Finally the last method that is used in establishing the initial basic feasible

solution that would be the Vogel’s Approximation Method or VAM. It is an

algorithm that finds an initial feasible solution to a transportation problem by
considering the penalty cost of not using the cheapest available rate.

Now in order for us to better understand this let me show you an example. So
this example is quite similar to our previous methods. So we have here three
different sources so with respect to this source column we have 1st source 2nd
source and 3rd source and we also have four destinations so at this point we
have destination denoted with point A, point B, point C and point D
respectively. We also have our column for our supply in terms of pieces and we
also have row for our demand in terms of pieces and as you can notice this is
an example of a balanced transportation problem because the total supply is
equal to the total demand.

Now for Vogel’s Approximation Method or VAM in order to do this we need to

strictly follow the different steps. Now let’s discuss first the step no. 1, in step
no. 1 it says for each row with an available supply & each column with an
unfilled demand, calculate an opportunity/penalty cost by subtracting the
smallest entry from the 2nd smallest entry for minimization problem. Now as
you can notice we have what we call row difference and we also have column
difference. In this case for step no. 1 we will do the row difference first, so in
doing the row difference we need to identify the amount with the least cost so
in terms of row one or source 1 rather so the least cost is 6 and once we had
already identified our least cost we need also to identify the second least cost
now in this instance we have six as the least cost and the second least cost is 8
so therefore 8-6 that would be 2. And for the 2nd row or source 2 rather our
least cost is 7 and our second least cost is 10, so 10-7 we got a difference of 3
and for source 3 our least cost is 7 and our second least cost is 8 so therefore
our difference is 1 and finally we are done with row difference and right now
we will go to our column difference so in terms of column A or destination A
rather our least cost is 7 and our second least cost is 8 so 8-7 we have a
difference of 1, in terms of column B we have least cost 6 followed by 8 so 8-6
that would be 2 for column C we have 8 as the least cost followed by 10 so 10-8
we have 2. And for the last column, the column D the least cost is 7 followed by
9 so 9-7 is 2. Okay that is the step no. 1. Now what’s step number 2.
So for step no. 2, we need to identify the row or column with largest
opportunity or penalty cost. Now as you can notice here based on our row
difference and column difference, we need to select the one with largest value
so the largest value is 3 and therefore this 3 right here is under our row 2,
right? Now since this is under row 2 we need to find okay. Let’s read first step
no. 3 for step no. 3 we need to allocate the maximum amount possible to the
available route with the lowest cost. So therefore, in step no. 3 we need to
identify the lowest cost under row 2, so the lowest cost is 7 right? So therefore,
this is where I will be doing our first allocation and in doing so, I need to match
the quantity of our demand versus the quantity of our supply. Now with
respect to our second source to destination A so, the quantity of our demand is
325 and the quantity of our supply is 500 and therefore since 325 is the least
value then I will be using this one for our allocation so 325–325 this becomes 0
and 500-325 this becomes 175, now since this has been satisfied already
therefore, we are now able to cancel out the entire column, okay we will be
marking that out because we will no longer be uhm making use of that column.
Now since we have marked that out already, we are now left with 3 columns,
we have columns B, C and D and the next step that we need to do is to follow
step 1 and 2 so we need to do the row difference and column difference again
so with respect to row 1 our least cost is 6 followed by 9 so therefore 9-6 the
difference is 3. With respect to row 2 our least cost is 10 followed by 11 so
therefore the difference is 1. And next with respect to row 2 our least cost is 7
followed by 8 so therefore the difference is 1, okay that’s with respect to row
difference what about in column difference. Now for column difference since
this has been canceled out or marked out already, we will just simply put
hyphen okay because this is no longer applicable so in terms of column B our
least cost is 6 followed by 8 so therefore the difference is 2 and with respect to
column C our least cost is 8 followed by 10 so therefore 2 is our difference and
with respect to column D our least cost is 7 followed by 9 so therefore the
difference is 2 and again we will need to select the value that is considered as
the largest so in this case our largest value is 3 and 3 is under what row, its
under row 1 so since its under row 1 uhm we need to select the cell that has
the least cost and that would be this cell because it has the least cost so
therefore we will be doing our next allocation right here and in doing so we
need to match again the quantity of our demand versus the quantity of our
supply, in this case our supply is 400 and our demand 425 and therefore we will
be allocating in 400 since this has the least value okay so we will be plugging in
400 therefore 400-400 is becomes 0, okay this will be zeroed out and 425-400
this becomes 25, okay. Now since this has been zeroed out already, we can now
finally mark this out. Okay we will no longer be using this row by marking that
out. We are now left with these cells okay we have cells 11, 10, 14, 8, 8 and 7
now we will do the previous steps so we need to do the row difference and
column difference again. Now at this point in here this is no longer applicable
so just put a hyphen because this is already marked out. With respect to our
row 2, our least cost is 10 followed by 11 and therefore our difference is 1 and
with respect to our row 3 our least cost is 7 followed by 8 so therefore the
difference is 1 and moving on to column difference so with respect to my
column A that’s no longer applicable for column B our least is 8 followed by 11
so therefore our difference is going to be 3 okay so that’s 3, for column C that’s
8 followed by 10 so therefore our difference is 2, and for our last column we
have the least cost 7 followed by 14 and the difference is 7. And the next step
we need to be able to select the largest value and the largest value among our
row and column difference is that would be 7 and 7 is under column D so
therefore in column D we will consider these two cells 14 and 7 and we need to
select the cell that has the least value and therefore we will be doing our next
allocation right here because 7 has the lowest value okay. So in doing our
allocation again we will be matching the quantity of our demand versus the
quantity of our supply so respect to our selected cell, the quantity of my
demand is 275 and the quantity is 600 so therefore, I will be putting in 275
right here because this has the least value so 275-275 this becomes 0 it will be
zeroed out and 600-275 so that becomes 325, okay that’s 325. Now since this
has been cancelled out already then we are now be able to mark this out, mark
this entire column as we will no longer be using this column. So since we have
marked that out we are now left with 4 cells 11, 8, 10, 8 so we will now be
doing again the row and column difference, so in terms of row 2 so we have 10
and 11 so the difference is 1, okay so in terms of this row 8 and 8, we have 0 or
null and in terms of column B, 8 and 11 so the difference is 3 and last in terms
of column C we have 8 and 10 and the difference is 2. So looking at the
information uhm the one that has the largest value is 3 and 3 is under column
B so therefore we will be focusing our attention on these cells 8 and 11 and for
these particular cells 8 is considered to be having the least value so we will do
our next allocation here and in doing so we need to match the quantity of our
demand and our supply so in this case our demand is 25 and our supply is 325
so therefore we will be allocating the one with the least value so 25-25 this
become 0 and 325-25 become 300, okay so since this has been exhausted
already therefore we are now be able to cancel out this entire column and right
now we have left with 2 cells, we have 8 and 10 okay in terms of these columns
this is the least value so we will be doing our next allocation here and matching
the demand and supply I have 475 and 300, 300 has the least value and so we
will be plugging in this amount right here so this becomes 0 and 475-300 this
becomes 175 and since this has been exhausted already therefore we can now
cancel out this cell and we have now left with last one so we will do our last
allocation and so you can notice both the quantity of our demand and supply
are the same so will be copying the amount right here and both will become 0,
okay and It will be cancelled out okay, And that is how we do Vogel’s
Approximation Method or VAM and this time we will now be computing the
value of our total cost and that would be total cost is equal to
(400x6)+(325x7)+(175x10)+(25x8)+(300x8)+(275x7) okay in this case our Total
cost for this particular problem that would be 10,950. Okay this will be our
answer.

So that’s how we solve problem using Vogel’s Approximation Method or VAM.

When the supply and demand are not equal then it is said to be an unbalanced
transportation problem. In this type of problem, either a dummy row or a
dummy column is added according to the requirement to make it a balanced
problem. Then it can be solved similar to the balanced problem.