Revenue maximization and pricing: an ethanol supply chain and logistical strategy perspectives

In this paper we develop a stochastic optimization model to evaluate tradeoffs and effects of strategic variables on storage and logistics costs in managing an ethanol supply chain. Specific objectives include: (1) to develop a model of the ethanol supply chain incorporating stochastic variables capturing uncertainties that ethanol merchandisers manage; (2) to evaluate effects of short- and long-term decisions such as feedstock purchase, when to ship, rail car strategies, and transit time and: (3) to analyze impacts of random variables and strategies on supply chain costs. The model maximizes profit from operation of the supply chain subject to decisions on corn feedstock procurement, ethanol production, ethanol shipments, corn and ethanol inventory levels, and rail car transit time and number of rail cars needed for the ethanol to be shipped. A representative case study in North Dakota ethanol firm is used for illustration.