Shipping Cost Reduction

Problem: Minimising shipping costs on routes with fixed costs while meeting demand.

This problem is typical of the sclass of "network" problems, which generally involve the shipping of goods through transportation networks or of oil or gas through systems of pipelines.

The Shipping problem illustrates the use of optimisation to provide the least-cost distribution for a business that produces a product at many locations, transports it to intermediate warehouses, and then to final consumption or sales locations. Manufacturers, utilities, retail chains, and other distributors are all likely users of shipping optimisation systems modelled along similar lines.

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You work in the shipping department of a manufacturing business and need to minimise shipping costs while meeting demand without exceeding capacity.

In this case, two steel mills produce the same product. This product must be sent out to three plant locations. Each location has a demand for the product that must be met and each steel mill has limited manufacturing capacity. Finally, shipping costs vary from each steel mill to each plant.

The objective is to meet all plant demand without exceeding steel mill capacity at minimum shipping cost.

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