Interpret the meaning of u, v, and delta in MODI method. (Apr 2006)
In MODI (Modified distribution) method, we find u and v values. U and v are cost components on the supply and demand side. We calculate the value of u and v from the allocations.
Formula: c = u + v OR [ u = c – v and v = c –u ]
From u and v values, we calculate delta (opportunity costs or cell evaluation) for empty cells.
Formula: Delta = (u +v) – C
If all opportunity costs are either negative or zero, then there is no scope for any further reduction in cost. Hence, the present solution is optimal. But if any opportunity costs are Positive, it indicates possible decrease in cost. The present solution is not optimal.
In that case, we construct a closed loop from maximum Positive delta (opportunity cost). Then we write the next table and again check for opportunity costs.
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