Coordination of a supply chain under energy price uncertainty

For a two-level supply chain with a single vendor and a single buyer, a model is presented to determine the optimal production-shipment policy taking into account of the fuel cost of shipment. The objective is to minimize the total cost of a coordinated supply chain per unit time. Considering equal shipment size, the total expected cost per unit time is derived and a solution procedure is proposed. Results are discussed with a numerical example.