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A simulation optimization approach for a two-echelon inventory system with service level constraints

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  • Tsai, Shing Chih
  • Zheng, Ya-Xin

Abstract

In this paper, we present a simulation optimization algorithm for solving the two-echelon constrained inventory problem. The goal is to determine the optimal setting of stocking levels to minimize the total inventory investment costs while satisfying the expected response time targets for each field depot. The proposed algorithm is more adaptive than ordinary optimization algorithms, and can be applied to any multi-item multi-echelon inventory system, where the cost structure and service level function resemble what we assume. Empirical studies are performed to compare the efficiency of the proposed algorithms with other existing simulation algorithms.

Suggested Citation

  • Tsai, Shing Chih & Zheng, Ya-Xin, 2013. "A simulation optimization approach for a two-echelon inventory system with service level constraints," European Journal of Operational Research, Elsevier, vol. 229(2), pages 364-374.
    • Handle: RePEc:eee:ejores:v:229:y:2013:i:2:p:364-374
    DOI: 10.1016/j.ejor.2013.03.010
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    2. Preil, Deniz & Krapp, Michael, 2022. "Bandit-based inventory optimisation: Reinforcement learning in multi-echelon supply chains," International Journal of Production Economics, Elsevier, vol. 252(C).
    3. Jean Respen & Nicolas Zufferey & Philippe Wieser, 2017. "Three-level inventory deployment for a luxury watch company facing various perturbations," Journal of the Operational Research Society, Palgrave Macmillan;The OR Society, vol. 68(10), pages 1195-1210, October.
    4. Bikash Koli Dey & Hyesung Seok, 2024. "Intelligent inventory management with autonomation and service strategy," Journal of Intelligent Manufacturing, Springer, vol. 35(1), pages 307-330, January.
    5. Tsai, Shing Chih & Chen, Sin Ting, 2017. "A simulation-based multi-objective optimization framework: A case study on inventory management," Omega, Elsevier, vol. 70(C), pages 148-159.
    6. Weiwei Chen & Siyang Gao & Wenjie Chen & Jianzhong Du, 2023. "Optimizing resource allocation in service systems via simulation: A Bayesian formulation," Production and Operations Management, Production and Operations Management Society, vol. 32(1), pages 65-81, January.
    7. Nihan Kabadayi & Mohammad Dehghanimohammadabadi, 2022. "Multi-objective supplier selection process: a simulation–optimization framework integrated with MCDM," Annals of Operations Research, Springer, vol. 319(2), pages 1607-1629, December.

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