A simulation-based genetic algorithm for inventory

optimization in a serial supply chain

A SEMINAR REPORT

Athul Prem Unni

MAC18MEPI02

To

The APJ Abdul Kalam Technological University

in partial fulfilment of the requirements for the award of the Degree

of

Master of Technology

In

Mechanical Engineering

(Production and Industrial Engineering)

Department of Mechanical Engineering

M A College of Engineering

Kothamangalam

MARCH 2019
 MAR ATHANASIUS COLLEGE OF ENGINEERING
KOTHAMANGALAM – 686 666
DEPARTMENT OF MECHANICAL ENGINEERING

CERTIFICATE

This is to certify that the seminar report entitled“A simulation-based genetic algorithm
for inventory optimization in a serial supply chain” submitted by Athul Prem Unni to
the APJ Abdul Kalam Technological University in partial fulfilment of the requirements
for the award of the Degree of Master of Technology in Mechanical Engineering
(Production and Industrial Engineering) is a bonafide record of the seminar work carried
out by her under my/our guidance and supervision. This report in any form has not been
submitted to any other University or Institute for any purpose.

KARTHIK RAJAN Dr.BRIJESH PAUL Dr.SHAJAN KURIAKOSE

Guide PG Coordinator Head of the Department

Dept of Mech Engg Dept of Mech Engg Dept of Mech Engg

MACE MACE MACE

Kothamangalam Kothamangalam Kothamangalam

 CONTENTS

TITLE

1. Acknowledgement

2. Abstract

3. List Of Figures

4. Introduction

5. Literature review

6. SCM model

7. SCM model assumptions

8. Proposed GA

9. Result

10. Mathematical Formulation

10. Conclusion

11. References
 ACKNOWLEDGMENT

It is with the great enthusiasm and the learning spirit that I bring out this seminar report.
Apart from the efforts of me, the success of this seminar depends largely on the
encouragement and guidelines of many others. I take this opportunity to express my
gratitude to the people who have been helpful in the successful completion of this
seminar.

I am extremely grateful to the principal Dr.Solly George, Mar Athanasius College of

Engineering, for providing me with best facilities and atmosphere for the creative work.

I take this opportunity to thank Dr.Shajan Kuriakose, Head of the Department,

Department of Mechanical Engineering.

With immense pleasure and heartiest gratitude, I express my sincere thanks to Dr.Brijesh
Paul, for his valuable suggestions and guidance, care and timely support throughout the
seminar work. He was always a constant source of encouragement.

I would like to thank my friends for their encouragement, which helped me to keep my
spirit alive and to complete this work successfully.

Above all, I owe my gratitude to the Almighty for showering abundant blessings upon
me; my acknowledgement would not be complete without acknowledging my gratitude
to my beloved Parents who have been pillars of support and constant encouragement
throughout the course of seminar.

ATHUL PREM UNNI

i
 ABSTRACT

One of the important aspects of supply chain management is inventory management

because the cost of inventories in a supply chain accounts for about 30% of the value of
the product. The main focus of this work is to study the performance of a single-product
serial supply chain operating with a base-stock policy and to optimize the inventory (i.e.
base stock) levels in the supply chain so as to minimize the total supply chain cost
(TSCC), comprising holding and shortage costs at all the installations in the supply chain.
A genetic algorithm (GA) is proposed to optimize the base-stock levels with the objective
of minimizing the sum of holding and shortage costs in the entire supply chain.
Simulation is used to evaluate the base-stock levels generated by the GA. The proposed
GA is evaluated with the consideration of a variety of supply chain settings in order to
test for its robustness of performance across different supply chain scenarios. The
effectiveness of the proposed GA (in terms of generating base-stock levels with minimum
TSCC) is compared with that of a random search procedure. In addition, optimal base-
stock levels are obtained through complete enumeration of the solution space and
compared with those yielded by the GA. It is found that the solutions generated by the
proposed GA do not significantly differ from the optimal solution obtained through
complete enumeration for different supply chain settings, thereby showing the
effectiveness of the proposed GA.

ii
 LIST OF TABLES

No. Title Page No.

1 Result of Evaluation of different solution methodologies 15

2 Break up of TSCC 16

iii
 LIST OF FIGURES

No. Title Page No.

1 Serial Supply Chain. 6

2 Chromosome Representation 10

3 Sample Chromosome: 11

4 Crossover Operation. 12

5 Convergence of search process-1

6 Convergence of search process-2 17

iv
 1. INTRODUCTION

The challenges facing business organizations grow rapidly because of the globalization of
commerce, global distribution of manufacturing and warehousing facilities, rapid
commoditization of products, demand for customized products, competitive pressures,
rapid advances of information technology, etc. All these factors have driven business
organizations to concentrate on their supply chains. It is hardly possible for one company
to make all its raw materials in house, manufacture intermediate and final products, and
distribute their final products to customers. All these activities depend on the collective
effort of a group of firms or enterprises in order to deliver final products/services to end
customers. Lee and Billington (1993) defined the supply chain as a network of facilities
that perform the functions of the procurement of material, transformation of material to
intermediate and finished products, and the distribution of finished products to customers.

Recently, supply chain integration has become the focus and goal of many
progressive firms and supply chain management (SCM) is used as a strategy through
which such integration can be achieved. Many definitions of SCM have been mentioned
in the literature and in practice, although the underlying philosophy is the same. The lack
of a universal definition for SCM is because of the multidisciplinary origin and evolution
of the concept. Simchi-Levi et al. (2000) defined SCM as a set of approaches utilized to
efficiently integrate suppliers, manufacturers, warehouses and stores, so that merchandise
is produced and distributed at the right quantities, to the right location and at the right
time in order to minimize system-wide cost, while satisfying service level requirements.
On the other hand, Christopher (2000) defined SCM as the management of upstream and
downstream relationships with suppliers and customers to deliver superior customer value
at minimal cost in the supply chain as a whole.

The supply chain is a complex network of facilities and organizations, with

different and conflicting objectives. Hence decision-making is also a complex process.
The supply chain decisions are broadly classified into strategic, tactical, and operational.
Ganeshan et al. (1999) classified SCM research based on these three categories, and
addressed the SCM research with operational perspective in terms of four operational
problem areas, namely inventory management and control; production, planning and
scheduling; information sharing, coordination, monitoring; and operation tools. The
current work is confined to the operational issue of inventory control and management.
Since holding of inventories in a supply chain can cost anywhere between 20% and 40%
of the value of the product value, the effective management of inventory is critical in
supply chain operations (see Ballou, 1992). Many researchers have approached the
management of inventory in supply chain from an operational perspective. The main
issues that have been addressed in supply chain inventory management include
deployment of strategies (push vs. pull), control policies to determine the optimal levels
of order quantities and reorder points and setting safety-stock levels.

1
Inventory stored at different points of the supply chain has a different impact on the cost
and performance. One of the critical issues is to decide on the level of inventories to be
maintained at different stages in a serial supply chain so that the system-wide total cost
will be minimized. The present work addresses the problem of determining the inventory
(i.e. base-stock levels in a periodic-review inventory system) to be held at different stages
in a serial supply chain that will minimize the total supply chain cost (TSCC). To achieve
this, the interaction of various firms in the supply chain with their respective suppliers
and customers and the impact of inventory policy (in terms of base-stock levels at
different members of supply chain) on the supply chain performance need to be studied.
Simulation is quite effective in capturing such dynamic interactions that occur in the
supply chain. A four-stage serial supply chain model is conceived, and evaluation of
base-stock levels at different installations is done using simulation. The main objective of
our current study is to reduce the system-wide cost. A genetic algorithm (GA) is proposed
to determine the best base-stock levels at various installations(members/stages) in the
supply chain that will minimize the total supply chain inventory-related cost. To test the
effectiveness of the proposed GA, a random search procedure (RSP) and complete
enumeration technique are used. Subsequently stochastic replenishment lead times are
also incorporated in the supply chain simulation model and the performance of the
proposed GA is studied.

2
 2. LITERATURE REVIEW

Many researchers have provided taxonomies and frameworks to help practitioners and
academicians to understand the nuances of SCM. Ganeshan et al. (1999) presented a
broad taxonomy of SCM research by exploring the basics of SCM research from a
conceptual perspective by tracing the roots and origins of the concept from a broad stream
of literature. Croom et al. (2000) reviewed the supply chain literature to identify the
nature of research on SCM, and provided a taxonomy or topology of the field of SCM as
an aid to the classification of research in this field, and as a means of providing a
framework for identification of the key contents. Many authors (Slats et al., 1995;
Thomas and Griffin, 1996; Vidal and Goetschalckx, 1997; Maloni and Benton, 1997)
have added to this body of literature by providing reviews and frameworks to help design
and manage supply chains.

Efficient and effective management of inventory throughout the supply chain

significantly improves the ultimate service provided to the customer (Lee and Billington,
1992). The inventory literature refers to the supply chain as a multi-echelon system,
meaning multiple levels or stages. Research in the area of multi-echelon systems has a
long history. Inventory in a supply chain (multi-echelon system) can be controlled either
by echelon stock or by installation stock. The echelon stock for an installation in the
supply chain is the on-hand inventory at that installation, plus all other inventory in the
supply chain, which is actually at a lower level or in transit to alower level. The term
‘echelon stock’ was originally introduced by Clark, and later used by Clark and Scarf
(1960) to establish optimality of echelon stock policies in a serial system operating under
periodic review inventory control with no set-up cost at all the stages except at the most
upstream stage. The installation stock for an installation in the supply chain is the sum of
all on orders at that installation and its on-hand inventory minus its back orders. Many
supply chainsemploy installation stock policy for ease of control and implementation.

Simulation is widely used by many researchers to study the performance of the supply
chain, as it aims to build supply chain models with many realistic details and enables us
to understand the dynamical interactions among various supply chain members. Min and
Zhou (2002) classified supply chain models that involve inventory theory and simulation
as hybrids because they involve both deterministic and stochastic elements. Some studies
concerned with supply chain simulation are now highlighted. Towill et al. (1992) used
simulation as a means to evaluate the impact of various inventory policies. Lee and
Billington (1993) developed a supply chain model for Hewlett- Packard (HP) to (1)
manage material flows in their supply chains; (2) assess inventory investment; and (3)
evaluate alternatives. Strader et al. (1998) used multi-agent simulation as a tool to study
the impact of information sharing on order fulfilment in divergent assembly supply chains
and found that information sharing enables inventory costs to be reduced, while
maintaining acceptable order fulfilment cycle times. Souza et al. (2000) studied the
impact of causal factors (i.e.shortage gaming, information delay, material delay, demand
signal processing, etc.) on the dynamic performance of a generic supply chain using
simulation with reference to the Beer Game. Beamon and Chen (2001) studied the

3
performance behaviour of conjoined supply chains (which typically arise in web-based
retail) through experimental design and simulation. Holweg and Bicheno (2002)
described how a participative simulation model is used to demonstrate the supply chain
dynamics and to model possible improvements to an entire supply chain. The authors
claimed that the simulation model led to insights into schedule behaviour, bullwhip effect,
etc.

In most of the cases, it is not just enough to study the performance of the supply chain
system, but rather the need to optimize the performance of supply chain also goes hand in
hand. To tackle both the above-stated needs, a model should aid both as a performance
analyser and as an optimizer. Lee and Billington (1993) developed a supply chain model
operating under periodic review base-stock inventory system to support the
manufacturing managers at HP to manage material in their supply chains. They used a
search routine to determine the inventory levels across the supply chain members.
Glasserman and Tayur (1995) developed simulation-based methods (called infinitesimal
perturbation analysis (IPA)) for estimating sensitivities of inventory costs with respect to
policy parameters, and illustrated their use for a subsystem of a personal computer
assembly and distribution system for a major computer manufacturer. Disney et al. (1997)
demonstrated the use of a model of a decision support system, coupled with a simulation
facility and GA optimization procedure can yield enhanced performance to the production
control function. The authors used GA to search for the best value of the control
parameters (i.e. time to average consumption, time to adjust inventory, and time to adjust
to work in progress) so that the production control system can (1) respond to genuine
changes in demand quickly; (2) filter out random noise in the sales pattern; and (3) be
robust to unknown changes in production lead time and to changes in production lead-
time distributions. Petrovic et al. (1998) described fuzzymodelling and simulation of a
supply chain in an uncertain environment with the objective of determining the stock
levels and order quantities for each inventory in a supply chain during a finite time
horizon in order to obtain an acceptable delivery performance at a reasonable total cost
for the whole supply chain. The authors used two procedures, namely one-site
compensation, where the order-up-to levels were increased at only one installation, and
multi-site compensation, where order-up-to levels at more than one installation were
increased simultaneously so as to achieve desired fill rates, when unreliable external
supply would exist in the supply chain. Rao et al. (2000) developed an integrated model
to analyse different supply chain configurations for Caterpillar’s new line of compact
construction equipment (the P2000 series) by using decomposition techniques, network
optimization, inventory modelling, and simulation. The authors used a simulation-based
optimization method to establish optimal inventory levels. Ettl et al. (2000) developed a
supply network that took as input data the BOM, lead times, demand and cost data, and
required service levels as input data so as to generate base-stock level at each stocking
location, in order to minimize the overall inventory capital throughout the network and to
guarantee the customer service requirements. The authors used conjugate gradient routine
search, and evaluated the conjugate gradient search procedure, by generating 500,000
solutions randomly and comparing the best solution with the solution yielded by the
conjugate gradient-based search procedure.

Most of the studies in the supply chain literature that attempt to optimize the supply chain

4
inventory resort to the use of simulation and conventional local search techniques such as
iterative local search, gradient search technique, etc. (Lee and Billington, 1993;
Glasserman and Tayur, 1995; Petrovic et al., 1998; Ettl et al., 2000; Rao et al., 2000). Lee
and Billington (1993) stressed the need to optimize inventory levels across the supply
chain by using better search routines. In their model they employed a simple search heuristic to
find the optimal inventory levels at different installations across the supply chain. It appears from
the literature review that no attempt has been made to develop a meta-heuristic such as GA to
determine the inventory levels in the entire supply chain. The most attractive feature of GA is its
flexibility in handling various objective functions with minimal requirements for fine
mathematical properties and its ability to deal with real-life problems (Gen and Cheng, 2000).
Simulation is used to evaluate the solutions generated by search procedure as it can incorporate
complexity, uncertainty, and dynamics in terms of demand, supply,production/transportation
delays, etc.

Hence, in this study, we model a serial supply chain

consisting of a retailer, distributor, manufacturer, supplier and an infinite source (i.e. the
raw material supplier), and address the problem of optimization of inventory (i.e. base-
stock levels) in a supply chain operating with a periodic-review inventory system. Supply
chain inventory level and customer service play a decisive role in determining the
effectiveness of supply chain inventory policy. Customer service is often discussed in
terms of metrics such as fill rate, on-time deliveries, etc. Another way to define customer
service is to evaluate the delivery performance of orders that are not delivered on time.
This can well be modelled through a backlog, implying that the firm has to pay
penalty/shortage cost for the delayed delivery. The objective function considered in the
present study is the TSCC, computed by adding the local or installation holding and
shortage costs across all members in the supply chain. It means that the system-wide
performance is measured together with the individual total cost at every stage. This sort
of objective function helps to effectively assess the inventory policy settings in the supply
chain. The present work analyses the dynamic nature of the supplychain by capturing the
interactions and interdependencies of different stages, and their impact on the overall
system performance by using simulation. We propose a GA to optimize the TSCC by
searching for the best set of base-stock levels at every stage in the supply chain. Thus, the
current study attempts to perform both performance analysis and optimization, i.e. various
inventory policy settings yielded by the GA are evaluated through simulation. An RSP is
used as a benchmark procedure for relatively evaluating the effectiveness of the proposed
GA. In addition, the quality of the solution (i.e. the total cost associated with the
installation base-stock levels) yielded by the proposed GA is compared with the total cost
associated with the optimal basestock levels obtained through complete enumeration of
the solution space. Furthermore, the performance of the proposed GA is also studied by
introducing stochastic replenishment lead times, instead of deterministic replenishment
lead times, in the supply chain model.

5
 3. SCM MODEL

The various members of the supply chain include a retailer, distributor, manufacturer, and
supplier. All the four members add value to the product before it is delivered to the
ultimate customer. The four stages in the supply chain are linked by information flow (in
both the directions), and by product flow from left to right, and the whole supply chain
works with a pull strategy. A downstream member, say the retailer, places an order to the
upstream member, namely the distributor, only when the retailer’s on-hand inventory is
depleted because of customer demand. The inventory control mechanism adopted by all
members in the supply chain is assumed to operate under a periodic-review base-stock
policy with the review period being one time unit. The base-stock policy used by all the
members in the supply chain works in the following way. Downstream members at any
time have some quantity of inventory stock, known as inventory on-hand. There are also a
certain number of outstanding orders, which have been ordered by the downstream
member to the upstream member, but have not been physically delivered by the upstream
member to the downstream member. These outstanding orders are termed as on-order
inventory. Finally, there may be a certain quantity pending to be shipped by member to
his customer. This quantity has been ordered by the customer, but not fulfilled, and this
quantity is referred to as the back-order quantity to be fulfilled by the member under
consideration. Thus the inventory position at a member is then defined as the total on-
hand inventory plus on-order inventory minus back-order quantity. The base-stock
mechanism that triggers replenishment at each member works in the following way. The
inventory position at any member is periodically compared against a pre-specified base-
stock level/target inventory level. If the inventory position falls below the base-stock
level, a replenishment order is placed for a quantity that will bring the inventory position
back to the pre-specified base-stock level. A replenishment order may be triggered by any
event that causes the inventory position to be less than the base-stock level. It is through
the specification of the base-stock level that the inventory
6
level at each member in the supply chain is effectively controlled. Also, every member is
associated with the local holding and shortage cost rates; the sum of such costs incurred
by all members in the chain is referred to as the TSCC. All members have their respective
replenishment order lead times (consisting of transportation and production lead times).
The replenishment-order lead time for any member can vary anywhere from the minimum
replenishment lead time to the maximum replenishment lead time, depending upon the
on-hand inventory of the upstream members. The most downstream member, i.e. the
retailer faces the end customer demand. The retailer tries to fulfill the customer orders
immediately if there is enough on-hand inventory to meet the customer order. If not, the
unsatisfied customer demand is placed in the back-order queue. In other words, all the
unsatisfied demand is backlogged. As per the base-stock policy, the retailer places an
order to the upstream member, namely the distributor, based on the local information
(available at the retailer) about the demand, on-hand inventory, outstanding orders, and
backlog. The retailer will get the replenishment after the fixed replenishment lead time, if
the distributor has adequate on hand inventory. Otherwise, the unsatisfied demand is
backlogged and the distributor will place an order to upstream member, namely the
manufacturer. So is the case with the manufacturer as well as with the supplier. A
member will be replenished after the member’s replenishment lead time only if the
upstream member has adequate on-hand inventory. If not, then the replenishment lead
time is extended even further. It is because of this reason that the replenishment lead time
for a member can vary between the respective minimum and maximum replenishment
lead time. The minimum replenishment lead time for member 1 is the replenishment lead
time between member 1 and the immediate upstream supplier, namely member 2,
provided that member 2 has enough on hand inventory. The maximum replenishment lead
time for member 1 is the sum of replenishment lead times from member 1 to all the
upstream members in the supply chain; this maximum replenishment lead time will hold
when none of the upstream members has adequate on-hand inventory to meet the
respective downstream member’s demand. where p1 is total number of decision variables,
x is the value of s th decision variable and i and j are chromosome numbers.

7
 4. MODEL ASSUMPTIONS
1. A single product flows through the supply chain.
2. All the members in the supply chain operate under a periodic-review base-stock
policy, where the review period is a unit of time.
3. Lead time for information or order processing is zero or negligible.
4. Processing (procurement/ production/ packing) lead time and transportation lead time
are combined accordingly at each stage and considered together as one component, called
replenishment lead time for that stage or member of the supply chain.
5. Retailer faces random customer demand, which is assumed to be stationary.
6. There is no lot-size or discount policy for members in the supply chain.
7. Base-stock level at every member or installation in the supply chain takes discrete
integer values.
8. Every member in the supply chain has his/her own holding and shortage cost rates, i.e.
local or installation cost rates.
9. If the demand exceeds on-hand inventory, then the excess demand is backlogged.
10. Transportation cost is assumed to be directly proportional to the quantity shipped.
Since the unsatisfied demand at any installation is backlogged, transportation cost
becomes a constant and not a variable. This is so because during the period of simulation
run, the total inventory moved between two given consecutive installations is the same as
the total inventory moved between any two other given consecutive installations.
11. All installations have infinite capacity.
12. The source of supply of raw materials to the most upstream member, namely the
supplier, is assumed to have infinite raw material availability.

8
 5. PROPOSED GA

GA are search algorithms based on the mechanics of natural selection and natural
genetics. Simplicity of operation and power of effect are two of the main attractions of the
GA approach (Goldberg, 1989). GA is chosen in this study as the optimization technique
to search for the best base-stock levels for the members in the supply chain, with the
objective of minimizing the TSCC.

The reason for the choice of GA is that GA can be applied

to a wide range of problems (e.g. location partitioning, and scheduling problems) and GA
makes no assumptions about the functions to be optimized. All that GA requires is a
performance measure, some form of population representation, and operators that
generate new population members. This general approach can be applied to many
combinatorial optimization problems. Hence GA is adapted to the supply chain inventory
problem considered in this study. Adaptation is made with respect to chromosome
representation, population initialization, crossover operation, and mutation operation in
the proposed GA.

4.1. Notations and terminologies for the proposed GA

no_gen: number of generations
N: number of members/installations in the supply chain
l: length of a chromosome
pop_size: population size
n: number of chromosomes (equal to pop_size)
par_pop: parent population
si: base-stock level at installation i, where i51 to N
siUL : upper limit for si
siLL : lower limit for si
fk: fitness value for the kth chromosome
Pk: probability of selecting a chromosome k to the mating pool
u: a uniform random number between 0 and 1
CR: probability of crossover or crossover rate
MR: probability of mutation or mutation rate
int_pop: intermediate population consisting of child chromosomes that are obtained from
the crossover of parent chromosomes in par_pop
si new : base-stock level after mutation
si old : base-stock level before mutation

9
4.2 Mechanics of the proposed GA

The mechanics of the proposed GA is illustrated through a hypothetical example by

considering supply chain with four members, namely retailer, distributor, manufacturer,
and supplier. The retailer receives customer demand generated uniformly in the range [10,
20] per unit time (or per day). The replenishment lead time for retailer, distributor,
manufacturer, and supplier are 2, 4, 6, and 1 day, respectively. All the four members have
their respective (or independent) local holding and shortage costs.

Chromosome representation

GAs work on a population or collection of solutions to the given problem. Each

individual in the population is called a chromosome. In the current study the problem is to
optimize the installation base-stock levels across all members in the supply chain to
reduce TSCC. So each chromosome is coded with a set of base-stock levels representing
every member in the chain. The chromosome is represented as a phenotype, i.e. the actual
values of the base-stock levels are used to code all the genes in a chromosome. Phenotype
representation is chosen instead of genotype representation in
the form of binary numbers, for the sake of computational ease. The chromosome length
(l ) is set equal to the number of installations (N), because every installation in the supply
chain operates with a particular base-stock level si. In the chosen example, there are four
installations in the supply chain. So, l is taken as 4 and each gene in a chromosome
represents the respective installation’s base-stock level. The chromosome representation
is shown in Fig. 2.

Generation of initial population

The initial population is created by generating solutions (i.e. base-stock levels) randomly
within the base-stock levels limits, i.e. every base-stock level is bounded by upper and
lower limits (sUL I and sLL i ). Base-stock level (si) at member i will vary between these
upper and lower limits. These limits are computed by taking into account the customer
demand, minimum replenishment lead time, and maximum replenishment lead time with
respect to the corresponding member. As discussed in Section 3.2, the maximum
replenishment lead time with respect to member 1 is the sum of replenishment lead times
from member 1 to the ultimate upstream member, namely member N. Member 1 may
face this maximum replenishment lead time when all the upstream members have zero
on-hand inventory. The minimum replenishment lead time for member 1 is the
replenishment lead time for member 1 itself. Similarly, all members in the supply chain

10
will have their respective minimum and maximum replenishment lead times. Hence the
upper and lower limits of the base-stock levels are computed as below

Once sULi and sLLi are determined for all supply chain members, a set of base-stock
levels, i.e. s0is are randomly generated within the range [sULi , sLLi ] for i51 to N,
corresponding to everychromosome. The chromosomes, thus generated, constitute the
parent population called par_pop. Four sample chromosomes, thus generated, are given
Fig. 3.

Evaluation and selection of chromosomes for mating pool

Every chromosome in the par_pop is evaluated through simulation and the respective
objective function (TSCCk) value is obtained through simulation of the supply chain.
Fitness value fk is computed for the kth chromosome by using the objective function
value, i.e. fk51/(11TSCCk), where k51 to n. With such fk values, chromosomes are
considered for placement in the mating pool in order to allow the chromosomes for
crossover. The size of the mating pool is the same as the pop_size. Suppose we let n54,
and we have f150.01, f250.02, f350.03, and f450.04. Selection of chromosomes for the
mating pool is based on the roulette-wheel procedure (see Goldberg, 1989 for details).
According to the procedure the probability of selecting the kth chromosome from par_pop
to the mating pool, Pk.

Similarly, the Pk value is calculated for all n chromosomes in the par_pop and the
cumulative probabilities for n chromosomes are obtained. In the present example we have
P1=0.1, P2=0.2, P3=0.3, and P4=0.4. The cumulative probabilities of selecting
chromosomes 1, 2, 3, and 4 are 0.1, 0.3, 0.6, and 1, respectively. In order to choose n
chromosomes to the mating pool, uniform random numbers are generated between 0 and
1. Suppose, we have two random numbers as 0.9 and 0.7. The fourth chromosome is
chosen twice corresponding to these random numbers. We do not perform any crossover
operation with identical chromosomes, because such a crossover will result in identical
chromosomes again, leading to premature convergence. Hence, we sample another
random number. Suppose we get the next uniform random number (u) as 0.5.
Correspondingly we choose the third chromosome. Hence chromosomes {20, 135, 190,
100} and {10, 80, 210, 20} are copied into the mating pool. Proceeding likewise, we fill
up the mating pool with n chromosomes.

11
Crossover operation

As far as the crossover operation is concerned, a single point crossover operator is used in
this study. The first two chromosomes in the mating pool are selected for crossover
operation. Crossover is performed with the probability of CR, by sampling a uniform
random number, u. The chromosomes are crossed over if u is less than or equal to CR;
otherwise, both chromosomes are directly placed in int_pop as an intermediate population
consisting of offspring. For crossover, a random number is sampled in the range (1, l–1)
to decide on the crossing site. An example of such a crossover is shown in Fig. 4 (see
Goldberg, 1989, for details of crossover operation).

Mutation operation

A gene-wise mutation is employed in this study because every gene in a chromosome

represents the base-stock level of the corresponding member. Since the chromosome is
represented in a phenotypic manner, the value of each gene is varied within the
corresponding member’s upper and lower limits with respect to the base-stock levels. All
genes in int_pop are mutated with the probability of MR (say, MR50.15), by sampling a
uniform random number, u. If u is 4MR, then the value of the gene is altered as given
below:
Si new= si old(1-x) + si old × 2 × x × u
where u is a uniform random number and x denotes the fraction of sold
i . It is to be noted that if the
computed si new takes a non-integer value, then it is rounded off to the nearest integer. In
this study x is set to 0.2. In this context it is worthwhile to point out the possibility of
sinew taking the values between siUL and siLL . If si new is > sULi , then si new is set to
sULi .Likewise, if si new is < sLLi , then si new is set to sLLi .

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Survival of chromosomes into the next generation

We now have n chromosomes in the int_pop and n chromosomes in par_pop. The best n
chromosomes, among the 2n chromosomes in int_pop and par_pop put together, with
respect to TSCC, are chosen for entry into par_pop as the surviving chromosomes for the
next generation.

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 RESULT

The performance of the supply chain for a given set of base-stock levels is studied
through simulation and the base-stock levels are optimized by implementing the proposed
GA. Considering the six supply chain settings, their respective base-stock levels are
optimized by using each of the solution methodologies, namely GA, RSP-1, RSP-2, RSP-
3, RSP-4, and RSP-5.The optimal solutions are also obtained via complete enumeration
of the solution space for each of the six supply chain settings considered in the study.
Table 1 gives the details of results yielded by these solution methodologies and complete
enumeration with their respective base-stock levels, mean TSCC, standard deviation of
TSCC, and the average cost break-up in terms of the total holding cost and total shortage
cost over 30 replications for every supply chain setting.

It is observed from Table 1 that for all the six different supply chain settings, the
proposed GA performed superior to all other solution methods (RSP-1–RSP-5) in arriving
at the best base stock levels, with minimum TSCC. It is to be noted that the GA is carried
out for 500 generations although no improvements are observed in the objective function
value (i.e. TSCC) after 197, 95, 89, 63, 85, and 54 generations for the supply chain
settings A1, A2, A3, B1, B2, and B3 respectively. It is also observed from Table 1 that
the solutions generated by the proposed GA are not found to be significantly different
from the optimal solutions (yielded by complete enumeration) for each of the six supply
chain settings. Table 2 provides a detailed cost breakup for the whole supply chain and
summarizes the complete cost break-up of TSCC into total costs at the retailer,
distributor, manufacturer, and supplier for all the solution methodologies corresponding
to every supply chain setting. Another interesting observation from the cost break-up is
that a major portion of the TSCC is associated with the retailer. This is so because the
retailer faces customer demand and is associated with the large holding and shortage cost
rates. One of the assumptions made in this study is that the holding and shortage cost
rates increase as the product moves downstream, and highest cost rates exist at the
ultimate downstream member, i.e. the retailer. The TSCC cost is also spread out in such a
similar manner, i.e. retailer bears a major portion of the TSCC, followed by the
distributor, manufacturer and supplier. The proposed GA performed better than the
random search methods. Figures 5 and 6 capture the convergence of the proposed GA
towards the best solution. The figures are plotted by keeping track of the best objective
function value obtained up to a given generation, until the termination condition is
reached. The convergence of the search process for the supply chain settings A1–A3 is
plotted in Fig. 5, and the convergence of the search process for the settings B1–B3 is
plotted in Fig. 6.

Statistical tests have also been performed to identify whether there exist any significant
differences between the optimal solution and the solutions provided by other solution
methodologies (i.e. GA, RSP-1, RSP-2, RSP-3, RSP-4, and RSP-5) with respect to the
TSCC yielded by them. It is observed that there is no significant difference between the
optimal solution and the solution yielded by the proposed GA. However, for all the
supply chain settings, there exist significant differences between the optimal solution and
the solutions generated by the RSP (i.e. RSP-1–RSP-5). An asterisk is marked against
solutions that are significantly different from the optimal solution.

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None of the RSPs, namely RSP-1, RSP-2, RSP-3, RSP-4, and RSP-5, is comparable with
the best solution yielded by the proposed GA, even though the RSP enumerated more
solutions than the proposed GA.

Table 1

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Table 2

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 MATHEMATICAL FORMULATION

In accordance with the sequence of events that take place at installation i at time t, the
mathematical formulation is given as follows.

Terminology

18
 CONCLUSION

The current study makes an attempt to optimize the inventory (i.e. base-stock) levels at
different members in a serial supply chain with the objective of minimizing the TSCC.
The performance measure considered is the TSCC, which is a good representation of the
system-wide total cost. A GA is proposed to optimize the base-stock levels. Different
supply chain settings are simulated to analyse the performance of the supply chain
(operating with deterministic and stochastic replenishment lead times) for the base-stock
levels that are generated by the proposed GA and other solution procedures considered in
this study. The proposed GA is found to perform very well in terms of yielding solutions
that are not significantly different from the optimal solutions (obtained through complete
enumeration of solution space) but with significantly less computing effort.

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