Acc 411-Bus 407 - Transportation Model - Basic Sol - 231122 - 143750 - 114624

DEPARTMENT OF MANAGEMENT AND ACCOUNTING
OBAFEMI AWOLOWO UNIVERSITY, ILE-IFE, NIGERIA
ACC 411/BUS 407: OPERATIONS RESEARCH

COURSE MANAGER: DON JAMES MONDAY (Ph.D., MNIM, AFIOR)
TRANSPORTATION MODEL
Transportation model is a mathematical technique that involves developing a effective plan to

distribute goods from several points of supply sources (factories, plants, etc.) to a number of points
of demand (destinations, sites, consumers, etc.). The model is a cost-minimization and profit-
maximization tool depending on the problem involved. The model can be used when a firm decides
to allocate a new facility.
BASIC REQUIREMENTS OF TRANSPORTATION MODEL
i) There should be a list of origins and corresponding capacity or quantity supplied per period.
ii) There should be a list of destinations and corresponding quantity demanded per period.
iii) The unit cost of transporting items from each origin to each destination should be present.
iv) Total quantity supplied must be equal to total quantity demanded. This is known as the Rim
Condition.
ASSUMPTIONS OF TRANSPORTATION MODEL
i) Items to be transported are homogeneous (they are the same regardless of their sources of
destination).
ii) Transporting cost per unit on a route is the same throughout that route regardless of the
number of units transported
iii) Total cost on the route is total number of items transported on that route multiplied by the
unit cost of items on the route.
iv) There is only one route of transportation being used between each pair of origin and
destination.
1
STEPS TO ACHIEVE BASIC SOLUTION
1. Ensure the problem is balanced, i.e. total supply equals total demand.
2. Create an initial basic feasible solution using any of the following methods:
i) North West Corner (NWC) Rule
ii) Least Cost Method (LCM) or Greedy Method
iii) Vogel’s Approximation Method (VAM) or Penalty Method
3. Engage the distribution plan for any of the methods
STEPS TO ACHIEVE OPTIMUM SOLUTION
4. Test for degeneracy

5. Obtain an optimum solution using Stepping Stone (SS) Method
(i) NORTH WEST CORNER (NWC) RULE
• Beginning in the upper left-hand cell of the table, allocate units to routes/cells in a “move-
to-the-right and down” pattern.
• Supply available at each row must be exhausted before moving down to the next row.
• Demand requirements of any column must be satisfied before moving to the right to the
next column.
• When all allocations have been made, check to ensure total supply allocated equals total
demand required.
Example: Star Nig Plc has operating plants in towns A, B and C, with production capacities of
5000, 6000, and 2500 units respectively. The company has four markets W, X, Y and Z for the
distribution of its products. The forecasted market demands are 6000, 4000, 2000, and 1500 units
respectively. The transportation cost (₦’000) per unit for the company is given below:
W X Y Z
A 3 2 7 6
B 7 5 2 3
C 2 5 4 5
2
Determine:
i) The distribution plan that will minimize the transportation cost
ii) The total minimum cost
Solution:
Basic Solution
3
Distribution Plan
From To Units Unit cost Total cost

transported (₦’000) (₦’000)
A W 5000 3 15000
B W 1000 7 7000
B X 4000 5 20000
B Y 1000 2 2000
C Y 1000 4 4000
C Z 1500 5 7500
Total minimum cost 55,500
(ii) LEAST COST METHOD (LCM)
• Concentration is on the cost of transportation across the routes.

• Allocation of units is based on least cost.
• The cell with the least unit cost receives the allocation first before the second least unit
cost, and then the third least unit cost and so on.
• When there is tie in the unit cost, make allocation to any of the tied cells.
• The smaller units of allocation (between supply and demand units) is made to a cell.
• When all allocations have been made, check to ensure total supply allocated equals total
demand required.
Lets demonstrate LCM using example on Star Nig Plc
4
Basic Solution
Distribution Plan
From To Units transported Unit cost (₦’000) Total cost (₦’000)

A W 1000 3 3000
A X 4000 2 8000
B W 2500 7 17500
B Y 2000 2 4000
B Z 1500 3 4500
C W 2500 2 5000
(iii) VOGEL’S APPROXIMATION METHOD (VAM)
Step 1: Calculate the opportunity cost figure (OCF) - the difference between the two lowest
transportation costs for each row and column.
Step 2: Select the row/column with highest OCF
Step 3: Allocate as many units as possible to the cell with the lowest cost figure in the selected
row/column.
Step 4: Cross-out any row/column that has received full allocation
Step 5: Repeat Steps 1 to 4 for rows and columns that are not yet satisfied until all allocations
have been made.
NB: If exactly one row/column remains uncrossed, stop and use LCM to complete the allocation.
5
Breaking ties in VAM:
There may be ties in

i) Opportunity cost figures: Make allocation to the cell that has the smaller least unit cost.
ii) Least unit cost figures: Make allocation to the cell that can take greater allocation.
Lets demonstrate VAM using example on Star Nig. Plc
Solution:
• Let r1, r2 & r3 be first, second and third row penalties;

• and c1, c2 & c3 be first, second and third column penalties
6
Basic Solution:
Distribution Plan
From To Units transported Unit cost (₦’000) Total cost (₦’000)
A W 1000 3 3000
A X 4000 2 8000
B W 2500 7 17500
B Y 2000 2 4000
B Z 1500 3 4500
C W 2500 2 5000

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DEPARTMENT OF MANAGEMENT AND ACCOUNTING

OBAFEMI AWOLOWO UNIVERSITY, ILE-IFE, NIGERIA

ACC 411/BUS 407: OPERATIONS RESEARCH

Transportation model is a mathematical technique that involves developing a effective plan to

BASIC REQUIREMENTS OF TRANSPORTATION MODEL

ASSUMPTIONS OF TRANSPORTATION MODEL

STEPS TO ACHIEVE OPTIMUM SOLUTION

4. Test for degeneracy

(i) NORTH WEST CORNER (NWC) RULE

From To Units Unit cost Total cost

(ii) LEAST COST METHOD (LCM)

• Concentration is on the cost of transportation across the routes.

Lets demonstrate LCM using example on Star Nig Plc

From To Units transported Unit cost (₦’000) Total cost (₦’000)

(iii) VOGEL’S APPROXIMATION METHOD (VAM)

There may be ties in

Lets demonstrate VAM using example on Star Nig. Plc

• Let r1, r2 & r3 be first, second and third row penalties;

From To Units transported Unit cost (₦’000) Total cost (₦’000)

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