Optimisation of a production-inventory model under two different carbon policies and proposal of a hybrid carbon policy under random demand

In last couple of decades organisations are looking for solutions to reduce carbon emissions across their supply chains primarily due to stringent carbon policies. The two most familiar carbon policies are (i) Carbon tax/cost policy and (ii) Carbon cap-and-trade policy. In this paper a two-echelon supply chain have been optimised under these two policies under random demand. Comparisons of these two policies have been discussed, and a possible hybridisation of these two policies has also been presented. It has been assumed that the demand is random in nature. Two different Mixed Integer Non Linear Programming (MINLP) models have been developed and solved under the consideration of two different carbon policies. These models will help organisations to determine optimal order quantity, reorder point and number of shipments under most widely known carbon policies, severally. Sensitivity analyses have revealed that organisations can reduce total expected emissions and total expected cost by operational adjustments under both the carbon policies. It has been shown here that while optimising the total supply chain cost under the two different policies the decision variables and total emissions remain same. The advantages and disadvantages of both the policies have been discussed here and the potential benefits of a hybrid policy have also been presented.