Operations Research | Richa Saxena

Chapter 2

TRANSPORTATION
METHOD
Charles Babbage did some of the early work in developing the transportation theory. Popularly
known as the father of computers, Charles Babbage researched transportation costs and mail
sorting for the Uniform Penny Post in England in 1840 (“History of Operations Research,” 2006).
In 1930, AN Tolstoi published a paper titled “Methods of finding the minimal total kilometrage in
cargo-transportation planning in space”. This paper was published in a book by the National
Commissariat of the Soviet Union (Schrijver, 2002). The credit for formulated transportation
problems is attributed to F. L. Hitchcock. In 1941, Hitchcock also gave the computational procedure
for solving the problem. Independently, during WWII, T. C. Koopmans, during his tenure on the
Joint Shipping Board, invented a similar type of problem. The problem was referred to as the
Hitchcock-Koopmans problem (Fulkerson, 1966).

Nature of Transportation Problem

Distributing goods produced by a factory from various warehouses (or sources) to different markets
(or destinations) where they are required causes problems for almost every business. The
transportation method deals with the transportation of goods from different destinations. Relevant
data regarding available quantities at various sources demand at each destination, the cost of
shipping along each route, and non-availability of specific routes, if any.

A typical transportation problem is like this. A matrix is given where sources are given row-wise,
destinations are indicated column-wise, and the unit cost of transportation from each source to each
destination is provided. Also mentioned is the supply at each source and demand at every market.
(Vohra, 2010)

Plant Market

Supply Demand

Balanced and Unbalanced Problems

Suppose aggregate demand (AD) equals aggregate supply (AS). In that case, the problem is called
a balanced transportation problem; if the two do not match, it is called unbalanced. In any case,
the solution to a problem begins when it is balanced.

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Problem Statement
The mathematical formulation of the Transportation Problem is as follows:

Let 𝑎𝑖 = quantity of product available at the origin i

𝑏𝑗 = quantity of the goods required at destination j

𝑐𝑖𝑗 = Transportation cost per unit from origin i to destination j.

𝑥𝑖𝑗 = quantity of the goods transported from origin i to destination j.

The problem is “balanced” if

𝑖=1 𝑎𝑖 = ∑𝑗=1 𝑏𝑗
∑𝑚 𝑛

With these, the problem can be stated as a linear programming problem:

Minimise Total Cost Z = ∑𝑚 𝑛

𝑖=1 ∑𝑗=1 𝑐𝑖𝑗 𝑥𝑖𝑗

Subject to ∑𝑛𝑗=1 𝑥𝑖𝑗 = 𝑎𝑖 for i = 1,2, 3,..,m

𝑖=1 𝑥𝑖𝑗 = 𝑏𝑖
∑𝑚 for j = 1,2,3,…..,n

And 𝑥𝑖𝑗 > 0 for all i = 1,2,3,…..,m and j = 1,2,3,…..,n

The transportation model can be portrayed in a tabular form:

Origin (i) Destinations Supply 𝒂𝒊

1 2 …….. n

𝑥11 𝑥12 𝑥1𝑛

1 𝒂𝟏
c11 c12 …… c1n
𝑥21 𝑥22 𝑥2𝑛
2 𝒂𝟐
c21 c22 …… c2n

…… ……
…… …… …… ……
𝑥𝑚1 𝑥𝑚2 𝑥𝑚𝑛
Source

m 𝒂𝒎
cm1 cm2 …… cmn
Demand 𝒃𝒊 𝒃𝟏 𝒃𝟐 …… 𝒃𝒏 ∑ 𝑎𝑖 = ∑ 𝑏𝑗

The Solution to the Transportation Problem

Four steps are involved in obtaining a solution to a transportation problem. They are:

1. Check if the problem is balanced. If not, balance it.

2. Find the initial solution to the problem.
3. Test whether the solution is optimal. Stop if it is optimal. If not, go to step 3.
4. Find an improved solution. Go to step 2.
In this session, we will learn and practice steps 1 and 2.

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Finding Initial Solution

There are three methods for finding an initial solution to the problem. In this session, we will
discuss these two methods.

NORTHWEST CORNER RULE: Begin from the northwest corner of the table. Consider the first plant
supply and first market demand. The lower of the two shall be assigned to the first-plant first-
market route. If supply is more than demand, shift to the next market, and if supply is less than
demand, then move to the next plant. If the supply and demand are equal, move diagonally to the
next plant and follow the market route. Again, consider the demand and supply and allocate by
taking the lower two. Move similarly until all allocations are made. Once the rim conditions are
completed, the initial basic feasible solution (IBFS) to the problem is achieved.

LEAST COST METHOD: In this method, the route with the minimum cost (that is, the cell with the
least unit cost) is selected, and the supply and the demand at the plant and the market involved
are considered. The lower of these two is allocated in the cell chosen. The plant or market,
whichever is satisfied, is deleted. Both are deleted if satisfied due to equal demand and supply. If
there is more than one cell with the exact minimum cost, the one where a larger number of units
can be allocated is selected. Again, the remaining plants and markets are considered, and the same
steps are taken. The process is continued until all allocations are made.

VOGEL’S APPROXIMATION METHOD (VAM) or Penalty Method: This method works as follows.

1. Obtain the difference between pairs of minimum cost values for each row and column.
2. Select the largest cost differences and choose the least-cost cell in that row/column. Next,
consider the supply and the demand at the plant and the market involved. The lower of
these two is allocated in the cell chosen. Next, the plant or market, whichever is satisfied,
is deleted. Both are deleted if satisfied due to equal demand and supply. Finally, suppose
there is a tie in the largest cost difference values. In that case, the one corresponding to
which the larger number of units can be allocated is selected.
3. Calculate the cost differences again for the reduced problem and proceed in the same
manner as above. Repeat until all allocations are made.

One of these methods is used in a given problem to find the initial solution. Usually, the northwest
corner rule is not used because it does not consider the cost while making allocations. The other
two methods provide an initial solution with a comparatively lower cost. However, even in these
two, the penalty method usually gives better results (Vohra, 2021)

Testing Optimality of the Solution

Once the initial solution is obtained, it is tested for optimality. For testing the solution for
optimality, it must have 𝒎 + 𝒏 − 𝟏 allocations, where m is the number of rows and n is the number
of columns. If the allocations are lesser than have 𝒎 + 𝒏 − 𝟏, the solution is degenerate.
Degeneracy is discussed later.

For all rows and columns, 𝑢𝑖 and 𝑣𝑗 values are obtained. Each row and each column are assigned
one value corresponding to every occupied cell; the row 𝑢𝑖 and the column 𝑣𝑗 adds up to the cost
value, 𝑐𝑖𝑗 . For this, one of the rows/columns is assigned a value arbitrarily. Usually, the first-row
value u1 value is set equal to zero, and other values are determined one by one, using this and the
other successively derived values. Once all these values are obtained, calculate ∆𝑖𝑗 = 𝑢𝑖 + 𝑣𝑗 – 𝑐𝑖𝑗 .
Now, if all ∆𝑖𝑗 ≤0, then the solution is optimal; otherwise, not. A positive ∆𝑖𝑗 in a cell indicates that
allocating goods in that cell can reduce cost. Thus, if a cell 2 to 3 in the matrix has ∆𝑖𝑗 = 3 means

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that every unit allocated to this route, that is, every unit sent from plant 2 to market 3, would save
cost at the rate of Rs 3 per unit.

Improving a Non-optimal Solution MODI Method

If a solution is found to be non-optimal, it is improved as follows. Beginning with the cell that has
the largest ∆𝑖𝑗 value, draw a closed path by moving alternately horizontally and vertically, taking
turns at right angles, and halting in occupied cells only in such a way as to reach the same cell from
where it began. It may be noted that irrespective of the size of the given matrix, one and only one
closed path can be traced starting from a given cell. The path can take any shape, and the
movements can be clockwise or anti-clockwise. Once the closed path is drawn, plus (+) and minus
(–) signs are placed alternately on the cells lying at the path, and the first movement is assigned a
negative sign. After this, cells with negative signs are considered, and the minimum quantity is
determined. The maximum quantity thus obtained is called θ. θ indicates the amount that can be
transferred over the path for obtaining a revised solution. Finally,θ is added to the cells with the
(+) sign and subtracted from each cell with a (–) sign, and the revised solution is obtained. This
solution is tested for optimality and improved similarly, if necessary. The process is repeated until
an optimal solution is found.

Duality in Transportation Problems

The dual variables 𝑢𝑖 and 𝑣𝑗 represents the shadow price for the supply and demand centres,
respectively. The 𝑢𝑖 value measures the comparative advantage (or shadow price/value) of the
additional unit of supply at the supply centre, i. 𝑢𝑖 ′𝑠 may also be termed at location rent. Similarly,
𝑣𝑗 measures the comparative advantage of an additional unit of a commodity demanded at demand
centre j. 𝑣𝑗 ′𝑠 can be taken as a market price.

The dual problem thus can be studied as the total value maximisation problem. The total value is
calculated as the sum product of demand and supply with the respective 𝑢𝑖 and 𝑣𝑗 values shall equal
the primal problem’s solution, i.e., the total cost.

Unbalanced Problems
An unbalanced problem is balanced first by introducing a dummy source (if AS<AD) or a dummy
destination (if AD>AS). The cost elements of the dummy row/column are taken to be zero. If
penalties for not satisfying demand are given, they should be taken instead of zeros.

Unique vs Multiple Optimal Solutions

In the optimal solution, if all ∆𝑖𝑗 < 0, then the solution is a unique optimal solution. However, if
some ∆𝑖𝑗 = 0, then the problem has multiple optimal solutions. If an alternative optimal solution is
desired, then draw the closed path beginning with the cell having ∆𝑖𝑗 = 0 and find the improved
solution in the same manner as discussed earlier.

Prohibited Routes
Prohibited Routes If some route(s) is prohibited, it is currently impossible to send goods through
that. The cost element for that cell should be replaced by a prohibitive cost value equal to M. After
this, the problem is solved ordinarily.

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Degeneracy
Degeneracy As indicated, a transportation problem solution is degenerate if the number of occupied
cells is less than r + c – 1. Optimality cannot be tested in such a solution since all 𝑢𝑖 and 𝑣𝑗 values
cannot be determined. An infinitesimally small value ε is placed in the required numbers of
unoccupied cells to remove the degeneracy. The quantity ε is defined such that it satisfies the
following conditions:

𝑘+𝜀 =𝑘
𝑘−𝜀 =𝑘
𝑘×𝜀 =0
𝜀−𝜀 =0
0+𝜀 =𝜀
The cell/s in which ε is placed must be independent, so it is impossible to draw a closed path starting
with that particular cell. Among independent cells, preference should be given to a cell with the
lowest cost.

Changes in Optimal Solution

For Allocated Cells:
Suppose it is compulsory to give some allocation in an already allocated cell of an optimal solution;
the problem should be solved again after deducting those many units from demand and supply. The
assumption here is that those many units are considered sent from the assigned route. The product
of assigned allocations and unit cost at the desired cell must be added to the total cost. Also, if
“exactly” or “at most” those many units are to be sent, the route must be declared prohibited after
reducing demand and supply.

For Unallocated Cells:

In the optimal solution, if all ∆𝑖𝑗 < 0, then the solution is a unique optimal solution. However,
suppose some allocation must be given to an unallocated cell in an optimal solution. In that case,
the MODI method can be applied to re-distribute the supplies to the demands. The loop shall start
from the unallocated cell, where the allocation will be marked (+). After that, the usual procedure
shall be adopted. If the number of units to be allocated is already given, then that will be considered
as 𝜃, provided the given value is less than the minimum of all (-) marked allocations in the loop. If
it exceeds the minimum of (-) marked cell, the problem must be resolved. In any case, the required
allocation cannot exceed a minimum of demand and supply.

The cost in these situations will increase per unit by ∆𝑖𝑗 value.

Maximisation Problems
Sometimes, a problem may involve transporting goods from various plants to different markets to
maximise profits. In such a case, the unit profit matrix may be given along with demand and supply
values, and it may be sought to determine how the allocations are done so that total profit may be
maximised. Such problems are converted into a minimisation problem by subtracting all the profit
values from a constant value, usually the largest value in the table, to get the opportunity loss
matrix. After this, the problem is solved in the usual manner.

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In the case of an unbalanced problem, the problem should be converted into a balanced one, and
then the opportunity loss matrix is derived. Prohibited routes are assigned a very high negative
profit of -M in maximisation-type problems.

Practice Problems
1. A firm owns facilities in seven places. It has manufacturing plants at places A, B, and C with
daily outputs of 500, 300, and 200 units of an item. It has warehouses at places P, Q, R, and S
with daily requirements of 180, 150, 350, and 320 units. Per unit, shipping charges on different
routes are:
To P Q R S
From A: 12 10 12 13
From B: 7 11 8 14
From C: 6 16 11 7

The firm wants to send the output from various plants to warehouses, involving minimum
transportation costs.
(a) Find an initial solution using NWC, LCE and VAM.
(b) Test the optimality of the IBFS.

2. Solve the given transportation problem.

To I II III IV Supply
From X: 8 10 6 3 75
From Y: 4 7 5 5 30
From Z: 10 9 8 6 40
Demand 20 80 15 30

3. A company has three plants to four distribution centres. The supply and demand of units with
the unit cost of transportation are given as under:
Distribution Centers
Plants Supply
D1 D2 D3 D4
P1 11 5 8 4 250
P2 6 8 4 12 300
P3 11 14 3 2 400
Demand 200 225 275 250
Find the IBFS by NWC rule, LCE method, and VAM. Test the optimality of the solution.

4. The following table represents the cost of transportation from three sources, S1, S2, S3 and S4,
to four destinations I, II, III and IV.
Destinations
Sources Supply
I II III IV
S1 6 10 6 2 10
S2 4 7 9 1 37
S3 7 4 7 5 34
S4 11 6 3 9 9
Demand 16 18 31 25
Solve the problem of finding the optimal transportation cost.

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5. The supply and demand of units with the unit cost of transportation are given as under:
Distribution Centres
Plants Supply
W X Y Z
A 6 3 9 1 400
B 15 8 14 5 300
C 6 4 8 7 800
Demand 300 400 300 500
What can be the optimal transportation cost?

6. The following table shows all the necessary information on the available supply to each
warehouse, the requirement of each market and the unit cost from each warehouse to each
market:
Market
Warehouse Supply
I II III IV
A 5 2 4 3 220
B 4 8 1 6 150
C 4 5 7 5 80
Requirement 120 120 170 140
Solve it for optimal transportation costs.

7. A company transports goods from three origins, O1, O2 and O3, to four destinations, D1,
D2, D3 and D4. The unit transportation costs, demands and supply are given in the
following table:
Destinations
Origins Supply
D1 D2 D3 D4
O1 25 17 25 14 300
O2 15 10 18 24 500
03 16 20 8 13 600
Demand 300 300 500 500
Solve the transportation problem for optimal cost.

8. Given the following transportation problem:

Market
Warehouse Supply
A B C
1 10 12 7 180
2 14 11 6 100
3 9 5 13 160
4 11 7 9 120
Demand 240 200 220
It is known that currently, nothing can be sent from warehouse 1 to market A and from
warehouse 3 to market C.
(a) Solve the problem and determine the least-cost transportation schedule.
(b) Is the optimal solution obtained by you unique? If not, what is/are the other optimal
solution/s?

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9. Determine the optimal solution to the problem given below. Obtain the IBFS by VAM.
To Market
Plants Supply
M1 M2 M3 M4
P1 6 4 9 1 40
P2 20 6 11 3 40
P3 7 1 0 14 50
P4 7 1 12 6 90
Demand 90 30 50 30

10. Solve the following transportation problem by taking the initial solution by VAM.
Market
Plants Supply
M1 M2 M3 M4
P1 10 5 7 8 150
P2 6 4 8 5 125
P3 9 12 10 7 185
Demand 110 80 150 120

11. Consider the transportation problem given below.

Destination
Source Supply
P Q R S
A 6 11 9 8 200
B 13 10 8 15 300
C 9 9 14 12 500
D 12 10 12 10 100
Demand 350 250 300 200
(a) Find the optimal solution to this problem and determine the total transportation costs.
(b) Is the optimal solution unique? If there is an alternate optimal solution, identify it.
(c) If the transporter agrees to reduce the transportation charges on route B-S by 40%, how
will it affect the optimal solution?

(d) It is decided to send a total of 150 units on route A-P. How will the optimal solution and
total costs be affected?
(e) Trace the effect of sending 100 units on route C-S on the optimal solution.

12. A company has three plants at locations A, B, and C. The production of these plants is
absorbed by four distribution centres located at D, E, F and G. The transportation cost per
unit is given in the following table.
Distribution Centres
Factory Supply
D E F G
A 6 9 13 7 6000
B 6 10 12 5 6000
C 4 7 14 8 6000
Demand 4000 4000 4500 6000
(a) Find the optimal transportation cost.

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13. A company has three cement plants from which cement has to be transported to four
distribution centres. With identical production costs at the three plants, transportation
costs are the only variable costs. The monthly demand at the four distribution centres and
the unit cost of the plants to the distribution centres (in Rs.) are given below:
Distribution Centres Monthly
Plants production
W X Y Z
(tonnes)
A 500 1000 150 800 10000
B 200 700 500 100 12000
C 600 400 100 900 8000
Monthly Demand
9000 9000 10000 4000
(tonnes)
(a) Suggest an optimal transportation schedule and the minimum transportation cost.
(b) If, for specific reasons, the route from Plant C to Distribution Centre X is closed down, will
the transportation change? If so, suggest the new schedule and its effect on the total cost.

14. A cement company has three factories that manufacture cement, which are then transported
to four distribution centres. The quantity of monthly production of each factory, the demand
for each distribution centre, and the associated transportation cost per quintal are given as
follows:
Distribution Centres Monthly production
Factories
W X Y Z (in quintals)
A 10 8 5 4 7,000
B 7 9 15 8 8,000
C 6 10 14 8 10,000
Monthly Demand (in
6,000 6,000 8,000 5,000
quintals)
(a) The optimal transportation schedule suggested is 𝑥13 = 7000, 𝑥22 = 6000, 𝑥24 = 2000, 𝑥31 =
6000, 𝑥33 =1000 and 𝑥34 = 3000.
(b) Test the optimality of this solution and find the total cost.
(c) Is there any other transportation schedule that is equally attractive? If so, write that.
(d) If the company wants at least 5,000 quintals of cement to be transported from factory C to
distribution centre Y, will the transportation schedule be different? If so, what will be the new
optimal schedule and the effect on cost?
(e) Suppose the company desires to send at most 500 quintals of cement from factory C to
distribution centre Y; what will the optimal transportation schedule be? Also, obtain the total
transportation cost in such a case. (Example 5.12, p. 259)

15. The table given on page no 10 has been taken from the solution procedure of a transportation
problem involving cost minimisation (in rupees).
(a) Show that the above solution is not optimal and find the optimal solution
(b) Does the problem have multiple solutions? Give reasons. If so, find one more optimal solution.
(c) Comment upon the m managerial significance of multiple optimal solutions.
(d) If it is considered necessary to transport 20 units from factory A to stockist Z, what will be the
least-cost distribution schedule and the effect on cost? Use your first solution to answer this.
(e) In the alternate solution, will the solution change if the transport cost from factory A to stockist
Z is increased by Rs. 5 per unit? If so, find a new solution.

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Stockists Monthly
Factories
X Y Z capacity (units)
31 25
A 56
4 8 8
41 41
B 82
16 24 16
77
C 77
8 16 25
Monthly Demand (units) 72 102 41

16. Solve the following Transportation problem for maximum profit.

Per Unit Profit
Warehouses Markets
A B C D
X 12 18 6 25
Y 8 7 10 18
Z 14 3 11 20
Availability at warehouses Demand in the markets
X: 200 units A: 180 units
Y: 500 units B: 320 units
Z: 300 units C: 100 units
D: 400 units

17. A company has three plants in which it produces a standard product. It has four agencies
in different parts of the country where this product is sold. The production cost varies from
factory to factory, and the selling price from market to market. The shipping cost per unit
of the product from each plant to each agency is known and stable. The relevant data are
given in the following table:
Weekly production capacity
Plant Unit production cost (Rs)
(units)
1 400 18
2 300 24
3 800 20
Shipping cost (in Rs) per unit:
Agency
Plant
1 2 3 4
1 2 5 7 3
2 8 4 6 2
3 3 4 4 5
Demand (units) 300 400 300 500
Selling Price (Rs) 32 35 31 36
Determine the optimal plan to maximise the profits.

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