A bi-level programming model for sustainable supply chain network design that considers incentives for using cleaner technologies

Abstract

Nowadays, the population growth leads environmental, legislative, and social concerns. As a consequence, government and companies started to be aware of the impact of supply chain operations in the environment and society. While most of research in Supply Chain Network Design (SCND) has focused on economic performance, recently some studies consider environmental and social aspects of the SCND. The majority of existing related papers deal with multi-objective optimization modelling approaches when considering sustainable aspects of the supply chain. In this study, the optimization of a hierarchized Sustainable Supply Chain Network Design (SSCND) is addressed. To model this situation, a bi-level programming approach is considered. In the proposed model, an Environmental Protection Agency from the government has the leader role and acts as the upper level decision maker. Also, the supply chain's manager assumes the follower role acting as the lower level decision maker. Leader's objective function considers environmental aspects, while follower's objective function considers economical aspects. In the modelled situation, the government tries to cause an impact in the SCND by offering financial incentives (subsidies) and by encouraging the supply chain's manager to use cleaner technologies. The resulting bi-level programming model is a mixed-integer linear program. Due to the structure of the lower level problem, the bi-level model cannot be reduced into an equivalent single-level one by using KKT conditions. Therefore, an algorithm based on the simulated annealing metaheuristic is proposed for solving the problem. The results show that an appropriate government's financial incentives strategy lead to significantly decrease the environmental impact of the SSCND. Moreover, a greater impact is achieved when the financial incentives do not depend on the total production obtained via the use of cleaner technologies (scenario 1) than assigning subsidies based on the production made with specific technologies (scenario 2). Furthermore, the proposed model could be considered as a new approach for SSCND procuring environmental and economic aspects under an assumed predefined hierarchy.