The Transportation Problem in operations research is a type of optimization

problem that aims to determine the most cost-effective way to transport goods from
multiple sources (supply points) to multiple destinations (demand points), while
meeting supply and demand constraints. It is widely used in logistics, supply chain
management, and resource allocation.

1. Mathematical Formulation
The transportation problem is a special type of linear programming problem where
the objective is to minimize the cost of transporting goods while meeting the supply
and demand constraints. Below is the detailed formulation
Decision Variable:
Let xij represent the quantity of goods transported from source i to destination j,
where:
• i=1,2,…,mi = 1, 2,.........., m (number of sources),
• j=1,2,…,nj = 1, 2,..........., n (number of destinations).
Objective Function:
n m
Z =   cij xij
i =1 j =1
Where:
• cij = cost per unit of transporting goods from source i to destination j.

The goal is to minimize Z, the total transportation cost.

Constraints:
1. Supply Constraints:
For each source i, the total quantity shipped from that source cannot exceed
its supply si:
n
 xij  si ∀i∈{1,2,…,m}
j =1

2. Demand Constraints:
For each destination j, the total quantity received at that destination must meet
its demand dj:
m
 xij  di ∀j∈{1,2,…,n}
i =1

3. Non-Negativity Constraint:
The quantity transported xij must be non-negative:
xij ≥ 0,∀ i, j
Final Mathematical Formulation:
n m
Minimize Z =   cij xij
i =1 j =1

Subject to:
• Supply constraints:
n
 xij  si ∀i∈{1,2,…,m}
j =1
 • Demand constraints:
m
 xij  di ∀j∈{1,2,…,n}
i =1

• Non-negativity:
xij ≥ 0,∀ i, j

2. Types of Transportation Problem

1.1. Balanced Transportation Problem
Definition:
• A transportation problem is considered balanced when the total supply equals
the total demand.
m n
 si =  d j
i =1 j =1

Characteristics:
• No surplus at the sources or deficit at the destinations.
• All supply and demand constraints are satisfied without any need for
adjustments.
Example:

Warehouse 1 Warehouse 2 Warehouse 3 Supply

Factory 1 5 6 8 50

Factory 2 7 4 3 50

Demand 40 30 30 100

• Total supply = 50+50=10050 + 50 = 100

• Total demand = 40+30+30=10040 + 30 + 30 = 100
Solution:
 1. Use methods like Northwest Corner Rule, Least Cost Method, or Vogel’s
Approximation Method (VAM) to allocate goods.

2. No dummy source or destination is required since the problem is already

balanced.
2.2. Unbalanced Transportation Problem
Definition:
• A transportation problem is unbalanced when the total supply does not equal
the total demand.
m n
 si   d j
i =1 j =1

Types of Unbalanced Problems:

1. Supply Exceeds Demand:
o Total supply is greater than total demand
m n
 si   d j
i =1 j =1

o A dummy destination is added with demand equal to the surplus. The

cost for this dummy destination is set to zero.
2. Demand Exceeds Supply:
o Total demand is greater than total supply
m n
 si   d j .
i =1 j =1

o A dummy source is added with supply equal to the shortage. The cost
for this dummy source is set to zero.
Example 1 (Supply > Demand):
 Warehouse 1 Warehouse 2 Supply

Factory 1 5 6 40

Factory 2 7 4 50

Demand 30 40 70

• Total supply = 40+50=9040 + 50 = 90

• Total demand = 30+40=7030 + 40 = 70
Balancing the Problem:
• Add a dummy destination with demand = 90−70=2090 - 70 = 20.
• The cost for the dummy destination is set to 0.

Warehouse 1 Warehouse 2 Dummy Supply

Factory 1 5 6 0 40

Factory 2 7 4 0 50

Demand 30 40 20 90

Example 2 (Demand > Supply):

Warehouse 1 Warehouse 2 Supply

Factory 1 5 6 20

Factory 2 7 4 30

Demand 30 40 70

• Total supply = 20+30=5020 + 30 = 50

• Total demand = 30+40=7030 + 40 = 70
Balancing the Problem:
 • Add a dummy source with supply = 70−50=2070 - 50 = 20.
• The cost for the dummy source is set to 0.

Warehouse 1 Warehouse 2 Supply

Factory 1 5 6 20

Factory 2 7 4 30

Dummy Source 0 0 20

Demand 30 40 70

Solution:
1. Balance the problem by adding the dummy source or destination.
Solve using any standard method (e.g., Northwest Corner Rule, Least Cost Method).
3. Solution Methods
1. Initial Feasible Solution
o Northwest Corner Rule: Start allocating from the top-left corner of
the cost matrix.
o Least Cost Method: Allocate to the lowest-cost cell first.
o Vogel’s Approximation Method (VAM): Focuses on minimizing
penalties for not choosing the least-cost option.
2. Optimal Solution
o MODI Method (Modified Distribution Method): Checks for
optimality of an initial solution and improves it iteratively.
o Simplex Method: Used for complex or large-scale transportation
problems.
3. Handling Unbalanced Problems
o Introduce dummy rows or columns with zero cost to balance supply and
demand.
4. North West Corner Method
The North West Corner Method is a fundamental principle in the field of Operations Research,
specifically in the context of Transportation Problems. A transportation problem entails
determining the most economical method of transporting commodities from multiple origins to
multiple destinations, taking into account the supply at each origin and the demand at each
destination.

In this context, the North West Corner Method is a type of initial feasible solution. This means it
is one of the first steps in solving a transportation problem; we begin with this method to obtain a
solution which we can then try to optimize.

Process of North West Corner Method

1. Commence from the upper left corner of the transportation table.
2. Distribute the maximum number of units to the cell without beyond the available supply or
demand. This implies that the allocation will be determined by the smaller value between the
supply and demand.
3. If the supply for the row is depleted first, proceed horizontally to the adjacent cell on the right.
If the demand for the column is fully met, proceed to move vertically downward to the
subsequent cell. If both the supply and demand are depleted at the same time, you have the
flexibility to go in either direction.
4. Repeat steps 2 and 3 until all supplies and demands are exhausted, i.e., until all goods have
been allocated.
5. The total cost of this initial solution is then the sum of the products of the number of units
allocated and the unit cost for each cell.

5. Least Cost Method

The Least Cost Method is an essential tool in quantitative analysis, particularly in the fields of
operations management and economics. At its core, it is a procedure utilized for problem-solving
in operations research, specifically regarding the transportation model. The model seeks to
minimize the cost of transporting goods from various supply points to various demand points while
simultaneously fulfilling all supply and demand constraints.
In any business, cost-effectiveness is a critical attribute. The Least Cost Method supports this by
enabling firms to reduce their operational and logistical expenses. This cost-centric strategy is
often utilized when initial allocations are being determined, making it an instrumental technique
in supply chain management and logistics.

Steps in the Least Cost Method

▪ Identify the Minimum Cost Cell: Begin with the unoccupied cell that has the lows
transportation cost. In case of a tie, choose arbitrarily.
▪ Allocate to the Minimum Cost Cell: maximize the allocation of units to this cell while
ensuring that supply and demand limitations are not violated. The value will generally be the
lesser of the remaining supply at the selected source and the remaining demand at the selected
destination.
▪ Update Supply and Demand: After making an assignment, update the remaining supply and
demand figures. If either the supply from the source or the demand from the destination is
exhausted, eliminate that row or column from further consideration.
▪ Move to the Next Minimum Cost Cell: Return to step one, but ignore any rows orb columns
that have been eliminated. Continue this cycle until all supply and demand requirements have
been met.

VAM Approximation Method

Vogel’s approximation (penalty or regret) is preferred over NWCR and LCM

methods. In this method, an allocation is made on the basis of the opportunity (or
penalty or extra) cost that would have been incurred if the allocation in certain cells
with minimum unit transportation cost were missed. Hence, allocations are made in
such a way that the penalty cost is minimized. An initial solution obtained by using
this method is nearer to an optimal solution or is the optimal solution itself. The steps
of VAM are as follows:

Step 1: Calculate the penalties for each row (column) by taking the difference
between the smallest and next smallest unit transportation cost in the same row
(column). This difference indicates the penalty or extra cost that has to be paid if
decision-maker fails to allocate to the cell with the minimum unit transportation cost.
Step 2: Select the row or column with the largest penalty and allocate as much as
possible in the cell that has the least cost in the selected row or column and satisfies
the rim conditions. If there is a tie in the values of penalties, it can be broken by
selecting the cell where the maximum allocation can be made.

Step 3: Adjust the supply and demand and cross out the satisfied row or column. If
a row and a column are satisfied simultaneously, only one of them is crossed out and
the remaining row (column) is assigned a zero supply (demand). Any row or column
with zero supply or demand should not be used in computing future penalties.

Step 4: Repeat Steps 1 to 3 until the available supply at various sources and demand
at various destinations is satisfied.