Transportation

Problem
Case Study
Defination:
 The Transportation problem is one of the
mot frequently encountered applications in
real life situations and is a special type of
linear programming problem.

 The transportation problem has a number of
origins and a number of destinations.

 The problem indicates the amount of
consignment to be transported from
various origins to different destinations, so
as to minimize the total transportation
cost.
B a la n ce d Tra n sp o rta tio n Pro b le m :
o A problem in which the total supply
available at all the origins exactly
satisfies the total demand required at
all the destinations.
o
o
U n b a la n ce d Tra n sp o rta tio n Pro b le m :
o A transportation problem where the total
availability at the origins is different
from the total requirement at the
destinations.
Feasible Solutions
 An initial feasible solution with an allocation
of number of variables, xij ; i = 1,2,
(m + n – 1)

….,m; j =1,2,….,n, is called a basic feasible

solution.


 A number of techniques are available for

computing an initial basic feasible solution

of a transportation problem. These are
a.North-West Corner Method
b.Matrix Minimum Method
c.Row Minima Method
d.Column Minima Method
e.Vogel’s Approximation Method [VAM].
 Test of Degeneracy
Degeneracy


oA condition that occurs when the

number of occupied cells in any
solution is less than the number of
rows plus the number of columns
minus 1 in a transportation problem,
i.e., (m + n – 1).
o


o
Test of Optimality
 An optimal solution is one in which there is
no opportunity cost, i.e., there is no other
set of transportation routes (allocations)
that will reduce the total transportation
cost. The following two methods are widely
used for testing the optimality:


1. Stepping Stone Method

o An iterative technique for moving from an
initial feasible solution to an optimal solution
in transportation problems.
o

2. Modified Distribution Method (MODI)

o Another algorithm for finding the optimal
solution to a transportation problem. It can
be used in place of the stepping stone
Improvement Index
The net cost of shipping one unit
on a route not used in the
current transportation problem
solution.
Case Study
 Reliance Equity Opportunities Fund had
worked for many securities. The primary
investment objective of the scheme is to
seek to generate capital appreciation &
provide long-term growth opportunities by
investing in a portfolio constituted of
equity securities & equity related
YEAR Estimated
securities. The company
Amount (Rshad
. In estimated
amount 2005
to get from the
70 investors
Crores ) for 2005
till 2008 2006
were, 40
 2007 90
 2008 30
 After keeping the updates, the company
selected four major sectors to invest in.
These were, with the limit to invest in
Sector
them: Amount Invested (Rs.
In Crores)

 Automobile Sector 40
Banking Sector 50
Information 60
Technology Sector
Metal Sector 60
 The estimated net return on investment of
one rupee till the end of the planning
horizon
Year Netis Return
givenData
below Amount
(in paisa) of selected Investments
Auto Bankin IT Metal Available
2005 Sector
95 g80 Sector
70 Sector
60 70
2006 75 65
Sector 60 50 40
2007 70 45 50 40 90
2008 60
Maximum 40
40 40 30 30
50 60 60 21 230
Investm 0
ent

 Using the data given about the Reliance

Equity Opportunities Fund, determine the
optimal investment strategy.
Solution:
 The objective is to get the optimal
investment strategy.


 The problem is unbalanced which is to be

further converted to a balanced one by
adding aData(in
dummy investment and
Year Net Return paisa) of selected Investments
Amount
formulated
Auto Bankin as transportation
IT Metal Dummy problem to
Availabl
e
maximize
Sector g return. Sector Sector
2005
 95 Sector
80 70 60 0 70
2006 75 65 60 50 0 40
2007 70 45 50 40 0 90
2008 60 40 40 30 0 30
Maximum 40 50 60 60 20 230
Investm
ent
  Now, converting the maximization problem
into a minimization problem by subtracting
all the elements of the above pay-off
matrix from the highest pay-off.
Year Net Return Data(in paisa) of selected InvestmentsAmount
Availabl
Auto Bankin IT Metal Dummy e
Sector g Sector Sector
2005 0 Sector
15 25 35 95 70
2006 20 30 35 45 95 40
2007 25 50 45 55 95 90
2008 35 55 55 65 95 30
Maximum 40 50 60 60 20 230
Investm
ent
 To get the initial feasible solution, we have
applied the Vogel’s Approximation Method
(VAM).

 An algorithm used to find a relatively
efficient initial feasible solution to a
transportation problem by considering the
‘penalty cost’ of not using the cheapest
available route.

 It is preferred to the other methods because
it gives an initial solution which is nearer to
an optimal solution or is optimal solution
itself.
Initial Feasible Solution
Year Amount
Net Return Data(in paisa) of selected
Investments Availab
Row Penalty
Aut Banki IT Meta Dumm le I II III IV V
o ng Sect l y
2005 Sec
40 Secto
30 or Sect 70 30
2006 tor 0 r20 20
15 25
or 35 95
0
40 20 15 10 - - -

2007 2
40
30 35
50 45 95
0
90 50 10 5 5 10 -

2008 25 50 45
10 20
55 95
0
30 20 20 10 5 10 10
Maximum 40 35
50 20 60
55 55
60 20
65 95
0
230 20 0 0 10 10
Investme 0 0 40 0 10
nt
0
Colu I 20 15 10 10 0 Initial Solution
mn II - 15 10 10 0 Obtained
Pena III - 20 10 10 0 = (40×.95) + (30×.80) +
lty
IV - - 10 10 0 (20×.65) + (20×.60) +
(40×.50) + (50×.40) +
V - - 20 10 0 (10×.30) + (20×0)
= Rs . 130 Crores
Test of Degeneracy
 After getting the initial feasible solution, the
next step is test of degeneracy. The total
number of allocated cells in the table are
8. So, the allocated cells must be equal to
(m +n-1) to get a non-degenerated.


 ‘m’ is number of origins and ‘n’ is number of

destinations, i.e., m= 4 and n= 5


 So, as per the formula, (m +n-1)= (4+5-1)=

8.


 Therefore, the problem has a non-

degenerated solution.
Test of Optimality
 Since there are 8 allocations, the solution is
tested straightway for optimality. We have
tested optimality by Modified Distribution
Year Net
Method. Investments
Amount
Return Data(in paisa) of selected
Availab
Aut Banki IT Meta Dumm le
o ng Sect l y
2005 Sec
40 Secto or
30 Sect 70
2006 tor0 r20 20
15 25
or35 95
40
2007 2
40
30 35
5045 95
90
2008 25 50 45
10 20
55 95
30
Maximum 40 50 60 60 20 230
Investme
35 55 55 65 95

nt
 The row numbers (ri) and column numbers
(kj) are added to such that it makes net
return on investment of one rupee. We
have assumed ‘r3= 0’.


 r1 + k1 = 0 r1 + k2 = 15
 r2 + k2 = 30 r2 + k3 = 35
 r3 + k3= 45 r3 + k4 = 55
 r4 + k4 = 65 r4 + k5 = 95
 Assuming ‘r3= 0’, we have calculated all
other values of ri and kj.
Year Net Amount Row
Return Data(in paisa) of selected
Investments Availab
Aut Banki IT Meta Dumm Number
le
o ng Sect l y (ri)
2005 Sec
40 Secto or
30 Sect 70
2006 tor 0 r
20 20
15 25
or 35 95
40 r1 =
-25
r =
2007 2
40
30 35
50 45 95
90 2
-10
r3 = 0
2008 25 50 45
10 20
55 95
30
Maximum 40 35
50 55
60 55
60 20
65 95
230 r 4 = 10
Investme
nt
Column k1 = k2 = k3 = k4 = k5 =
Number (kj) 25 40 45 55 85
Improvement Index
Unoccupied Expected Imputed Opportunity
Cell Return Return Cost
r1 k3 25 20 05
r 1k 4 35 30 05
r 1k 5 95 50 35
r 2k 1 20 15 05
r 2k 4 45 45 00
r 2k 5 95 75 20
r 3k 1 25 25 00
r 3k 2 50 40 10
r 3k 5 95 85 10
r 4k 1 35 35 00
r 4k 2 55 50 05
r 4k 3 55 55 00
Optimal Transport Schedule
 Since all the opportunity cost of non-
allocated cells are positive, the initial
solution
Year obtained above is optimal.
Investment Net Return
(Rs. Crores)
2005 Rs. 40 Crores to 0.95× 40 =
Automobile Sector
Rs. 30 Crores to Banking 38
0.80 × 30
2006 Sector
Rs. 20 Crores to Banking 0.6524× 20
=
Sector
Rs. 20 Crores to IT 0.6013× 20
=
2007 Sector
Rs. 40 Crores to IT 0.5012× 40
=
Sector
Rs. 50 Crores to Metal 0.4020× 50
=
2008 Sector
Rs. 50 Crores to Metal 0.3020× 10
=
Sector = 3
Thank You
Nitish Garg 023
Sandeep R. Sharma

005
Saket Maheshwari

006
Rahul Sharma

043
Surya Rathi 058
Sumit Kumar 039
Purav Riat 055