36-25 35-->60-25
b 5 5 20 15
c 10 10 15
10 10

15
6
2 12
8 3

36
 3 4 7

5 4 9

8 10 18

5 8 7 14

•Select unused cell. If one unit from occupied cell( in that row or column)
is shifted to this cell the cost will be increased by difference of unused
cell and the target cell for movement
•In order to balance the demand and supply, the cycle should complete by
returning back to original cell.
•Path should be ONLY through occupied cells
•Path moves horizontally and vertically alternatively
•Place + sign and – sign starting from selected unused cell in all the cells
during the path
37
 NW Corner Method

5 4 6 3
Fac 1 13 13
6 5 3 4
Fac 2 2 9 11
2 5 4 6
Fac 3 1 13 4 18
3 2 5 4
Fac 4 8 8

15 10 13 12 50
Store A Store B Store C Store D

38
 Initial Feasible solution from
NW Corner Method

5 4 6 3

Fac 1 13 B1 C1 D1 13

6 5 3 4

Fac 2 2 9 C2 D2 11

2 5 4 6

Fac 3 A3 1 13 4 18

3 2 5 4

Fac 4 A4 B4 C4 8 8

15 10 13 12 50
Store A Store B Store C Store D

39
 Initial feasible solution from NW
Corner Method

5 4 6 3

Fac 1 13 B1 C1 D1 13

6 5 3 4

Fac 2 2 9 C2 D2 11

2 5 4 6

Fac 3 A3 1 13 4 18

3 2 5 4

Fac 4 A4 B4 C4 8 8

15 10 13 12 50
Store A Store B Store C Store D

D1→A1→A2→B2→B3→D3→D1 3-5+6-5+5-6=-2

D1=D1+€ A1=A1-€, A2=A2+€,B2=B2-€,B3=B3+€,D3=D3-€

40
B1→A1→A2→B2—B1 4-5+6-5=0
C1→A1→A2→B2→B3→C3→C1 6-5+6-5+5-4=3
D1→A1→A2→B2→B3→D3→D1 3-5+6-5+5-6=-2
C2→C3→B3→B2→C2 3-4+5-5= -1
D2→D3→B3→B2→D2 4-6+5-5=-2
A3→B3→B2→A2→A3 2-5+5-6=4
A4→D4→D3→B3→B2→A2→A4 3-4+6-5+5-6=-1
B4→D4→D3→B3→B4 2-4+6-5=-1
C4→D4→D3→C3→C4 5-4+6-4=3

D1→A1→A2→B2→B3→D3→D1 3-5+6-5+5-6=-2

D1=D1+€ A1=A1-€, A2=A2+€,B2=B2-€,B3=B3+€,D3=D3-€

41
Initial feasible solution from VAM

5 4 6 3
Fac 1 A1 1 C1 12 13
6 5 3 4
Fac 2 A2 B2 11 D2 11
2 5 4 6
Fac 3 15 1 2 D3 18
3 2 5 4
Fac 4 A4 8 C4 D4 8

15 10 13 12 50
Store A Store B Store C Store D

42
A1→B1→B3→A3→A1 5-4+5-2=4

C1→B1→B3→C3→C1 6-4+5-4=3

A2→C2→C3→a3→A2 6-3+4-2=5

B2→B3→C3→C2→B2 5-5+4-3=1

D2→D1→B1→B3→C3→C2→D2 4-3+4-5+4-3=1

D3→D1→B1→B3→D3 6-3+4-5=2

A4→B4→B3→A3→A4 3-2+5-2=4

C4→C3→B3→B4→C4 5-4+5-2=4
D4→D1→B1→B4→D4 4-3+4-2=3

43
 MoDi or UV method

• Check for degeneration

condition(step-1)
• Non-degeneracy is a necessary
condition for optimal solution
• Number of cells occupied should be
Rows+Columns-1

45
 MoDi or UV method

• Consider the cells occupied

• Calculate row and column values with the
costs of these cells
• Cij=Ui+Vj(C=cell cost value,U=row value and
V= column Value)
• Start with U1=0 ( first Row)
• Find all rows and column values

46
 MoDi or UV method

• Consider unoccupied cells

• find the improvement index of each Un-Occupied
cell with row and column values
• UC index=C ij-Ui-Vj
• The solution is considered optimal if all these values
are non-negative
• Select highest negative value and shift
quantities(maximum possible) from occupied cells
to this while maintaining balance between supply
and demand ( Use SSM technique to find path)
• Repeat the process again from step 1 till optimal
solution is found 47
 V1= V2= V3=

D-1 D-2 D-3

U1= S-1 5 10 100

100 8

S-2 4 120
U2= 20 7 100 6

S-3 5 80
U3= 10 2 70 1

130 70 100

48
 V1=8-0=8 V2= V3=

D-1 D-2 D-3

U1=0 S-1 5 10 100

100 8

S-2 4 120
U2= 20 7 100 6

S-3 5 80
U3= 10 2 70 1

130 70 100

49
 V1=8-0=8 V2= V3=

D-1 D-2 D-3

U1=0 S-1 5 10 100

100 8

S-2 4 120
U2= 20 7 100 6
7-8=-1

S-3 5 80
10 2 70 1
U3=

130 70 100

50
 V1=8-0=8 V2= V3=

D-1 D-2 D-3

U1=0 S-1 5 10 100

100 8

S-2 4 120
U2= 20 7 100 6
7-8=-1

S-3 5 80
10 2 70 1
U3=2-
8=-6

130 70 100

51
 V1=8-0=8 V2= V3=6-(-1)=7

D-1 D-2 D-3

U1=0 S-1 5 10 100

100 8

S-2 4 120
U2= 20 7 100 6
7-8=-1

S-3 5 80
10 2 70 1
U3=-6

130 70 100

52
 V1=8-0=8 V2= 1-(-6)=7 V3=6-(-1)=7

D-1 D-2 D-3

U1=0 S-1 5 10 100

100 8

S-2 4 120
U2= 20 7 100 6
7-8=-1

S-3 5 80
10 2 70 1
U3=-6

130 70 100

53
 V1=8-0=8 V2= 1-(-6)=7 V3=6-(-1)=7

D-1 D-2 D-3

U1=0 S-1 5 10 100

100 8 5-0-7=-2 10-0-7=3

S-2 4 120
U2= 20 7
4-(-1)-7=
100 6
7-8=-1 -2

S-3 5 80
10 2 70 1
5-(-6)-7=
U3=-6 4

130 70 100

54
 5 4 6 3
Fac 1 A1 1 C1 12 13
6 5 3 4
Fac 2 A2 B2 11 D2 11
2 5 4 6
Fac 3 15 1 2 D3 18
3 2 5 4
Fac 4 A4 8 C4 D4 8

15 10 13 12 50
Store A Store B Store C Store D

55
 5 4 6 3 VAM 1 12 13
Cost 6 5 3 4 Cost 11 11
2 5 4 6 132 15 1 2 18
3 2 5 4 8 8
15 10 13 12 50
Number of cells occupied =7 V1=1 V2=4 V3=3 V4=3
Number of rows=4 U1=0 1 12
Number of Columns=4 U2=0 11
Non degeneracy condition met(4+4-1) U3=1 15 1 2
MODI -1 U4=-2 8
Select Occupied Cells Residue Cell Values
Start with U1=0 5-0-1=4 1 6-0-3=3 12
Find Ui and Vj with Cij=Ui+Vj 6-0-1=5 5-0-4=1 11 4-0-3=1
Find Residue with values of Ui and Vj 15 1 2
ResCij=Ucij-Ui-Vj 3+2-1=4 8 5+2-3=4 4+2-3=3
If these are non negative the allocation is optimal
1 12
11 cost
15 1 2 132
8
MODI Method Optimal Solution

56
Try These

57
 D-1 D-2 D-3

S-1 4 3 1 70

S-2 5 5 2 80

S-3 3 6 4 50

85 55 60

58
 D-1 D-2 D-3

S-1 4 70
10 3 60 1
S-2 2 80
35 5 45 5

S-3 6 4 50
50 3

85 55 60

59
 D-1 D-2 D-3

S-1 4 70
10 3 60 1
S-2 2 80
35 5 45 5

S-3 6 4 50
50 3

85 55 60

60
 D-1 D-2 D-3

S-1 4 70
55 3 15 1
S-2 35 5 0 5 45 2 80

S-3 6 4 50
50 3

85 55 60

61
 Try this for initial feasible solution

W1 W2 W3 W4
5 8 7 14

S1 7
S2 9
S3 18

62
 Try this for initial feasible solution

W1 W2 W3 W4
5 8 7 14

S1 7
S2 9
S3 18

63
 Try this for initial feasible solution

W1 W2 W3 W4
5 8 7 14

S1 7
S2 9
S3 18

64
65
VAM-Example

5 8 7 14
S1 2 3 5 1 1 1 4 4
7
S2 7 3 4 6 1 2 2 2
9
S3 4 1 7 2 1 2 5
18

2 2 1 1
2 1 1
1 1
1 5

5 2
7 2
8 10

cost 80

66
 MODI Method
Basic Feasible Solution( Balanced)
3 4 7 2 3 5 1
5 4 9 7 3 4 6
8 10 18 4 1 7 2
5 8 7 14 34 V1=8 V2=0 V3=5 V4=1
Check for degeneration condition U1=0 5 1
Non-degeneracy is a necessary condition for U2=-1 7 4
Number of cells occupied should be U3=1 1 2
Here it is 3+4-1=6, satisfied
consider the cells occupied 2-0-8 3-0-0
Calculate row and column values with the costs of 3+1-0 6+1-1
Cij=Ui+Vj(C=cell,U=row and V= column) 4-1-8 7-1-5
Start with U1=0
Find all rows and column values -6 3
find the improvement index of each Un-Occupied 4 6
Ucindex=Ucij-Ui-Vj -5 1
The solution is considered optimal if all these are
Select highest negative value and shift 3 4
Repeat the process again from step 1 till optimal 5 4
8 10
New Distribution
3 0 4
2 7
8 10
 MODI Method
New Distribution 2 3 5 1
3 0 4 7 3 4 6
2 7 4 1 7 2
8 10
V1=2 V2=0 V3=-1 V4=1 Residue values
U1=0 3 4 3 3-0-0 5-0+1 4
U2=5 2 7 2 3-5-0 7 6-5-1
U3=1 8 10 4-1-2 8 7-1+1 10

3 4 3 6
2 7 -2 0
8 10 1 7

5 2
2 7
6 12
V1=2 V2=0 V3=1 V4=1 Residue Values
U1=0 5 2 3 4
U2=3 2 7 2 2
U3=1 6 12 1 5
No Non-negative values
Above is optimal solution
Cost 76
 Stepping Stone Method

5 4 6 3 13
A1 1 C1 12
6 5 3 4 11
A2 B2 11 D2
2 5 4 6 18
15 1 2 D3
3 2 5 4 8
A4 8 C4 D4
15 10 13 12 50

69
5 2 B1 3 5 2 1

7 3 7 4 2 6

4 8 1 7 10 2

B1 → D1 → D3→ B3 →B1 3 – 1 + 2 – 1= 3
C1 → D1 → D2 → C2 → C1 5- 1 + 6 - 4= 5
A2 →A1→D1→D2→A2 7 – 2 +1 – 6 =0
B2→D2→D3→B3→B2 3 – 6 +2 -1 = -2
A3→A1→D1→D3→A3 4 – 2 + 1 -2 = 1
C3→C2→D2→D3→C3 7 – 4 +6 – 2 = 7
70
5 2 B1 3 5 2 1

7 3 7 4 2 6

4 8 1 7 10 2

B1 → D1 → D3→ B3 →B1 3 – 1 + 2 – 1= 3
C1 → D1 → D2 → C2 → C1 5- 1 + 6 - 4= 5
A2 →A1→D1→D2→A2 7 – 2 +1 – 6 =0
B2→D2→D3→B3→B2 3 – 6 +2 -1 = -2
A3→A1→D1→D3→A3 4 – 2 + 1 -2 = 1
C3→C2→D2→D3→C3 7 – 4 +6 – 2 = 7
71
5 2 3 5 2 1

7 +x 7 4 2 -X 6
3
4 8 -X 1 7 10 +x 2

B1 → D1 → D3→ B3 →B1 3 – 1 + 2 – 1= 3
C1 → D1 → D2 → C2 → C1 5- 1 + 6 - 4= 5
A2 →A1→D1→D2→A2 7 – 2 +1 – 6 =0
B2→D2→D3→B3→B2 3 – 6 +2 -1 = -2
A3→A1→D1→D3→A3 4 – 2 + 1 -2 = 1
C3→C2→D2→D3→C3 7 – 4 +6 – 2 = 7
72
Stepping Stone Method-Optimal solution- Cost 76

5 2 3 5 2 1

7 2 3 7 4 6

4 6 1 7 12 2

B1 → D1 → D3→ B3 →B1 3 – 1 + 2 – 1= 3( No Change)

C1→D1→ D 3→B3→B2→C2 5-1+2-1+3-4= 4( Change but
→ C1 +ve)
A2 →A1→D1→D3→B3→B2→A2 7 – 2 +1-2+1-3 =2
D2→D3→B3→B2→D2 6 – 2 +1 -3 = 2
A3→A1→D1→D3→A3 4 – 2 + 1 -2 = 1
C3→C2→B2→B3→C3 7 – 4 +3 – 1 = 5 73
Transportation and Assignment

N Siva Prasad

1
 Introduction
• Assume A,B,C,D are the source stations(
Supply stations)
• P, Q and R are the destination stations(
Demand stations or warehouses)
• Maximum capacity of each sourcing and
demanding stations are given.
• Cost of shifting one unit from each of these
sources to different destinations are given.

2
 R

C
P
B

3
 Transportation Models
• Deals with the distribution of goods from
several points of supply (sources) to a number
of points of demand ( destinations).
• It can also be used when a firm is trying to
decide where to locate a new facility. (
warehouse, factory or sales office etc.)

4
 Transportation
• Define the problem: Table is made with demand
and supply destinations
• If total quantity of demand and supply are equal
it is balanced situation else it is unbalanced
• Initial feasible solution is determined by using
North-West corner method or Least Cost Method
or Vogel’s approximation method
• Solution is optimised through Stepping Stone
method or MODI ( MOdified DIstribution )
approach
Note: Goal is to minimise the transportation cost.
5
 D-1 D-2 D-3

S-1 8 5 10 100

S-2 7 4 6 120

S-3 2 1 5 80

130 70 100

6
 D-1 D-2 D-3

S-1 8 5 10 100

S-2 7 4 6 120

S-3 2 1 5 80

130 70 100

7
 Northwest Corner Rule ( initial
solution)
• Start from upper left most cell( North-west)
• Exhaust the supply( factory capacity) at each
row before moving down to next row.
• Exhaust the requirements(warehouse) of each
column before moving to the right to the next
column
• Check that all supply and demands are met.
Note: this is not optimal solution
8
 D-1 D-2 D-3

S-1 8 5 10 100

S-2 7 4 6 120

S-3 2 1 5 80

130 70 100

9
 Least Cost Method
• Select the “lowest cost” cell.
• Allocate as much as possible in that cell
while fulfilling the supply and demand limits
• in that row/column, find the remaining
quantities.
• Repeat the steps till all items of supply are
allocated to demand destinations

10
 D-1 D-2 D-3

S-1 8 5 10 100

S-2 7 4 6 120

S-3 2 1 5 80

130 70 100

11
 D-1 D-2 D-3

S-1 8 5 10 100

S-2 7 4 6 120

S-3 2 1 5 80

130 70 100

12
 Vogel’s approximation method
• Find the difference between lowest two costs in each
row and column( opportunity cost)
• Select the row or column where the value is maximum.
• Allot as many as possible in the lowest cell of row or
column.
• Re-tabulate with rest of figures
• Continue this process till complete allotment is done
Note: this is also approximate solution and is better than
NW method
Need to be checked for optimisation.

13
 D-1 D-2 D-3

S-1 8 5 10 100

S-2 7 4 6 120

S-3 2 1 5 80

130 70 100

14
 D-1 D-2 D-3
S-1 10 100
30 70
3,3,3
30,0
S-2 4 120
20 100
2,2,3
20
0

S-3 1 5 80 1,--
80
0
130 70 3,1,1 100
5,1,1 0 1,4,--
50,30,0 0 15
 D-1 D-2 D-3

S-1 8 5 10 100

S-2 7 4 6 120

S-3 2 1 5 80

130 70 100

16
 Stepping Stone Method
( From basic feasible solution)
• Number of occupied routes(cells) must always
be equal to one less than the sum of total
rows and columns.
• ( if not it is called degenerate)
• It is a necessary condition for optimal solution

17
Stepping Stone method for opimisation

18
 3 4 7

5 4 9

8 10 18

5 8 7 14

•Select unused cell. If one unit from occupied cell( in that row or column)
is shifted to this cell the cost will be increased by difference of unused
cell and the target cell for movement
•In order to balance the demand and supply, the cycle should complete by
returning back to original cell.
•Path should be ONLY through occupied cells
•Path moves horizontally and vertically alternatively
•Place + sign and – sign starting from selected unused cell in all the cells
during the path
19
 Store A Store B Store C Store D

5 4 6 3

Fac 1 13

6 5 3 4

Fac 2 11

2 5 4 6

Fac 3 18

3 2 5 4

Fac 4 8

15 10 13 12 50
20
 Store A Store B Store C Store D

5 4 6 3
0
Fac 1 13 13

6 5 3 4
9 0
2 9
Fac 2 11

2 5 4 6

Fac 3 18

3 2 5 4

Fac 4 8

15 10 13 12 50
2 0 1 21
 NW Corner Method

5 4 6 3
Fac 1 13 13
6 5 3 4
Fac 2 2 9 11
2 5 4 6
Fac 3 1 13 4 18
3 2 5 4
Fac 4 8 8

15 10 13 12 50
Store A Store B Store C Store D

22
 Least Cost Method

5 4 6 3
Fac 1 X 1 X 12 13
6 5 3 4
Fac 2 X X 11 X 11
2 5 4 6
Fac 3 15 1 2 X 18
3 2 5 4
Fac 4 X 8 X X 8

15 10 13 12 50
23
 Vogel's Approx. Method

Step 1 step2 step 3 step 4 step 5

5 4 6 3 1 1 1 1 1
Fac 1 1(5) 12(4) 13
6 5 3 4 1 1 1 1
Fac 2 11(3) 11
2 5 4 6 2 1 1 1 1
Fac 3 15(1) 1(5) 2(5) 18
3 2 5 4 1 2
Fac 4 8(2) 8

15 10 13 12 50
Store A Store B Store C Store D
step1 1=3-2 2=4-2 1 1
step2 2 1 1
step 3 1 1 1
step 4 1 1
Step 5 1 1

24
 Transportation-formulation of table

From/to Patna Lucknow Pune Chennai Fac.Supply

25 35 36 60
Faridabad 15
56 30 25 25
Gurgaon 6
40 50 80 90
Rohtak 14
30 40 56 75
Sonipat 11
Requirements 10 12 15 9 46

25
 NW Corner method
From/to Patna LucknowPune Chennai Fac.Supply
Faridabad 10 5 15
Gurgaon 6 6
Rohtak 1 13 14
Sonipat 2 9 11
Requirements 10 12 15 9 46

26
 Transportation-(LCM)

From/to Patna Lucknow Pune Chennai Fac.Supply

25 35 36 60
Faridabad 15
56 30 25 25
Gurgaon 6
40 50 80 90
Rohtak 14
30 40 56 75
Sonipat 11
Requirements 10 12 15 9 46

27
 Transportation-formulation of table

From/to Patna Lucknow Pune Chennai Fac.Supply

25 35 36 60
Faridabad 15
56 30 25 25
Gurgaon 6
40 50 80 90
Rohtak 14
30 40 56 75
Sonipat 11
Requirements 10 12 15 9 46

28
From/to Patna LucknowPune Chennai Fac.Supply
Faridabad 15 10-->35-25

25

35

36

60
Gurgaon 6 0-->25-25

56

30

25

25
Rohtak 14 10-->50-40

40

50

80

90
Sonipat 11 10-->40-30

30

40

56

75
Requirements 10 12 15 9 46
5-->(30-25) 5-->(35-30) 11-->36-25 35-->60-25

29
 VAM-Example

From/toPatna Lucknow Pune Chennai Fac.Supply

a b
Faridabad 25 35 36 60 15 10-->35-25 10
Gurgaon 56 30 25 25 6 0-->25-25
Rohtak 40 50 80 90 14 10-->50-40 10 10
Sonipat 30 40 56 75 11 10-->40-30 10 10
Requirements 10 12 15 9 46
a 5-->(30-25) 5-->(35-30)11-->36-25 35-->60-25
b 5 5 20 15
c 10 10 15
10 10

15
6
2 12
8 3

30
 NW Corner Method

5 4 6 3
Fac 1 13 13
6 5 3 4
Fac 2 2 9 11
2 5 4 6
Fac 3 1 13 4 18
3 2 5 4
Fac 4 8 8

15 10 13 12 50
Store A Store B Store C Store D

31
 Initial Feasible solution from
NW Corner Method

5 4 6 3

Fac 1 13 B1 C1 D1 13

6 5 3 4

Fac 2 2 9 C2 D2 11

2 5 4 6

Fac 3 A3 1 13 4 18

3 2 5 4

Fac 4 A4 B4 C4 8 8

15 10 13 12 50
Store A Store B Store C Store D

32
 Initial feasible solution from NW
Corner Method

5 4 6 3

Fac 1 13 B1 C1 D1 13

6 5 3 4

Fac 2 2 9 C2 D2 11

2 5 4 6

Fac 3 A3 1 13 4 18

3 2 5 4

Fac 4 A4 B4 C4 8 8

15 10 13 12 50
Store A Store B Store C Store D

D1→A1→A2→B2→B3→D3→D1 3-5+6-5+5-6=-2

D1=D1+€ A1=A1-€, A2=A2+€,B2=B2-€,B3=B3+€,D3=D3-€

33
B1→A1→A2→B2—B1 4-5+6-5=0
C1→A1→A2→B2→B3→C3→C1 6-5+6-5+5-4=3
D1→A1→A2→B2→B3→D3→D1 3-5+6-5+5-6=-2
C2→C3→B3→B2→C2 3-4+5-5= -1
D2→D3→B3→B2→D2 4-6+5-5=-2
A3→B3→B2→A2→A3 2-5+5-6=4
A4→D4→D3→B3→B2→A2→A4 3-4+6-5+5-6=-1
B4→D4→D3→B3→B4 2-4+6-5=-1
C4→D4→D3→C3→C4 5-4+6-4=3

D1→A1→A2→B2→B3→D3→D1 3-5+6-5+5-6=-2

D1=D1+€ A1=A1-€, A2=A2+€,B2=B2-€,B3=B3+€,D3=D3-€

34
Initial feasible solution from VAM

5 4 6 3
Fac 1 A1 1 C1 12 13
6 5 3 4
Fac 2 A2 B2 11 D2 11
2 5 4 6
Fac 3 15 1 2 D3 18
3 2 5 4
Fac 4 A4 8 C4 D4 8

15 10 13 12 50
Store A Store B Store C Store D

35
A1→B1→B3→A3→A1 5-4+5-2=4

C1→B1→B3→C3→C1 6-4+5-4=3

A2→C2→C3→a3→A2 6-3+4-2=5

B2→B3→C3→C2→B2 5-5+4-3=1

D2→D1→B1→B3→C3→C2→D2 4-3+4-5+4-3=1

D3→D1→B1→B3→D3 6-3+4-5=2

A4→B4→B3→A3→A4 3-2+5-2=4

C4→C3→B3→B4→C4 5-4+5-2=4
D4→D1→B1→B4→D4 4-3+4-2=3

36
 MODI(Modified Distribution) Method
• Also called as UV method( U-rows and V-
columns)
• Start with initial solution
• Assign Ui and Vj values(cost) in such a way that
Ui+Vj=Cost in cell(ij)
• Start with U1=0
• Use only occupied cells
• Find opportunity cost/Residue of unused cells by
calculating Ocij=Costij-Uicost and Vjcost

37
 MODI Method

Check for degeneration condition(step-1)

Non-degeneracy is a necessary condition for optimal solution
Number of cells occupied should be Rows+Columns-1
Here it is 3+4-1=6, satisfied
consider the cells occupied
Calculate row and column values with the costs of these cells
Cij=Ui+Vj(C=cell cost value,U=row value and V= column Value)
Start with U1=0
Find all rows and column values
find the improvement index of each Un-Occupied cell with row and
column values
UC index=UC ij-Ui-Vj
The solution is considered optimal if all these values are non-negative
Select highest negative value and shift quantities(maximum possible)
from occupied cells to this while maintaining balance between
supply and demand
Repeat the process again from step 1 till optimal solution is found
38
 MoDi or UV method
• Check for degeneration condition(step-1)
• Non-degeneracy is a necessary condition for optimal solution
• Number of cells occupied should be Rows+Columns-1

• Consider the cells occupied

• Calculate row and column values with the costs of these cells
• Cij=Ui+Vj(C=cell cost value,U=row value and V= column Value)
• Start with U1=0
• Find all rows and column values

• Consider unoccupied cells

• find the improvement index of each Un-Occupied cell with row and
column values
• UC index=C ij-Ui-Vj
• The solution is considered optimal if all these values are non-negative
• Select highest negative value and shift quantities(maximum possible)
from occupied cells to this while maintaining balance between supply
and demand
• Repeat the process again from step 1 till optimal solution is found 39
 5 4 6 3
Fac 1 A1 1 C1 12 13
6 5 3 4
Fac 2 A2 B2 11 D2 11
2 5 4 6
Fac 3 15 1 2 D3 18
3 2 5 4
Fac 4 A4 8 C4 D4 8

15 10 13 12 50
Store A Store B Store C Store D

40
 5 4 6 3 VAM 1 12 13
Cost 6 5 3 4 Cost 11 11
2 5 4 6 132 15 1 2 18
3 2 5 4 8 8
15 10 13 12 50
Number of cells occupied =7 V1=1 V2=4 V3=3 V4=3
Number of rows=4 U1=0 1 12
Number of Columns=4 U2=0 11
Non degeneracy condition met(4+4-1) U3=1 15 1 2
MODI -1 U4=-2 8
Select Occupied Cells Residue Cell Values
Start with U1=0 5-0-1=4 1 6-0-3=3 12
Find Ui and Vj with Cij=Ui+Vj 6-0-1=5 5-0-4=1 11 4-0-3=1
Find Residue with values of Ui and Vj 15 1 2
ResCij=Ucij-Ui-Vj 3+2-1=4 8 5+2-3=4 4+2-3=3
If these are non negative the allocation is optimal
1 12
11 cost
15 1 2 132
8
MODI Method Optimal Solution

41
Try These

42
 D-1 D-2 D-3

S-1 4 3 1 70

S-2 5 5 2 80

S-3 3 6 4 50

85 55 60

43
 Try this for initial feasible solution

W1 W2 W3 W4
5 8 7 14

S1 7
S2 9
S3 18

44
 Try this for initial feasible solution

W1 W2 W3 W4
5 8 7 14

S1 7
S2 9
S3 18

45
46
 Try this for initial feasible solution

W1 W2 W3 W4
5 8 7 14

S1 7
S2 9
S3 18

47
VAM-Example

5 8 7 14
S1 2 3 5 1 1 1 4 4
7
S2 7 3 4 6 1 2 2 2
9
S3 4 1 7 2 1 2 5
18

2 2 1 1
2 1 1
1 1
1 5

5 2
7 2
8 10

cost 80

48
 MODI Method
Basic Feasible Solution( Balanced)
3 4 7 2 3 5 1
5 4 9 7 3 4 6
8 10 18 4 1 7 2
5 8 7 14 34 V1=8 V2=0 V3=5 V4=1
Check for degeneration condition U1=0 5 1
Non-degeneracy is a necessary condition for U2=-1 7 4
Number of cells occupied should be U3=1 1 2
Here it is 3+4-1=6, satisfied
consider the cells occupied 2-0-8 3-0-0
Calculate row and column values with the costs of 3+1-0 6+1-1
Cij=Ui+Vj(C=cell,U=row and V= column) 4-1-8 7-1-5
Start with U1=0
Find all rows and column values -6 3
find the improvement index of each Un-Occupied 4 6
Ucindex=Ucij-Ui-Vj -5 1
The solution is considered optimal if all these are
Select highest negative value and shift 3 4
Repeat the process again from step 1 till optimal 5 4
8 10
New Distribution
3 0 4
2 7
8 10
 MODI Method
New Distribution 2 3 5 1
3 0 4 7 3 4 6
2 7 4 1 7 2
8 10
V1=2 V2=0 V3=-1 V4=1 Residue values
U1=0 3 4 3 3-0-0 5-0+1 4
U2=5 2 7 2 3-5-0 7 6-5-1
U3=1 8 10 4-1-2 8 7-1+1 10

3 4 3 6
2 7 -2 0
8 10 1 7

5 2
2 7
6 12
V1=2 V2=0 V3=1 V4=1 Residue Values
U1=0 5 2 3 4
U2=3 2 7 2 2
U3=1 6 12 1 5
No Non-negative values
Above is optimal solution
Cost 76
 Stepping Stone Method

5 4 6 3 13
A1 1 C1 12
6 5 3 4 11
A2 B2 11 D2
2 5 4 6 18
15 1 2 D3
3 2 5 4 8
A4 8 C4 D4
15 10 13 12 50

51
5 2 B1 3 5 2 1

7 3 7 4 2 6

4 8 1 7 10 2

B1 → D1 → D3→ B3 →B1 3 – 1 + 2 – 1= 3
C1 → D1 → D2 → C2 → C1 5- 1 + 6 - 4= 5
A2 →A1→D1→D2→A2 7 – 2 +1 – 6 =0
B2→D2→D3→B3→B2 3 – 6 +2 -1 = -2
A3→A1→D1→D3→A3 4 – 2 + 1 -2 = 1
C3→C2→D2→D3→C3 7 – 4 +6 – 2 = 7
52
5 2 B1 3 5 2 1

7 3 7 4 2 6

4 8 1 7 10 2

B1 → D1 → D3→ B3 →B1 3 – 1 + 2 – 1= 3
C1 → D1 → D2 → C2 → C1 5- 1 + 6 - 4= 5
A2 →A1→D1→D2→A2 7 – 2 +1 – 6 =0
B2→D2→D3→B3→B2 3 – 6 +2 -1 = -2
A3→A1→D1→D3→A3 4 – 2 + 1 -2 = 1
C3→C2→D2→D3→C3 7 – 4 +6 – 2 = 7
53
5 2 3 5 2 1

7 +x 7 4 2 -X 6
3
4 8 -X 1 7 10 +x 2

B1 → D1 → D3→ B3 →B1 3 – 1 + 2 – 1= 3
C1 → D1 → D2 → C2 → C1 5- 1 + 6 - 4= 5
A2 →A1→D1→D2→A2 7 – 2 +1 – 6 =0
B2→D2→D3→B3→B2 3 – 6 +2 -1 = -2
A3→A1→D1→D3→A3 4 – 2 + 1 -2 = 1
C3→C2→D2→D3→C3 7 – 4 +6 – 2 = 7
54
Stepping Stone Method-Optimal solution- Cost 76

5 2 3 5 2 1

7 2 3 7 4 6

4 6 1 7 12 2

B1 → D1 → D3→ B3 →B1 3 – 1 + 2 – 1= 3( No Change)

C1→D1→ D 3→B3→B2→C2 5-1+2-1+3-4= 4( Change but
→ C1 +ve)
A2 →A1→D1→D3→B3→B2→A2 7 – 2 +1-2+1-3 =2
D2→D3→B3→B2→D2 6 – 2 +1 -3 = 2
A3→A1→D1→D3→A3 4 – 2 + 1 -2 = 1
C3→C2→B2→B3→C3 7 – 4 +3 – 1 = 5 55