Quantitative Analysis for Management Decision

Lecture 7
Transportation and assignment model

Course leader : Shewayirga Assalf (Ass.Pro.)

Tra n sp o rta ti o n
Transportation problem

• A model/algorithm that is applied in distribution type.

• The objective of this model is to minimize the Mekelle

transportation costs of goods from the origin or

source to destination. B.dar

3 main information are important to solve the problem:

1. The capacities of each origin (Supply) A.A

Jimma
2. Demand of each destination JigJiga

3. Transportation cost per unit from each source to the Hawassa

destination.
Assumptions of Transportation Model
• Total supply is equal to total demand

• Transportation cost per unit of goods are certainly known and

proportional to the number of units shipped on a given route.

• Goods are transported only from sources to destinations.

• The objective of the model is to minimize the total cost of transportation

while satisfying demand and supply constraints.

• Goods are homogeneous

Steps in transportation model
• Step 1: develop a transportation tableau In a meaningful way.

To A B C SS
From

1 A A A y
2 A A A Y
3 A A A Y
DD x x x X=y

Where x= demand
y= supply
A= transport cost per unit
Step 2: develop initial feasible solution

There are Three methods of finding an initial solution for transportation problems:

• Northwest-corner method

• Least-cost method and

• Vogel’s approximation method

Step 3: check for optimality: two methods

• Stepping stone method

• MODI method (modified distribution method)

Example
3 suppliers weekly SS • 3 demanders weekly
DD
1 100 A 50
2 200 B 150
3 200 C 300
Total 500 Total 500
Per unit transportation cost (from source to destination)
A B C
1 4 2 8
2 5 1 9
3 7 6 3
B. Develop the initial transportation tableau
To A B C SS
From

1 4 2 8 100

2 5 1 9 200

3 7 6 3 200

DD 50 150 300 500

 C. Find the initial feasible solution using NW corner method

Steps

To A B C SS 1. Allocate as much as possible to the cell in the upper

From
left-hand corner, subject to the supply and demand
1 4 2 8 100 constraints.
50 50 2. Allocate as much as possible to the next adjacent
2 5 1 9 200
feasible cell.
100 100
3 7 6 3 200 3. Repeat step 2 until all rim requirements have been
200 met
DD 50 150 300 500

Min C = ETB4x1A + 2x1B + 8x1C + 5x2A + 1x2B + 9x2C + 4x3A + 6x3B + 3x3
C In the initial feasible solution SS
Min C = ETB4(50) + 2(50) + 1(100) + 9(100)+ 3(200)
and DD (rim requirements)
= ETB1900 must be satisfied
D. Develop initial feasible solution using minimum cell cost method
Steps
To A B C SS
From 1. Allocate as much as possible to
the feasible cell with the
1 4 2 8 100
50 50 minimum transportation cost,
2 5 1 9 200 and adjust the rim requirements.
150 50
2. Repeat step 1 until all rim
3 7 6 3 200
200 requirements have been met.
DD 50 150 300 500

Min C = ETB4x1A + 2x1B + 8x1C + 5x2A + 1x2B + 9x2C + 4x3A + 6x3B + 3x3C
Min C = ETB4(50) + 8(50) + 1(150) + 9(50)+ 3(200)

= ETB1800
Steps in VAM

Step1: developing the penalty cost

• penalty cost is the difference between of the smallest cell cost and the
next smallest cost.
Step 2: identify the largest penalty, it can be either from row penalty or
column penalty
Step 3: assign the cell with the smallest cell cost in the row/column with the
largest penalty.

Step 4: Make adjustment and develop new transportation table

Step 5: Repeat step 1-4 until the assignment will be made.
Example:

To A B C SS Penalty
From

1 4 2 8 100 2

2 5 1 9 200 4

3 7 6 3 200 3
200
DD 50 150 300 500

Penalty 1 1 5
Cont’d…

To A B C SS Penalty
From

1 4 2 8 100 2

2 5 1 9 200 4
150
3 7 6 3

DD 50 150 100

Penalty 1 1 1
Cont’d…

To A B C SS Penalty
From

1 4 2 8 100 4
50
2 5 1 9 50 4

3 7 6 3

DD 50 100
Penalty 1 1
Cont’d…

To A B C SS Penalty
From

1 4 2 8 50 8
50
2 5 1 9 50 9
50
3 7 6 3

DD
100
Penalty 1
VAM initial feasible solution

To A B C SS
From

1 4 2 8 100
50 50
2 5 1 50 9 200
150
3 7 6 3 200
200
DD 50 150 300 500

Min C = ETB4x1A + 2x1B + 8x1C + 5x2A + 1x2B + 9x2C + 4x3A + 6x3B + 3x3C
Min C = ETB4(50) + 8(50) + 1(150) + 9(50)+ 3(200)

= 1800
Example 2.
Grain Elevator Supply • Each mill demands the following
number of tons of wheat per month
1. Jimma 150
Mill Demand
2. Mekelle 175

3. Bahir Dar 275 A. Addis Ababa 200

B. Dire Dawa 100
Total 600 tons
C. Dilla 300

Total 600
tons
• The cost of transporting one ton of wheat from each grain elevator (source) to
each mill (destination) differs according to the distance and road system.

Mill

Grain elevator A. Addis Ababa B. Dire Dawa C. Dilla

1. Jimma 6 8 10

2. Mekelle 11 11
7
3. Bahir Dar 4 5 12

The problem is to determine how many tons of wheat to transport from each grain elevator
to each mill on a monthly basis in order to minimize the total cost of transportation.
• Transportation models are solved manually within the context of a tableau, as in
the simplex method. The tableau for our wheat transportation model is shown in
Table 1.

• Table 1: the transportation model

A B C Supply
From

To
1 6 8 10 150

2 7 11 11 175
3 4 5 12 275
Demand 200 100 300 600
• Each cell in the tableau represents the amount transported from one source to one

destination. Thus, the amount placed in each cell is the value of a decision variable for that

cell.

• E.g, the cell at the intersection of row 1 and column A represents the decision variable x1A.

The smaller box within each cell contains the unit transportation cost for that route. For

example, in cell 1A the value, $6, is the cost of transporting one ton of wheat from Jimma

to A.A.

• Each cell in a transportation tableau is analogous to a decision variable that indicates the

amount allocated from a source to a destination.

• The SS and DD values along the outside rim of a tableau are called rim requirements.
A. Northwest corner method
• With the northwest corner method, an initial allocation is made to the cell in the
upper left-hand corner of the tableau (i.e., the "northwest corner"). The amount
allocated is the most possible, subject to the supply and demand constraints for
that cell.

• In our example, we first allocate as much as possible to cell 1A (the northwest

corner). This amount is 150 tons, since that is the maximum that can be supplied
by grain elevator 1 at Jimma, even though 200 tons are demanded by mill A at
Addis Ababa. This initial allocation is shown in Table 2.
Steps in NW corner method

1. Allocate as much as possible to the cell in the upper left-hand corner, subject to
the supply and demand constraints.

2. Allocate as much as possible to the next adjacent feasible cell.

3. Repeat step 2 until all rim requirements have been met

• Table 2: The initial NW corner solution

A B C Supply
From

To
1 150 6 8 10 150

2 50 7 100 11 25 11 175

3 4 5 275 12 275

NB.Demand 200
In the northwest 100 the largest300
corner method 600 is made to the
possible allocation
cell in the upper left-hand corner of the tableau, followed by allocations to adjacent
feasible cells.

The initial solution is complete when all rim requirements are satisfied.
• The transportation cost of this solution is computed by substituting the cell allocations
(i.e., the amounts transported),

• x1A = 150 x2A = 50

• x2B = 100 x2C = 25

• x3C = 275 substitute into the objective function.

Min C = ETB6x1A + 8x1B + 10x1C + 7x2A + 11x2B + 11x2C + 4x3A + 5x3B + 12x3C

Min C = ETB6(150) + 8(0) + 10(0) + 7(50) + 11(100) + 11(25) + 4(0) + 5(0) + 12(275)

=ETB5925
b. The minimum cell cost method
• With the minimum cell cost method, the basic logic is to allocate to the cells with
the lowest costs. The initial allocation is made to the cell in the tableau having the
lowest cost.

• In the transportation tableau for our example problem, cell 3A has the minimum
cost of $4. As much as possible is allocated to this cell; the choice is either 200
tons or 275 tons. Even though 275 tons could be supplied to cell 3A, the most we
can allocate is 200 tons, since only 200 tons are demanded. This allocation is
shown in Table 3.
• The specific steps of the minimum cell cost method are summarized next.

1. Allocate as much as possible to the feasible cell with the minimum

transportation cost, and adjust the rim requirements.

2. Repeat step 1 until all rim requirements have been met.

• Table 3: The initial minimum cell cost allocation

A B C Supply
From

To
1 6 8 10 150

2 7 11 11 175

3 200 4 5 12 275

Demand 200 100 300 600

In the minimum cell cost method as much as possible is allocated to the cell with
the minimum cost
• Notice that all of the remaining cells in column A have now been eliminated,
because all of the wheat demanded at destination A, Addis Ababa, has now been
supplied by source 3, Bahir dar.

• The next allocation is made to the cell that has the minimum cost and also is
feasible. This is cell 3B which has a cost of $5. The most that can be allocated is 75
tons (275 tons minus the 200 tons already supplied). This allocation is shown in
Table 4.
• Table 4: The second minimum cell cost allocation

A B C Supply
From To

1 6 8 10 150

2 7 11 11 175

3 200 4 75 5 12 275

Demand 200 100 300 600

The third allocation is made to cell 1B, which has the minimum cost of $8. (Notice that cells with lower
costs, such as 1A and 2A, are not considered because they were previously ruled out as infeasible.) The
amount allocated is 25 tons. The fourth allocation of 125 tons is made to cell 1C, and the last allocation of
175 tons is made to cell 2C. These allocations, which complete the initial minimum cell cost solution, are
shown in Table 5.
• Table 5: The initial minimum cell cost solution

A B C Supply The minimum cell cost

From method will provide a
solution with a lower cost
To
1 6 25 8 125 10 150 than the northwest corner

7 11 11 175
solution because it considers
2 175
cost in the allocation
3 200 4 75 5 12 275
process.
Demand 200 100 300 600
Min C = ETB6x1A + 8x1B + 10x1C + 7x2A + 11x2B + 11x2C + 4x3A + 5x3B + 12x3C
Min C = ETB6(0) + 8(25) + 10(125) + 7(0) + 11(0) + 11(175) + 4(200) + 5(75) + 12(0)
=ETB4550
C. vogel’s approximation method (VAM)

• The third method for determining an initial solution, Vogel's approximation

model (also called VAM), is based on the concept of penalty cost or regret. If a
decision maker incorrectly chooses from several alternative courses of action, a
penalty may be suffered (and the decision maker may regret the decision that
was made). In a transportation problem, the courses of action are the alternative
routes, and a wrong decision is allocating to a cell that does not contain the
lowest cost.

• A penalty cost is the difference between the largest and next largest cell cost in a
row (or column).
The steps of Vogel's approximation model
1. Determine the penalty cost for each row and column by subtracting the lowest
cell cost in the row or column from the next lowest cell cost in the same row or
column.

2. Select the row or column with the highest penalty cost (breaking ties arbitrarily
or choosing the lowest-cost cell).

3. Allocate as much as possible to the feasible cell with the lowest transportation
cost in the row or column with the highest penalty cost.

4. Repeat steps 1, 2, and 3 until all rim requirements have been met.
• In the VAM method, the first step is to develop a penalty cost for each source and
destination. For example, consider column A in Table 6. Destination A, Addis
Ababa, can be supplied by Jimma, Mekelle, and Bahir Dar. The best decision
would be to supply Addis Ababa from source 3 because cell 3A has the minimum
cost of $4. If a wrong decision were made and the next higher cost of $6 were
selected at cell 1A, a "penalty" of $2 per ton would result (i.e., $6 - 4 = $2). This
demonstrates how the penalty cost is determined for each row and column of the
tableau.

• The general rule for computing a penalty cost is to subtract the minimum cell cost
from the next higher cell cost in each row and column. The penalty costs for our
example are shown at the right and at the bottom of Table 6.
• Table 6: The VAM penalty cost

A B C Supply
From To

1 6 8 10 150 2
2 7 11 11 175 4

3 4 5 12 275 1

Demand 200 100 300 600

2 3 2

VAM allocates as much as possible to the minimum cost cell in the row or
column with the largest penalty cost
• The initial allocation in the VAM method is made in the row or column that has the highest
penalty cost. In Table 6, row 2 has the highest penalty cost of $4. We allocate as much as possible
to the feasible cell in this row with the minimum cost. In row 2, cell 2A has the lowest cost of $7,
and the most that can be allocated to cell 2A is 175 tons. With this allocation the greatest penalty
cost of $4 has been avoided because the best course of action has been selected. The allocation is
shown in Table 7

• Table 7: The initial VAM allocation

A B C Supply
From To

1 6 8 10 150
2
2 175 7 11 11 175

3 4 5 12 275 1

Demand 200 100 300 600

2 3 1
• After the initial allocation is made, all of the penalty costs must be recomputed.
In some allocation cases the penalty costs will change or be eliminated; in other
cases they will not change. For example, the penalty cost in row 2 was eliminated
altogether (because no more allocations are possible for that row).

• After each VAM cell allocation, all row and column penalty costs are recomputed.
Next, we repeat the previous step and allocate to the row or column with the
highest penalty cost, which is now column B with a penalty cost of $3 (see Table 7).
The cell in column B with the lowest cost is 3B, and we allocate as much as possible
to this cell, 100 tons. This allocation is shown in Table 8.

Table 8: The second VAM allocation

A B C Supply
From To

1 6 8 10 150
2
2 175 7 11 11 175

3 4 100 5 12 275 8

Demand 200 100 300 600

2 1
Since the highest penalty cost is
now
$8 for row 3 and since cell 3A has
the minimum cost of $4, we
Table 9: The third VAM allocation

A B C Supply
From To

allocate 25 tons to this cell, as

1 6 8 10 150
11 175
2 175 7 11

3 25 4 100 5 12 275

shown in Table 9.
Demand 200 100 300 600
1
• Notice that by now only column C has a penalty cost. Rows 1 and 3 have only one
feasible cell, so a penalty does not exist for these rows. Thus, the last two
allocations are made to column C. First, 150 tons are allocated to cell 1C because
it has the lowest cell cost. This leaves only cell 3C as a feasible possibility, so 150
tons are allocated to this cell. Both of these allocations are shown in Table 10.
• Table 10: The initial VAM solution

A B C Supply
From

To
1 6 8 150 10 150

2 175 7 11 11 175

3 25 4 100 5 150 12 275

Demand 200 100 300 600

Min C = $6x1A + 8x1B + 10x1C + 7x2A + 11x2B + 11x2C + 4x3A + 5x3B + 12x3C
Min C = $6(0) + 8(0) + 10(150) + 7(175) + 11(0) + 11(0) + 4(25) + 5(100) + 12(150)
=$5125
• The total cost of this initial Vogel's approximation model solution is $5,125, which
is not as high as the northwest corner initial solution of $5,925. It is also not as
low as the minimum cell cost solution of $4,550.

• VAM and minimum cell cost both provide better initial solutions than the
northwest corner method

 Therefore, Minimum cell cost method ≤VAM ≤NW corner method