Robust design of (s, S) inventory policy parameters in supply chains with demand and lead time uncertainties

Abstract

Demand and lead time uncertainties have significant effects on supply chain behaviour. In this paper, we present a single-product three-level multi-period supply chain with uncertain demands and lead times by using robust techniques to study the managerial insights of the supply chain inventory system under uncertainty. We formulate this problem as a robust mixed-integer linear program with minimised expected cost and total cost variation to determine the optimal (s, S) values of the inventory parameters. Several numerical studies are performed to investigate the supply chain behaviour. Useful guidelines for the design of a robust supply chain are also provided. Results show that the order variance and the expected cost in a supply chain significantly increase when the manufacturer’s review period is an integer ratio of the distributor’s and the retailer’s review periods.

Keywords:

• supply chain inventory management
• robust optimisation
• bullwhip effect
• demand uncertainty
• lead time uncertainty

Additional information

Funding

This research is partly supported by the State Key Program of National Natural Science of China (grant number 71332005) and the National Natural Science Foundation of China (grant number 71371106).

Notes on contributors

Kamran Karimi Movahed

Kamran Karimi is a PhD candidate of industrial engineering in Tsinghua University. His primary research areas of interest include decision-making under uncertainty, stochastic optimisation and supply chain risk management. He received his bachelor and master degree in the field of ndustrial engineering system analysis and productivity management. He has done many consulting projects related to decision-making under uncertainty in Iranian oil and gas companies, which include facility location and production planning under demand uncertainty and risk assessment of investment projects under demand and exchange rate fluctuation.

Zhi-Hai Zhang

Zhi-Hai Zhang is an associate professor and director of Institute of Engineering Systems in Industrial Engineering Department, Tsinghua University, China. His current research interests focus on resource allocation optimisation, supply chain and logistics management, production planning and scheduling, large-scale optimisation. He has published numerous articles in many journals such as Transportation Science, International Journal of Production Economics, Computers & Industrial Engineering, etc.