Bi-Objective Inventory Policy with Comprehensive Environmental Factors Formulation and Service Level Constraints

Abstract

As firms and consumers engage with environmental issues, decisions for inventory control need to entail this perspective of sustainability. Most green inventory models employ methods such as carbon caps or taxes for dealing with environmental sustainability. This problem can be more generally tackled via an explicit estimation of the environmental drivers of maintaining inventory in a warehouse, paired with the economic perspective within a transparent multi-objective optimization framework. With this goal, this paper builds on a detailed estimation of environmental and cost factors for a continuous-review inventory policy. The bi-objective problem is tackled by keeping the objective functions separate. In particular, the modeling of greenhouse gas emission or cost performance factors for the inventory encompasses factors that can depend on the decision variables, taking into account aspects such as warehouse location, building characterization, energy usage, and transport requirements. The effects of the emission drivers on the multi-objective optimization decisions are analyzed, considering that the problem can be constrained by multiple service level measures. Stockout response can be multifaceted and different service level measures capture different aspects of inventory shortages, affecting the resulting efficient solutions differently. The results highlight the impact of aspects such as warehouse location and supply capacity on solutions for the multi-objective inventory problem. Managerial decisions are thus influenced by warehousing and supply attributes via a traceable link to specific cost and emission determinants.