DISTRIBUTION MODELS

(Part 1)

Introduction
A Special type of an LP problem in the area of physical distribution of goods and services coming from
several supply locations that are to be delivered to demand supply locations that are to be delivered to demand
centres is call distribution model.

There are two main types of distribution problems:

a. the transportation problem, and
b. the assignment problem.

The structure of the transportation problem involves shipments from a number of sources to a
number of destinations.

Its objective is to determine the most efficient routes from the supply centers to the demand centers
that would meet the required quantity of goods and services of all destination centers relative to the availability
of limited supply.

Finding the cheapest shipping schedule that will satisfy the demand without the violation of
the supply constraints is the main goal of the transportation problem.

The assignment problem, on the other hand, deals with situations wherein a given number of
candidates are assigned to a number of positions. For example, workers are assigned to certain machines or
tasks. As there are different expenses or profits for each match, the goal is to determine the optimal best one-
to-one match.

This chapter will discuss the transportation problem .

In 1941, Frank Lauren Hitchcock, an American mathematician and physicist, presented the
simplest form of transportation model in his study “The Distribution of a Product from Several Sources
to Numerous Localities.” The transportation model was further developed by Tjalling Charles
Koopmans, a Dutch-American mathematician and economist. He wrote “Optimum Utilization of the
Transportation System” in 1947. Then in 1953, Abraham Charnes and William Wager Cooper, two
American operation researchers, developed the stepping stone method. The modified distribution
method was developed in 1955.
Characteristics and Assumptions of the Transportation Problem

The main objective of the transportation model is to determine the cheapest routes from the suppliers
to the destinations.

Figure below shows the relationship between suppliers and destinations. A transportation problem exhibits
the following characteristics and assumptions:

1. Supply or Sources. Certain source have limited available quantity of one commodity.
2. Demand. The demand comes from several destinations, such as warehouses, distribution centers,
shops, etc.
3. Quantities. The quantities available at each source and the demands of each destination are constant.
4. Shipping Cost. The shipping cost based on per unit cost of the commodity from the source to each
destination. It is usually based on the distance between the two points.
5. It is assumed that there will be no shipments between sources or between destinations as they will
require special adjustments to the transportation model.
6. Demand and supply quantities are presented in whole numbers.

SUPPLY/ DESTINATION
SOURCES CENTERS

A
1

B
2

C
3

Relationship between the Supply and Destinations

Sample Problem:
 Mr. Danny Atienza is the owner of Cement Exchange, a cement composites manufacturer with three
plant locations. Cement-bonded composites are important construction materials that are made of hydrated
cement paste that binds wood or fibers to make precast for building components. Cement exchange is
currently a top manufacturer of cement composites and has been as exclusive supplier to four major
distributors in Metro Manila. The total monthly purchase of each of the four distributors are 1,500, 2,000,
2,400, and 3,500 boxes. The four distributors may receive deliveries form any of the three manufacturing
plants. However, there are limitations to the production capacity of each plant.

Plant 1 – 3,000
Plant 2 – 2,700
Plant 3 – 3,700

Mr. Atienza would like to reduce the logistics expenses by proper scheduling of shipments to the four
distributors. The company’s chief accountant submitted an estimate of the per box/unit shipping cost from
each plant to each distributor. The shipping costs are in Philippine currency:

Distributors
Plants
1 2 3 4
1 15 18 22 26
2 21 21 16 23
3 14 19 20 24

Based on the available data, the owner decided to use the transportation method to compute for the
cheapest delivery schedule.

Cement Exchange’s distribution problem when converted to LP will show:

Decision Variables:

X11 = number of boxes shipped from plant 1 to distributor 1

X12 = number of boxes shipped from plant 1 to distributor 2
X13 = number of boxes shipped from plant 1 to distributor 3
X14 = number of boxes shipped from plant 1 to distributor 4
X21 = number of boxes shipped from plant 2 to distributor 1
X22 = number of boxes shipped from plant 2 to distributor 2
X23 = number of boxes shipped from plant 2 to distributor 3
X24 = number of boxes shipped from plant 2 to distributor 4
X31 = number of boxes shipped from plant 3 to distributor 1
X32 = number of boxes shipped from plant 3 to distributor 2
X33 = number of boxes shipped from plant 3 to distributor 3
X34 = number of boxes shipped from plant 3 to distributor 4
 The goal of Mr. Atienza is to minimize the total shipping cost. The transportation cost is computed by
multiplying the amount shipped over each route by the per-unit shipping cost for that route, and these costs are
summed up to get the total transportation cost. The objective function for the Cement Exchange problem is
expressed as:

Objective Function:

Minimum C = 15X11 + 18X12 + 22X13 + 26X14 + 21X21 + 25X22 + 16X23 + 23X24 + 14X31 + 19X32 + 20X33 + 24X34

The problem of the company involves two types of constraints: demand constraints and supply
constraints. For the demand constraints: A decision has to be made if shipping from plant 1, plant 2, plant 3 or a
combination thereof should be made to distributor 1, which only requires 1,500 units. Thus, the corresponding
constraint should be:

X11 + X21 + X31 = 1,500 (requirements of distributor 1)

In the same way, the rest of the constraints are presented as:

X12 + X21 + X32 = 2,000 (requirements of distributor 2)

X13 + X23 + X33 = 2,400 (requirements of distributor 3)
X14 + X24 + X34 = 3,500 (requirements of distributor 4)

Take note that the demand of the distributors is equal to the total capacity of cement Exchange plants.
Therefore, the supply constraints must indicate that the goods shipped will not exceeds the plant capacity. To
mathematically formulate the constraints, we have:

X11 + X12 + X13 + X14 = 3,000 (capacity of plant 1)

X21 + X22 + X23 + X24 = 2,700 (capacity of plant 2)
X31 + X32 + X33 + X34 = 3,700 (capacity of plant 3)

Structure of the Transportation Problem

Transportation problem are presented I tabular form to make it easier to apply and understand the
transportation algorithm (table 7.1). The following are the rules on how to construct transportation table.
1. Each row in the transportation table contains the source of supply. While each column is for the demand
or destination point.
2. The total available supply is written on the right side of the table’s main body. For the comment
exchange, the capacities, of plants 1, 2, and 3 are 3,000, 2,700, and 3,700, respectively.
3. The total requirements of each destination are given in the lowest row of the main body of the table. In
the case of Cement Exchange, distributors 1, 2, 3 and 4 have demand requirements of 1,500, 2,000,
2,400 and 3,500, respectively.
4. Cells in the main body of the table should correspond to the decision variables. Cement exchange has 12
decision variables.
 5. At the corner of each table cell, the “boxed-in” value contains the objective function coefficient of the
decision variable. In the case of Cement Exchange, cell 1-1 indicates that the costs to ship from plant 1
to distributor 1 is ₱15 per unit.

Table 7.1
Transportation Problem for Cement Exchange
Supply Distributors Availability
Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1

X11

Plant 2

X21

Plant 3

Requirements

Lesson 7.3
Transportation Algorithm
Figure 7.3 shows the process for the search and evaluation of the algorithm for solving transportation problems.

Step 1: Arrange the

problem in the
transportation table

Step 2: Obtain initial

feasible solution.
 Yes
Step 3: is the
Final
solution
Solution
optimal?

No

Step 4: Determine
new solution.

Figure 7.3 Transportation Method Algorithm

Step 1. Arrange the data I transportation table.

Step 2. Obtain an initial basic feasible solution using one of the three different methods: Northwest Corner
Method, Least Cost Method, and Vogel’s Approximation (or Penalty) Method.

Step 3. Test the initial solution for optimality.

Step 4. If it is not yet optimal, determine a new improved solution. Evaluate the updated solution. Repeat step 3
until a final solution is achieved.

Lesson 7.4

Obtaining the initial Solution

The first step in the transportation method is to find an initial feasible solution (considered the first interaction)
that does not violate the constraints. There are three methods to obtain the initial solution to a transportation
problem: Northwest Corner Method (NWC), Greedy Method or Minimum Cost Method (MCM), and Vogel’s
Approximation Method (VAM).

The northwest corner method (NWC) is the most simple and logical method of finding the initial solution. The
procedure begins by allocating units to the upper left-hand corner and ends in the lower right corner of
transportation table.

The minimum cost method (MCM) is a systematized procedure that is easy to use and yields an initial solution
that is close to the optimal solution in small problems. In this method, the allocation is made to the cell with the
most possible lowest cost or the highest profit in a maximization case.

Vogel’s approximation method (VAM) is an algorithm that obtains the initial feasible solution by determining the
“penalty cost” of not using the lowest cost route. This method results in an optimal or near optimal as an initial
solution.

Solving the transportation problem of Cement Exchange Starting with the initial feasible solution using the three
methods:
A. Northwest Corner Method (NWC)
Step 1. Start in the upper left-hand corner cell (northwest corner) of the main body of the table by
putting the largest value that satisfies the supply constraint and demand constraint.

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1

Plant 2

Plant 3

Requirements

Step 2. Once the supply constraint is satisfied, go to step 3, if not, move one cell to the right in the same
row. Place in that cell the largest value that does not exceeds both supply and demand constraints. In
doing so, you have to consider all cell values that were previously entered either in the row or column.
Repeat this procedure if the supply constraint is not yet exhausted.

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1

Plant 2

Plant 3

Requirements
Step 3. Once the entire supply in a particular row has been used up, move down to the next cell located
in the same column. Place in that cell the largest value that does not exceeded the row or the column
that corresponds to the demand. Again, all values previously entered must be considered.

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1

Plant 2

Plant 3

Requirements

Step 4. Return to step 2 and 3 until all rows and columns are used up.

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1

Plant 2

Plant 3

Requirements

Step 5. Compute the value of the objective function by multiplying the value in each cell by the objective
function coefficient “boxed-in values,” then, sum all the cells. This is not a necessary procedure, but it is
helpful to determine how much improvement in the cost (or profit) is gained in every iteration.

Supply-demand Quality Shipped Shipped cost Total Cost

 X11 1,500 15 22,500

X12 1,500 18 27,000

X22 500 25 12,500

X23 2,200 1 35,200

X33 200 20 4,000

X34 3,500 24 84,000

Total Transportation Cost 185,200

B. Minimum Cost Method (MCM)

Find the cell with the lowest unit cost. Should there be a tie, choose randomly. Place in this cell value
that exceeds neither supply nor demand constraint. Repeat this procedure until all supplies and demand
have been allocated.

Step 1. The lowest shipment cost is 14 at 13-1. Allocate 1,500 in that cell and adjust the “availability” and
“requirements” total accordingly.

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1

Plant 2

Plant 3

Requirements

Step 2. Cell 2-3 with the objective coefficient of 16 is now the lowest. The amount 2,400 was allocated to the
cell, and adjustments were made on the totals.

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1
 Plant 2

Plant 3

Requirements

Step 3. Among the remaining cells, the lowest this time is cell1-2.

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1

Plant 2

Plant 3

Requirements

Step 4. The last remaining cells to be allocated in the following order:

Cell 2-4 300

Cell 3-4 2,200
Cell 1-4 1,000

This step cancels the remaining values in the supply row and demand column.

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1
 Plant 2

Plant 3

Requirements

Step 5. Compute the objective function.

Supply-demand Quality Shipped Shipped cost Total Cost

X31 1,500 14 21,000

X12 2,000 18 36,000

X23 2,400 16 38,400

X24 300 23 6,900

X34 2,200 24 52,800

X14 1,000 26 26,000

Total Transportation Cost 181,100

C. Vogel’s Approximation Method (VAM)

Step 1. Subtract the lowest and the second lowest values in each row and column. Select the row and
column with the largest opportunity cost (largest difference).

Row/Column 2nd Lowest Cost Lowest Cost Opportunity Cost

Row 1 18 15 3
Row 2 21 16 5
Row 3 19 14 5
Column 1 15 14 1
Column 2 19 18 1
Column 3 20 16 4
Column 4 24 23 1

Rows 2 and 3 have the highest opportunity cost at 5. We can choose any of the two values. For this example,
we choose row 2.

Step 2. Insert 2,400 units in cells 2-3 since it is the cell with the lowest cost in a row. Adjust the amount of
supply (or demand) accordingly.

Supply Distributors Availability

Distributor Distributor Distributo Distributor
 1 2 r 4
3
Plant 1

Plant 2

Plant 3

Requirements

Step 3. Remove rows with no available supply and columns with no unsatisfied demand. Thus, column 3 has
been removed from further consideration.

Repeat step 1 until all remaining supply and demand units are allocated.

Step 1. Row 3 has the highest opportunity cost.

Row/Column 2nd Lowest Cost Lowest Cost Opportunity Cost

Row 1 18 15 3
Row 2 23 21 2
Row 3 19 14 5
Column 1 15 14 1
Column 2 19 18 1
Column 4 24 23 1

Step 2. Insert 1,500 in cell 3-1.

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1

Plant 2

Plant 3
 Requirements

Step 3. Column 1 has been removed from furniture consideration. Repeat step 1.

Step 1. Row 1 has the highest opportunity cost

Row/Column 2nd Lowest Cost Lowest Cost Opportunity Cost

Row 1 26 18 8
Row 2 25 23 2
Row 3 24 19 5
Column 2 10 18 1
Column 4 24 23 1

Step 2.insert 2,000 in cell 1-2

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1

Plant 2

Plant 3

Requirements

Step 3. Column 3 has been removed. Repeat step 1

Step 1. The opportunity cost is 1

Row/column 2nd Lowest Cost Lowest Cost Opportunity Cost

Column 4 24 23 1

Step 2. Insert 300 in cell 2-4

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
 3
Plant 1

Plant 2

Plant 3

Requirements

Step 3. Row 2 has been removed. Repeat 1.

Step 1. Since there are only two unused cells left, select the lowest cost and insert the opportunities
amount.

Step 2. The lowest cost in column 4 is 24. Insert 2,200 in cell 3-4.

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1

Plant 2

Plant 3

Requirements

Step 3. Row 3 has been removed. There is only one unused cell remaining. Insert 1,000 in cell 1-4.

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1
 Plant 2

Plant 3

Requirements

Step 4. Compute the objective function

Supply-demand Quality Shipped Shipped cost Total Cost

X31 1,500 14 21,000

X12 2,000 18 36,000

X23 2,400 16 38,400

X24 300 23 6,900

X34 2,200 24 52,800

X14 1,000 26 26,000

Total Transportation Cost 181,100

Lesson 7.5:
Optimal Feasible Solution
The next step after obtaining the initial solution in the transportation method is to evaluate the net
contribution of the routes that were not used. In other words, we would like to determine how much will be
the increase or decrease in the objective function if any of the unused cells will be included in the route.
There are two alternative procedures that are used for evaluating unused routes: the stepping stone
method and modified distribution.

The stepping stone method (SSM) is generally the easiest to visualize and understand. Its purpose is to
determine the effect on the total shipping cost should one unit of goods are to be delivered through the
unused routes.

The modified distribution method (MODI) is a more efficient procedure in determining the net contribution
of routes that were not used. In this method, the focus is on the extensive use of the cost factors associated
with each cell.

A. Stepping Stone Method (SSM)

Step 1. Evaluate the net contribution of unused routes
To illustrate this method, we shall use initial solution under the NWC. Let us consider the unused cell 1-3
(Transportation tableau 1). An addition of one unit to that cell would mean that Cement Exchange is
shipping 3,001 units from plant 1. This means that plant 1 will exceed its capacity. To offset the overcapacity,
there has to be a decrease by one unit to either distributor 1 or distributor 2. Let us choose to reduce the
shipment to distributor 2 and at cell 1-2. However, this adjustment will make distributor 2 to receive less of
the required 2,000 units. To solve this, we have to add another unit to cell 2-2. As a result, plant 2 is now
one unit more than is capacity of 2,700. We need to reduce to the shipment to route cell 2-3 to correct the
overcapacity of plant 2. The last adjustment has completed the chain f adjustments. Let us now compute the
net contribution of adding one unit to route or cell 1-3.

Cell to be evaluated: Cell 1-3

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1

Plant 2

Plant 3

Requirements

Adjustment Cost
Cell 1-3 +22
Cell 1-2 -18
Cell 2-2 +25
Cell 2-3 -16
Net -13
Contribution

An additional ₱13 will not contribute to the goal of lowering the total transportation cost. Therefore, we
must determine the net contribution of all unused cells. But before that, here are some rules in evaluating
routes.

 Start with the cell to be evaluated and trace a closed path through other cells until you are back to
the original cell being evaluated. To make the closed path, it is allowed to skip overused or unused
cell. Making a turn on a closed path is only allowed on unused squares. There will be a single closed
path to a correctly formulated transportation problem.
 Assign a plus sign or a minus sign to each cell that is part of the route, beginning with the plus sign
on the cell being evaluated. Do the plus and minus sign alternately.
 Add a unit to cell being added (with a plus sign) and subtract a unit to a cell with a minus sign.
Compute the net contribution of the chain of adjustments by adding per unit costs to all routes with
a plus sign and subtracting per unit costs of all routes that contain a minus sign. The result may
 either be a positive, negative, or zero contribution. Let us continue to determine the net
contributions for the other unused routes.

Cell to be evaluated: Cell 1-4

Transportation Tableau 2

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1

Plant 2

Plant 3

Requirements

Adjustment Cost
Cell 1-4 +26
Cell 3-4 -24
Cell 3-3 +20
Cell 2-2 -16
Cell 2-2 +25
Cell 1-2 -18
Net 13
Contribution

Cell to be evaluated: Cell 3-2

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1

Plant 2
 Plant 3

Requirements

Adjustment Cost
Cell 3-2 +19
Cell 2-2 -25
Cell 2-3 +16
Cell 3-3 -20
Net -10
Contribution

Cell to be evaluated: Cell 2-1

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1

Plant 2

Plant 3

Requirements

Adjustment Cost
Cell 2-1 +21
Cell 1-1 -15
Cell 1-2 +18
Cell 2-2 -25
Net -1
Contribution

Cell to be evaluated: Cell 3-1

Supply Distributors Availability

Distributor Distributor Distributo Distributor
r
 1 2 3 4
Plant 1

Plant 2

Plant 3

Requirements

Adjustment Cost
Cell 3-1 +14
Cell 1-1 -15
Cell 1-2 +18
Cell 2-2 -25
Cell 2-3 +16
Cell 3-3 -20
Net -12
Contribution

Step 2. Test for optimally

For a minimization problem, all unused cells with negative contribution values will be favourable since
they will reduce the transportation cost. Positive net contribution, on the other hand, will not be
desirable as it will represent cost increase. The table below shows that there are negative contribution
values in this pattern. We should, therefore, continue the transportation method and proceed to step 3.
The total transportation cost of the initial solution is ₱185,200.

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1

Plant 2

Plant 3
 Requirements

Step 3. Select the new route

The third step in the transportation method is done by simply selecting the route with the smallest or
most negative net contribution for minimization cases. If there is a tie, then select either route. For maximization
problems, the route with the largest value must be selected. The Cement Exchange problem is a minimization
problem. Thus, we select the route to cell 3-1 (with net contribution value at -12) for the next iteration.

Step 4. Determine the quantity of goods to ship over the selected route
In the selected route, positive signs were assigned to cell 3-1, cell 2-3, and cell 1-2. These cells are called
positive corners. The route with negative signs, on the other hand, are called negative corners. The highest value
that can be assigned to cell 3-1 must be equal to the value of the negative corner of the closed path that has the
lowest value.

The smallest value among the negative corners is 200

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1

Plant 2

Plant 3

Requirements

Lowest Negative Corner

Step 5. Develop a new solution (2nd iteration)

For the new solution, the positive corners of the closed path will have additional 200 units, while
negative corners will be reduced by 200 units. The new values to be entered in the new solution are as follows:

Positive Old Add New

Corners Values Values
Cell 3-1 0 200 200
 Cell 2-2 2,200 200 2,400
Cell 3-3 1,500 200 1,700

Positive Old Subtract New

Corners Values Values
Cell 1-1 1,500 200 1,300
Cell 2-2 500 200 300
Cell 3-3 200 200 0

Below is the transportation table for the new solution (2nd iteration) with the net contribution value of
₱182,800, which is lower by ₱2,400 over the cost of the initial solution.
New Transportation Solution

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1

Plant 2

Plant 3

Requirements

Supply-demand Quality Shipped Shipped cost Total Cost

X31 1,300 15 19,500

X12 1,700 18 30,600

X22 300 25 7,500

X23 2,400 16 38,400

X31 200 14 2,800

X34 3,500 24 84,000

Total Transportation Cost 182,800

The final solution is determined once all unused routes become positive corners. So at this point, we
have to start at step 1 again.
Step 1. The net contribution values of the unused cells and circled in the table below.

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1

Plant 2

Plant 3

Requirements

Step 2. There are two negative contribution values (cell 2-1 and cell 2-4). The means we will continue to step 3.

Step 3. The new route will be at cell 2-4 it has the lowest net contribution value.

Step 4. The lowest value among negative corners is 300, which will be shipped to new route cell 2-4.

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1

Plant 2

Plant 3

Requirements

Lowest Negative Corner

Step 5. Develop a new solution (3rd iteration)

Positive Old Add New

Corners Values Values
Cell 1-2 1,700 300 2,000
Cell 3-1 200 300 500

Positive Old Subtract New

Corners Values Values
Cell 1-1 1,300 300 1,000
Cell 2-2 500 300 0
Cell 3-4 3,500 300 3,200

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1

Plant 2

Plant 3

Requirements

Supply-demand Quality Shipped Shipped cost Total Cost

X31 1,000 15 15,000

X12 2,000 18 36,000

X23 2,400 16 38,400

X24 300 23 6,000

X34 500 14 7,000

X14 3,200 24 76,800

Total Transportation Cost 180,100

The 3rd iteration resulted in a total transportation cost in the amount of ₱180,100, which is ₱2,700
lower than the transportation cost in the 2nd iteration. To find out if this is the optimal solution, we have to go
back to step 1 to determine the net contribution values of the unused routes.
 The table below shows that the 3rd iteration is the optimal solution because every unused route has a
positive net contribution value. Cement Exchange should ship 1,000 boxes of cement composites from plant 1 to
distributor 1 and 2,000 boxes to distributor 2. Plant 2 should allocate 2,400 boxes to distributor 3 and 300 to
distributor 4. Plant 3 should be shipping 500 boxes to distributor 1 and 3,200 boxes to distributor 4. The lowest
transportation cost based on this shipping schedule is ₱180,100.

Supply Distributors Availability

Distributor Distributor Distributo Distributor
1 2 r 4
3
Plant 1

Plant 2

Plant 3

Requirements

B. Modified Distribution (MODI) Method

In obtaining the optimal solution for SSM, the algorithm procedure includes determining the net
contribution of shipping routes that were not used. The MODI method provides a more efficient way of
computing the net contribution of unused routes. We shall use the Cement Exchange problem again and
start from the initial solution that we have computed using NWC. Table 7.2 is the transportation table
structure that we will use for MODI solution. A new column on the left has been added to the table, and
we will let V1, V2, and V3 be the new row values. For the column values, we will be using W 1, W2, and W3
Thus, we will have the following terms:

V1 =value assigned to row i

W1=value assigned to column j

Table 7.2

Transportation Table for MODI Method

Supply Distributors Availability
W 1= W 2= W 3= W 4=
Distributor Distributor Distributor Distributor
1 2 3 4
 V1 = Plant 1

V2= Plant 2

V3= Plant 3

Requirements

The cost of shipping one unit on a given route is the main focus of the MODI method. Used routes are
utilized to solve for each Vi and Wj value. These values are used to calculate the net contribution of unused cells.
Let us not compute the final solution to the transportation of Cement Exchange. Table 7.2 carries the solution
that was obtained by NWC. Note that for every used cell, the relationship is expressed as:

Vi + Wj =Cij

As we can in Table 7.2, there are six used squares. Therefore, we can have the following relationship

1. V1 + W1 = 15
2. V1 + W2 = 18
3. V2 + W2 = 25
4. V2 + W3 = 16
5. V3 + W3 = 20
6. V3 + W4 = 24
All transportation problems have one redundant constraint, so we can select any of the value above. To make it
easier, we can choose V1 and its value equal to zero. Thus, the value of W1 and W2 in equation 1 and 2 are 15
and 18, respectively. To solve for the value of V2 in equation 3:

V2+ W2 = 25
V2 = 25 – 18
V2 = 7
Then, the same procedure will be applied to the rest of the equation to obtain all missing values. We now have
the following values:

V1 = 0 W1 = 15
V2 = 7 W2 = 18
V3 = 11 W3 = 9
W4 = 13
Using the expression below, let us now obtain the net contribution values of unused routes:

NC = CIJ – VI – WJ

Table 7.3 shows the calculation to obtain the net contribution values:
Table 7.3

MODI Method for Calculating Net Contributions

Cell/Route Cij -Vi Wj = NC
Cell 1-3 22 0 9 = 13
Cell 1-4 26 0 13 = 13
Cell 2-1 21 7 15 = -1
Cell 2-4 23 7 13 = 3
Cell 3-1 14 11 15 = -12
Cell 3-2 19 11 18 -10

After calculating the net contribution values, we proceed to the steps in evaluating optimality and so on.
These steps are repeated until an optimal solution is reached.

Conclusion
The advantage of using the transportation method is to help identify optimal transportation routes and
the quantity of units of the goods to be shipped in order to minimize transportation expenses.

Review Question
1. Discuss the components of a transportation table.
2. Describe the three ways of obtaining the initial solution.
3. Demonstrate the difference in calculating the net contributions using SSM and the MODI method.

Case Problem
1. Solve the given transportation problem.

Destinations Supply
1 2 3 4
Sources
A 1 6 3 4 90
B 4 2 2 4 60
 C 3 1 2 2 120
Demand 60 50 100 60

a. Find the initial solution using NWC.

b. Find the initial solution using MCM.
c. Find the initial solution using VAM.
d. Find the optimal solution.

2. Pilipinas Power Corporation buys fuel every month for live Metro Manila areas. The
requirements for each area (in hundreds of thousands of drums) are as follows:
Area Location Requirement
1 Taguig City 55
2 Muntinlupa City 65
3 Pateros 20
4 Las Pinas City 44
5 Paranaque City 76

Three companies from foreign countries have submitted their bid to supply the demand for
fuel:
Foreign Countries Maximum Capacity
USA 80
Russia 60
China 120

The transportation costs for each company and each Metro Manila area are stated in the table
below in dollar currency:
Suppliers Taguig Muntinlupa Pateros Las Pinas Paranaque
USA 1.8 1.6 1.3 0.6 0.3
Russia 1.6 1.2 0.9 0.2 0.6
China 0.8 1.0 1.1 1.2 1.6

Pilipinas Power Company can order the entire quantity or portions from the said fuel suppliers.
The company aims to supply the demand of the five Metro Manila areas at the minimum total
cost.

Determine the contract award policy that would be followed by the company.

Further Readings
 https://pubsonline.informs.org.doi/abs/10.1287/mnsc.1.1.49
 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2791475
 https://pubsonline.informs.org/doi/abs/10.1287/mnsc.11.1.154
 https://www.sciencedirect.com.science/article/pii/S2405535215000558