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Sector Introduction:

Transport sector:With the changing economic scenario, factors such as globalization of markets,

international economic integration, and removal of barriers to business and trade andincreased competition have enhanced the need of transportation. It is one of the mostimportant infrastructure requirements which is essential for the expansion ofopportunities and plays an important role in making or breaking the competitivepositioning.

ransport volumes in India remain much less than those in the developedcountries. India has still to go a long way in strengthening its transportation network. hecountries transportation network suffers from several inadequacies and, in particular ithas little resilience to deal with unforeseen demands.

ransportation, like all industries is largely influenced by information and

communication technologies with the focus being on knowledge of customer needs andvalue added services. !urface transport is provided by the "oad and the Indian "ailways#primarily for carrying low value bulk commodity, mostly for the government sector$.%argo "oad ransport is entirely in the hands of the private sector. &n estimated '.(million trucks #) tons capacity$ crisscross the country covering more than *+,+++kilometers of roads. In India road transportation is preferred for cargo movement, whereflexibility of routing assumes importance. It facilitates doortodoor delivery, overcomingunnecessary delays which normally take place in the other modes of transportation.-early every company, business, government and consumer in the world is, to somedegree, dependent on the transportation industry. &s such, the shipping of supplies,products and consumer goods is essential to the domestic and international economic

system. !ince '))* the transportation industry has accounted for / of the 0.!. 123each year.

he transportation industry can be broken down into three ma4or groups ofcompanies: !hipping, passenger transport, and equipment manufacturers. In some cases,particularly within shipping and passenger transport, companies provide services inmultiple areas of the industry. !hipping companies are responsible for the transportationof supplies, and products to businesses, governments and individual consumers andoperate on a global basis. he passenger transport segment provides people with themeans to get anywhere on the planet, whether it is by air, sea or land. 5inally, themanufacturing segment produces the trucks, planes, ships and railcars along with all thetechnology that allow transportation to exist in its current form. hese manufacturers are4ust as essential to the transportation of materials and people as are the companies thattransport them.


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1 INTRODUCTION

11 Researc! "uestion and secondary researc!

his research work was conducted based on real transportation activities of a company

operating in "ussia in order to analyze its approach to the transportation flow and basedon theory, to develop the possibility of using transportation modeling technique in thecompany@s activities. &lso, based on real figures and quantities, to find possible waysof solving problems of transportation activities in order to improve the transportationflow and to minimize the costs of shipping products from a series of sources to a seriesof destinations. !9 ransport and !ervices 7td is operating in field of logistics andtransportation, especially in organizing booking processes, loading and unloadingof containers. he company itself is a part of transportation chain of readymade goodsand raw materials from ;altic countries, 5inland and "ussia to -orth &frica countries.he company also provides consultation services for a smaller producers and suppliers, inorder to help them to achieve the required quality standards of their goods, and the selling

in the international markets. %ost minimization has become as one of important issues inbusiness activities which have achieved a high priority especially today, when theeconomic slowdown has hit most of the business and production sectors

%ost rationalization has become an imperative for many companies to survive.ransportation modeling is one of those techniques that can help to find an optimumsolution and save the costs in transportation activities. Aowever, to achieve this goal byintegrating or applying any of those methods and techniques to already existing system,the company@s management can meet other problems and obstacles, where all parts of thetransportation chain are equally important for the transportation flow processes. heauthor of the thesis considers the study to be important, as the ability of minimizing

transportation costs may affect in transportation planning process and longterm strategyfor future operations and company profit potential. he main essential question of thisresearch work is how transportation modeling may help to improve the transportationflow and minimize the costs of transportation. he answer to this main question involvesminimizing the cost of shipping products from a series of sources to a'+ series of destinations: he main goal is to present three different methods of savingcosts in transportation flow, showing the possibility of cost minimization by using thesetransportation modeling methods. he methods were applied to thecompanyBs transportation planning activities, based on its existing quantities, byinvestigating the local suppliers in "ussian territory. 5or the purpose of determiningoptimum solution in this particular case, the author investigated results of differenttransportation modeling methods and using hand calculations to compare differences inthe final results of each method. In the theoretical part, data collecting and presentingalong with some solved examples are presented. he author used the ransportation9odeling methods such as -orthwest%orner rule, the Intuitive 7owest%ost 9ethod and!tepping!tone method to compute the total cost of transportation, find an initial basicsolution to the transportation problem and finally find the optimum solution. he authorinvestigated differences between results of transportation costs, by applying three


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different methods of transportation modeling. his approach helps to see the difference inresults and therefore to develop a possibility of using transportation modeling methods inthe future company activities. !econd research question is forecasting of the company@sactivity for the next year, based on existing data and figures of present activities. In thetheoretical part of the forecast chapter, different methods introduced different types,

methods and approaches of forecasting which may help to predict the future operations ofthe company and its position on the market.he author of the thesis considers the research work is of great importance as it providesvery precise prediction and forecasts of the future values such as budget, future costs andprofit of a company.

1# $ac%&round of t!e studyhe company !9 ransport and !ervices 7td is an international forwarding companyoperating in field of logistics and transportation, especially in organization of booking,loading and unloading containers for transporting of semiprocessed goods. he company

itself is a part of transportation chain of raw materials and semiprocessed goods from;altic countries, 5inland, "ussia to the -orth &frica and &rabic markets. he ma4or partof the company@s activities in "ussia corresponds to the timber industry. "ussia is one ofthe biggest suppliers of the timber, raw materials and semiprocessed goods out ofwood around the world. !9 ransport and services 7td cooperates directly with 5innishcompany "6! imber +/$ and 0nited sawmills #>+/$."6! imber is the market leader with a onethird share of the total market area. hecompany sells -ordic and ;altic products from !tora 6nso imber, 0nited sawmills andother minor suppliers. &ll product sales to -orth &frica and 9iddle 6ast countries are

handled by "6! imber in 5inland and !tora 6nso imber 2oo, Doper in !lovenia.hese companies export soft wood products to market areas in 6gypt, !audi &rabia,&lgeria, 7ebanon, unisia and 9orocco.

1' Purpose of t!e study and primary researc!

he thesis was conducted in order to introduce the transportation problem solutions byapplying different methods of the transportation flow of a company, in order to findthe points that could be improved and minimize transportation costs of the company. hethesis was also conducted in order to show how basic figures of transportation flowcan be transferred into a transportation matrix which is the basis of any

transportation problem. 0nderstanding of transportation problem methods can help tofind an optimum solution for the transportation flow. ;ased on calculations and results ofdifferent methods and approaches to the same transportation problem, using differentcases when demand was and wasn@t equal to supply were also investigated. he authorwas also looking into the forecasting problem to show how forecasting approaches canhelp to predict transportation activities of the company in the future. he thesis studied,with the help of transportation modeling methods such as -orthwestcorner, 7owest%ostand ?ogel@s &pproximation , using real figures and data such as location of the sawmills


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in "ussia, destinations to the terminal, terminal expenses and '( freight cost oftransportation from the terminal in "ussia to the final destination. he study investigatespossible ways of minimizing the cost of transportation by using handmade calculation.hese two tools are helped to understand the details of the transportation algorithm bydescribing all steps involved. he !ales 9anager of !9 transport and services 7td

was provided the author with all needed information about the difference of the goodsquality from different producers and all the data and figuresneeded for the case study.

# ()T*ODO+O,-:TOO+S TO $) ADOPT)D:he tool adopted is:Transportation Problems

' T*)OR-'1 Transportation problemhroughout last years the changing nature of logistics and supplychain directed

companies towards global operations, has had an obvious impact on the relativeimportance of the different modes of transportation. In a global context, more productionfacilities are moved for greater distances because companies have developed the conceptof focus factories, with a single global manufacturing point for certain products, and theconcentration of production facilities in lowcost manufacturing locations. ransportationproblem became one of the most actual tasks for many companies. In any businessactivities, locations of the new production facilities, warehouses and distribution centersare the strategic issue with substantial cost implications where most companies usuallyconsider and evaluate several locations. here are a wide variety of ob4ective andsub4ective factors that must be always considered in finding the most rational decision.2epending on the sort of activity, for different companies and business industries the

transportation problem can be solved using different methods, approaches andtechniques.


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'# T!e Transportation (odel and its .ariantsEhe transportation model is a special class of linear programs that deals with shipping acommodity from sources #e.g., factories$ to destinations #e.g., warehouses$. he ob4ectiveof the model is to determine the shipping schedule that minimizes the total shipping costwhile satisfying supply and demand limits. he model assumes that the shipping cost is

proportional to the number of units shipped on a given route. In general, thetransportation model can be extended to other areas of operation, including, amongothers, inventory control, employment scheduling, and personnel assignmentF

Ehe general problem of the transportation model can be defined and represented by thenetwork in 5igure '. here are msources and ndestinations, each represented by anode.he arcs represent the routes linking the sources and destinations. &rc #i4$ 4oining sourceito destinationjcarries two pieces of information: the transportation cost per unit, % i4,and the amount shipped, G i4. he amount of supply at sourceiis ai, and the amount ofdemand at destinationj is b4. he ob4ective of the model is to determine the unknown Gi4that will minimize the total transportation cost while satisfying the supply and demand

restrictionsF

/i&ure1 Representation of t!e transportation model 0it! nodes and arcs


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'' Transportation matri

&ccording to Hay Aeizer and ;arry "ender, Eransportation modeling is aniterative procedure for solving problems that involve minimizing the cost of shippingproducts from a series of sources to a series of destinationsF. ransportationmodeling finds the least cost means of shipping supplies from several origins to severaldestinations.


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/i&ure # s!o0s t!at t!e '88 units re"uired by Ari2ona Plumbin&9s Albu"uer"ue

0are!ouse mi&!t be s!ipped in 7arious combinations from its Des (oines3

)7ans7ille3 and /ort +auderdale factories

/i&ure # Sc!eme of transportation problem

T!e first step in t!e modelin& process is to set up a transportation matri Itspurpose is to summari2e all rele7ant data and to %eep trac% of al&orit!m

computations;


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Table #


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6 Transportation modelin& met!ods;ased on theory, Eafter all needed data was arranged in tabular form, the next step of thetechnique is to establish an initial feasible solution to the problemF

With the reference to the transportation problem the following terms are to be defined:

'. 5easible !olution, which is a set of nonnegative allocations Gi4 + which satisfies therow and column restrictions.(. ;asic 5easible !olution, which is a feasible solution to a m origin and n destinationproblem if the number of positive allocations are #mJnK'$. If the number of allocations ina basic feasible solutions are less than #mJnK'$, it is called degenerate basic feasiblesolution #otherwise nondegenerate$..


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T!e abo7e is Table 'Nort!0est?Corner solution to Ari2ona Plumbin& Problem

6# T!e Intuiti7e +o0est? Cost (et!od

he Intuitive 7owest %ost 9ethod is a cost based approach in an initial solution to atransportation problem. his method makes initial allocations based on lowestcostF.able > shows the way of how to find an initial feasible solution to the &rizona3lumbing problem, using Intuitive 7owest K %ost 9ethod. his straightforward approachuses the following steps:

'. Identify the cell with the lowest cost. ;reak any ties for the lowest cost arbitrarily.(. &llocate as many units as possible to that cell without exceeding the supply or demand.. hen cross out that row or column #or both$ that is exhausted by this assignment.L. 5ind the cell with the lowest cost from the remaining #not crossed out$ cells.>. "epeat steps ( and until all units have been allocated.he total cost of 7owest K %ost 9ethod and how all the steps described above wereapplied to the &rizona 3lumbing problem, represented in the able >


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Table 4 Intuiti7e +o0est?Cost Solution for Ari2ona Plumbin& Problem

he total cost with the intuitive lowestcost method is =L'++ which is less than resultof the -orthwest%orner method of =L(++. he result of the second approach is showingthat assignment has been improved in minimizing the costs by ='++. ;ased on theory,Ehe northwestcorner and the intuitive lowestcost approaches are meant only to provideus with a starting pointM we often will have to employ an additional procedure to reach anoptimal solutionF.

6' T!e .o&el9s Approimation (et!od

E?ogel@s &pproximation 9ethod #?&9$ is the other important technique in addition tothe northwest corner and intuitive lowestcost method. ?&9 is not quite as simple as thenorthwest corner approach, but it facilitates a very good initial solution K as a matter offact, one that is often the optimal solution. ?ogel@s approximation method tacklesthe problem of finding a good initial solution by taking into account the costs associatedwith each route alternativeF.he first step of ?&9, is to compute for each row and column the penalty faced ifcompany should ship over the second best route instead of the leastcost route.

he following tables and calculations will step by step represent all six steps involved aninitial ?&9 solution for &rizona 3lumbing.

Step 1:5or each row and column of the transportation table, find the difference betweenthe two lowest unit shipping costs. hese numbers represent the difference between thedistribution cost on the best route in the row or column and the second best route in therow or column. #his is the opportunity cost of not using the best route.$


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Table @


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Step ':&ssign as many units as possible to the lowest cost square in the row or columnmselected. !tep has been done in able *. 0nder %olumn &, the lowestcost route is 2K with a cost of =>$, and '++ units have been assigned to that square. -o more were placedin the square because doing so would exceed 2@s availability.

Step 6:6liminate any row or column that has 4ust been completely satisfied by theassignment 4ust made. his can be done by placing Gs in each appropriate square. !tepLhas been done in able *, 2 row. -o future assignments will be made to the 2K; or 2K%routes.

Step 4: "ecalculate the cost differences for the transportation table, omitting rowsor columns crossed out in the preceding step. his is also shown in ableL.N. &@s, ;@s,and %@s differences each change. 2@s row is eliminated, and 6@s and5@s differences remain the same as in able *.

Table B.A( Assi&nment 0it! D9s Re"uirements Satisfied


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5 K & and 5 K %, may be made by inspecting supply restrictions #in the rows$ and demandrequirements #in the columns$. We see that an assignment of (++units to 5 K & and '++units to 5 K % completes the table #see able ''$ the above table.

he total cost of this ?&9 assignment is P #'++ units x =>$ J #(++ units x =L$ J

#'++units x =$ J #(++ units x =)$ J #'++ units x =>$ P =,)++It is worth noting that theuse of ?ogel@s approximation method on the &rizona 3lumbing %orporation dataproduces the optimal solution to this problem. 6ven though ?&9 takes many morecalculations to find an initial solution than does the northwest corner rule, it almostalways produces a much better initial solution. Aence, ?&9 tends to minimize the totalnumber of computations needed to reach an optimal solution.

Researc! +imitations

his thesis has to take in consideration certain limitations. In transportation modelingcalculation part the author did not take into consideration the quantities of the othersmaller wood suppliers in "ussian territory, because their goods in most cases are for salein local market. he goods from the smaller suppliers, company uses only incase whendemand from the buyers very much exceeds the total supply from the biggest suppliers,which happen very seldom. &nother limitation in transportation problem is that the authordid not take into consideration such situation when buyer is ready to cover in advancehalf of transportation expenses such as terminal expenses and sea freight. 2epends onterms of the contract between company and buyer the final prices of the goods may varyand they are different from those that author used in his calculations.

CONC+USION

his was conducted in order to present different transportation modeling methods andforecasting approaches, to analyze the possibility of improvement and integrationof transportation modeling methods into existing transportation flow of an existingcompany operating in "ussian market, to minimize the costs on transportation by findingan optimum solution for transportation routes from different production sources to adifferent points of destination. he forecasting part was conducted based on realstatistical data of existing data and transportation flow activities in order to show differentforecasting approaches and to predict future situation of the company. It is considered the

study to be important, as the minimization costs and optimization of the transportationprocesses may help to improve the company position on the market and increase theprofitability of the company by reduction expenses on transportation.


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R)/)R)NC)S

Aamdy &. aha ,ransportation model and its variants , E

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