Optimal green technology investment and lot-sizing decision under carbon tax and cap-and-trade regulations considering planned shortages, outsourced repair and batch shipments

In recent years, various issues such as industrial waste and emissions of greenhouse gases have led to serious environmental pollution. Industrial managers nowadays need to regard cutting carbon emissions as one of their principal responsibilities in relation to the environment, as industry is a major source of carbon emissions. Two prominent regulatory approaches to reducing carbon emissions from operations are the carbon tax and the cap-and-trade system. The existing literature on inventory studies has often considered the market-expanding effects of greening efforts. Nevertheless, a number of additional factors exert influence on greening efforts, with the cost reduction effect representing a critical one. This paper develops an inventory system in which each time a lot of items is received, a proportion of items are found to be of imperfect quality; to identify these, the retailer carries out a 100% inspection of goods received. Following this inspection, the saleable items are added to the inventory in the warehouse in batches of equal size, rather than one by one, and the retailer allows backordering to meet demand. Carbon emissions are incurred at every stage, including ordering, purchasing, repairing, transporting, and holding, so advanced green technology is employed to reduce them. Imperfect products can be sold to a second-hand market or sent to a repair shop. The model discussed in this paper calculates, for both options, the most cost-effective lot size for orders, shortage quantity, scale of green investment and number of batches.