Optimal Pollution Control in a Dynamic Multi-echelon Supply Chain

Today supply chains must internalize the impact of transport on the environment in their cost models. Therefore, managers must reduce green house gas emissions while striving to increase cost efficiency and satisfy demand. Our multi-echelon supply chain model minimizes pollution and cost while trying to achieve the best match between supply and demand over time. Three supply chain network configurations are investigated. Two of them are two-echelon: the first involves several suppliers and one warehouse, while the second involves one warehouse and several retail stores. The third network configuration is a three-echelon supply chain including multiple suppliers, one distribution center, and several retail stores. Using optimal control theory, we derive closed form solutions in such multi-echelon supply chain planning problems with consideration of pollution. This approach extends in a new direction the literature in operations and transport management by simultaneously addressing demand, supply as well as the greenhouse gas emissions that continuously vary in time and location. The proposed model provides a decision maker with the optimal choice of right deliveries, right times, while minimizing green house gas emissions. A numerical illustration presents some insights.