Optimization of Supply Chain Systems with Price Elasticity of Demand

Summary:

A centralized multiechelon, multiproduct supply chain network is presented in a multiperiod setting with products that show varying demand against price. An important consideration in such complex supply chains is to maintain system performance at high levels for varying demands that may be sensitive to product price. To examine the price-centric behavior of the customers, the concept of price elasticity of demand is addressed. The proposed approach includes many realistic features of typical supply chain systems such as production planning and scheduling, inventory management, transportation delay, transportation cost, and transportation limits. In addition, the proposed system can be extended to meet unsatisfied demand in future periods by backordering. Effects of the elasticity in price demand in production and inventory decisions are also examined. The supply chain model is formulated as a convex mixed-integer nonlinear programming problem. Reformulations are presented to make the problem tractable. The differential equations are reformulated as difference equations, and unbounded derivatives in the nonlinear objective function are handled with an approximation, with guaranteed bounds on the loss of optimality. The approach is illustrated on a multi-echelon, multiproduct supply chain network.

In order to calculate the GHG emission in end-to-end supply chains, a holistic perspective is needed covering all of the stages and functions. The emissions are related to operation of Supply Chains that result in regular GHS emissions for each procurement/production/distribution activity. In general, each activity in the end-to-end supply chain results in GHG emissions. Procurement activities has to consider not only the purchase price of the raw materials and parts but also GHG emissions per item procured (for example, on the average 2 kgs of CO2 is emitted per kg of aluminum), the emissions due to inbound logistics activities and inventory related emissions. Production activities generally related to energy use; however some sectors emit GHG during their operations such as cement industry during calcination. Distribution activities are mainly transportation related emissions such as road, rail, sea or air transportation.