PROJECT REPORT

A STUDY OF TRANSPORTATION
PROBLEM
In partial fulfilment of covering the course of Decision Making
Model in Term-1

Submitted To:

Prof. Hitesh Arora

Faculty, DMM
FORE School of Management

Submitted By:

Vibhor Mathur
Student, FORE School of Management
New Delhi
FMG-25, Roll No. - 251064

September 13, 2016

 ACKNOWLEDGEMENT
This report is intended to be submitted as an end term project for the course titled “Decision
Making Models”. I am thankful to our course professor Mr. Hitesh Arora, Professor, Fore School
of Management, New Delhi for his guidance & assistance in the completion of this course and
project.

Vibhor Mathur
251064
FMG-25
Fore School of Management
New Delhi

(ii)
 Abstract

The proposed transportation model of manufacturing goods to customer is considered in this

research. The data gathered were modelled as a Linear Programming model of transportation
type and represent the transportation problem as tableau and solve it with the computer software
solver to generate an optimal solution. This transportation model will be useful for making
strategic decisions by the logistics managers Guinness Ghana LTD in making optimum allocation
of the production from the two plants (KAASI and ACHIMOTA) to the various customers(key
distributors) at a minimum transportation cost

(iii)
 Table of Contents

Content Page
Acknowledgements………………………..................................................................................... ii
Abstract............................................................................................................................. iii

CHAPTER 1: INTRODUCTION
1.1 A Brief Review of the Transportation Problem....................................................................... 1
1.2. Background to the Study. ….................................................................................................... 3
1.2.1 Background of company.......................................................................................................... 6
1.2.1.1 COMPANY PROFILE.......................................................................................................... 6
1.2.1.3 Company Brands.................................................................................................................... 7
1.2.1.4 Manufacturing......................................................................................................................... 7
1.2.1.5 Warehouse................................................................................................................................. 7
1, 2.16 Distribution.............................................................................................................................. 8
1.3 Problem Statement.........................………………………….......................................................8
1.4 Objective........................................................................................................................................ 8
1.5 Methodology................................................................................................................................ 8
1.6 Justification........................…………………………………....................................... 9
1.7 Organization of Thesis.............................…………………………........................................10
CHAPTER 2: LITERATURE REVIEW
2.1 Definition........................................................................................................................................11
2.2 Literature Review............................................................................................................................11

CHAPTER 3: METHODOLOGY
3.1 Introduction.......................................................................................................................................19
3.2 Transportation problem......................................................................................................................19
3.3 Mathematical Formulation……………………………………………………………………………20
3.3.1 The Decision Variable………………………………………………………………………………20
3.3.2 The Objective Function....................................................................................................................21
3.3.4 The Constraints.................................................................................................................................22
3.4 Transportation Tableau.........................................................................................................................25
3.5 Network Representation of Transportation Problem………………………………………………….26
3.6. Solution for a Transportation Problem………………………………………………………………..29
3.6.1 Flow Chart Solution For the transportation Problem……………………………………………….29
3.6.2 Solution Algorithm For the transportation Problem……………………………………………...30
3.6. 3 Finding Initial Basic Feasible Solution of Balanced Transportation Problems…………………..31
3.6.3.1 Northwest Corner Method………………………………………………………………………31
3.6.3.2 The Minimum Cell Cost Method…………………………………………………………………36
3.6.3.3 Vogel‟s Approximation Method………………………………………………………………….39
3.6.4 Methods for Solving Transportation Problems to Optimality………………………………………43
3.6.4.1 An Optimal Solution......................................................................................................................43
3.6.4.2 Stepping Stone Method..................................................................................................................45
3.6.4.3 The Modified Distribution Method................................................................................................53
3.7 Solving Transportation Problem with Mixed Constraints................................................................57
3.7.1 Mathematical Model for the Transportation Problem with Mixed Constraints.............................58
3.7.2 Zero Point Method........................................................................................................................61
3.7.3 Optimal More-For-Less Procedure................................................................................................63
3.8 Sensitivity Analysis for the Transportation Problem.........................................................................68

CHAPTER 4: DATA COLLECTIONS AND ANALYSIS

4.0 Introduction......................................................................................................................................69
4.1 Data Collection.................................................................................................................................70
4.2 Data Source.......................................................................................................................................70
4.3 JULY07-JUNE08 TRANSPORTATION MATRIX FOR GGL PROBLEM........................................71
4.3.1 Formulation Problem.......................................................................................................................72
4.3.2 Optimal Solution-July2007-June2008..............................................................................................73
4.3.3 Computational Procedure..................................................................................................................75
4.4 JULY08-JUNE09 TRANSPORTATION MATRIX FOR GGL PROBLEM.......................................79
4.4.1 Formulation Problem........................................................................................................................80
4.4.2 The Management Scientist Solution (July2008-June2009)..............................................................81
4.4.3 Results and Discussions....................................................................................................................84

CHAPTER 5: CONCLUSION AND RECOMMEMDATION

5.1 Conclusion.....................................................................................................................................86
5.2 Recommendations...........................................................................................................................87

REFERENCES.................................................................................................................................. 88
APPENDIX......................................................................................................................................... 91
 LIST OF FIGURES

Figure page
Figure 1: Network Representation of the transportation problem……………………………….26
Figure 2: The flow chart showing the transportation problem approach……………………...29
Table page

Table 1.0: The Transportation Tableau.................................................................... 25

Table 2.0: A Balance transportation Problem....................................................... 33

Table 2.1: The intial North West Corner Solution................................................ 33

Table 2.2: The starting solution using Minimum Cell Method…………………… 37

Table 2.3: The Second Minimum Cell Cost Allocation……………………………….. 37

Table 2.4: The starting solution using Minimum Cell
Method…………………………. 38

Table 2.5: The VAM Penalty Costs…………………………………………………… 41

Table 2.6: The Initial VAM Allocation………………...…………………………… …. 41

Table 2.7: The Second VAM Allocation………………………………………………… 42

Table 2.8: The Third VAM Allocation……………………………………………………. 42

Table 2.9: The Initial VAM Solution……………………………………………………… 43

Table 2.10: The Minimum Cell Cost Solution……………………………………………… 45

Table 2.11: The Allocation of One Ton from Cell 1A............................................................... 45

Table 2.12: The Subtraction of One Ton from Cell
1B………………………………………. 46
LIST OF TABLES
CHAPTER ONE
INTRODUCTION

1.1 A brief Review of the Transportation Problem

Business and Industries are practically faced with both economic optimization such as cost
minimization of non-economic items that are vital to the existence of their firms.
The transportation models or problems are primarily concerned with the optimal (best possible)
way in which a product produced at different factories or plants (called supply origins) can be
transported to a number of warehouses or customers (called demand destinations). The objective
in a transportation problem is to fully satisfy the destination requirements within the operating
production capacity constraints at the minimum possible cost. Whenever there is a physical
movement of goods from the point of manufacturer to the final consumers through a variety of
channels of distribution (wholesalers, retailers, distributors etc.), there is a need to minimize the
cost of transportation so as to increase profit on sales.
(i) The transportation problem is a special class of linear programming problem, which
deals with shipping commodities from source to destinations. The objective of the
transportation problem is to determine the shipping schedule that minimize that total
shipping cost while satisfying supply and demand limits
The transportation problem has an application in industry, communication network, planning,
scheduling transportation and allotment etc.
Considers a situation in which three points of origin A1, A 2, A 3 have suppliers available to
meet needs at three destinations N1, N 2 , N 3 ). The amount available at each origin is
specified a 1 , a 2 , a 3, as also the amounts needed at each destinations n 1 , n 2 , n 3.
Furthermore the cost of moving goods between origin and destination can be setup as a table of
mij where the subscripts indicate the cell, given the cost of moving from the ith origin to jth
destination: so for example m 2 2 is the cost of moving goods from the origin A2 to destination
N2. In real a life problem these quantities must be written in specific units: the supplies available
and needs might be in tonnes, or even in thousands of tonnes; the movement costs will then be in
cost units per tonne, for example $/tonne.
Transportation problem deals with the problem of how to plan production and transportation in
such an industry given several plants at different location and larger number of customers of their
products.
The transportation problem received this name because many of its applications involve in
determining how to optimally transport goods.
Transportation problem is a logistical problem for organizations especially for manufacturing and
transport companies. This method is a useful tool in decision-making and process of allocating
problem in these organizations.
The transportation problem deals with the distribution of goods from several points, such as
factories often known as sources, to a number of points of demand, such as warehouses, often
known as destinations. Each source is able to supply a fixed number of units of products, usually
called the capacity or availability, and each destination has a fixed demand, usually known as
requirement.
Because of its major application in solving problems which involving several products sources
and several destinations of products, this type of problem is frequently called “The
Transportation Problem”. The classical transportation problem is referred to as special case of
Linear Programming (LP) problem and its model is applied to determine an optimal solution of
delivery available amount of satisfied demand in which the total transportation cost is minimized
The transportation problem can be described using linear programming mathematical model and
usually it appears in a transportation tableau.
There is a type of linear programming problem that may be solved using a simplified version of
the simplex technique called transportation method.
The simplex method is an iterative algebraic procedure for solving linear programming
problems” (Krajewski, et al., 2007).
One possibility to solve the optimal problem would be optimization method. The problem is
however, formulated so that objective function and all constraints are linear and thus the problem
can be solved.

1.2 BACKGROUND TO THE STUDY:

This chapter discusses background materials and concepts involved in the study.
Transportation problem is a particular class of linear programming, which is associated with day-
to-day activities in our real life and mainly deals with logistics. It helps in solving problems on
distribution and transportation of resources from one place to another. The goods are transported
from a set of sources (e.g., factory) to a set of destinations (e.g., warehouse) to meet the specific
requirements.
There is a type of linear programming problem that may be solved using a simplified version of
the simplex technique called transportation method. Because of its major application in solving
problems involving several product sources and several destinations of products, this type of
problem is frequently called the transportation problem. It gets its name from its application to
problems involving transporting products from several sources to several destinations. Although
the formation can be used to represent more general assignment and scheduling problems as well
as transportation and distribution problems. The two common objectives of such problems are
either;
(1) Minimize the cost of shipping m units to n destinations or
(2) Maximize the profit of shipping m units to n destinations.
The aim of this study is to look principally at a specific type of Linear Programming Problem,
known as the Transportation Problem. Transportation theory is the name given to the study of
optimal transportation and allocation of resources.
The model is useful for making strategic decisions involved in selecting optimum transportation
routes so as to allocate the production of various plants to several warehouses or distribution
centres.
The transportation model can also be used in making location decisions. The model helps in
locating a new facility, a manufacturing plant or an office when two or more number of locations
is under consideration. The total transportation cost, distribution cost or shipping cost and
production costs are to be minimized by applying the model.
The transportation problem itself was first formulated by Hitchcock (1941), and was
independently treated by Koopmans and Kantorovich .In fact Monge (1781) formulated it and
solved it by geometrical means. Hitchaxic (1941) developed the basic transportation problem;
however it could be solved for optimally as answers to complex business problem only in 1951,
when George B. Dantizig applied the concept of Linear programming in solving the
transportation model. Dantzing (1951) gave the standard LP-formulation TP and applied the
simplex method to solve it. Since then the transportation problem has become the classical
common subject in almost every textbook on operation research and mathematical programming.
The transportation problem can be described using linear programming mathematical model and
usually it appears in a transportation tableau.
Linear programming has been used successfully in solution of problems concerned with the
assignment of personnel, distribution and transportation, engineering, banking, education,
petroleum, etc.
The classical transportation problem is the name of a mathematical model, which has a special
mathematical structure. The mathematical formulation of a large number of problems conforms
(or can be made to conform) to this special structure. So the name is frequently used to refer to a
particular form of mathematical model rather than the physical situation in which the problem
most natural originates.
The transportation problem is a special kind of the network optimization problem.
The transportation models play an important role in logistics and supply chains. The objective is
to schedule shipments from sources to destinations so that total transportation cost is minimized.
The problem seeks a production and distribution plan that minimizes total transportation cost.
The problem can be formulated as the following mathematical program.
The function to be minimized (or maximised) is called Objective function. When the linear
system model and the objective functions are both linear equations, we have a linear
programming problem. Furthermore, LP algorithms are used in subroutines for solving more
difficult optimisation problems. A widely considered quintessential LP algorithm is the Simplex
Algorithm developed by Dantzig (1947) in response to a challenged to mechanise the Air Force
planning process.
Linear Programming has been applied extensively in various areas such as transportation,
construction, telecommunications, healthcare and public services to name but few areas.
The simplex algorithm was the forerunner of many computer programs that are used to solve
complex optimization problems (Baynto, 2006). The transportation method has been employed to
developed many different types of processes. From machine shop scheduling Mohaghegh (2006)
to optimizing operating room schedules in hospitals (Calichman, 2005). The transportation
method can be used to reduce the impact of using fossil fuels to transport materials.

1.3 PROBLEM STATEMENT

The thesis seeks to address the problem of determine the optimal transportation schedule that
will minimizes the total cost of transporting beverage from the two production sites Kaasi and
Achimota to the various key distributors geographically scatter in Ghana .
1.4 OBJECTIVE
The study intended:
1. To model the distribution of GGBL products as a transportation problem
2. To minimize the transportation cost.

1.5 Methodology
The Management Science will be useful for finding an optimal solution of transportation
problem with equality constraints.
Source of information for the project are the internet, mathematical books from the KNUST
Library and Mathematics department.
The problems of GGBL to be modelled as the linear programming model of transportation type,
and represent the Linear Programming or the transportation problem as tableau and solve it with
the management science application.

1.6 ORGANIZATION OF THE THESIS

The chapters One introduces the thesis in general, the review of transportation problem, the
background for Transportation Problem, the background of company (GGBL), the problem
statement, objective, methodology, justification and the organization of the thesis.
Chapter Two is concern with the definition and the detailed literature review of the
transportation problem/model.
Chapter Three discuss detailed methodology.
This includes the formulation of the transportation problem, the transportation tableau, the
solutions for the transportation problem, and methods for solving transportation problems to
optimality.
 CHAPTER TWO

LITERATURE REVIEW

2. 1 INTRODUCTION
The transportation problem (TP) is an important Linear Programming (LP) model that arises
in several contexts and has deservedly received much attention in literature.
The transportation problem is probably the most important special linear programming
problem in terms of relative frequency with which it appears in the applications and also in
the simplicity of the procedure developed for its solution. The following features of the
transportation problem are considered to be most important.
The TP were the earliest class of linear programs discovered to have totally unimodular
matrices and integral extreme points resulting in considerable simplification of the simplex
method.
The study of the TP‟s laid the foundation for further theoretical and algorithmic
development of the minimal cost network flow problems.

2.2 LITERATURE REVIEW

The transportation problem was formalized by the French mathematician (Monge, 1781). Major
advances were made in the field during World War II by the Soviet/Russian mathematician and
economist Leonid Kantorovich. Consequently, the problem as it is now stated is sometimes
Known as the Monge-Kantorovich transportation problem. Kantorovich (1942), published a
paper on continuous version of the problem and later with Gavurian, and applied study of the
capacitated transportation problem (Kantorovich and Gavurin, 1949)
Many scientific disciplines have contributed toward analyzing problems associated with the
transportation problem, including operation research, economics, engineering, Geographic
Information Science and geography. It is explored extensively in the mathematical programming
and engineering literatures. Sometimes referred to as the facility location and allocation problem,
the Transportation optimization problem can be modeled as a large-scale mixed integer linear
programming problem.
The origin of transportation was first presented by Hitchcock, (1941), also presented a study
entitled “The Distribution of a Product from Several sources to numerous Localities”. This
presentation is considered to be the first important contribution to the solution of transportation
problems. Koopmans, (1947), presented an independent study, not related to Hitchcock‟s, and
called “Optimum Utilization of the Transportation System“. These two contributions helped in
the development of transportation methods which involve a number of shipping sources and a
number of destinations. The transportation problem, received this name because many of its
applications involve determining how to optimally transport goods.
However it could be solved for optimally as an answer to complex business problem only in
1951, when George B. Dantzig applied the concept of Linear Programming in solving the
Transportation models.
Dantizig, (1963), then uses the simplex method on transportation problem as the primal simplex
transportation method.
Stringer and Haley have developed a method of solution using a mechanical analogue. May be
the first algorithm to find an optimal solution for the incapacitated transportation problem was
that of Efroymson and Ray .They assumed that each of the unit production cost functions has a
fixed charge form but they remark that their branch-and - bound method can be extended to the
case in which each of these functions is concave and consists of several linear Segments and
each unit transportation cost function is linear. J. Frank Sharp developed an algorithm for
reaching an optimal solution to the production-transportation problem for the convex case.
The algorithm utilizes the decomposition approach it iterates between a linear programming
transportation problem which allocates previously set plant production quantities to various
markets and a routine which optimally sets plant production quantities to equate total marginal
production costs, including a shadow price representing a relative location cost determined from
the transportation problem. Williams applied the decomposition principle of Dantzing and Wolf
to the solution of the Hitchcock transportation problem and to several generalizations of it.
In this generalizations, the case in which the costs are piecewise linear convex functions is
included. He decomposed the problem and reduced to a strictly linear program. In addition he
argued that the two problems are the same by a theorem that he called the reduction theorem.
The algorithm given by him, to solve the problem, is a variation of the simplex method with
"generalized pricing operation". It ignores the integer solution property of the transportation
problem so that some problems of not strictly transportation type, and for which the integer
solution property may not hold be solved.
Shetty (1959) also formulated an algorithm to solve transportation problems taking nonlinear
costs. He considered the case when a convex production cost is included at each supply centre
besides the linear transportation cost.
Some of the approaches used to solve the concave transportation problem are presented as
follows. The branch and bound algorithm approach is based on using a convex approximation to
the concave cost functions. It is equivalent to the solution of a finite sequence of transportation
problems. The algorithm was developed as a particular case of the simplified algorithm for
minimizing separable concave functions over linear polyhedral as Falk and Soland.
Soland (1971) presented a branch and bound algorithm to solve concave separable
transportation problem which he called it the "Simplified algorithm" in comparison with similar
algorithm given by Falk and himself in 1969.
The algorithm reduces the problem to a sequence of linear transportation problem with the
same constraint set as the original problem. A.C. Caputo presented a methodology for
optimally planning long-haul road transport activities through proper aggregation of customer
orders in separate full-truckload or less-than-truckload shipments in order to minimize total
transportation costs. They have demonstrated that evolutionary computation techniques may
be effective in tactical planning of transportation activities. The model shows that substantial
savings on overall transportation cost may be achieved adopting the methodology in a real
life scenario.
Roy and Gelders (1980) solved a real life distribution problem of a liquid bottled product through
a 3-stage logistic system; the stages of the system are plant-depot, depot-distributor and
distributor-dealer. They modelled the customer allocation, depot location and transportation
problem as a 0-1 integer programming model with the objective function of minimization of the
fleet operating costs, the depot setup costs, and delivery costs subject to supply constraints,
demand constraints, truck load capacity constraints, and driver hours constraints.
The problem was solved optimally by branch and bound, and Langrangian relaxation.
Tzeng(1995) solved the problem of how to distribute and transport the imported

Coal to each of the power plants on time in the required amounts and at the required18 quality
under conditions of stable and supply with least delay. They formulated a LP that Minimizes
the cost of transportation subject to supply constraints, demand constraints, vessel constraints
and handling constraints of the ports. The model was solved to yield optimum results,
which is then used as input to a decision support system that help manage the coal
allocation, voyage scheduling, and dynamic fleet assignment.
Equi et al.( 1996) modelled a combined transportation and scheduling in one problem where a
product such as sugar cane, timber or mineral ore is transported from multi origin supply points
to multi destination demand points or transhipment points using carriers that can be ships, trains
or trucks. They defined a trip as a full-loaded vehicle travel from one origin to one destination.
They solved the model optimally using Langrangean Decomposition.
Goal Programming (GP) model and its variants have been applied to solve large-scale multi
criteria decision-making problems. Charnes and Cooper (1960) first used the Goal Programming
(GP) technique. This solution approach has been extended by Ijiri(965), Lee (1972), and others.
Lee and Moore (1973) used GP model for solving transportation problem with multiple
conflicting objective. Arthur and Lawrence (1982) designed a GP model for production and
shipping patterns in chemical and pharmaceutical industries.
 CHAPTER THREE

METHODOLOGY

3.1 INTRODUCTION

This chapter reviews the proposed solution methodology and approach for handling
transportation problem in Guinness Ghana Ltd.
The transportation problem seeks to minimize the total shipping costs of transporting goods
from m origins (each with a supply si) to n destinations (each with a demand dj), when the
unit shipping cost from an origin, i, to a destination, j, is cij.

3.2 TRANSPORTATION PROBLEM

This is a type of linear programming problem that may be solved using a simplified version
of the simplex technique called transportation method. Because of its major application in
solving problems involving several product sources and several destinations of products, this
type of problem is frequently called the transportation problem.
In a transportation problem, we have certain origins, which may represent factories where we
produced items and supply a required quantity of the products to a certain number of
destinations. This must be done in such a way as to maximize the profit or minimize the cost.
Thus we have the place0s of production as origins and the places of supply as destinations.
Sometimes the origins and destinations are also termed as sources and sinks.
Transportation model is used in the following:
To decide the transportation of new materials from various centres to different
manufacturing plants. In the case of multi-plant company this is highly useful.

To decide the transportation of finished goods from different manufacturing plants to

the different distribution centres. For a multi-plant-multi-market company this is
useful.
These two are the uses of transportation model. The objective is minimizing transportation
cost.
3.3 MATHEMATICAL FORMULATION
Supposed a company has m warehouses and n retail outlets. A single product is to be shipped
from the warehouses to the outlets. Each warehouse has a given level of supply, and each
outlet has a given level of demand. We are also given the transportation cost between every
pair of warehouse and outlet, and these costs are assumed to be linear. More explicitly, the
assumptions are:

The total supply of the products from warehouse i = a i ,where i 1,2,3...m

The total Demand of the products at the outlet j = b j , where j 1,2,3,...n .

The cost of sending one unit of the product from warehouse i to outlet j is equal to
C ij , where i 1,2,3...m and j 1,2,3,...n . The total cost of a shipment is linear in size of

shipment.

3.3.1 The Decision Variables

The variables in the Linear Programming (LP) model of the TP will hold the values for the
number of units shipped from one source to a destination.
The decision variables are:

Xij = the size of shipment from warehouse “I” to “j”.

Where I = 1,2,3..m & j = 1,2,3..n

This is a set of m.n variables.

3.3.2 The Objective Function

The objective function contains costs associated with each of the variables. It is a
minimization problem.
Consider the shipment from warehouse i to outlet j. For any i and j, the transportation cost per
unit Cij and the size of the shipment is X ij . Since we assume that the total cost function is
linear, the total cost of this shipment is given by cij xij
Summing over all i and j now yields the overall transportation cost for all warehouse-outlet
combinations. That is, our objective function is:
MINIMISE ∑ (i=1, 2...m) ∑ (j=1, 2...n) XijCij
3.3.3 The Constraints

The constraints are the conditions that force supply and demand needs to be satisfied. In a
Transportation Problem, there is one constraint for each node.

Let a1 denote a source capacity and b1 denote destination needs

i) The supply at each source must be used:

X ij ai , i 1,2,3...m
j 1

ii) The demand at each destination must be met:

X ij b j , j 1,2,3...n

i 1

(iii) Non negativity:

X≥0 for all ij

The transportation model will then become:

Minimizing the transportation cost

m n

Minimize Z= ∑∑ X ij Cij . ........ (1)

i 1 j 1

n
∑ X
ij ≤ ai I=1,2,3...m …… (2) (Demand Constraint)
j 1

m
∑X
ij ≤b j J=1,2,3...n ..... (3) (Supply Constraint)
i 1

X
ij ≥0 , i = 1,2,3...m ; j= 1,2,3...n
 This is a linear program with m.n decision variables, m+n functional constraints, and

m.n non negative constraints.

m= No. of sources
n= No. of destinations
ai= Capacity of ith source (in tons, pounds, litres, etc)
bj= Demand of jth destination (in tons, pounds, litres, etc.)
cij= cost coefficients of material shipping (unit shipping cost) between ith source and jth
destination (in $ or as a distance in kilometers, miles, etc.)
xij= amount of material shipped between ith source and jth destination (in tonnes , pounds ,
litres etc.)
A necessary and sufficient condition for the existence of a feasible solution to the
transportation problem is that

m N

∑ai ∑bj
i 1 j 1

Remark. The set of constraints

M n
∑x ∑X a
ij b j and ij i
I= 1 J 1

represents m n equations in m.n non-negative variables. Each variable X ij appears in exactly

two constraints, one is associated with the origin and the other is associated with the
destination.

UNBALANCED TRANSPORTATION PROBLEM

If ∑aij≠∑bij

Then, the transportation problem is an unbalanced problem. There are 2 case:

1) ∑aij>∑bij
2) ∑aij<∑bij

For this we introduce a dummy in the transportation table, cost associated with this is set to
be zero.

3.4. TRANSPORTATION TABLEAU

The transportation problem can be described using linear programming mathematical model
and usually it appears in a transportation tableau.
The model of a transportation problem can be represented in a concise tabular form with all
the relevant parameters.
The transportation tableau (A typical TP is represented in standard matrix form), where
supply availability (ai) at each source is shown in the far right column and the destination
requirements (bi) are shown in the bottom row. Each cell represents one route. The unit
shipping cost (Cij) is shown in the upper right corner of the cell, the amount of shipped
material is shown in the centre of the cell. The transportation tableau implicitly expresses the
supply and demand constraints and the shipping cost between each demand and supply point.

+ Table 1.0: THE TRANSPORTATION TABLEAU

Source supply

3.5 NETWORK REPRESENTATION OF TRANSPORTATION PROBLEM

Graphically, transportation problem is often visualized as a network with m source
nodes, n sink nodes, and a set of m.n “directed arcs” This is depicted in Fig 1.
Figure .1 Network representation of the transportation problem
Unit of Supply(Si) Units of Demand(di)
In the diagram there are S1 … S n sources and D1 . … Dn destination. The arrows show flows
of output from source to destination .Each destination is linked to each source by an arrow.

The number C1 … Cn above each arrow represents the cost of transporting on that route.
Problems with the above structure arise in many applications. For example, the sources could
represent warehouses and the sinks could represent retail.

DEGENCY IN TRANSPORTATION PROBLEM

Degeneracy exists in a transportation problem when the number of filled cells is less than the
number of rows plus the number of columns minus one (m + n - 1). Degeneracy may be
observed either during the initial allocation when the first entry in a row or column satisfies
both the row and column requirements or during the Stepping stone method application, when
the added and subtracted values are equal.
Transportation with m-origins and n-destinations can have m+n-1 positive basic variables,
otherwise the basic solution degenerates. So whenever the number of basic cells is less than
m + n-1, the transportation problem is degenerate.
To resolve the degeneracy, the positive variables are augmented by as many zero-valued
variables as is necessary to complete m +n –1 basic variable.

The Initial Basic Feasible Solution (BFS)

Let us consider a T.P involving m origins and n destinations.
Since the sum of origin capacities equals the sum of destination requirements, a feasible
solution always exists. Any feasible solution satisfying m + n – 1 of the m + n constraints is a
redundant one and hence can be deleted. This also means that a feasible solution to a T.P can
have at the most only m + n – 1 strictly positive component, otherwise the solution will
degenerate.
It is always possible to assign an initial feasible solution to a T.P. in such a manner that the
rim requirements are satisfied. This can be achieved either by inspection or by following
some simple rules. We begin by imagining that the transportation table is blank i.e.
initially all xij = 0. The simplest procedures for initial allocation discussed in the following
section.
Feasible Solution (F.S.)

A set of nonnegative allocations xij>0 which satisfy the row & column restrictions is known
as a feasible solution.
Basic Feasible Solution (B.F.S.)
A feasible solution to m-origin & n- destination problem is said to be basic feasible solution if
the number of positive allocations are equal to m+n-1.

Optimal Solution
A feasible solution is said to be optimal if it is able to provide minimum total transportation
cost.
Cell: It is a small compartment in the transportation tableau. Circuit: A circuit is a sequence
of cells (in the balanced transportation tableau) such that
(i) It starts and ends with the same cell.
(ii) Each cell in the sequence can be connected to the next member by a horizontal or vertical
line in the tableau.

Allocation: The number of units of items transported from a source to a destination which is
recorded in a cell in the transportation tableau.
Basic Variables: The variables in a basic solution whose values are obtained as the
simultaneous solution of the system of equations that comprise the functional constraints.
3.6 Solution for a transportation problem
3.6.1 Flow Chart Solution For the transportation Problem

Figure 2: The flow chart showing the transportation problem approach

Summary description of the Flow chart

1. First the problem is formulated as transportation matrix.
2. Check weather is a balance transportation model?
3. If not balance add a dummy to either the supply or the demand to balance the
transportation model.
4. Find the initial solution of the transportation problem.
5. Check whether solution is optimised. If not optimised go to step 4.
6. When optimal solution is obtained , we compute the transportation cost and also the
respective quantity demands
3.6.2 Solution Algorithm For the transportation Problem

Transportation models do not start at the origin where all decision values are zero; they must
instead be given an initial feasible solution.
The solution algorithm to a transpiration problem can be summarized into following steps:
Step 1. Formulate the problem and set up in the matrix form.
The formulation of transportation problem is similar to 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.

This initial basic solution can be obtained by using any of the following methods:
i. North West Corner Rule
ii. Matrix Minimum (Least Cost) Method
iii.Vogel Approximation Method
The solution obtained by any of the above methods must fulfil the following conditions:
i. The solution must be feasible, i.e., it must satisfy all the supply and demand constraints.
This is called RIM CONDITION.
ii. The number of positive allocation must be equal to m + n – 1, where, m is number of rows
and n is number of columns.
The solution that satisfies the above mentioned conditions are called a non-degenerate basic
feasible solution.
Step 3. Test the initial solution for optimality.
Using any of the following methods can test the optimality of obtained initial basic solution:
i. Stepping Stone Method
ii. Modified Distribution Method (MODI)

If the solution is optimal then stop, otherwise, determine a new improved

solution.
Step 4. Updating the solution
Repeat Step 3 until the optimal solution is arrived at.
3.6. 3 FINDING INITIAL BASIC FEASIBLE SOLUTION OF

BALANCED TRANSPORTATION PROBLEMS

3.6.3.1 Northwest Corner Method (NWC)

The North West corner rule is a method for computing a basic feasible solution of a transportation
problem where the basic variables are selected from the North – West corner (i.e., top left corner).

The method starts at the northwest-corner cell (route)

The major advantage of the north–west corner rule method is that it is very simple and easy
to apply. Its major disadvantage, however, is that it is not sensitive to costs and consequently
yields poor initial solutions

The Northwest Corner Method Summary of Steps

1. Allocate as much as possible to the cell in the upper left hand corner, subject to the
supply & demand conditions.
2. Allocate as much as possible to the next adjacent feasible cell.
3. Repeat step 2 until all rim requirements are met.

ILLUSTRATIVE EXAMPLE1
Table 2.0: A Balance transportation Problem

METHOD OF SOLUTIONS TO BALANCE PROBLEM USING NORTH

WEST CORNER METHOD.

Table2.1 .THE INTIAL NORTH WEST CORNER SOLUTION

- In the northwest corner method the largest possible allocation is made to the cell in the

upper left-hand corner of the tableau, followed by allocations to adjacent feasible cells.

The Initial NW Corner Solution

This transportation tableau has:

The total supply= 200+100+300=600Units

The total supply=150+175+275= 600 units

Hence the tableau is balance

We first allocate as much as possible to cell 1A(northwest corner).this amount is 150 tons,
since that is the maximum that can be supplied by grain 1 , even though 200 tons are
demanded by mill A . This initial allocation, in this initial allocation is shown in Table 2. We
next allocate to cell adjacent to cell 1A, in this case either cell 2A or cell 1B. However, cell
1B no longer represents a feasible allocation, because the total tonnage of wheat available at
source 1 (i.e. 150tons) has been allocated. Thus, cell 2A represents the only feasible
alternative, and as much as possible is allocated to this cell. The amount allocated at 2A can
be either 175 tons, the supply available from source 2, or 50 tons, the amount now demanded
at destination A. Because 50 tons is the most constrained amount, it is allocated to cell 2A.
As shown in table 2. The third allocation is made in the same way as the second allocation.
The only feasible cell adjacent to cell 2A is cell 2B. The most that can be allocated is either
100 tons( the amount demanded at mill B) or 125 tons( 175 tons minus the 50 tons allocated
to cell2A).the smaller(most constrained ) amount, 100 tons, is allocated to cell 2B, as shown
in Table 2.
The fourth allocation is 25 tons to cell 2C, and the fifth allocation is 275 tons to cell 3C, both
of which are shown in Table 2.1

Testing for Optimality

The allocations made by the method is BFS since (m + n – 1) = 3 +3 – 1 = 5, which equals the
number of allocations made.

Since the number of occupied cell 5 is equal (3+3-1),

The condition is satisfied.

The initial solution is complete when all rim requirements are satisfied.
The starting solution (consisting of 4 basic variables) is
X 2A=50 tons,
X2B=100 tons,
X2C=25 tons
X3C=275 tons
Transportation cost is computed by evaluating the objective function:

Z = $6x1A + 8x1B + 10x1C + 7x2A + 11x2B + 11x2C + 4x3A + 5x3B + 12x3C

= 6(150) + 8(0) + 10(0) + 7(50) + 11(100) + 11(25) + 4(0) + 5(0) +!2(275)
= $5,925

3.6.3.2 The Minimum Cell Cost (Least cost) Method

Matrix minimum method is a method for computing a basic feasible solution of a

transportation problem where the basic variables are chosen according to the unit cost of
transportation.
The minimum-cost method finds a better starting solution by concentrating on the cheapest
routes. The method starts by assigning as much as possible to the cell with the smallest unit
cost. Next, the satisfied row or column is crossed out and the amounts of supply and demand
are adjusted accordingly. If both a row and a column are satisfied simultaneously, only one is
crossed out, the same as in the northwest –corner method. Next, look for the uncrossed-out
cell with the smallest unit cost and repeat the process until exactly one row or column is left
uncrossed out.

Steps

1. Identify the box having minimum unit transportation cost (Cij).

2. If there are two or more minimum costs, select the row and the column corresponding
to the lower numbered row.
3. If they appear in the same row, select the lower numbered column.
4. Choose the value of the corresponding Xij as much as possible subject to the capacity
and requirement constraints.
5. If demand is satisfied, delete the column.
6. If supply is exhausted, delete the row.
7. Repeat steps 1-6 until all restrictions are satisfied.
In the minimum cell cost method as much as possible is allocated to the cell with
the minimum cost followed by allocation to the feasible cell with minimum cost
APPLICATION OF LEAST COST METHODS TO ILLUSTRATIVE EXAMPLE 1

OF BALANCED TRANSPORTATION PROBLEM

Table 2.2 The starting solution using Minimum Cell Method

- In the minimum cell cost method as much as possible is allocated to the cell with the
minimum cost followed by allocation to the feasible cell with minimum cost.

Table 2.3. The Second Minimum Cell Cost Allocation

Table 2.4: The starting solution using Minimum Cell Method

The complete initial minimum cell cost solution; total cost = $4,550.
The minimum cell cost method will provide a solution with a lower cost than the northwest
corner solution because it considers cost in the allocation process.

The Minimum Cell Cost Method Summary of Steps

1. Allocate as much as possible to the feasible cell with the minimum
transportation cost, and adjust the rim requirements.
2. Repeat step 1 until all rim requirements have been met.

3.6.3 .3 Vogel’s Approximation Method (VAM)

VAM is an improved version of the least-cost method that generally, but not always,
produces better starting solutions. VAM is based upon the concept of minimizing opportunity
(or penalty) costs. The opportunity cost for a given supply row or demand column is defined
as the difference between the lowest cost and the next lowest cost alternative. This method is
preferred over the methods discussed above because it generally yields, an optimum, or close
to optimum, starting solutions. Consequently, if we use the initial solution obtained by VAM
and proceed to solve for the optimum solution, the amount of time required to arrive at the
optimum solution is greatly reduced. The steps involved in determining an initial solution
using VAM are as follows: The steps involved in determining an initial solution using VAM
are as follows:
Step1. Write the given transportation problem in tabular form (if not given).
Step2. Compute the difference between the minimum cost and the next minimum cost
corresponding to each row and each column which is known as penalty cost.
Step3. Choose the maximum difference or highest penalty cost. Suppose it corresponds to the
th th
i row. Choose the cell with minimum cost in the i row. Again if the maximum corresponds
to a column, choose the cell with the minimum cost in this column.
th
Step4. Suppose it is the (i, j) cell. Allocate min (ai, bj) to this cell. If the min (ai , bj) = ai,
then the availability of the ith origin is exhausted and demand at the jth destination remains as
th th
bj-ai and the i row is deleted from the table. Again if min (ai, bj) = bj, then demand at the j
destination is fulfilled and the availability at the ith origin remains to be ai-bj and the jth
column is deleted from the table.
Step5. Repeat steps 2, 3, 4 with the remaining table until all origins are exhausted and all
demands are fulfilled.
- Method is based on the concept of penalty cost or regret.
- A penalty cost is the difference between the largest and the next largest cell cost in a row (or
column).

- In VAM the first step is to develop a penalty cost for each source and destination.
- Penalty cost is calculated by subtracting the minimum cell cost from the next higher cell
cost in each row and column.

Vogel’s Approximation Method (VAM) Summary of Steps

1. Determine the penalty cost for each row and column.

2. Select the row or column with the highest penalty cost.
3. Allocate as much as possible to the feasible cell with the lowest transportation
cost in the row or column with the highest penalty cost.

4. Repeat steps 1, 2, and 3 until all rim requirements have been met.

APPLICATION OF VOLGEL’S APPROXIMATION METHOD TO ILLUSTRATIVE

EXAMPLE 1 ON BALANCE TRANSFORMATION PROBLEM.

Table 2.5:The VAM Penalty Costs

Table 2.6: The Initial VAM Allocation

- VAM allocates as much as possible to the minimum cost cell in the row or column
with the largest penalty cost.

Table 2. 7:The Second VAM Allocation

After each VAM cell allocation, all row and column penalty costs are recomputed.
Table 2.8: The Third VAM Allocation

Recomputed penalty costs after the third allocatio

 Table 2.9: The Initial VAM Solution
The initial VAM solution; total cost = $5,125

VAM and minimum cell cost methods both provide better initial solutions than
does the northwest corner method.

4. METHODS FOR SOLVING TRANSPORTATION PROBLEMS TO

OPTIMALITY
4 .1 AN OPTIMAL SOLUTION

To obtain an optimal solution by making successive improvements to initial basic

feasible solution until no further decrease in the transportation cost is possible. An
optimal solution is one where there is no other set of transportation routes that will
further reduce the total transportation cost. Thus, we have to evaluate each unoccupied
cell 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 become zero first as more units are allocated to the unoccupied cell with largest
negative opportunity cost. That is, the current solution cannot be improved further.
This is the optimal solution.
The widely used methods for finding an optimal solution are:
Stepping stone method (not to be done).
Modified Distribution (MODI) method.
They differ in their mechanics, but will give exactly the same results and use the same
testing strategy.
5. To develop the improved solution, if it is not optimal. Once the improved solution
has been obtained, the next step is to go back to 3.

Note. Although the transportation problem can be solved using the regular simplex
method, its special properties provide a more convenient method for solving this type
of problems. This method is based on the same theory of simplex method. It makes
use, however, of some shortcuts which provide a less burdensome computational
scheme. There is one difference between the two methods. The simplex method
performs the operations on a simplex table. The transportation method performs the
same operations on a transportation table.

APPLICATION OF STEPPING STONE METHOD TO ILLUSTRATIVE

EXAMPLE 1 ON BALANCE TRANSFORMATION PROBLEM

APPLICATION OF STEPPING STONE METHOD TO ILLUSTRATIVE

EXAMPLE 1ON BALANCE TRANSFORMATION PROBLEM

3.5.3 .2 The Stepping-Stone Solution Method

Table 2.10: The Minimum Cell Cost Solution

- Once an initial solution is derived, the problem must be solved using either the
stepping-stone method or the modified distribution method (MODI).

- The initial solution used as a starting point in this problem is the minimum cell cost
method solution because it had the minimum total cost of the three methods used
Table 2.11: The Allocation of One Ton from Cell 1A

The stepping-stone method determines if there is a cell with no allocation that would
reduce cost if used.

Table 2.12: The Subtraction of One Ton from Cell 1B

- Must subtract one ton from another allocation along that row.

Table 2.13: The Addition of One Ton to Cell 3B and the Subtraction

of One Ton from Cell 3A

- A requirement of this solution method is that units can only be added to and

subtracted from cells that already have allocations, thus one ton must be added to a

cell as shown.
Table 2.14: The Stepping-Stone Path for Cell 2A
An empty cell that will reduce cost is a potential entering variable.
- To evaluate the cost reduction potential of an empty cell, a closed path connecting used cells to the
empty cells is identified.

Table 2.15: The Stepping-Stone Path for Cell 2B

The remaining stepping-stone paths and resulting computations for cells 2B and 3C.

Table 2.16:The Stepping-Stone Path for Cell 3C

Table 2.17: The Stepping-Stone Path for Cell 1A
- After all empty cells are evaluated, the one with the greatest cost reduction potential is the entering
variable.
- A tie can be broken arbitrarily

Table2.18: The Second Iteration of the Stepping-Stone Method

- When reallocating units to the entering variable (cell), the amount is the minimum amount
subtracted on the stepping-stone path.
- At each iteration one variable enters and one leaves (just as in the simplex method).

Table 2.19: The Stepping-Stone Path for Cell 2A

Check to see if the solution is optimal.
Table 2.20: The Stepping-Stone Path for Cell 1B

Table 2.21: The Stepping-Stone Path for Cell 2B

Continuing check for optimality
Table 2.22 : The Stepping-Stone Path for Cell 3C

- The stepping-stone process is repeated until none of the empty cells will reduce
costs (i.e., an optimal solution).
- In example, evaluation of four paths indicates no cost reductions; therefore Table 16 solution is
optimal.

- Solution and total minimum cost:

x1A = 25 tons, x2C = 175 tons, x3A =

175 tons, x1C = 125 tons, x3B = 100

tons

Z = $6(25) + 8(0) + 10(125) + 7(0) + 11(0) + 11(175) + 4(175) + 5(100) + 12(0) = $4,525

Table2.23: The Alternative Optimal Solution

- A multiple optimal solution occurs when an empty cell has a cost change of zero
and all other empty cells are positive.

- An alternate optimal solution is determined by allocating to the empty cell with a

zero cost change.

- Alternate optimal total minimum cost also equals $4,525

The Stepping-Stone Solution Method Summary

1. Determine the stepping-stone paths and cost changes for each empty cell in the
tableau.
 2. Allocate as much as possible to the empty cell with the greatest net decrease in
cost.
3. Repeat steps 1 and 2 until all empty cells have positive cost changes that indicate an optimal
solution.

3.6.4.3 The Modified Distribution Method (MODI)

- MODI is a modified version of the stepping-stone method in which math equations
replace the stepping-stone paths.
Step 1: Under this method we construct penalties for rows and columns by subtracting the
least value of row / column from the next least value.
Step 2: We select the highest penalty constructed for both row and column. Enter that row /
column and select the minimum cost and allocate min (ai, bj)
Step 3: Delete the row or column or both if the rim availability / requirements is met.
Step 4: We repeat steps 1 to 2 to till all allocations are over.
Step 5: For allocation all form equation ui + vj = cj set one of the dual variable ui / vj to zero and
solve for others.
Step 6: Use this value to find Dij = cij-ui-vj of all Dij ³, then it is the optimal solution.

APPLICATION OF MODIFIED DISTRIBUTION METHOD TO

ILLUSTRATIVE EXAMPLE 1 ON BALANCE TRANSFORMATION
PROBLEM

Table 2.24: The Minimum Cell Cost Initial Solution

- In the table, the extra left-hand column with the ui symbols and the extra top row with the vj
symbols represent values that must be computed.
- Computed for all cells with allocations:

ui + vj = cij = unit transportation cost for cell ij.

Table 2.25: The Initial Solution with All ui and vj Values

Formulas for cells containing allocations: x1B: u1+vB = 8

x1C: u1 + vC = 10 x2C: u2 + vC = 11 x3A: u3
+ vA = 4 x3B: u3 + vB = 5

Table 2.26: The Initial Solution with All ui and vj Values

- Five equations with 6 unknowns therefore let u1 = 0 and solve to obtain:

vB = 8, vC = 10, u2 = 1, u3 = -3, vA= 7

- Each MODI allocation replicates the stepping-stone allocation.
- Use following to evaluate all empty cells:
cij - ui - vj = kij

Where kij equals the cost increase or decrease that would occur by allocating to a cell.
For the empty cells in Table 26:

x1A: k1A = c1A - u1 - vA = 6 - 0 - 7 = -1 x2A: k2A = c2A - u2 - vA

= 7 - 1 - 7 = -1 x2B: k2B = c2B - u2 - vB = 11- 1 - 8 = +2 x3C: k3C

= c3C - u3 -vC = 12 - (-3) - 10 = +5

Table 2.27: The Second Iteration of the MODI Solution Method

After each allocation to an empty cell, the ui and vj values must be recomputed

The Second Iteration of the MODI Solution Method

Table 2.28: The New ui and vj Values for the Second Iteration

Recomputing ui and vj values:

x1A: u1 + vA = 6, vA = 6 x1C: u1 + vC = 10, vC =

10 x2C: u2 + vC = 11, u2 = 1 x3A: u3 + vA = 4, u3 =
-2
x3B: u3 + vB = 5, vB = 7

The New ui and vj Values for the Second Iteration

- Cost changes for the empty cells, cij - ui - vj = kij;

x1B: k1B = c1B - u1 - vB = 8 - 0 - 7 = +1 x2A: k2A = c2A - u2

- vA = 7 - 1 - 6 = 0 x2B: k2B = c2B - u2 - vB = 11 - 1 -7 = +3

x3C: k2B = c2B - u3 - vC = 12 - (-2) - 10 = +4

- Since none of the values are negative, solution obtained is optimal.
- Cell 2A with a zero cost change indicates a multiple optimal solution.

The Modified Distribution Method (MODI) Summary of Steps

1. Develop an initial solution.

2. Compute the ui and vj values for each row and column.
3. Compute the cost change, kij, for each empty cell.
4. Allocate as much as possible to the empty cell that will result in the greatest net
decrease in cost (most negative kij)
5. Repeat steps 2 through 4 until all kij values are positive or zero.

3.7 Sensitivity Analysis of TP

This involves the development of understanding how the information in the final tableau can be
given managerial interpretations. This will be done by examining the application of sensitivity
analysis to the linear programming problems. To analyze sensitivity in linear programming, after
obtaining the optimal solution, one of the right-hand-side values or coefficients of objective function
are changed, then, the changes in optimal solution and optimal value are examined.
The balanced relation between supply and demand in transportation problem makes it difficult to
use traditional sensitivity analysis methods.
Therefore, in the process of changing supply or demand resources, at leastone more resource needs
to be changed to make the balanced relation possible.
In this study, utilizing the concept of complete differential of changes for sensitivity analysis of
right-hand-side parameter in transportation problem, a method is set forth. This method examines
simultaneous and related changes of supply and demand without making any change in the basis.
The mentioned method utilizes Arasham and Kahn‟s simplex algorithm to obtain basic inverse
matrix.
 CHAPTERS FOUR
DATA COLLECTION AND ANALYSIS

4.0 Introduction

Guinness Ghana LTD is one of the top five worldwide brewery companies. Transportation cost
represents about 25% of the total production cost. The company has outsourced its transportation to
external logistics services Providers. Guinness Ghana Ltd has registered about 20 transporters who
operate with 97 trucks. Each of the plants at the various sites namely Achimota and Kaasi has its
own constraint with respect to plant and warehouse capacity. Thus, there is a limit capacity at each
plant. The total plant capacity for Kaasi and Achimota per day is 1800 and 1600 crates dependants
on the plant efficiency.
This project is intended to minimize the total transportation cost from two production site namely
Kaasi (Kumasi), and Achimota (Accra) to its numerous key distributors geographically scattered all
over Ghana which are numbered about 52.. Guinness Ghana Ltd faces challenges on how to
optimally distribute its products among the 52 Key distributors with a minimum transportation cost.
As each site has its limit that supply and each customer a certain demand at a time.

4.1 Data Collection

For the purpose o this study, data was collected from Guinness Ghana Ltd, in the brewery the
volume of the liquid is quantified in millilitres. Also creates of drinks are packed on pallets. The
required data includes: A list of all products, sources, demand for each product by customer, the full
truck transportation cost.
The study concerned the supply of Malta Guinness from two production sites Kaasi and Achimota
to 9 key distributors geographically scattered in the regions of Ghana. The study covered data
gathered on the periods July07-June08, and Sept08-June09.
The transportation cost for full truckload of 1512 cases was known as were as production capacities.
The demand for each destination was also known in advance. Demand and production capacity were
expressed in cases while the cost of transportation were express in Ghana cedis.

4.2 Data source

The data used for the analysis was collected from the logistics manager of Guinness Ghana
Breweries Ltd. The data included the transport cost per full truck of 1512 cases of malt from
production plant to the various key distributors, quantity demanded of Malta Guinness by the
various distributors and capacities for the two plants ACH and KAS sited at Achimota in Accra and
Kaasi in Kumasi respectively.
4.3 JULY07-JUNE08 TRANSPORTATION MATRIX FOR GGL PROBLEM

The collected data for JULY07-JUNE08 (thousand) on transportation cost is shown in the
table below. This data indicates the transportation matrix showing the supply (capacity),
demand, and the unit cost per full truck.

Table 4.1the matrix representation of the problem (103 )

PLANT FTA RICKY OBIBAJK KADOM NAATO LESK DCEE JOEMA KBOA CAPACITY

ACH 39.99 126.27 102.70 81.68 38.81 71.99 31.21 22.28 321.04 1298

KAS 145.36 33.82 154.05 64.19 87.90 107.98 65.45 39.08 167.38 1948

DEMAND 465 605 451 338 260 183 282 127 535

4.3.1 Formulation Problem

Let Y1=plant site at ACH
Y2=plant site at KAS

Xij = the units shipped in crates from plant i to distribution centre j i =1,
2, 3... 9. and j=1, 2, 3..., 9.

Using the shipping cost data of Table 4.1 the annual transportation cost in thousand of Cedis is
written as.

Minimize

39.99x11 + 126.27x12 + 102.70x13 + 81.68x14 + 38.81x15 + 71.99x16+31.21x17 + 22.28x18

+321.044x19 + 145.36x21 + 33.82x22+154.05x23+64.19x24 +87.90x25+
+ 107.98x26+64.45x27 + 39.08x28 +167.38x29

Consider capacity constraint

x11 + x12 + x13 + x14 + x15 + x16 + x17 + x18 + x19 ≤ 1298 x21 + x22
+ x23 + x24 + x25 + x26 + x27 + x28 + x29 ≤ 1948

Demand constraint

x11 + x21 =465

x12 + x22 =605
x13 + x23 =451
x14 + x24 =338
x15 + x25 =260
x16 + x26 =183
x17 + x27 =282
x18+ x28 =127

x19 + x29 =535

xij ≥ o for all i and j

4.3.2 OPTIMAL SOLUTION-July2007-June2008
Using the management scientist 5.0 for Linear programming module the optimal solution obtained is
displayed below:
Objective Function Value = 245,498

Table 4.2 Optimal Solution

Variable Value Reduced cost

X
11 465.000 0.000
X
12 0.000 128.000
X
13 451.000 0.000
X
14 0.000 53.480
X
15 260.000 0.000
X
16 122.000 0.000
X
17 0.000 2.750
X
18 0.000 19.190
X
19 0.000 189.650
X
21 0.000 69 .380
X
22 605.000 0.000
X
23 0.000 15.360
X
24 338.000 0.000
X
25 0.000 13.100
X
26 61.000 0.000
X
27 282.000 0.000
X
28 127.000 0.000
X
29 535.000 0.000
SENSITIVITY REPORT

Table 4.2.1 sensitivity Report 1

Constraints Slack/Surplus Dual Prices

1 0.000 34.990
2 0.000 -1.000
3 0.000 -74.980
4 0.000 -32.820
5 0.000 -137.690
6 0.000 -63.190
7 0.000 -73.800
8 0.000 -106.980
9 0.000 -63.450
10 0.000 -38.080
11 0.000 -166.380
OBJECTIVE COEFFICIENT RANGES

Table 4.2.2Sensitivity Report 2

Variable Lower Limit Current Value Upper Limit

X
11 - -39.990 88.450
-254.710 -126.270 -
X
12
X
13 - -102.700 -
X
14 135.160 -81.680 -
X
15 - -38.810 30.570
X
16 - -71.990 -18.510
X
17 -33.960 -31.210 -
X
18 -41.470 -22.280 -
X
19 -510.690 -321.040 -
X
21 -214.740 -145.360 -
X
22 - -33.820 -20.720
X
23 -169.410 -154.050 -
X
24 - -64.190 -48.830
X
25 -101.000 -87.900 -
X
26 - -107.980 81.6700
X
27 - -64.450 -61.7000
X
28 - -39.080 -25.980
X
29 - -167.380 -148.190

RIGHT HAND SIDE RANGES

Table4.2.3 Sensitivity Report3
Constraints Lower Limit Current Value Upper Limit

1 - 1298.000 -
2 - 1948.000 -
3 - 465.000 -
4 - 605.000 -
5 - 451.000 -
6 - 338.000 -
7 - 260.000 -
8 - 183.000 -
9 - 282.000 -
10 - 127.000 -
11 - 535.000 -

4.3.3COMPUTATIONAL PROCEDURE
The management scientist software is windows-based software designed for use with many of
the techniques represented in Operations management theory book.
The management scientist 6.0 software packaged was employed to solve this transportation
problem. The management scientist software is mathematical tool solver for optimization and
mathematical programming in operations research. The Management Science module used is
based on simplified version of the simplex technique called The Transportation Simplex Method.

The transportation simplex method is a special version of Simplex Method used to

solve Transportation Problems.

It was run on Intel(R) Core(TM) Duo CPU machine with 4.0GB of RAM.
Based on the data gathered (Table4.1 and Table 5.1) that were used in running the
management scientist program, produced the same output for the ten trials.

4.3.5 RESULTS AND DISCUSSION

The above transportation problem was solved with linear programming module and transportation
module of the Management Scientist, and the optimal solution obtained was the same for each
results.
The computer solution (see fig 4.05) shows that the minimum total transportation cost is
GH¢245,497,537 Ghana cedis.
The values for the decision variables show the optimal amounts to ship over each route. The
logistics manager should follow the following distribution list if want to optimize the distribution:
Ship 465000 case of malt Guinness from Plant ACH to distributor FTA.
Ship 451000 case of malt Guinness from Plant ACH to distributor OBIBA JK Ship
260000 case of malt Guinness from Plant ACH to distributor NAATO Ship 122000
case of malt Guinness from Plant ACH to distributor LESK Ship 605000 case of
malt Guinness from Plant KAS to distributor RICKY Ship 338000 case of malt
Guinness from Plant KAS to distributor KADOM Ship 61000 case of malt
Guinness from Plant KAS to distributor LESK

Ship 282000 case of malt Guinness from Plant KAS to DCEE

Ship 127000 case of Malt Guinness from Plant KAS to distributor JOEMA and
Ship 535000 case of malt Guinness from Plant KAS to distributor KBOA
Table4.2.4 :Transportation output
PLANT DISTRIBUTOR( FULLTRUCK PER COST PER TOTAL
SITE(SOURCE) DESTINATION) CASE(000) FULL COST(¢)
TRUCK
LOAD(¢)
ACH FTA 465 39.99 18595.35
ACH RICKY 0 126.27 0
ACH OBIBA JK 451 102.70 46317.7
ACH KADOM 0 81.68 0
ACH NAATO 260 38.81 10090.6
ACH LESK 122 71.99 8782.78
ACH DCEE 0 31.21 0
ACH JOEMA 0 22.28 0
ACH KBOA 0 321.04 0
KAS FTA 0 145.36 0
KAS RICKY 605 33.82 20461.1
KAS OBIBA JK 0 154.05 0
KAS KADOM 338 64.19 21696.22
KAS NAATO 0 87.90 0
KAS LESK 61 107.98 6586.78
KAS DCEE 282 65.45 18456.9
KAS JOEMA 127 39.08 4963.16
KAS KBOA 535 167.38 89548.3
The total transportation cost is ,: 245,498

4.3.6 The sensitivity Analysis

Using the Arsham and Kahn Algorithm, this analysed the sensitivity of right-hand-side values of
the transportation problem.

The values of supply and demand‟s changes in this problem are consequently shown as Δs 1=10,000,

Δs2=15,000, Δd1=5000, Δd2=-5000, Δd6=3000,d Δd7=2000 and Δd9=10000.

Thus ΣΔs= ΣΔd. Implementing the above changes in the transportation problem using the Arsham
algorithm the basic solution is change as follows:
The computer solution shows that the minimum total transportation cost is GH¢244,129,447 Ghana
cedis. Which is clearly shows that, if Guinness Ghana Ltd management is to implement such
changes in supply and demand, it will help in decreases transportation cost to GH¢1,368,090 Ghana
cedis.
The logistics manager should follow the following distribution pattern if want to optimize the
distribution:
Ship 47, 000 case of malt Guinness from Plant ACH to distributor FTA.
Ship 451,000 case of malt Guinness from Plant ACH to distributor OBIBA JK

Ship 260,000 case of malt Guinness from Plant ACH to distributor NAATO

Ship 127,000 case of malt Guinness from Plant ACH to distributor LESK

Ship 600,000 case of malt Guinness from Plant KAS to distributor RICKY

Ship 338,000 case of malt Guinness from Plant KAS to distributor KADOM

Ship 59,000 case of malt Guinness from Plant KAS to distributor LESK

Ship 282,000 case of malt Guinness from Plant KAS to DCEE

Ship 127,000 case of Malt Guinness from Plant KAS to distributor JOEMA
Ship 525,000 case of malt Guinness from Plant KAS to distributor KBOA

4.4 JULY08-JULY09 Transportation matrix For GGBL Problem

The collected data for JULY08-JULY09 (thousand) on transportation cost is shown in the
table below. This data indicates the transportation matrix showing the supply (capacity),
demand, and the unit cost per full truck

Table 4.3.1 the matrix representation of the problem (103 )

PLANT FTA RICKY OBIBA KADOM NAATO LESK DCEE JOEMA KBOA CAPACITY

JK

ACH 90.79 88.21 82.08 68.99 30.59 424.91 30.60 13.87 70.85 1736

KAS 228.74 37.60 176.41 72.95 114.32 173.09 73.37 38.61 239.20 2419

DEMAND 907 576 445 335 272 431 304 128 757

4.4.1 Formulation Problem

Let Y1 =plant site at ACH
Y2 =plant site at KAS

X IJ = the units shipped in crates from plant i to distribution centre j i

=1, 2, 3... 9. and j =1, 2, 3..., 9.

Using the shipping cost data in Table 4.4.5 the annual transportation cost in thousand of Cedis is
written as.

Minimize

90.79x11 + 88.21x12 + 82.08x13 + 68.99x14 + 30.59x15 + 424.91x16 + 30.60x17 + 13.87x18 + 70.85x19

+ 228.74x21 + 37.60x22+ 176.41x23+ 72.955x24 + 114.32x25

+ 173.09x26+ 73.37x27 + 38.61x28 +239.2020x29
Consider capacity constraint
x11 + x12 + x13 + x14 + x15 + x16 + x17 + x18 + x19 ≤ 1736 x21 +

x22 + x23 + x24 + x25 + x26 + x27 + x28 + x29 ≤ 22419

Demand constraint
x11 + x21 =907

x12 + x22 =576

x13 + x23 =445

x14 + x24 =335

x15 + x25 =272

x16 + x26 =431

x17 + x27 =304

x18+ x28 =128

x19 + x29 =757

xij ≥ o for all i and j

4.4.2 The management Scientist Solution (July 2008- July 2009)
(i) Using the management scientist 5.0 for Linear programming module.
Objective Function Value = 386729.91

Table.4.3.2 the management Science solution (July08-July09)

Variable Value Reduced cost

X
11 907.000 0.000
X 0.000 0.000
12
X
13 72.000 0.000
X
14 0.000 90.370
X
15 0.000 10.600
X
16 0.000 346.180
X
17 0.000 51.200
X
18 0.000 69.590
X
19 757.000 0.000
X
21 0.000 188 .560
X
22 576.000 0.000
X
23 373.000 0.000
X
24 335.000 0.000
X
25 272.000 0.000
X
26 431.000 0.000
X
27 304.000 0.000
X
28 128.000 0.000
X
29 0.000 74.020

THE SENSITIVE SECTION OF THE OUTPUT

Table4.3.3: Sensitivity Report1
Constraints Slack/Surplus Dual Prices

1 0.000 54.150
2 0.000 -40.180
3 0.000 -144.940
4 0.000 2.580
5 0.000 -136.230
6 0.000 -32.770
7 0.000 -74.140
8 0.000 -132.880
9 0.000 -33.550
10 0.000 1.570
11 0.000 -125.00
OBJECTIVE COEFFICIENT RANGES

Table4.3.4 Sensitivity Report 2

Variable Lower Limit Current Value Upper Limit
X
11 - 90.790 279.350
X -100.350 88.210 -
12
X
13 8.060 82.080 92.680
X
14 -21.380 68.990 -
X
15 19.990 30.590 -
X
16 78.730 424.910 -
X
17 -20.600 30.600 -
X
18 -55.720 -22.280 -
X
19 - 70.850 144.870
X
21 40.180 228.740 -
X
22 - 37.600 226.160
X
23 165.810 176.410 250.430
X
24 - 72.950 163.320
X
25 - 114.320 124.920
X
26 - 173.060 519.240
X
27 - 73.730 124.930
X
28 - 38.610 108.200
X
29 165.180 239.200 -

RIGHT HAND SIDE RANGES

Table4.3.5: Sensitivity Report 3
Constraints Lower Limit Current Value Upper Limit

1 1664.000 1736.000 1736.000

2 1843.000 2419.000 2419.000
3 907.000 907.000 907.000
4 576.000 576.000 576.00
5 445.00 445.000 1021.000
6 335.000 335.000 911.00
7 272.000 272.00 848.000
8 431.00 431.00 1007.000
9 304.000 304.00 880.000
10 128.00 128.00 704.00
11 757.00 757.000 829.000
 4.4.3 RESULTS AND DISCUSSION
4.4.3 RESULTS AND DISCUSSION
The GGL problem (Table5.1) was solved with the linear programming module and the
transportation module of The Management Scientist. The results from both the linear programming
module and that of the transportation module of The Management Scientist yielded the same values,
in terms of the optimal solution obtained. The computer solution (Table 5.4) shows the minimum
total transportation cost is GH ¢386,729.91. The value for the decision variables shows the optimal
amount of drinks to be ship over each route.

For variable X13=907,907 cases of drinks should be transported from site ACH to distributor FTA.
To minimize the transportation cost the management of Guinness Ghana Ltd should make the
following shipments:

Ship 907,000 cases of Malta Guinness from Plant ACH to Distributor FTA
Ship 72,000 cases of Malta Guinness from Plant ACH to distributor OBIBA JK
Ship 757,000 cases of Malta Guinness from Plant ACH to distributor KBOA
Ship 576,000 cases of Malta Guinness from Plant KAS to distributor RICKY
Ship 373,000 cases of Malta Guinness from Plant KAS to distributor OBIBA JK
Ship 335,000 cases of Malta Guinness from Plant KAS to distributor KADOM
Ship 272,000 cases of Malta Guinness from Plant KAS to distributor NAATO
Ship 431,000 cases of Malta Guinness from Plant KAS to distributor LESK
Ship 304,000 cases of Malta Guinness from Plant KAS to distributor DCEE
Ship 128,000 cases of Malta Guinness from Plant KAS to distributor JOEMAN

TABLE 4.3.6 THE OPTIMAL SOLUTION (JULY08-JULY09)

PLANT DISTRIBUTOR( FULLTRUCK PER COST PER TOTAL

SITE(SOURCE) DESTINATION) CASE(0000) FULL COST(GH
TRUCK 000)
LOAD
ACH FTA 907 90.79 82346.53
ACH RICKY 0 88.21 0
ACH OBIBA JK 72 82.08 5909.76
ACH KADOM 0 68.99 0
ACH NAATO 0 30.59 0
ACH LESK 0 424.91 0
ACH DCEE 0 30.60 0
ACH JOEMA 0 13.87 0
ACH KBOA 757 70.85 53633.45
KAS FTA 0 228.74 0
KAS RICKY 576 37.60 21657.6
KAS OBIBA JK 373 176.41 65800.93
KAS KADOM 335 72.95 24438.25
KAS NAATO 272 114.32 31095.04
KAS LESK 431 173.09 74601.79
KAS DCEE 304 73.37 22304.48
KAS JOEMA 128 38.61 4942.08
KAS KBOA 0 239.20 0
The total transportation cost is ,: 386,729.91
 CHAPTER FIVE
CONCLUSIONS AND RECOMMENDATIONS

5.1 Conclusion

The transportation cost is an important element of the total cost structure for any business
The transportation problem was formulated as a Linear Programming and solved with the standard
LP solvers such as the Management scientist module to obtain the optimal solution.
The computational results provided the minimal total transportation cost and the values for the
decision variables for optimality. Upon solving the LP problems by the computer package, the
optimum solutions provided the valuable information such as sensitivity analysis for Guinness
Ghana Ltd to make optimal decisions
Through the use of this mathematical model (Transportation Model) the business (GGBL) can
identify easily and efficiently plan out its transportation, so that it cannot only minimize the cost of
transporting goods and services but also create time utility by reaching the goods and services at the
right place ad right time. This intend will enable them to meet the corporative objective such as
education fund, entertainment and other support they offered to people of Ghana
The study recorded total minimization of transportation cost during the periods of June2007-June
2008 and July08-July09 financial period. The value for the decision variable produced the optimal
amounts to be ship to each distributor of Guinness Ghana Ltd.

5.2 Recommendations
Based on the results and findings of this study, I recommend to the management of Guinness Ghana
Breweries Group to seek to the application of mathematical theories into their operations as a
necessary tool when it comes to decision making, not only in the area logistics(the transportation
Problem), but in production as well as administration.
This study employed mathematical technique to solve management problems and make timely
optimal decisions. If the GGL managers are to employed the proposed transportation model it will
assist them to efficiently plan out its transportation scheduled at a minimum cost.
There are number of programs that can assist in construction of TP and LP problems. Probably the
best known is GAMS-General Algebraic modelling system. This provides a high level language for
easy representation of complex problems. In Future I recommend the solution of large-scale
transportation problems through aggregation. This proposed method is applicable to any
transportation problem.
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