impact of Product Demand uncertainties on the Optimal Design of a Sustainable Dairy Supply Chain: A Case Study of Bulgaria

Abstract

Population growth and income, together with urbanization, have caused a significant increase in demand for dairy products. This creates opportunities for increasing the profit from dairy production, but on the other hand, it is associated with the generation of large amounts of pollutants that are released into the air and water and require costs for their treatment and disposal. The presence of fluctuations in the product demands in the markets also influences the sustainable operation of considered supply chain (SC) activities. This study proposes a robust optimisation approach for handling the uncertainty of product demands in a dairy SC to produce different dairy products according to different recipes while satisfying environmental and economic criteria. The latter is associated with the generated wastewater from dairy production and CO₂ emissions due to the energy consumed and transportation. The approach has been implemented in a real case study from Bulgaria. Deterministic and robust optimization problems have been formulated and solved under nominal data for the product demands and three different uncertainties levels – 0.2, 0.5 and 1. The obtained results show that the increase in the uncertainty level leads to decreasing profit from the dairy SC with a relatively small standard deviation. The lowest mean value of the SC profit of 232,882 BGN is obtained at the greatest uncertainty level of 1. The results for SC total costs show that they also do not change significantly with an increase in the uncertainty level. The largest value of 154,018 BGN has been obtained at an uncertainty level of 0.5. Given the latter, it can be said that the developed robust optimization model is a sustainable, which leads to obtaining results for the SC profit and costs that do not change significantly with an increase in the uncertainty level of consideration of product demands.