Simulation-based heuristic algorithm minimizing average inventory costs on a multi-stage serial inventory system: A service measure perspective

Although multi-stage inventory problems have received considerable attention during the last decades, only a few papers address the problem of cost-optimal coordination of multi-stage inventory control with respect to service measures. Even published papers have a shortcoming in dealing with a delivery lead time that consisted of a shipping time and a waiting time. Because the difficulty of the problem increases when the uncertainty of the waiting time is introduced, the problem is often simplified into a multi-stage buffer allocation and a single-stage stochastic buffer sizing problem by assuming that there is no waiting time or that the delivery lead time is implicitly compounded of the shipping time and the waiting time. Without such assumptions, however, this paper solves the problem by a simulation-based heuristic algorithm. The simulation experimentation shows that the simulation-based heuristic algorithm performs better than other approaches in saving average inventory costs for both Poisson and Normal demands.