Chapter 2 - Transportation problems

Transportation plays a very vital role in any economy. Especially in a vast country like India,
transportation is a key element for the success of business enterprise which is a manufacturing
organization.

Products or goods manufactured by any firm need to be distributed efficiently to its distributors,
dealers, sub – dealers etc. From thereon, they need to be further delivered to retail outlets where the
actual selling process takes place.

The transportation problem is a special type of linear programming problem where the objective
consists in minimizing transportation cost of a given commodity from a number
of sources or origins (e.g. factory, manufacturing facility) to a number of destinations (e.g. warehouse,
store). Each source has a limited supply (i.e. maximum number of products that can be sent from it)
while each destination has a demand to be satisfied (i.e. minimum number of products that need to be
shipped to it). The cost of shipping from a source to a destination is directly proportional to the number
of units shipped.

Example – Here in below diagram a = supply, b = demand and c = transportation cost per unit

Types of Transportation problems

1. Balanced Problems - The sum of supply and sum of demand are same.

2. Unbalanced Problems - The sum of supply and sum of demand are different.

Basic Concepts

1. Feasible solution – A transportation problem is feasible id it satisfied the following conditions – a)

total supply from each origin is equal to sum of all supplies done from that origin to different
destinations b) Total demand at each destination is equal to sum of all quantities transported to all
destinations from that origin.

2. Initial Basic Feasible Solution – A feasible solution which is obtained by applying any of the methods
such as –
a) North West Corner Method (NWCM)

b) Least Cost Method (LCM)

c) Vogel’s Approximation Method (VAM)

This solution satisfies all conditions of feasibility.

3. Optimal Solution – A feasible solution (not necessarily Initial Basic Feasible Solution) which minimizes
total cost of Minimization problem or maximizes total profit for Maximization Problem.

4. Rim Condition or Test for Non – Degeneracy – In a feasible solution, if number of allocations is equal
to (m + n – 1) where m = no. of rows and n = no. of columns, then it is said that Rim condition is
satisfied. The solution is not degenerate. But if no. of allocations are less than (m + n – 1), then Rim
condition is not satisfied. The solution is Degenerate.

Steps for Solving Transportation Problems

Step 1: Formulate the problem.

Formulate the given problem and set up in a matrix form. Check whether the problem is a balanced or
unbalanced transportation problem. If unbalanced, add dummy source (row) or dummy destination
(column) as required.

Step 2: Obtain the initial feasible solution.

The initial feasible solution can be obtained by any of the following three methods:

1. Northwest Corner Method (NWC)

2. Least Cost Method (LCM)
3. Vogel’s Approximation Method (VAM)

The transportation cost of the initial basic feasible solution through Vogel’s approximation method,
VAM will be the least when compared to the other two methods which gives the value nearer to the
optimal solution or optimal solution itself. Steps for all the three methods to find the initial basic feasible
solution are given.

Steps for North-West Corner Method (NWC)

 Select the North-west (i.e., upper left) corner cell of the table and allocate the maximum
possible units between the supply and demand requirements. During allocation, the
transportation cost is completely discarded (not taken into consideration).
 Delete that row or column which has no values (fully exhausted) for supply or demand.
 Now, with the new reduced table, again select the North-west corner cell and allocate the
available values.
 Repeat steps (ii) and (iii) until all the supply and demand values are zero.
 Obtain the initial basic feasible solution.
 Check the rim condition*

Steps for Least Cost Method (LCM)

  Select the smallest transportation cost cell available in the entire table and allocate the supply
and demand.
 Delete that row/column which has exhausted. The deleted row/column must not be considered
for further allocation.
 Again select the smallest cost cell in the existing table and allocate. (Note: In case, if there are
more than one smallest costs, select the cells where maximum allocation can be made)
 Obtain the initial basic feasible solution.
 Check the rim condition*

Steps for Vogel’s Approximation Method (VAM)

 Calculate penalties for each row and column by taking the difference between the smallest cost
and next highest cost available in that row/column. If there are two smallest costs, then the
penalty is zero.
 Select the row/column, which has the largest penalty and make allocation in the cell having the
least cost in the selected row/column. If two or more equal penalties exist, select one where a
row/column contains minimum unit cost. If there is again a tie, select one where maximum
allocation can be made.
 Delete the row/column, which has satisfied the supply and demand.
 Repeat steps (i) and (ii) until the entire supply and demands are satisfied.
 Obtain the initial basic feasible solution.
 Check the rim condition*

*Remarks: The initial solution obtained by any of the three methods must satisfy the following
conditions:

 The solution must be feasible, i.e., the supply and demand constraints must be satisfied (also
known as rim conditions).
 The number of positive allocations, N must be equal to m+n-1, where m is the number of rows
and n is the number of columns (i.e. rim condition)

Step3: Finding Optimal Solutions

Previous steps were different methods used for finding IBFS which gives different total cost. But any
problem can have only one optimal solution (minimize cost or maximize profit). So to find the optimal
solution, we use another method. It is called Modified Distribution Method or in short MODI method.

In this method we modify the IBFS or given solution, if necessary to arrive at optimal cost. During the
process of MODI method, we find out whether it is possible to reduce the present cost of solution. If
yes, it means the solution is not optimal, we can improve the solution by reducing the cost in the next
Transportation table. If no, it means the solution is optimal. Cost cannot be reduced any further.

Testing for optimality: Testing for optimality is done by calculating u, v and Δ.

u and v are component of cost for an occupied cell (where there is allocation).

For occupied cell, cost = u + v.

Δ (Delta) is opportunity cost or change in the cost for an empty cell (where there is no allocation). For
empty cell Δ = cost – (u + v)

Test of optimality for a transportation problem is: The solution is optimal if there is no negative
opportunity cost (Δ)

Example 1

Mega Ltd. has three factories F1, F2, F3 with production capacities of 11, 13, and 19 units (in thousands).
It has four warehouses W1, W2, W3 and W4 with demands of 6, 10, 12 and 15 units (in thousands).

Unit cost of transportation is given from each factory to each warehouse.

From - To W1 W2 W3 W4
F1 42 32 50 26
F2 34 36 28 46
F3 64 54 36 82

Based on the above information, a) Construct a Transportation table b) Find Initial Basic Feasibility
Solution by –

a) North West Corner Method

b) Least Cost method

c) Vogel’s Approximation Method.

d) Find optimal solution using MODI Method.

Solution:

1. Construction of Transportation table

From - To W1 W2 W3 W4 Supply
F1 42 32 50 26 11
F2 34 36 28 46 13
F3 64 54 36 82 19
Demand 6 10 12 15 43

The above table refers a balanced problem i.e. demand = supply.

1) Initial Feasible Solution by NWCM

 From - To W1 W2 W3 W4 Supply
F1 42 (6) 32 (5) 50 26 11, 5, 0
F2 34 36 (5) 28 (8) 46 13, 8,0
F3 64 54 36 (4) 82 (15) 19, 15,0
Demand 6, 0 10, 5,0 12, 4,0 15, 0 43

Total cost as per NWCM = 6x42 + 5x32 + 5x 36 + 8 x 28 + 4 x 36 + 15 x 82 = Rs. 2190

Rim condition = m + n – 1 whereas m = number of rows , n = no. of column

Rim condition = 3 + 4 – 1 = 6 = 6 cells has been allocated. There is no degeneracy in the problem and
hence rim condition is satisfied.

2) Least cost Method (LCM)

From - To W1 W2 W3 W4 Supply
F1 42 32 50 26 (11) 11,0
F2 34 (1) 36 28 (12) 46 13, 1,0
F3 64 (5) 54 (10) 36 82 (4) 19, 9, 4,0
Demand 6, 5, 0 10, 0 12,0 15, 4,0 43

Total cost as per LCM = 11x 26+ 1x34 + 12x28+ 5x64+ 10x54 + 4 x82 = Rs. 1844

Rim condition is satisfied since m + n – 1 = 6 = number of allocation. There is no degeneracy.

3) Vogel’s Approximation Method

From - To W1 W2 W3 W4 Supply P1 P2 P3 P4
F1 42 32 50 26 (11) 11, 0 6 - - -
F2 34 (6) 36 (3) 28 46 (4) 13, 9, 3, 6 6 6 8
0
F3 64 54 (7) 36 82 19, 7, 0 18 18 18 18
(12)
Demand 6, 0 10, 7,0 12,0 15, 4, 0 43
P1 8 4 8 20
P2 30 18 8 36
P3 30 18 8 -
P4 - 18 8 -

Total cost = 11 x 26 + 6 x 34 + 3 X 36 + 4 x 46 + 7 x 54 + 12 x 36 = Rs. 1592

Rim condition = m +n -1 = 3 + 4 – 1 = 6 = no. of allocations = 6. So rim condition satisfied.

Example 2

A company has three plants A, B and C for which capacities are 7, 10 and 18 units. It has four
warehouses P, Q, R and S for which demand are 5, 8, 7 and 15 units. Unit transportation cost is given in
Rs.

From - To P Q R S
A 38 60 100 24
B 140 60 80 120
C 80 20 120 40

Find Initial Basic Feasibility Solution by –

a) North West Corner Method (Ans: Rs. 1950)

b) Least Cost method (Rs. 1788)

c) Vogel’s Approximation Method (Rs. 1718)

d) Find optimal solution

Problems - a , b and c solved in the class

Solution d - Finding optimal solution using MODI Method

Consider the IFS of example 2 by VAM (VAM already solved in the class)

Optimal solution using Modified Distribution Method (MODI Method)

From - To P Q R S
A 38 (5) 60 100 24 (2)
B 140 60 80 (7) 120 (3)
C 80 20 (8) 120 40 (10)

Rim condition = m + n – 1 = 3 + 4 – 1 = 6 = no. of allocation. Hence rim condition is satisfied and there is
non – degeneracy.

1. Calculate u and v for allocated cell by using formula c = u + v

From - To P Q R S
U1 = 0 A 38 (5) 24 (2)
 U2 = 96 B 80 (7) 120 (3)

U3 = 16 C 20 (8) 40 (10)
V1 = 38 V2 = 4 V3 = -16 V4 = 24

Let U1 = 0

C=u+v

38 = U1 + V1, 38 = 0 + V1 , V1 = 38

24 = U 1 + V 4 , 24 = 0 + V4, V 4 = 24

120 = U2 + V4 , 120 = U2 + 24, U2 = 96

U2 + V3 = 80, 96 + V3 = 80 , V3 = -16

U3 + V4 = 40, U3 + 24 = 40 , U3 = 16

U3 + V2 = 20 , 16 + V2 = 20, V2 = 4

Calculate opportunity cost for unallocated cell using formula Δ (delta) = cost – (u + v)

From - To P Q R S
U1 =0 A 60 100
U2 = 96 B 140 60
U3 = 16 C 80 120
V1 =38 V2 =4 V3 =-16 V4 =24

AQ = cost – (u + v), AQ = 60 – (0 + 4) = 56

AR = 100 – (0 + (-16)) = 100 – (-16) = 116

BP = 140 – (96 + 38) = 140 – 134 = 6

BQ = 60 – (96 + 4) = - 40

CP = 80 – (16 + 38) = 26

CR = 120 – (16 + (-16)) = 120 – (16 – 16) = 120

Since cell BQ is negative i.e. Rs. -40 solution is not optimal. There is a scope for optimal solution and
hence not optimal cost. It can be reduced. The rate of cost reduction is Rs. 40 per unit for cell BQ.

To modify the solution, we construct a closed loop in the transportation table. The loop starts from
empty cell which has negative Δ value. Hence loop will start from BQ and will connect to all allocated
cell. The starting and ending point of loop is same. Which is cell BQ because cell BQ has negative Δ value.

Signs in the loop: The starting point of the loop always has + sign (because it will enter the solution in
the next table). After that, give alternate – and + signs at each corner in any direction (clock wise or anti
- clock wise). Negative signs represents decrease in quantity and positive sign represents increase in
quantity. There is no sign in the cell BR, because it is not a corner loop. Only corner values will change.
All other values which are not at loop corners, will remain same.

From - To P Q R S
A 38 (5) 60 100 24 (2)
B 140 (+) 60 80 (7) 120 (3) (-)
C 80 (-) 20 (8) 120 40 (10) (+)

Forming a closed loop i.e. BQ – BR – BS – CS – CR – CQ. In the loop we have two values with negative
signs which is given below -

Occupied cell with negative marking = BS = 3

Occupied cell with negative marking = CQ = 8

Lowest of the above cell = 3 (hence change = 3)

Cell Old value New value = old +/- change

BQ Zero Zero +3 = 3
CQ 8 8-3 = 5
CS 10 10+3 = 13
BS 3 3-3 = 0 (empty)

New allocation based on the above table is below-

From - To P Q R S
A 38 (5) 60 100 24 (2)
B 140 60 (3) 80 (7) 120
C 80 20 (5) 120 40 (13)

Rim condition = m + n – 1 = 3 + 4 – 1 = 6 = number of allocation. Therefore rim condition is satisfied.

Calculate u and v for allocated cell by using formula c = u + v

From - To P Q R S
U1 = 0 A 38 (5) 24 (2)
U2 = 56 B 60 (3) 80 (7)
U3 = 16 C 20 (5) 40 (13)
V1=38 V2 = 4 V3 = 24 V4= 24
Let U1 = 0, c = u + v

Cost = U 1 + V1, 0 + V1 = 38, V1 = 38

U1 + V4 = 24, 0 + V4 = 24, V4 = 24

U3 + V4 = 40, U3 + 24 = 40 , U3 = 16
U3 + V2 = 20, 16 + V2 = 20, V2 = 4

U2 + V2 = 60, U2 + 4 = 60, U2 = 56

U2 + V3 = 80 , 56 + V3 = 80 , V3 = 24

Calculate opportunity cost for unallocated cell using formula Δ = cost – (u + v)

From - To P Q R S
U1 =0 A 38 (5) 60 100 24 (2)
U2=56 B 140 60 (3) 80 (7) 120
U3 = 16 C 80 20 (5) 120 40 (13)
V1= 38 V2=4 V3=24 V4 =24

Δ = cost – (u + v)

AQ = 60 – (0+4) = 56

AR = 100- (0 +24) = 76

BP = 140 – (56 + 38) = 46

BS = 120 – (56 + 24) =40

CP = 80 – (16+38) = 26

CR = 120 – (16+ 24) = 80

Since all cost related to unallocated cell is positive, the solution is optimal.

Total cost = 38x 5 + 24 x 2 + 60 x 3 + 80 x 7 + 20 x 5 + 40 x 13 = Rs. 1598. This is optimal cost.

Example 4

A company is transporting its units from three manufacturing plants P1, P2, P3 to four distribution
centers D1, D2, D3 and D4. The supply and demand of units with transportation cost per unit (in Rs.) are
given below. (The number which are in bracket indicates number of units transported from plant to
distribution centers).

From - To D1 D2 D3 D4 Supply (in

units)
P1 10 11 (11) 7 4 (14) 25
P2 7 13 (17) 6 (11) 11 28
P3 4 9 (2) 8 10 17
(15)
Demand (in 15 30 11 14 70
units)
1) Test the solution for optimality.

2) If the solution is not optimal final optimal solution.

Answer: Optimal cost Rs. 527

Example 5

The following is intermediate table in the solution of a transportation problem. The goods are getting
transported from three plants X, Y and Z to four distribution centers I, II, III and IV.

From - To I II III IV Supply (in

units)
X 9 7 (6) 6 11 6
Y 11 12 5(5) 9(2) 7
Z 7 (8) 9(1) 11 13(4) 13
Demand (in 8 7 5 6
units)
a) Is the solution optimal? If not, find the optimal solution.

Answer: Optimal solution cost is Rs. 198

Example 6

A cement company has three factories which manufacture cement which is then transported to four
distribution centers. The quantity of monthly production of each factory and demand for each
distribution center and the associated transportation cost per quintal are given as follows:

From - To I II III IV Monthly

Production (in
quintals)
Factory A 10 8 5 4 7000
Factory B 7 9 15 8 8000
Factory C 6 10 14 8 10000
Monthly 6000 6000 8000 5000
Demand (in
quintals)

Suggest the optimal transportation schedule.

Answer: Optimal cost is Rs. 1,79,000

Unbalanced Transportation Problem

The transportation problem is unbalanced if total supply is not equal to total demand. Either supply >
demand or supply < demand. In such situation either a dummy row or column to be added to
transportation table with zero value.
Example 3 – Unbalanced Transportation problem

Supply, Demand and unit transportation cost data of Top Ltd. is given below. Find IFS by NWCR, LCM
and VAM

From - To W X Y D Supply
A 16 24 24 0 152
B 48 72 48 0 164
C 24 48 72 0 154
Demand 144 204 82 40 470

Demand = 144 + 204 + 82 = 430

Supply = 152 + 164 + 154 = 470. Therefore, this is an unbalanced problem. Let D = Dummy column

LCM

From - To W X Y D Supply
A 16 (144) 24 (8) 24 0 152, 8, 0
B 48 72 (42) 48 (82) 0 (40) 164, 124, 42,0
C 24 48 (154) 72 0 154, 0
Demand 144, 0 204, 196, 42,0 82, 0 40, 0 470

Rim condition = m + n -1 = 3 + 4 – 1 = 6 = no. of allocation. Therefore rim condition is satisfied i.e. it is a

case of non – degeneracy.

Total transportation cost = 16 x 144 + 24 x 8 + 72 x 42 + 48 x 82 + 0 x 40 + 48 x 154 = Rs. 16848

VAM

From - To W X Y D Supply
A 16 24 (152) 24 0 152
B 48 72 (42) 48 (82) 0 (40) 164
C 24 48 (10) 72 0 154
(144)
Demand 144 204 82 40 470

Degeneracy in transportation problem

Degeneracy occurs when in a transportation table, a number of allocations are less than m + n – 1. It
means rim condition is not satisfied. If a transportation solution is degenerate i.e. having degeneracy,
then we cannot calculate values of ‘u’ and ‘v’.

Hence, solution cannot be tested for optimality (Δ cannot be calculated).

To remove degeneracy, we add an imaginary entry called Epsilon (ε) in the solution. Epsilon is a zero
value allocation. Its only propose is to facilitate calculation of ‘u’ and ‘v’.
 Epsilon is placed in an independent position. i.e., position where it does not form a closed loop with
other allocations.

Example 7: Transport cost per unit from three factories to three warehouses is as under. Calculate
IFBS using least cost method and compute transportation cost.

Factories W1 W2 W3 Supply
F1 8 7 3 60
F2 3 8 9 70
F3 11 3 5 80
50 80 80

Solution

Factories W1 W2 W3 Supply
F1 8 7 3 (60) 60, 0
F2 3 (50) 8 9 (20) 70, 20
F3 11 3 (80) 5 (ε) 80,0
50, 0 80, 0 80, 20

The above transportation problem is a balanced problem

Rim condition = m + n -1 = 3 + 3 – 1 = 5, no. of allocation = 4. This is a case of degeneracy. Epsilon will

have zero value.

Hence total transportation cost will be:

3x60 + 3 x50 + 9 x 20 + 3 x 80 + 5 x 0 = Rs. 750.

Note: Epsilon value is taken as zero in the above calculation of transportation cost

Maximization problems

In transportation problem, if profit or sales (revenue) data is given then the objective of problem is to
maximize the total profit or total sales.

To solve a maximization problem we should first convert the problem in Minimization. This process of
conversion is called Regret matrix. We select the maximum profit value in the problem and from that
value we subtract all profit values. The resulting set of values is called regret or opportunity cost matrix.

We solve the problem using regret value by normal method. But for preparing the final transportation
schedule, we use original profit values. Then we calculate Optimal profit.

Example 8

A company has three warehouses w1, w2 and w3 from where it supplies products to three markets M1,
M2 and M3. Availability at warehouse is 2000, 1500 and 1000 units. Market requirements are 1200,
1800 and 1000 units.

Profit potential per unit from each warehouse to each market is as follows:
 Profit per unit (Rs.)
Warehou M1 M2 M3
ses
W1 25 22 23
W2 15 20 18
W3 18 17 16
Find optimal transportation schedule to maximize total profit

Solution:

Total demand = 4000 units and total supply is 4500 units. Hence it is unbalanced problem

Therefore transportation table will be

Factories M1 M2 M3 M4 (Dummy) Supply

W1 25 22 23 0 2000
W2 15 20 18 0 1500
W3 18 17 16 0 1000
Demand 1200 1800 1000 500 4500

Regret Matrix will be

Factories M1 M2 M3 M4 (Dummy) Supply

W1 0 3 2 25 2000
W2 10 5 7 25 1500
W3 7 8 9 25 1000
Demand 1200 1800 1000 500 4500

Now calculating IFS through VAM method

Factories M1 M2 M3 M4 (Dummy) Supply

W1 0 3 2 (800) 25 2000
(1200)
W2 10 5 7 25 1500
(1500)
W3 7 8 (300) 9 (200) 25 (500) 1000
Demand 1200 1800 1000 500 4500

Checking for Rim condition

m + n – 1 = 3 + 4 – 1 = 6 = same as number of allocation i.e. 6. Rim condition satisfied and hence it is non
– degenerate solution

Testing for optimality using MODI method

Calculating u and v values for allocated cell

 Factories M1 M2 M3 M4 (Dummy) Supply
U1 = 0 W1 0 3 2 (800) 25 2000
(1200)
U2 = 4 W2 10 5 7 25 1500
(1500)
U3 = 7 W3 7 8 (300) 9 (200) 25 (500) 1000
Demand 1200 1800 1000 500 4500
V1 = 0 V2=1 V3=2 V4 = 18

Now calculating opportunity cost for unallocated cell using Δ = c – (u + v)

W1M2 = 3 – (0 + 1) = 2

W1M4 = 25 – (0 + 18) = 7

W2M1 = 10 – (4 + 0) = 6

W2M3 = 7 – (4+ 2) = 1

W2M4 = 25 – (4 + 18) = 3

W3M1 = 7 – (7 + 0) = 0

There is no negative Δ in the above solution. Hence it is optimal.

Transportation schedule:

Warehouse Market Quantity Unit profit Total profit

W1 M1 1200 25 30000
W1 M3 800 23 18400
W2 M2 1500 20 30000
W3 M2 300 17 5100
W3 M3 200 16 3200
W3 M4 500 0 0
Optimal Profit – Rs. 86,700