(612c) Spatio-Temporal Economic Properties of Supply Chains | AIChE

(612c) Spatio-Temporal Economic Properties of Supply Chains


Tominac, P. - Presenter, University of Wisconsin-Madison
Zavala, V. M., University of Wisconsin-Madison
Modern supply chains (SCs) are complex, integrating information and material resources over large distances and periods of time, and importantly, with multiple stakeholders [1,2]. Globalization and sustainability provide continuing pressure to integrate complexity into SCs [3,4]. An interesting problem emerging as a part of this complexity is ensuring that independent SC stakeholders are treated independently in SC optimization frameworks with respect to their profit-seeking natures [5]. Coordination can be implemented as a SC management strategy, treating a SC as a market consisting of independent stakeholders [6]. In this framework stakeholders interact with the SC management system by submitting bidding information to an independent system operator (ISO) who resolves the bids and sets market prices. This SC optimization approach offers theoretical guarantees related to economics and profit distribution to stakeholders [7]. Importantly, within the coordination framework, the values of products are quantified and priced as a part of the solution, revealing the inherent values of SC material streams that might otherwise be written off as waste [8].

In this session, we present a spatiotemporal coordination framework for multiproduct SCs. We demonstrate how transportation captures spatial price variations within the framework and identify storage as the underlying phenomenon behind temporal price variation. In this unified spatiotemporal framework we capture the dynamics of time-varying SC problems, including the evolution of prices subject to complex interactions between product supply, demand, processing, transport, and storage. We derive pricing relationships from these phenomena and show that these relationships are embedded in the optimization model dual program.

We apply our framework to an existing problem based on the Wisconsin dairy industry [9]; this is worth 43.4 billion USD annually [10], producing about 14.5 metric tonnes of milk each year [11]. While this industry aims to grow, managing the livestock waste (manure) associated with 1.26 million dairy cattle is a significant challenge, especially due to concerns over nutrient accumulation (particularly phosphorus) in soils and water bodies [12,13]. Part of the problem involves creating incentives for farmers to process manure and to ultimately export the phosphorus out the state, i.e., as a fertilizer for phosphorus-deficient croplands elsewhere. We present a case study where coupling manure digestion to the state electricity grid (via electricity generation from biogas) at an hourly time scale identifies a window of opportunity during daily electrical demand peaks sufficient to drive manure processing based on the value of electricity alone. Coordinating the dairy waste supply chain in parallel with the state electricity grid creates value for farmers, for electricity consumers (by way of lower prices) and may provide the necessary value to unlock an organic fertilizer industry in Wisconsin.

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