A Study on Optimizing Transportation Cost - An Application of Vogels Approximation Method

There is a growing trend of eroding business profits among manufacturing firms owing to higher cost of materials and services, and constant shutdown of factory. Profit and profitability are most often used as index for measuring performance. Pricing of a product is affected by many factors; one of them being the transportation cost. Nevertheless, because of the increasing fuel price, transportation cost is also increasing day by day. This study examines the benefits of following the optimum method of transportation with the help of a case study. The study found out that if the company is adopting a systematic transportation model on the basis of the Vogel’s Approximation Method, there will be considerable saving in the transportation cost which will improve the profitability. Reduction in transportation cost will help the company to consider reducing the price of their product which in turn will help them to compete successfully and improve their sales. This would particularly serve beneficial to companies with mounting excess stock.