262 Operations Research: Theory and Applications

9.4.3 Vogel’s Approximation Method (VAM)

Vogel’s approximation (penalty or regret) is preferred over NWCR and LCM methods. In this method, an
allocation is made on the basis of the opportunity (or penalty or extra) cost that would have been incurred
if the allocation in certain cells with minimum unit transportation cost were missed. Hence, allocations are
made in such a way that the penalty cost is minimized. An initial solution obtained by using this method
is nearer to an optimal solution or is the optimal solution itself. The steps of VAM are as follows:
Step 1: Calculate the penalties for each row (column) by taking the difference between the smallest and
next smallest unit transportation cost in the same row (column). This difference indicates the penalty or
extra cost that has to be paid if decision-maker fails to allocate to the cell with the minimum unit
transportation cost.
Step 2: Select the row or column with the largest penalty and allocate as much as possible in the cell
that has the least cost in the selected row or column and satisfies the rim conditions. If there is a tie in
the values of penalties, it can be broken by selecting the cell where the maximum allocation can be made.
Step 3: Adjust the supply and demand and cross out the satisfied row or column. If a row and a column
are satisfied simultaneously, only one of them is crossed out and the remaining row (column) is assigned
a zero supply (demand). Any row or column with zero supply or demand should not be used in computing
future penalties.
Step 4: Repeat Steps 1 to 3 until the available supply at various sources and demand at various
destinations is satisfied.
Example 9.4 Use Vagel’s Approximation Method (VAM) to find the initial basic feasible solution to
the transportation problem using the data of Example 9.1.
Solution The differences (penalty costs) for each row and column have been calculated as shown in Table
9.5. In the first round, the maximum penalty, 22 occurs in column D2. Thus the cell (S3, D2) having the least
transportation cost is chosen for allocation. The maximum possible allocation in this cell is 8 units and it
satisfies demand in column D2. Adjust the supply of S3 from 18 to 10 (18 – 8 = 10).

D1 D2 D3 D4 Supply Row differences

S1 19 30 50 10 7 9 9 40 40
5 2

S2 70 30 40 60 9 10 20 20 20
7 2
S3 40 8 70 20 18 12 20 50 –
8 10

Demand 5 8 7 14 34

Column 21 22 10 10
Table 9.5 differences 21 – 10 10
Initial Solution – – 10 10
Using VAM – – 10 50

The new row and column penalties are calculated except column D2 because D2’s demand has been
satisfied. In the second round, the largest penalty, 21 appears at column D1. Thus the cell (S1, D1) having
the least transportation cost is chosen for allocating 5 units as shown in Table 9.5. After adjusting the
supply and demand in the table, we move to the third round of penalty calculations.
In the third round, the maximum penalty 50 appears at row S3. The maximum possible allocation of 10
units is made in cell (S3, D4) that has the least transportation cost of 20 as shown in Table 9.5.
The process is continued with new allocations till a complete solution is obtained. The initial solution
using VAM is shown in Table 9.5. The total transportation cost associated with this method is:
Total cost = 5 × 19 + 2 × 10 + 7 × 40 + 2 × 60 + 8 × 8 + 10 × 20 = Rs 779
 Transportation Problem 263

Example 9.5 A dairy firm has three plants located in a state. The daily milk production at each plant
is as follows:
Plant 1 : 6 million litres, Plant 2 : 1 million litres, and Plant 3 : 10 million litres
Each day, the firm must fulfil the needs of its four distribution centres. The minimum requirement of each
centre is as follows:
Distribution centre 1 : 7 million litres, Distribution centre 2 : 5 million litres,
Distribution centre 3 : 3 million litres, and Distribution centre 4 : 2 million litres
Cost (in hundreds of rupees) of shipping one million litre from each plant to each distribution centre is given
in the following table:

Distribution Centre
D1 D2 D3 D4

P1 2 3 11 7
Plant P2 1 0 6 1
P3 5 8 15 9

Find the initial basic feasible solution for given problem by using following methods:
(a) North-west corner rule
(b) Least cost method
(c) Vogel’s approximation method

Solution (a) North-West Corner Rule

Distribution Centre

D1 D2 D3 D4 Supply

2 3 11 7
P1 6 = a1
6

1 0 6 1
Plant P2 1 = a2
1

5 8 15 9
P3 10 = a3 Table 9.6
5 3 2
Initial Solution by
NWCR
Demand 7 = b1 5 = b2 3 = b3 2 = b4

(i) Comparing a1 and b1, since a1 < b1; allocate x11 = 6. This exhausts the supply at P1 and leaves
1 unit as unsatisfied demand at D1.
(ii) Move to cell (P2, D1). Compare a2 and b1 (i.e. 1 and 1). Since a2 = b1, allocate x21 = 1.
(iii) Move to cell (P3, D2). Since supply at P3, is equal to the demand at D2, D3 and D4, therefore,
allocate x32 = 5, x33 = 3 and x34 = 2.
It may be noted that the number of allocated cells (also called basic cells) are 5 which is one less than
the required number m + n – 1 (3 + 4 – 1 = 6). Thus, this solution is the degenerate solution. The
transportation cost associated with this solution is:
Total cost = Rs (2 × 6 + l × l + 8 × 5 + 15 × 3 + 9 × 2) × 100 = Rs 11,600
264 Operations Research: Theory and Applications

(b) Least Cost Method

Distribution Centre

D1 D2 D3 D4 Supply

2 3 11 7
P1 6
6

1 0 6 1
Plant P2 1
1
Table 9.7
Initial Solution by 5 8 15 9
P3 10
LCM 1 4 3 2

Demand 7 5 3 2

(i) The lowest unit cost in Table 9.7 is 0 in cell (P2, D2), therefore the maximum possible allocation that
can be made is 1 unit. Since this allocation exhausts the supply at plant P2, therefore row 2 is crossed
off.
(ii) The next lowest unit cost is 2 in cell (P1, D1). The maximum possible allocation that can be made
is 6 units. This exhausts the supply at plant P1, therefore, row P1 is crossed off.
(iii) Since the total supply at plant P3 is now equal to the unsatisfied demand at all the four distribution
centres, therefore, the maximum possible allocations satisfying the supply and demand conditions,
are made in cells (P3, D1), (P3, D2), (P3, D3) and (P3, D4).
The number of allocated cells in this case are six, which is equal to the required number
m + n – 1 (3 + 4 – 1 = 6). Thus, this solution is non-degenerate. The transportation cost associated with
this solution is
Total cost = Rs (2 × 6 + 5 × l + 8 × 4 + 15 × 3 + 9 × 2) × 100 = Rs 11,200
(c) Vogel’s Approximation Method: First calculating penalties as per rules and then allocations are made
in accordance of penalties as shown in Table 9.8.

D1 D2 D3 D4 Supply Row penalty

2 3 11 7 6 1 1 5
P1
1 5
1 0 6 1 1 0 – –
Plant P2
1
5 8 15 9 10 3 3 4
P3
6 3 1

Demand 7 5 3 2
Column penalty 1 3 5 6
Table 9.8 3 5 4 2
Initial Solution by 3 – 4 2
VAM Distribution Centre

The number of allocated cells in Table 9.8 are six, which is equal to the required number
m + n – 1 (3 + 4 – 1 = 6), therefore, this solution is non-degenerate. The transportation cost associated
with this solution is:
Total cost = Rs (2 × 1 + 3 × 5 + 1 × 1 + 5 × 6 + 15 × 3 + 9 × 1) × 100 = Rs 10,200
Remark: Total transportation cost found by VAM is lower than the costs of transportation determined
by the NWCR and LCM methods. Therefore, it is of advantage to use this method in order to reduce
computational time required to obtain optimum solution.
270 Operations Research: Theory and Applications

Remarks 1. Every loop has an even number of cells and has at least four cells.
2. The allocations are said to be in independent position if it is not possible to increase or decrease any
individual allocation without changing the positions of these allocations, or if a closed loop cannot
be formed through these allocations without violating the rim conditions.
3. Each row and column in the transportation table should have only one plus and minus sign. All cells
that have a plus or a minus sign, except the starting unoccupied cell, must be occupied cells.
4. Closed loops may or may not be in the shape of a square.
Example 9.6 Apply MODI method to obtain optimal solution of transportation problem using the data
of Example 9.1.

D1 D2 D3 D4 Supply

S1 19 30 50 10 17

S2 70 30 40 60 9

S3 40 18 70 20 18

Demand 5 8 7 14 34

Solution Applying Vogel’s approximation method to obtain an initial basic feasible solution. This
solution is shown in Table 9.11 [for ready reference see Table 9.5].
1. In Table 9.11, since number of occupied cells are m + n – 1 = 3 + 4 – 1 = 6 (as required), therefore
this initial solution is non-degenerate. Thus, an optimal solution can be obtained. The total transportation
cost associated with this solution is Rs 779.
2. In order to calculate the values of uis (i = 1, 2, 3) and vjs ( j = 1, 2, 3, 4) for each occupied cell, assigning
arbitrarily, v4 = 0 in order to simplify calculations. Given v4 = 0, u1, u2 and u3 can be immediately
computed by using the relation cij = ui + vj for occupied cells, as shown in Table 9.11.

D1 D2 D3 D4 Supply ui

S1 19 30 50 10 u1 = 10
5 + 32 + 60 2 7

S2 70 30 40 60 u2 = 60
+1 (+) 7 2 (–) 9
– 18
S3 40 8 70 20 u3 = 20
(–) 8 10 (+) 18
+ 11 + 70

Table 9.11 Demand 5 8 7 14 34

Initial Solution,
VAM vj v1 = 9 v2 = – 12 v3 = – 20 v4 = 0

c34 = u3 + v4 or 20 = u3 + 0 or u3 = 20
c24 = u2 + v4 or 60 = u2 + 0 or u2 = 60
c14 = u1 + v4 or 10 = u1 + 0 or u1 = 10
Given u1, u2, and u3, value of v1, v2 and v3 can also be calculated as shown below:
c11 = u1 + v1 or 19 = 10 + v1 or v1 = – 19
c23 = u2 + u3 or 40 = 60 + v3 or v3 = – 20
c32 = u3 + v2 or 8 = 20 + v2 or v2 = – 12
 Transportation Problem 271

3. The opportunity cost for each of the occupied cell is determined by using the relation
dij = cij – (ui + vj) and is shown below.
d12 = c12 – (u1 + v2) = 30 – (10 – 12) = 32
d13 = c13 – (u1 + v3) = 50 – (10 – 20) = 60
d21 = c2l – (u2 + v1 ) = 70 – (60 + 19) = 1
d22 = c22 – (u2 + v2) = 30 – (60 – 12) = – 18
d31 = c31 – (u3 + v1) = 40 – (20 + 19) = 11
d33 = c33 – (u3 + v3) = 70 – (20 – 20) = 70
4. According to the optimality criterion for cost minimizing transportation problem, the current solution
is not optimal, since the opportunity costs of the unoccupied cells are not all zero or positive. The
value of d22 = – 18 in cell (S2, D2) is indicating that the total transportation cost can be reduced in
the multiple of 18 by shifting an allocation to this cell.
5. A closed-loop (path) is traced along row S2 to an occupied cell (S3, D2). A plus sign is placed in cell
(S2, D2) and minus sign in cell (S3, D2). Now take a right-angle turn and locate an occupied cell in
column D4. An occupied cell (S3, D4) exists at row S3, and a plus sign is placed in this cell.
Continue this process and complete the closed path. The occupied cell (S2, D3) must be bypassed
otherwise they will violate the rules of constructing closed path.
6. In order to maintain feasibility, examine the occupied cells with minus sign at the corners of closed loop,
and select the one that has the smallest allocation. This determines the maximum number of units that
can be shifted along the closed path. The minus signs are in cells (S3, D2) and (S2, D4). The cell
(S2, D4) is selected because it has the smaller allocation, i.e. 2. The value of this allocation is then added
to cell (S2, D2) and (S3, D4), which carry plus signs. The same value is subtracted from cells (S2, D4)
and (S3, D2) because they carry minus signs.
7. The revised solution is shown in Table 9.12. The total transportation cost associated with this solution
is:
Total cost = 5 × 19 + 2 × 10 + 2 × 30 + 7 × 40 + 6 × 8 + 12 × 20 = Rs 743

D1 D2 D3 D4 Supply ui

S1 19 30 50 10 u1 = 0
5 +32 +42 2 7

S2 70 30 40 60 u2 = 32
+ 19 2 7 +14 9

S3 40 8 70 20 u3 = 10
+ 11 6 + 52 12 18

Demand 5 8 7 14 34
Table 9.12
vj v1 = 19 v2 = – 2 v3 = 8 v4 = 10 Optimal Solution

8. Test the optimality of the revised solution once again in the same way as discussed in earlier steps.
The values of uis, vjs and dijs are shown in Table 9.12. Since each of dijs is positive, therefore, the
current basic feasible solution is optimal with a mi]nimum total transportation cost of Rs 743.

Example 9.7 A company has factories at F1, F2, and F3 that supply products to warehouses at W1, W2
and W3. The weekly capacities of the factories are 200, 160 and 90 units, respectively. The weekly warehouse
requirements are 180, 120 and 150 units, respectively. The unit shipping costs (in rupees) are as follows: