Introduction

• Definition: The Transportation Problem is a type of linear

programming problem that deals with the distribution of a single
commodity from multiple sources to multiple destinations while
minimizing the total transportation cost.
• Objective: To determine the most cost-effective way to transport
goods from suppliers to consumers without exceeding supply or
demand constraints.
Importance of Transportation
Problem
•Cost Minimization: Helps businesses reduce transportation costs significantly.

•Efficient Resource Allocation: Ensures optimal utilization of resources.

•Decision Making: Aids in strategic planning and logistics management.

 Components of Transportation
Problem

•Supply Points (Sources): Locations where goods are produced or stored.

•Demand Points (Destinations): Locations where goods are required.

•Supply Quantity: Amount of goods available at each source.

•Demand Quantity: Amount of goods required at each destination.

•Transportation Cost: Cost of transporting one unit of goods from a source to a

destination.
Assumptions

•The transportation cost per unit is constant.

•Goods are homogeneous.

•Supply and demand quantities are known and constant.

•Transportation routes are independent of each other.

Formulating a Transportation
Problem
•Step 1: Identify all sources and destinations along with their supply and demand.

•Step 2: Determine the transportation cost between each source and destination pai

•Step 3: Construct a cost matrix to represent the costs.

•Step 4: Formulate the objective function and constraints.

Example Scenario
• Consider a company with 3 factories (sources) and 4 warehouses
(destinations). Each factory has a certain production capacity (supply),
and each warehouse has a certain demand. The transportation cost
per unit from each factory to each warehouse is known.
Conclusion
• Understanding the basics of the Transportation Problem sets the
foundation for exploring various methods to find the optimal solution
in subsequent lectures.
Introduction
• In this lecture, we delve into the mathematical formulation of the
Transportation Problem as a Linear Programming Problem (LPP).
Notations
• Let:
• m = number of sources
• n = number of destinations
• aia_iai​= supply at source iii
• bjb_jbj​= demand at destination jjj
• cijc_{ij}cij​= cost of transporting one unit from source iii to destination
jjj
• xijx_{ij}xij​= number of units transported from source iii to destination
jjj
Objective Function
• The objective is to minimize the total transportation cost:
• Minimize Z=∑i=1m∑j=1ncijxij\text{Minimize } Z = \sum_{i=1}^{m} \
sum_{j=1}^{n} c_{ij} x_{ij}Minimize Z=i=1∑m​j=1∑n​cij​xij​
Constraints
Supply Constraints

• The total goods shipped from each source should not exceed its supply:
• ∑j=1nxij≤ai∀i=1,2,...,m\sum_{j=1}^{n} x_{ij} \leq a_i \quad \forall i = 1,2,...,mj=1∑n​xij​≤ai​
∀i=1,2,...,m
Demand Constraints
• The total goods received at each destination should meet its demand:
• ∑i=1mxij≥bj∀j=1,2,...,n\sum_{i=1}^{m} x_{ij} \geq b_j \quad \forall j = 1,2,...,ni=1∑m​xij​≥bj​
∀j=1,2,...,n
Non-negativity Constraints
• The number of goods transported should be non-negative:
• xij≥0∀i,jx_{ij} \geq 0 \quad \forall i,jxij​≥0∀i,j
Balanced vs. Unbalanced
Transportation Problem

•Balanced: Total supply equals total demand (∑ai=∑bj\sum a_i

= \sum b_j∑ai​=∑bj​).

•Unbalanced: Total supply does not equal total demand. In such

cases, dummy sources or destinations are added to balance the
problem.
Example Problem Formulation
• Given:
• Sources: S1, S2 with supplies 20 and 30 units respectively.
• Destinations: D1, D2, D3 with demands 10, 25, and 15 units
respectively.
• Costs cijc_{ij}cij​are provided in a matrix.
• Formulate: Objective function and constraints as per the above
method.
Solving the Problem
• While formulating the problem is critical, solving it requires specific
methods, which will be covered in upcoming lectures.
Conclusion
• A clear mathematical formulation is essential for applying solution
methods effectively to find the optimal transportation plan.
Introduction
• The North-West Corner Method is a heuristic used to find an initial
feasible solution to the Transportation Problem.
Steps of the North-West Corner
Method
1.Start at the North-West (upper-left) corner of the cost matrix

2.Allocate as much as possible to the selected cell, considering supply and deman

3.Adjust the supply and demand by subtracting the allocated units.

4.Move to the next cell:

•If supply is exhausted, move down to the next row.

•If demand is met, move right to the next column.

5. Repeat until all supplies and demands are satisfied.

Example
Evaluating the Solution
• Calculate the total cost by multiplying allocated units with respective
costs and summing them up.
Advantages

•Simple and easy to apply.

•Provides a feasible solution

quickly.
Disadvanta
ges

•Does not consider cost while allocating, hence may not provide the least-cost initial

•Often requires further optimization.

Conclusion
• The North-West Corner Method is a straightforward technique to
obtain an initial feasible solution, which can be further optimized
using other methods.
Introduction
• The Least-Cost Method, also known as the Matrix Minima Method,
seeks an initial feasible solution by allocating shipments to the lowest
cost cells first.
Steps of the Least-Cost Method

1.Identify the cell with the lowest cost in the entire cost matrix.

2.Allocate as much as possible to this cell without exceeding supply and demand.

3.Adjust the supply and demand by subtracting the allocated quantity.

4.Cross out the row or column if supply or demand reaches zero.

5. Repeat the process with the next lowest cost cell among the remaining cells until all supplies and
demands are fulfilled.
Example
Evaluating the Solution
• Sum up the product of allocated units and their corresponding costs
to find the total cost.
Advantages

•More cost-efficient initial solution compared to the North-West Corner Method.

•Simple to implement.
 Disadvanta
ges

•May still not provide the optimal solution.

•Allocation can be tied if multiple cells have the same lowest cost.
Conclusion
• The Least-Cost Method offers a better initial solution by considering
transportation costs, paving the way for further optimization.
Introduction
• Vogel’s Approximation Method (VAM) is a heuristic technique that
provides a closer-to-optimal initial feasible solution by considering the
penalty costs.
Concept of Penalty Cost
• Penalty cost is the difference between the two lowest costs in each
row and column. It represents the additional cost incurred if the
lowest cost route is not selected.
 Steps of Vogel’s Approximation Method
1.Calculate penalty costs for each row and column.

•For each row, subtract the smallest cost from the next smallest cost.
•Repeat for each column.

2. Identify the row or column with the highest penalty cost.

3.Within that row or column, choose the cell with the lowest cost.

4.Allocate as much as possible to that cell, adjusting supply and demand

accordingly.

5.Cross out the satisfied row or column and recalculate penalties for the
reduced matrix.

6. Repeat steps 2-5 until all supplies and demands are satisfied.
Example
Evaluating the Solution
• Compute the total cost by multiplying allocations with corresponding
costs and summing up.
 Advantage
s

•Generally provides a better initial solution than North-West Corner and

Least-Cost methods.
•Considers the opportunity cost of not choosing the next best alternative.
Disadvantages

•Slightly more complex and time-consuming.

•May still require optimization for the optimal solution.

Conclusion
• VAM is an effective method to obtain a near-optimal initial solution,
reducing the number of iterations needed in optimization methods.
Introduction
• The MODI (Modified Distribution) Method is used to find the optimal
solution from an initial feasible solution obtained by methods like
VAM.
Prerequisites

•An initial feasible solution (preferably close to optimal).

•Understanding of opportunity costs and potential adjustments.

Concept of MODI Method
• MODI uses the concept of dual variables to evaluate the optimality of
the current solution and makes adjustments to reduce the total cost.
Steps of MODI Method
Calculate Row and Column Potentials
1. Assign variables uiu_iui​for rows and vjv_jvj​for columns.
2. Set one of the potentials to zero, typically u1=0u_1 = 0u1​=0.
3. For each allocated cell, use the formula cij=ui+vjc_{ij} = u_i + v_jcij​=ui​+vj​to calculate potentials.
4. Solve the system of equations to find all uiu_iui​and vjv_jvj​.
• 6.4.2 Compute Opportunity Costs
1. For each unallocated cell, calculate the opportunity cost Δij=cij−(ui+vj)\Delta_{ij} = c_{ij} - (u_i + v_j)Δij​=cij​−(ui​+vj​).
2. Identify the cell with the most negative opportunity cost; this indicates the greatest potential for cost reduction.
Adjust the Solution
3. Form a closed loop or path starting and ending at the identified cell, alternating between allocated and unallocated
cells.
4. Assign plus and minus signs alternately along the loop, starting with a plus at the identified cell.
5. Determine the minimum allocation at the cells marked with a minus sign.
6. Adjust allocations along the loop by adding and subtracting the minimum value.
7. Update the solution and recalculate total cost.
Example Setup
Conclusion
• The MODI method systematically improves upon the initial solution to
reach the optimal solution by evaluating and adjusting allocations
based on opportunity costs.
Recap
• Review of steps involved in the MODI method and importance in
finding the optimal solution.
 Detailed Example

• Continuing from Lecture 6's example, proceed step-by-step through the MODI method:
Calculate Potentials
• Assign u1=0u_1 = 0u1​=0.
• Use allocated cells to set up equations:
• For cell (S1,D1): c11=u1+v1⇒5=0+v1⇒v1=5c_{11} = u_1 + v_1 \Rightarrow 5 = 0 + v_1 \Rightarrow v_1 = 5c11​=u1​
+v1​⇒5=0+v1​⇒v1​=5
• Continue for other allocated cells.
Compute Opportunity Costs
• For unallocated cells, e.g., (S1,D2): Δ12=c12−(u1+v2)\Delta_{12} = c_{12} - (u_1 + v_2)Δ12​=c12​−(u1​+v2​)
• Identify the most negative Δij\Delta_{ij}Δij​.
Adjust Allocations
• Form the loop: Identify a path through allocated and unallocated cells.
• Assign plus and minus signs.
• Determine theta (minimum allocation at minus positions).
• Update allocations and adjust supply and demand.
Check for Optimality
• Recompute opportunity costs.
Special Cases
Degeneracy
• Occurs when the number of allocations is less than m+n−1m + n - 1m+n−1.
• Resolution: Introduce a very small allocation (epsilon) in a cell to satisfy the
condition.
Multiple Optimal Solutions
• When alternative allocations yield the same minimum cost.
• Identification: Zero opportunity costs in multiple unallocated cells.
Unbalanced Problems
• Adjusted by adding dummy rows or columns with zero cost.
Advantages
of MODI
Method

Efficient and systematic approach to find the optimal solution.

•Reduces the computational effort compared to other methods like

Stepping Stone.
Limitatio
ns

•Complexity increases with the size of the problem.

•Requires careful calculation to avoid errors.

Conclusion
• Mastering the MODI method is essential for solving complex
Transportation Problems effectively and obtaining the most cost-
efficient solutions.
Introduction
• Understanding the practical applications of the Transportation
Problem (TP) demonstrates its significance in real-world business
scenarios.
 Logistics and Supply Chain
Management

•Distribution Planning: Optimizing routes for delivering goods from

warehouses to retail outlets.

•Inventory Management: Balancing supply and demand across multiple

locations to minimize holding and shortage costs
.
•Freight Transportation: Selecting cost-effective modes of transport
(road, rail, air, sea) for shipping goods.
 Production Management
•Resource Allocation: Distributing raw materials from suppliers to various
manufacturing units efficiently.

•Production Scheduling: Assigning production tasks to different plants

based on capacity and cost considerations.
Service
Industry
•Healthcare: Allocating medical supplies from central storage to hospitals
and clinics.
•Education: Distributing educational materials to schools and universities.
 Energy
Sector

•Fuel Distribution: Transporting oil, gas, and coal from refineries to power plants
and gas stations.

•Electricity Grid Management: Allocating electricity from power plants to

different regions based on demand and transmission costs.
 Agricultural
Sector
•Crop Transportation: Moving produce from farms to markets or processing
facilities while minimizing spoilage and cost

•Resource Distribution: Supplying fertilizers and equipment to farmers in different

regions effectively.
Case Studies
Walmart's Distribution Network
• Utilizes TP models to optimize the flow of goods from distribution
centers to stores, reducing transportation costs and delivery times.
Amazon's Logistics Optimization
• Applies TP to manage the allocation of products from fulfillment
centers to customers, ensuring timely deliveries at minimal costs.
Benefits of Applying TP in
Business
•Cost Reduction: Significant savings in transportation and operational costs
.
•Improved Efficiency: Streamlined processes leading to faster delivery times
and better service levels.

•Enhanced Decision Making: Data-driven approach aids in strategic planning

and resource management.
Software and Tools

•Excel Solver: Widely used for small to medium-sized TP models.

•LINDO/LINGO: Specialized software for linear programming problems.

•IBM ILOG CPLEX: Advanced optimization tool for large-scale and complex
TP models.
Conclusion
• The Transportation Problem is a versatile and powerful tool in
operations research, offering immense value across various industries
by optimizing logistics and resource allocation, ultimately contributing
to increased profitability and efficiency.