The modified distribution method, also known as MODI method or (u - v) method provides a minimum cost solution to the transportation problem.
MODI method is an improvement over stepping stone method.
The method, in outline, is :
1. Determine an initial basic feasible solution using any one of the three methods given below:
2. Determine the values of dual variables, ui and vj, using ui + vj = cij
3. Compute the opportunity cost using cij ( ui + vj ).
4. Check the sign of each opportunity cost. If the opportunity costs of all the unoccupied cells are either positive or zero, the given solution is the optimal solution. On the other hand, if one or more unoccupied cell has negative opportunity cost, the given solution is not an optimal solution and further savings in transportation cost are possible.
5. Select the unoccupied cell with the smallest negative opportunity cost as the cell to be included in the next solution.
6. Draw a closed path or loop for the unoccupied cell selected in the previous step. Please note that the right angle turn in this path is permitted only at occupied cells and at the original unoccupied cell.
7. Assign alternate plus and minus signs at the unoccupied cells on the corner points of the closed path with a plus sign at the cell being evaluated.
8. Determine the maximum number of units that should be shipped to this unoccupied cell. The smallest value with a negative position on the closed path indicates the number of units that can be shipped to the entering cell. Now, add this quantity to all the cells on the corner points of the closed path marked with plus signs, and subtract it from those cells marked with minus signs. In this way, an unoccupied cell becomes an occupied cell.
9. Repeat the whole procedure until an optimal solution is obtained.