The transhipment problem is more general than that of regular transportation problem, where direct shipments only are allowed between a source and destination. In transhipment problem available commodity frequently moves from one source to another source or destination before reaching its actual destination.
In Transhipment Network, the nodes of the network that acts as both source and destination are called transhipment nodes. The nodes of the network which acts as source only are called pure supply nodes and the nodes which acts as destination only are called pure demand nodes.
The transhipment model can be converted into a regular transportation model by considering sources with pure supply nodes and transhipment nodes and destinations with pure demand nodes and transhipment nodes.
The amount of supply and demand at the different nodes are computed as:
Supply at a pure supply node = Original supply
Demand at a pure demand node = Original demand
Supply at a transhipment node = Original supply + Buffer amount
Demand at a transhipment node = Original Demand + Buffer amount.
The buffer amount should be sufficiently large to allow the entire original supply or demand units to pass through any of the transhipment nodes. Buffer amount = B = Total Supply (or Demand).
After converting the transhipment model into transportation model, it can be solved by regular transportation method.