Optimal lot-sizing under strict carbon cap policy considering stochastic demand

Due to stringent laws and increasing awareness of customers, organizations are becoming environmental conscious and looking beyond conventional cost minimization/profit maximization approach and striving to curb carbon emission. In this article, we have considered strict carbon cap policy to determine the optimal order quantity, reorder point and number of shipments in a two-echelon supply chain under stochastic demand considering partial backorders. All the major sources of emission such as production, inventory, and transportation have been considered. The objective is to minimize the total expected supply chain cost while satisfying the carbon emission constraint. A numerical example is given to illustrate the solution procedure. Further, sensitivity analyses have been carried out to get insight that how with operational adjustments both cost and emission can be controlled.