Financial Hedging and Sustainability Modeling Considering Uncertainties: A Case Study of Ethanol Supply Chain

  •  Awudu Iddrisu    
  •  Jun Zhang    
  •  Atif Osmani    
  •  Khalid Bachkar    
  •  James Malm    
  •  Mariama Yakubu    


Incorporating financial hedging and sustainability in a supply chain is crucial for profit maximization or cost minimization. Uncertainties in supply chain develop into risks that affect the profit maximization or cost minimization expectations. In order to deliver end-products to destination markets in an efficient and effective manner, a supply chain management model that incorporates risk management measures is crucial. This paper develops a mathematical model that integrates hedging strategies in a biofuel supply chain with a corn and cellulosic raw material production setting. The paper is structured by first developing an optimization model considering maximization of the supply chain profit with risk without hedging for both corn and cellulosic biorefinery plants. Secondly, we incorporate sustainability concepts including environmental and social aspects. Finally, a heuristic method is developed for the hedging and a two-stage stochastic linear programming with Multi-cut Benders Decomposition Algorithm (MBD) is used to solve the problem. A case study in North Dakota is adopted for this study. The results for hedging and non-hedging are compared and sensitivity analyses conducted.

This work is licensed under a Creative Commons Attribution 4.0 License.
  • ISSN(Print): 1925-4725
  • ISSN(Online): 1925-4733
  • Started: 2011
  • Frequency: semiannual

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