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Transportation Problem of Coca Cola in Ghana

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Transportation Problem of Coca Cola in Ghana

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COLLEGE OF SCIENCE

By

Kwame Nkrumah University of Science and Technology

in partial fulfillment of the requirements for the degree of

MASTER OF SCIENCE

In Industrial Mathematics,

Institute of Distance Learning

APRIL, 2013

Declaration

I hereby declare that this submission is my own work towards the MSc and that, to the best of my

knowledge, it contains no material previously published by another person, nor material, which has

been accepted for the award of any other degree of university, except where due acknowledgement

Certified by:

(Dean, IDL) Signature Date

i

Dedication

This study is dedicated to the Almighty God, my lovely father Felix Kwasi Brany (retired) and

ii

Acknowledgements

First and foremost, I thank God the Almighty for given me this opportunity and carrying me

through this thesis successfully. This thesis could not have been completed without the support and

encouragement from several people. I am deeply indebted to my supervisor, Prof Samuel Kwame

Amponsah, for his excellent direction, invaluable feedback, his constructive suggestions, detailed

corrections, support and encouragement that resulted in this successful project. I would like to

extend my gratitude to all the academic facilitators who taught me during the two year‟s master

programme. I also own thanks and appreciation to my Siblings, Brany Emmanuel Yao, Brany

Desire Adjoa and Brany Robert Edzewunye and friends especially Gyakwa Augustine for their

Finally I thank the logistics managers of Coca Cola Bottling Company of Ghana Limited, for

iii

iii

Abstract

Road transport is predominant means of commuting in Ghana and accounts for high passenger

travels and carting of goods in the country, marking it a vital transportation service that links the

country to others in the entire west African sub-region. Road transport is by the dominant

carrier of freight and passengers in Ghana‟s land transport system. It carries over 95% of all

passenger and freight traffic and reaches most communities, including the rural poor and is

classified under three categories of trunk, urban and feeder roads. Transportation is the physical

distribution of resources from one place to the other, to meet specific set of requirements. The

objective of this study is to model the distribution of Coca Cola products as a transportation

problem and to minimize the transportation cost in order to increase profit on sales. The

transportation Problem was formulated as liner programming mathematical model and solved

by management scientist software to generate an optimal solution. The observation was that if

Coca Cola implement the proposed supply and demand changes it will help in decreases

transportation cost to GH¢133670.3 Ghana cedis. This transportation model will be useful for

making strategic decisions by the logistics managers Coca Cola Bottling Company LTD in

making optimum allocation of the production from the two plants (ACCRA and KUMASI) to

iv

iv

Table of Contents Content Page

Declaration..........................................................................................................................................i

Dedication……………………………...............................................................................................ii

Acknowledgements……………………….........................................................................................iii

Abstract...............................................................................................................................................iv

CHAPTER1: INTRODUCTION

1.2.1.1 Road.......................................................................................................................................7

1.2.1.2 Railway...................................................................................................................................8

1.2.1.3 Air...........................................................................................................................................9

1.2.1.4 Water....................................................................................................................................10

1.2.2.1 Introduction..........................................................................................................................11

1.2.2.3 Manufacturing......................................................................................................................13

1.2.2.4 Warehouse............................................................................................................................13

1.2.2.5 Distribution...........................................................................................................................13

1.2.2.7 Vision....................................................................................................................................14

v

1.2.2.9 Administrative Setup............................................................................................................15

1.2.2.10 Operations...........................................................................................................................15

1.4 Objective.....................................................................................................................................17

1.5 Methodology...............................................................................................................................17

1.6 Justification.................................................................................................................................18

1.8 Summary.....................................................................................................................................20

2.1 Introduction................................................................................................................................21

CHAPTER 3: METHODOLOGY

3.1 Introduction................................................................................................................................31

vi

3.6 Network Representation of Transportation Problem..................................................................39

3.8.1 Mathematical Model for the Transportation Problem with Mixed Constraints......................79

4.0 Introduction................................................................................................................................90

4.3 July 2009 – June 2010 Transportation Matrix for Coca Cola Problem......................................92

vii

4.3.3 Computational Procedure.........................................................................................................98

5.1 Conclusion.................................................................................................................................103

5.2 Recommendations.....................................................................................................................104

REFERENCES................................................................................................................................105

APPENDIX......................................................... ...........................................................................108

viii

Table 2.10: The Minimum Cell Cost Solution…………………..…………………........................59

Table 2.13: The Addition of One Ton to Cell 3B and the Subtraction of One Ton from Cell 3A....62

Table 2.28: The New ui and vj Values for the Second Iteration…………………….…..................76

ix

Table 3.8: Solution for the TP with mixed constraints......................................................................88

x

CHAPTER 1

INTRODUCTION

Business and Industries are practically faced with both economic optimizations such as cost

minimization of non-economic items that are vital to the existence of their firms. The

transportation models or problems are primarily concerned with the optimal (best possible) way

in which a product produced at different factories or plants (called supply origins) can be

objective in a transportation problem is to fully satisfy the destination requirements within the

operating production capacity constraints at the minimum possible cost. Whenever there is a

physical movement of goods from the point of manufacturer to the final consumers through a

The transportation problem is a special class of linear programming problem, which deals with

shipping commodities from source to destinations. The objective of the transportation problem

is to determine the shipping schedules that minimize the total shipping cost while satisfying

supply and demand limits. The transportation problem has an application in industry,

Considers

meet needsaatsituation in which three

three destinations ( points ).ofThe

origin (

amount available) at

have

eachsuppliers

origin isavailable

specifiedto

1

of moving goods between origin and destination can be setup as a table of where the

subscripts indicate the cell, given the cost of moving from the origin to destination: so

for example the cost of moving goods from the origin to destination . In real a life

problem these quantities must be written in specific units: the supplies available and needs

might be in tonnes, or even in thousands of tonnes; the movement costs will then be in cost

Transportation problem deals with the problem of how to plan production and transportation in

such an industry given several plants at different location and larger number of customers of

their products. The transportation problem received this name because many of its applications

problem for organizations especially for manufacturing and transport companies. This method is

a useful tool in decision-making and process of allocating problem in these organizations. The

transportation problem deals with the distribution of goods from several points, such as factories

often known as sources, to a number of points of demand, such as warehouses, often known as

destinations. Each source is able to supply a fixed number of units of products, usually called

the capacity or availability, and each destination has a fixed demand, usually known as

requirement.

Because of its major application in solving problems which involving several products sources

and several destinations of products, this type of problem is frequently called “The

Linear Programming (LP) problem and its model is applied to determine an optimal solution of

delivery available amount of satisfied demand in which the total transportation cost is

2

mathematical model and usually it appears in a transportation tableau.

There is a type of linear programming problem that may be solved using a simplified version of

the simplex technique called transportation method. The simplex method is an iterative

algebraic procedure for solving linear programming problems” (Krajewski, et al., 2007). One

possibility to solve the optimal problem would be optimization method. The problem is

however, formulated so that objective function and all constraints are linear and thus the

This chapter discusses background materials and concepts involved in the study. Transportation

activities in our real life and mainly deals with logistics. It helps in solving problems on

distribution and transportation of resources from one place to another. The goods are

transported from a set of sources (e.g. factory) to a set of destinations (e.g. warehouse) to meet

There is a type of linear programming problem that may be solved using a simplified version of

the simplex technique called transportation method. Because of its major application in solving

problems involving several product sources and several destinations of products, this type of

problem is frequently called the transportation problem. It gets its name from its application to

problems involving transporting products from several sources to several destinations, although

the formation can be used to represent more general assignment and scheduling problems as

well as transportation and distribution problems. The two common objectives of such problems

3

are either

The aim of this study is to look principally at a specific type of Linear Programming Problem,

known as the Transportation Problem. Transportation theory is the name given to the study of

optimal transportation and allocation of resources. The model is useful for making strategic

The transportation model can also be used in making location decisions. The model helps in

locating a new facility, a manufacturing plant or an office when two or more number of

locations is under consideration. The total transportation cost, distribution cost or shipping cost

and production costs are to be minimized by applying the model. Transportation moves

products and provide added value to customers when the products arrive on time, undamaged,

and in the quantities required. In this way, transportation contributed to the level of customer

service, which is one of the cornerstones of customer satisfaction and important component of

the marketing concept. Transportation is one of the largest logistics cost and may account for a

significant portion of the selling price of most products. Generally, the efficient management of

transportation becomes more important to a firm as inbound and outbound transportation costs

increases.

4

In Ghana, over the past three years, fuel prices have increased more than double. This alone put

a considerable strain on companies‟ budget regarding transportation costs‟‟. Other factors such

as insufficient roads coupled with their bad nature especially during the rainy season further

at their disposal so as to minimize transportation costs. The above, among other factors have

The increasing rate of competition both domestically and abroad, high quality requirement in

the product and services, increasing awareness of environmental issues have compelled

organizations to improve their internal process rapidly in order to stay in competitive. Many

companies have come out with different marketing strategies focusing on creating and capturing

customer loyalty, translating customer needs into product and service specification leading to

high level quality products at reasonable cost. The competitive nature of different brands

satisfying the same customer needs in a restricted market environment, organization utilize a

large number of channels of distribution in making their products available to the customers

who may be spread in a vast areas across the country though some may cater for foreign

assumes a greater significance. Transportation is therefore the transfer of goods from one source

The transportation problem itself was first formulated by Hitchcock (1941), and was

independently treated by Koopmans and Kantorovich. In fact Monge (1781) formulated it and

5

solved it by geometrical means. Hitchaxic (1941) developed the basic transportation problem;

however it could be solved for optimally as answers to complex business problem only in 1951,

when George B. Dantizig applied the concept of Linear programming in solving the

transportation model. Dantzing (1951) gave the standard LP-formulation TP and applied the

simplex method to solve it. Since then the transportation problem has become the classical

programming.

The transportation problem can be described using linear programming mathematical model and

usually it appears in a transportation tableau. Linear programming has been used successfully in

problem is the name of a mathematical model, which has a special mathematical structure. The

mathematical formulation of a large number of problems conforms (or can be made to conform)

to this special structure. So the name is frequently used to refer to a particular form of

mathematical model rather than the physical situation in which the problem most natural

originates.

The transportation problem is a special kind of the network optimization problem. The

transportation models play an important role in logistics and supply chains. The objective is to

schedule shipments from sources to destinations so that total transportation cost is minimized.

The problem seeks a production and distribution plan that minimizes total transportation cost.

6

The problem can be formulated as the following mathematical program. The function to be

minimized (or maximised) is called Objective function. When the linear system model and the

objective functions are both linear equations, we have a linear programming problem.

Furthermore, LP algorithms are used in subroutines for solving more difficult optimisation

by Dantizig (1947) in response to a challenged to mechanise the Air Force planning process.

Linear Programming has been applied extensively in various areas such as transportation,

construction, telecommunications, healthcare and public services to name but few areas. The

simplex algorithm was the forerunner of many computer programs that are used to solve

complex optimization problems (Baynto, 2006). The transportation method has been employed

to developed many different types of processes. From machine shop scheduling Mohaghegh

transportation method can be used to reduce the impact of using fossil fuels to transport

materials.

1.2.1.1 Road

Road transport is by far the dominant carrier of freight and passengers in Ghana‟s land transport

system. It carries over 95% of all passenger and freight traffic and reaches most communities,

including the rural poor and is classified under three categories of trunk roads, urban roads, and

feeder roads. The Ghana Highway Authority, established in 1974 is tasked with developing and

maintaining the country's trunk road network totalling 13,367km, which makes up 33% of

7

Ghana's total road network of 40,186km. The demand for urban passenger transport is mainly

by residents commuting to work, school, and other economic, social and leisure activities. Most

urban transportation in Ghana is by road and provided by private transport including taxis, mini-

Buses are the main mode of transport accounting for about 60% of passenger movement. Taxis

account for only 14.5% with the remaining accounted for by private cars. One important trend

in road transport (especially inter-city) is that there has been a shift from mini-buses towards

medium and large cars with capacities of 30 - 70 seats. There has been a growing preference for

good buses as the sector continues to offer more options to passenger in terms of quality of

vehicles used.

According to the Ministry of Roads and Transport, Ghana‟s road transport infrastructure is

made up of 50,620km of road network linking the entire country. These are under the control of

the Ghana Highways Authority (14,047 km), Department of Urban Roads (4,063 km) and the

Department of Feeder Roads (32,594 km). About 15.7% of the total road network is paved.

1.2.1.2 Railways

A triangular rail network of 950km link the three cities of Kumasi in the heart of the country,

Takoradi in the west and Accra - Tema in the east. The network connects the main agricultural

and mining regions to the ports of Tema and Takoradi. It has mainly served the purpose of

hauling minerals, cocoa and timber. Considerable passenger traffic is also carried on the

network. There are firm plans by the Government to develop the rail network more extensively

8

to handle up to 60% of solid and liquid bulk cargo haulage between the ports and the interior

and /or the landlocked neighbouring countries to the north of Ghana and elsewhere. The

government has set out seeking the necessary investment to restore the network, improve speed

and axle load capacity and replace worn-out rolling stock. Plans are far advanced to privatize

the State-owned Ghana Railways Corporation (GRC) through concession and to provide much

1.2.1.3 Air

The country is at the hub of an extensive international (and national) airline network that

connects Ghana to Africa and the rest of the world. Most major international carriers fly

regularly to Kotoka International Airport (KIA) in Accra, the main entry point to Ghana by air.

This is the result of Ghana„s open skies policy, which frees an air space regulator from the

constraints on capacity, frequency, route, structure and other air operational restrictions. In

effect, the policy allows the Ghana Civil Aviation Authority (GCAA) to operate with minimal

restrictions from aviation authorities, except in cases of safety and standards and/or dominant

position to distort market conditions. Ghana is working to position herself as the gateway to

West Africa. KIA remains the leading and preferred airport in the sub-region, having attained

Category One status by the US Federal Aviation Administration (FAA) audit as part of their

International Aviation Safety Audit (IASA) programme. As at now, Ghana is one of the four

countries in sub-Saharan Africa in this category. The others are Egypt, South Africa and

Morocco. It handles the highest volume of cargo in the sub-region and has all the requisite

embarked upon since 1996 has brought about an expansion and refurbishment and upbringing

9

of facilities at the international terminal building, as well as the domestic terminal. These

terminals now have significantly increased traveller and cargo capacity. The airport‟s runway

has been extended to cater for all types of aircraft allowing direct flights from Ghana at

maximum take-off weight without the need for technical stops en-route.

1.2.1.4 Water

The Volta Lake was created in the early 1960‟s by building a dam at Akosombo and flooding

the long valley of the River Volta. It is the largest man-made lake in the world stretching 415km

form Akosombo 101km north of Accra, to Buipe in northern Ghana , about 200km from Ghana

s border with Burkina Faso. As a waterway, the Volta Lake plays a key role in the Ghana

“Corridor” programme by providing a useful and low cost alternative to road and rail transport

between the north and the south. Ghana is in an advantageous position, by virtue of her seaports

and inland lake transport system, to service the maritime needs of land-locked countries to the

north of Ghana.

A Company, Volta Lake Transport Company (VLTC) uses a fleet of pusher tugs and assorted

barges to provide regular north-south services for general cargo and liquid bulks, and tramping

service for local traders. VLTC carries 88,000 tonnes of cargo annually. Northbound, one of the

most important cargoes is diesel oil, which is piped to Akosombo from the Tema Oil Refinery

and taken on to final destination (Buipe) by barge. Other cargos include alumina, sulphate,

cement, fertilizer, stores and oil products, all of which are conveyed to Akosombo by truck.

Southbound, the barges carry a range of agricultural produce including cassava chips, cotton

lint, cottonseed and sheanuts. All these items are trucked south (from Akosombo) to Accra and

Tema, from where cottonseeds and sheanuts are exported. VLTC also operates a 300-passenger

10

capacity vessel between Akosombo and Yeji in Northern Ghana (293km). This vessel is

1.2.2.1 Introduction

The Coca-Cola Company was originally established as the J. S. Pemberton Medicine Company,

aco-partnership between Dr. John Stith Pemberton and Ed Holland. Dr. John Stith Pemberton

for the first time produced the syrup for Coca-Cola on May 8, 1886

The Coca-Cola Company is the world's largest beverage company, largest manufacturer,

distributor and marketer of non-alcoholic beverage concentrates and syrups in the world. The

Coca-Cola formula and brand was bought in 1889 by As a Candler who incorporated The Coca-

Cola Company in 1892. Besides its namesake Coca-Cola beverage, Coca-Cola currently offers

nearly 400 brands in over 200 countries or territories and serves 1.5 billion servings each day.

focused on initiatives that reduce our environmental footprint, support active, healthy living,

create a safe, inclusive work environment for our associates, and enhance the economic

development of the communities where we operate. Together with our bottling partners, Coca

11

Cola is ranked among the world's top 10 private employers with more than 700,000 systems.

The Coca-Cola Bottling Company of Company Limited (TCCBCGL) was set up as a joint

Government of Ghana - 55% with the Management contract granted to The Coca-Cola

Company Upon further re-structuring and acquisition, the current ownership structure changed

In year 2003, the Equatorial Coca-Cola Bottling Company of Barcelona, Spain bought

Coca-Cola Company is also the world's most valuable brand, Coca-Cola manufactures eight (8)

brands of its products: Fanta Minute Maid Sprite Krest Burn Schweppes Bon-Aqua Globally,

Coca Cola is the No. 1 provider of sparkling beverages, ready-to-drink coffees, and juices and

juice drinks. Through the world's largest beverage distribution system, consumers in more than

200 countries enjoy our beverages at a rate of more than 1.7 billion servings a day. Seventeen

(19) flavours are currently bottled under the above mentioned brands, namely: Coca-Cola, Fanta

Orange, Fanta Lemon, Fanta Fruit Cocktail, Sprite, Krest Bitter Lemon, Krest Ginger-Ale, Krest

Soda Water, Krest Tonic Water, Bon Aqua drinking water, Schweppes Tonic Water, Fanta

Pineapple, Schweppes Bitter Lemon, Schweppes Soda Water, Fanta blackurrant, Coke light,

12

1.2.2.3 Manufacturing

The Accra site operates as an installed and target capacity of eleven million hectolitres per

annum. The total plant capacity for Accra and Kumasi per day is 2000 and 1400 crates

dependants on the plant efficiency. The site operates an ultra-modern brewing department, a

modern and highly automated Packaging unit and distribution operations. The Brewery

consumed a total of about 4,977,140Hl of water in 2009, representing an increase of about 85%

when compared to the annual consumptions of 4,530,230hl for 2003. Production levels within

1.2.2.4 Warehouse

Raw materials, semi-finished goods and finished are kept at the warehouse at Accra and Kumasi

Store House. The distribution of raw materials, semi-finish and the finish product is outsourced

to third party contractors. Thus Coca Cola Company operates in 3 party logistics, which ensures

materials, and finished goods are delivered at the right time to the right place in accordance with

the planning schedule and at a minimum cost. There few registered transporters that are

responsible for loading, packing, off-loading and movement of raw material from port to

1.2.2.5 Distribution

Finished products are sold directly to registered distributors. The distributors are the main agent

who sells to retailers. The practice of exclusive distribution where only specially registered or

authorised distributors (typically at least 5 distributors per a region) is the order of the day.

These distributors act as wholesalers that sell directory to the public and so called “Beer Bars”.

13

1.2.2.6 Mission Statement

The mission of Coca-Cola Company TCCBCGL is to “deliver high quality products and

services that meet the needs of our customers and consumers. To this end, we will manufacture

and market products which comply with the specifications and the requirements of the

1.2.2.7 Vision

We serve as the frame work for our roadmap and guide every aspect of our business by

growth.

People: be a great place to work where people are inspired to be the best they can be.

Portfolio: Bring to the world a portfolio of quality beverage brands that anticipate and satisfy

Partners: Nurture a winning network of customers and suppliers, together we create mutual and

enduring values.

Planet: be a responsible citizen that makes a difference by helping build and support sustainable

communities.

Profit: Maximize long-term return to shareholders while being mindful of our overall

responsibilities

14

1.2.2.8 Objectives of Coca Cola Company

Supply Chain, Internal Control, and Administrative Plant Manager in Kumasi and External

Facilities Plant Manager in Accra. The Company employs about 76 workers and has about

31,000 customers, with over 8,000 Mini-Table operators and 77 independent Mini-Depot

Operators, each of which employs at least 4 persons. Equally, the Company outsources other

1.2.2.10 Operations

The TCCBCGL operates two plants, Accra and Kumasi, made up of 5 production lines: four in

Accra plant and one in Kumasi plant. From a sixty percent (60%) market share in1995, the

Company in 2005 controls eighty six percent (86%) and as at March 2007, the Company

controls ninety five percent (95%) of the beverage industry in Ghana. A market leader in its

own right, TCCBCGL has established extensive marketing and distribution networks since 1995

throughout the country. To date, the Company has created 31,000 new outlets; 8,000 Mini-

15

1.2.2.11 Social Responsibilities & Community Relations Activities

1. Education

Project Partner - Interest Initiative for Africa set up by the UNITED NATIONS.

(US$5000) – Total Cost of organizing annual National Essay Competition and Child

Fully furnished 6 classroom block and office for residents of Samsam Odumasi in Amasaman

Awareness Seminars organized by EPA Support for Ramsar Site Sakumono Lagoon.

Sponsors of Top four premier leagues in Ghana in 2003 Co-Sponsors of Top four premier

16

1.3 Problem Statement

The Coca-Cola Bottling Company is the Ghana's largest beverage company, largest

manufacturer, distributor and marketer of non-alcoholic beverage concentrates and syrups. Coca

Cola currently distributes its product at regional sales centres in Ghana at prices that vary as a

function of the location distance from the factory. The Prices of commodities are determined by

a numbers of factors; the prices of raw materials labour and largely transport. When price of raw

material increase, so does the price of the commodity. Transportation cost also affects the

pricing system. The problem that will be addressed in this study centres on the transportation.

The thesis seeks to address the problem of determine the optimal transportation schedule that

will minimizes the total cost of transporting Coca Cola products from the two production sites

Accra and Kumasi to the various key distributors geographically scatter in Ghana.

1.4 Objective

1.5 Methodology

The Management Science will be use for finding an optimal solution of transportation problem

with equality constraint. The information required for this project will be gathered from the

internet, the libraries, mathematical books and Journal. Data would be collected from Coca Cola

Company. Transporting Coca Cola products to their various depots and to the retail outlet

transportation model with intermediate destinations between the source and the destinations e.g.

goods are often transported from manufacturing plants to distribution centres or warehouse then

17

finally to the stores. Given pure supply nodes with demand , pure demand nodes with

demand and transportation nodes. Suppose the unit transportation cost from supply node to

transshipment node k is and the unit transportation cost for transportation node k to demand

node j is , and problem of Coca Cola is to be modelled as the linear programming model of

transportation type, and represent the Linear Programming or the transportation problem as

1.6 Justification

effectiveness through introducing changes that will motivate them to improve their level of

one of the important processes in business (Chase, R 1998). For effective transportation of

products, cost of delivery should be considered with an ultimate aim of minimisation of the total

cost of the product. The importance of this work is based on the argument that locations farther

from the production centres of Coca Cola production plants in Ghana (Accra and Kumasi). The

mathematical modelling of the haulage pattern seeks to determine what the flows should be if

transportation costs are to be minimized with the goal of helping to reduce the net cost of Coca

Cola to consumers at distant locations. So achieved, both the producer (Coca Cola) and

consumers would benefit if Coca Cola at regional sale centres sell at competitive prices because

of reduced transport cost. Coca Cola and for that matter other production firms will be able to

expand their operations when they are able to maximize profit. This will create more

employment opportunities for people which will in effect have a positive impact on the

economy of the country. Living conditions of people will also be improved. When

18

organizations are able to make cost savings on transportation costs, such savings could also be

utilized in enhancing corporate social responsibilities which will benefit the communities in

which these organizations operate in particular and the country as a whole. A Coca-Cola

Company seeking to achieve more efficient transportation and greater profitability must make

significant changes in the way it perform every phase of the transportation process. The study

will help the Coca Cola Company to implement new transportation and distribution strategies to

improve carrier capacity utilization in a time of constrained supply to reduce cost. Finally, the

research work will serve as a reference material to the academia for future research work.

The chapters One introduces the thesis in general, the brief review of transportation problem,

the background for Transportation Problem, the company‟s profile ( Coca Cola Company ), the

problem statement, objective, methodology, justification and the organization of the thesis.

Chapter Two is concern with the definition and the detailed literature review of the

transportation problem/model. Chapter Three discuss detailed methodology. This includes the

formulation of the transportation problem, the transportation tableau, the solutions for the

Chapter Four provides an over view of the computational platforms for implementation and

solution of the model and introduces the real-life data sets used in the solution process. Finally

chapter Five summarises the conclusions with respect to overall aims of the project and

proposed recommendation for future research/study. It reports the computational results and

provides a comprehensive analysis of the outcome and performance of the proposed solution

approaches.

19

1.8 Summary

The role of transportation in the market economy was discussed in this chapter. Types of

transportation system in the country, brief history of Coca Cola Bottling Company, justification

20

CHAPTER 2

LITERATURE REVIEW

2.1Introduction

The transportation problem (TP) is an important Linear Programming (LP) model that arises in

several contexts and has deservedly received much attention in literature. The transportation

problem is probably the most important special linear programming problem in terms of relative

frequency with which it appears in the applications and also in the simplicity of the procedure

developed for its solution. The following features of the transportation problem are considered

to be most important. The TP were the earliest class of linear programs discovered to have

totally unimodular matrices and integral extreme points resulting in considerable simplification

of the simplex method. The study of the TP‟s laid the foundation for further theoretical and

The transportation problem was formalized by the French mathematician (Monge, 1781). Major

advances were made in the field during World War II by the Soviet/Russian mathematician and

paper on continuous version of the problem and later with Gavurian, and applied study of the

disciplines have contributed toward analyzing problems associated with the transportation

21

problem, including operation research, economics, engineering, Geographic Information

engineering literatures. Sometimes referred to as the facility location and allocation problem,

programming problem. The origin of transportation was first presented by Hitchcock, (1941),

also presented a study entitled “The Distribution of a Product from Several sources to numerous

Localities”. This presentation is considered to be the first important contribution to the solution

Hitchcock‟s, and called “Optimum Utilization of the Transportation System“. These two

shipping sources and a number of destinations. The transportation problem, received this name

because many of its applications involve determining how to optimally transport goods.

However it could be solved for optimally as an answer to complex business problem only in

1951, when George B. Dantizig applied the concept of Linear Programming in solving the

Transportation models. Dantizig, (1963), then uses the simplex method on transportation

Stringer and Haley have developed a method of solution using a mechanical analogue. May be

the first algorithm to find an optimal solution for the uncapacitated transportation problem was

that of Efroymson and Ray. They assumed that each of the unit production cost functions has a

fixed charge form. But they remark that their branch-and - bound method can be extended to the

case in which each of these functions is concave and consists of several linear Segments. And

each unit transportation cost function is linear. J. Frank Sharp.et.al developed an algorithm for

reaching an optimal solution to the production- transportation problem for the convex case.

22

The algorithm utilizes the decomposition approach it iterates between a linear programming

transportation problem which allocates previously set plant production quantities to various

markets and a routine which optimally sets plant production quantities to equate total marginal

production costs, including a shadow price representing a relative location cost determined from

the transportation problem. Williams applied the decomposition principle of Dantzing and Wolf

to the solution of the Hitchcock transportation problem and to several generalizations of it. In

this generalizations, the case in which the costs are piecewise linear convex functions is

included. He decomposed the problem and reduced to a strictly linear program. In addition he

argued that the two problems are the same by a theorem that he called the reduction theorem.

The algorithm given by him, to solve the problem, is a variation of the simplex method with

"generalized pricing operation". It ignores the integer solution property of the transportation

problem so that some problems of not strictly transportation type, and for which the integer

Shetty (1959) also formulated an algorithm to solve transportation problems taking nonlinear

costs. He considered the case when a convex production cost is included at each supply center

besides the linear transportation cost. Some of the approaches used to solve the concave

transportation problem are presented as follows. The branch and bound algorithm approach is

based on using a convex approximation to the concave cost functions. It is equivalent to the

particular case of the simplified algorithm for minimizing separable concave functions over

linear polyhedral as Falk and Soland. Soland (1971) presented a branch and bound algorithm to

solve concave separable transportation problem which he called it the "Simplified algorithm" in

23

comparison with similar algorithm given by Falk and himself in 1969.The algorithm reduces the

problem to a sequence of linear transportation problem with the same constraint set as the

original problem.

A.C. Caputo. et. al. presented a methodology for optimally planning long-haul road transport

Truck load shipments in order to minimize total transportation costs. They have demonstrated

activities. The model shows that substantial savings on overall transportation cost may be

Roy and Gelders (1980) solved a real life distribution problem of a liquid bottled product

through a 3-stage logistic system; the stages of the system are plant-depot, depot-distributor and

distributor-dealer. They modelled the customer allocation, depot location and transportation

problem as a 0-1 integer programming model with the objective function of minimization of the

fleet operating costs, the depot setup costs, and delivery costs subject to supply constraints,

demand constraints, truck load capacity constraints, and driver hours constraints. The problem

was solved optimally trucks. They defined a trip as a full-loaded vehicle travel from one origin

to one destination. They solved the model optimally using Langrangean Decomposition. Saumis

simultaneously solving following two sub-problem: first the assignment of units available at a

series of origins to satisfy demand at a series of destinations and second, the design of vehicle

tours to transport these units, when the vehicles have to be brought back to their departure point.

The cost minimization mathematical model was constructed, which is converted into a

24

relaxation total distance minimization, then finally decomposed to network problems, a full

vehicle problem, and an empty vehicle problem. The problems were solved by tour construction

and improvement procedures. This approach allows large problems to be solved quickly, and

solutions to large problems to be solved quickly, and solutions to large test problems have been

Equi et al. (1996) modelled a combined transportation and scheduling in one problem where a

product such as sugar cane, timber or mineral ore is transported from multi origin supply points

to multi destination demand points or transhipment points using carriers that can be ships, trains

or trucks. They defined a trip as a full-loaded vehicle travel from one origin to one destination.

They solved the model optimally using Langrangean Decomposition. Goal Programming (GP)

model and its variants have been applied to solve large-scale multi criteria decision-making

problems.

Charnes and Cooper (1960) first used the Goal Programming (GP) technique. This solution

approach has been extended by Ijiri (965), Lee (1972), and others. Lee and Moore (1973) used

GP model for solving transportation problem with multiple conflicting objective. Arthur and

Lawrence (1982) designed a GP model for production and shipping patterns in chemical and

with variable supply and demand requirements. Several other researchers Sharma et al. (1999)

have also used the GP model for solving the transportation problem.

Veenan et al. proposed a heuristic method for solving transportation problem with mixed

constraints which is based on the theory of shadow price. The solution obtained by heuristics

25

method introduced by Veena et al is an initial solution of the transportation problems with

constraints. Klingman and Russell (1975) have developed an efficient procedure for solving

transportation problems with additional linear constraints. Their method exploits the topological

properties of basis trees within a generalized upper bound framework. Swarup (1970) developed

indefinite quadratic function, subject to Sharma and swarup, (1977b), have developed the same

heuristic, called TOM (Total Opportunity-cost Method), for obtaining an initial basic feasible

Dietrich (1968) conducted a study to determine the least-cost locations and optimum levels of cattle

feeding and fed-cattle slaughter among 27 regions in the United States of America to measure the

effects of specified changes in regional feedlot size on the optimum locations and levels of feeding

and slaughter, and showed the least cost shipment routes for feeder cattle, feed grain, fed slaughter

Judge and Wallace (1959) conducted a three-part study in which they used a transportation model to

develop a spatial price equilibrium model for the beef sector of the economy and the pork marketing

system in the United States of America. The first part of the study was concerned with determining

a set of spatial equilibrium prices of beef and the quantities consumed in each region, the quantity of

beef exported and imported for each region under equilibrium conditions, the aggregate net trade

and corresponding total transport cost, and the volume and direction of trade between each possible

pair of regions that minimize the transport costs for beef distribution. The model was applied to

1955 data and assumed that slaughter took place at the location of production. An optimum solution

using 21 regions was derived, and then the model was used to evaluate the effects of changes in

26

Sprott (1973) used a transportation model to identify and analyze 1971 patterns of hog production,

slaughter, and consumption for the United States of America by major regions. The author used only

truck shipping rates in computing transportation charges for hogs and pork. The simplex algorithm

was the forerunner of many computer programs that are used to solve complex optimization

problems ( Baynton, 2006). These applications are used extensively in a variety of situations. One of

the most important applications of the simplex method is the transportation method (Zitarelli &

Coughlin, 1989). Zitarelli and Coughlin again presented the Shell oil study but concentrated on the

Chicago area sub region to reduce the number of variables. The study used their problem to

The transportation method can also be used to reduce the impact of using fossil fuels to transport

materials (Case, 2007). Zierer et al., (1976) studied the practical applications of linear programming

to Royal Dutch Shell‟s distribution system. In 1976 Shell marketed over a dozen grades of liquid

petroleum products. Their East of the Rockies (EOR) region included three refineries and over 100

terminal demand points. Shell‟s other distribution system, West of the Rockies Region (WOR)

comprised the rest of the U.S. The Zierer, Mitchell and White study was restricted to the EOR

Region. The task of making Shell‟s products available to customers was considerably complex but

the computations were essential since from 10 to 20 percent of Shell‟s revenues were allocated to

transportation costs.

In 1976 the Chicago area sub region had two primary Shell oil refineries where oil was refined into

various grades of petroleum products. These refineries were located in East Chicago, Indiana and

Hammond, Indiana. The two major storage and shipment terminals were located in Des Plains,

Illinois, and Niles, Michigan. In actual practice the problem was much more complex than the one

27

presented by Zitarelli and Coughlin. It involved over 1,200 variables and 800 constraints because

there were more complex decisions to be made such as which mode of transportation to use

(including pipelines, barges, trucks and tankers). In 1976 the typical problem faced each day could

be solved on a computer in about one-half hour at a cost of about $100. Such reports generated

about ten optional reports because there were various goals and managers with different

Gass (1990) detailed the practical issues for solving transportation problems and offered

on the computational results, by the respective researchers. Sharma and Sharma (2000)

proposed a new heuristic approach for getting good starting solutions for dual based approaches

used for solving transportation problems The transportation criterion is, however, hardly

mentioned at all where the transportation problem is treated. Apparently, several researchers

have discovered the criteria independently from each other. But most papers on the subject refer

to the papers by Charnes and Klingman and Szwarc as the initial papers. In Charnes and

Klingman name it the more-for-less criteria (MFL), and they write: The criteria was first

observed in the early days of linear programming history (by whom no one knows) and has

been a part of the folklore known to some (e.g. A.Charnes and W.W.Cooper), but unknown to

the great majority of workers in the field of linear programming. The transportation criteria is

known as Doigs criteria at the London School of Economics, named after Alison Doig who used

it in exams etc. around 1959 (Doig did not publish any paper on it). Since the transportation

criteria seems not to be known to the majority of those who are working with the transportation

problem, one may be tempted to believe that this phenomenon is only an academic curiosity,

28

which will most probably not occur, in any practical situation. But that seems not to be true.

Experiments done by Finke, with randomly generated instances of the transportation problem of

size 100×100 and allowing additional shipments (post optimal) show that the transportation

costs can be reduced considerably by exploiting the criteria properties. More precisely, the

average cost reductions achieved are reported to be 18.6% with total additional shipments of

20.5%.

In a recent paper, Deineko & al. develop necessary and sufficient conditions for a cost matrix C

to be protected against the transportation criteria. These conditions are rather restrictive,

supporting the observations by Finke. The existing literature has demonstrated the identifying

cases where MFL paradoxical situation exists and also, has provided various methods for

finding MFL solution for transportation problems. Gupta et al and Arsham obtained the more-

for-less solution for the TPs with mixed constraints by relaxing the constraints and by

introducing new slack variables. While yielding the best more-for-less solution, their method is

tedious since it introduces more variables and requires solving sets of complex equations. The

perturbed method was used for solving the TPs with constraints.

Adlakha et al. proposed a heuristic method for solving TPs with mixed constraints which is

based on the theory of shadow price. In the heuristic algorithm for an MFL solution in Adlakha

et al,Vogel Approximation Method (VAM) and MODI ( Modified Distribution) method were

used Arsham developed an approach to post optimality analysis of the TPs through the use of

perturbation analysis. Adlakha and Kowalski introduced a theory of absolute points for solving

a TP and used these points for search opportunities to ship more for less in TP. Adlaka et al.

developed an algorithm for finding an optimal MFL solution for TPs which builds upon any

29

Koopmans (1951) gave a mathematical explanation on the use of the simplex method and linear

stated that discrepancies between actual shipping and "efficient" rates are often present in

transportation systems subject to government operation or regulation. These discrepancies are the

simple and crude notions of 'fairness' which have historically dominated such activity under the

watching eyes of highly interested local and functional groups of population and industry. Since

then, these problems have been studied extensively by many authors and have found

applications in such diverse fields as geometry, fluid mechanics, Statistics, economics, shape

30

CHAPTER 3

METHODOLOGY

3.1 Introduction

This chapter reviews the proposed solution methodology and approach for handling

transportation problem in Coca Cola Bottling Company. The transportation problem seeks to

destination, , is .

Coca Cola products are produced and consumed in differing amounts in each of the

geographical regions of Ghana employed in this study. It is assumed that the producer (Coca

Cola Bottling Company) has the economic goal of profit-maximization and that every consumer

has the goal of obtaining a desired amount of the product at the least possible cost. However,

some regions produce more products than consumers in the regions and are willing to buy at the

prevailing prices, while other regions produce no coca cola products to satisfy consumers'

requirements at the prevailing prices. Both producers and consumers would benefit if the

surplus producing regions transport enough coca cola to the deficit consuming regions to fulfil

the requirements which exist at the prevailing prices in the deficit regions. Transportation costs

add to the total costs faced by producers and the final price paid by consumers. Therefore,

minimization of transfer costs is in the economic interest of both the producer and consumer.

31

3.2 The Transportation Problem

Transportation problems are primarily concerned with the optimal (best possible) way in which

a product produced at different factories or plants (called supply origins) can be transported to a

number of warehouses (called demand destinations). The transportation problem basically seeks

to find the best way to fulfil the demand of say n demand points using the capacities of say m

supply points. The objective in a transportation problem is to fully satisfy the destination

requirements within the operating production capacity constraints at the minimum possible cost.

Whenever there is a physical movement of goods from the point of manufacture to the final

there is a need to minimize the cost of transportation so as to increase the profit on sales.

Transportation problems arise in all such cases as providing assistance to top managers in

ascertaining how many units of a particular product should be transported from each supply

origin to each demand destinations so that the total prevailing demand for the company‟s

product is satisfied, while at the same time the total transportation costs are minimized. Bressler

and King (1978) noted that widely separated regions may not engage in trading because the

costs of transfer exceed the price differences that exist in absence of trade, therefore, great

distances and expensive transportation restrict trade whiles technological developments that

reduces transfer cost can increase trade. Identification of surplus and deficit regions, quantities

shipped, and which region should ship available surplus to which deficit region often becomes a

complicated task. Consideration of transportation cost causes the pattern of distribution of the

Sasieni et al., (1959) noted that problems of allocation arise whenever there are a number of

activities to perform, but limitations on either the amount of resources or the way they can be

32

spent prevent us from performing each separate activity in the most effective way conceivable.

In such situations we wish to allot the available resources to the activities in a way that will

To decide the transportation of new materials from various centres to different manufacturing

plants. In the case of multi-plant company this is highly useful. To decide the transportation

of finished goods from different manufacturing plants to the different distribution centres. For a

multi-plant-multi-market company this is useful. These two are the uses of transportation model.

Also from Prof S.K. Amponsah‟s (2009) lecture notes, the transportation problem deals with a

destinations at a minimum total cost. The total supply available at the origin and the total

quantity demanded by the destinations are given in the statement of the problem. The cost of

shipping a unit of goods from a known origin to a known destination is also given. The

objective is to determine the optimal allocation that results in minimum total shipping cost. The

model deals with how to get the minimum-cost plan to transport a commodity from a number of

33

3.4 Mathematical Formulation

Supposed a company has m warehouses and n retail outlets. A single product is to be shipped

from the warehouses to the outlets. Each warehouse has a given level of supply, and each outlet

has a given level of demand. We are also given the transportation cost between every pair of

warehouse and outlet, and these costs are assumed to be linear. More explicitly, the assumptions

are:

The cost of sending one unit of the product from warehouse to outlet is equal to

shipment.

The variables in the Linear Programming (LP) model of the TP will hold the values for the

Where

The objective function contains costs associated with each of the variables. It is a minimization

problem. Consider the shipment from warehouse to outlet . For any and , the transportation

cost per unit and the size of the shipment is . Since we assume that the total cost function

34

is linear, the total cost of this shipment is given by . Summing overall and now yields

the overall transportation cost for all warehouse-outlet combinations. That is, our objective

function is:

∑ ∑

The constraints are the conditions that force supply and demand needs to be satisfied. In a

∑

and

(iii) Non-negativity:

i and j

35

Minimizing the transportation cost

∑ ∑ ( )

∑ ( ) ( )( )

∑ ( ) ( )( )

( )

non-negative constraints.

Number of sources

Number of destinations

36

A necessary and sufficient condition for the existence of a feasible solution to the transportation

problem is that

∑ ∑

∑ ∑

constraints, one is associated with the origin and the other is associated with the destination.

If

∑ ∑

The transportation problem is known as an unbalanced transportation problem. There are two

cases

Case (1)

∑ ∑

37

Case (2)

∑ ∑

Introduce a dummy origin in the transportation table; the cost associated with this origin is set

∑ ∑

The transportation problem can be described using linear programming mathematical model and

represented in a concise tabular form with all the relevant parameters. The transportation

each source is shown in the far right column and the destination requirements ( ) are shown in

the bottom row. Each cell represents one route. The unit shipping cost( ) is shown in the

upper right corner of the cell, the amount of shipped material is shown in the centre of the cell.

The transportation tableau implicitly expresses the supply and demand constraints and the

38

Table 1.0: The Transportation Tableau

Source Supply

To

Destination Source

39

From Source Supply

Destination

Requirements ∑

Graphically, transportation problem is often visualized as a network with source nodes,

40

Figure.1 Network Representation of the Transportation Problem

Unit of Supply (Si) Units of Demand (di)

, - , -

, - , -

, - , -

In the diagram there are … sources and destination. The arrows show

flows of output from source to destination .Each destination is linked to each source by an

arrow. The number … above each arrow represents the cost of transporting on that

route. Problems with the above structure arise in many applications. For example, the sources

Degeneracy exists

number of rows in the

plus a transportation problemminus

number of columns whenone

the (number of filled cells is lessmay

) Degeneracy thanbethe

observed either during the initial allocation when the first entry in a row or column satisfies

both the row and column requirements or during the Stepping stone method application, when

the added and subtracted values are equal. Transportation with -origins and -destinations

can have positive basic variables, otherwise the basic solution degenerates. So

whenever the number of basic cells is less than the transportation problem is

degenerate. To resolve the degeneracy, the positive variables are augmented by as many zero-

Let us consider a T.P involving m origins and n destinations. Since the sum of origin capacities

equals the sum of destination requirements, a feasible solution always exists. Any feasible

deleted. This also means that a feasible solution to a T.P can have at the most only

– strictly positive component, otherwise the solution will degenerate. It is always possible

to assign an initial feasible solution to a T.P. in such a manner that the rim requirements are

satisfied. This can be achieved either by inspection or by following some simple rules. We

begin by imagining that the transportation table is blank i.e. initially all The simplest

A set of non-negative allocations which satisfies the row and column restrictions is

Basic Feasible Solution (B.F.S.)

A feasible

solution solution

if the numberto ofa positive

origin and

Allocations destination

are ( –problem is number

) If the said to of

beallocations

basic feasible

in a

basic feasible solutions are less than ( – ) it is called degenerate basic feasible solution

(DBFS) (Otherwise non-degenerate).

Optimal Solution

A feasible solution (not necessarily basic) is said to be optimal if it minimizes the total

transportation cost.

Circuit: A circuit is a sequence of cells (in the balanced transportation tableau) such that

(ii) Each cell in the sequence can be connected to the next member by a horizontal or vertical

Allocation: The number of units of items transported from a source to a destination which is

Basic Variables: The variables in a basic solution whose values are obtained as the

simultaneous solution of the system of equations that comprise the functional constraints.

42

3.7 Solution for a Transportation Problem

Start

∑ ∑ No Is No ∑ ∑

∑ ∑

(or column) for which all from which all shipping

shipping costs are zero and costs are zero and having

have capacity = (∑ ∑ ) Yes demand = (∑ ∑ )

∑ ∑

Test for Optimal 2. Shipping quantities?

in each route

Not Optimal

43

Figure.2: The Flow Chart Showing the Transportation Problem Approach

Summary description of the Flow chart

3. If not balance add a dummy to either the supply or the demand to balance the transportation

model.

7. We compute the total transportation cost and also shipped the respective quantity demand

to its rout.

Transportation models do not start at the origin where all decision values are zero; they must

The solution algorithm to a transpiration problem can be summarized into following steps:

Step 1.

Formulate the problem and set up in the matrix form. The formulation of transportation problem

is similar to LP problem formulation. Here the objective function is the total transportation cost

and the constraints are the supply and demand available at each source and destination,

respectively.

Step 2.

44

This initial basic solution can be obtained by using any of the following methods:

The solution obtained by any of the above methods must fulfil the following conditions:

i. The solution must be feasible, i.e., it must satisfy all the supply and demand constraints.

ii. The number of positive allocation must be equal to – where, m is number of rows

The solution that satisfies the above mentioned conditions are called a non-degenerate basic

feasible solution.

Step 3.

Test the initial solution for optimality. Using any of the following methods can test the

If the solution is optimal then stop, otherwise, determine a new improved solution.

Step 4.

45

3.7.3 Finding Initial Basic Feasible Solution of Balanced Transportation

Problems

3.7.3.1 Northwest Corner Method (NWC)

The North West corner rule is a method for computing a basic feasible solution of transportation

problem where the basic variables are selected from the North – West corner (i.e., top left

corner). The method starts at the northwest-corner cell (route). The major advantage of the

north–west corner rule method is that it is very simple and easy to apply. Its major

disadvantage, however, is that it is not sensitive to costs and consequently yields poor initial

solutions.

1. Allocate as much as possible to the cell in the upper left-hand corner, subject to the supply and

demand conditions.

In thisgrain

each tableau the decision

elevator, ( variable , )represent

,to eachthe number

mill, ( of tons of wheat

) transported from

The objective

function represents the total transportation cost for each route. Each term in the objective

function reflects the cost of the tonnage transported for one route. The problem is to determine

how many tons of wheat of transport from each grain elevator to each mill on monthly basis in

46

Illustrative Example1

To

From A B C Supply

6 8 10

1 150

7 11 11

2 175

4 5 12

3 275

Demand

200 100 300 600

47

Method of Solutions to Balance Problem using North West Corner Method.

In the northwest corner method the largest possible allocation is made to the cell in the upper

left-hand corner of the tableau, followed by allocations to next adjacent feasible cells.

To

From A B C Supply

6 8 10

1 150 150

7 11 11

2 50 100 25 175

4 5 12

3 275 275

Demand

200 100 300 600

We first allocate as much as possible to cell 1A(northwest corner).this amount is 150 tons, since that

is the maximum that can be supplied by grain 1 , even though 200 tons are demanded by mill A .

This initial allocation, in this initial allocation is shown in above We next allocate to cell adjacent to

cell 1A, in this case either cell 2A or cell 1B. However, cell 1B no longer represents a feasible

48

allocation, because the total tonnage of wheat available at source 1 (i.e. 150tons) has been allocated.

Thus, cell 2A represents the only feasible alternative, and as much as possible is allocated to this

cell. The amount allocated at 2A can be either 175 tons, the supply available from source 2, or 50

tons, the amount now demanded at destination A. Because 50 tons is the most constrained amount, it

is allocated to cell 2A. As shown in above. The third allocation is made in the same way as the

second allocation. The only feasible cell adjacent to cell 2A is cell 2B. The most that can be

allocated is either 100 tons( the amount demanded at mill B) or 125 tons( 175 tons minus the 50 tons

allocated to cell 2A).the smaller(most constrained ) amount, 100 tons, is allocated to cell 2B, as

shown in Table 2. The fourth allocation is 25 tons to cell 2C, and the fifth allocation is 275 tons to

The allocations

equals made

the number by the method

of allocations is BFS

made. Sincesince (

the number of–occupied

) cell –is equal ,(which

) The condition is satisfied The initial solution is complete when all rim requirements are

( ) ( ) ( ) ( ) ( ) ( ) ( ) ( ) ( )

49

3.7.3.2 The Minimum Cell Cost (Least Cost) Method

Matrix minimum method is a method for computing a basic feasible solution of a transportation

problem where the basic variables are chosen according to the unit cost of transportation. The

minimum-cost method finds a better starting solution by concentrating on the cheapest routes. The

method starts by assigning as much as possible to the cell with the smallest unit cost. Next, the

satisfied row or column is crossed out and the amounts of supply and demand are adjusted

accordingly. If both a row and a column are satisfied simultaneously, only one is crossed out, the same

as in the northwest – corner method. Next, look for the uncrossed-out cell with the smallest unit cost

and repeat the process until exactly one row or column is left uncrossed out.

Steps

2. If there are two or more minimum costs, select the row and the column corresponding to the

3. If they appear in the same row, select the lower numbered column.

4. Choose the value of the corresponding as much as possible subject to the capacity and

requirement constraints.

In the minimum cell cost method as much as possible is allocated to the cell with the minimum cost

50

Application of Least Cost Methods to Illustrative Example 1 of Balanced

Transportation Problem

In the minimum cell cost method as much as possible is allocated to the cell with the minimum cost

To

From A B C Supply

6 8 10

1 150

7 11 11

2 175

4 5 12

3 200 275

Demand

200 100 300 600

To

From A B C Supply

6 8 10

1 150

7 11 11

2 175

4 5 12

3 200 75 275

Demand

200 100 300 600

51

Table 2.4: The starting solution using Minimum Cell Method

The complete initial minimum cell cost solution; total cost = $4,550. ie

( ) ( ) ( ) ( ) ( ) ( ) ( ) ( )

( )

The minimum cell cost method will provide a solution with a lower cost than the northwest

To

From A B C Supply

6 8 10

1 25 125 150

7 11 11

2 175 175

4 5 12

3 200 75 275

Demand

200 100 300 600

1. Allocate as much as possible to the feasible cell with the minimum transportation cost, and

52

3.7.3.3 Vogel’s Approximation Method (VAM)

VAM is an improved version of the least-cost method that generally, but not always, produces

better starting solutions. VAM is based upon the concept of minimizing opportunity (or penalty)

costs. The opportunity cost for a given supply row or demand column is defined as the difference

between the lowest cost and the next lowest cost alternative. This method is preferred over the

methods discussed above because it generally yields, an optimum, or close to optimum, starting

solutions. Consequently, if we use the initial solution obtained by VAM and proceed to solve for

the optimum solution, the amount of time required to arrive at the optimum solution is greatly

reduced. The steps involved in determining an initial solution using VAM are as follows: The

Step1. Write the given transportation problem in tabular form (if not given).

Step2. Compute the difference between the minimum cost and the next minimum cost

corresponding to each row and each column which is known as penalty cost.

Step3. Choose the maximum difference or highest penalty cost. Suppose it corresponds to the

row. Choose the cell with minimum cost in the row. Again if the maximum corresponds

to a column, choose the cell with the minimum cost in this column.

Step4. Suppose it is the ( ) cell. Allocate min ( ) to this cell. If the min ( )

then the availability of the origin is exhausted and demand at the destination remains as

and the row is deleted from the table. Again if min ( ) then demand at the

Step5. Repeat steps 2, 3, 4 with the remaining table until all origins are exhausted and all

53

Method is based on the concept of penalty cost or regret.

A penalty cost is the difference between the largest and the next largest cell cost in a row

(or column).

In VAM the first step is to develop a penalty cost for each source and destination.

Penalty cost is calculated by subtracting the minimum cell cost from the next higher cell

3. Allocate as much as possible to the feasible cell with the lowest transportation cost in the row

4. Repeat steps 1, 2, and 3 until all rim requirements have been met.

Example 1 on Balance Transformation Problem.

To

From A B C Supply

6 8 10

1 150 2

7 11 11

2 175 4

4 7 12

3 275 1

2 3 1

54

Table 2.6: The Initial VAM Allocation

VAM allocates as much as possible to the minimum cost cell in the row or column with the

To

From A B C Supply

6 8 10

1 150 2

7 11 11

2 175 175

4 5 12

3 275 1

2 3 2

After each VAM cell allocation, all row and column penalty costs are recomputed.

To

From A B C Supply

6 8 10

1 150 4

7 11 11

2 175 175

4 5 12

3 100 275 8

2 2

55

Table 2.8: The Third VAM Allocation

To

From A B C Supply

6 8 10

1 150 150

7 11 11

2 175 175

4 5 12

( ) ( ) ( ) ( ) ( ) ( ) ( ) ( )

( )

56

VAM and minimum cell cost methods both provide better initial solutions than does the

To

From A B C Supply

6 8 10

1 150 150

7 11 11

2 175 175

4 5 12

solution until no further decrease in the transportation cost is possible. An optimal solution is

one where there is no other set of transportation routes that will further reduce the total

transportation cost. Thus, we have to evaluate each unoccupied cell in the transportation table in

terms of an opportunity of reducing total transportation cost. An unoccupied cell with the

largest negative opportunity cost is selected to include in the new set of transportation routes

(allocations). This value indicates the per unit cost reduction that can be achieved by raising the

shipment allocation in the unoccupied cell from its present level of zero. This is also known as

57

an incoming cell (or variable). The outgoing cell (or variable) in the current solution is the

occupied cell (basic variable) in the unique closed path (loop) whose allocation will become

zero first as more units are allocated to the unoccupied cell with largest negative opportunity

cost. That is, the current solution cannot be improved further. This is the optimal solution.

They differ in their mechanics, but will give exactly the same results and use the same testing

strategy.

5. To develop the improved solution, if it is not optimal. Once the improved solution has been

Note. Although the transportation problem can be solved using the regular simplex method, its

special properties provide a more convenient method for solving this type of problems. This

method is based on the same theory of simplex method. It makes use, however, of some

shortcuts which provide a less burdensome computational scheme. There is one difference

between the two methods. The simplex method performs the operations on a simplex table. The

58

Application of Stepping Stone Method to Illustrative Example 1on Balance

Transformation Problem

Once an initial solution is derived, the problem must be solved using either the stepping-stone

The initial solution used as a starting point in this problem is the minimum cell cost method

solution because it had the minimum total cost of the three methods used

To

From A B C Supply

6 8 10

1 25 125 150

7 11 11

2 175 175

4 5 12

3 200 75 275

Demand

200 100 300 600

59

Table 2.11: The Allocation of One Ton from Cell 1A

The stepping-stone method determines if there is a cell with no allocation that would reduce

cost if used

To

From A B C Supply

6 8 10

7 11 11

2 175 175

4 5 12

3 200 75 275

Demand

200 100 300 600

60

Table 2.12: The Subtraction of One Ton from Cell 1B

Must subtract one ton from another allocation along that row.

To

From A B C Supply

+1 6 -1 8 10

1 25 125 150

7 11 11

2 175 175

4 5 12

3 200 75 275

Demand

200 100 300 600

99

61

Table 2.13: The Addition of One Ton to Cell 3B and the Subtraction of One

Ton from Cell 3A

A requirement of this solution method is that units can only be added to and subtracted from

cells that already have allocations, thus one ton must be added to a cell as shown.

To

From A B C Supply

+1 6 -1 8 10

1 25 125 150

7 11 11

2 175 175

-1 4 +1 5 12

3 200 75 275

Demand

200 100 300 600

62

Table 2.14: The Stepping-Stone Path for Cell 2A

An empty cell that will reduce cost is a potential entering variable.

To evaluate the cost reduction potential of an empty cell, a closed path connecting used cells to

To

From A B C Supply

6 - 8 + 10

1 25 125 150

+ 7 11 - 11

2 175 175

- 4 + 5 12

3 200 75 275

Demand

200 100 300 600

63

Table 2.15: The Stepping-Stone Path for Cell 2B

The remaining stepping-stone paths and resulting computations for cells 2B and 3C

To

From A B C Supply

6 - 8 -+ 10

1 25 125 150

7 + 11 - 11

2 175 175

4 5 12

3 200 75 275

Demand

200 100 300 600

64

Table 2.16: The Stepping-Stone Path for Cell 3C

To

From A B C Supply

6 + 8 -- 10

1 25 125 150

7 11 11

2 175 175

4 - 5 + 12

3 200 75 275

Demand

200 100 300 600

65

Table 2.17: The Stepping-Stone Path for Cell 1A

After all empty cells are evaluated, the one with the greatest cost reduction potential is the

entering variable.

To

From A B C Supply

+ 6 - 8 10

1 25 125 150

7 11 11

2 175 175

- 4 + 5 12

3 200 75 275

Demand

200 100 300 600

66

Table 2.18: The Second Iteration of the Stepping-Stone Method

When reallocating units to the entering variable (cell), the amount is the minimum amount

At each iteration one variable enters and one leaves (just as in the simplex method)

To

From A B C Supply

6 8 10

1 25 125 150

7 11 11

2 175 175

4 5 12

Demand

200 100 300 600

67

Table 2.19: The Stepping-Stone Path for Cell 2A

To

From A B C Supply

- 6 8 + 10

1 25 125 150

+ 7 11 - 11

2 175 175

4 5 12

Demand

200 100 300 600

68

Table 2.20: The Stepping-Stone Path for Cell 1B

To

From A B C Supply

- 6 + 8 10

1 25 125 150

7 11 11

2 175 175

+ 4 - 5 12

Demand

200 100 300 600

69

Table 2.21: The Stepping-Stone Path for Cell 2B

To

From A B C Supply

- 6 8 + 10

1 25 125 150

7 + 11 - 11

2 175 175

+ 4 - 5 12

Demand

200 100 300 600

70

Table 2.22: The Stepping-Stone Path for Cell 3C

To

From A B C Supply

+ 6 8 - 10

1 25 125 150

7 11 11

2 175 175

- 4 5 + 12

Demand

200 100 300 600

The stepping-stone process is repeated until none of the empty cells will reduce costs (i.e. an

optimal solution).

In example, evaluation of four paths indicates no cost reductions; therefore Table 16 solution is

optimal.

( ) ( ) ( ) ( ) ( ) ( ) ( ) ( )

( ) $4,525

71

Table 2.23: The Alternative Optimal Solution

A multiple optimal solution occurs when an empty cell has a cost change of zero and all other

empty cells are positive. An alternate optimal solution is determined by allocating to the empty

cell with a zero cost change. Alternate optimal total minimum cost also equals $4,525

To

From A B C Supply

6 8 10

1 150 150

7 11 11

2 25 120 175

4 5 12

1. Determine the stepping-stone paths and cost changes for each empty cell in the tableau.

2. Allocate as much as possible to the empty cell with the greatest net decrease in cost.

3. Repeat steps 1 and 2 until all empty cells have positive cost changes that indicate an optimal

solution.

72

3.7.4.3 The Modified Distribution Method (MODI)

MODI is a modified version of the stepping-stone method in which math equations replace the

stepping-stone paths.

Step 1: Under this method we construct penalties for rows and columns by subtracting the least

Step 2: We select the highest penalty constructed for both row and column. Enter that row /

Step 3: Delete the row or column or both if the rim availability / requirements is met.

Step 5: For allocation all form equation set one of the dual variable to

Step 6: Use this value to find of all , then it is the optimal solution.

73

Application of Modified Distribution Method to Illustrative Example 1 on

Balance Transformation Problem

In the table, the extra left-hand column with the ui symbols and the extra top row with the vj

Computed for all cells with allocations: = unit transportation cost for cell .

To

From A B C Supply

6 8 10

1 25 125 150

7 11 11

2 175 175

4 5 12

3 200 75 275

Formulas for cells containing allocations:

74

7 8

To

From A B C Supply

6 8 10

0 1 25 125 150

7 11 11

2 175 175

4 5 12

3 200 75 275

Where kij equals the cost increase or decrease that would occur by allocating to a cell.

( )

75

Table 2.27: The Second Iteration of the MODI Solution Method

After each allocation to an empty cell, the ui and vj values must be recomputed

To

From A B C Supply

6 8 10

1 25 125 150

7 11 11

2 175 175

4 5 12

Table 2.28: The New ui and vj Values for the Second Iteration

Recomputing ui and vj values:

76

To

From A B C Supply

6 8 10

1 25 125 150

7 11 11

2 175 175

4 5 12

( )

77

4. Allocate as much as possible to the empty cell that will result in the greatest net decrease in

5. Repeat steps 2 through 4 until all kij values are positive or zero.

A heuristic algorithm for solving transportation problems with mixed Constraints and extend the

algorithm to find a more-for-less (MFL) solution, if one exists. Though many transportation

problems in real life have mixed constraints, these problems are not addressed in the literature

because of the rigor required to solve these problems optimally. The proposed algorithm builds

on the initial solution of the transportation problem. Much effort has been concentrated on

transportation problems (TP) with equality constraints. In real life, however, most problems

have mixed constraints accommodating many applications that go beyond transportation related

problems, and investment analysis. The more-for-less (MFL) paradox in a TP occurs when it is

possible to ship more total goods for less (or equal) total cost, while shipping the same amount

or more from each origin and to each destination and keeping all the shipping costs non-

deciding which warehouse or plant capacities are to be increased, and which markets should be

sought. It could also be a useful tool in analyzing and planning company acquisition, mergers,

consolidations and downsizes. The so called MFL paradox in the transportation paradox has

been covered from a theoretical stand point by Charnes and Klingman, and Charnes et al. Robb

Adlakha et al. have given an algorithm for solving paradoxical situation in linear transportation

problem.

78

3.8.1 Mathematical Model for the Transportation Problem with Mixed

Constraints:

∑ ∑

∑ ( )

∑ ( )

∑ ( )

∑ ( )

∑ ( )

∑ ( )

Where

79

= the unit cost of transportation from the supply point to jth destination where and

are pairwise disjoint subsets of { 1,2,3,...,m } such that {1, 2, 3... m}; and

cost of shipping one unit from supply point i to the demand point j ; is the supply at supply

point i ; is the demand at demand point j and is the number of units shipped from supply

Now, the LBP (least bound problem) for the problem (P) is given below:

∑ ∑

∑ ( )

∑ ( )

∑ ( )

∑ ( )

80

∑ ( )

∑ ( )

( )

REMARKS: Asharm proved that the existence of a MFL situation in a regular TP requires only

one condition namely, the existence of a location with negative plant to-market shipping

shadow price. The shadow prices are easily calculated from the solution of the TP with mixed

constraints. The MFL solution is obtained from the optimal solution distribution by increasing

and decreasing the shipping quantities while maintaining the minimum requirements for both

supply and demand. The plant-to-market shipping shadow price (also called Modi index) at a

cell ( ) is where and are shadow prices corresponding to the cell ( ) . The

negative Modi index at a cell ( ) indicates that we can increase the ith plant capacity / the

demand of the jth market at the maximum possible level.

We now introduce a new method called the zero point method for finding an optimal solution to

a transportation problem with mixed constraints in a single stage. The zero point method

proceeds as follows.

Step 1. Construct the transportation table for the given TP with mixed constraints.

81

Step 2. Subtract each row entries of the transportation table from the row minimum and then

subtract each column entries of the resulting transportation table after using the Step 1 from the

column minimum.

Step 3. Check if each column demand can be accomplished from the joint of row supplies

whose reduced costs in that column are zero. Also, check if each row supply can be

accomplished from the joint of column demands whose reduced costs in that row are zero. If so,

go to Step 6. (Such reduced transportation table is called the allotment table). If not, go to Step

4.

Step 4. Draw the minimum number of horizontal lines and vertical lines to cover all the zeros of

the reduced transportation table such that some entries of row(s) or and column(s) which do not

Step 5: Develop the new revised reduced transportation table as follows: (i) Find the smallest

entry of the reduced cost matrix not covered by any lines. (ii) Subtract this entry from all the

uncovered entries and add the same to all entries lying at the intersection of any two lines.

Step 6: Select

cost. Say ( a)cell in theisreduced

. If there transportation

more than table any

one, then select whose reduced cost is the maximum

one.

Step 7: Select a cell in the row or/ and column of the reduced transportation table

which is the only cell whose reduced cost is zero and then, allot the maximum possible to that

cell such that its row or its column condition is satisfied. If such cell does not occur for the

maximum value,

82

Theorem 1. Any optimal solution to the problem (P1) where

(P1)

∑ ∑

subject to (1) to (7) are satisfied , where and are some real values, is an optimal

(P) Minimize Z= ij

( ) ∑ ∑

subject to (1) to (7) are satisfied.

(P) and for all i and j where and are some real values, such

∑ ∑

Theorem 3. The solution obtained by the zero point method for a TP with mixed constraints (P)

83

Theorem 4. The optimal MFL solution of a TP with mixed constraints is an Optimal solution of

a TP with mixed constraints which is obtained from the given TP with mixed constraints by

changing the sign of columns and rows having negative Modi indices from ≤ to = and = to ≥ .

We use the following procedure for finding an optimal MFL solution to a TP with mixed

constraints.

Step 1. Form the LBP which is obtained from TP with mixed constraints by changing all

inequalities to equalities with the lowest possible feasible right-hand side values.

Step 2. Balance LBP and find an optimal solution of the balanced LBP using the transportation

algorithm.

Step 3. Place the load(s) of the dummy row(s)/ column(s) of the balanced LBP at the lowest

cost feasible cells of the given TP to obtain a solution for the TP with mixed constraints.

Step 4. Create the Modi index matrix using the solution of the given TP obtained in the Step3.

Step 5. Identify negative Modi indices and related columns and rows. If none exist, this is an

optimal solution to TP with mixed constraints (no MFL paradox is present). STOP.

Step 6. Form a new TP with mixed constraints by changing the sign of columns and rows

Step 7. Obtain a solution of the new TP with mixed constraints using the Step 1 to the Step 3.

Step 8. The optimal solution for the new TP with mixed constraints obtained from the Step 7 is

an optimal MFL solution of the given TP with mixed constraints (by the Theorem 1.).

84

Illustrative Example 2 on Mixed Constraint Transportation Problem

The proposed method for finding an optimal MFL solution to a TP with mixed constraints is

1 2 3 SUPPLY

1 2 5 4 =5

2 6 3 1 6

3 8 9 2 9

DEMAND =8 10 5

Now, LBP for the given TP with mixed constraints is given below.

SUPPLY

5 4

DEMAND 10

Now, the optimal solution of LBP is given below by the transportation algorithm

85

Table 3.3: Optimal solution of LBP

1 2 3 SUPPLY

1 2 5 4

2 6 3 1 =6

3 8 9 2 0

4 3 4 0

DEMAND 10

Using the step 3, we obtain the following solution for the given problem.

1 2 3 SUPPLY

2 6

DEMAND 10

Now the Modi index for the optimal solution of given problem is shown below.

86

Table 3.5: The modi index

Since the first row and the second and third columns have negative Modi indices, we consider

1 2 3 SUPPLY

2 6

3 9

DEMAND 10 5

Now LBP for the new TP with mixed constraints is given below.

87

Table 3.7: LBS for TP with mixed constraints

1 2 3 SUPPLY

DEMAND

Using the step 3, we obtain the following solution for the new TP with Mixed constraints given

problem.

1 2 3 SUPPLY

2 5

3 0

DEMAND ≥10

Now the Modi index for the solution of the new TP is given below.

88

Since all the Modi indices are positive, the current solution is an optimal solution of

the new TP with mixed constraints. Thus, by the Theorem1, the optimal MFL Solution for the

23 units with the total transportation cost is $51. The solution is better than the solution

obtained earlier because the shipping rate per unit is now 2.22.

Note 1: For calculating Modi indices, we need n + m −1 loading cells. So, we keep the cells that

would be loaded using the zero point method even with a load of zero

This involves the development of understanding how the information in the final tableau can be

given managerial interpretations. This will be done by examining the application of sensitivity

after obtaining the optimal solution, one of the right-hand-side values or coefficients of

objective function are changed, then, the changes in optimal solution and optimal value are

examined. The balanced relation between supply and demand in transportation problem makes

it difficult to use traditional sensitivity analysis methods. Therefore, in the process of changing

supply or demand resources, at least one more resource needs to be changed to make the

balanced relation possible. In this study, utilizing the concept of complete differential of

method is set forth. This method examines simultaneous and related changes of supply and

demand without making any change in the basis. The mentioned method utilizes Arasham and

89

CHAPTERS 4

4.0Introduction

The Coca Cola Bottling Company of Ghana Limited (TCCBCGL) is number one producers of

non-alcoholic beverage concentrates and syrups in the world. Transportation cost represents

about 25% of the total production cost. The company has outsourced its transportation to

external logistics services Providers. Coca Cola Bottling Company limited has registered about

10 transporters who operate with 120 trucks. Each of the plants at the various sites namely

Spintex Road (Accra) and Ahinsan (Kumasi) has its own constraint with respect to plant and

warehouse capacity. Thus, there is a limit capacity at each plant. The total plant capacity for

Spintex Road and Ahinsan per hour is 2000 and 1200 crates dependants on the plant efficiency.

This project is intended to minimize the total transportation cost from two production site

namely Spintex Road (Accra) and Ahinsan (Kumasi) to its numerous key distributors

geographically scattered all over Ghana which are numbered about 75. Coca Cola Bottling

Company faces challenges on how to optimally distribute its products among the 75 Key

distributors with a minimum transportation cost. As each site has its limit that supply and each

90

4.1 Data Collection

For the purpose of this study, data was collected from Coca Cola Bottling Company in the

brewery the volume of the liquid is quantified in millilitres. The required data includes: A list of

all products, sources, demand for each product by customer, the full truck transportation cost.

The study concerned the supply of Coca Cola Bottling Company from two production sites

Spintex Road and Ahinsan to 9 key distributors geographically scattered in the regions of

Ghana.

The study covered data gathered on the periods July 2009 – July 2010. The transportation cost

for full truckload of 1400 cases was known as were as production capacities. The demand for

each destination was also known in advance. Demand and production capacity were expressed

The data used for the analysis was collected from the logistics manager of Coca Cola Bottling

Company Ltd. The data included the transport cost per full truck of 1400 cases of Coca Cola

from production plant to the various key distributors, quantity demanded of Coca Cola Bottling

Company Ltd by the various distributors and capacities for the two plants sited at Spintex in

91

4.3 JULY 2009 – JUNE 2010 Transportation Matrix for Coca Cola Company

Problem

The collected data for JULY 2009 – JUNE 2010 (thousand) on transportation cost is shown in

the table below. This data indicates the transportation matrix showing the supply (capacity),

399.9 1262.7 1027.0 816.8 388.1 654.5 719.9 222.8 3210.4 1298

SPINTEX

390.8 1673.8 1540.5 647.5 338.2 1079.8 879.0 312.1 1453.6 1948

AHINSAN

DEMAND 465 605 451 338 260 183 282 127 535 3246

92

Using the shipping cost data of Table above the annual transportation cost in thousands of Cedis

is written as.

Minimize

Demand constraint

93

4.3.2 OPTIMAL SOLUTION July 2009 - June 2010

Using the management scientist 5.0 for Linear programming module the optimal solution

94

OPTIMAL SOLUTION

465.000 0.000

0.000 1280.000

451.000 0.000

0.000 530.000

260.000 0.000

122.000 0.000

0.000 20.750

0.000 190.190

0.000 1890.650

0.000 690.380

605.000 0.000

0.000 150.360

338.000 0.000

0.000 130.100

61.000 0.000

282.000 0.000

127.000 0.000

535.000 0.000

95

SENSITIVITY REPORT

1 0.000 340.000

2 0.000

3 0.000

4 0.000

5 0.000

6 0.000

7 0.000

8 0.000

9 0.000

10 0.000

11 0.000

96

OBJECTIVE COEFFICIENT RANGES

816.700

97

RIGHT HAND SIDE RANGES

1 1948.000

2 1298.000

3 465.000

4 605.000 605.000

5 451.000

6 338.000 789.000

7 260.000

8 183.000

9 282.000

10 127.000

11 535.000

The management scientist software is windows-based software designed for use with many of

the techniques represented in Operations management theory book. The management scientist

6.0 software packaged was employed to solve this transportation problem. The management

scientist software is mathematical tool solver for optimization and mathematical programming

in operations research. The Management Science module used is based on simplified version of

98

the simplex technique called The Transportation Simplex Method. The transportation simplex

method is a special version of Simplex Method used to solve Transportation Problems. It was

run on Intel(R) Core(TM) Duo CPU Toshiba machine with 4.0GB of RAM. Based on the data

gathered (in Table) that were used in running the management scientist program, produced the

The above transportation problem was solved with linear programming module and

transportation module of the Management Scientist, and the optimal solution obtained was the

The computer solution shows that the minimum total transportation cost is GH¢ 3192448

Ghana cedis.

The values for the decision variables show the optimal amounts to ship over each route. The

logistics manager should follow the following distribution list if want to optimize the

distribution:

Ship 465,000 case of Coca Cola from Plant SPINTEX (ACCRA) to distributor MANKESSIM

Ship 451,000 case of Coca Cola from Plant SPINTEX (ACCRA) to distributor BIMBILLA

Ship 260,000 case of Coca Cola from Plant SPINTEX (ACCRA) to distributor NKWANTA

Ship 122,000 case of Coca Cola from Plant SPINTEX (ACCRA) to distributor HO

Ship 605,000 case of Coca Cola from Plant AHINSAN (KUMASI) to distributor WA

Ship 338,000 case of Coca Cola from Plant AHINSAN (KUMASI) to distributor TECHIMAN

Ship 61,000 case of Coca Cola from Plant AHINSAN (KUMASI) to distributor HO

Ship 282,000 case of Coca Cola from Plant AHINSAN (KUMASI) to SEKONDI

Ship 127,000 case of Coca Cola from Plant AHINSAN (KUMASI) to distributor KOFORIDUA

99

and Ship 535,000 case of Coca Cola from Plant AHINSA (KUMASI) to distributor

BOLGATANGA.

100

Transportation output

(SOURCE) (DESTINATION) PER CASE(000) LOAD (GHC) COST (GHC)

ACCRA WA 0 1262.7 0

101

4.3.5 The sensitivity Analysis

Using the Arsham and Kahn Algorithm, this analysed the sensitivity of right-hand-side values

The values of supply and demand changes in this problem are consequently shown as Δ

Δ Δ Δ = Δ ,Δ and Δ

Thus ΣΔs = ΣΔd. Implementing the above changes in the transportation problem using the

The computer solution shows that the minimum total transportation cost is GH¢3058777.7

Ghana cedis. Which is clearly shows that, if Coca Cola Bottling Company Ltd management is

to implement such changes in supply and demand, it will help in decreases transportation cost to

The logistics manager should follow the following distribution pattern if want to optimize the

distribution:

Ship 47,000 case of Coca Cola from Plant SPINTEX (ACCRA) to distributor MANKESSIM

Ship 451,000 case of Coca Cola from Plant SPINTEX (ACCRA) to distributor BIMBILLA

Ship 260,000 case of Coca Cola from Plant SPINTEX (ACCRA) to distributor NKWANTA

Ship 127,000 case of Coca Cola from Plant SPINTEX (ACCRA) to distributor HO

Ship 600,000 case of Coca Cola from Plant AHINSAN (KUMASI) to distributor WA

Ship 338,000 case of Coca Cola from Plant AHINSAN (KUMASI) to distributor TECHIMAN

Ship 59,000 case of Coca Cola from Plant AHINSAN (KUMASI) to distributor HO

Ship 282,000 case of Coca Cola from Plant AHINSAN (KUMASI) to SEKONDI

Ship 127,000 case of Coca Cola from Plant AHINSAN (KUMASI) to distributor KOFORIDUA

and Ship 535,000 case of Coca Cola from Plant AHINSA (KUMASI) to distributor

BOLGATANGA

102

CHAPTER 5

5.1 Conclusion

The transportation cost is an important element of the total cost structure for any business. The

transportation problem was formulated as a Linear Programming and solved with the standard

LP solvers such as the Management scientist module to obtain the optimal solution. The

computational results provided the minimal total transportation cost and the values for the

decision variables for optimality. Upon solving the LP problems by the computer package, the

optimum solutions provided the valuable information such as sensitivity analysis for Coca Cola

Through the use of this mathematical model (Transportation Model) the business (Coca Cola

Company) can identify easily and efficiently plan out its transportation, so that it cannot only

minimize the cost of transporting goods and services but also create time utility by reaching the

goods and services at the right place at right time. This intends will enable them to meet the

corporative objective such as education fund, entertainment and other support they offered to

people of Ghana.

The study recorded total minimization of transportation cost during the periods of July 2009 -

June 2010 financial period. The value for the decision variable produced the optimal amounts to

103

5.2 Recommendations

Based on the results and findings of this study, I recommend to the management of Coca Cola

Company to seek to the application of mathematical theories into their operations as a necessary tool

when it comes to decision making, not only in the area logistics(the transportation Problem), but in

If the Coca Cola Company managers are to employed the proposed transportation model it will

assist them to efficiently plan out its transportation scheduled at a minimum cost.

There are number of programs that can assist in construction of TP and LP problems. Probably the

best known is GAMS-General Algebraic modelling system. This provides a high level language for

transportation problem.

104

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107

Appendix Conversions

24 bottles =1 case

70 cases =1 pallet

LP= Linear Programming

KD=Key Distributor

MAM= MANKESSIM

BIM= BIMBILLA

NKWA= NKWANTA

TECH= TECHIMAN

SEK= SEKONDI

KOF= KOFORIDUA

BOL=BOLGATANGA.

108

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