GRADUATE MASTER IN MANAGEMENT PROGRAM

UNIVERSITY OF TECHNOLOGY YOGYAKARTA

SPECIAL REGION OF YOGYAKARTA
INDONESIA

CASE STUDY

OPERATIONS MANAGEMENT
Operations
Research O
“Transportation
Transportation Method”
Method

By :

STUDENT NAME : S U P A R N I, S.E

COURSES : OPERATIONS MANAGEMENT
LECTURER : Dr. Ir. WAHYUNI REKSOATMODJO
REKSOATMODJO, M.Sc.

2018
 GRADUATE MASTER IN MANAGEMENT PROGRAM
UNIVERSITY OF TECHNOLOGY YOGYAKARTA
INDONESIA

Name: S U P A R N I, S.E
NIM : 617.011.1029

COURSE TASK - CASE STUDY

Monday, April 2, 2018

Book Operations Management Page 779-780 (Case Table C.1 s/d C.5)
Course: Operations Management
Lecturer : Dr. Ir. Wahyuni Reksoatmodjo, M.Sc.

“Transportation Method”

Case C.1 : Page : 779 Operations Management Book, Pearsen

To
From
Los Angeles Calgary Panama City Supply
Mexico City $6 $18 $8 100
Detroit $17 $13 $19 60
Ottawa $20 $10 $24 40
Demand 50 80 70 200

Question :
a. Use the Northwest-Corner Method (NCR). What is its total cost ?
b. Use the intuitive lowest-cost approach.Least Cost Method (LCM). What is
it’s total cost ?
c. Using the Stepping-Stone Method (STM), find the optimal solution.Compute
the total cost ?.Px

Answers : Case C.1, Page : 779 Operations Management Book, Pearsen

a. Northwest-Corner Method (NCR).
To (A) (B) (C)
Panama Supply
Los Angeles Calgary
From City
$6 $ 18 $8 100
Mexico City
50 50 50
(D)
0
$ 17 $ 13 $ 19 60
Detroit ( E ) 30 30 30
0
$ 20 $ 10 $ 24 40
Ottawa( F ) 40 0

Demand 50 0 80 30 0 70 40 0 200 0

1 |Case Study : Operations Management, “Transportation Method”. Author : S U P A R N I, S.E.

Student of Graduate Program Master of Management Universitas Tehnologi Yogyakarta, Indonesia.
Tahun 2018
 Total cost of initial feasible solution using the Northwest-Corner Method (NCR) :
From To Units Shipped Per Unit Cost Total Cost
D A 50 $6 $ 300
D B 50 $ 18 $ 900
E B 30 $ 13 $ 390
E C 30 $ 19 $ 570
F C 40 $ 24 $ 960
Total Cost $ 3.120

lowest cost
b. Least Cost Method (LCM)
To (A) (B) (C)
Supply
From Los Angeles Calgary Panama City
$6 $ 18 $8 100
Mexico City
50 50 50
(D)
0
$ 17 $ 13 $ 19 60
Detroit ( E ) 60 0
$ 20 $ 10 $ 24 40
Ottawa( F ) 20 20 0

Demand 50 0 80 20 0 70 20 0 200 0

Total cost of intuitive Lowest-Cost using Lowest-Cost Method (LCM) :

From To Units Shipped Per Unit Cost Total Cost
D A 50 $ 6 $ 300
D C 50 $ 8 $ 400
E B 60 $13 $ 780
F B 20 $10 $ 200
F C 20 $24 $ 480
Total Cost $ 2.160

c. Stepping-Stone Method (STM)

To (A) (B) (C)
Supply
From Los Angeles Calgary Panama City
$6 $ 18 $8 100
Mexico City
50 50 50
(D)
0
$ 17 $ 13 $ 19 60
Detroit ( E ) 40 20 20
0
$ 20 $ 10 $ 24 40
Ottawa( F ) 40 0

Demand 50 0 80 40 0 70 20 0 200 0

2 |Case Study : Operations Management, “Transportation Method”. Author : S U P A R N I, S.E.

Student of Graduate Program Master of Management Universitas Tehnologi Yogyakarta, Indonesia.
Tahun 2018
 Total cost of the shipping plan that would be obtained by performing one
more iteration of the Stepping-Stone Method (STM) :
From To Units Shipped Per Unit Cost Total Cost
D A 50 $ 6 $ 300
D C 50 $ 8 $ 400
E B 40 $13 $ 520
E C 20 $19 $ 380
F B 40 $10 $ 400
Total Cost $ 2.000

Case C.2 , Page : 779 Operations Management Book, Pearsen

Consider the transportation table at right.Unit cost for eac shipping route are in
dollars.
Question :
What is the total cost of the basic feasible solution that the intuitive Lowest-Cost
Method (LCM) would find for this problem ? Px

Destination
Source A B C D E Supply
$ 12 $8 $5 $ 10 $4
1 18

$6 $ 11 $3 $7 $9
2 14

Demand 6 8 12 4 2 32
lowest cost

Answers Case C.2, Page : 779 Operations Management Book, Pearsen

C.2 Least Cost Method (LCM)
Source A B C D E Supply
4 $ 12 $8 $5 4 $ 10 $4
1 8 2 18 16 8 4 0
$6 $ 11 12 $3 $7 $9
2 2 14 2 0
Demand 6 0 8 4 0 12 0 4 0 2 0 32 0

Total cost of the basic feasible solution using Least Cost Method (LCM) :
From To Units Shipped Per Unit Cost Total Cost
1 A 4 $ 12 $ 48
1 B 8 $ 8 $ 64
1 D 4 $10 $ 40
1 E 2 $ 4 $8
2 A 2 $ 6 $ 12
2 C 12 $ 3 $ 36
Total Cost $ 208

3 |Case Study : Operations Management, “Transportation Method”. Author : S U P A R N I, S.E.

Student of Graduate Program Master of Management Universitas Tehnologi Yogyakarta, Indonesia.
Tahun 2018
 Case C.3 , Page : 779 Operations Management Book, Pearsen
Refer to th table that follows.
Question :
a. Use the northwest-corner method to find an initial feasible solution. What
must do before beginning the solution steps?
b. Use the intuitive lowest-cost approach to find an initial feasible solution. Is
this approach better than the northwest-corner method?
c. Find the optimal solution using the stepping-stone method.

To
From
A B C Supply
X $10 $18 $12 100
Y $17 $13 $9 50
Z $20 $18 $14 75
Demand 50 80 70

Answers Case C.3 , Page : 779-780 Operations Management Book, Pearsen

a. The solution steps before beginning Northwest-Corner Method (NCR),
find the optimal solution using the stepping-stone method.

Stepping-Stone Method before beginning Northwest-Corner Method

(NCR):
To
Supply
From A B C D
$ 10 $ 18 $ 12 $0 100
X 50 50 50
0
$ 17 $ 13 $9 $0 50
Y 30 20 20
0
$ 20 $ 18 $ 14 $0 75
Z 50 25 25
0
Demand 50 0 80 50 0 70 20 0 25 0 200 0

Total cost of find the optimal solution using Stepping-Stone Method (STM) :
From To Units Shipped Per Unit Cost Total Cost
X A 50 $ 10 $ 500
X C 50 $ 12 $ 300
Y B 30 $ 13 $ 390
Y C 20 $ 9 $ 180
Z B 50 $ 18 $ 900
Z D 25 $ 0 $ 0
Total Cost $ 2.570

4 |Case Study : Operations Management, “Transportation Method”. Author : S U P A R N I, S.E.

Student of Graduate Program Master of Management Universitas Tehnologi Yogyakarta, Indonesia.
Tahun 2018
 a. Northwest-Corner Method (NCR).
To
Supply
From A B C D
$ 10 $ 18 $ 12 $0 100
X 50 50 50
0
$ 17 $ 13 $9 $0 50
Y 30 20 0
$ 20 $ 18 $ 14 $0 75
Z 50 25 25
0
Demand 50 0 80 30 0 70 50 0 25 0 200 0

Total cost of initial feasible solution using the Northwest-Corner Method (NCR) :
From To Units Shipped Per Unit Cost Total Cost
X A 50 $ 10 $ 500
X B 50 $ 18 $ 900
Y B 30 $ 13 $ 390
Y C 20 $ 9 $ 180
Z C 50 $ 14 $ 700
Z D 25 $ 0 $ 0
Total Cost $ 2.670
lowest cost
b. Least Cost Method (LCM)
To
Supply
From A B C D
$ 10 $ 18 $ 12 $0 100 50
X 50 30 20 20 30
0
$ 17 $ 13 $9 $0 50
Y 50 0

$ 20 $ 18 $ 14 $0 75
Z 50 25 25
0
Demand 50 0 80 50 0 70 20 0 25 0 200 0

Total cost of initial feasible solution using the Least Cost Method (LCM) :
From To Units Shipped Per Unit Cost Total Cost
X A 50 $ 10 $ 500
X B 30 $ 18 $ 540
X C 20 $ 12 $ 240
Y C 50 $ 9 $ 450
Z B 50 $ 18 $ 900
Z D 25 $ 0 $ 0
Total Cost $ 2.630

5 |Case Study : Operations Management, “Transportation Method”. Author : S U P A R N I, S.E.

Student of Graduate Program Master of Management Universitas Tehnologi Yogyakarta, Indonesia.
Tahun 2018
 c. Stepping-Stone Method One More
To
Supply
From A B C D
$ 10 $ 18 $ 12 $0 100
X 50 50 50
0
$ 17 $ 13 $9 $0 50
Y 50 0

$ 20 $ 18 $ 14 $0 75
30 20 25 20
Z
25
0
Demand 50 0 80 30 0 70 20 0 25 0 200 0

Total cost of find the optimal solution using Stepping-Stone Method (STM)
One More :
From To Units Shipped Per Unit Cost Total Cost
X A 50 $ 10 $ 500
X C 50 $ 12 $ 600
Y B 50 $ 13 $ 650
Z B 30 $ 18 $ 540
Z C 20 $ 14 $ 280
Z D 25 $ 0 $ 0
Total Cost $ 2.570

Case C.4, Page : 780 Operations Management Book, Pearsen

Consider the transportation table below. The solution displayed was obtained by
performing some iterations of the transportation method on this problem.

Question :
What is the total cost of the shipping plan that would be obtained by performing
one more iteration of the Stepping-Stone Method (STM) on this problem?

(A) (B) (C)

Supply
Source Denver Yuma Miami
Houston $2 $8 $1 10
(D) 10 0
$4 $5 $6 20
St.Louis
10 10 10
(E)
0
$6 $3 $2 30
Chicago
10 20 20
( F)
0
Demand 20 10 0 20 10 0 20 0 60 0

6 |Case Study : Operations Management, “Transportation Method”. Author : S U P A R N I, S.E.

Student of Graduate Program Master of Management Universitas Tehnologi Yogyakarta, Indonesia.
Tahun 2018
 Answers : Case C.4, Page : 780 Operations Management Book, Pearsen
a. Stepping-Stone Method (STM)
(A) (B) (C)
Supply
Source Denver Yuma Miami
Houston 10 $2 $8 $1 10
(D) 0
$4 $5 $6 20
St.Louis
10 10 10
(E)
0
$6 $3 20 $2 30
Chicago
10 20
( F)
0
Demand 20 10 0 20 10 0 20 0 60 0

Total cost of find the optimal solution using Stepping-Stone Method (STM) :
From To Units Shipped Per Unit Cost Total Cost
D A 10 $ 2 $ 20
E A 10 $ 4 $ 40
E B 10 $ 5 $ 50
F B 10 $ 3 $ 30
F C 20 $ 2 $ 40
Total Cost $ 180

Case C.5, Page : 780 Operations Management Book, Pearsen

The following table is the result of one or more iterations.
To
1 2 3 Capacity
From
$ 30 $ 30 $5 50
A 40 10 10
0
$ 10 $ 10 $ 10 30
B 30 0

$ 20 $ 10 $ 25 75
C 30 45 45
0
Demand 40 0 60 30 0 55 45 0 155 0

Total cost of the shipping plan that would be obtained by performing

iteration of the Stepping-Stone Method (STM) :
From To Units Shipped Per Unit Cost Total Cost
A 1 40 $ 30 $ 1.200
A 3 10 $ 5 $ 50
B 2 30 $ 10 $ 300
C 2 30 $ 10 $ 300
C 3 45 $ 25 $ 1.125
Total Cost $ 2.975

7 |Case Study : Operations Management, “Transportation Method”. Author : S U P A R N I, S.E.

Student of Graduate Program Master of Management Universitas Tehnologi Yogyakarta, Indonesia.
Tahun 2018
 Questions :
a. Complete the next iteration using The Stepping – Stone Method (STM).
b. Calculate the “Total Cost” incurred if your result were to be accepted as the
final solution. Px

Answers Case C.5, Page : 780 Operations Management Book, Pearsen

a. Complete the next iteration using The Stepping – Stone Method (STM).
To
1 2 3 Capacity
From
10 $ 30 $ 30 $5 50
A 40 10
0
$ 10 $ 10 $ 10 30
B 30 0

$ 20 $ 10 $ 25 75
C 60 15 15
0
Demand 40 30 0 60 0 55 15 0 155 0

b.Total cost of the shipping plan that would be obtained by performing one
more iteration of the Stepping-Stone Method (STM) :
From To Units Shipped Per Unit Cost Total Cost
A 1 10 $ 30 $ 300
A 3 40 $ 5 $ 200
B 1 30 $ 10 $ 300
C 2 60 $ 10 $ 600
C 3 15 $ 25 $ 375
Total Cost $ 1.775

VAM (Vogel's Approximation Method)

VAM Transportation Method (Vogel's Approximation Method) is one of the

methods of transportation to find the initial solution (Initial Solution). The
difference between the VAM method and the other two transport methods is that
the distribution within this method is close to the minimum cost, this characteristic
of the VAM method. Although the result of VAM method calculation is already
approaching minimum cost but this method is done to get initial solution (Initial
Solution), so further calculation is needed with final solution (Terminal Solution) in
the form of:

Terminal Solution (Solution End) Namely:

1) MODI Method (Modified Distribution Method)
2) Stepping Store Method

8 |Case Study : Operations Management, “Transportation Method”. Author : S U P A R N I, S.E.

Student of Graduate Program Master of Management Universitas Tehnologi Yogyakarta, Indonesia.
Tahun 2018
 For more details about the VAM transport method (Vogel's Approximation
Method), see the example below:

Problems example:
PT. Lancar Jaya Tranportasi is planning to allocate owned vehicles to cities A, B,
and C. Here are the transportation tables that have been prepared by managers
of PT. Lancar Jaya Tranportasi. (Cost in IDR, demand and capacity in unit).

 Step Workmanship as follows:

1) Calculate the difference between the two smallest costs of each row and
column. Named with a penalty fee or opportunity cost.
2) Select the row or column with the largest penalty fee. If the penalty charge
on the row or column is the same, select the penalty fee that has the
lowest transportation cost value.
3) From the selected cell, allocate the quantity of the quantity of goods with
the maximum value of the capacity or the request of the column or row.
4) Repeat the above steps by eliminating the rows or columns that have been
fulfilled, until all requests and capacities are met.

Table PT. Lancar Jaya Transportasi

City Pinalty Capacity:
Capacity
Warehous Line 1: Smallest Cost: 1B-1A (8-6): 2
use Line 2: Smallest Cost: 2B-2A (11-7): 4
Line 3: Smallest Cost: 3B-3A (5-4): 1

Pinalty Request:
Column A: Smallest Cost: 1A-3A (6-4): 2
Column B: Smallest Cost: 1B-3B (8-5): 3
Column C: Smallest Cost: 2C-1C (11-10): 1

Demand

Answer:
The first stage
a. Calculates the opportunity costs of each row & column Penalty fees are
calculated by deducting the 2 smallest charges on each row or column.
b. Choose 1 largest penalty fee from row or column.
c. Allocate as much as possible to the cell at the cheapest cost, according to
capacity and demand.
d. From the calculation results, it is known that demand from city A has been
met as many as 175 units of vehicle warehouse capacity 2.
e. Because the capacity of vehicle warehouse 2 has been exhausted, so the
line of vehicle warehouse 2 can be ignored in the calculation of the next
penalty fee.

9 |Case Study : Operations Management, “Transportation Method”. Author : S U P A R N I, S.E.

Student of Graduate Program Master of Management Universitas Tehnologi Yogyakarta, Indonesia.
Tahun 2018
 City
Capacity Penalty Fee
Warehouse

Demand

Penalty Fee

Phase Two
a. Recalculate each penalty charge by ignoring the line from the vehicle
warehouse 2.
b. Choose 1 largest penalty fee from row or column.
c. Allocate as much goods as possible to the cell with the cheapest cost in
accordance with the capacity and demand
d. From the calculation, it is known that City B demand has been fulfilled which
is 100 units, and the capacity of vehicle warehouse 3 has been used as
many as 100.
e. City Column B that has been fulfilled its request can be ignored in the
calculation of the next penalty fee

City
Capacity Penalty
Warehouse
Fee

Ignore

18

Demand

Penalty
Fee

10 |Case Study : Operations Management, “Transportation Method”. Author : S U P A R N I, S.E.

Student of Graduate Program Master of Management Universitas Tehnologi Yogyakarta, Indonesia.
Tahun 2018
 Third phase
a. Recalculate each penalty charge by ignoring column B and proceeding like
the previous steps.
b. Thus, demand in city A has been fully fulfilled by 200 units, as well as the
demand of city B that has been fully fulfilled totaling 100 units.
c. Thus, the remaining unmet capacity is from vehicle warehouse 1 of 150 units
and from vehicle warehouse 3 is also 150 units.
d. The remaining unmet demand from city C for 300 units, so the deficiency in
city C will be fulfilled by the remaining capacity in vehicle warehouse 1 and 3.
So that obtained:

City
Capasity Penalty
Warehouse Fee

18

Demand

Penalty
Fee

Phase Four
 Calculate shipping transport costs:
Warehouse 1 vehicle to city C: 150 units x Rp. 10 = Rp. 1,500
Vehicle warehouse 2 to city A: 175 units x Rp. 7 = Rp. 1.225
Vehicle warehouse 3 to city A: 25 units x Rp. 4 = Rp. 100
Vehicle warehouse 3 to city B: 100 units x Rp. 5 = Rp. 500
Vehicle warehouse 3 to city C: 150 units x Rp.12 = Rp. 1,800
Total cost = Rp. 1,500 Rp. 1,225 Rp. 100 Rp. 500 Rp. 1,800
Total cost = Rp. 5.125
The total transportation cost obtained in the VAM (Vogel's Approximation
Method) method is not the minimum total cost

11 |Case Study : Operations Management,

Management “Transportation Method”. Author : S U P A R N I, S.E.
Student of Graduate Program Master of Management Universitas Tehnologi Yogyakarta, Indonesia.
Tahun 2018