UNIT 02: TRANSPORTATION PROBLEM

Introduction Another simplification of the general location allocation problem that is of considerable interest is the simple distribution or transportation problem. In this problem, we assume that the location for facilities are known along with their capacities. The question of interest is to determine how much of each user's demand should be met from each facility so that the total cost of production and distribution is minimized. Although this problem can be formulated as a linear program, specialized procedures called distribution methods can solve it efficiently. Problem Formulation When the locations of facilities and users are specified, the problem of minimizing total production and distribution costs while meting the demands for each user is formulated as See Class Notes Equation 1 represents the total cost of production and distribution. Equation 2 ensures that all demand for user i is met. Equation 3 ensures that all shipments from facility j do not exceed its capacity. Finally, all allocations are restricted to be nonnegative by Equation 4. We demonstrate a solution procedure for this problem by means of an example. Efficient computer programs exist for solving these distribution problems. The manual procedure described here provides insights into how allocations can be changed to improve the objective function and a connection with the history of the development of these methods. Example Problem Assume the distribution situation of the Pet Food Company. There are three factories, located in Chicago, Houston, and New York, that produce some identical products. There are five major distribution points that serve various market areas in Atlanta, Buffalo, Cleveland, Denver, and Los Angeles. The three factories have capacities that determine the availabbility of product, and the market demand in the five major areas determines the requirements to be met. The problem is to allocate available products at the three factory locations to the five distribution points so that demand is met and distribution costs are minimized for the system. Data for our illustrative problem are shown in Table 1 (Refer class notes). There are 46,000 cases per week available at the Chicago plant, 20,000 at the Houston plant, and 34,000 at the New York plant for a total of 100,000 cases per week of pet food. Demands in the five market areas are indicated in the bottom row of the table and also total 100,000 cases per week. Equality of availability and demand is not a necessary requirement for solution. The figures for the units available and the units required are commonly termed the rim conditions. Table 1 also shows the distribution costs per 1000 cases for all combinations of factories and distribution points. These figures are shown in the small boxes; for example, the distribution cost between the Chicago plant and the Atlanta distribution point is $ 18 per 1000 cases. For convenience in notation, the plants are labeled A, B and C, and the distribution points are labeled, P, Q, R, S and T. Table 1 is called a transportation table or a distribution table. An Initial Solution based on North West Corner Rule We will establish an initial solution in an arbitrary way, ignoring the distribution costs. Beginning in the upper left-hand corner of the transportation table (called the northwest corner), note that A has 46 (times 1000) cases available and P needs 27 (times 1000). We assign the 27 from A to P. (see Table 1 where circled numbers represent assigned product; e.g., the 27 in box AP means that 27,000 cases are to go from A to P.) We have not used up A's supply, so we move to the right under column Q and assign the maximum possible to the route AQ, which is 16. We still have not used up A's supply, so we move to the right under column R and assign the balance of A's supply, 3, to R. Examining the requirements for R, we note that it has a total requirement of 28, so we drop down to row B and assign the balance of R's requirements, 15, from B's supply of 20. We then move to the right Page 1 of 3

again and assign the balance of B's supply, 5, to S. We continue in this way, stair-stepping down the table until all the arbitrary assignments have been made as in Table 1. Note that we have seven squares with assignments (n rows + m columns 1) and eight open squares without assignments. This requirement for (m + n - 1) assignments avoids degeneracy. Table 1is the northwest corner initial solution. Methods for obtaining better starting solutions are available. Computer solutions, however, reduce the need to be overly concerned about starting solutions for small to moderate size problems. Test for Optimality Because the northwest corner solution in Table 1 was established arbitrarily, it is not likely to be the best possible solution. Therefore, we need to develop a method for examining each of the open squares in the transportation table to determine if improvements can be made in toal distribution costs by shifting some of the units to be shipped to other routes. In making the shifts, we must be sure that any new solution satisfies the supply and demand restrictions shown in the rim conditions of the transportation table. In evaluating each open square, the following steps are used. Determine a closed path, starting at the open square being evaluated and stepping from squares with assignments back to the original open square. Right angle turns in this path are Step 1 permitted only at squares with assignments and at the original open square. Because only the squares at the turning points are considered to be on the closed path, both open and assigned squares may be skipped over. Step 2 Beginning at the square being evaluated, assign a plus sign and then alternate minus and plus signs at the assigned squares on the corners of the path.

Add the unit cost in the squares with plus signs, and subtract the unit costs in the squares with minus signs. If we are minimizing costs, the results is the net change in cost per unit from the Step 3 changes made in the assignments. If we are maximizing profits, the result is the net change in profit. Step 4 Repeat steps 1, 2, and 3 for each open square in the transportation table. Steps 1 and 2 involve assigning a single unit to the open square and then adjusting the shipments in the squares with assignments until all the rim conditions are satisfied. Step 3 simply calculates the cost ( or contribution to profit) that would result from such a modification in the assignments. If we are minimizing costs and if the net changes are all greater than or equal to zero for all the open squares, we have found an optimal solution. If we are maximizing profits and the net changes are less than or equal to zero or all the open squares, we have found an optimal solution. The net change in total distribution costs resulting from shifting one unit to route BP is 24 18 + 12 36 = - 18. This value is entered in the bottom left-hand corner of the square BP in Table 2. The evaluation of open squares does not always follow a simple rectangular path. For example, the closed path for evaluating square CP and the net change in total distribution cost resulting from shifting one unit to route CP is 22 18 + 12 36 + 30 - 48 = - 38. The net changes in total distribution cost for all the open squares are shown in Table 2 in the lower lefthand corner of each open square. Improving the Solution Because each negative net change indicates the amount by which the total distribution cost will decrease if one unit is shifted to the route of that cell, we will be guided by these evaluations as indexes of potential improvement. Notice in Table 2 that four of the open squares indicate potential improvement, three indicate that costs would increase if units were shifted to those routes, and one indicates that costs would increase if units were shifted to its route. Which change should be made first in determining a new, improved solution? One reasonable rule for small problems and hand solutions is to select the square with the most negative index number when we are minimizing costs. Therefore, we choose square CQ. Page 2 of 3

To improve the solution, we cary out the following steps for square CQ. Step 1 Identify again the closed path for the chosed open square, and assign the plus and minus signs around the path as before. Determine the minimum number of units assigned to a square on this path that is marked with a minus sign. Add this number to the open square and to all other squares on the path marked with a plus sign. Subtract this number from the squares on the path marked with a minus sign. This step is a simple accounting procedure for observing the restrictions of the rim conditions.

Step 2

The closed path for open square CQ is + CQ - AQ + AR BX + BS - CS. The minimum number of units in a square with a minus sign is 5 in CS. Thus, we add 5 units to squares CQ , AR, and BS, and we subtract 5 units from squares AQ, BR, and CS. This reassignment of units generates a new solution, as shown in Table 3. Taking Table 3 as the current solution, we repeat the process, reevaluating all open squares, as shown in Table 3. Note that there are now only two open squares with negative index numbers, indicating potential improvement. Following our previous procedure, open square BT indicates that the largest improvement could be made by shifting assignments to that route. An Optimal Solution The process is continued unitl all open squares show no further improvement. At this point,an optimal solution has been obtained and is hown in Table 18-8, in which all the index numbers for open squares are either positive or zero. Alternative optimal solutions also exist. The total distribution cost required by the optimal solution is $2446, which is $538 less than the original northwest corner solution. Although this 18 percent improvement is impressive, we should note that we started with a rather poor initial solution. Better starting solutions can be obtained for simple problems by making initial assignments to the most promising routes while observing the restrictions of the rim conditions and being sure that there are exactly n + m 1 assignments are called basic solutions, solutions with fewer assignments are called degenerate, and solutions with more than n + m 1 assignments are called nonbasic solutions.

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