Logistics transportation problems with linear programming

6.3 Literature review

6.3.1 Linear programming
LP was initially used, along with many other management science techniques, as a discipline in
the 1940s during and shortly after World War II Its development quickly accelerated after World
War II as many industries found the technique valuable and began adopting it as a standard tool
to allocate resources in an optimal way. LP is categorized under tools and techniques applied in
decision analysis in OR where the problem data are known deterministically. Deterministic and
probabilistic decision models are part of decision-making problems.Optimizing system
performance in TPs necessitates continual improvement to minimize cost and maximize
performance. A preferred method is to use a model accurately representing the appropriate aspect
of the operation process to describe potential solutions. A mathematical optimization model
consists of an objective function and a set of constraints expressed in the form of a system of
equations or inequalities.
Today, LP is used to solve decision problems in many interesting and important applications that
may contain thousands of variables. Some of applications for its use include:
● Product mix planning
● Distribution networks
● Truck routing
● Staff scheduling
● Financial portfolios
● Corporate restructuring
6.3.2 Transportation problems
The TP (also known as the transportation theory) was formalized by the French mathematician
Gaspard Monge in 1781. During World War II, major advances on the theory were made by the
Soviet mathematician and economist Leonid Kantrovich.
6.3.2.1 Transportation problem defined
The main purpose of the TP is minimize the cost of satisfying the needs of each demand center
and operate within the capacity of the supply source. Supply sources may sometimes be referred
to as “origin.” Each supply source has a predetermined supply capacity and each demand
destination has a predetermined level of demand that has to be satisfied. The objective of a TP is
to ensure that the correct number of products is shipped between each source and destination
while minimizing shipping cost and meeting demand and supply constraints by not exceeding
supply at each source but meet demand requirements of destinations.
Fig. 6.1 is an Illustration of supply to demand shipment.
The TP solution’s key objective is to reduce the cost of the transportation. There are many
methods currently being employed to solve TPs including computer-aided methods. The majority
of the presently used methods for solving TPs are trying to reach the optimal solution.
6.3.2.2 Importance of transportation problem and linear programming in business and industry
Today, LP is used to solve decision problems in many interesting and important applications that
may contain thousands of variables. Some of the applications for its use include:
● product mix planning
● distribution networks
● truck routing
● staff scheduling
● financial portfolios
● corporate restructuring In business and industry today, LP is so effective it is said to account
for as much as 90% of all computing time for business management decisions. In a relatively
short period of time, it has changed the way business managers make decisions, from that of
guesswork and intuition, to the use of an algorithm based on available data that accurately
produces optimal decisions. Transportation is vital to the sustainability of many businesses and
hugely affects the economy of many countries. This is mainly because businesses basically thrive
on trading and transportation is the conveyor of any form of trade (goods or services). The
geographical spread of the human population and natural resources and the need for trading
among different countries means transportation plays a critical role in many economies.
6.3.2.3 Types of transportation problems
The TP can be balanced or unbalanced. A balanced TP and an unbalanced TP are discussed as
follows; Balanced TP: When the total amount demanded at all destinations is equal to the total
supply available at all sources. Unbalanced TP: When the total demanded at all destinations is
not equal to the total supply available at all sources. Even if the TP is unbalanced, it is possible to
balance the problem. To balance an unbalanced TP, you need to add a dummy line. A dummy line
is any arbitrary destination or source which is introduced into the problem such that it does not
change the problem. If your total supply is less than your total demand, you add a dummy source
and let the supply equal the difference. The shipping cost in a dummy destination or shipping
cost from a dummy source is always zero. The TP can be visualized as a set of nodes
representing m sources and n destinations interconnected by direct “arcs,” which represent the
routes from each source to a destination (Fig. 6.2). The total required number of direct arcs is
equal to m X n
6.4 Solving transportation problems
6.4.1 LP Formulation
Suppose a company has m warehouses, i (source or origin) and n retail outlets, and j (demand
center). Products are to be shipped from the warehouses to the retail outlets. Each warehouse has
a given level of supply, and each retailreatil outlet has a given level of demand. Also, we are
given the transportation cost between every warehouse and the retail outlet, and these costs are
assumed to be linear. More explicitly, the assumptions are: The total supply of the products from
warehouse i = ai, where i = 1,2,3...m. The total demand of the products at the retail outlet j = bj,
where j = 1,2,3,...n. The cost of sending one unit of the product from warehouse i to retail outlet j
is equal to Cij, where i = 1,2,3...m and j = 1,2,3,....n.

6.4.1.1 Decision variables

The variables in the LP model of the TP will hold the values for the number of units shipped
from one source to a destination. The decision variables are: Xij = the size of shipment from
warehouse i to outlet j,
where i = 1,2,3...m and j = 1,2,3,...n.
The number of decision variables = m X n.
6.4.1.2 Objective function
The objective function contains the costs associated with each of the variables. It is a
minimization problem.
Consider the shipment from warehouse i to outlet j. For any i and j, the transportation cost per
unit Cij and the size of the shipment is Xij. Since we assume that the total cost function is linear,
the total cost of this shipment is given by CijXij.
Summing over all i and j now yields the overall transportation cost for all warehouseoutlet
combinations. Our objective function is then
6.4.1.3 Constraints
TPs pose conditions that have to be satisfied to be able to obtain a true result. These conditions
are known as constraints. In a TP, every node (each source or destination point) has a constraint.
Hence, the total number of constraints for a TP equals m+n. Let ai be a source capacity and
bjdenote destination needs.
6.4.2 Steps in solving a transportation problems In order to solve a TP, you must first understand
the necessary steps it takes to solve the problem. There are four common steps used to solve a
TP:
1. Define the problem and prepare the transportation tableau.
2. Obtain an initial feasible solution. Logistics transportation problems with linear programming
3. Identify the optimal solution.
4. Understand special situations.
6.4.2.1 Define the problem and prepare the transportation tableau
The transportation tableau clearly articulates the supply and demand constraints and the shipping
cost between each demand and supply point. Table 6.1 is an example of a transportation tableau.
6.4.2.2 Obtain an initial feasible solution There are various initial basic feasible solutions used to
solve a TP. Here are a few of commonly used methods.
1. North-west corner method
2. Least-cost method
3. Vogel approximation
6.4.2.2.1 North-West corner method
The north-west corner method is a method for finding the initial basic feasible solution where the
basic variables are selected from the top-left corner (north-west of the table). Even though it may
be simple and easy to use it often produces an insufficient solution, which can be considered a
disadvantage.
6.4.2.2.2 Least-cost method
In this method, the basic variables are chosen according to the transportation cost. The solution is
found by considering the cheapest cell, assigning most of the supply to that cell, crossing out the
figures in the corresponding rows and columns and modifying the figures of the remaining cells
accordingly.
6.4.2.2.3 Vogel’s approximation method
VAM is an improved version of the least-cost method that generally, but not always, produces
better starting solutions. VAM is based on the concept of minimizing opportunity (or penalty)
costs. The opportunity cost for a given supply row or demand column is defined as the difference
between the lowest cost and the next lowest-cost alternative. This method is preferred over the
methods discussed above because it generally yields an optimum, or close to optimum, starting
solution. Consequently, if we use the initial solution obtained by VAM and proceed to solve for
the optimum solution, the amount of time required to arrive at the optimum solution is greatly
reduced (Asase, 2013)

6.4.2.3 Identify the optimal solution

This step seeks to make improvements to the initial feasible until no further reduced cost of
transportation is possible. To ensure this, every unoccupied cell in the transportation tableau is
analyzed. The method widely used for this stage is the stepping stone method using modified
distribution (MODI)
6.4.2.4 Demand not equal to supply (unbalanced problem)
A situation occurring frequently in real-world problems is the case where total demand is not
equal to total supply. These unbalanced problems can be handled easily by the solution
procedures discussed above if we first introduce dummy sources or dummy destinations. In the
event that total supply is greater than total demand, a dummy destination, with demand exactly
equal to the surplus, is created. If total demand is greater than total supply, we introduce a
dummy source (factory) with a supply equal to the excess of demand over supply. In either ease,
cost coefficients of zero are assigned to each dummy location.
6.5 Graphical method
The TP can be easily solved by the graphical method if the problem has only two decision
variables. By applying the graphical method, we are able to easily see the feasible region and
determine the optimal solution. The feasible region represents a set of solution space that is
satisfied by all of the constraints. Any point within the feasible region can be a solution of that
problem.
The graphical method cannot be used when there are more than two decision variables. The
following steps are involved:
1. Determine the objective of the problem (in the TP, we already know the objective is to
minimize transportation cost).
2. Find and simplify the constraints.
3. Plot the graph and determine the feasible area.
4. List all the vertices of the shaded area.
5. Evaluate the objective function Z =ax +by for each of the listed vertices.
6. Determine the minimum value from the evaluation done in the previous step