Developing a production-inventory-routing model considering discounting and environmental issues for deteriorating items in a green supply chain

This article aims to develop an integrated production-inventory-vehicle routing model for deteriorating products in a green supply chain considering environmental impacts. The objective is to maximize the profit of selling products considering the costs of production, setup, inventory holding, distribution, vehicle routing, transportation, fuel, and environmental pollutants.

 Intending to integrate the supply chain policies, the developed model aims to maximize the total profit of producers and wholesalers in a horizontal collaboration. The model is formulated to mixed-integer linear programming (MILP). A set of deteriorating products with a shelf life is assumed. The quality of the products decreases over time, and therefore, there is a fixed deterioration rate in each period. A discounting policy is considered for producers and wholesalers. The model is coded using IBM ILOG CPLEX. Three examples with different dimensions are solved in two centralized and decentralized versions. The sensitivity of demand and holding cost parameters are analyzed. 

The solving results of the model in both centralized and decentralized cases underlined increasing profits by integrating the supply chain decisions. By comparing the model’s solving results in both centralized and decentralized cases, the sales revenue of the wholesalers in the decentralized case increased by more than 30% in all three samples when a price discount was possible. However, the revenue from the wholesalers' regular sales was more concentrated than those of decentralized case. Compared to the decentralized case, the manufacturers' revenues from discounted and regular sales in the centralized case also increased by more than 10% and 70%, respectively.

Although the demand and many other parameters such as cost and production rate are affected by many exogenous factors, and hence, are not deterministic in reality, demand was assumed deterministic. The problem was solved for small and medium-size samples. In real cases, the development of appropriate algorithms for solving large size samples is recommended.

 The basis of the proposed model is a study on a group of agricultural products from production to distribution, which can be applied for a real case study. This research influences business and the economy. It also proposes a model to build an effective collaboration between manufacturers and wholesalers to increase profitability.

This research tries to integrate decision-making in a supply chain and improve profitability. As a result, business improves and customer satisfaction increases. The model considers the waste of the deteriorating products, i.e. the destructive waste effects on the environment. Fuel consumption as a factor that harms the environment and depletes nonrenewable resources is also recognized. Moreover, possible price discounting can lead to profit increase, waste decrease, and satisfaction of economic or low-income customers. Considering the mentioned factors are substantial in a sustainable supply chain.

This paper presents a mathematical model (MILP) for a supply chain of deteriorating items such as agricultural products. Due to the existing unequal and disproportionate volume of deteriorating products transporting between producers and wholesalers, the transportation fleet is considered heterogeneous. The possibility of a price discount policy is assumed to increase the demand level and total profit and decrease overall waste. Environmental considerations in the form of a reduction in fuel consumption and pollutants in routing are also recognized. The centralized and decentralized cases were also compared.