A tri-level optimization model for inventory control with uncertain demand and lead time

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2018-01-01
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Wang, Lizhi
Hu, Guiping
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Wang, Lizhi
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Hu, Guiping
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Industrial and Manufacturing Systems Engineering
The Department of Industrial and Manufacturing Systems Engineering teaches the design, analysis, and improvement of the systems and processes in manufacturing, consulting, and service industries by application of the principles of engineering. The Department of General Engineering was formed in 1929. In 1956 its name changed to Department of Industrial Engineering. In 1989 its name changed to the Department of Industrial and Manufacturing Systems Engineering.
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Electrical and Computer EngineeringIndustrial and Manufacturing Systems Engineering
Abstract

We propose an inventory control model for an uncapacitated warehouse in a manufacturing facility under demand and lead time uncertainty. The objective is to make ordering decisions to minimize the total system cost. We introduce a two-stage tri-level optimization model with a rolling horizon to address the uncertain demand and lead time regardless of their underlying distributions. In addition, an exact algorithm is designed to solve the model. We compare this model in a case study with three decision-making strategies: optimistic, moderate, and pessimistic. Our computational results suggest that the performances of these models are either consistently inferior or highly sensitive to cost parameters (such as holding cost and shortage cost), whereas the new tri-level optimization model almost always results in the lowest total cost in all parameter settings.

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This is a manuscript of an article published as Rahdar, Mohammad, Lizhi Wang, and Guiping Hu. "A tri-level optimization model for inventory control with uncertain demand and lead time." International Journal of Production Economics 195 (2018): 96-105. DOI: 10.1016/j.ijpe.2017.10.011. Posted with permission.

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Sun Jan 01 00:00:00 UTC 2017
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