Teshager C, AAUCC,BAIS

TRANSPORTATION PROBLEMS
The transportation method is usually applied to distribution problems, in which supplies of goods
that are held at various locations are to be distributed to other receiving locations.
The purpose of using an LP model would be to identify a distribution plan that would minimize the cost
of transporting the goods from the warehouses to the retail stores, taking in to account warehouse
supplies and store demands as well as transportation costs.
FORMULATING THE MODEL
A transportation problem typically involves a set of sending locations, which are referred to as origins,
and a set of receiving locations, which are referred to as destinations. To develop a model of
transportation problem, it is necessary to have the following information:
1. Supply quantity (capacity) of each origin.
2. Demand quantity of each destination.
3. Unit transportation cost for each origin-destination route.
ASSUMPTIONS
1. Any origin is capable of supplying any destination.
2. Total quantity available for shipment is equal to the total quantity demanded.
EXAMPLE
ABC Co. has contracted to provide construction materials for residential housing developments.
The materials can be supplied from three different areas as follows:
Area weekly capacity
A 100
B 200
C 200
Demand for the materials by the construction projects is:
Project weekly demand
1 50
2 150
3 300
The manager has estimated the cost per material to ship over each of the possible routes:
Cost per material to:
From project-1 project-2 project-3
A $4 $2 $8
B 5 1 9
C 7 6 3
Required: develop an optimal distribution plan that minimizes the total transportation costs.
We can develop an LP model that represents the above problem as follows:
Let x = the units of materials shipped from Area-A to Project-1
x = the units of materials shipped from Area-A to Project-2
x = the units of materials shipped from Area-A to Project-3
x = the units of materials shipped from Area-B to Project-1
x = the units of materials shipped from Area-B to Project-2
x = the units of materials shipped from Area-B to Project-3
X31= the units of materials shipped from Area-C to Project-1
X32 = the units of materials shipped from Area-C to Project-2
X33 = the units of materials shipped from Area-C to Project-3

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Minimize 4x + 2x + 8x +5x +1x +9x + 7x31 + 6x32 + 3x33

Subject to:
C1 x + x + x =100
C2 x +x +x =200
C3 x31 + x32 + x33 = 200
C4 x +x + x31=50
C5 x + x +x32 =150
C6 x +x +x33=300
All variables≥ 0
It is possible to use the simplex technique to solve this problem; however, the computational burden
posed by the very large number of variables and constraints makes it less relevant to solve transportation
problems. Hence, we use transportation methods that are designed to deal with such problems.
The first step in a transportation method is to arrange the information in to a transportation table.
To Project Project Project
From 1 2 3 Supply
Area-A 4 2 8 100
Area-B 5 1 9 200

Area-C 7 6 3 200

Demand 50 150 300

FINDING AN INITIAL FEASIBLE SOLUTION

A feasible solution is one in which assignments are made in such a way that all supply and demand
requirements are satisfied. In a feasible solution, in general, the number of non-zero (occupied) cells
should equal one less than the sum of the number of origins (rows) and the number of columns
(destinations) in a transportation table. In our case a number of occupied cells should be: 3 + 3 – 1=5
A number of different approaches can be used to find an initial feasible solution. Three of these are:
- The North-West corner method.
- An intuitive / minimum cost method.
-Vogel’s approximation method
FINDING AN INITIAL FESIBLE SOLUTION: THE NORTH-WEST CORNER METHOD.
Principles (steps) that guide the allocation:
1. Begin with the upper most hand cell, and allocate as many units as possible to that cell. This will be
the smaller of the row supply and column demand.
2. Remain in the row or column until its supply or demand is satisfied or exhausted.
Note that in terms of minimizing transportation costs, this solution may or may not be optimal.
The solution for the above problem through this approach will be as follows:
To Project Project Project
From 1 2 3 Supply
Area-A 4 2 8 100
50 50
Area-B 5 1 9 200
100 100

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Area-C 7 6 3 200
200
Demand 50 150 300
The total cost = 50(4) + 50(2) + 100(1) + 100(9) + 200(3) = $1,900
FINDING AN INITIAL FESIBLE SOLUTION: THE INTUITIVE (MINIMUM COST)
APPROACH
This approach uses the lowest cell cost as the basis for selecting routes.
The procedure is as follows:
1. Identify the cell that has the lowest unit cost. If there is a tie, select one arbitrarily. Allocate
quantity to that cell that is the lower of the available supply or demand.
2. Cross out the row or column that has been exhausted, and adjust the remaining row or column
total accordingly.
3. Identify the cell will the lowest cost from the remaining cells, and repeat steps1 and 2.
The solution of the above problem is as follows:

To Project Project Project

From 1 2 3 Supply
Area-A 4 2 8 100
50 50
Area-B 5 1 9 200
150 50
Area-C 7 6 3 200
200
Demand 50 150 300
Total cost = 50(4) + 50(8) + 150(1) + 50(9) + 200(3) = $1,800

FINDING AN INITIAL FESIBLE SOLUTION: VOGEL’S APPROXIMATION

METHOD(VAM)
This method is preferred over the other two methods because the initial feasible solution obtained
with VAM is either optimal or very close to the optimal. With VAM the basis of allocation is unit
cost penalty i.e. that column or row which has the highest unit cost penalty (difference between the
lowest and the next highest cost) is selected first for allocation and the subsequent allocations in cells
are also done keeping in view the highest unit cost penalty.
STEPS IN VAM
1. Construct the cost, requirement, and availability matrix i.e. cost matrix with column and row
information.
2. Compute a penalty for each row and column in the transportation table. The penalty is merely the
difference between the smallest cost and the next smallest cost element in that particular row
or column.
3. Identify the row and column with the largest penalty. In this identified row (column), choose the
cell which has the smallest cost and allocate the maximum possible quantity to this cell. Delete
the row (column) in which capacity (demand) is exhausted. When there is a tie for penalty select
one arbitrarily.
4. Repeat steps 1 to 3 for the reduced table until the entire capabilities are used to fill the
requirement at different warehouses.

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5. From step 4 we will get initial feasible solution. Now for initial feasible solution find the total
cost.
The solution for our problem is as follows:

To Project Project Project Unit

From 1 2 3 Supply penalty
Area-A 4 2 8 100 2

Area-B 5 1 9 200 4

Area-C 7 6 3 200 3
200
Demand 50 150 300
100
Unit 1 1 5
penalty largest

To Project Project Project Unit

From 1 2 3 Supply penalty
To
Area-A Project
4 Project
2 8 100 Unit
2
From 1 3 Supply penalty
Area-A
Area-B 45 81 9 100200 4 *4
50 150 50 50 largest
largest
Area-B
deman 50 5 150 9 100 50 4
d *largest
deman 150
Unit 1100 1
dpenalty
Unit 1 1
penalty
 When there is a tie choose one arbitrarily.

To Project Unit
From 3 Supply penalty

Area-B 9 50 0

demand 100
50
Unit penalty 1

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To Project Unit
From 3 Supply penalty

Area-B 9 50 0
50
demand
50
Unit penalty 0

The above solution is summarised as follows:

To Project Project Project
From 1 2 3 Supply
Area-A 4 2 8 100
50 50
Area-B 5 1 9 200
150 50
Area-C 7 6 3 200
200
Demand 50 150 300

Total cost = 50(4) + 50(8) + 150(1) + 50(9) + 200(3) = $1,800

EVALUATING THE SOLUTION FOR OPTIMALITY

There are two methods available to evaluate the initial feasible solution for optimality: The stepping-
stone method and the MODI (Modified Distribution).

EVALUATING A SOLUTION USING THE MODI METHOD

It uses index numbers that are established for the rows and columns. There is one index number for
each column and one for each row. The index numbers determined in such a way that for any
occupied cell, the sum of the row index and the column index equal the cell’s unit transportation
cost:
Row Index + Column Index = Cell Cost
Ri + kj Cij
The process always begins by assigning a value of zero as the index number of row1.
Now let’s evaluate the initial feasible solution obtained through the North-West Corner method.

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K1=4 K2= 2 k3= 10

To Project Project Project
From 1 2 3 Supply
R1=0 Area- 4 2 8 100
A 50 50
R2= -1 Area- 5 1 9 200
B 100 100
R3= -5 Area- 7 6 3 200
C 200
Dema 50 150 300
nd

R1 + k1= 4, r1=0, k1=4

R1 + K2= 2, K2= 2
R2 + K2 = 1, r2 = -1
R2 + k3 = 9, k3 = 10
R3 + k3 =3, r3 = -5

We can now readily determine the cell evaluations (improvement potentials) for each of the occupied
cells using the relationship:
Cell Evaluation = Cell Cost – Row Index – Column Index
Eij = Cij - Rij - Kij
Using the above relationship, let’s evaluate each of the unoccupied cells:
Cell A-3, e = 8 – 0 – 10 = -2
Cell B-1, e = 5 – (-1) – 4 =2
Cell C-1, e = 7 – (-5) – 4 = 8
Cell C-2, e = 6 – (-5) – 2 = 9

RULE FOR OPTIMALITY: a solution is optimal if there is no negative evaluation.

Since there is a negative ratio, the solution is not optimal.
DEVELOPING AN IMPROVED SOLUTION
We use the stepping- stone paths to determine the improved solution:

K1=4 K2= 2 k3= 10

To Project Project Project
From 1 2 3 Supply
R1=0 Area- 4 - 2 + 8 100
A 50 50
R2= -1 Area- 5 + 1 - 9 200
B 100 100
R3= -5 Area- 7 6 3 200
C 200
Dema 50 150 300
nd
Accordingly, the improved solution will look the following:

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Teshager C, AAUCC,BAIS

K1=4 K2= 0 k3= 8

To Project Project Project
From 1 2 3 Supply
R1=0 Area- 4 2 8 100
A 50 50
R2= 1 Area- 5 1 9 200
B 150 50
R3= -5 Area- 7 6 3 200
C 200
Dema 50 150 300
nd
Then the improved solution again will be evaluated for optimally through the determination of new
index numbers and evaluations:
R1 + k1 = 4, k1 = 4 r3 + k3 = 3, r3= -5
R1 + k3 = 8, k3 = 8 r2 + K2 = 1, k2 = 0
R2 + k3 = 9, r2 = 1
The cell evaluations are:
Cell A-2, e = 2 – 0 – 0 = 2
Cell B-1, e = 5 – 1 – 4 = 0
Cell C-1, e = 7 – (-5) – 4 =8
Cell C-2, e = 6 – ( -5) – 0 = 11
Since there is no negative evaluation, the solution is optimal.
The optimal distribution plan is as follows:
From - To Quantity Cost
A 1 50 50(4) =$200
A 3 50 50(8) = 400
B 2 150 150(1) = 150
B 3 50 50(9) = 450
C 3 200 200(3) = 600
Total cost = $1,800
SPECIAL ISSUES
1. ALTERNATE OPTIMAL SOLUTIONS
The existence an alternate solution is signaled by an empty cell’s evaluation equal to zero.
Looking at our optimal solution reveals that there is a zero evaluation for cell B-1; that shows
that there is an alternate optimal solution. To find the alternate optimal solution use the stepping-
stone path for that cell:
To Project Project Project
From 1 2 3 Supply
Area- - 4 2 + 8 100
A 50 50
Area- + 5 1 - 9 200
B 150 50
Area- 7 6 3 200
C 200
Dema 50 150 300
nd
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The alternate optimal solution will look the following:

To Project Project Project
From 1 2 3 Supply
Area- 4 2 8 100
A 100
Area- 5 1 9 200
B 50 150
Area- 7 6 3 200
C 200
Dema 50 150 300
nd
2. DEGENERACY
When there are too few occupied cells to enable all the the empty cells to be evaluated. In the
case of stepping- stone method, this means that there will be at least one empty cell for which an
evaluation path can not be constructed. For the MODI method, it will be impossible to determine
all the row and column index numbers.
It is relatively simple to determine if a solution is degenerate: if the number of occupied cells is
less than the number of rows plus columns minus one.
Some modification must be made in order to determine if a given solution is optimal. The
modification is to treat some of the empty cells as occupied cells. This is accomplished by
placing a delta (∆) in one of the empty cells. The delta represents, an extremely small quantity
that supply and demand for the row and column involved will be unaffected even without
modifying other quantities in the row or column, and so small that total cost will not change.
A certain amount of trial and error may be necessary before a satisfactory location can be
identified for delta.
The alternate optimal solution has 4 occupied cells(less than 5) that shows that it a degenerate
solution.
3. UNACCEPTABLE ROUTES
Some times, certain origin-destination combinations may be unacceptable. In order to prevent
that route from appearing in the final solution, assign a unit cost to that cell that that was large
enough to make that route uneconomical and, hence, prohibit its occurrence. One rule of thumb
will be to assign a cost that is 10 times the largest cost in the table. Then, this revised solution
could be solved using any approach.
4. UNEQUAL SUPPLY AND DEMAND
For example, in the above problem if demand by project 2 increases by 50, then total demand
becomes 500 and total supply is 500. to deal with such cases add dummy row(origin) or dummy
column(destination). The dummy is assigned unit costs of zero for each cell.
In our case the modified table will be:
To Project Project Project
From 1 2 3 Supply
Area-A 4 2 8 100
Area-B 5 1 9 200
Area-C 7 6 3 200

dummy 0 0 0 50

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Demand 50 200 300

5. MAXIMIZATION
If the values given in a transportation problem represent profits or revenues, the objective will
become maximization instead of minimization. To deal with such problems identify the cell that
has the largest profit and subtract all the other cell profits from that value. These values represent
opportunity costs. Then solve it as a minimization problem.
For example, if the values in our previous problem represent profits then first we should develop
an opportunity loss table.
Opportunity loss table
To Project Project Project
From 1 2 3 Supply
Area-A 5 7 1 100
Area-B 4 8 0 200

Area-C 2 3 6 200

Demand 50 150 300