Yanet College

Department of Management
MBA Program

Quantitative Analysis for Management Decision Making (MBA 631)

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By: Nuru Mohammed (Ph.D.)

2021/2022
Asella, Ehiopia
Nuru M.(Ph.D.)
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Chapter 3
Distribution Models
(Transportation and Assignment models)

Chapter Objectives:
At the end of this chapter you should be able to;
Recognize and formulate a transportation problem involving a large number of shipping routes.
Recognize and formulate an Assignment problem.
Solve a transportation problem.
Solve an assignment problem.
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 3.1 Introduction
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 Distribution model include both Transportation and Assignment models
 Are another important application of linear programming.

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 3.1. Transportation Model
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 A special type of linear programing model

 Applicable for a problem where physical distribution (transportation)
of goods from several supply centers to several demand centers.
 Minimizing transportation cost or to the maximize a total value or
utility.
 However solving it using simplex methods takes a long time.

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 3.1.1 Mathematical model of transportation problem
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• It mainly aims to minimize transportation costs considering;
– A set of origin or supplies
– A set of destination or demands, and
– The unit transportation costs, for each origin-destination combination
eg : Shipments from warehouses to retail stores, Factories to warehouses within departments.
• To develop a TM the following set of information are required:
– Supply quantity (capacity) of each origin.
– Demand quantity of each destination.
– Unit transportation cost for each origin-destination rout.

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 Continued…
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e.g; A company has three production facilities and the product are to be
shipped to four warehouses. The per week production capacity of each
factory, the demand of each warehouses, and per unit transportation
costs of each rout are indicated in the following table.

Required
1.Formulate LP model to minimize the total transportation cost?
2. Formulate TM model to minimize the total transportation cost?
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 Continued…
7 Solution
1. The LP model.
 Let 𝑋𝑖𝑗 = amount to be transported from 𝐹𝑠 to 𝑊𝑠 .
𝑍𝑀𝑖𝑛𝑖𝑚𝑖𝑧𝑎𝑡𝑖𝑜𝑛 = 19𝑋11 +30𝑋12 +50𝑋13 +10𝑋14 +70𝑋21 +30𝑋22 +40𝑋23 +60𝑋24 +40𝑋31 +8𝑋32 +70𝑋33 +20𝑋34
Subjected to
𝑋11 +𝑋12 +𝑋13 +𝑋14 =7
𝑋21 +𝑋22 +𝑋23 +𝑋24 =9 Supply
𝑋31 +𝑋32 +𝑋33 +𝑋34 = 18
𝑋11 +𝑋21 +𝑋31 =5
𝑋12 +𝑋22 +𝑋32 =8 Demand
𝑋13 +𝑋23 +𝑋33 = 7
𝑋14 +𝑋24 +𝑋34 = 14
Nuru M.(Ph.D.)
𝑋11 , 𝑋12 , 𝑋13 , 𝑋14 , 𝑋21 , 𝑋22 , 𝑋23 , 𝑋24 , 𝑋31 , 𝑋32 , 𝑋33 , 𝑋34 > 0
 Continued…
8 2. TP model
 The data can be summarized in a transportation table.
 Draw a table, considering the following points
1. List the destination across the top of the table.
2. List the DD of corresponding destination across the bottom of the table
3. List down the sources to the left hand side of the table.
4. List down the SS corresponding Source to the right hand side of the table.
5. Write the per unit cost of every rout at the upper right corner of the corresponding cell.

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 3.1.2 Assumptions of a Transportation Model
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• The transportation algorithm requires the assumption that:

– All goods be homogeneous, so that any origin is capable of
supplying any destination, and
– Transportation costs are a direct linear function of the quantity
shipped over any route.
– The total quantity available is equal to the total demand.

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 3.1.3 Solution of a Transportation Model
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Algorithm
 Summarized into the following steps:
1. Formulate the problem and arrange the data in the matrix form.
2. Obtain an initial basic feasible solution
A. North-West Corner Method, The Initial feasible Solution should satisfy;
B. Least Cost Method, and 1.Satisfy all the SS and DD constraints (rim).
2.Number of occupied cells=m+n-1
C. Vogel’s Approximation (or Penalty)
3. Test the initial solution for optimality
 Involves a cost evaluation of empty cells
i. The Stepping-stone method
ii. The Modified Distribution (MODI) method
4. Updating the solution: Repeat Step 3 until an optimal solution is reached
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 Continued…
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 A necessary and sufficient condition for a feasible solution is:
 Total supply = Total demand
 Any feasible Soln must have exactly (m+𝒏 − 𝟏) non-negative basic variables
Remarks;
1.When SS=DD, the problem is called balanced, otherwise it is unbalanced.
 Unbalanced TP can be made balanced using a dummy SS or DD center.
2.Cells with allocation is called occupied cells, otherwise non-occupied
3.Occupied cell is < m+𝒏 − 𝟏, the Soln is degenerate, otherwise non-
degenerate

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 Continued…
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2. Obtain an initial basic feasible solution
A. North-West Corner Method (NWCM)
 Step 1: Start with the upper left (north-west) cell and allocate as many as possible.
 Step 2: Move vertically down or horizontally to the right or diagonally down.
 Step 3: Continue the procedure step by step till an allocation is made.

Total cost = 5 × 19 + 2 × 30 + 6
× 30 + 3 × 40 + 4 × 70
+ 14 × 20 = 1,015 birr
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 Continued…
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B. An intuitive approach or Least Cost Method (LCM)
 Step 1: Select a cell with the lowest cost and allocate as much as possible.
 In case of a tie, then select the cell where the maximum allocation
 Close the existed row or column.
 Step 2: Select a cell with the next lowest cost and allocate as much as possible.
 Step 3: Repeat the procedure until SS and DD is satisfied.

Total cost = 7 × 10 + 2 × 70 + 7 × 40 + 3
× 40 + 8 × 8 + 7 × 20 = 814

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 Continued…
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C. Vogel’s Approximation Method (VAM)
 Also referred as penalty or regret.
 Preferred over NWCM and LCM.
 Allocation is made on the basis of the opportunity cost, that would have been
incurred if minimum unit cost were missed.
 An initial solution of VAM is nearer to optimal or optimal solution itself.
Steps;
Step 1: Calculate the penalties for each row (column)- d/c b/n the smallest and next
smallest unit cost.
Step 2: Select a row/column with the largest penalty and allocate as much as possible
in the cell that has the least cost.
Step 3: Adjust the SS and DD and cross out the satisfied row or column.
Step 4: Repeat Steps 1 to 3 until all SS and DD are satisfied.
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 Continued…
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 The initial feasible solution for the exercise above

Total cost = 5 × 19 + 2 × 10 + 7 × 40 + 2
× 60 + 8 × 8 + 10 × 20 = 779

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 Continued…
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3. Test for optimality
 It begins by calculating an opportunity cost associated with each
unoccupied cell.
 Cell with the largest negative value will be considered in the new table.
 Two methods of testing for optimality;
i. The Stepping-stone method
ii. The MODI method

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 Continued…
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i. The Stepping-stone method

• It involves tracing a series of closed path in the table for each

empty cell.
• The path represents a shift of one unit into an empty cell
• It tells the impact on total cost, if one unit is shifted into an unused
route.
• It can also be used to determine the maximum amount that can be
shifted into empty cell.

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 Continued…
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 Rules for tracing stepping-stone paths

i. All empty cells must be evaluated one at a time
ii. Except for the cell being evaluated, only add (+) or subtract (-) in occupied
cells.
iii. It is permissible to skip over unoccupied or occupied cells to find an
occupied cell from which the path can continue.
iv. A path will consist of only horizontal and vertical moves starting and ending
with the empty cell being evaluated.
v. Alternate ‘+’ and ‘–‘signs, beginning with a ‘+’ sign in the cell being
evaluated.

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 Continued…
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 The stepping Stone Path (Loop)
 An ordered sequence of at least four different cells is called a loop (stepping
step path) if:
– Any two consecutive cells lie in either the same row/ column
– No three consecutive cells lie in the same row/column
– The last cell in the sequence has a row/column in common with the first
cell.

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 Continued…
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 Consider the initial feasible solution with NWCM, evaluate for optimality

Since there is a negative

evaluation result the
table is not optimal.

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 Continued…
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ii. MODI Method
Step 1: Calculate row index (𝑟𝑖 )and column index (𝑐𝑖 ) considering occupied
cells.
 To start with, any one of 𝑟𝑖 or 𝑐𝑖 is assigned the value zero.
 It is better to assign zero to 𝑟1
 Calculate other indices using a relationship 𝑟𝑖 + 𝑐𝑖 =𝑐𝑖𝑗 , for all occupied cell .
Step 2: For unoccupied cells, calculate the opportunity cost.
 Opportunity cost (C) = 𝑐𝑖𝑗 -(𝑟𝑖 + 𝑐𝑖 )
 Indicate a per unit reduction (increase) if the rout is used
Step 3: Examine sign of each C, if is C
 > 0, solution is optimal
 = 0, alternative solution exists.
 < 0, improved solution is possible.
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 Continued…
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 Consider the initial feasible solution with NWCM, evaluate for optimality
Empty Cell C = 𝑐𝑖𝑗 - (𝑟𝑖 + 𝑐𝑖 )
𝐹1 𝑊3 50-(0+40)=10
𝐹1 𝑊4 10-(0-10)=20
𝐹2 𝑊1 70-(0+19)=51
𝐹2 𝑊4 60-(0-10)=70
𝐹3 𝑊1 40-(30+19)=-9
𝐹3 𝑊2 8-(30+30)=-52

Therefore, Since there is a negative evaluation result the table is not optimal.
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 Continued…
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4. Updating the solution
 Whether Steppingstone or MODI method is used, the stepping Stone Path is
required to result an improved solution.
 Step 1: Construct a closed-path for the unoccupied cell with largest negative cell
evolution result
 Step 2: Select the smallest quantity amongst the cells marked with minus sign.
 Step 3: Add it to cells marked with plus, and subtract it from the cells marked with
minus and calculate the new total transportation cost.

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 Continued…
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Eg. Consider the above example and developed the improved solution
 Cell 𝐹3 𝑊2 has the largest per unit reduction(-52)
 The closed-path looks as follows  The smallest allocation on the negative side of
the loop is 4, after considering this amount the
table looks

Nuru M.(Ph.D.)
 TC= 5×19 +2×30+6×30+3×40+4×70+14×20 = 1,015 birr  TC= 5X19+2X30+2X30+4X8+7X40+14X20= 807 birr
 Continued…
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Repeat Step 3 until an optimal solution is reached.
 Use steeping stone or MODI method Empty Cell C = 𝑐𝑖𝑗 - (𝑟𝑖 + 𝑐𝑖 )
𝐹1 𝑊3 50-(0+40)=10

𝐹1 𝑊4 10-(0-42)=-32

𝐹2 𝑊1 70-(0+19)=51

𝐹2 𝑊4 60-(0-42)=18

𝐹3 𝑊1 40-(-22+19)=43

𝐹3 𝑊3 70-(-22+40)=52

 Still there are negative cell evaluation result, the table is not optimal.
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 Continued…
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 Cell 𝐹1 𝑊4 has a negative evaluation result (-32)
 2 is the smallest allocation on the negative side of the loop
 The steeping stone loop looks like  The improved solution looks like looks

Nuru M.(Ph.D.)
 TC= 5X19+2X30+6X8+7X40+12X20+2X10= 743 birr
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 Check for optimality
 Use steeping stone or MODI method
Empty Cell C = 𝑐𝑖𝑗 - (𝑟𝑖 + 𝑐𝑖 )
𝐹1 𝑊2 30-(0-2)=32

𝐹1 𝑊3 50-(0+8)=42

𝐹2 𝑊1 70-(32+19)=19

𝐹2 𝑊4 60-(32+10)=18

𝐹3 𝑊1 40-(10+19)=11

𝐹3 𝑊3 70-(10+8)=52

 There is no negative cell evaluation result, therefore, the solution is optimal and the optimal TC is 743
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birr
 3.1.4 Special Issues in transportation Problem
28 Assignment

1. Unbalanced Supply and Demand

2. Degeneracy and its Resolution
3. Alternative Optimal Solutions
4. Prohibited Transportation Routes
5. Maximization transportation problem
6. Trans-shipment problem

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 3.2 Assignment Problem
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 Is a particular case of a transportation problem

 Where the given resources are allocated to an equal number of
activities (one-to-one base).
 It arises because resources have varying degree of efficiency for
performing different activities.
 How should the assignments be made to optimize the given objective.
e.g. assignment of
workers to machines
salesmen to different sales areas
vehicles to routes
contracts to bidders, etc
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 3.2.1 Mathematical model of assignment problem
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 The general data matrix for assignment problem is;

 Suppose 𝑋𝑖𝑗 is assignment of resource i to activity j such that;

𝑋𝑖𝑗 = 1if resource is assigned to activity j
0, other wise
 where 𝐶𝑖𝑗 is the cost of assignment of resource i to activity j
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 Continued…
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 Assignment problem is a particular case of the transportation problem

for the;
1. Cost matrix is a square matrix,
2. Optimal solution table would have only one assignment in a given row or a
column.

NB. If a constant is added to or subtracted from every element of a row or column, then it
would not change optimal assignments and value of objective function

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 3.2.2 Solution methods of assignment problem
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 It can be solved by any of the following methods:
 Enumeration method: all possible assignments is prepared & select the best
A problem with “n” jobs/works, will have n! possible assignments
 Simplex method: formulated as a 0 or 1 integer LPP, with “nxn” number of
DV and n+n or 2n number of equations.
 Transportation method: can also be solved by using MODI method.
It may result degenerate solution (multiple assignment is not possible)
 Hungarian method:
By Hungarian mathematician D. Konig.
Efficient method.

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 Continued…
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 Hungarian method:
works on the principle of reducing the cost matrix to an opportunity costs
matrix.
Opportunity costs: relative penalties associated with assigning a resource to an
activity.
 Show the relative penalties associated with assigning a resource to an activity.
 Reduces the cost matrix to the extent of having at least one zero in each row
and column.

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 Continued…
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 The steps for minimization case is summarized as follows;
Step 1: Develop the cost matrix from the given problem (if necessary add dummy rows or
columns.
Step 2: Find the opportunity cost matrix.
 Subtract the smallest element of every row from each element of that row.
 Subtract the smallest element of every column from each element of that column.
Step 3: Cross a row or column with two or more zeros
 If the number of lines = number of rows, make the assignment, if not
Step 4: Identify the smallest uncovered cost, subtract it from all uncovered cost, and add it
to the cost at the interception of the crossing lines.
Then make Assignment.
 Identify a row or column with one zero and assign, and then with two zeros, three
zeros… Nuru M.(Ph.D.)
 Continued…
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 eg. A computer center has three expert programmers. It wants three
application programmes to be developed. The manager estimates
the computer time in minutes required by the experts for the
application programmes as follows:

Assign the programmers to the programmes in such a way that the

total computer time is minimum.

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 Continued…
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Solution
 Row Reduction
 Select row minimum

 Deduct the row min from ever element of the corresponding row

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 Column reduction
 Select row minimum

 Deduct the row min from ever element of the corresponding column

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 Continued…
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 Cross all zeros

Number of line = number of rows/columns

 Assignment
Option 1 Option 2

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 Continued…
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 Interpretation and total cost

 Which is also = 80+80+110+0+0+10=280

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 Special Issue of Assignment Model
40 Assignment

1. Unbalanced row and column (resource and job)

2. Alternative Optimal Solutions
3. Prohibited Assignment
4. Maximization Case

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41

Any Question?
Nuru M.(Ph.D.)