Energy Implications in the Single-Vendor Single-Buyer Integrated Production Inventory Model

Abstract

Increasing energy efficiency is one of the main objectives of the Directive 2009/28/EC of the European Commission (called 20-20-20), which aims at decreasing greenhouse gas emissions by jointly increasing the use of renewable energy and improving energy efficiency, all by 20% until 2020. To reduce energy consumption in producing and distributing products, it is of major importance to consider energy consumption in the whole supply chain and for all activities associated with production and distribution. For this reason, this paper studies a single-vendor single-buyer integrated production-inventory system and explicitly takes account of energy consumption. The use of energy is weighted with a cost factor and evaluated together with classical production-inventory costs. We find that if energy costs are considered together with traditional cost components, then the inventory costs of the system increase slightly in the optimum, but the total costs of the system decrease and we observe great energy savings.