CHAPTER THREE

TRANSPORTATION PROBLEMS
 Why it is needed?

 It is one important application of linear

programming
 It deals with the distribution of goods from
several points of supplies (sources) to a number
of points of demands (destinations).
 Cost of product = production cost + distribution cost
 Transportation techniques are designed to
minimize the distribution costs.
 The Characteristics of Transportation Problem

1. A limited supply of one commodity is available at

certain sources or origins.
2. There is a demand for the commodity at several
destinations
3. The quantities of supply at each source and the
demand at each destination are constant.
 Cont...

4. The shipping or transportation costs per unit from each

source to each destination are assumed to be constant.
5. No shipments are allowed between sources or between
destinations.
6. The problem is to determine how many units shipped
from each source to each destination so that all
demands are satisfied at the minimum total shipping
costs.
 Uses of Transportation Techniques

1. Reduce distribution or transportation cost

2. Improve competitiveness of product
3. Assist proper location of warehouses
4. Assist proper location of new factories or plants being
planned.
5. Close down warehouses which are found costly and
uneconomical.
 Objectives of Transportation Problem

1. To identify the optimal shipping routes -minimum

cost route
2. To identify the maximum amount that can be
shipped over the optimum route
3. To determine the total transportation cost or the
profit of transportation
The Solution to a Transportation Problem

Step 1:
 Formulate the problem and set up in the matrix
(Table) form
Step 2:
 Obtain an initial basic feasible solution

 There are 3 methods to find the initial feasible

solution.
 North-West Corner Method (NWCM)
 Least Cost Method (LCM)
 Vogel’s Approximation Method (VAM)
 Cont...

 The initial solution obtained by any of the three

methods must satisfy the following condition:
A. The solution must be feasible: It must satisfy all the
supply and demand constraints
B. The number of positive allocations must equal to m+n-1, :
Where m = the number of rows and n = the number
of columns .
Step 3:
 Test the initial solution for optimality
 If the current solution is optimal, then stop. Otherwise,
determine the new improved solution.
Step 4:
 Repeat step 3 until an optimal solution is reached
 Cont...

 Note:
1. Total Supply= Total demand - Balanced TP
2. Total Supply ≠ total demand - Unbalanced TP
3. Convert the unbalanced TP into a balanced TP by using d
ummy destination/dummy source.
* If total Supply > Total demand, then create a fictitious or
artificial destination called dummy destination
 i.e: total Supply > Total demand - Add dummy column
* Excess demand (Supply < demand)
 - Add a dummy source
 - Add a dummy row
Note: the cost of “shipments” to the dummy is usually set at
zero ==> No real cost
 Methods of Finding Initial Feasible Solution

A. NORTH- WEST CORNER METHOD (NWCM)

The NWCM gets its name because the starting
point for the allocation process is the Upper Left-
hand (Northwest) corner of the transportation
table.
 Therefore, allocate to the Northwest corner as many
units as possible.
 Northwest Corner Rule

 The following set of principles guides the allocation:

1. Begin with the upper left hand cell & allocate as many
units as possible to that cell. This will be the smaller
amount of either the row supply or the column
demand.
2. Subtract from the row supply & from the column
demand the amount allocated
 Cont...

3. If the column demand is now zero, move to the cell next to

the right, if the row supply is zero, move down to the cell in
the next row.

 If both are zero, move first to the next cell on the right
then down one cell.

4. Once a cell is identified as per step (3), it becomes a

northwest cell. Allocate to it an amount as per step (1)

5. Repeat, the above steps (1) - (4) until all the remaining
supply and demand is gone.
 B. THE LEAST- COST METHOD (LCM) or
(LARGEST- PROFIT) METHOD

 LCM is the method used a minimum cost in the

allocation
 It begins a solution by sequentially assigning to the
ratios or cells with the minimum cost as many units as
possible.
 The Least- Cost Method yields not only an initial
feasible solution but also one that is close to optimal
in small problems.
 C. VOGEL'S APPROXIMATION METHOD (VAM) or
PENALTY METHOD

 In this method each allocation is made on the basis of

the opportunity (or penalty or extra) cost that would
have incurred if allocation in certain cells with
minimum unit transportation cost were missed.

 In this method allocation are made so that the penalty

cost is minimized.
 Cont...

 VAM determines the penalty for not using the

minimum cost routes.
 The objective is to avoid large penalties so that the
penalty from not using the routes is minimized.
 The Steps in VAM

1. Calculate penalties for each row (column) by

taking the smallest & the next smallest unit
transportation cost in the same row (column)
 This difference indicates the penalty or
extra cost which has to be paid if one fails
to allocate to the cell with the minimum unit
transportation cost.
 Cont...

2. Select the row or column with the largest penalty

& allocate as much unit as possible in the cell
having the least cost in the selected row or
column satisfying the conditions.
 If there is a tie in the values of penalties, then it

can be broken by selecting the cell where

maximum allocation can be made.
 Cont...

3. Adjust the supply & demand & cross out the

satisfied row or column
 If a row or column is satisfied simultaneously, only one
of them is crossed out & the remaining row (column) is
assigned a zero supply (demand)
 Any row or column with zero supply or demand should

not be used in computing future penalties.

 4. Repeat step 1 to 3 until the entire available
supply at various sources & demand at various
destinations are satisfied.
 Example
 Let’s consider an example. Harley’s Sand and
Gravel Pit had contracted to provide topsoil for
three residential housing developments. Topsoil can
be supplied from three different “farms” as follows:
Cont…
Cont…
The next step is to arrange the information into
a transportation table
 Solution to Transportation Problems

 The initial solution can be obtained by three

methods
1. The North –West Corner Method (NWCM)
2. An intuitive approach/Least Cost Method
3. Vogel’s Approximation Method (VAM)
Cont…
2. The Least Cost Method (Intuitive Approach)
 Cont…
 We can easily verify that this is a feasible solution by checking
to see that the row and column totals of the assigned cell
quantities equal the supply and demand totals for the rows and
columns.
 Now let us compute the total cost of this solution and compare
it to that of the northwest corner solution.
 Total Cost = 50(4) + 50(8) + 150(1) + 50(9) + 200(3) =
$1800
 Compared to the plan generated using the Northwest-corner
method, this one has a total cost that is $100 less. This is due to
the fact that the previous one did not involve the use of cost
information in allocating units.
3. Vogel’s Approximation Method (VAM)
Cont…
Cont…
Cont…
Cont…
 Optimality Tests

 Once an initial solution is available, the next step is

to check its optimality.
 An optimal solution is one in which there is no
opportunity cost. That is, there is no other set of
transportation routes (allocations) that will reduce
the total opportunity cost.
 Thus we have to evaluate each unoccupied cell
(represents unused route) in the transportation table
in terms of opportunity cost.
 Cont...

 The purpose of the optimality test is to see if the

proposed solution just generated can be improved
or not.
 The solution to be checked for optimality must be
non-degenerate i.e the no of occupied cells must
be m+n-1.
 For each empty cell, the effect of changing it to an
occupied cell is examined.
 If any of these changes are favorable, the solution
is not optimal & a new solution must be designed.
 Cont...

 Optimum solution to a TP can be obtained by

following two methods.
A. Stepping stone Method
B. Modified Distribution method (MODI Method)
 A. The Stepping-Stone Method

 The Stepping-stone method is an iterative technique

for moving from an initial feasible solution to an
optimal solution.
 For the stopping- stone method to be applied, one
rule must be observed. The rule is:
 “The No of occupied routes (or squares) must always be
equal to one less than the sum of the no of rows plus the no
of columns."
 Rules for drawing each Closed Loop

1. Select an unused square (cell) to be evaluated.

2. Beginning at this cell, trace a closed loop going
clockwise draw an arrow to an
occupied cell in the same row ( or column).
 The loop starts and ends at the selected unoccupied
cell. Every corner element of the loop must be an
occupied cell.
3. Move vertically or horizontally (but never diagonally) to
another occupied cell “stepping – over”. Follow the
same procedure to other occupied cells until returning
to the original empty cell.
 Cont...

4. Begin with a plus (+) sign at the unused cell, place

alternative (-) signs and plus signs on each corner
square of the closed path.
 There must be exactly one cell with a + sign and

exactly one cell with a - sign in any row or column in

which the loop turns.
5. An even no of at least four cells must participate in a
loop and the occupied cells can be visited once and
only once.
 Cont...

6. Repeat steps 1 to 4 until an improvement index has been

calculated for all unused squares (cells).
 If all indices computed are greater than or equal to
zero, an optimal solution has been reached.
 If not, it is possible to improve the current solution and
decrease total shipping costs.
 In a non-degenerate problem, there is only one
possible way of drawing the loop for each empty cell.
 How to find the value of a cell evaluator

 The value of a cell evaluator is the sum of the per

unit shipping costs in the gaining cells less the sum of
the per unit shipping costs in the losing cells of the
closed loop.
 This evaluation process must be extended to all
unoccupied cells.
 Cont...

 The + Signs in the path indicate units to be added,

the - signs indicate units to be subtracted. The limit
on subtraction is the smallest quantity in a negative
position along the cell path.
 A cell evaluator of 0 indicates the existence of
another solution just as good as the current solution.
It indicates the existence of multiple optimal
solutions.
B. Modified Distribution Method (MODI)

 The MODI method allows us to compute

improvement indices quickly for each unused cell
 It can often provide considerable time savings over
the stepping-stone method
 Cont...

 MODI provides a new means of finding the unused

route with the largest negative improvement index.
 Once the largest index is identified, we are required
to trace only one closed path. This path helps to
determine the maximum No of units that can be
shipped via the best unused route.
 Steps in the MODI Method

1. To compute the values for each row and column, set

Ri + Kj = Cij but only for those squares that are currently
used or occupied.
2. After all equations have been written, set R1 = 0.
3. Solve the system of equations for all R and K values.
4. Compute the improvement index for each unused
square by this formula: (Iij) = Cij - Ri - Kj.
5. Select the largest negative index and proceed to solve
the problem as you did using the stepping-stone method.
 Steps in the MODI Method

1. For an initial basic feasible solution, calculate Ui

and Vj ;for rows and columns and set
Cij = Ui + Vj for all occupied calls (i , j)
i.e: Cell cost= Raw Index +Column Index
2. For unoccupied cells, calculate opportunity cost by
using the relation:
Kij = Cij– (Ui + Vj); for all j and j.
Where Kij is the cell evaluator or opportunity cost
 Cont...

3. Examine the sign of each Kij

 For minimization case:
 If Kij > 0, then current basic feasible solution is
optimal.
 If Kij = 0, then the current basic feasible solution
will remain be unaffected but an alternative
solution exists.
If one or more Kij < 0, then an improved solution be
obtained entering unoccupied cell (i, j), in the
basis. An unoccupied cell having the largest
negative value of Kij is chosen for entering into
the solution mix
 Cont...

4. Solve the problem as you did using the stepping-

stone method.
 Locate the smallest quantity allocated to a cell
marked with a minus sign.
5. Obtain a new improved solution by allocating
units to the unoccupied call and calculate the new
transportation cost.
6. Test the revised solution for optimality.
 Conventionally, we begin by assigning a value of
zero as the index for row 1 (U1=0).
 Once row index has been established, it will enable
us to compute column index numbers for all
occupied cells in that row.
 Similarly, once a column index number has been
determined, index numbers for all rows
corresponding to occupied cells in that column can
be determined.
 Both the MODI and the stepping - stone method will
yields the same values.
 Special Cases in Transportation

1. Degeneracy
 A condition that occurs when the No of occupied

cells in any solutions less than the No of rows plus

the No of columns minus 1 in a transportation table.
 i.e. No of occupied calls < m + n -1
............Degeneracy
 If the No of occupied cells = m+n-1, then the

solution is non- degenerate.

 Cont...

 The degeneracy in the transportation problems may occur

at two stages:
 when obtaining an initial solution
 During improvement (or at any stage while moving to
wards optimal solution.
 To resolve degeneracy, we processed by allocating a very
small quantity close to zero to one or more unoccupied cell
so as to get m+n-1 number of occupied cells. This amount
is denoted by a Greek letter  (epsilon) or (delta). This
quantity would not affect the total cost as well as supply
and demand values.
  = Almost zero
 Cont...

 In a minimization transportation problem, allocate  to

the smallest transportation cost.
 In a maximization transportation problem, it should be
allocated to a cell that has a high pay off value.
 Insert  when it is able to create a closed loop for each
occupied cell.
 The purpose of epsilon/delta is to enable evaluation of
the remaining empty cells. The choice of location for the
epsilon/delta can be some what tricky: some empty cells
may be unsuitable if they do not enable evaluations of
remaining empty cells. Not all choices would be
acceptable.
 Cont...

2. Alternative Optimal solutions

 The existence of alternative optimal solution can be

determined by an inspection of the opportunity

costs, Kij for the unoccupied cells.
 If an unoccupied cell in an optimal solution has

opportunity cost of zero, then an alternative

optimal solution can be formed with another set of
allocations without increasing the total
transportation cost.
 Cont...

3. Prohibited Transportation Routes.

 The situation may arise such as road hazards (snow,

floods, etc), traffic regulation etc, when it is not

possible to transport goods from certain sources to
certain destinations.
 In this case, the appropriate cell may either be

completely crossed out or a very large per unit

transportation cost assign to it (M)