Integrated Decision Support Model for Hedge Trading and Production Planning in the Petrochemical Industry

Using an optimization technique, this study proposes a new decision support system to improve the economics of petrochemical industries. In achieving the goal, we first develop two optimization models to support the decisions on (1) the hedge trade by minimizing purchase costs of raw materials, and (2) the production planning by maximizing profits from product sales. We then integrated these two models into a single decision support system using a recursive two-stage programming framework. On the basis of the integrated framework, we systematically identify the optimal solution, that is, the maximum profit, by simultaneously determining timing, amount, and price of raw materials to purchase, and the strategies for facility operation and product sales. To illustrate the capability of the proposed system, it was then applied to the business model of the petrochemical company in Korea. As a result, compared to the base case, it is revealed that the profitability of the petrochemical company could be improved by up to 4.82% by optimized hedging trades and 4.30% by optimizing the production plan.