SVKM’s Narsee Monjee Institute of Management

Studies Centre of Excellence in Analytics and Data

Science

MBA BA Batch of 2021 – 2023

Trimester – V

Project Report on

“Optimization of Transportation Cost for Amul Milk”

Submitted By -

A078: Abdullah Madoo

Under the Guidance of

Prof. Pramod Kumar Singh

Centre of Excellence in Analytics & Data Science

Business Problem:
Amul Milk to open new outlets in the region of Mumbai suburbs. The population of Mumbai
suburbs is on increase. Mumbai being a dream city for most of the people as a result apart
from increasing birth rate the migration in the city also increasing. Milk is a product that is
consumed on daily basis across the different age group. The distribution of population at
numerous locations varies indirectly changing the demand as per location. Amul wants to
minimize the transportation cost of Milk from their distribution center established on the
outskirts of Mumbai.

Methodology:
The first step is to calculate the demands across the location and how much liters of milk is to
be supplied at their respective outlets.

Table below shows the population for the following location.

Location Population
Andheri 395292
Bandra 176708
Dadar 211489
Ghatkopar 89118
Goregaon 149504
Kurla 104899

Assuming the family of five people and considering the other competitors the demand of milk
is broke down further to the demand per outlet in the following table:

Location Population No. of Family Demand per outlet (litre)

Andheri 395292 79058 15810
Bandra 176708 35342 7030
Dadar 211489 42298 8460
Ghatkopar 89118 17824 3560
Goregaon 149504 29901 5980
Kurla 104899 20980 4190

A family consuming 1 ltr of milk per day the above demand was predicted for 1/5th of market
size. The milk is transported to the respective outlets in small milk van having 1000 gallons
capacity. Depending upon the demand lets calculate the number of vans required for each
location.
Location Demand per outlet
Gallons per truck Litres per truck No. of Truck Required
(litre)
Andheri 15810 1000 3780 5.00
Bandra 7030 1000 3780 2.00
Dadar 8460 1000 3780 3.00
Ghatkopar 3560 1000 3780 1.00
Goregaon 5980 1000 3780 2.00
Kurla 4190 1000 3780 2.00

Amul has total of 5 distributors located at Ambernath, Asangaon, Bhiwandi, Belapur and
Dahanu Road. Distance between the suppliers and outlet’s locations are shown in table
below:

Location Andheri Bandra Dadar Ghatkopar Goregaon Kurla

Ambernath 48 56 53 46 52 49
Asangaon 69 77 75 67 73 69
Bhiwandi 36 44 42 34 40 38
Belapur 28 31 28 21 38 24

Dahanu Road 120 135 138 132 110 130

Milk needs a special van as it need to be pasture and condensate it at required temperature.
This increases the total transportation cost. The thumb rule for milk transportation is Rs. 50
per kilometer.

Location Andheri Bandra Dadar Ghatkopar Goregaon Kurla

Ambernath 2400 2800 2650 2300 2600 2450

Asangaon 3450 3850 3750 3350 3650 3450

Bhiwandi 1800 2200 2100 1700 2000 1900

Belapur 1400 1550 1400 1050 1900 1200

Dahanu Road 6000 6750 6900 6600 5500 6500

Data Preparation:
The transportation route is to be optimize to save the cost of transportation that will indirectly
reduce the overall cost of product and help the company in providing the product at less price
for the customer and giving the company an upper edge over competitors.

Location Andheri Bandra Dadar Ghatkopar Goregaon Kurla Supply

Ambernath 2400 2800 2650 2300 2600 2450 9600
Asangaon 3450 3850 3750 3350 3650 3450 11000
Bhiwandi 1800 2200 2100 1700 2000 1900 10000
Belapur 1400 1550 1400 1050 1900 1200 5000
Dahanu
6000 6750 6900 6600 5500 6500 9430
Road
Demand 15810 7030 8460 3560 5980 4190 45030

There are three methods to optimize the transportation:

1) North-West Method
2) Least Count Method
3) Vogel’s Approximation Method

1) North-West Method:

The North West corner rule is a method for

computing a basic feasible solution of
a transportation problem, where the basic
variables are selected from the North – West
corner ( i.e., top left corner ).

2) Least Count Method:

The Least Cost Method is another method used to

obtain the initial feasible solution for the
transportation problem. Here, the allocation begins
with the cell which has the minimum cost. The
lower cost cells are chosen over the higher-cost
cell with the objective to have the least cost of
transportation.
3) Vogel’s Approximation Method:

The Vogel approximation method (Unit cost

penalty method) is an iterative procedure for
computing a basic feasible solution of a
transportation problem. This method is preferred
over the two methods discussed in the previous
sections, because the initial basic feasible solution
obtained by this method is either optimal or very
close to the optimal solution.

Solution:
Supply 1 Ambernath Demand 1 Andheri
Supply 2 Asangaon Demand 2 Bandra
Supply 3 Bhiwandi Demand 3 Dadar
Supply 4 Belapur Demand 4 Ghatkopar
Supply 5 Dahanu Road Demand 5 Goregaon
Demand 6 Kurla

Note: The Demand and Supply sources matrix was unequal. In order to carry out the
optimization we need to add a dummy supply source as shown in figure above

North-West Method:
 Least Cost Method

Vogel’s Approximation Methods

The demand is in litres and it will be transported by milk van of which the capacity is 3780
per van as a result the number of vans needed from a supplier to the outlets is calculated in
the table below:

Location Andheri Bandra Dadar Ghatkopar Goregaon Kurla

Ambernath 0.682539683 0 1.857143 0 0 0
Asangaon 1.801587302 0 0 0 0 1.108466
Bhiwandi 0.785714286 1.859788 0 0 0 0
Belapur 0 0 0.380952 0.941799 0 0
Dahanu
0.912698413 0 0 0 1.58201058 0
Road
Supply 6 0 0 0 0 0 0
 Location Andheri Bandra Dadar Ghatkopar Goregaon Kurla
Ambernath 1 0 2 0 0 0
Asangaon 2 0 0 0 0 2
Bhiwandi 1 2 0 0 0 0
Belapur 0 0 1 1 0 0
Dahanu Road 1 0 0 0 2 0
Supply 6 0 0 0 0 0 0
Total 5 2 3 1 2 2
*Rounding off the above table values as number of vans cannot be in fraction*

Calculating the total amount for each transportation from respective suppliers to the outlets as
per the distance as well as number of vans:

Location Andheri Bandra Dadar Ghatkopar Goregaon Kurla

Ambernath 2400 0 5300 0 0 0
Asangaon 6900 0 0 0 0 6900
Bhiwandi 1800 4400 0 0 0 0
Belapur 0 0 1400 1050 0 0
Dahanu Road 6000 0 0 0 11000 0
Supply 6 0 0 0 0 0 0
Total 17100 4400 6700 1050 11000 6900
Grand Total 47150

The minimum amount to fulfill the demand across all outlet is Rs. 47150