Green supply chain design with emission sensitive demand: second order cone programming formulation and case study
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Green supply chain design with emission sensitive demand: second order cone programming formulation and case study Samir Elhedhli1 · Fatma Gzara1 · Cynthia Waltho1 Received: 9 October 2019 / Accepted: 10 August 2020 © Springer-Verlag GmbH Germany, part of Springer Nature 2020
Abstract We propose a novel modeling framework for supply chain network design that models a prevailing trend in consumer choice in which demand is impacted by carbon footprint. To date, the literature lacks models that realistically account for and accurately calculate per unit emissions, i.e., carbon footprint. We develop a profit maximizing model that accounts for emissions at the different stages of the supply chain, locates facilities and selects their technology, and decides on the flow between echelons. To calculate the carbon footprint, fixed emissions are averaged over throughput, which results in a nonlinear optimization problem with fractional terms. To solve it, we provide a mixed integer second order cone programming reformulation. We perform extensive testing of the framework on a realistic case study and carry out detailed analysis. The proposed framework succeeds in capturing the trade-off between lost demand due to a high carbon footprint and investing in environmentally-friendly technology. The framework serves as a tool to induce organizations to invest in green technology and to allow regulating authorities to assess the impact of eco-labeling. Keywords Green supply chain design · Second order cone programming · Carbon footprint · Emission sensitive demand · Eco-labels
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Samir Elhedhli [email protected] Fatma Gzara [email protected] Cynthia Waltho [email protected]
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Department of Management Sciences, University of Waterloo, Waterloo, Canada
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S. Elhedhli et al.
1 Introduction Supply chain network design (SCND) that traditionally focused on cost minimization and demand responsiveness is shifting towards minimizing environmental impact [21]. As consumer behavior is increasingly influenced by environmental consciousness, supply chains are under continuous pressure to respond to this major shift. In this work, we model an increasingly prevalent trend in consumer behaviour where purchasing decisions are based on a product’s carbon footprint alongside its price. The carbon footprint refers to the amount of greenhouse gas emissions attributed to the product as a function of its path in the supply chain. Over the past years, there is a consistent trend in which consumers have expressed willingness to change their shopping behaviour, alter brand loyalty, and pay a premium in favor of carbon-labeled products. According to a 2011 Carbon Trust survey, about 45% of shoppers would stop “buying their favourite brands if they refused to commit to measuring their product’s carbon footprint”. In addition, 56% would “be more loyal to a brand if they could see at a glance that it was taking steps to reduce its carbon footprint” and 21% “would choose carbon labelled products over non-labelled products even if they co
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