Transportation Problem

Warehouse Bhairaha Biratnaga

Birgunj Available
Plant wa r
Kathmandu 2 5 7 60
Dhulikhel 2 3 4 70
Bidur 5 8 11 80
Demand 50 80 80 210

The Transportation Problem Model

To know much about the transportation problem model we are supposed to get well acquainted
with following terminologies and assumptions.

Terminologies
a. Units of a commodity: The units of a commodity should be strictly defined as per the
nature of transportation problem. For eg. Incase of quantity supply, units may be truck
loads, kgs., etc.
b. Sources and destinations: Sources are any group of supply centers from where
commodities distributed to any group of receiving centers (destinations). Usually, in
general transportation model we have m sources and n destinations.
c. Supply and demand: Each source has a certain supply (Si) units for distribution to the
destination and each destination (dj) has a certain amount of demand of units to be
received from the sources.
d. Cost per unit: The cost (Cij) per unit distributed from source (i) to destination (j) should
be strictly defined.

Assumptions
a. About supply and demand: Each source has a certain amount of supply that should be
supplied to the destinations entirely as each destination has a certain demand. A
transportation problem will have feasible solution iff
Si = dj
Where,
Si = The number of units being supplied by source i, for i = 1, 2, . . ., m
dj = The number of units being received by destination j, for j = 1, 2, . . ., n
This assumption is that there needs to be a balance between the total supply from all
sources and the total demand at all destinations. However, in some real world problems,
the assumption of a balance between supply and demand does not hold. In such a
 situation we need to reformulate the problem by introducing a dummy source or a
dummy destination to take up the slack accordingly when supply is lesser than demand
or when supply exceeded the demand.
b. The cost assumption. The cost of receiving units to any particular destination from any
particular source is directly proportional to the number of units received. Therefore, the
total cost in the transportation problem is the unit cost of distribution times the number
of units distributed from the sources.
The per unit cost to each destination is assumed to be zero when we introduce a dummy
source and the per unit cost from each source is assumed to be zero when we introduce a
dummy destination. We don't assume zero in case we are given a penalty cost.
c. The model. Any problem fits the transportation model if and only if (i) the assumption of
balance between total supply and total demand, (ii) the cost assumption are satisfied. The
following table includes all the parameter (Demand, Supply and Cost).
Destination 1 2 3 ... n Supply
Sources
1 C11 C12 C13 ... C1n S1
2 C21 C22 C23 ... C2n S2
3 C31 C32 C33 ... C3n S3
: : : : : : :
M Cm1 Cm2 Cm3 ... Cmn Sm
Demand d1 d2 d3 ... dn Si
dj
Let Z be the total distribution cost and X ij (i = 1, 2, ..., m; j = 1, 2, ..., n) be the number of units to
be distributed from source i to destination j, the linear programming formulation of this
problem is
Minimize total cost, Z = Cij Xij
Subject to linear constraints
Xij = Si for i = 1, 2, . . ., m
Xij = dj for j = 1, 2, . . ., n
and Xij > 0 for all i = 1, 2, . . . , m and
j = 1, 2, . . . , n
Remark: The simplex method of linear programming problem is not suitable to solve
transportation problem as the LPP model involves many decision variables and constraint, if we
follow manual method.
d. Since it is method of obtaining the best schedule under the condition of certainty, all the
parameters should be known.

Types of Transportation Problem

The transportation problems are of two types depending upon the supply and demand.
(i) If supply = demand, the problem is of balanced type i.e. Si = dj
(ii) If supply  demand, the problem is of unbalanced type i.e. Si  dj
It should be noted that the transportation problem will be solved only when we convert
unbalanced transportation problem into balanced transportation problem by adding a dummy
source or destination as per the requirement.

6.2 METHODS OF GETTING OPTIMAL SOLUTION OF

TRANSPORTATION PROBLEM
The method of getting optimal solution of transportation problem consists of following two
steps.

Step 1: Getting an initial basic feasible solution

For this step we can use North-West Corner Method (NWCM), Least Cost Method (LCM) and
Vogel's Approximation Method (VAM). We will discuss only VAM which yields the most
basic feasible solution.
Fundamental concept of VAM is based on the penalty cost method.
The steps involved in this method are given below:
Step 1 Find the cost difference of the least cost from next cost just higher than the least, along
each row and each column.
Step 2 Put an arrow over the largest difference from among all differences. Then allocate
goods along the row or column having largest difference. Sometimes we may have a tie
between (among) differences; in this situation we need to select the row or column
having least cost. Even, if there is a tie between (among) the costs, we need to select a
cell which can have maximum demand.
Step 3 Cross the row or column whose availability and requirement is fully allocated.
Step 4 Step 2 and 3 are repeated until the given supply and demand are fully exhausted.
Step 5 We compute initial transportation cost. This ends the VAM.
For optimal solution, we need to go beyond this which we have already discussed.

Start

For each row and column find the difference between the two least cost cells that have not been allocated

Select the largest of the differences of rows and columns, and either one in case of a tie

Assign the largest quantity permissible by the rim requirements to the cell in that row/column with the smallest cost

Eliminate the row/column that has been satisfied

Are all rim conditions satisfied?

Yes
No STOP
Figure Flow chart of VAM.
Example
ABC Construction company moves materials between three plants and three projects. Project A
requires 24 units of material each week, project B requires 18 units and project C requires 33
units. Plant X can supply 27 units, plant Y can supply 22 units and plant Z can supply 26 units.
Using the given cost information. Obtain the initial basic feasible solution by VAM.
Cost information:
From To Project A To Project B To Project C
Plant X 23 25 26
Plant Y 17 21 12
Plant Z 29 30 19
Solution
Step 1: Getting an initial basic feasible solution by VAM
Project A B C Supply Cost difference
Plant I II III
X 9 18 X 27 2 2 2
23 25 26 18
Y 15 X 7 22 5 5 4
17 21 12 15
Z X X 26 26  – –
29 30 19 10
Requirement 24 9 18 33 7 75
I 6 4 7
Cost difference

II 6 4  14
III 6 4 –

Initial transportation cost = 9 × 23 + 18 × 25 + 15×17 + 7 × 12 + 26 × 19

= 207 + 450 + 255 + 84 + 494
= Rs. 1,490

Procedure
 Along each row and column cost difference is obtained by subtracting the least cost from
next to the least cost.
Calculation of first cost difference
Along R1, 25 - 23 = 2
Along R2, 17 - 12 = 5
Along R3, 29 - 19 = 10
Along C1, 23 - 17 = 6
Along C2, 25 - 21 = 4
Along C3, 19 - 12 = 7
After calculating, among the differences, the highest difference '10' is taken and put an arrow
over it. Select the least cost '19' in third row. This cost is unit transportation cost from plant Z
to project C. Where we see 26 units of supply and 33 units of demand. Hence, all 26 units are
supplied to this cell. We cross out '26' as there is no more supply. As well as we cross out the
remaining cells of Z row.
 Calculation of second cost difference: This calculation is done similarly as we did previously.
However, along R3, we don't have difference so the empty sign (-) is put along it as there is
no more supply.
 Repeatedly we go on allocating goods to the selected cells until we equalize the addition of
allocated goods along each row wise to given supply.
That is, X11 + X12 = 9 + 18 = 27 along R1
X21 + X23 = 15 + 7 = 22 along R2
X33 = 26 along R3
This holds true for column wise also.
X11 + X21 = 9 + 15 = 24 along C1
X12 = 18 along C2
X23 + X33 = 7 + 26 = 33 along C3
Then initial transportation cost is calculated by taking sum of the product of allocated goods
with respective unit transportation cost.
Among the three methods, VAM yields the most efficient initial solution. However, this
method involves more computational skills comparing to others.
Step 2 Testing the Optimality Condition
After obtaining an initial basic feasible solution of a given transportation problem, we need
to test whether the basic feasible solution is optimal or not on the basis of opportunity cost
i.e., there may exist other set of transportation routes which will reduce the initial
transportation cost. To test the optimality condition, we may use any of the following two
methods.

The modified distribution (MODI) method:

The modified distribution method is similar to stepping method. However, we don't trace
closed path to all unoccupied cells in this method. We identify the unoccupied cell to which
closed path is necessary for improving the solution. The identification of unoccupied cell is
made on the basis of improvement indices (opportunity costs) of all the unoccupied cells. The
unoccupied cell with the most negative value has been identified. If all improvement indices are
non-negative, an optimal solution is obtained.
Following steps are used in this method.
1. Determine an initial basic feasible solution by NWCM/LCM/VAM.
2. Confirm the number of occupied cells is equal to the number of rows plus number of
columns minus 1.
3. Calculate the row values (Ri) and column values (Kj) for each occupied cell by using the
relation, Cij = Ri + Kj.
Where, Cij = unit transportation cost corresponding to ith row and jth column.
(Note: The details on it is given in 6.2.1)
4. Calculate the improvement indices (opportunity costs) to all unoccupied cells using the
relation.
ij = Cij - (Ri + Kj)
 (Note: The details on this is given in 6.2.1)
5. If all improvement indices are non-negative, an optimal solution is obtained. If not, the
unoccupied cell with most negative value is identified and a closed path is traced starting
from this cell. Then, reallocation of goods is made as discussed in stepping method.
6. Get back to step 2 and follow the same procedure until we reach an optimal solution.
To have the better understanding, consider the initial basic feasible solution by VAM (eg. 3) in
the following table.
Step 1 Table 1
Project
A B C Supply
Plant
X 9 18 27
23 25 26
Y 15 7 22
17 21 19
Z 26 26
29 30 19
Requirement 24 18 33 75
Since the number of occupied cells = m + n - 1 = 3 + 3 - 1 = 5, this is the case of non-degeneracy.
The above table is re-stated as follows:
Project A B C Supply Ri
Plant
X 9 18 27 R1 = 6
23 25 26
Y 15 7 22 R2 = 0
17 21 12
Z 26 26 R3 = 7
29 30 19
Requirement 24 18 33 75
Kj K1 = 17 K2 = 19 K3 = 12
Step 2 Calculation of row values and column values for occupied cells by using the relation.
Cij = Ri + Kj
Assuming R2 = 0 (as second row contains many occupied cells), we obtain other values as
follows:
C21 = R2 + K1  17 = 0 + K1  K1 = 17
C23 = R2 + K3  12 = 0 + K3  K3 = 12
C11 = R1 + K1  23 = R1 + 17  R1 = 6
C12 = R1 + K2  25 = 6 + K2  K2 = 19
C33 = R3 + K3  19 = R3 + 12  R3 = 7
Step 3 Calculation of improvement indices for unoccupied cells by using the relation
ij = Cij - (Ri + Kj)
Here,
13 = C13 – (R1 + K3) = 26 – (6 + 12) = 8
22 = C22 – (R2 + K2) = 21 – (0 + 19) = 2
 31 = C31 – (R3 + K1) = 29 – (7 + 17) = 5
32 = C32 – (R3 + K2) = 30 – (7 + 19) = 4
Since all improvement indices are positive, an optimum solution has been obtained
i.e. X11 = 9, X12 = 18, X21 = 15, X23 = 7 and X33 = 26
Minimum transportation cost = Rs. 1490.

SUMMARY OF METHOD OF GETTING OPTIMAL SOLUTION

Step 1 Getting an initial basic feasible solution. This step has got following breakdowns.
1.1 Finding an initial allocation by NWCM/LCM/VAM
1.2 Tests of degeneracy.
The starting basic solution must consist m + n – 1 basic variables (occupied cells) where m and n
stand for sources and destinations.
Step 2 Testing the Optimality Condition using MODI method. This step has got following
breakdowns under modified distribution method.
a. Calculation of row values and column values for occupied cells using the relation
Cij = Ri + Kj.
Where,
Cij = unit transportation cost from ith source to jth destination.
Ri = sharing of ith source in unit transportation cost to jth destination
Kj = sharing of jth destination in unit transportation cost with respective ith source
The calculation starts with the assumption of any of row values or column values as zero (we
may assume any value but zero is much in practice because of being non-trivial solution) on the
basis of existence of maximum number of occupied cells row-wise or column-wise. Both R i and
Kj are also known as dual (two parties) cost of transportation.
b. Calculation of improvement indices for unoccupied cells using the relation.
ij = Cij - (Ri + Kj).
If we find all ij's > 0, the optimality condition is satisfied otherwise, we need to go to next step.
Where,
ij = difference between unit cost and sharing of both sources and destinations in unit
transportation cost.
Interpretation of ij
(i) If ij = 0, the sharing of both sources and destinations in unit transportation cost is equal
to unit transportation cost. The literal meaning is that it doesn't make any change in the
existing total cost of transportation even we use that particular cell.
(ii) If ij > 0, the unit transportation cost exceeds the sharing.
The literal meaning is if we use that particular cell, it makes total transportation cost
higher than existing one.
Note: ij can be defined as
 ij = Ri + kj – Cij, then solution will be optimal if all ij < 0.
(iii) If ij < 0, the sharing exceeds the unit transportation cost.
The literal meaning is if we use that particular cell, it makes total transportation cost
lower than existing one.
c. Loop formation: This method is followed if we have at least one of the unoccupied cells
will have the values less than zero. This indicates that there is further possibility of
reduction in initial transportation cost after reallocation.
Example
Given the transportation frame work, find the optimum transportation program cost.
To
A B C Plant Capacity
From
W 4 8 8 55
X 16 24 16 25
Y 8 16 24 35
Requirement 35 45 35 115

Solution
Step 1. Getting an initial basic feasible solution by VAM
To A B C Plant Cost
From Capacity Difference
I II
X 45 10 55
W 4 4
4 8 8 10
X X 25
X 25 0 0
16 24 16
35 X X 
Y 35 8
8 16 24 16
Requirement 35 45 35 115
Cost I 4 8 8
difference II 4 – 8

Initial transportation cost = 45 × 8 + 10 × 8 + 25 × 16 + 35 × 8

= 360 + 80 + 400 + 280
= Rs. 1,120
Step 1.1. Tests of degeneracy
The number of occupied cells is = 4, but m + n - 1 = 3 + 3 - 1 = 5, so this is the case of
degeneracy. To resolve degeneracy, let's allocate ''to the least unoccupied cell (1, 1) (we may
allocate to any unoccupied cell, provided that there should not be or loop). The allocation of
zero is shown in the next table.
Step 2. Testing the optimality condition (using MODI)
The above table is restated with allocation of zero the cell (1, 1) as follows:
To A B C Plant Capacity Ri
From
W  45 10 55 R1 = 0
4 8 8
X 25 25 R2 = 8
16 24 16
Y 35 35 R3 = 4
8 16 24
Requirement 35 45 35 115
Kj K1 = 4 K2 = 8 K3 = 8
Step 2.1. Calculation of row values and column values for occupied cells
We use the relation,
Cij = Ri + Kj
Assume R1 = 0 such that we generate other values for row and column using the above relation
in the following manner.
C11 = R1 + K1  4 = 0 + K1  K1 = 4
C12 = R1 + K2  8 = 0 + K2  K2 = 8
C13 = R1 + K3  8 = 0 + K3  K3 = 8
C23 = R2 + K3  16 = R2 + 8  R2 = 8
C31 = R3 + K1  8 = R3 + 4  R3 = 4
Step 2.2 Calculation of improvement indices for unoccupied cells using the relation.
ij = Cij - Ri - Kj
Here, 21 = C21 - R2 - K1 = 16 - 8 - 4 = 4
22 = C22 - R2 - K2 = 24 - 8 - 8 = 8
32 = C32 - R3 - K2 = 16 - 4 - 8 = 4
33 = C33 - R3 - K3 = 24 - 4 - 8 = 12
Since all improvement indices are non-negative the optimal solution has been obtained.
Therefore, the minimum transportation cost = Rs. 1120 at X12 = 45, X13 = 10, X23 = 25 and X31 = 35.

UNBALANCED TRANSPORTATION PROBLEM

The transportation problem will be unbalanced if supply  demand i.e. either supply exceeds
demand or demand exceeds supply.
While solving unbalanced transportation problem, at first we need to form balanced
transportation problem by creating dummy destination or dummy origin as per the
requirement.
If supply exceeds demand, we need to create a dummy destination for excess units with 'O' as
unit transportation cost until we are given penalty cost.
If demand exceeds supply, we need to create a dummy supply centre for excess demand with
'O' as unit transportation cost until we are given penalty cost.
Example
A company has received a contract to supply gravel for three new construction projects located
in towns A, B and C. Construction engineers have estimated the required amounts of gravel
which will be needed at these construction projects:
Weekly requirements
Project Location
(truck loads)
A 72
B 102
C 41
The company has 3 gravel pits located in towns X, Y and Z. The gravel required by the
construction projects can be supplied by three pits. The amount of gravel which can be supplied
by each pit is as follows:
Pit X Y Z
Amount available (truck loads) 76 82 77
The company has computed the delivery cost from each pit to each project site. These costs (in
Rs.) are shown in the following table:
Project Location
A B C
X 4 8 8
Pit Y 16 24 16
Z 8 16 24
Schedule the shipment from each pit to each project in such a manner so as to minimize the
total transportation cost within the constraints imposed by pit capacities and project
requirements. Also find the minimum cost.
Solution
Since the total plant availability of 235 truck loads exceeds the total requirement of 215
truckloads by 20 truck loads, we need to make the transportation problem balanced by adding a
dummy project location (D) for excess supply of to truck loads with zero as transportation cost.
The modified transportation problem is as follows:

Project Location A B C D Supp

Pit ly

W 4 8 8 0 76
X 16 24 16 0 82
Y 8 16 24 0 77
Demand 72 102 41 20 235
Step 1. Initial basic feasible solution by VAM
Project location A B C D Supply Cost difference
Pit I II III
X 76 X X 76 4 4 –
W
4 8 8 0
X 21 41 20 82 41 16 0 0
X
16 24 16 0 21
72 5 X X 77 5 8 8 8
Y
8 16 24 0
72 102 26 41 20 235
Demand
21
4 8 8 0
I
Cost difference

4 8 8 –
II
8 8 8 —
III

Initial transportation cost = 76 × 8 + 21 × 24 + 41 × 16 + 20 × 0 + 72 × 8 + 5 × 16

= 608 + 504 + 656 + 0 + 576 + 80
= Rs. 2,424
Step 1.1 Tests of degeneracy
Since the number of occupied cells = m + n - 1 = 3 + 4 - 1 = 6, this is the case of non degeneracy
Step 2. Testing for optimality condition (using MODI)
The table is restated as below:
Project location A B C D Supply Ri
Pit
76 76 R1 = – 16
W
4 8 8 0
21 41 20 82 R2 = 0
X
16 24 16 0
72 5 77 R3 = –8
Y
8 16 24 0
Demand 72 102 41 20 235
Kj K1 = 16 K2 = 24 K3 = 16 K4 = 0

Step 2.1 Calculation for row values and column values for occupied cells by using the relations
Cij = Ri + Kj
Suppose R2 = 0,
C12 = R1 + K2  8 = R1 + 24  R1 = - 16
C22 = R2 + K2 24 = 0 + K2  K2 = 24
C23 = R2 + K3  16 = 0 + K3  K3 = 16
C24 = R2 + K4 0 = 0 + K4 K4 = 0
C32 = R3 + K2  16 = R3 + 24  R3 = - 8
C31 = R3 + K1  8 = - 8 + K1  K1 = 16
Step 2.2 Calculation of improvement indices for unoccupied cells by using the relation ij = Cij -
(Ri + Kj).
 11 = C11 – (R1 + K1) =4 - (- 16 + 16) = 4
13 = C13 – (R1 + K3) = 8 - (- 16 + 16) = 8
14 = C14 – (R1 + K4) =0 – (- 16 + 0) = 16
21 = C21 – (R2 + K1) = 16 – (0 + 16) = 0
33 = C33 – (R3 + K3) = 24 - (- 8 + 16) = 16
34 = C34 – (R3 + K4) = 0 - (- 8 + 0) = 8
Since all ij's > 0, the optimal solution has been obtained i.e. there is no further possibility of
reduction in initial transportation cost.
Hence, minimum transportation cost = Rs. 2424
At X12 = 76, X22 = 21, X23 = 41, X24 = 20, X31 = 72 and X32 = 5
Example 7
Consider the following unbalanced transportation problem.
To
I II III Supply
A 5 1 7 10
From B 6 4 6 80
C 3 2 5 15
Demand 75 20 50 (Cost in $)
Since there isn't enough supply, some of the demands at these destinations may not be satisfied.
Suppose there are penalty costs for every unsatisfied demand unit which is given by 5, 3 and 2
for destinations I, II and III respectively. Find the optimal solution.
Solution
Since demand exceeds supply by 145 - 105 = 40 units we need to make the transportation
problem balanced by adding dummy supply centre with given penalty costs. The modified
transportation problem will be as follows:
To
I II III Supply
A 5 1 7 10
From B 6 4 6 80
C 3 2 5 15
SD 5 3 2 40
Demand 75 20 50
Step 1. Getting an initial basic feasible solution by VAM.
To I II III Supply Cost difference
From I II III
X 10 X 10  – –
A 4
5 1 7
60 10 10 80 70 2 2 2
B
6 4 6 10
15 X X 15 1 1 1
C
3 2 5
X X 40 40 1 1 –
SD
5 3 2
Demand 75 60 20 10 50 40 145
 I 2 1 3

Cost difference
II 2 1 
III 3 2 1

Initial cost = 10 × 1 + 60 × 6 + 10 × 4 + 10 × 6 + 15 × 3 + 40 × 2
= 10 + 360 + 40 + 60 + 45 + 80
= $ 595
Step 1.1 Tests of degeneracy
Since no. of occupied cells = m + n - 1 = 4 + 3 - 1 = 6 this is the case of non degeneracy.
Step 2. Testing the optimality condition (using MODI)
The table 1 is re-stated as follows:
To I II III Supply Rj
From
10 10 R1 = - 3
A
5 1 7
60 10 10 80 R2 = 0
B
6 4 6
15 15 R3 = –3
C
3 2 5
40 40 R4 = – 4
Sd
5 3 2
75 20 50 145
Demand
Kj K1 = 6 K2 = 4 K3 = 6
Step 2.1 Calculation of row values and column values for occupied cells using the relation
Cij = Ri + Kj.
Assuming R2 = 0, we obtained the remaining values as follows:
C21 = R2 + K1 6 = 0 + K1  K1 = 6
C22 = R2 + K2  4 = 0 + K2  K2 = 4
C23 = R2 + K3  6 = 0 + K3  K3 = 6
C31 = R3 + K1  3 = R3 + 6  R3 = - 3
C43 = R4 + K3  2 = R3 + 6  R4 = - 4
C12 = R1 + K2  1 = R1 + 4 R1 = - 3
Step 2.2 Calculation of improvement indices for unoccupied cells using the relation
ij = Cij - Ri - Kj
11 = C11 - R1 - K1 = 5 - (- 3) - 6 = 2
13 = C13 - R1 - K3 = 7 - (- 3) - 6 = 4
32 = C32 - R3 - K2 = 2 - (-3) - 4 = 1
33 = C33 - R3 - K3 = 5 - (- 3) - 6 = 2
41 = C41 - R4 - K1 = 5 - (-4) - 6 = 3
42 = C42 - R4 - K2 = 3 - (- 4) - 4 = 3
Since all ij's > 0, the optimal solution has been obtained. i.e. there is no further possibility of
reduction in initial cost.
Therefore, the minimum total cost = $595 at X12 = 10, X21 = 60, X22 = 10, X23 = 10, X31 = 15, X43 = 40.

6.5 MAXIMIZATION OF TRANSPORTATION PROBLEM

The main objective of transportation problem is to minimize the transportation cost while
allocating goods from supply centre to demand centre. However, we may have to deal with the
problem having objective function as maximum using transportation method. Maximization
may be of profit, revenue, etc.
While working with maximization transportation problem, at first, we need to convert given
matrix into loss matrix by subtracting each entry from the highest one. Thus, we proceed the
same process, proceeded in case of minimization one. Through this, we simply will have
allocation of goods. During calculation of maximum value, we will consider the original table.
In which we multiply allocated goods with respective entry and addition of all multiplied
values will give maximum value as per the objective.
Example 8
A company has four factories F1, F2, F3 and F4 manufacturing the same product. Production and
raw material costs differ from factory to factory and are given in the following table in the first
two rows. The transportation costs from the factories to the sales depots, S 1, S2 and S3 are also
given. The last two columns in the table give the sales price and the total requirement at each
depot. The production capacity of each factory is given in the last row.
F1 F2 F3 F4
Production cost/unit 15 18 14 13 Sales price per Requirement
Raw material cost/unit 10 9 12 9 unit
S1 3 9 5 4 34 80
Transportation cost/unit 1 7 4 5 32 120
S3 5 8 3 6 31 150
Supply 10 150 50 100
Determine the most profitable production and distribution schedule and the corresponding
profit. The deficit production should be taken to yield zero profit.
Solution
At first the given problem is re-constructed by adding a dummy factory with supply of 40 units
inserting the profit to each cell by using following formula.
Profit = Sales price - (Production cost + raw material cost + Transportation cost)
Depot Factory Requirement
F1 F2 F3 F4 F5
S1 6 -2 3 8 0 80
S2 6 -2 2 5 0 120
S3 1 -4 2 3 0 150
Supply 10 150 50 100 40 350
The relative loss matrix is formed by subtracting all elements of the profit matrix from highest
profit 8.
Depot Factory Requirement
F1 F2 F3 F4 F5
S1 2 10 5 0 8 80
S2 2 10 6 3 8 120
 S3 7 12 6 5 8 150
Supply 10 150 50 100 40 350

Step 1. Getting an initial basic feasible solution by VAM

Depot Factory Requirement Cost difference
F1 F2 F3 F4 F5 I II III IV V
S1 X X X 80 X 80 2 – – – –
2 10 5 0 8
S2 10 40 50 20 X 120 100 90 1 1 4  2
40 2
2 10 6 3 8
S3 X 110 X X 40 150 110 1 1 1 2 
4
7 12 6 5 8
Supply 10 150 40 50 100 20 40 350
I 0 0 1 3 0
Cost difference

II 5 2 0 2 0
III 5 2 0 – 0
IV – 2 0 – 0
V – 2 – – 0
Step 1.1 Test of degeneracy
Since the number of occupied cells = m + n - 1 = 3 + 5 - 1 = 7 this is the case of non-degeneracy.
Step 2. Testing the optimality condition (using MODI)
The above table is re-stated as follows:
Depot Factory
F1 F2 F3 F4 F5 Req Ri
S1 80 80 R1 = -3
2 10 5 0 8
S2 10 40 50 20 120 R2 = 0
2 10 + – 6 3 8
S3 110 40 150 R3 = 2
7 12 – + 6 5 8
Supply 10 150 50 100 40 350
Kj K1 = 2 K2 = 10 K3 = 6 K4 = 3 K5 = 6

Step 2.1 Calculation of row values and column values for occupied cells, we use the relation
Cij = Ri + Kj
Assuming R2 = 0, we generate other values for row and column using the above relation.
Step 2.2 Calculation of improvement indices for unoccupied cells using the relation
ij = Cij - Ri - Kj
Here,
11 = C11 - R1 - K1 = 2 - (- 3) - 2 = 3
12 = C12 - R1 - K2 = 10 - (- 3) - 10 = 3
13 = C13 - R1 - K3 = 5 - (- 3) - 6 = 2
15 = C15 - R1 - K5 = 8 - (- 3) - 6 = 5
25 = C25 - R2 - K5 = 8 - 0 - 6 = 2
31 = C31 - R3 - K1 = 7 - 2 - 2 = 3
33 = C33 - R3 - K3 = 6 - 2 - 6 = – 2
 34 = C34 - R3 - K4 = 5 - 2 - 3 = 0

Here one ij is –ve hence we require further step.

PRACTICE QUESTIONS
Example 1
Sid Lane hauls oranges between Florida groves and citrus packing plants. His schedule this
week calls for 520 boxes with location and cost as follows:

Available Packing Requirement

Grove
per week plant per week

A 170 W 130

B 250 X 200

C 100 Y 190

Cost information
From To plant W To plant X To plant Y
Grove A $12 $8 $5
Grove B 11 15 10
Grove C 2 7 6
Use Vogel's approximation method to find starting solution.
Solution
Getting an initial basic feasible solution by VAM.
To Available per week Cost Difference
Plant W Plant X Plant Y
From I II
X 170 X
Group A 170 3 3
12 8 5
30 30 190
Group B 250 1 1
11 15 10
100 X X
Group C 100 4 –
2 7 6
Requirement per week 130 30 200 30 190 520
Cost I 9 1 1
difference II 7 5
1
Initial transportation cost = 170 × 8 + 30 × 11 + 30 × 15 + 190 × 10 + 100 × 2
= 3,740
Example 2
A cement factory manager is considering the best way to transport cement from his three
manufacturing centres P, Q, and R to five depots A, B, C, D, and E. The weekly production
capacity and demand along with transportation costs per ton are given below. What should be
the distribution program? Use VAM to arrive at your conclusion.
A B C D E Supply(tons)
P $4 $1 $3 $4 $4 60
Q 2 3 2 2 3 35
R 3 5 2 4 4 40
Demand (tons) 22 45 20 18 30
Solution
Getting an initial basic feasible solution by VAM.
Manufacturing Depots Cost difference
Centre Supply
A B C D E I II III IV V
X 45 X X 15 60 
P 1 1 0 0
4 1 3 4 4 15 2
17 X X 18 X 35
Q 0 0 0 1 –
2 3 2 2 3 17
5 X 20 X 15 40 
R 1 1 1 1
3 5 2 4 4 20 15 1
Demand 22 5 45 20 18 30 135
Cost difference

I 1 2 0 2 1
II 1 – 0 2 1
III 1 – 0 – 1
IV 1 – – – 1
V 1 – – – 0

Initial transportation cost = 45 × 1 + 15 × 4 + 17 × 2 + 18 × 2 + 5 × 3 + 20 × 2 + 15 × 4

= 290
Example 3
Yahoo trucking company has a contract to move 115 truckloads of sand per week between three
sand-washing plants W, X and Y and the three destinations, A, B, and C. Cost and volume
information is given below. Compute the starting solution by Vogel’s approximation method
and then find an optimal solution by using method of your choice.
Available per week, Requirement per week,
Plant Project
Truckloads Truckloads
W 35 A 40
X 40 B 50
Y 40 C 20
Cost information
From To project A To project B To project C
Plant W $5 $12 $10
Plant X 20 27 20
 Plant Y 5 8 12

Solution
Since supply exceeds demand by 115 – 110 = 5 units we need to create dummy project for excess
supply with $0 as unit transportation cost as follows:
To Project A Project B Project C Dummy Available
From project
Plant W 5 12 10 0 35
Plant X 20 27 20 0 40
Plant Y 5 8 12 0 40
Requirement 40 50 20 5 115
Step 1: Getting an initial basic feasible solution by VAM
To Dummy Cost difference
Project A Project B Project C Available
From project I II III
35 X X X 
Plant W 35 5 –
5 12 10 0 5
5 10 20 5 40 
Plant X 0 0
20 27 20 0 35 20
X 40 X X
Plant Y 40 5 3 3
5 8 12 0
Requirement 40 5 50 40 10 20 5 115
Cost difference

I 0 4 2 0
II 0 4 2 –
III 15 19 8 –

Initial transportation cost = 35 × 5 + 5 × 20 + 10 × 27 + 20 × 20 + 40 × 8

= 1,265
Step 1.1: Tests of degeneracy.
Since number of occupied cells (6) = m + n – 1 (3 + 4 – 1 = 6)
This is the case of non-degeneracy.
Step 2: Calculation of row values and column values for occupied cells by using the relation.
Cij = Ri + kj
The above table is re-stated as follows:
To
A B C Dummy Available Ri
From
35
W 12 10 0 35 R1 = –15
5
 5 10 20 5
X 40 R2 = 0
20 27 20 0
40
Y 5 12 0 40 R3 = –19
8
Requirement 40 50 20 5 115
kj k1 = 20 k2 = 27 k3 = 20 k4 = 0

Let's assume R2 = 0 since this row has maximum number of occupied cells.
C21 = R2 + k1  20 = 0 + k1  k1 = 20
C22 = R2 + k2  27 = 0 + k2  k2 = 27
C23 = R2 + k3  20 = 0 + k3  k3 = 20
C24 = R2 + k4  0 = 0 + k4  k4 = 0
C11 = R1 + k1  5 = R1 + k1  R1  –5
C32 = R3 + k2  8 = R3 + 27  R3 = –9
Step 3: Calculation of improvement indices for unoccupied cells by using the relation
ij = Cij – (Ri + kj)
12 = C12 – (R1 + k2) = 12 – (–15 + 27) = 0
13 = C13 – (R1 + k3) = 10 – (–15 + 20) = 5
14 = C14 – (R1 + k4) = 0 – (–15 + 0) = 15
31 = C31 – (R3 + k1) = 5 – (–19 + 20) = 4
33 = C33 – (R3 + k3) = 12 – (–19 + 20) = 11
34 = C34 – (R3 + k4) = 0 – (–19 + 0) = 19
Since all ij's > 0, the optimal solution has been obtained.
i.e. X11 = 35, X21 = 5, X22 = 10, X23 = 20, X24 = 5, X32 = 40
and minimum transportation cost = $1265
Example 4
Find the optimal transportation schedule on the basis of the following information:

Stores (Haulage cost in Rs.)

Factory Availability
S1 S2 S3 S4
F1 9 7 10 8 14
F2 8 11 9 11 27
F3 13 10 12 10 14
Requirements 15 19 11 10 55

Solution
Step 1: Getting an initial basic feasible solution by VAM
 Stores Availabilit Cost difference
Factory y
S1 S2 S3 S4 I II III IV
X 14 X X
F1 14 1 – – –
9 7 10 8
15 1 11 X
F2 271 12 1 1 1 2 0
8 11 9 11
X 4 X 10
F3 14 4 0 0 0 0
13 10 12 10
Requirement 15 19 5 11 10 55
3
Cost difference

I 1 1 2
II 5 1 3 1
III – 1 3 1
IV – 1 – 1

Initial transportation cost = 14 × 7 + 15 × 8 + 1 × 11 + 11 × 9 + 4 × 10 + 10 × 10

= 468
1.1 Test of degeneracy
Since number of occupied cells (6) = m + n – 1(3 + 4 – 1 = 6)
This is the case of non-degeneracy.
The above table is re-stated as follows:
Stores Availability Ri
Factory
S1 S2 S3 S4
14
F1 14 Ri = –4
9 7 10 8
15 1 11
F2 27 R2 = 0
8 11 9 11
4 10
F3 14 R3 = –1
13 10 12 10
Requirement 15 19 11 10 55
kj k1 = 8 k2 = 11 k3 = 9 k4 = 11
Step 2: Calculation of row values & column values for occupied cells by using the relation
Cij = Ri + kj
Let's assume R2 = 0, then
C21 = R2 + k1  8 = 0 + k1  k1 = 8
C22 = R2 + k2  11 = 0 + k2  k2 = 11
C23 = R2 + k3  9 = 0 + k3  k3 = 9
C32 = R3 + k2  10 = R3 + 11  R3 = –1
C34 = R3 + k4  10 = –1 + k4  k4 = 11
C12 = R1 + k2  7 = R1 + 11  R1 = –4
Step 3: Calculation of improvement indices for unoccupied cells by using the relation
 ij = Cij – (Ri + kj)
11 = C11 – (R1 + k1) = 9 – (- 4 + 8) = 5
13 = C13 – (R1 + k3) = 10 – (- 4 + 9) = 5
14 = C14 – (R1 + k4) = 8 – (- 4 + 11) = 1
24 = C24 – (R2 + k4) = 11 – (0 + 11) = 0
31 = C31 – (R3 + k1) = 13 – (- 1 + 8) = 6
33 = C33 – (R3 + k3) = 12 – (- 1 + 9) = 4
Since all ij's > 0, the optimal solution has been obtained.
i.e. X12 = 14, X21 = 15, X22 = 1, X23 = 11, X32 = 4 and X34 = 10
Minimum transportation cost = Rs 468.