Discussion Notes

Topic(s): calculate the marginal cost of introducing each

 Introduction to Transportation Model
 Methods in Establishing the Initial Feasible Solution 2.
 Methods in Establishing the Optimal Feasible Solution
o Minimization Problem
o Maximization Problem
Learning Outcome(s):
 Define the Transportation Model
 Comprehend the methods in establishing both the initial
and optimal feasible solution
 Apply the methods necessary to assist a certain
managerial problem
3.
Continuation
I. Summary of Steps for Methods in Establishing the Initial 4.
Feasible Solution:
Northwest Corner Rule:
1. Start in the upper left-hand corner (origin 1,
destination A) and allocate as many units as possible
to this cell. That is, use as much supply from origin A
as possible, to satisfy demand at destination A. This 1.
means that the amount allocated is the minimum of
supply at 1 and demand at A.
2. Reduce the available supply at the current origin and
unsatisfied demand at the current destination by the
amount of the allocation.
3. Identify the first origin with available supply. This is
either the current origin or the one directly below it.
4. Identify the first destination with unsatisfied demand.
This is either the current destination or the one 2.
immediately to the right of it.
5. Allocate, as in step 1, as many items as possible to the
route associated with the origin-destination
combination identified in step 3 and 4.
6. Return to Step 2. 3.
Minimum Cost Method (MCM) or Greedy Method
1. Identify the cell that has the lowest unit cost. If there
is a tie, select one arbitrarily. Allocate the quantity to 4.
this cell that is equal to the lower of the available
supply for the row and the demand for the column.
2. Mark out the cell in the row or column that has been
exhausted (or both, if both have been exhausted),
and adjust the remaining row or column total Source-Destination
accordingly. Combination
3. Identify the cell with the lowest cost from the
remaining cells. Allocate a quantity to this cell that is
equal to the lower of the available supply of the row
and the demand for the column.
4. Repeat steps 2 and 3 until all supplies and demands
have been allocated.
Total Transportation Profit
Vogel’s Approximation Method (VAM)
1. For each row with an available supply and each
column with an unfilled demand, calculate an
opportunity/penalty cost by subtracting the smallest Unused
entry from the second smallest entry for a Squares
minimization problem. For maximization calculate an X1A
opportunity cost by getting the difference between
the highest and second highest entry.
2. Identify the row or column with largest If the improvement index does not contain any negative/positive
opportunity/penalty cost for minimization or value, the solution is optimum*
opportunity/penalty profit for maximization. (Ties
may be broken arbitrarily)
3. Allocate the maximum amount possible to the
available route with the lowest cost for minimization
or highest revenue for maximization in the row or
column selected in step 2.
4. Reduce the appropriate supply and demand by the
amount allocated in step 3.
5. Remove any rows with zero available supply and
columns with zero unfilled demand from further
consideration.
6. Return to step 1.
unused route into the solution.
Under the following:
i. Minimization Problem. If all the marginal
cost is greater than or equal to zero, to stop;
you have the optimal solution. If not, select
the cell with the most negative marginal
cost. (Ties may be broken arbitrarily).
ii. Maximization Problem. If all the marginal
costs are less than or equal to zero, stop;
you have the optimal solution. If not, select
cell with the highest positive marginal cos.
(Ties may be broken arbitrarily)
Using the stepping-stone path, determine the
maximum number of items that can be allocated to
the route selected in Step 2 and adjust the allocation
appropriately.
Return to Step1.
Modified Distribution Method (MODI) – A
procedure for determining the per-unit cost change
associated with assigning flow to an unused square in
the transportation problem
Use the current solution and operations (a) and (b)
below to evaluate the marginal cost of sending
material over each of the unused routes.
a. Set U1 = 0. Find the row indices U2,…,UM
and column indices V1,…,VN such that Cij =
Ui + Vj
b. Let Eij = Cij – (Ui + Vj) for every unused cell;
Eij is the marginal cost of introducting cell I,
J into the solution.
A. Minimization Problem. If all the marginal cost is
greater than or equal to zero, stop; you have the
optimal solution. If not, select that the cell with the
most negative marginal cost. (Ties may be broken
arbitrarily)
Using the stepping-stone path, determine the
maximum number of items that can be allocated to
the route selected in step 2 and adjust the allocation
appropriately.
Return to Step 1.
Solving for the Stone Squares
Quantity Shipped x Total
Profit per Unit Profit
XX XX x XX XX
XX
Testing the Solution
Closed Path Computation of Improvement
Indices
X1A - … + … - … +X –X +X-X = X

II. Methods in Establishing the Optimal Feasible Solution

1. Stepping Stone Method (SSM) – A procedure for
determining if a solution to a transportation problem
is optimal that involves tracing closed paths from
each unused square through stone squares.
2. Modified Distribution Method (MODI) – A
procedure for determining the per-unit cost change
associated with assigning flow to an unused square in
the transportation problem
III. Summary of Steps for Methods in Establishing the Optimal
Feasible Solution:
Stepping Stone Method (SSM):
1. Use the current solution to create a unique stepping-
stone path for each unused cell. Use these paths to

Management Science (MGMT 1013) MIDTERMS by Accounting Instructors