Chapter Five

Transportation Models
 Outline
 Transportation Modeling
 Developing an Initial Solution
 The Northwest-Corner Method (NWCM)
 The Intuitive Lowest-Cost Method(LCM)
 Vogel's approximation Method (VAM)
 The Stepping-Stone Method
 MODI
 Special Issues in Modeling
 Demand Not Equal to Supply
 Degeneracy
 Multiple Solution
 Uneconomical route
 Learning Objectives
When you complete this module you
should be able to:
1. Develop an initial solution to a
transportation models with the
northwest-corner and intuitive lowest-
cost methods
2. Solve a problem with the stepping-
stone method
3. Balance a transportation problem
4. Solve a problem with degeneracy
 Transportation Modeling
 An interactive procedure that finds
the least costly means of moving
products from a series of sources to
a series of destinations
 Can be used to
help resolve
distribution
and location
decisions
 Transportation Modeling
 Information Need to be known
1. The origin points and the capacity or
supply per period at each
2. The destination points and the
demand per period at each
3. The cost of shipping one unit from
each origin to each destination
 Assumptions
• Linearity – cost to be incurred is directly
related and proportionately vary with units
transported.
• Homogeneity – the units to be transported are
at least similar if not the same so that all sources
can distribute to all destinations.
• Demand equals supply – it is assumed that
the capacity of sources equals to the demand at
destinations. This can be modified later as
demand may not be equal to supply.
 Transportation Problem
To
From Factory Warehouse 1 Warehouse 2 Warehouse3
1 $5 $4 $3
2 $8 $4 $3
3 $9 $7 $5
Transportation Problem
Net work of distribution plan

Factory 1 Warehouse 1
(100 units (300 units
capacity) required)

Factory 2
(300 units
capacity) Warehouse 2
(200 units
required)

Factory 3
(300 units
capacity) Warehouse 3
(200 units
required)
 Transportation Matrix
To Warehouse 1 Warehouse 2 Warehouse 3 Warehouse Factory 1
capacity capacity
From constraint
$5 $4 $3
Factory 1 100
Cell
representing a
possible source-to-
$8 $4 $3 destination
Factory 2 300 shipping
assignment
(Factory 2 to)
Warehouse 3
$9 $7 $5
Factory 3 300

Warehouse
requirement 300 200 200 700

Cost of shipping 1 unit from Factory 3 to Total demand

warehouse 2 warehouse 3 demand and total supply
 Northwest-Corner Rule
 Start in the upper left-hand cell (or
northwest corner) of the table and allocate
units to shipping routes as follows:
1. Exhaust the supply (factory capacity, Fi) of
each row before moving down to the next
row(Fi stands for ith factory
2. Exhaust the (warehouse, Wj) requirements of
each column before moving to the next
column (Fj stands for jth warehouse)
3. Check to ensure that all supplies and
demands are met
 Northwest-Corner Rule
1. Assign 100 tubs from F1 to W1 (exhausting F1’s
supply)
2. Assign 200 tubs from F2 to W1 (exhausting W1’s
demand)
3. Assign 100 tubs from F2 to W2(exhausting F2’s
supply)
4. Assign 100 tubs from F3 to W2 (exhausting W2’s
demand)
5. Assign 200 tubs from F3 to W3 (exhausting W3’s
demand and F3’s supply)
 Northwest-Corner Rule
To W1 W2 W3 Factory
From capacity

$5 $4 $3
F1 100 100

$8 $4 $3
F2 200 100 300

$9 $7 $5
F3 100 200 300

Warehouse
requirement 300 200 200 700

Means that the firm is shipping 100

Figure 3 bathtubs from F3 to W2
 Northwest-Corner Rule
Computed Shipping Cost
Route
From To Tubs Shipped Cost per Unit Total Cost
F1 W1 100 $5 $ 500
F2 W1 200 8 1,600
F2 W2 100 4 400
F3 W2 100 7 700
F3 W3 200 5 $1,000
Total: $4,200

This is a feasible solution

Table C.2
but not necessarily the
lowest cost alternative
 Check for Feasibility
• Two conditions for feasibility:
1. The number of occupied cells (OC) equal to the sum of
number of rows(m) and number of columns(n)
= 3+3-1 =5 (then check the number
of OC by counting)
Note: If tis condition is not satisfied, i.,e Oc < m+n-1,
degeneracy will exist
2. Both demand and supply conditions should be
satisfied.
Note: Demand is satisfied if column values sum up to the destination
requirement and supply condition is satisfied if the row sums up to the
capacity of each factory
Intuitive Lowest-Cost Method
1. Identify the cell with the lowest cost
2. Allocate as many units as possible to
that cell without exceeding supply or
demand; then cross out the row or
column (or both) that is exhausted by
this assignment
3. Find the cell with the lowest cost from
the remaining cells
4. Repeat steps 2 and 3 until all units
have been allocated
Intuitive Lowest-Cost Method
To W1 W2 W3 Factory
From capacity

$5 $4 $3
F1 100 100

$8 $4 $3
F2 300

$9 $7 $5
F3 300

Warehouse
requirement 300 200 200 700

First, $3 is the lowest cost cell so ship 100 units from F1

to W3 and cross off the first row as F1 is utilized

Figure C.4
Intuitive Lowest-Cost Method
To W1 W2 W3 Factory
From capacity

$5 $4 $3
F1 100 100

$8 $4 $3
F2 100 300

$9 $7 $5
F3 300

Warehouse
requirement 300 200 200 700

Second, $3 is again the lowest cost cell so ship 100 units

from F2 to W3 and cross off column C as W3 is satisfied

Figure C.4
Intuitive Lowest-Cost Method
To W1 W2 W3 Factory
From capacity

$5 $4 $3
F1 100 100

$8 $4 $3
F2 200 100 300

$9 $7 $5
F3 300

Warehouse
requirement 300 200 200 700

Third, $4 is the lowest cost cell so ship 200 units from F2

to W2 and cross off column 2 and row 2 as F2 capacity
was used up and W2 demand are satisfied
Figure C.4
Intuitive Lowest-Cost Method
To W1 W2 W3 Factory
From capacity

$5 $4 $3
F1 100 100

$8 $4 $3
F2 200 100 300

$9 $7 $5
F3 300 300

Warehouse
requirement 300 200 200 700

Finally, ship 300 units from F3 to W1 as this is the only

remaining cell to complete the allocations

Figure C.4
Intuitive Lowest-Cost Method
To W1 W2 W3 Factory
From capacity

$5 $4 $3
F1 100 100

$8 $4 $3
F2 200 100 300

$9 $7 $5
F13 300 300

Warehouse
requirement 300 200 200 700

Total Cost = $3(100) + $3(100) + $4(200) + $9(300)

= $4,100
Figure C.4
Intuitive Lowest-Cost Method
To W1 W2 W3 Factory
From capacity

$5 $4 $3
F1This is a feasible solution, 100 100
and an improvement over
the previous solution,$8 but $4 $3
F2 200 100 300
not necessarily the lowest
cost alternative$9 $7 $5
F3 300 300

Warehouse
requirement 300 200 200 700

Total Cost = $3(100) + $3(100) + $4(200) + $9(300)

= $4,100
Figure C.4
 Vogel's Approximation
method (VAM)
• Vogel's approximation method is similar to
LCM except it is based on opportunity cost.
• It is the most efficient method of all( results in
optimal solution by it self or very close to
optimal solution)
• Accordingly, the cost of:
VAM <= LCM<NWCM
Note: Read text and supplementary material for
details
 Check for Feasibility
1. The no of OC < m + n -1 => indicating
degeneracy
2. Both demand and supply condition
satisfied
Checking for possibility for improvement
• Improvement in cost is possible if the
cell evaluation of empty cells result in
negative value.
• Under normal condition No of cells to
be evaluated equal to :
=> total cells(mxn) – OC = 9 – 5 = 4
Note: Transportation problem is optimal if
the evaluation of all empty cells result
in zero or positive values.
 Checking for possibility for
improvement cont’d…

• There are two methods to check for

improvement:
1.Stepping Stone
2.MODI(Modified distribution method)
 Stepping-Stone Method
1. Select any unused square to evaluate (Start
from feasible solution of NWCM)
2. Beginning at this square, trace a closed
path back to the original square via squares
that are currently being used
Note: Movements are possible only in either in
horizontal or vertical routes not diagonal
and always should create closed loop.
3. Beginning with a plus (+) sign at the unused
corner, place alternate minus and plus signs
at each corner of the path just traced
 Stepping-Stone Method
4. Calculate an improvement index by
first adding the unit-cost figures found
in each square containing a plus sign
and subtracting the unit costs in each
square containing a minus sign
5. Repeat steps 1 though 4 until you have
calculated an improvement index for all
unused squares. If all indices are ≥ 0,
you have reached an optimal solution.
 Stepping-Stone Method
To W1 W2 W3 Factory
From capacity

$5 $4 $3
F1 100
- +
100 F1 –W2
F2 200
$8
100
$4 $3
300 Boston index
+ -
F3
$9
100
$7
200
$5
300 = $4 - $5 + $8 - $4
Warehouse
requirement 300 200 200 700 = +$3

99 $5 1 $4
100
- +

201
+ $8 99
- $4
Figure C.5 200 100
 Stepping-Stone Method
To W1 W2 W3 Factory
From capacity

$5 $4 Start $3
F1 100 100
- +
$8 $4 $3
F2 200 100 300
+ -
$9 $7 $5
F3 100 200 300
+ -
Warehouse
requirement 300 200 200 700

F1 –W3 index
Figure C.6 = $3 - $5 + $8 - $4 + $7 - $5 = +$4
 Stepping-Stone Method
To
F2W1
– W3 index
W2 W3 Factory
capacity
From
= $3 - $5
$4 + $7 -$4$5 = +$1$3
F1 100 100
(Closed path = F2W3 – F2W2 +
F3W2 $8
– F3W3 index
$4 $3
F2 200 100 300
= $9 - $7 + $4 - $8 = -$1
$9 path =$7F3W1- F3W2
(Closed $5 + F2W2
F3 100 200 300
– F2W1)
Warehouse
requirement 300 200 200 700
 Re - distribution plan
• This is similar to determining the
entering and leaving variables in
LPMs.
• When there is possibility for
improvement, redistribution will be
made to the route which resulted in
negative cell evaluation.
 Stepping-Stone Method
Note: Since route F3w1 resulted in negative cell evaluation index,
as many units as possible can be redistributed to this route.

1.If an improvement is possible, choose the

route (unused square) with the largest negative
improvement index
2.On the closed path for that route, select the
smallest number found in the squares
containing minus signs
3.Add this number to all squares on the closed
path with plus signs and subtract it from all
squares with a minus sign
 Stepping-Stone Method
To W1 W2 W3 Factory
From capacity

$5 $4 $3
F1 100 100

$8 $4 $3
F2 200 100 300
- +
$9 $7 $5
F3 100 200 300
+ -
Warehouse
requirement 300 200 200 700
1. Add 100 units on route F3W1
2. Subtract 100 from routes F3W2
3. Add 100 to route F2W2
Figure C.7 4. Subtract 100 from route F2W1
 Stepping-Stone Method
To W1 W2 W3 Factory
From capacity

$5 $4 $3
F1 100 100

$8 $4 $3
F2 100 200 300

$9 $7 $5
F3 100 200 300

Warehouse
requirement 300 200 200 700

Total Cost = $5(100) + $8(100) + $4(200) + $9(100) + $5(200)

= $4,000
Figure 8
 Check for optimality
• Repeat the same procedure of
evaluating empty cells for whether there
is any possibility for further
improvement:
• if cell evaluation results in any negative
number, make reallocation to the cell
with largest negative number
• If all empty cell evaluation values result
in >= 0, this is indication of optimality
 MODI Method
• Let’s evaluate Fig 8 above using MODI
for optimality(Note: It is also possible to
do the same by using stepping stone:
• MODI is done by computing row
index(Ui) and Column index (Vj)
• Row and column index is computed by
developing equations only for occupied
cells.(Note: OC = M+n -1; hence the no
of equations = OC)
 MODI Method
• Ui+Vj = Unit transportation cost of
respective occupied cell.
let U1 is row index for Row 1… and
V1 is column index for Column 1…
Equations are developed only for OC.
U1 + V1 = 5
U2 +V1 = 8
U2 +V2 = 4
U3 +V1 = 9
U3+V3 = 5
 Index computation
• Always start by assigning a “0” value
to U1 and compute for the remaining
index values:
U1 + V1 = 5 => V1 = 5 – 0 = 5
U2 +V1 = 8 => U2= 8-5 = 3
U2 +V2 = 4 => V2 = 4-3 = 1
U3 +V1 = 9=> U3 = 9-5 = 4
U3+V3 = 5=> V3 = 5-4 =1
 Empty cell evaluation(rij)
• Empty cell evaluation(rij) equals to unit
transportation cost of empty cell(cij)
minus the sum of row and column
index
• rij = cij –(Ui+Vj)
• If any rij <0, it is an indication of
possibility for improvement.
• If rij >=0, the allocation is optimal
 Empty cell evaluation
.From To W1
V1 =5
W2
V2 = 1
W3
V3 = 1
Factory
capacity

$5 $4 $3
F1 100 100
U1 = 0
$8 $4 $3
F2 100 200 rij = -1 300
U2 = 3
$9 $7 $5
F3 100 200 300
U3 = 4
Warehouse
requirement 300 200 200 700
 Empty cell evaluation
• r12 = 4 - (0+1) = +3
• r13 = 3-(0+1) = +2
• r23 = 3 –(3+1) = -1
• r32 = 7 –(4+1) = +2
• This indicates the above distribution is
not optimal.
• Though MODI is used to evaluate
empty cells, it still depends on
stepping stone for re allocation
 Reallocation plan
• To W1
V1 =5
W2
V2 = 1
W3
V3 = 1
Factory
capacity
From

$5 $4 $3
F1 100 100
U1 = 0

$8 $4 $3
F2 100 200 300
U2 = 3

$9 $7 $5
F3 100 200 300
U3 = 4

Warehouse
1. Add 100 units on route F2W3
requirement 300 200100 from
2. Subtract 700
200 routes F2W1
3. Add 100 to route F3W1
4. Subtract 100 from route F3W3
 Reallocated Table
To W1 W2 W3 Factory
From V1 =5 V2 = 1 V3 = 1 capacity

$5 $4 $3
F1 100 100
U1 = 0

$8 $4 $3
F2 200 100 300
U2 = 3

$9 $7 $5
F3 200 100 300
U3 = 4

Warehouse
requirement 300 200 200 700
 Check for optimality
• You can use either stepping stone or MODI.
• F1W2 Route =>F1W2-F1W1-F3W1-F3W3-F2W3-F2W2

=4 -5+9-5+3-4 = 16-14= +2
• F1W3 Route => F1W3-F1W1-F3W1-F3W3
= 3-5+9-5
= 12-10 = +2
• F2W1 Route => F2W1-F2W3-F3W3-F3W1
= 8-3+5-9 = 13-12= +1
• F3W2 Route=> F3W2-F2W2-F2W3-F3W3
= 7-4+3-5 = 10 – 9 = +1
Note: Since all cell evaluation values are >= 0, the distribution plan is
optimal.
 Optimal distribution
Cost
•F1 100 @5 W1 500
1800
•F2 200@4 W2 800
200@9 100@3 300

•F3 100@5 W3 500

Total 3900
 Special Issues in Modeling
 Demand not equal to supply
 Called an unbalanced problem
 Common situation in the real world
 Resolved by introducing dummy sources or dummy
destinations as necessary with cost coefficients of zero
 When supply> demand=> dummy column is added and
when Demand >Supply, dummy row will be added.
 All other procedures are the same.
Q. Assume capacity of F1 is increased to 250 units, which
of the which of the Factories will have excess capacity?
Q2. Assume demand for W1 has slashed to 200 units, which
of the Factory will have excess capacity?
 Special Issues in Modeling
Total Cost = 250($5) + 50($8) + 200($4) + 50($3) + 150($5) + 150(0)
= $3,350
To W1 W2 W3 Factory
Dummy capacity
From
$5 $4 $3 0
F1 250 250

$8 $4 $3 0
F2 50 200 50 300

$9 $7 $5 0
F3 150 150 300

Warehouse
requirement 300 200 200 150 850

New
Figure C.9 F1 capacity
 Alternative solution
• Occurs when the cell evaluation of
empty cell result in zero value, where
the units will be assigned to such
cell to get alternative distribution
plan.
Uneconomical or Prohibited
routes
• When some routes are temporarily
prohibited, them a big +M will be
assigned to a unit transportation
cost cell and all other procedures
will be the same.
• This will make the prohibited route
out of the allocation plan.
Special Issues in Modeling

 Degeneracy
 To use the stepping-stone
methodology, the number of
occupied squares in any solution
must be equal to the number of
rows in the table plus the number
of columns minus 1
 If a solution does not satisfy this
rule it is called degenerate
 Special Issues in Modeling
To Customer Customer Customer Warehouse
From 1 2 3 supply

$8 $2 $6
Warehouse 1 100 100

$10 $9 $9
Warehouse 2 0 100 20 120

$7 $10 $7
Warehouse 3 80 80

Customer
demand 100 100 100 300

Initial solution is degenerate

Place a zero quantity in an unused square
Figure C.10 and proceed computing improvement indices
 Solving Transportation
problem as LPMs
Step1. Formulate the problem as LPM.
Step 2. Use excel solver to find the
optimal solution
Step 3. Prepare the optimal distribution
plan and compute the minimum total
cost
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