TOPIC 3: TRANSPORTATION AND Why is Optimization of Logistics Relevant?

ASSIGNMENT MODEL
1.​ Cost Savings in a Competitive Market -
Transportation and Assignment Models are In a time when fuel prices, labor, and
used to optimize resource allocation and minimize materials are expensive, finding cheaper
costs in various scenarios, particularly in logistics ways to operate helps businesses stay
and supply chain management. competitive.
2.​ Faster Deliveries = Happier Customers
Transportation Model
- Optimizing logistics leads to faster
●​ Goods need to be transported from
service, which improves customer
multiple sources (e.g., factories) to
satisfaction and loyalty.
multiple destinations (e.g., warehouses or
stores) at the lowest cost possible. 3.​ Environmental Impact - By reducing
unnecessary trips and idle time,
Assignment Model businesses can lower carbon emissions
●​ Jobs need to be assigned to specific and support sustainable practices.
people, machines, or locations, with the 4.​ Crisis Management - During
goal of maximizing efficiency or minimizing emergencies like typhoons or pandemics,
cost and time. companies that optimize their logistics can
quickly adapt, reroute deliveries, or
OPTIMIZATION OF LOGISTICS reassign workers as needed.
5.​ Scalability for Growth - As businesses
The process of making supply chain activities as grow, their operations become more
efficient, fast, and cost-effective as possible. It complex. Optimized logistics ensures that
plans the flow of goods, services, and information they can expand without chaos or major
from suppliers to customers using minimal errors.
resources, time, and money.
RESOURCE ALLOCATION
Key Aspects of Logistics Optimization
The process of assigning limited resources, such
1.​ Route Efficiency - Helps determine the as people, money, machines, trucks, or time, to
shortest or fastest path for delivery trucks tasks, departments, or locations where they are
or riders, reducing fuel costs and delivery most needed.
time.
2.​ Cost Reduction - These models help How the Models Help in Resource Allocation
businesses find the cheapest way to
transport goods or assign jobs without 1.​ Assigning the Right Task to the Right
sacrificing quality. Resource - The Assignment Model
ensures that each task is given to the
3.​ Time Management - Helps schedule and
most suitable person or machine based on
assign resources (like delivery trucks or
certain criteria, such as cost, time, or skill.
employees) without delays or overlaps.
2.​ Ensuring Fair Distribution - The
4.​ Inventory and Supply Control - Ensures Transportation Model makes sure that
that supply meets demand without supplies are fairly and efficiently
overstocking or shortages. distributed to where they are needed
5.​ Smart Decision Making - Provides most—avoiding overloading some areas
managers with a data-driven approach while neglecting others.
instead of guesswork, leading to more 3.​ Preventing Waste and Idle Time - These
confident and accurate decisions. models reduce unnecessary spending by
ensuring that resources are neither
overused nor left idle.
 4.​ Supporting Strategic Planning - These
models help organizations not only handle
current needs but also prepare for future Baguio Cebu Davao Supply
demands. They allow companies to (80) (100) (120)
reallocate resources when conditions
change. Manila ? ? ? 150

Laguna ? ? ? 100
Why Resource Allocation Matters?
Iloilo ? ? ? 50
Efficient resource allocation is critical in every
industry, especially today when businesses face Demand 80 100 120
rising costs, limited manpower, and increasing
customer expectations. By using Transportation
and Assignment Models:
Baguio Cebu Davao
●​ Companies avoid waste and lower costs
●​ Operations run faster and smoother Manila 80 70 –
●​ Workloads and supplies are distributed
fairly Laguna – 30 70
●​ Decision-making becomes data-driven Iloilo – – 50
and strategic

LEAST COST METHOD

NORTHWEST CORNER METHOD
-​ The Least Cost Method is a technique
-​ The Northwest Corner Method is a way to
used in linear programming to find an
figure out how to send supplies from
initial feasible solution for transportation
different locations to where they are
problems.
needed, without thinking about cost yet.
-​ Also known as “minimum cost or matrix
minimum method”.
-​ It’s called “Northwest Corner” because we
-​ It’s called “Least Cost” because it
start at the top-left corner (like on a map
prioritizes allocating resources to the cells
or table).
with the lowest transportation costs first.
Basic Idea:
Problem: Suppose there are THREE
FACTORIES (F1, F2, & F3) supplying goods to
1.​ Start at the top-left box (that’s the
FOUR STORES (S1, S2, S3, & S4).
"northwest corner").
2.​ Give as much as you can from the
Goal: Factories just need to SUPPLY GOODS in
warehouse to the branch.
each store.
3.​ Cross out the row or column that’s
already satisfied. How to find total cost of transportation using
4.​ Move right or down and repeat until least cost method:
everyone’s needs are met.
1.​ Check all the boxes which have the least
Problem: You’re helping Jollibee deliver cost.
Chickenjoy boxes from 3 warehouses to 3 2.​ If the demand is less than supply, fulfill all
branches. the demand.
3.​ Cross the other boxes since the demand
Goal: Deliver the right number of boxes from
is already fulfilled so it doesn’t need to
warehouses to branches (no over/under delivery),
supply from other factories.
using the Northwest Corner Method.
4.​ Cross the demand if it’s fulfilled & don’t
forget to write the balance.
IF IT HAS THE SAME COST JUST REMEMBER 5.​ Repeat until all demands and supplies are
THIS: satisfied.

• If there is a tie, choose the box whose demand Problem: A company has two warehouses (S1,
is more. S2) and three stores (D1, D2, D3). The
transportation cost per unit, supply, and demand
REMEMBER THIS:
are shown in the table:
• If your supply is not enough for the demand, just
put what you have. D1 D2 D3 Supply

FINAL STEP: S1 2 3 11 6

S2 1 0 6 9
• Just MULTIPLY and ADD each box to get the
total cost. Demand 4 5 6

Goal: Use Vogel’s Approximation Method to find

an initial basic feasible solution that minimizes
VOGEL’S APPROXIMATION METHOD
transportation cost.
-​ A method used in transportation problems.
Step 1: Compute Penalties - Find the difference
-​ To minimize total transportation cost.
between the two lowest costs in each row and
-​ It gives a better initial solution than the
column.
North-West Corner Rule or Least Cost
Method.
Row Penalties:
-​ Helps reduce the number of steps in
optimization methods like MODI (Modified ●​ S1: 2 and 3 → 3 - 2 = 1
distribution method) ●​ S2: 0 and 1 → 1 - 0 = 1
-​ VAM offers a practical shortcut to quickly
generate a near-optimal transportation Column Penalties:
plan.
-​ Based on penalty cost, the difference ●​ D1: 1 and 2 → 2 - 1 = 1
between the two lowest costs in a row or ●​ D2: 0 and 3 → 3 - 0 = 3
column. ●​ D3: 6 and 11 → 11 - 6 = 5

Steps in VAM: Highest Penalty = 5 (Column D3)

1.​ Compute penalties for each row and Step 2: Choose lowest-cost cell in D3
column​
●​ D3 column: Costs are 11 (S1) and 6 (S2)
→ Subtract the two smallest costs in each
●​ Lowest cost = 6 at (S2, D3)
row and column.​
●​ Demand = 6, Supply = 9​
— Allocate 6 units to (S2, D3)
2.​ Identify the highest penalty​
→ Choose the row or column with the Update:
largest penalty value.
3.​ Allocate as much as possible​ ●​ D3 fulfilled → cross out D3
→ Go to the lowest-cost cell in that ●​ S2 remaining supply: 9 - 6 = 3
row/column and assign the minimum of
supply or demand. Step 3: Recompute Penalties
4.​ Adjust supply/demand​
New Table (cross out D3):
→ If supply or demand becomes 0, cross
out the row or column.
 STEP 6: Only one left — (S1, D2)
D1 D2 Supply

S1 2 3 6 ●​ D2 needs 2 units
●​ S1 has 2 units​
S2 1 0 3 — Allocate 2 units to (S1, D2)

Demand 4 5 Final Allocation Table:

Row Penalties: From/To D1 D2 D3 Supply

●​ S1: 3 - 2 = 1 S1 4 2 – 6
●​ S2: 1 - 0 = 1
S2 – 3 6 9
Column Penalties:
Demand 4 5 6
●​ D1: 1 and 2 → 2 - 1 = 1
●​ D2: 0 and 3 → 3 - 0 = 3 Total Transportation Cost:

Highest Penalty = 3 (Column D2) ●​ (S1, D1): 4 × 2 = 8

●​ (S1, D2): 2 × 3 = 6
●​ (S2, D2): 3 × 0 = 0
Step 4: Allocate in D2 (lowest cost = 0 at S2)
●​ (S2, D3): 6 × 6 = 36
●​ Demand D2 = 5
Total Cost = 8 + 6 + 0 + 36 = ₱50
●​ S2 supply = 3​
— Allocate 3 units to (S2, D2) Summary of Process:

Update: 1.​ Compute penalties.

2.​ Select the highest penalty row/column.
●​ S2 supply now 0 → cross out S2
3.​ Allocate to the lowest-cost cell in that row
●​ D2 demand becomes 2
or column.
4.​ Adjust supply/demand.
Step 5: Recompute Penalties 5.​ Cross out completed row/column.
Remaining: 6.​ Repeat until the table is filled.

Advantages
D1 D2 Supply
●​ Gives a near-optimal starting solution
S1 2 3 6
●​ Fewer iterations needed in MODI
Demand 4 2 ●​ Smarter decision-making using penalties

Limitations
(No S2 now, just S1)
●​ More complex than simpler methods
Only Row S1: 3 - 2 = 1
●​ Not always the optimal solution, just close
Choose cell with lowest cost → (S1, D1) = 2
Conclusion
●​ Demand D1 = 4
●​ VAM is one of the best methods to start
●​ S1 supply = 6​
solving a transportation problem.
— Allocate 4 units to (S1, D1)
●​ Saves time and effort in the long run.
Update: ●​ Useful when dealing with larger problems
where optimization is required.
●​ D1 fulfilled → cross out D1
●​ S1 supply becomes 2