Abstract
This paper studies the optimal production planning in a hybrid Make-To-Stock (MTS) and Make-To-Order (MTO) production system for a single product under the cap-and-trade environment. The manufacturer aims to minimize the total cost in production, inventory and emissions allowances trading. The decisions include the selection of production mode (pure MTS, pure MTO or hybrid MTS/MTO), the inventory and emissions trading quantity. We derive the optimal solution analytically. We show that the cost of optimal MTO/MTS hybrid production strategy is remarkably less than that of either pure MTO or pure MTS production strategy alone. Compared with the no initial carbon quota and trading environment, there are significant differences in the optimal production decisions under trading environment. When the emissions cost is a source of costs, the manufacturer has to face more costs pressure even if there is no emissions allowance trading. In particular, the results show that the initial emissions allowance determines the optimal production decision and emissions allowance trading decision in cases where the difference between the inventory cost for per unit product and the delayed delivery cost for per unit order is between the minimum and the maximum emissions cost and has no effect on production mode and emissions allowances trading decision in other cases. These conclusions will provide optimal production decision and carbon trading decision for the manufacture under a cap-and-trade environment.
Highlights
Since the 1960s, many scholars have paid close attention to two typical modes of production, i.e., Made-To-Stock (MTS) and Made-To-Order (MTO)
While most recent researches on hybrid MTS/MTO production use stochastic models, assuming demand, or production times, or lead time are stochastic, we use a deterministic setting which is similar to the earlier papers on inventory optimization because it is difficult to get the boundary conditions for optimal production and carbon trading decisions in a random situation
The results show that the optimal production decisions are different between emissions allowances trading and no emissions allowances trading, and the initial emissions allowances have remarkable influences on the decisions of production mode
Summary
Since the 1960s, many scholars have paid close attention to two typical modes of production, i.e., Made-To-Stock (MTS) and Made-To-Order (MTO). We adopt emissions trading allowances as a decision variable in the hybrid MTO/MTS production mode of single product on the condition that the initial emissions allowances which price of buying and selling through external market are different. In order to solve the above problems effectively, we study a hybrid MTS-MTO production for single item under the emissions trading environment in this paper. While most recent researches on hybrid MTS/MTO production use stochastic models, assuming demand (see, [31], etc.), or production times (see, [32], etc.), or lead time (see, [33], etc.) are stochastic, we use a deterministic setting which is similar to the earlier papers on inventory optimization (see, [34], etc.) because it is difficult to get the boundary conditions for optimal production and carbon trading decisions in a random situation.
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