Managing Electricity Peak Loads in Make-To-Stock Manufacturing Lines

In this article, we study the control of stochastic make‐to‐stock manufacturing lines in the presence of electricity costs. Electricity costs are difficult to manage because unit costs increase with the total load, that is, the amount of electricity needed by the manufacturing line at a certain point in time. We demonstrate that standard methods for controlling manufacturing lines cannot be used and that standard analytic results for stochastic manufacturing lines do not hold in the presence of electricity costs. We develop a control policy that balances electricity costs with inventory holding and backorder costs. We derive closed‐form expressions and analytic properties of the expected total cost for manufacturing lines with two workstations and demonstrate the accuracy and robustness of the policy for manufacturing lines with more than two workstations. The results indicate that avoiding electricity peak loads requires additional investment in manufacturing capacity and higher inventory and backorder costs. Our approach also applies to companies which aim at reducing their carbon emissions in addition to their operating costs.