Optimal Production-Inventory Policy under Energy Buy-Back Program

This paper proposes a production-inventory model with setup cost for production and financial compensation for stopping production when the buy-back program is activated, which is a modified model to that of [Chen et al 2007] by including the setup cost. Under an energy buyback program, we consider M+1 types of market scenarios and the corresponding buy-back levels with different financial compensations determined by the specific supply-demand condition. We show that the optimal production-inventory policy is of an (s,S) type for all market scenarios. The inclusion of setup cost in the proposed model may better depict the real-world scenario and help the manufacturers make more reasonable decisions.