Transportation Problem

A company has three supply points i, ii, iii with capacity 40, 25, 35 and three
demand points A, B, C for demand 30, 30, 40 respectively unit transportation cost
matrix is given below

Supply Points Demand points A B C

i 8 9 7
ii 4 3 5
iii 8 5 6

Sol:

8
40 9 30
7
4 3 30
25 5
8 5
35 6 40

Supply points (i) Demand points (j)

i1 , i2 , i3 J1 , J2 . J3

Cost of transportation from ‘i’ to ‘j’ per unit 8, 9, 7, 4, 3, 5, 8, 5, 8

Let Xij be the quantity transported from ‘i’ to ‘j’

Minimize

∑i ∑j Cij Xij

Xij - 9 variables

Cij – 9 unit cost coefficient

Objective Function

8X11 + 9X12 + 7X13 + 4X21 + 3X22 + 5X23 + 8X31 + 5X32 + 6X33

If there are M number of supply points and N number of demand points then the
number of variables are M x N = 3 x 3 = 9 Variables.

Constraints

∑j Xij ≤ ai (supply)

X11 + X12 +X13 ≤ 40 ( supply point a1 )

X21 + X22 +X23 ≤ 25 ( supply point a2 )

X31 + X32 +X33 ≤ 40 ( supply point a3 )

∑i Xij ≥ bj (demand)

X11 + X21 +X31 ≥ 30 ( demand point b1 )

X12 + X22 +X32 ≥ 30 ( demand point b2 )

X13 + X23 +X33 ≥ 40 ( demand point b3 )

If there are M number of supply points and N number of demand points then the
number of constrains are M + N = 3 + 3 = 6

Xij ≥ 0 Non negativity restriction

The transportation problem is balanced when the total supply points are equal to
total demand points.

∑i ai = ∑j bj

Transportation problem is a LPP

i) Obtain the initial BFS of the following TP using N-W corner rule:

Destination
D1 D2 D3 Capacity
O1 8 9 7 40
Origin O2 4 3 5 25
O3 8 5 6 35
Requirement 30 30 40
Sol:

North West corner rule:

We would use this three supply three demand problem as a numerical illustration to explain the
algorithms and the methods. Now, this problem is shown in the form of a network and to make it
little simpler we now show it in the form of a table.

8 9 7 40 10
30 10

4 3 5
25 5

20 5 Supply

8 5 6
35
35
100

Demand 40 35

30 30 20

Solving the transportation problem is finding the values of the nine variables in this problem;
these nine variables are X11, X12, X13, X21, X22, X23 and so on.

Supply point 40, 25, 35 and the three demands are 30, 30 and 40.

The maximum we can transport from the first supply point to the first demand point is the
minimum of these two numbers which is 30.

North West corner Rule:

Cost = 8 x 30 + 9 x 10 + 3 x 20 + 5x5 + 6x 35 = 625

 ii) Obtain the initial BFS of the following TP using N-W corner rule.

Destination
D1 D2 D3 Capacity
O1 5 4 3 100
Origin O2 8 4 3 300
O3 9 7 5 300
Requirement 300 200 200

Sol:

5 4 3 100
100

8 4 3
300 100

200 100 Supply

9 7 5
300
100 200
200

Demand 200

300 200 200 100

Using N-W corner rule, the initial BFS is obtained as

x11 = 100, x21 = 200,
x22 = 100, x32 = 100
and
x33 = 200.
The number of allocated cells is 5 .
Therefore, the solution is non-degenerate and the corresponding
transportation cost is
Rs.(100 × 5 + 200 × 8 + 100 × 4 + 100 × 7 + 200 × 5)
= Rs. 4200.
iii) Minimum cost Method:

Obtain the initial BFS of the following TP using Minimum cost Method:

Destination
D1 D2 D3 Capacity
O1 8 9 7 40
Origin O2 4 3 5 25
O3 8 5 6 35
Requirement 30 30 40

Sol:

8 9 7
30 40 10
10
4 3 5

25 25 5

Supply
8 5 6

5 30
35 30

30 Demand 40 10

30 5

Now, what is the cost associated with this, the cost associated, the cost is 8 x 30 + 7 x 10 + 3 x
25 + 5 x 5 + 6 x 30 Cij x Xij which becomes 590.
iv) Obtain the initial BFS of the following TP using Matrix minima method.
Destination
D1 D2 D3 Capacity
O1 16 20 12 200
Origin
O2 14 8 18 160
O3 26 24 16 90
Requirement 180 120 150

Solution:

Minimum cost Method:

16 20 12
50 200 50
150
14 8 18

40 120 160 40

Supply
26 24 16

90
90

180 Demand 120 150

140

90

The initial BFS as shown in is

x11 = 50, x13 = 150,
x21 = 40, x22 =120 and x31 = 90.
The cost corresponding to this feasible solution is Rs.(50 × 16 + 150 × 12 + 40 × 14
+ 120 × 8 + 90 × 26)
= Rs. 6460.
i) Obtain the initial BFS of the following TP using N-W corner rule:

Destination
D1 D2 D3 Capacity
O1 8 9 7 40
Origin O2 4 3 5 25
O3 8 5 6 35
Requirement 30 30 40
Sol:

North West corner rule:

We would use this three supply three demand problem as a numerical illustration to explain the
algorithms and the methods. Now, this problem is shown in the form of a network and to make it
little simpler we now show it in the form of a table.

8 9 7 40 10
30 10

4 3 5
25 5

20 5 Supply

8 5 6
35
35
100

Demand 40 35

30 30 20

Solving the transportation problem is finding the values of the nine variables in this problem;
these nine variables are X11, X12, X13, X21, X22, X23 and so on.

Supply point 40, 25, 35 and the three demands are 30, 30 and 40.

The maximum we can transport from the first supply point to the first demand point is the
minimum of these two numbers which is 30.

North West corner Rule:

Cost = 8 x 30 + 9 x 10 + 3 x 20 + 5x5 + 6x 35 = 625

ii) Obtain the initial BFS of the following TP using N-W corner rule.

Destination
D1 D2 D3 Capacity
O1 5 4 3 100
Origin O2 8 4 3 300
O3 9 7 5 300
Requirement 300 200 200

Sol:

5 4 3 100
100

8 4 3
300 100

200 100 Supply

9 7 5
300
100 200
200

Demand 200

300 200 200 100

Using N-W corner rule, the initial BFS is obtained as

x11 = 100, x21 = 200,
x22 = 100, x32 = 100
and
x33 = 200.
The number of allocated cells is 5 .
Therefore, the solution is non-degenerate and the corresponding
transportation cost is
 Rs.(100 × 5 + 200 × 8 + 100 × 4 + 100 × 7 + 200 × 5)
= Rs. 4200.

iii) Minimum cost Method:

Obtain the initial BFS of the following TP using Minimum cost Method:

Destination
D1 D2 D3 Capacity
O1 8 9 7 40
Origin O2 4 3 5 25
O3 8 5 6 35
Requirement 30 30 40

Sol:

8 9 7
30 40 10
10
4 3 5

25 25 5

Supply
8 5 6

5 30
35 30

30 Demand 40 10

30 5

Now, what is the cost associated with this, the cost associated, the cost is 8 x 30 + 7 x 10 + 3 x
25 + 5 x 5 + 6 x 30 Cij x Xij which becomes 590.
iv) Obtain the initial BFS of the following TP using Matrix minima method.
Destination
D1 D2 D3 Capacity
O1 16 20 12 200
Origin
O2 14 8 18 160
O3 26 24 16 90
Requirement 180 120 150

Solution:

Minimum cost Method:

16 20 12
50 200 50
150
14 8 18

40 120 160 40

Supply
26 24 16

90
90

180 Demand 120 150

140

90

The initial BFS as shown in is

x11 = 50, x13 = 150,
x21 = 40, x22 =120 and x31 = 90.
The cost corresponding to this feasible solution is Rs.(50 × 16 + 150 × 12 + 40 × 14
+ 120 × 8 + 90 × 26)
= Rs. 6460.
 Penalty Cost Method

Solve by Vogel’s approximation method or Penalty cost Method and verifies the
solution with Stepping Stone Method?
Destination
D1 D2 D3 Capacity
O1 8 9 7 40
Origin O2 4 3 5 25
O3 8 5 6 35
Requirement 30 30 40

Sol:
8 9 7

Given: 4 3 5

8 5 6

8 9 7
5
35 40
4 3 5

25 25
8 5 6

30 5
35 5
30 5 30 40 35
Calculating:

Step 1.

I ) Row Penalties 1 , 1, 1

II) Column Penalties 4, 2, 1

Step 2.

I ) Row Penalties 1 , ___ , 1

II) Column Penalties 0 , 4 , 1

Step 3.

I ) Row Penalties 1 ,___, 2

II) Column Penalties 0, ___, 1

Solution:

8 9 7
5 35
4 3 5
25

8 5 6
30 5

Vogel’s approximation method or Penalty cost Method:

Cost of operation = 8 x 5 + 7 x 35 + 4 x 25 + 5 x 30 + 6 x 5 = 565

Now under: North West corner rule cost of operation = 625

Minimum cost Method=590: We observed under Vogel’s approximation method or Penalty cost
Method: Cost of operation = 8 x 5 + 7 x 35 + 4 x 25 + 5 x 30 + 6 x 5 = 565

565 is optimum solution?

Vogel's approximation method (VAM) is a technique used in solving transportation problems,
particularly in the field of operations research and logistics. It's named after the mathematician
Karl Menger, who introduced it in the 1950s. VAM is an improvement over the basic minimum-
cost method and northwest corner method for finding initial feasible solutions to transportation
problems.

In VAM, the costs associated with each cell of the transportation matrix are examined, and for
each row and column, the two lowest costs are identified. The difference between these two
lowest costs is then calculated, and the largest difference (called the "penalty") determines which
cell to allocate first. This process is repeated until all the capacities of either the supply or
demand points are exhausted.

Vogel's approximation method often results in better initial solutions compared to other methods
because it takes into account the differences in costs more effectively. However, it may not
always guarantee the optimal solution, so further optimization techniques may be needed
depending on the problem complexity and constraints.
 Stepping Stone Method
This is a procedure for determining the potential of improving upon each of the non- basic
variables in terms of the objective function. To determine this potential, each of the non-
basic variables is considered one by one. For each such cell, we find what effect on the total
cost would be if one unit is assigned to this cell. We then come to know whether the
current solution is optimal or not. If not, we improve that solution further.

Calculating:
Given Solution by Minimum cost Method=590:

8 9 7
30
10
4 3 5

25
8 5 6

5 30

Solution:

Operational cost = 8 x 30 + 7 x 10 + 3 x 25 + 6 x 30 + 5 x 5 = 590

Position 1 – 2

Cost = 9 -7 + 6 -5 = 3

Position 2 – 1

Cost = 4 – 3 + 5 -6 + 7 -8 = -1

Position 2 – 3

Cost = 5-6+5-3 = 1

Position 3 – 1

Cost = 8 – 8 +7 -6 = 1
 Re do the allocation: 2 – 2 to 2-1 total 25 units:

Position 1- 2

8 9 7
5 +1
35 -1
4 3 5

25

8 5 6

30 -1 5 +1

Cost = 9 – 7 + 6 – 5 = 3

Position 2- 2

8 9 7
5 +1
35 -1 40
4 3 5
+1
25 -1 25
8 5 6

30 -1 5 +1
35
30 30 40 35

Cost = 3 - 5+ 6 - 7 +8 – 4 = 1

Position 2- 3
 8 9 7
5 +1
35 -1
4 3 5

25 -1 +1

8 5 6

30 -1 5 +1

Cost = 5- 4 + 8 – 7 = 2

Position 3- 1

8 9 7
5 -1
35 +1
4 3 5

25

8 5 6

+1 30 5 -1

Cost = 8 – 8 + 7 – 6 = 1

No gain – Hence optimum

 Transportation Problem
MODI Method or Modified Distribution Method
The modified distribution method, also known as MODI method or (u, v) method pro- vides a
minimum cost solution to the transportation problem. In the stepping stone method, we have to
draw as many closed paths as equal to the unoccupied cells for their evaluation. To the
contrary, in MODI method, only closed path for the unoccupied cell with highest opportunity
cost is drawn.
The MODI method allows for efficiently identifying and exploiting opportunities for cost
reduction in transportation problems, leading to the optimal solution. It's widely used in
operations research and logistics for optimizing transportation and distribution systems.

We started with a solution allocated to various positions 30, 10, 25, 5 and 30. Now, this solution
is feasible, and using this solution we also defined some u’s and v’s.
We defined some u’s and v’s, we started with u1 = 0, and then we used ui + vj = Cij, where
there is an allocation.

V1 = 8 V2 = 6 V3 = 7

8 9 7
U1 = 0 40
30 10
(3)
4 3 5
U2 = -3 25
25
( -1) (1)
8 5 6
U3 = -1

5 30 35
(1)

30 30 40

For allocation Possessions:

I) ui + vj = Cij

U1 + V1 = C11

0 + V1 = 8
 V1 = 8

II) U1 + V3 = C13

0 + V3 = 7

V3 = 7

III) U3 + V3 = 6

U3 = 6 – 7 = -1

IV) U3 + V2 = 5

-1 + V2 = 5

V2 = 5+1 = 6

V) U3 + V2 = 3

U2 = 3 – 6

U2 = -3

We have used allocation positions to find U1 , U2 , U3, and V1 , V2,V3

Now compute for unallocated possession by using Cij – ( Ui + Vj )

For possession 1-2: 9 – ( 0 + 6)

= 9-6 =3

For possession 2-1: 4 – ( -3 + 8 )

= 4-5 = -1

For possession 3-1: 8-( -1 +8)

= 8-7 = 1

For possession 2-3: 5-(-3+7)

=5-(4) =1

The values for unallocated possessions are 3,-1,1,1 we observe that there is a negative value in
the solutions.
 V1 = 8 V2 = 6 V3 = 7

8 9 7
U1=0 40
30- ϴ 10 + ϴ
4 3 5
U2 = -4 25

ϴ 25- ϴ

8 5 6
U3 = - 1 35
5+ ϴ 30 - ϴ
40 35

30 30 40

Maximum value ϴ can take: 25

Redo the allocation:

V1 = 8 V2 = 6 V3 = 7

8 9 7
U1=0 40

5 35
(3)
4 3 5
U2 = -4 25
25
(1) (2)
8 5 6
U3 = -1 35
30 5
(1)
30 30 40

For allocation Possessions:

I) ui + vj = Cij

0+ V1 = 8
 V1 = 8

II) V1 + U2 = 4

U2 = 4-8 = -4

III) U1 + V3 = 7

V3 = 7

IV) U3 + V3 = 6

U3 + 7 = 6

U3 = -1

V) U3 + V2 = 5

-1 + V2 = 5

V2 = 6

Now compute for unallocated possession by using Cij – ( Ui + Vj )

For X11 :

9- (6+0) = 3

For X22 : 3 – (-4+6)

= 3 – (2) =1

For X23 : 5- (-4+7)

= 5-(3) =2

For X31 : 8-(8-1)

= 8-7 = 1

Value shown in red, all positive which means putting a unit in these positions is not going to
reduce the cost. Therefore, we stop the algorithm and say that we do not have a way by which
we can reduce it further, and therefore the algorithm stops.

(8 x 5) + (7 x 35) + (4 x 25) + (5 x 30) + (6 x 5).= 565

Modified Distribution algorithm or MODI algorithm works giving us the optimum solution and
the cost is which is 565