E211- Operations Planning II

SCHOOL OF ENGINEERING E211 – OPERATIONS PLANNING II

The Distribution Network Problem

The distribution network problem
 Goods are shipped from known supply points (factories, plants) to
known demand points (customers, retail outlets), possibly through
intermediate points (regional and or/field warehouses) known as
the transhipment points.

 The overall objective is to find the best distribution plan, i.e., the
amount to ship along each route from the supply points, through
the intermediate points, to the demand points, where “best” is
meant a plan that minimizes the total shipping cost.

 It is also necessary to satisfy certain constraints:

 Not shipping more than the specified capacity from each supply point;

 Meeting known demand at the demand points;

 Shipping goods only along valid routes;

 Shipment not exceeding capacity limit imposed on certain routes.

SCHOOL OF ENGINEERING E211 – OPERATIONS PLANNING II

The Minimum Cost Flow Model

One favourable feature of the distribution network problem is that
it can be precisely represented and solved by the Minimum Cost
Flow Model.

The Minimum Cost Flow Model is a network optimization model

having the following features:
 Its objective is to find the cheapest possible way of sending a certain
amount of flow from sources to destinations through a flow network;

 Like the maximum flow problem: it considers flow through a network with
limited arc capacities;

 Like the shortest path problem: it considers a cost (or distance) for flow
through an arc;

 Like the transportation problem: it can consider multiple sources and

multiple destinations for the flow, again with associated costs.

 All three problems above are special cases of the Minimum Cost Flow Problem.

SCHOOL OF ENGINEERING E211 – OPERATIONS PLANNING II

Network Representation of the Minimum Cost
Flow Model
Cost of shipping one
Supply at Demand at
unit from A to D
Source A Destination D

[50] [-30]
9 The objective is
A D to minimize the
total cost of
2 4 sending the
(uAB= 10)

[0] 2 3 available supply

C
through the
3 1 network to
satisfy the
E
B given demand

Transhipment
[-60]
[40] point

An example of a network representation of the minimum cost flow problem

SCHOOL OF ENGINEERING E211 – OPERATIONS PLANNING II

LP Formulation of the Minimum Cost Flow
Problem

The decision variables: xij represents the amount of flow through arc i → j
where i, j represents nodes in the network.

The objective function:
M in im iz e Z = 2 x A B + 4 x A C + 9 x A D + 3 x B C + x C E + 3 x D E + 2 x E D

The constraints:
 flow constraints (one for each node)

Amount shipped out – Amount shipped in = Net flow generated at the node

Node A: x AB + x AC + x AD = 50 Node D: x DE − x AD − x ED = − 30
Node B: − x AB + x BC = 40 Node E: − xCE − x DE + x ED = − 60
Node C: − x AC − x BC + xCE =0
 Upper-bound constraints

Flow trough an arc not exceeding the limited arc capacity

x A B ≤ 1 0; xC E ≤ 8 0 .
 Nonnegativity constraints: All xij ≥ 0

SCHOOL OF ENGINEERING E211 – OPERATIONS PLANNING II

The Integer Solution Property of the Minimum
Cost Flow Problem

Like the transportation problem, the minimum cost flow

problem also has the integer solution property.

As long as every demand, supply and arc capacity have

integer values, a minimum cost flow problem with
feasible solutions is guaranteed to have an optimal
solution with integer values for all the decision variables.

Therefore, it is not necessary to add constraints to the

model to restrict the decision variables to only have
integer values.

SCHOOL OF ENGINEERING E211 – OPERATIONS PLANNING II

Today’s problem: Formulation as a minimum
cost flow Problem

[0]

SCHOOL OF ENGINEERING E211 – OPERATIONS PLANNING II

Today’s problem: LP Formulation

SCHOOL OF ENGINEERING E211 – OPERATIONS PLANNING II

Today’s problem: Excel Solver solution

LP Total cost = $ 655,000

SCHOOL OF ENGINEERING E211 – OPERATIONS PLANNING II

 Formulation of the shortest path problem as a
minimum cost flow Problem
Net flow at
intermediate
node

Demand at
Destination 5

Travelling
distance
between nodes
2 and 5

SCHOOL OF ENGINEERING E211 – OPERATIONS PLANNING II

 LP formulation for the shortest path problem (with
mandatory pass of each node)

1 arc i → j is on the shortest path

X ij = 
0 otherwise

We ignored those decision variables going into source node and coming out of
destination node.

SCHOOL OF ENGINEERING E211 – OPERATIONS PLANNING II

LP formulation for the shortest path problem (with
mandatory pass of each node)

Net flow constraints already

imposed mandatory pass on
source node 1 and destination
node 5.
Mandatory pass constraints are
required only for intermediate
(transhipment) nodes 2, 3 and 4.
Due to the ‘integer solution’
property of the minimum cost flow
problem, we do not need to
specify the decision variables to
be binary.
For the shortest path problem with
no mandatory pass requirement,
we can ignore this set of
constraints.

SCHOOL OF ENGINEERING E211 – OPERATIONS PLANNING II

Conclusion

The minimum cost flow problem holds a central position in the
network optimization models.

The transportation problem, shortest path problem, and

maximum flow problem are all special cases of the minimum cost
flow problem.

One special application of the minimum cost flow problem is the

distribution network problem.

The distribution network problem is to find the minimum cost

shipment arrangements distributing products from ‘sources’ to
‘destinations’ considering both transshipment points and flow
capacity in a transportation network.

Flow networks can also be used to model liquids flowing through

pipes, parts through assembly lines, current though electrical
networks, information through communication networks.

SCHOOL OF ENGINEERING E211 – OPERATIONS PLANNING II

Learning Objectives

Finding the minimum cost shipment arrangements
distributing products from ‘sources’ to ‘destinations’
considering both transshipment points and flow capacity
in a transportation network.

 Understanding of transshipment, flow capacity, mandatory

pass modeling.

 Formulate LP model and use MS Excel Solver to find the

optimal solution.

 Appreciate that transportation problem, maximum flow

problem, and shortest path problem are all special cases of
the minimum cost flow problem.

SCHOOL OF ENGINEERING E211 – OPERATIONS PLANNING II