Manufacturing profit maximization under time-varying electricity and labor pricing

Abstract

Profit maximization focuses on maximizing the difference between the revenue and the cost. Two of major cost components in manufacturing are the electricity and labor costs. New electricity tariffs charge manufacturing firms based on time-of-use and critical-peak prices. Some recent research activities have been conducted under such a time-varying framework. However, these studies mainly focus on reducing the electricity cost by shifting production from the on-peak to the off-peak period, and it may not always be consistent with the ultimate goal of profit maximization. This is because employees in various manufacturing industries are entitled a shift differential in their wage profiles. Therefore, this paper addresses how to properly arrange production that leads to the best tradeoff under time-varying pricing of both costs. The production function, the electricity cost model, and the labor cost model are established to formulate the manufacturing profit maximization problem. The effects of the seasons, number of workers, buffer capacity, machine reliability, initial condition, and time-varying pricing on the final solutions are examined.