Special Linear Programming

Models: Special Purpose Algorithms

In this session we will explore two special

linear programming models

•The transportation model

•The assignment model
• Because of their structure, they can be
solved more efficiently by special purpose
algorithms than using the simplex method

• These problems are members of a

category of LP problems called network
flow problems
 Transportation model
• The transportation problem deals with the
distribution of goods from several points of
supply (sources) to a number of points of
demand (destinations)

• Usually we are given the capacity of goods at

each source and the requirements at each
destination

• Typically the objective is to minimize total

transportation and production costs
• Because of its special structure, the usual
simplex method is not suitable for solving
transportation problems.

• These problems require a special method of

solution.
 Assignment model
• The assignment problem refers to the class of LP
problems that involve determining the most
efficient assignment of resources to tasks

• The objective is most often to minimize total costs

or total time to perform the tasks at hand

• One important characteristic of assignment

problems is that only one job or worker can be
assigned to one machine or project
 Special-purpose algorithms
• Although standard LP methods(simplex method)
can be used to solve transportation and
assignment problems, special-purpose algorithms
have been developed that are more efficient

• They still involve finding and initial solution and

developing improved solutions until an optimal
solution is reached

• They are fairly simple in terms of computation

• These special-purpose algorithms are streamlined
versions of the simplex method

• Two common techniques for developing initial

solutions are the northwest corner method and
Vogel’s approximation
• The initial solution is evaluated using either
the stepping-stone method or the
modified distribution (MODI) method

• We also introduce a solution procedure

called the Hungarian method, Flood’s
technique, or the reduced matrix method
 Lesson 9
Transportation Model
 Expected Learning Outcomes

1. Structure special LP problems using the

transportation model

2. Use the northwest corner, VAM, MODI, and

stepping-stone methods

3. Solve facility location and other application

problems with transportation models
 Setting Up a Transportation Problem
• The Executive Furniture Corporation manufactures office
desks at three locations: Factory 1, Factory 2, and Factory 3
• The firm distributes the desks through regional warehouses
located in town A, town B, and town C
• Transportation cost per desk and estimates of the monthly
production capacity of each factory and the desks needed
at each warehouse are shown below.
TO FACTORY
Warehouse 1 Warehouse 3
FROM Warehouse 2 CAPACITY

Factory 1 5 4 3 100
Factory 2 8 4 3 300
Factory 3 9 7 5 300
WAREHOUSE
REQUIREMENTS 300 200 200 700
 Setting Up a Transportation Problem
• Production costs are the same at the three
factories so the only relevant costs are shipping
from each source to each destination
• Costs are constant no matter the quantity shipped
• The transportation problem can be described as
how to select the shipping routes to be used and
the number of desks to be shipped on each route
so as to minimize total transportation cost
• Restrictions regarding factory capacities and
warehouse requirements must be observed
Setting Up a Transportation Problem
• The first step is setting up the transportation table
• Its purpose is to summarize all the relevant data
and keep track of algorithm computations

TO FACTORY
FROM Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY

Factory 1 5 4 3 100
Factory 2 8 4 3 300
Factory 3 9 7 5 300
WAREHOUSE
REQUIREMENTS 300 200 200 700
Setting Up a Transportation Problem

• Transportation table for Executive Furniture

Factory 1
capacity
constraint

TO
WAREHOUSE 1 WAREHOUSE 2 WAREHOUSE 3 FACTORY
FROM CAPACITY
5 4 3
Factory 1 100

8 4 3
Factory 2 300

9 7 5
Factory 3 300

WAREHOUSE
REQUIREMENTS 300 200 200 700
Total supply Cell representing a
Cost of shipping 1 unit from Warehouse
and demand source-to-destination
factory 3 to warehouse 2 3 demand
Setting Up a Transportation Problem

• In this table, total factory supply exactly equals

total warehouse demand
• When equal demand and supply occur, a balanced
problem is said to exist
• This is uncommon in the real world and we have
techniques to deal with unbalanced problems
 Developing an Initial Solution:
Northwest Corner Rule
• Once we have arranged the data in a table, we must
establish an initial feasible solution
• One systematic approach is known as the northwest corner
rule
• Start in the upper left-hand cell and allocate units to
shipping routes as follows
1. Exhaust the supply (factory capacity) of each row before moving
down to the next row
2. Exhaust the demand (warehouse) requirements of each column
before moving to the right to the next column
3. Check that all supply and demand requirements are met.

• In this problem it takes five steps to make the initial

shipping assignments
 Developing an Initial Solution:
Northwest Corner Rule
1. Begin at the upper left hand corner, we assign 100 units
from factory 1.
– This exhaust the supply from factory 1 but leaves warehouse 2
200 desks short.
– We move to the second row in the same column.

TO FACTORY
Warehouse 1 Warehousr 2 Warehouse 3
FROM CAPACITY
5 4 3
Factory 1 100 100

8 4 3
Factory 2 300

9 7 5
Factory 3 300

WAREHOUSE
300 200 200 700
REQUIREMENTS
 Developing an Initial Solution:
Northwest Corner Rule
2. Assign 200 units from factory 2 to warehouse 1.
– This meets warehouse 1 demand.
– Factory 2 has 100 units remaining so we move to the right to the
next column of the second row.

TO FACTORY
Warehouse 1 Warehouse 2 warehouse 3
FROM CAPACITY
5 4 3
Factory 1 100 100

8 4 3
Factory 2 200 300

9 7 5
Factory 3 300

WAREHOUSE
300 200 200 700
REQUIREMENTS
 Developing an Initial Solution:
Northwest Corner Rule
3. Assign 100 units from warehouse 2 to factory 2.
– The factory 2 supply has now been exhausted but warehouse 2
is still 100 units short.
– We move down vertically to the next row in the warehouse 2
column.

TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
5 4 3
Factory 1 100 100

8 4 3
Factory 2 200 100 300

9 7 5
Factory 3 300

WAREHOUSE
300 200 200 700
REQUIREMENTS
 Developing an Initial Solution:
Northwest Corner Rule
4. Assign 100 units from Factory 3 to warehouse 2.
– This fulfills warehouse 2 demand and Factory 3 still has 200
units available.

TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100

Factory 2 8 4 3
200 100 300

Factory 3 9 7 5
100 300

WAREHOUSE
300 200 200 700
REQUIREMENTS
 Developing an Initial Solution:
Northwest Corner Rule
5. Assign 200 units from Factory 3 to warehouse 3.
– This exhausts Factory 3 supply and warehouse 3 demand.
– The initial shipment schedule is now complete.
Note: There are 5 squares/cells occupied and there are
4 cells unoccupied.
TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100

Factory 2 8 4 3
200 100 300

Factory 3 9 7 5
100 200 300

WAREHOUSE
300 200 200 700
REQUIREMENTS
 Developing an Initial Solution:
Northwest Corner Rule
• We can easily compute the cost of this shipping assignment

ROUTE
UNITS PER UNIT TOTAL
FROM TO SHIPPED x COST (P) = COST (P)
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
4,200

■ This initial solution is feasible but we need to

check to see if it is optimal
 Stepping-Stone Method:
Finding a Least Cost Solution
• The stepping-stone method is an iterative technique
for moving from an initial feasible solution to an
optimal feasible solution
• There are two distinct parts to the process
– Testing the current solution to determine if
improvement is possible
– Making changes to the current solution to obtain
an improved solution
• This process continues until the optimal solution is
reached
Stepping-Stone Method: Finding a Least
Cost Solution
• There is one very important rule
– The number of occupied routes (or squares) must always be equal
to one less than the sum of the number of rows plus the number of
columns
• In the Executive Furniture problem this means the initial
solution must have 3 + 3 – 1 = 5 squares/cells used

Occupied shipping Number Number of

routes = of rows + columns –
(squares/cells) 1
■ When the number of occupied rows is less
than this, the solution is called degenerate
 • There are 5 used/occupied squares/cells, therefore
initial solution is not a degenerate solution.

• There are 4 unused/unoccupied squares/cells

The initial transportation table

TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100

Factory 2 8 4 3
200 100 300

Factory 3 9 7 5
100 200 300

WAREHOUSE
300 200 200 700
REQUIREMENTS
 Testing the Initial Solution for Possible
Improvement

• The stepping-stone method works by testing

each unused square/cell in the transportation
table to see what would happen to total shipping
costs if one unit of the product were tentatively
shipped on an unused route/cell
• There are five steps in the process
 Five Steps to Test Unused Squares
with the Stepping-Stone Method

1. Select an unused square/cell to evaluate

2. Beginning at this square, trace a closed path back to the
original square via squares that are currently used with
only horizontal or vertical moves allowed
3. Beginning with a plus one (+1) sign at the unused square,
place alternate minus one (–1) signs and plus signs on
each corner square of the closed path just traced
 Five Steps to Test Unused Squares
with the Stepping-Stone Method
4. Calculate an improvement index by adding together the
unit cost figures found in each square containing a +1 sign
and then subtracting the unit costs in each square
containing a -1 sign
5. Repeat steps 1 to 4 until an improvement index has been
calculated for all unused squares/cells.
Take note:
▪ If all improvement indices computed are greater
than or equal to zero, an optimal solution has been
reached.
▪ If not, it is possible to improve the current solution
and decrease total shipping costs.
 Five Steps to Test Unused Squares
with the Stepping-Stone Method
Warehouse A Warehouse B
• Evaluating the unused 5 4
factory 1– warehouse 2 Factory
D 100

(F1W2) shipping route –1 +1

Factory
+18 –14
E 200 100

TO FACTORY
Warehouse 1 Warehouse 2 warehouse 3
FROM CAPACITY
5 4 3
Factory 1 100 100

8 4 3
Factory 2 200 100 300

9 7 5
Factory 3 100 200 300

WAREHOUSE
300 200 200
REQUIREMENTS Table70010.4
Five Steps to Test Unused Squares
with the Stepping-Stone Method
Warehouse A Warehouse B
• Evaluating the unused
99 5 4
factory 1– warehouse 2 Factory
D 100 1

(F1W2) shipping route –1 +1

Factory 201 +18 99 –14

E 200 100

TO FACTORY
Warehouse 1 Warehouse 2 warehouse 3
FROM CAPACITY
5 4 3
Factory 1 100 100

8 4 3
Factory 2 200 100 300

9 7 5
Factory 3 100 200 300

WAREHOUSE
REQUIREMENTS
300 200 200 Table 10.4
700
Five Steps to Test Unused Squares
with the Stepping-Stone Method
Warehouse A Warehouse B
• Evaluating the unused
99 5 4
factory 1– warehouse 2 Factory
D 100 1

(F1W2) shipping route –1 +1

Factory 201 +18 99 –14

E 200 100

TO FACTORY
ALBUQUERQUE BOSTON CLEVELAND
FROM Result
CAPACITY of Proposed
5 4 3
Shift in Allocation
DES MOINES 100 100 =1x4
–1x5
8 4 3 +1x8
EVANSVILLE 200 100 300
– 1 x 4 = +3
9 7 5
FORT LAUDERDALE 100 200 300
Table 10.4
WAREHOUSE
300 200 200 700
REQUIREMENTS
 Five Steps to Test Unused Squares
with the Stepping-Stone Method
Step 4. We can now compute an improvement index (Iij)
for the factory 1–warehouse 2 route(F1W2)
We add the costs in the squares with plus signs and
subtract the costs in the squares with minus signs

F1W2 improvement = +1(4) –1(5) +1(8) –1(4)

index = +4 – 5 + 8 – 4
= +3
• This means for every desk shipped via the F1W2
route, total transportation cost will increase by 3
over their current level
Five Steps to Test Unused Squares
with the Stepping-Stone Method
Step 5. We can now examine the factory 1– warehouse 3
(F1W3) unused route which is slightly more difficult to draw

■ Again we can only turn corners at squares that

represent existing route(used squares/cells)

■ What will be the closed path we can possibly use?

 Evaluating the unused F1W3 shipping route

TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100
-1 +1
Factory 2 8 4 3
+1 200 100
-1 300

Factory 3 9 7 5
100 200 -1 300
+1
WAREHOUSE
300 200 200 700
REQUIREMENTS

The unused route F1W3 improvement index

= +1(3) –1(5)+1(7) –1(4)+1(8) –1(5)
=+3 – 5 + 7 – 4 + 8 – 5
= +4
 Evaluating the unused F2W3 shipping route

TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100

Factory 2 8 4 3
200 -1 100 300
+1
Factory 3 9 7 5
+1 100 200 300
-1
WAREHOUSE
300 200 200 700
REQUIREMENTS

The unused route F2W3 improvement index

=+1(3)-1(5)+1(7)-1(4)
= 3 – 5 +7 – 4
= +1
 Evaluating the unused F3W1 shipping route

TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100

Factory 2 8 4 3
-1 200 100
+1
300

Factory 3 9 7 5
+1 100 -1 200 300

WAREHOUSE
300 200 200 700
REQUIREMENTS

The unused route F3W1 improvement index

= +1(9)-1(8)+1(4)-1(7)
=9 – 8 +4 – 7
=-2
 Summary of improvement index numbers
TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 +3 +4 100

Factory 2 8 4 3
200 100 +1 300

Factory 3 9 7 5
-2 100 200 300

WAREHOUSE
300 200 200 700
REQUIREMENTS

Notice There is only one improvement index number

less than zero (-2),
■This means for every desk shipped via the F3W1 route,
total transportation cost will decrease by 2 over their
current level(4,200)
 Remember this is how we evaluated the unused
F3W1 shipping route resulting to an improvement
index of -2.
TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100

Factory 2 8 4 3
-1 200 100
+1
300

Factory 3 9 7 5
+1 -2 100 -1 200 300

WAREHOUSE
300 200 200 700
REQUIREMENTS

▪ This means for every desk shipped via the F3W1 route,
total transportation cost will decrease by 2 over their
current level(4,200)
• What is the maximum number of desk we can ship to the
F3W1 route?
 • The maximum number of desk we can shipped
to the F3W1 route is shown in the table below
TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100

Factory 2 8 4 3
200 100 300
-100 +100
Factory 3 9 7 5
-2 100 -100 200 300
+100
WAREHOUSE
300 200 200 700
REQUIREMENTS

Note: To determine the maximum desk to ship to F3W1

route, choose the smallest corner value with -1 sign (200
and 100). So we choose 100.
The 2nd improved solution is shown in the next
slide
 2nd improved solution

TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100

Factory 2 8 4 3
100 200 300

Factory 3 9 7 5
100 200 300

WAREHOUSE
300 200 200 700
REQUIREMENTS

• Note again: There are 5 used/occupied squares/cells,

therefore the 2nd improved solution is not a
degenerate solution.
• There are 4 unused/unoccupied squares/cells which
again we will evaluate to see if the 2nd improved
solution is optimal.
 • We can easily compute the cost of the 2nd shipping
assignment
ROUTE
UNITS PER UNIT TOTAL
FROM TO SHIPPED x COST (P) = COST (P)
F1 W1 100 5 500
F2 W1 100 8 800
F3 W1 100 9 900
F2 W2 200 4 800
F3 W3 200 5 1,000
4,000

▪ Notice that the shipping cost has decreased

from 4,200 to 4,000.
▪ This solution is feasible but we need to check to
see if it is optimal
 Evaluating unused F1W2 shipping route

TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100
-1 +1
Factory 2 8 4 3
100 200 300
+1 -1
Factory 3 9 7 5
100 200 300

WAREHOUSE
300 200 200 700
REQUIREMENTS

The improvement index of F1W2

= +4 – 4 + 8 – 5
= +3
 Evaluating for unused F1W3 shipping route

TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100
-1 +1
Factory 2 8 4 3
100 200 300

Factory 3 9 7 5
100 200 300
+1 -1
WAREHOUSE
300 200 200 700
REQUIREMENTS

The improvement index of F1W3 = +3 – 5 +9 – 5

= +2
 Evaluating the unused F2W3 shipping route

TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100

Factory 2 8 4 3
100 200 300
-1 +1
Factory 3 9 7 5
100 200 300
+1 -1
WAREHOUSE
300 200 200 700
REQUIREMENTS

The improvement index of F2W3 = +3 – 5 +9 – 8

= -1
 Evaluating the unused F3W2 shipping route

TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100

Factory 2 8 4 3
100 200 300
+1 -1
Factory 3 9 7 5
100 200 300
-1 +1
WAREHOUSE
300 200 200 700
REQUIREMENTS

The improvement index of F3W2 = +7 – 9 +8 – 4

= +2
 Summary of improvement index numbers for the
2nd improved solution
TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 +3 +2 100

Factory 2 8
+ 4 3
100 200 -1 300

Factory 3 9 7 5
100 +2 200 300

WAREHOUSE
300 200 200 700
REQUIREMENTS

Notice There is only one improvement index number

less than zero (-1),
■This means for every desk shipped via the F2W3 route,
total transportation cost will decrease by 1 over their
current level(4,000)
Remember this is how we evaluated the unused F2W3
shipping route resulting to an improvement index of -1.

TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100

Factory 2 8 4 3
100 200 300
-1 +1
Factory 3 9 7 5
100 200 300
+1 -1
WAREHOUSE
300 200 200 700
REQUIREMENTS

▪ This means for every desk shipped via the F2W3 route,
total transportation cost will decrease by 1 over their
current level(4,000)
• What is the maximum number of desk we can ship to the
F2W3 route?
 The maximum number of desk we can ship
to the F2W3 route is shown in the table below
TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100

Factory 2 8 4 3
100 200 300
-100 +100
Factory 3 9 7 5
100 200 300
+100 -100
WAREHOUSE
300 200 200 700
REQUIREMENTS

Note again: To determine the maximum desk to ship to

F2W3 route, choose the smallest corner value with
-1 sign (200 and 100)
The 3rd improved solution is shown in the next slide
 The 3rd improved solution
TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100

Factory 2 8 4 3
200 100 300

Factory 3 9 7 5
200 100 300

WAREHOUSE
300 200 200 700
REQUIREMENTS

• Note again: There are 5 used/occupied squares/cells,

therefore the 3rd improved solution is not a degenerate
solution.
• There are 4 unused/unoccupied squares/cells which again
we will evaluate to see if the 3rd improved solution is
optimal.
• We can easily compute the cost of the 3rd shipping
assignment
ROUTE
UNITS PER UNIT TOTAL
FROM TO SHIPPED x COST (P) = COST (P)
F1 W1 100 5 500
F2 W2 200 4 800
F3 W1 200 9 1,800
F2 W3 100 3 300
F3 W3 100 5 500
3,900

■ This solution is feasible but we need to check to

see if it is optimal
■ Note the shipping cost has decreased from
4,000 to 3,900.
 Evaluating the unused F1W2 shipping route
TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100
-1 +1
Factory 2 8 4 3
200 100 300
-1 +1
Factory 3 9 7 5
200 100 300
-1
WAREHOUSE
300 200 200 700
REQUIREMENTS

The improvement index number of F1W2

= +4-4+3-5+9-5
= +2
 Evaluating the unused F1W3 shipping route.
TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100
-1 +1
Factory 2 8 4 3
200 100 300

Factory 3 9 7 5
200 100 300
-1
WAREHOUSE
300 200 200 700
REQUIREMENTS

The improvement index number of F1W3

= +3-5+9-5
= +2
 Evaluating the unused F2W1 shipping route
TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100

Factory 2 8 4 3
200 100 300
-1
Factory 3 9 7 5
200 100 300
-1 +1
WAREHOUSE
300 200 200 700
REQUIREMENTS

The improvement index number of F2W1

= +8-3+5-9
= +1
 Evaluating for unused F3W2 shipping route
TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100

Factory 2 8 4 3
200 100 300
-1 +1
Factory 3 9 7 5
200 100 300
-1
WAREHOUSE
300 200 200 700
REQUIREMENTS

The improvement index number of F3W2

= +7-4+3-5
= +1
 Summary of index numbers of the 3rd improved solution

TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 +2 +2 100

Factory 2 8 4 3
+1 200 100 300

Factory 3 9 7 5
200 +1 100 300

WAREHOUSE
300 200 200 700
REQUIREMENTS

Notice all improvement index numbers are greater than zero,

therefore, the 3rd improved solution is the optimal solution.
• The 3rd shipping assignment is the optimal solution
• We can easily compute the cost of the 3rd shipping
assignment

ROUTE
UNITS PER UNIT TOTAL
FROM TO SHIPPED x COST (P) = COST (P)
F1 W1 100 5 500
F2 W2 200 4 800
F3 W1 200 9 1,800
F2 W3 100 3 300
F3 W3 100 5 500
3,900

■ The minimum shipping cost is P3,900.00

 The optimal solution (3rd improved solution )
TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100

Factory 2 8 4 3
200 100 300

Factory 3 9 7 5
200 100 300

WAREHOUSE
300 200 200 700
REQUIREMENTS

• F1W1 route 100

• F2W2 route 200
• F2W3 route 100
• F3W1 route 200
• F3W3 route 100
Minimum shipping cost of 3,900.
Summary of Steps in Transportation
Algorithm (Minimization)
1. Set up a balanced transportation table
2. Develop initial solution using either the northwest corner
method or Vogel’s approximation method
3. Calculate an improvement index for each empty cell
using either the stepping-stone method or the MODI
method. If improvement indices are all nonnegative, stop
as the optimal solution has been found. If any index is
negative, continue to step 4.
4. Select the cell with the improvement index indicating the
greatest decrease in cost. Fill this cell using the
stepping-stone path and go to step 3.
 MODI Method:
another method of computing improvement
indices of unused cell quickly
• The MODI (modified distribution) method allows us to
compute improvement indices quickly for each
unused square without drawing all of the closed paths

• Because of this, it can often provide considerable time

savings over the stepping-stone method for solving
transportation problems

• If there is a negative improvement index, then only one

stepping-stone path must be found

• This is used in the same manner as before to obtain an

improved solution
How to Use the MODI Approach
• In applying the MODI method, we begin with an
initial solution obtained by using the northwest
corner rule

• We now compute a value for each row (call the

values R1, R2, R3 if there are three rows) and for
each column (K1, K2, K3) in the transportation table

• In general we let

Ri = value for assigned row i

Kj = value for assigned column j
Cij = cost in square ij (cost of shipping
from source i to destination j)
 Five Steps in the MODI Method to Test
Unused Squares
1. Compute the values for each row and column, set
Ri + Kj = Cij
but only for those squares that are currently used or
occupied
2. After all equations have been written, set R1 = 0
3. Solve the system of equations for R and K values
4. Compute the improvement index for each unused
square by the formula
Improvement Index (Iij) = Cij – Ri – Kj
5. Select the best negative index and proceed to solve the
problem as you did using the stepping-stone method
Solving the Executive Furniture Corporation
Problem with MODI
• The initial northwest corner solution is repeated
• Note that to use the MODI method we have
added the Ris (rows) and Kjs (columns)
Kj K1 K2 K3
TO FACTORY
Ri W1 W2 W3
FROM CAPACITY
5 4 3
R1 F1 100 100

8 4 3
R2 F2 200 100 300

9 7 5
R3 F3 100 200 300

WAREHOUSE
300 200 200 700
REQUIREMENTS
• We can easily compute the cost of this shipping assignment

ROUTE
UNITS PER UNIT TOTAL
FROM TO SHIPPED x COST (P) = COST (P)
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
4,200

■ This initial solution is feasible but we need to

check to see if it is optimal
Solving the Executive Furniture Corporation
Problem with MODI
• The first step is to set up an equation for each occupied
square/cell
• By setting R1 = 0 we can easily solve for K1, R2, K2, R3, and
K3
• The occupied cells are F1W1, F2W1, F2W2,F3W2 and F3W3
• The following are the equations for each occupied cell.

(1) R1 + K1 = 5 0 + K1 = 5K1 = 5
(2) R2 + K1 = 8 R2 + 5 = 8R2 = 3
(3) R2 + K2 = 4 3 + K2 = 4K2 = 1
(4) R3 + K2 = 7 R3 + 1 = 7R3 = 6
(5) R3 + K3 = 5 6 + K3 = 5K3 = –1
Solving the Executive Furniture Corporation
Problem with MODI
• The next step is to compute the improvement index for each
unused cell using the formula
Improvement index (Iij) = Cij – Ri – Kj
• We have
F1W2 index= C12-R1-K2 =4-0-1=3
F1W3 index= C13-R1-K3 =3-0-(-1)=4
F2W3 index=C23-R2-K3 = 3-3-(-1)=1
F3W1 index=C31-R3-K1=9-6-5=-2
Solving the Executive Furniture Corporation
Problem with MODI
Summary of improvement index numbers of the
initial solution
Kj K1 K2 K3
TO FACTORY
Ri W1 W2 W3
FROM CAPACITY
5 4 3
R1 F1 100 +3 +4 100

8 4 3
R2 F2 200 100 +1 300

-2 9 7 5
R3 F3 100 200 300

WAREHOUSE
300 200 200 700
REQUIREMENTS

Note: compare this result to the improvement index

numbers using stepping stone method. (slide 36)
Solving the Executive Furniture Corporation
Problem with MODI
• The steps we follow to develop an improved
solution after the improvement indices have been
computed are
1. Beginning at the square with the best
improvement index, trace a closed path back
to the original square via squares that are
currently being used
2. Beginning with a (+1) sign at the unused
square, place alternate (-1) signs and (+1)
signs on each corner square of the closed
path just traced
Solving the Executive Furniture Corporation
Problem with MODI
3. Select the smallest quantity found in those
squares containing the minus signs and add
that number to all squares on the closed path
with plus signs; subtract the number from
squares with minus signs
4. Compute new improvement indices for this new
solution using the MODI method
▪ Note that new Ri and Kj values must be calculated
▪ Follow this procedure for the second and third
solutions
Solving the Executive Furniture Corporation
Problem with MODI
Note that there is only one improvement index number
Less than zero (-2)
Trace the closed path to determine the maximum desk to
ship to F3W1.
Kj K1 K2 K3
TO FACTORY
Ri W1 W2 W3
FROM CAPACITY
5 4 3
R1 F1 100 100

-1 8 4 3
R2 F2 200 100 -1 300

=-2 9 7 5
R3 F3 +1 100 +1 200 300

WAREHOUSE
300 200 200 700
REQUIREMENTS
Solving the Executive Furniture Corporation
Problem with MODI
Note again: To determine the maximum desk to ship to F3W1
route, choose the smallest corner value with -1 sign (200 and
100)
The 2nd improved solution is shown in the next slide
Kj K1 K2 K3
TO FACTORY
Ri W1 W2 W3
FROM CAPACITY
5 4 3
R1 F1 100 100

-100200 8 4 3
R2 F2 100 +100 300

=-2 9 7 5
R3 F3 +100 100 -100 200 300

WAREHOUSE
300 200 200 700
REQUIREMENTS
Solving the Executive Furniture Corporation
Problem with MODI

2nd improved solution

Kj K1 K2 K3
TO FACTORY
Ri W1 W2 W3
FROM CAPACITY
5 4 3
R1 F1 100 100

8 4 3
R2 F2 100 200 300

9 7 5
R3 F3 100 = 200 300

WAREHOUSE
300 200 200 700
REQUIREMENTS
• There are 4 unused/unoccupied squares/cells which again
we will evaluate to see if the 2nd improved solution is
optimal.
 • We can easily compute the cost of the 2nd shipping
assignment
ROUTE
UNITS PER UNIT TOTAL
FROM TO SHIPPED x COST (P) = COST (P)
F1 W1 100 5 500
F2 W1 100 8 800
F3 W1 100 9 900
F2 W2 200 4 800
F3 W3 200 5 1,000
4,000

▪ Notice that the shipping cost has decreased

from 4,200 to 4,000.
▪ This solution is feasible but we need to check to
see if it is optimal
Solving the Executive Furniture Corporation
Problem with MODI
• The first step again is to set up an equation for each
occupied square
• By setting R1 = 0 we can easily solve for K1, R2, K2, R3,
and K3

(1) R1 + K1 = 5 0 + K1 = 5K1 = 5
(2) R2 + K1 = 8 R2 + 5 = 8R2 = 3
(3) R3 +K1 = 9 R3+5 =9 R3=4
(4) R2 + K2 = 4 3 + K2 = 4K2 = 1
(5) R3 + K3 = 5 4 + K3 = 5K3 = 1
Solving the Executive Furniture Corporation
Problem with MODI
• The next step is to compute the improvement index for each
unused cell using the formula
Improvement index (Iij) = Cij – Ri – Kj
• We have
F1W2 index= C12-R1-K2 =4-0-1=3
F1W3 index= C13-R1-K3 =3-0-1=2
F2W3 index=C23-R2-K3 = 3-3-1=-1
F3W2 index=C32-R3-K2=7-4-1=2
Solving the Executive Furniture Corporation
Problem with MODI
Summary of improvement index numbers of the
2nd improved solution
Kj K1 K2 K3
TO FACTORY
Ri W1 W2 W3
FROM CAPACITY
5 4 3
R1 F1 100 +3 +2 100

8 4 3
R2 F2 100 200 -1 300

9 7 5
R3 F3 100 +2 200 300

WAREHOUSE
300 200 200 700
REQUIREMENTS
Note: compare this result to the improvement index
numbers using stepping stone method. (slide 45)
Solving the Executive Furniture Corporation
Problem with MODI
Note again that there is only one improvement index
number less than zero (-1)
Trace the closed path to determine the maximum desk to
ship to F2W3.
Kj K1 K2 K3
TO FACTORY
Ri W1 W2 W3
FROM CAPACITY
5 4 3
R1 F1 100 100

8 4
R2 F2 -1 100 200 -1 +13 300

9 = 7 5
R3 F3 +1 100 200 -1 300

WAREHOUSE
300 200 200 700
REQUIREMENTS
Solving the Executive Furniture Corporation
Problem with MODI
Note again: To determine the maximum desk to ship to F2W3
route, choose the smallest corner value with -1 sign (200 and
100)
The 3rd improved solution is shown in the next slide

Kj K1 K2 K3
TO FACTORY
Ri W1 W2 W3
FROM CAPACITY
5 4 3
R1 F1 100 100

8 4 3
R2 F2 -100100 200 -1 +100 300

9 = 7 5
R3 F3 +100
100 200 -100 300

WAREHOUSE
300 200 200 700
REQUIREMENTS
Solving the Executive Furniture Corporation
Problem with MODI
The 3rd improved solution

Kj K1 K2 K3
TO FACTORY
Ri W1 W2 W3
FROM CAPACITY
5 4 3
R1 F1 100 100

8 4 3
R2 F2 200 100 300

9 7 5
R3 F3 200 = 100 300

WAREHOUSE
300 200 200 700
REQUIREMENTS
There are 4 unused/unoccupied squares/cells which again we
will evaluate to see if the 3rd improved solution is optimal.
Solving the Executive Furniture Corporation
Problem with MODI
• Again the first step is to set up an equation for each
occupied square
• By setting R1 = 0 we can easily solve for K1, R2, K2, R3,
and K3

(1) R1 + K1 = 5 0 + K1 = 5K1 = 5
(2) R3+K1= 9 R3 +5=9 R3=4
(3) R3 + K3 = 5 4 + K3 = 5K3 = 1
(4) R2+K3 = 3 R2+ 1= 3 R2=2
(5) R2 + K2 = 4 2 + K2 = 4K2 = 2
Solving the Executive Furniture Corporation
Problem with MODI
• The next step is to compute the improvement index for each
unused cell using the formula
Improvement index (Iij) = Cij – Ri – Kj
• We have
F1W2 index= C12-R1-K2 =4-0-2=2
F1W3 index= C13-R1-K3 =3-0-1=2
F2W1 index=C21-R2-K1 = 8-2-5= 1
F3W2 index=C32-R3-K2=7-4-2=1
Solving the Executive Furniture Corporation
Problem with MODI
Summary of improvement index numbers of the 3rd
improved solution
Kj K1 K2 K3
TO FACTORY
Ri W1 W2 W3
FROM CAPACITY
5 4 3
R1 F1 100 +2 +2 100

8 4 3
R2 F2 +1 200 100 300
++
9 7 5
R3 F3 200 +1 100 300
=
WAREHOUSE
300 200 200 700
REQUIREMENTS
Note: compare this result to the improvement index
numbers using stepping stone method. (slide 54 )
• Note that the improvement index numbers are all
greater than zero, thus the 3rd shipping assignment is
the optimal solution
• We can easily compute the cost of the 3rd shipping
assignment
ROUTE
UNITS PER UNIT TOTAL
FROM TO SHIPPED x COST (P) = COST (P)
F1 W1 100 5 500
F2 W2 200 4 800
F3 W1 200 9 1,800
F2 W3 100 3 300
F3 W3 100 5 500
3,900

■ The minimum shipping cost is P3,900.00

 The optimal solution (3rd improved solution )
TO FACTORY
FROM
Warehouse 1 Warehouse 2 Warehouse 3 CAPACITY
Factory 1 5 4 3
100 100

Factory 2 8 4 3
200 100 300

Factory 3 9 7 5
200 100 300

WAREHOUSE
300 200 200 700
REQUIREMENTS

• F1W1 route 100

• F2W2 route 200
• F2W3 route 100
• F3W1 roue 200
• F3W3 route 100
Minimum shipping cost of 3,900.
Take note:
• MODI (modified distribution) method is
used to compute improvement indices
quickly for each unused square without
drawing all of the closed paths
• MODI is another way of evaluating an
unused/unoccupied square/cell.
 Vogel’s Approximation Method:
Another Way To Find An Initial Solution

• Vogel’s Approximation Method (VAM) is not as simple as

the northwest corner method, but it provides a very good
initial solution, often one that is the optimal solution
• VAM tackles the problem of finding a good initial solution
by taking into account the costs associated with each
route alternative
• This is something that the northwest corner rule does not
do
• To apply VAM, we first compute for each row and column
the penalty faced if we should ship over the second-best
route instead of the least-cost route
 Vogel’s Approximation Method
• The six steps involved in determining an initial VAM
solution are illustrated below beginning with the same
layout originally shown in the stepping stone method

VAM Step 1. For each row and column of the

transportation table, find the difference between the
distribution cost on the best route in the row or column
and the second best route in the row or column

■ This is the opportunity cost of not using the

best route
■ Step 1 has been done in Table 1 next slide
 Vogel’s Approximation Method
• Transportation table with VAM row and column differences
shown

OPPORTUNITY
3 0 0 COSTS
TO
FROM A B C TOTAL
AVAILABLE

5 4 3
D 100 100 1

8 4 3
E 200 100 300 1

9 7 5
F 100 200 300 2

TOTAL REQUIRED 300 200 200 700

Computation of opportunity cost:
(table in slide 87)

Column A opportunity cost = best route - 2nd best route

=8–5=3
Column B opportunity cost = best route - 2nd best route
=4–4=0
Column C opportunity cost = best route - 2nd best route
=3–3= 0
Row D opportunity cost = best route - 2nd best route
=4–3= 1
Row E opportunity cost = best route - 2nd best route
=4–3= 1
Row F opportunity cost = best route - 2nd best route
=7–5= 2
 Vogel’s Approximation Method
VAM Step 2. identify the row or column with the
greatest opportunity cost, or difference (column A in
this example)
VAM Step 3.Assign as many units as possible to the
lowest-cost square in the row or column selected
VAM Step 4. Eliminate any row or column that has
been completely satisfied by the assignment just
made by placing Xs in each appropriate square
VAM Step 5. Recompute the cost differences for the
transportation table, omitting rows or columns
eliminated in the previous step
Vogel’s Approximation Method
• VAM assignment with D’s requirements satisfied

OPPORTUNITY
31 03 02 COSTS
TO TOTAL
FROM
A B C AVAILABLE
5 4 3
D 100 X X 100 1

8 4 3
E 300 1

9 7 5
F 300 2

TOTAL REQUIRED 300 200 200 700

Table 2
Recomputation of opportunity cost:

Column A opportunity cost = best route - 2nd best route

=9–8=1
Column B opportunity cost = best route - 2nd best route
=7–4=3
Column C opportunity cost = best route - 2nd best route
=5–3= 2
 Vogel’s Approximation Method
VAM Step 6. Return to step 2 for the rows and columns
remaining and repeat the steps until an initial feasible
solution has been obtained

■ In this case column B now has the greatest

difference, 3
■ We assign 200 units to the lowest-cost square in the
column, EB
■ We recompute the differences and find the greatest
difference is now in row E
■ We assign 100 units to the lowest-cost square in the
column, EC
 Vogel’s Approximation Method
• Second VAM assignment with B’s requirements satisfied

OPPORTUNITY
31 03 02 COSTS
TO TOTAL
FROM
A B C AVAILABLE
5 4 3
D 100 X X 100 1

8 4 3
E 200 300 1

9 7 5
F X 300 2

TOTAL REQUIRED 300 200 200 700

Table 3
 Vogel’s Approximation Method
• Third VAM assignment with E’s requirements satisfied

TO TOTAL
FROM
A B C AVAILABLE
5 4 3
D 100 X X 100

8 4 3
E X 200 100 300

9 7 5
F X 300

TOTAL REQUIRED 300 200 200 700

Table 4
 Vogel’s Approximation Method

• Final assignments to balance column and row requirements

TO TOTAL
FROM
A B C AVAILABLE
5 4 3
D 100 X X 100

8 4 3
E X 200 100 300

9 7 5
F 200 X 100 300

TOTAL REQUIRED 300 200 200 700

Table 5
Unbalanced Transportation Problems
• In real-life problems, total demand is frequently
not equal to total supply
• These unbalanced problems can be handled
easily by introducing dummy sources or dummy
destinations
• If total supply is greater than total demand, a
dummy destination (warehouse), with demand
exactly equal to the surplus, is created
• If total demand is greater than total supply, we
introduce a dummy source (factory) with a
supply equal to the excess of demand over
supply
Unbalanced Transportation Problems

• In either case, shipping cost coefficients of

zero are assigned to each dummy location or
route as no goods will actually be shipped
• Any units assigned to a dummy destination
represent excess capacity
• Any units assigned to a dummy source
represent unmet demand
 Demand Less Than Supply
• Suppose that the Executive Furniture Corporation
increases its rate of production from 100 to 250 desks
• The firm is now able to supply a total of 850 desks each
period
• Warehouse requirements remain the same (700) so the
row and column totals do not balance
• We add a dummy column that will represent a fake
warehouse requiring 150 desks
• This is somewhat analogous to adding a slack variable
• We use the northwest corner rule and either
stepping-stone or MODI to find the optimal solution
 Demand Less Than Supply
• Initial solution to an unbalanced problem where
demand is less than supply

TO DUMMY TOTAL
FROM
A B C WAREHOUSE AVAILABLE
5 4 3 0
D 250 250

8 4 3 0
E 50 200 50 300

9 7 5 0
F 150 150 300

WAREHOUSE
300 200 200 150 850
REQUIREMENTS
Total cost = 250(5) + 50(8) + 200(4) + 50(3) + 150(5) + 150(0) = 3,350
Executive Corporations
new capacity
 Demand Greater than Supply
■ The second type of unbalanced condition
occurs when total demand is greater than
total supply
■ In this case we need to add a dummy row
representing a fake factory
■ The new factory will have a supply
exactly equal to the difference between
total demand and total real supply
■ The shipping costs from the dummy
factory to each destination will be zero
Demand Greater than Supply
■ Unbalanced transportation table for Happy
Sound Stereo Company

TO WAREHOUSE WAREHOUSE WAREHOUSE

FROM A B C PLANT SUPPLY
6 4 9
PLANT W 200

10 5 8
PLANT X 175

12 7 6
PLANT Y 75
Totals
do not
WAREHOUSE 450 balance
250 100 150
DEMAND 500
 Demand Greater than Supply
■ Initial solution to an unbalanced problem in
which demand is greater than supply
TO WAREHOUSE WAREHOUSE WAREHOUSE
PLANT SUPPLY
FROM A B C
6 4 9
PLANT W 200 200

10 5 8
PLANT X 50 100 25 175

12 7 6
PLANT Y 75 75

0 0 0
PLANT Y 50 50

WAREHOUSE
250 100 150 500
Total costDEMAND
of initial solution
= 200(6) + 50(10) + 100(5) + 25(8) + 75(6) + 50(0)
= 2,850
 Degeneracy in Transportation
Problems
• Degeneracy occurs when the number of occupied squares
or routes in a transportation table solution is less than the
number of rows plus the number of columns minus 1
occupied cells < number of rows+ number of rows - 1
• Such a situation may arise in the initial solution or in any
subsequent solution
• Degeneracy requires a special procedure to correct the
problem since there are not enough occupied squares to
trace a closed path for each unused route and it would be
impossible to apply the stepping-stone method or to
calculate the R and K values needed for the MODI
technique
 Degeneracy in Transportation
Problems
• To handle degenerate problems, create an
artificially occupied cell
• That is, place a zero (representing a fake
shipment) in one of the unused squares and then
treat that square as if it were occupied
• The square chosen must be in such a position as
to allow all stepping-stone paths to be closed
• There is usually a good deal of flexibility in
selecting the unused square that will receive the
zero
 Degeneracy in an Initial Solution
• The Martin Shipping Company example illustrates
degeneracy in an initial solution
• They have three warehouses which supply three major
retail customers
• Applying the northwest corner rule the initial solution has
only four occupied squares
• This is less than the amount required to use either the
stepping-stone or MODI method to improve the solution (3
rows + 3 columns – 1 = 5)
• To correct this problem, place a zero in an unused square,
typically one adjacent to the last filled cell
 Degeneracy in an Initial Solution
• Initial solution of a degenerate problem

TO WAREHOUSE
CUSTOMER 1 CUSTOMER 2 CUSTOMER 3
FROM SUPPLY
8 2 6
WAREHOUSE 1 100 0 100

0 10 9 9
WAREHOUSE 2 100 20 120

7 10 7
WAREHOUSE 3 80 80

CUSTOMER
100 100 100 300
DEMAND

Possible choices of
cells to address the
degenerate solution
Degeneracy During Later Solution
Stages

• A transportation problem can become

degenerate after the initial solution stage if the
filling of an empty square results in two or more
cells becoming empty simultaneously
• This problem can occur when two or more cells
with minus signs tie for the lowest quantity
• To correct this problem, place a zero in one of
the previously filled cells so that only one cell
becomes empty
Degeneracy During Later Solution
Stages
• Example
– After one iteration, the cost analysis a
transportation table that was not degenerate but
was not optimal
– The improvement indices are

factory A – warehouse 2 index = +2

factory A – warehouse 3 index = +1
factory B – warehouse 3 index = –15
factory C – warehouse 2 index = +11
Only route with
a negative index
Degeneracy During Later Solution
Stages

transportation table
TO WAREHOUSE WAREHOUSE WAREHOUSE
1 2 3 FACTORY
FROM
CAPACITY
8 5 16
FACTORY A 70 70

15 10 7
FACTORY B 50 80 130

3 9 10
FACTORY C 30 50 80

WAREHOUSE
150 80 50 280
REQUIREMENT
 Degeneracy During Later Solution
Stages
• Tracing a closed path for the factory B – warehouse 3
route(FBW3)
TO WAREHOUSE WAREHOUSE WAREHOUSE
1 2 3 FACTORY
FROM
CAPACITY
8 5 16
FACTORY A 70 70

15 10 7
FACTORY B -50
50 80 +50 130

3 9 10
FACTORY C +50
30 50 -50 80

WAREHOUSE
150 80 50 280
REQUIREMENT
■ This would cause two cells to drop to zero (cells FBW1 and
FCW3)
■ We need to place an artificial zero in one of these cells to
avoid degeneracy
More Than One Optimal Solution
• It is possible for a transportation problem to have multiple
optimal solutions
• This happens when one or more of the improvement
indices zero in the optimal solution
• This means that it is possible to design alternative
shipping routes with the same total shipping cost
• The alternate optimal solution can be found by shipping
the most to this unused square using a stepping-stone
path
• In the real world, alternate optimal solutions provide
management with greater flexibility in selecting and using
resources
 Maximization Transportation
Problems
• If the objective in a transportation problem is to maximize
profit, a minor change is required in the transportation
algorithm
• Now the optimal solution is reached when all the
improvement indices are negative or zero
• The cell with the largest positive improvement index is
selected to be filled using a stepping-stone path
• This new solution is evaluated and the process continues
until there are no positive improvement indices
 Challenge! (practice only)
Four warehouses are supplied by three factories. The
supply available from each factory, the demand at each
warehouse and the cost per unit of transporting goods from
the factories to the warehouses are summarised in the
following table. Find the optimal solution to this
transportation problem.