Supply Chain Modeling

1 Background
Dronautics Ltd., a drone manufacturer operating across three manufacturing sites across
Australia, has experienced a big surge in demand for their products over the past few years.
Table 1 shows the current year’s demand information for 12 markets across Australia.
Dronautics is currently manufacturing in Cairns (QLD), Darwin (NT), and Mandurah
(WA). There are two distribution centers in its supply network, one in Adelaide (SA), and
one in Newcastle (NSW). The company demands all products to go though the distribution
centers for operational consistency.
2 Transportation Options
While Dronautics was able to ramp up their production for the demand, the management
team realized that the current transportation network is costing too much, as products
Region Demand State(s)
Sydney 50,230 New South Wales
Melbourne 49,360 Victoria
Brisbane 24,630 Queensland
Perth 20,590 Western Australia
Adelaide 13,460 South Australia
Gold Coast-Tweed Heads 6,790 Queensland/New South Wales
Newcastle-Maitland 4,870 New South Wales
Canberra-Queanbeyan 4,580 Australian Capital Territory/New South Wales
Sunshine Coast 3,330 Queensland
Wollongong 3,020 New South Wales
Geelong 2,680 Victoria
Hobart 2,330 Tasmania
Table 1: Number of drones demanded across 12 Australian markets.
Per Pallet ($) Per Unit ($)
Adelaide Newcastle Adelaide Newcastle
Cairns 790.00 660.00 6.00 5.00
Darwin 530.00 920.00 4.00 7.00
Mandurah 790.00 1,190.00 6.00 9.00
Table 2: Pallet and unit transportation costs from plants to distribution centers.
Per Pallet ($) Per Unit ($)
Adelaide Newcastle Adelaide Newcastle
Sydney 530.00 130.00 4.00 1.00
Melbourne 460.00 530.00 3.50 4.00
Brisbane 590.00 330.00 4.50 2.50
Perth 860.00 1,060.00 6.50 8.00
Adelaide 70.00 590.00 0.50 4.50
Gold Coast-Tweed Heads 590.00 330.00 4.50 2.50
Newcastle-Maitland 590.00 70.00 4.50 0.50
Canberra-Queanbeyan 460.00 200.00 3.50 1.50
Sunshine Coast 660.00 400.00 5.00 3.00
Wollongong 530.00 200.00 4.00 1.50
Geelong 460.00 530.00 3.50 4.00
Hobart 1,320.00 1,580.00 10.00 12.00
Table 3: Pallet and unit transportation costs from distribution centers to markets.
used to be transported in individual units.
Dronautics decides to use pallets when possible. For those drones that are not packed into a
pallet, they will be individually transported throughout the supply network as before. The
shipping costs for pallets are much more attractive, as there are no additional handling,
shrinking wrapping, and manual operations involved. Once a drone is shipped in pallets,
they will remain in pallets until arrive final destinations. A standard pallet holds 240
Tables 2 and 3 list the transportation costs for one pallet and one unit between the plants
and the distribution centers, and between the distribution centers and the markets.
3 Manufacturing Planning
Currently the unit production costs (excluding materials and components) across the three
manufacturing plants are $43/unit in Cairns, $40/unit in Darwin, and $42/unit in Mandurah.
Based on the new transportation options available, Dronautics wants to know how many
units to produce at each manufacturing site, and the corresponding distribution across its
supply network.
4 Production Relocation
At the same time, Dronautics is also considering relocating its production facilities, as all
three plants are not close to major markets. It was proposed that one new manufacturing
facility to be opened and co-locate with one of the distribution centers. By doing so,
Dronautics will be able to leverage the manufacturing economy of scales and be more
responsive to market demand.
If a drone is to be produced at the new facility, the unit production cost will be $33 in
Adelaide, and $32 in Newcastle, as a result of consolidation of manufacturing activities.
The new manufacturing facility will cost $1.5 million annually to operate over its designed
lifespan. With the co-location, products will be directly shipped out of the manufacturing
facility. Dronautics will continue to use the pallets when possible. The existing manufacturing facilities will be use to manufacture other products.
5 Tasks
You will be using network optimization techniques, and based on the models you constructed, to answer the questions like the following ones (but you are not limited to those):

  1. The manufacturing plans at Cairns, Darwin, and Mandurah, the three manufacturing
  2. The distribution network and the associated flows over the whole network.
  3. How rational is the policy that products have to go through the distribution centers?
    If this could be changed, what changes you would like to propose? What results you
    would expect to see?
  4. How much will be the cost difference, if breaking down of pallets (i.e., taking products
    from fully packed pallets) is allowed?
  5. Assess whether it will be worthwhile if Dronautics relocates its production to either
    Adelaide or Newcastle.
  6. If the production relocation is profitable, which site should be chosen? How much
    would be the cost saving? If the production location is not profitable, by how much
    should the annual operating cost reduce so that it will be attractive to Dronautics
  7. Discuss the impact of production relocation to cycle and safety stocks, try to pick
    appropriate parameters to estimate the effect.
  8. Construct at least one other possible scenario, and discuss your findings.