Transportation Problem

© Macmillan Publishers India Ltd 1997,200 1

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“We want these assets to be productive. We buy
them. We own them. To say we care only about the
short term is wrong. What I care about is seeing
these assets in the best hands.”
Carl Icahn

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 Introduction

The structure of transportation problem involves a large number of shipping routes from
several supply origins to several demand destinations. The objective is to determine the
number of units of an item (commodity or product) that should be shipped from an origin to
a destination in order to satisfy the required quantity of goods or services at each destination
centre. This should be done within the limited quantity of goods or services available at
each supply centre, at the minimum transportation cost and/or time.
The study of transportation problem helps to identify optimal transportation routes along
with units of commodity to be shipped in order to minimize total transportation cost

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 General Mathematical Model of Transportation Problem

Let there be m sources of supply, S1, S2, . . ., Sm having ai (i = 1, 2, . . ., m) units of supply (or

capacity) respectively, to be transported among n destinations, D 1, D2, . . ., Dn with bj (j = 1,

2, . . ., n) units of demand (or requirement) respectively. Let c ij be the cost of shipping one unit of

the commodity from source i to destination j for each route. If x ij represents number of units
shipped per route from source i to destination j, the problem is to determine the transportation
schedule so as to minimize the total transportation cost while satisfying the supply and demand
conditions.

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General Mathematical Model of Transportation Problem

m n
Minimize (total cost) Z =   cij xij
i 1 j 1
subject to the constraints
n
 xij  ai , i = 1, 2, . . ., m (supply constraints) (2)
j 1

m
 xij  b j , j = 1, 2, . . ., n (demand constraints) (3)
i 1

and xij ³ 0 for all i and j.

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Existence of feasible solution

© Macmillan Publishers India Ltd 1997,200 6

General Transportation Table
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 General Mathematical Model of Transportation Problem

In this problem, there are (m + n) constraints, one for each source of supply, and distinction and
m × n variables. Since all (m + n) constraints are equations, and since the transportation model is
always balanced (total supply = total demand), one of these equations is extra (redundant). The
extra constraint equation can be derived from the other constraint equations, without affecting the
feasible solution. It follows that any feasible solution for a transportation problem must have
exactly (m + n – 1) non-negative basic variables (or allocations) x ij satisfying the rim conditions.

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 …Transportation Problem

Remarks
 When the total supply’s equal to the total demand, the problem is called a balanced
transportation problem, otherwise it is called an unbalanced transportation problem. The
unbalanced transportation problem can be made balanced by adding a dummy supply centre
(row) or a dummy demand centre (column) as the need arises.

 When the number of positive allocations (values of decision variables) at any stage of the
feasible solution is less than the required number (rows + columns –1), i.e. number of
independent constraint equations, the solution is said to be degenerate, otherwise non-
degenerate. For proof, see Appendix at the end of this chapter.

 Cells in the transportation table that have positive allocation are called occupied cells,
otherwise they are known as empty or non-occupied cells.
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 The Transportation Algorithm

Step 1: Formulate the problem and arrange the data in the matrix form

The formulation of the transportation problem is similar to the LP problem

formulation. Here the objective function is the total transportation cost and
the constraints are the supply and demand available at each source and
destination, respectively.
Step 2: Obtain an initial basic feasible solution
In this chapter, following three different methods are discussed to obtain an initial solution:

 North-West Corner Method,

 Least Cost Method, and

 Vogel’s Approximation (or Penalty) Method.

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 The Transportation Algorithm

The initial solution obtained by any of the three methods must satisfy the following
conditions:

 The solution must be feasible, i.e. it must satisfy all the supply and demand
constraints (also called rim conditions).

 The number of positive allocations must be equal to m + n – 1, when m is the number

of rows and n is the number of columns.

Any solution that satisfies the above conditions is called non-degenerate basic feasible
solution, otherwise, degenerate solution.

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 The Transportation Algorithm

Step 3: Test the initial solution for optimality

In this chapter, the Modified Distribution (MODI) method is discussed to test the
optimality of the solution obtained in Step 2. If the current solution is optimal, then stop.
Otherwise, determine a new improved solution.

Step 4: Updating the solution

Repeat Step 3 until an optimal solution is reached.

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 Methods of Finding Initial Solution

North-West Corner Method (NWCM)

It is a simple and efficient method to obtain an initial solution. This method does not take into
account the cost of transportation on any route of transportation. The method can be summarized
as follows:

Step 1:

Start with the cell at the upper left (north-west) corner of the transportation matrix and
allocate commodity equal to the minimum of the rim values for the first row and first
column, i.e. min (a1, b1).

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 North-West Corner Method (NWCM)

Step 2:
 If allocation made in Step 1 is equal to the supply available at first source
(a1,in first row), then move vertically down to the cell (2, 1) in the second row
and first column. Apply Step 1 again, for next allocation.
 If allocation made in Step 1 is equal to the demand of the first destination
(b1 in first column), then move horizontally to the cell (1, 2) in the first row
and second column. Apply Step 1 again for next allocation.

 If a1 = b1, allocate x11 = a1 or b1 and move diagonally to the cell (2, 2).

Step 3:

Continue the procedure step by step till an allocation is made in the

south-east corner cell of the transportation table.
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 North-West Corner Method (NWCM)

Example:1 A company has three production facilities S 1, S2 and S3 with

production capacity of 7, 9 and 18 units (in 100s) per week of a product,
respectively. These units are to be shipped to four warehouses D 1, D2, D3 and D4
with requirement of 5, 6, 7 and 14 units (in 100s) per week, respectively. The
transportation costs (in rupees) per unit between factories to warehouses are
given in the table below:
D1 D2 D3 D4
Capacity
S1 19 30 50 10 7
S2 70 30 40 60 9
S3 40 8 70 20 18
FormulateDemand
this transportation5 problem 8 as an7LP model 14 to minimize
34 the total
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transportation cost. 3,2007,2009
 North-West Corner Method (NWCM)

Solution The cell (S1, D1) is the north-west corner cell in the given transportation table. The rim

values for row S1 and column D1 are compared. The smaller of the two, i.e. 5, is assigned as the
first allocation; otherwise it will violate the feasibility condition. This means that 5 units of a
commodity are to be transported from source S1 to destination D1. However, this allocation

leaves a supply of 7 – 5 = 2 units of commodity at S 1.

Move horizontally and allocate as much as possible to cell (S 1, D2). The rim value for row S1 is 2

and for column D2 is 8. The smaller of the two, i.e. 2, is placed in the cell. Proceeding to row S 2,

since the demand of D1 has been met, nothing further can be allocated to D 1. The unfulfilled

demand of D2 is now 8 – 2 = 6 units. This can be fulfilled by S 2 with capacity of 9 units. So 6

units are allocated to cell(S2, D2). The demand of D2 is now satisfied and a balance of 9 – 6 = 3
© Macmillan Publishers India Ltd 1997,200 15
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 North-West Corner Method (NWCM)

We now move horizontally and vertically in the same manner. This should be done because
successive demand and supply are met. Ensure that the solution is feasible, that is, the number of
positive allocations (occupied cells) is equal to m + n – l = 3 + 4 – l = 6.
The total transportation cost of the initial solution derived by the NWCM is obtained by
multiplying the quantity xij in the occupied cells with the corresponding unit cost c ij and adding
all the values together. Thus, the total transportation cost of this solution is
Total cost = 5 × 19 + 2 × 30 + 6 × ©
30Macmillan
+ 3 × Publishers
3,2007,2009 40 + 4 × India Ltd 1997,200
70 + 14 × 20 = Rs 1,015 16
 Least Cost Method (LCM)

Step 1:

Select the cell with the lowest unit cost in the entire transportation table and allocate as
much as possible to this cell. Then eliminate (line out) that row or column in which either
the supply or demand is exhausted. If a row and a column are both satisfied simultaneously,
then only one may be crossed out. In case the smallest unit cost cell is not unique, then
select the cell where the maximum allocation can be made.

Step 2:

After adjusting the supply and demand for all uncrossed-out rows and columns repeat the
procedure with the next lowest unit cost among the remaining rows and columns of the
transportation table and allocate as much as possible to this cell. Then eliminate (line out)
that row and column in which either supply or demand is exhausted.

Step 3:

Repeat the procedure until the entire available supply at various sources and demand at
various destinations is satisfied. The solution so obtained need not be non-degenerate 17
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 …Least Cost Method (LCM)

Example:2 A company has three production facilities S1, S2 and S3 with production capacity of 7,
9 and 18 units (in 100s) per week of a product, respectively. These units are to be shipped to four
warehouses D1, D2, D3 and D4 with requirement of 5, 6, 7 and 14 units (in 100s) per week,
respectively. The transportation costs (in rupees) per unit between factories to warehouses are
given in the table below:
Use Least Cost Method (LCM) in order to find initial basic feasible solution to the transportation
problem. D1 D2 D3 D4
Capacity
S1 19 30 50 10 7
S2 70 30 40 60 9
S3 40 8 70 20 18
Demand 5 8 7 14 34
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 …Least Cost Method (LCM)

Solution The cell with lowest unit cost (i.e., 8) is (S 3, D2). The maximum units which we can

allocate to this cell is 8. This meets the complete demand of D 2 and leave l0 units with S3, as
shown in Table.
In the reduced table without column D2, the next smallest unit transportation cost, is 10 in cell

(S1, D4). The maximum which can be allocated to this cell is 7. This exhausts the capacity of S 1

and leaves 7 units with D4 as unsatisfied demand. This is shown in Table.

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 …Least Cost Method (LCM)

In Table, the next smallest cost is 20 in cell (S 3, D4). The maximum that can be allocated to this

cell is 7 units. This satisfies the entire demand of D 4 and leaves 3 units with S3, as the remaining
supply, shown in Table.
In Table, the next smallest unit cost cell is not unique. That is, there are two cells – (S 2, D3) and

(S3, D1) – that have the same unit transportation cost of 40. Allocate 7 units in cell (S 2, D3) first

because it can accommodate more units as compared to cell (S 3, D1). Then allocate 3 units (only
supply left with
S3) to cell (S3, D1). The remaining demand of 2 units of D1 is fulfilled from S2.

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 …Least Cost Method (LCM)

Since supply and demand at each origin and destination is exhausted, the initial
solution is arrived at, and is shown in Table.

The total transportation cost of the initial solution by LCM is calculated as

Total cost = 7 × 10 + 2 × 70 + 7 × 40 + 3 × 40 + 8 × 8 + 7 × 20 = Rs 814
The total transportation cost obtained by LCM is less than the cost obtained by
© Macmillan Publishers India Ltd 1997,200 21
NWCM. The optimal solution can also be obtained faster by using LCM.
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 …Vogel’s Approximation Method (VAM)

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 one 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.

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 …Vogel’s Approximation Method (VAM)

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 entire available supply at various sources and demand at
various destinations are satisfied.

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 …Vogel’s Approximation Method (VAM)

Example: A company has three production facilities S1, S2 and S3 with production capacity of 7,
9 and 18 units (in 100s) per week of a product, respectively. These units are to be shipped to four
warehouses D1, D2, D3 and D4 with requirement of 5, 6, 7 and 14 units (in 100s) per week,
respectively. The transportation costs (in rupees) per unit between factories to warehouses are
given in the table below:
Use Vagel’s Approximation Method (VAM) in order to find the initial basic feasible solution to
the transportation problem.

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 …Vogel’s Approximation Method (VAM)

Solution The differences (penalty costs) for each row and column have been calculated as
shown in Table. In the first round, the maximum penalty, 22 occurs in column D 2. Thus the cell
(S3, D2) having the least transportation cost 8 is chosen for allocation. The maximum possible
allocation in this cell is 8 and it satisfies demand in column D 2.Adjust the supply of S3 from18
to 10 (18–8= 10).

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 …Vogel’s Approximation Method (VAM)

The new row and column penalties are calculated except column D 2 because D2’s demand

has been satisfied. The second round allocation is made in column D 1 with target penalty 21

in the same way as in the first round as shown in cell (S 1, D1) of Table .

In the third round, the maximum penalty 50 occurs at S 3. 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.
The process is continued with new allocations till a complete solution is obtained. The
initial solution using VAM is shown in Table. The total transportation cost associated with
this method is calculated as:
Total cost = 5 × 19 + 2 × 10 + 7 × 40 + 2 × 60 + 8 × 8 + 10 × 20 = Rs 779
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 Test For Optimality

An optimal solution is one where there is no other set of transportation routes (allocations) that
will further reduce the total transportation cost. Thus, we have to evaluate each unoccupied cell
(represents unused route) in the transportation table in terms of an opportunity of reducing total
transportation cost.

An unoccupied cell with the largest negative opportunity cost is selected to include in the new set
of transportation routes (allocations). This value indicates the per unit cost reduction that can be
achieved by raising the shipment allocation in the unoccupied cell from its present level of zero.
This is also known as an incoming cell (or variable). The outgoing cell (or variable) in the
current solution is the occupied cell (basic variable) in the unique closed path (loop) whose
allocation will first become zero as more units are allocated to the unoccupied cell with the
largest negative opportunity cost.
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 Test For Optimality…

Such an exchange reduces the total transportation cost. The process is continued until there is no
negative opportunity cost. That is, the current solution cannot be improved further. This would be
the optimal solution.

An efficient technique called the modified-distribution (MODI) method (also called u-v method
or method of multipliers), which helps in comparing the relative advantage of alternative
allocations for all the unoccupied cells simultaneously, is discussed below. The MODI method is
based on the concept of duality.

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 Dual of Transportation Model

For a given basic feasible solution if we associate numbers (also called dual variables or
multipliers) ui and vj with row i (i = 1, 2, . . ., m) and column j ( j = 1, 2, . . ., n) of the

transportation table, respectively, then u i and vj must satisfy the equation

ui + vj = cij , for each occupied cell (i, j)

These equations yield m + n – 1 equations in m + n unknown dual variables. The values of these
variables can be determined by arbitrarily assigning a zero value to any one of these variables.
The value of the remaining m + n – 2 variables can then be obtained algebraically by using the
above relationship for occupied the cells. Once the values of u i and vj have been determined,
evaluation in terms of opportunity cost of each unoccupied cell (called non-basic variable or
unused route) is done by using the equation:
drs = crs – (ur + vs) , for each unoccupied
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 … Dual of Transportation Model

let us consider the general transportation model using sigma notation.

m n
Minimize Z = S S c x
i =1 j =1 ij ij
subject to the constraints
n
S x ij = ai , i = 1, 2, . . ., m (Supply)
j=1
m
S xij = bj , j = 1, 2, . . ., n (Demand)
i =1
and xij ³ 0 for all i and j
Since all of the constraints are equalities, write each equality constraint
equivalent ton two inequalities as follows:
S x ij
j=1 ³ ai , i = 1, 2, . . ., m
(Supply constraints)
n
S
j = 1– (xij) ³ – a© Macmillan Publishers India Ltd 1997,200
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i
30
 … Dual of Transportation Model

m
S x ij
i =1
³ bj , j = 1, 2, . . ., m
(Demand constraints)
m
S
i=1– (xij) ³– bj

Let and be the dual variables, one for each supply constraint i. Similarly be the
dual variables one for each demand constraint j. Now the dual of the
transportation model is given by
m n
Maximize Z * = S ( ui+ - u -i ) ai + S ( vj+ - vj- ) bj
i =1 j =1
subject to the constraints
(ui+ - ui- ) + ( vj + - vj - ) £ cij

and u i+ , u i- , vj + , vj - ³ 0 , for all i and j.

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 … Dual of Transportation Model

u + u -
The variables i and i that appear in the objective function, may take
positive, negative or zero values. Thus, either of these will appear in the
optimal basic feasible solution because one is the negative of the other. The
+ -
same argument may be given for v j and vj . Thus, let
u = u + - u - i = 1, 2, . . ., m
i i i

vj = vj+ - vj- , j = 1, 2, . . ., n`

The values of ui and vj will then be unrestricted in sign. Hence, the dual of the
transportation model can now be written as

m n
Maximize Z = S u i ai + S v j b j
*
i =1 j =1
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 … Dual of Transportation Model

subject to the constraints

ui + vj £ cij

and ui, vj unrestricted in sign for all i and j.

The variables xij form an optimal solution to the given transportation problem provided

 solution xij is feasible for all (i, j) with respect to original transportation model.

 solution ui and vj is feasible for all (i, j) with respect to the dual of the original
transportation model.

 (cij – ui – vj) xij = 0 for all i and j.

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 … Dual of Transportation Model

The relationship (cij – ui – vj) xij = 0 is also known as complementary slackness for a
transportation problem and indicates that
 if xij > 0 and is feasible, then cij – ui – vj = 0 or cij = ui + vj, for each occupied cell,

 if xij = 0 and cij > ui + vj, then it is not desirable to have xij > 0 in the solution mix
because it would cost more to transport on a route (i, j),

 if cij £ ui + vj for some xij = 0, then xij can be brought into the solution mix.
The per unit net reduction in the total cost of transportation for a route (i, j) is given by
dij = cij – (ui + vj), for all i and j.

Here it may be noted that dij = 0 for occupied cells (basic variables).

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 MODI Method

Steps of MODI Method (Transportation Algorithm)

Step 1:

For an initial basic feasible solution with m + n – 1 occupied cells, calculate u i and vj for
rows and columns. The initial solution can be obtained by any of the three methods
discussed earlier.
To start with, any one of uis or vjs is assigned the value zero. It is better to assign zero to a
particular ui or vj where there are maximum number of allocations in a row or column
respectively, as this will reduce the considerably arithmetic work. The complete the
calculation of uis and vjs for other rows and columns by using the relation
cij = ui + vj , for all occupied cells (i, j).

Step 2:
For unoccupied cells, calculate the opportunity cost (the difference that indicates the per
unit cost reduction that can be achieved by an allocation in the unoccupied cell). Do this by
using the relationship
dij = cij – (ui + vj) ,© Macmillan
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 …MODI Method (Transportation Algorithm)

Step 3: Examine sign of each dij

 If dij > 0, then the current basic feasible solution is optimal.

 If dij = 0, then the current basic feasible solution will remain unaffected but an alternative

solution exists.
 If one or more dij < 0, then an improved solution can be obtained by entering unoccupied
cell (i, j) in the basis. An unoccupied cell having the largest negative value of d ij
is chosen for entering into the solution mix (new transportation schedule).

Step 4:
Construct a closed-path (or loop) for the unoccupied cell with largest negative
opportunity cost. Start the closed path with the selected unoccupied cell and mark a plus

sign (+) in this cell. Trace a path along the rows (or columns) to an occupied cell, mark

the corner with a minus sign (–) and continue down the column (or row) to an occupied
cell. Then mark the corner with plus sign (+) and minus sign (–) alternatively. Close the
© Macmillan Publishers India Ltd 1997,200 36
path back to the selected unoccupied cell.
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Steps of MODI Method (Transportation Algorithm)…

Step 5:
Select the smallest quantity amongst the cells marked with minus sign on the corners of
closed loop. Allocate this value to the selected unoccupied cell and add it to other occupied
cells marked with plus signs. Now subtract this from the occupied cells marked with minus
signs.

Step 6:

Obtain a new improved solution by allocating units to the unoccupied cell according to Step
5 and calculate the new total transportation cost.

Step 7:
Further test the revised solution for optimality. The procedure terminates when all d ij ³ 0 for
unoccupied cells.

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 …MODI Method

Example: The following table provides all the necessary information on the availability of
supply to each warehouse, the requirement of each market, and the unit transportation cost (in
Rs) from each warehouse to each market. The shipping clerk of the shipping agency has worked
out the following schedule, based on his own experience: 12 units from A to Q, 1 unit from A to
R, 8 units from A to S, 15 units from B to R, 7 units from C to P and 1 unit from C to R.
 Check and see if the clerk has the optimal schedule.
 Find the optimal schedule and minimum total transport cost.

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 …MODI Method

 If the clerk is approached by a carrier of route C to Q, who offers to reduce his rate in the
hope of getting some business, by how much should the rate be reduced before the clerk
would offer him the business.

Market
P Q R S Supply
A 6 3 5 4 22
Warehouse B 5 9 2 7 15
C 5 7 8 6 8
Demand 7 12 17 9 45

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 …MODI Method

 The shipping schedule determined by the clerk based on his experience is shown in Table .
The total transportation cost associated with this solution is
Total cost = 3 × 12 + 5 × 1 + 4 × 9 + 2 × 15 + 5 × 7 + 8 × 1 = Rs 150

Since the number of occupied cells (i.e. 6) is equal to the required number of occupied cells (i.e.
m + n – 1) in a feasible solution, therefore the solution is non-generate feasible solution. Now, to
test the optimality of the solution given in Table 9.19 we evaluate each unoccupied cell in terms
of the opportunity cost associated with it. This is done in the usual manner and is shown in Table
9.20.

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 …MODI Method

In Table, cell (C, S) has a negative opportunity cost (i.e. – 1). Thus, this solution is not the
optimal solution and, therefore, the schedule prepared by the shipping clerk is not optimal
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 …MODI Method

(b) By forming a closed-loop to introduce the cell (C, s) into the new transportation
schedule as shown in Table , we get a new solution that is shown in Table.

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 …MODI Method

While testing the optimality of the improved solution shown in Table 9.21, we found that the
opportunity costs in all the unoccupied cells are positive. Thus the current solution is optimal and
the optimal schedule is to transport 12 units from A to Q; 2 units from A to R; 8 units from A to
S; 15 units from B to R; 7 units from C to P and 1 unit from C to S. The total minimum
transportation cost associated with this solution is
Total cost = 3 × 12 + 5 × 2 + 4 × 8 + 2 × 15 + 5 × 7 + 6 × 1 = Rs 149

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 …MODI Method

(c) The total transportation cost will increase by Rs 2 (opportunity cost) if one unit of commodity
is transported from C to Q. This means that the rate of the carrier on the route C to Q should
be reduced by Rs 2, i.e. from Rs 7 to Rs 5 so as to get some business of one unit of
commodity only.
In case all the 8 units available at C are shipped through the route (C, Q), then the solution
presented in Table may be read as shown in Table .

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 …MODI Method

The total cost of transportation associated with this solution is

Total cost = 6 × 7 + 3 × 4 + 5 × 2 + 4 × 9 + 2 × 15 + 7 × 8 = Rs 186.
Thus, the additional cost of Rs 37 (= 186 – 149) should be reduced from the transportation
cost of 8 units from C to Q. Hence transportation cost per unit from C to Q should be at the
most 7 – (37/8) = Rs 2.38.

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 Variations In Transportaion Problem

Unbalanced Supply and Demand

For a feasible solution to exist, it is necessary that the total supply must equal the total demand.
That is,
Total supply = Total demand
m n
 ai =  b j
i 1 j 1
But a situation may arise when the total available supply is not equal to the total demand [For
proof see appendix]. The following two cases may arise:

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 Variations In Transportaion Problem

…two cases may arise:

 If the total supply exceeds the total demand, then an additional column (called a dummy
demand centre) can be added to the transportation table in order to absorb the excess supply.
The unit transportation cost for the cells in this column is set equal to zero because these
represent product items that are not being made and not being sent.

 If the total demand exceeds the total supply, a dummy row (called a dummy supply centre)
can be added to the transportation table to account for the excess demand quality. The unit
transportation cost here also for the cells in the dummy row is set equal to zero.

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 …Transportation Problem

Example: A product is manufactured at four factories A, B, C and D. Their unit

production costs are Rs 2, Rs 3, Re 1 and Rs 5, respectively. Their production
capacities are 50, 70, 30 and 50 units, respectively. These factories supply the
product to four stores, demands of which are 25, 35, 105 and 20 units
respectively. Unit transportation cost in rupees from each factory to each store
is given in the table below.
Stores
I II III IV
A 2 4 6 11
Factories B 10 8 7 5
C 13 3 9 12
D 4 6 8 3

Determine the extent of deliveries from each of the factories to each of the
stores, so that the total production and transportation cost is the minimum.
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 …Transportation Problem

Solution: The new transportation costs that include both the production and
the transportation costs is given in Table .

I II III IV Supply
A 2 + 2= 4 4 + 2=6 6+2= 8 11 + 2=13 50
B 10 + 3= 13 8 + 3=11 7 + 3 = 10 5 + 3=8 70
C 13 + 1= 14 3 + 1=4 9 + 1 = 10 12 + 1=13 30
D 4 + 5= 9 6 + 5=11 8 + 5 = 13 3 + 5=8 50
Demand 25 35 105 20 200
185

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 …Transportation Problem

Solution: The new transportation costs that include both the production and
the transportation costs is given in Table .

I II III IV Supply
A 2 + 2= 4 4 + 2=6 6+2= 8 11 + 2=13 50
B 10 + 3= 13 8 + 3=11 7 + 3 = 10 5 + 3=8 70
C 13 + 1= 14 3 + 1=4 9 + 1 = 10 12 + 1=13 30
D 4 + 5= 9 6 + 5=11 8 + 5 = 13 3 + 5=8 50
Demand 25 35 105 20 200
185

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 …Transportation Problem

Using the VAM method the initial solution is shown in Table 9.29. It can be seen that 15 units are
allocated to dummy store from factory D. This means that the company may cut down the
production by 15 units at the factory that is proving to be uneconomical. Now to test the
optimality of the solution shown in Table 9.29 we evaluate each unoccupied cell in terms of
opportunity cost associated with it in the usual manner as shown in Table

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 …Transportation Problem

Since the opportunity cost in all the unoccupied cells is positive, the initial solution is an optimal
solution. The total cost of transportation associated with this solution is
Total cost= 4 × 25 + 6 × 5 + 8 × 20 + 10 × 70 + 4 × 30 + 13 × l5 + 8 × 20 + 0 × l5
= Rs l,465.

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 Degeneracy and Its Resolution

A basic feasible solution for the general transportation problem must consist of exactly m + n – 1
(number of rows + number of columns – 1) positive allocations in independent positions in the
transportation table. A solution will only be called degenerate if the number of occupied cells
is less than the required number, m + n – 1. In such cases, the current solution cannot be
improved upon because it is not possible to draw a closed path for every occupied cell. Also, the
values of dual variables ui and vj that are used to test the optimality cannot be computed. Thus,
we need to remove the degeneracy in order to improve the given solution. The degeneracy in the
transportation problems may occur at two stages:

 When obtaining an initial basic feasible solution we may have less than m + n – 1 allocations.
 At any stage while moving towards optimal solution. This happens when two or more
occupied cells with the same minimum allocation are simultaneously unoccupied.
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 Degeneracy and Its Resolution

Case 1: Degeneracy at the initial solution

To resolve degeneracy at the initial solution, we proceed by allocating a very small quantity close
to zero to one or more (if needed) unoccupied cells so as to get m + n – 1 number of occupied
cells. This amount is denoted by a Greek letter e (epsilon) or D (delta). This quantity would
neither affect the total cost nor the supply and demand values. In a minimization transportation
problem it is better to allocate D to unoccupied cells that have lowest transportation costs,
whereas in maximization problems it should be allocated to a cell that has a high payoff value. In
some cases, D must be added in one of those unoccupied cells that uniquely makes possible the
determination of ui and vj.

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 Degeneracy and Its Resolution

The quantity D is considered to be so small that if it is transferred to an occupied cell it does not
change the quantity of allocation. That is,
xij+ D = xij – D = xij
D–D = 0; D+D =D
0+D = D; k×D =D
It is also obvious then that D does not affect the total transportation cost of the allocation. Hence,
the quantity D is used to evaluate unoccupied cells and to reduce the number of improvement
cycles necessary to reach an optimal solution. Once the purpose is over, D can be removed from
the transportation table.

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 …Degeneracy and Its Resolution

Example: A manufacturer wants to ship 22 loads of his product as shown

below. The matrix gives the kilometres from sources of supply to the
destinations.
Destination
D1 D2 D3 D4 D5 Supply

S1 5 8 6 6 3 8

Source S2 4 7 7 6 5 5

S3 8 4 6 6 4 9 22
25
Demand 4 4 5 4 8
The shipping cost is Rs 10 per load per km. What shipping schedule should be
used in order to minimize the total transportation cost?
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 …Degeneracy and Its Resolution

Solution: Since the total destination requirement of 25 units exceeds the total resource capacity
of 22 by 3 units, the problem is unbalanced. The excess requirement is handled by adding a
dummy plant, Sexcess with a capacity equal to 3 units. We use zero unit transportation cost to the
dummy plant. The modified transportation table is shown in Table.

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 …Degeneracy and Its Resolution

The initial solution is obtained by using Vogel’s approximation method as shown in Table 9.31.
Since the solution includes 7 occupied cells, therefore, the initial solution is degenerate. In order
to remove degeneracy we assign D to unoccupied cell (S 2, D5), which has the minimum cost
amongst the unoccupied cells, as shown in Table.

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 …Degeneracy and Its Resolution

Determine ui and vj for occupied cells as shown in Table 9.32. Since the opportunity cost in the

cell (Sexcess, D3) is largest negative, it must enter the basis and the cell (S 2, D5) must leave the
basis. The new solution is shown in Table.

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 …Degeneracy and Its Resolution

Repeat the procedure of testing optimality of the solution given in Table 9.33. The optimal
solution is shown in Table 9.34.

The minimum total transportation cost associated with this solution is

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Total cost = (3 × 8 + 43,2007,2009
× 4 + 6 × 1 + 4 × 4 + 6 × 2 + 6 × 3) × 10 = Rs 920
 …Degeneracy and Its Resolution

Case 1: Degeneracy at subsequent iterations

To resolve degeneracy, which occurs during optimality test, the quantity may be allocated to
one or more cells that have recently been unoccupied, to have m + n – 1 number of occupied
cells in the new solution.

Example: Goods have to be transported from sources S1, S2 and S3 to destinations D1, D2 and D3.
The transportation cost per unit, capacities of the sources, and the requirements of the
destinations are given in the following table.
D1 D2 D3 Supply

S1 8 5 6 120

S2 15 10 12 80

S3 3 9 10 80
Demand schedule
Determine a transportation 150 80 costIndia
so that
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 …Degeneracy and Its Resolution

Solution: By using North-West Corner Method, the non-degenerate initial basic feasible solution
that we get is given in Table .

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 …Degeneracy and Its Resolution

To test the optimality of the solution given in Table 9.35, calculate u i, vj and dij as usual as shown
in Table 9.36.

Since the unoccupied cell (S3, D1) ©has the largest

Macmillan negative
Publishers opportunity cost of –11, therefore,
India Ltd 1997,200 63 cell
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(S , D ) is entered into the new solution mix.
 …Degeneracy and Its Resolution

The closed path for (S3, D1) is shown in Table 9.36. The maximum allocation to (S 3, D1) is 30.
However, when this amount is allocated to (S3, D1) both cells
(S2, D1) and (S3, D2) become unoccupied because these two have same allocations. Thus, the
number of positive allocations become less than the required number, m + n – 1 = 3 + 3 – 1 = 5.
Hence, this is a degenerate solution as shown in Table.

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 …Degeneracy and Its Resolution

To remove degeneracy a quantity D is assigned to one of the cells that has become unoccupied so
that there are m + n – 1 occupied cells. Assign D to either (S 2, D1) or (S3, D2) and proceed with
the usual solution procedure. The optimal solution is given in Table 9.38.

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 Alternative Optimal Solutions

The existence of alternative optimal solutions can be determined by an inspection of the

opportunity costs, dij for the unoccupied cells. If an unoccupied cell in an optimal solution
has an opportunity cost of zero, an alternative optimal solution can be formed with another
set of allocations, without increasing the total transportation cost.

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 … Alternative Optimal Solutions

Illustration Consider the optimal solution of Example 9.7, given in Table 9.27. For ready
reference Table 9.27 is reproduced as Table9.39

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 … Alternative Optimal Solutions

The opportunity costs in all unoccupied cells are positive except for the cell (X, A) which has a
zero opportunity cost. This means if (X, A) is entered into the basis, no change in the
transportation cost would occur. To determine this alternative solution, form a closed path for cell
(X, A) as shown in Table 9.40.

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 … Alternative Optimal Solutions

The maximum quantity that can be allocated to cell (X, A) is 21. After this change, the new
solution is shown in Table 9.41.
Since all dij values are positive or zero, the solution given in Table 9.41 is optimal with a
minimum total transportation cost of Rs 2,424, which is same as in the previous solution.

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 … Alternative Optimal Solutions

Example: 9.14 XYZ tobacco company purchases tobacco and stores in

warehouses located in the following four cities:
Warehouse Location (City) : A B C D
Capacity (Tonnes) : 90 50 80 60
The warehouses supply tobacco to cigarette companies in three cities that
have the following demand:

Cigarette Company Demand (Tonnes)

Bharat 120
Janata 100
Red Lamp 110

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 … Alternative Optimal Solutions

The following railroad shipping costs per tonne (in hundred rupees) have
been determined:
Warehouse Location Bharat Janata Red Lamp
A 7 10 5
B 12 9 4
C 7 3 11
D 9 5 7
Because of railroad construction, shipments are temporarily prohibited from
warehouse at city A to Bharat Cigarette company.
 Find the optimum distribution for XYZ tobacco company.
 Are there multiple optimum solutions? If yes, identify them.
 Write the dual of the given transportation problem and use it for
checking the optimum solution.
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 … Alternative Optimal Solutions

Solution: Since the total demand of 330 units exceeds the total capacity of 280 units by 50
units of the product, a dummy company is created to handle the excess demand. The associated
cost coefficients for the dummy warehouse location are taken as zero. Further, the cost element
(i.e. 7) on the route city A–Bharat company is replaced by M, since the route is prohibited. The
modified table is shown in Table 9.42.

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 … Alternative Optimal Solutions

Using the VAM method, the initial solution is shown in Table 9.43. Now to test the optimality of
the solution as shown in Table 9.43, we evaluate each unoccupied cell in terms of opportunity
cost associated with it in the usual manner. This is shown in Table 9.43.

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 … Alternative Optimal Solutions

 Since the opportunity cost in all the unoccupied cells is positive, the initial solution shown in
Table 9.43 is also an optimal solution. The total transport cost associated with this solution is
Total cost = 5 × 90 + 12 × 30 + 4 × 20 + 3 × 80 + 9 × 40 + 5 × 20
= Rs 1,59,000

 Since opportunity cost in cell (C, Bharat), d 31 = 0, there exists an

alternative optimal solution:
x13 = 90, x21 = 30, x23 = 20, x31 = 40, x32 = 40, x42 = 60 and x51 = 50
and total cost = Rs 1,59,000

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 … Alternative Optimal Solutions

 The dual of the given problem is

Maximize Z = (90 u1 + 50 u2 + 80 u3 + 60 u4 + 50 u5) + (120 v1 + 100 v2 + 110 v3)
subject to the constraints
u1 + v 1 £ M u2 + v1 £ 12 u3 + v1 £ 17 u4 + v 1 £ 9

u1 + v2 £ 10 u2 + v2 £ 19 u3 + v2 £ 13 u4 + v 2 £ 5

u1 + v3 £ 15 u2 + v3 £ 14 u3 + v3 £ 11 u4 + v 3 £ 7

and ui, vj unrestricted in sign, for all i and j.

Now by substituting the values of uis and vjs from the optimal transportation in Table 9.43,
we get
Maximize Z = 90 × 13 + 50 × 12 + 80 × 7 + 60 × 9 + 50 × 0 + 120 × 0 + 100 × – 4 + 110 ×
–8
© Macmillan Publishers India Ltd 1997,200 75
= Rs 1,59,000 3,2007,2009
 Maximization Transportation Problem

In general, the transportation model is used for cost minimization problems. However, it is also
used to solve problems in which the objective is to maximize total value or benefit. That is,
instead of unit cost cij, the unit profit or payoff pij associated with each route, (i, j) is given. The
objective function in terms of total profit
m
or
n
payoff is then stated as follows:
Maximize Z = i S
=1
S
j=1
p ij x ij

The algorithm for solving this problem is same as that for the minimization problem. However,
since we are given profits instead of costs, therefore, a few adjustments in Vogel’s approximation
method (VAM) for finding initial solution and in the MODI optimality test are required.

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 …Maximization Transportation Problem

For finding the initial solution by VAM, the penalties are computed as difference between the
largest and next largest payoff in each row or column. In this case, row and column differences
represent payoffs. Allocations are made in those cells where the payoff is largest, corresponding
to the highest row or column difference.

Since it is a maximization problem, the criterion of optimality is the converse of the rule for
minimization. The rule is: A solution is optimal if all opportunity costs d ij for the unoccupied
cells are zero or negative.

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 …Maximization Transportation Problem

Example: A company has four manufacturing plants and five warehouses.

Each plant manufactures the same product, which is sold at different prices in
each warehouse area. The cost of manufacturing and cost of raw materials are
different in each plant due to various factors. The capacities of the plants are
also different. The relevant data is given in the following table:

Plant
Item 1 2 3 4
Manufacturing cost (Rs) per unit 112 110 118 18
Raw material cost (Rs) per unit 118 117 117 15
Capacity per unit time © Macmillan Publishers
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 …Maximization Transportation Problem

The company has five warehouses. The sale prices, transportation costs and
demands are given in the following table:

Warehouse Transportation Cost (Rs) per Unit Sale Price Demand

1 2 3 4
per Unit(Rs) A 14 7 4 13
30 80
B 18 9 7 18 32 120
C 12 7 6 10 28 150
D 10 7 5 18 34 70
 EFormulate12
this problem
5 as8 a transportation
19 problem
30 in order
90 to maximize
profit.
 Find the solution using VAM method.
 Test for optimality and find the optimal solution.
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 …Maximization Transportation Problem

Solution: Based on the given data, the profit matrix can be derived by using
following equation.
Profit = Sales price – Production cost – Raw material cost – Transportation
cost
The matrix, so obtained, is shown in Table 9.49.

Table representing profit can be converted to an equivalent minimization of loss by subtracting

all the profit values in the table from the highest profit value. As the highest profit value is 15, by
subtracting all cell values including itself from it, the new values that we obtain are shown in
Table 9.50. The problem now becomes a usual cost minimizing transportation problem.

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…Maximization Transportation Problem

1 2 3 4 Dummy Demand
A 6 6 11 15 0 80
B 4 6 10 12 0 120
C 6 4 7 6 0 150
D 4 10 14 14 0 70
E 8 8 7 9 0 90
Supply 100 200 120 80 10 510

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 …Maximization Transportation Problem

Apply Vogel’s method to find the initial basic feasible solution, shown in Table 9.5

Since initially the number of occupied cells was 8, which is one less than the required number,
m + n – 1 = 9, therefore, the solution is degenerate. However, after making an allocation of D to
the cell (D, 4), the initial solution has now become eligible for optimality test.
Apply MODI method to evaluate each unoccupied cell in terms of opportunity cost associated
with it in the usual manner. This is©shown
Macmillanin Table India
Publishers 9.50.
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 …Maximization Transportation Problem

The cell (B, 4) has a negative opportunity cost (i.e. – 2) as shown in Table Introduce it into the
new solution by constructing a loop shown in Table 9.50. The new solution is given in Table
9.51, where D has shifted from cell (D, 4) to cell (B, 4).

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 …Maximization Transportation Problem

Since there is no negative opportunity cost in the unoccupied cells in Table 9.51, therefore,
this solution is the optimal solution. However, the zero opportunity cost in cell (D, 2)
indicates the existence of an alternative solution. The total maximization profit associated
with the solution is
Total profit = 9 × 70 + 5 × 50 + 9 × 100 + 11 × 40 + 15 × 10 + 1 × 70 + 7 × 90
= Rs 4,580.

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 TRANS-SHIPMENT PROBLEM

In a transportation problem, the shipment of a commodity takes place among sources and
destinations. But instead of direct shipments to destinations, the commodity can be transported to
a particular destination through one or more intermediate or trans-shipment points. Each of these
points, in turn supply to other points. Thus, when the shipments pass from destination to
destination and from source to source, we have a trans-shipment problem. A problem dealing
with four sources and three destinations is shown diagrammatically in Figs.

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 …Trans-Shipment Problem

Since the flow of commodity can be in both directions, arrows are not shown in Fig. 9.2(b). The
solution to this problem can be obtained by using the transportation model. The solution
procedure is as follows: If there are m sources and n destinations, we shall have a transportation
table of size (m + n) × (m + n) instead of m × n as in the usual case. If the total number of units
transported from all sources to all destinations is N, then the given supply at each source and
demand at each destination are added to N. The demand at source and the supply at each
destination are set to be equal to N. The problem can then be solved by the usual MODI method
for transportation problems. In the final solution, ignore the units transported from a point to
itself, i.e. diagonal cells, because they do not have any physical meaning (no transportation).

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 …Trans-Shipment Problem

Example: 9.19 Consider a firm having two factories. The firm is to ship its products from the
factories to three retail stores. The number of units available at factories X and Y are 200 and
300, respectively, while those demanded at retail stores A, B and C are 100, 150 and 250,
respectively. Rather than shipping the products directly from factories to retail stores, it is asked
to investigate the possibility of trans-shipment. The transportation cost (in rupees) per unit is
given in the table:
Factory Retail Store
X Y A B C
Factory X 0 8 7 8 9
Y 6 0 5 4 3
A 7 2 0 5 1
Retail Store B 1 5 1 0 4
C 8 9 7 8 0
Find the optimal shipping© schedule.
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 …Trans-Shipment Problem

Solution: The number of units available at X and Y are 200 and 300, respectively and the
demand at A, B and C is 100, 150 and 250, respectively. The maximum amount which can be
transported through a factory or retail store is the total supply and demand, i.e. N = 500 units. If
all these 500 units are not transported through a factory or retail store then the remaining units
will play the role of dummy. The trans-shipment table is shown in Table 9.52 where 500 units
have been added to the supply and demand at factory and to a retail store.

X Y A B C Supply
X 0 8 7 8 9 200 + 500
Y 6 0 5 4 3 300 + 500
A 7 2 0 5 1 500
B 1 5 1 0 4 500
C 8 9 7 8 0 500
Demand 500 500© Macmillan
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 …Trans-Shipment Problem

The initial solution to trans-shipment problem given in Table 9.53 can be obtained by putting 500
units to each route on the diagonal and making allocation in the matrix, by using Vogel’s
approximation method.

A B C Supply
X 7 8 9 700
Y 5 4 3 800
Demand 600 650 750

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 …Trans-Shipment Problem

Applying the MODI method to test the optimality of the solution given in Table 9.53. For this
first determine ui and vj and then opportunity cost dij for each unoccupied cell as shown in Table
9.53. Since the opportunity cost corresponding to each unoccupied cell is positive, therefore, the
solution given in Table 9.53 is also optimal. In order to interpret the optimal solution, allocations
in the diagonal cells are ignored as these values show the extra dummies have been added in
order to allow as much as flow possible.

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