Int. J. Integrated Supply Management, Vol. 7, No.

4, 2012

193

Determination of optimal ordering quantity and reduction of bullwhip effect in a multistage supply chain using genetic algorithm Tahera Yesmin* and M. Ahsan Akhtar Hasin
Department of Industrial and Production Engineering, Bangladesh University of Engineering and Technology, Polashi, Dhaka-1000, Bangladesh E-mail: taherayesmin@ipe.buet.ac.bd E-mail: aahasin@ipe.buet.ac.bd *Corresponding author
Abstract: Allocating optimal ordering quantity and mitigation of bullwhip effect is one of the challenging parts in a modern multi echelon supply chain system. Genetic algorithm is used in this research to reduce the bullwhip effect and to determine optimal ordering quantity in a multistage supply chain consisting of six members. Real demand data of a manufacturing company has been used here to conduct the analyses. This research also pinpointed that genetic algorithm can be applied to reduce the cost of total supply chain. To calculate the total cost, five different costs with varying unit holding cost, in inventory cost is used for each of the members of supply chain. This paper also examines the importance of the limit set of the chromosomes of genetic algorithm and concluded that the lower range chromosomes provide a better result by reducing the total supply chain cost more than the range set in higher limit. Keywords: multistage supply chain; genetic algorithm; bullwhip effect; optimal ordering quantity; total supply chain cost; TSCC. Reference to this paper should be made as follows: Yesmin, T. and Hasin, M.A.A. (2012) Determination of optimal ordering quantity and reduction of bullwhip effect in a multistage supply chain using genetic algorithm, Int. J. Integrated Supply Management, Vol. 7, No. 4, pp.193214. Biographical notes: Tahera Yesmin received her BSc and MSc in Industrial and Production Engineering from Bangladesh University of Engineering and Technology, Dhaka, Bangaldesh. She has been working in the same university as a faculty member of the same department since 2007. She has a good number of international journals and conference papers. M. Ahsan Akhtar Hasin received his BSc in Electrical and Electronics Engineering from BUET, Dhaka, Bangladesh, MSc in Industrial Engineering and his PhD from Industrial Systems Engineering, AIT, Bangkok, Thailand. He has 22 years of teaching and research experience in Bangladesh. He has a large number of international journal publications in his credit and has authored several books and chapters in books, published in the USA and other countries.

Copyright 2012 Inderscience Enterprises Ltd.

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Introduction

Supply chain management has a significant role in todays global market. The extreme competition in business, shorter product life cycle, greater customer expectation and transformation of human lives has made the supply chain more important issue than ever for the business organisations. The way and uncertainty about how markets will change has also made it increasingly important for companies to meticulously understand the supply chains they participate in. In a standard supply chain, materials are procured to be produced into items at one or more manufacturing facilities. Finished products are then transferred to distribution centre for storage. Retail shops collect them from the storage to sell to the end customers. An effective supply chain strategy facilitates the interactions at the different phases in the chain. While managing a supply chain, a holistic approach is required to ensure that it is both efficient and cost effective across the whole system (David et al., 2000). Thus, the emphasis is not on simply lowering the cost for a specific entity, but rather taking a systems approach to optimise the cost for the overall supply chain. Successful management of the supply chain needs close integration among the different phases involved in product delivery to the consumer. An important element in different stages involved is the information on demand. This information is used by each entity in the supply chain for production planning and control purposes. However, with the aggregation of demand information, distortion occurs as it passes upstream and moves away from the end consumer. This demand variation has become referred to as the bullwhip effect (Lee et al., 1997a, 1997b). Bullwhip effect is a notable problem in forecast-driven supply chains, and vigilant management of this effect is an important goal for supply chain managers. Industries with reliable demand forecasts spend millions of dollars every year because they are not able to match production to demand. The bullwhip effect is a major cause of the problem. Procter & Gamble (Lee et al., 1997b) were one of the first companies to discover the bullwhip effect when they were working with the ordering patterns for one of their products. Though the retail demand was fluctuating slightly, but when examined the upstream members of the supply chain, there variability of orders was greater (Lee et al., 1997a). This distorted information from one end of the supply chain to the other can lead to inefficiencies, i.e., excessive inventory, quality problems, higher raw-material costs, overtime expenses, shipping costs, poor customer service, and missed production schedule (Lee et al., 1997a). Effective supply chain has already played a crucial role in the business area of all over the world. In developed countries, industries have invested significantly on researches to make the supply chain efficient, but for a developing country as Bangladesh, it is still a newly emerging concern. From there, the author came up with this research. In order to reduce bullwhip effect in supply chain researchers have used a number of concepts, one of the important is classical management techniques that include information sharing and forecasting. Very few researchers like Kimbrough et al. (2002) used artificial intelligence to solve the problem of bullwhip effect but not for a real supply chain scenario; which also drove the force for this research. However, this research is primarily aimed to study the supply chain in an industry that is operating at Bangladesh. It is conducted to find an optimal ordering policy, which

Determination of optimal ordering quantity and reduction of bullwhip effect 195 will reduce bullwhip effect for the industry studied. To find the optimal ordering policy for every member of the supply chain, computer intelligence technique genetic algorithm is used. Genetic algorithm will search profoundly for the global optimum ordering policy and allocate this policy to each member of the supply chain. This research draws a bottom line on whether the optimal ordering policies for each member of a supply chain can be found using a genetic algorithm or not and would this reduce the bullwhip effect and cost across the entire supply chain as well.

Literature review

Recently, there has been a surge of interest and research on the phenomenon popularly called the bullwhip effect. Numerous researches have paid their attention to analyse bullwhip whip effect. Some of the areas of focus of the previous researches are (Chen et al., 2000b): a b c d providing empirical evidence supporting the existence of the bullwhip effect (Forrester, 1961) analytically demonstrating the existence of the bullwhip effect (Lee et al., 1997b) identifying the possible causes of the bullwhip effect (Disney and Lambrecht, 2008) developing strategies to reduce the impact of the bullwhip effect (Kimbrough et al., 2002).

Bullwhip effect was first academically studied by Forrester (1961) where he showed that the variance in demand for a manufacturer was very large than the consumer demand. Moreover he also observed that every stage in the supply chain was going through this amplification. He used system dynamics as a solution of this problem. Complex information feedback loop between companies was one of the major factors reasoning of bullwhip effect. Forrester suggested to solve this problem by considering the whole supply chain as a complete system. While experimenting with inventory system, Sterman (1989) observes the demand amplification in beer distribution game. There were four members in this supply chain who were independent in terms of taking inventory decisions and were reliant on the immediate players orders as a source of information. This ultimately led to an increment in the variances of orders in the upstream members, proving bullwhip effect. Later, Lee et al. (1997a, 1997b) shows that a number of major companies also faced problems due to the bullwhip effect. Procter & Gamble were one of them. Pampers was one of their best selling products. While examining the order patterns of pampers the logistics executives found that the variability was not so huge, but when they saw distributors order it was surprisingly larger. They were even more surprised to see the higher amplification of orders of one of the suppliers, 3M. Then after studying the details of P&G called this occurrence the bullwhip effect. Again when Hewlett-Packard (HP) (Lee et al., 1997a) executives examined the sales of one of its printers at a major reseller, they found there were some fluctuations over time. These fluctuations were increased in the orders from the resellers and were even more in the orders of the printer division to the companys integrated circuit division.

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Techniques to reduce the bullwhip effect

In supply chain, the effect of bullwhip has a great impact; numerous researchers from different background have studied it. Several authors have investigated techniques for reducing the bullwhip effect through redesigning the supply chain, improving information flows, reducing time delays and improving order policies. All the studies can be divided in to some major areas like (Lu et al., 2007): 1 2 3 classical management techniques control theory computer intelligence.

3.1 Classical management techniques

Classical management techniques includes information sharing, forecasting, vendor managed inventory, scheduling problems, inventory problems. Sharing information between business organisations and within the organisations has been one of the key factors in reducing bullwhip effects (Lee et al., 1997a, 1997b). Researchers like Cachon and Fisher (1999) analytically showed the benefit of manufactures after using the information about retailers inventory level. Many researchers have studied different factors of forecasting methods to mitigate bullwhip. Chen et al. (2000a), Hanssens (1998), Chatfield et al. (2002) used forecasting to reduce bullwhip. Vendor-managed inventory (VMI) also known as continuous replenishment or supplier-managed inventory, was popularised by Wall-Mart and Proctor & Gamble. Other companies in the USA, including Campbell Soup and Johnson & Johnson and by European firms such as Barilla, the pasta manufacture also used VMI (Waller et al., 1999). Many researchers like Disney and Towill (2003) found that VMI has a significant chance to reduce the bullwhip effect in real world supply chains. Many researchers have taken interest in bullwhip effect and investigated scheduling problems to mitigate the bullwhip effect. Researchers Kelle and Milne (1999), and Cachon (1999) investigated the scheduling problems to reduce bullwhip effect. Bullwhip effect impacts negatively on the inventory level in any business and thus affect net present value of activities in the supply chain (Bolarin, 2008). Inventory control, as a critical part of the supply chain management, becomes the second most frequent application area for simulation technique in logistics (after manufacturing) (Petuhova and Merkuryev, 2007). Researcher Samuel and Mahanty (2003) have identified problems with shortage gaming, which is another major cause of the bullwhip effect. Logistics problems have also been studied by the researchers like Shue (2005).

3.2 Control theory

Control theory is another popular approach for examining and reducing the bullwhip effect. Researchers like McCullen and Towill (2001) investigated and presented an approach through agile manufacturing to reduce bullwhip. Researcher Dejonckheere et al. (2004) also used control theory to reduce bullwhip effect.

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3.3 Computer intelligence

There are three main techniques that may be used in a CI approach, as described fuzzy logic artificial neural networks genetic algorithm.

Different researchers used fuzzy logic to reduce bullwhip effect. Researcher Carlsson and Fuller (2001) is one of them. They show that if the members of the supply chain share information with intelligent support technology, and agree on better and better fuzzy estimates (as time advances) on future sales for the upcoming period, then the bullwhip effect can be significantly reduced. Artificial neural network can also be used to resolve the problems of bullwhip effect. Genetic algorithm has been used in many branches of supply chain. Researchers have always been interested to use new techniques to solve the problems of supply chain. Researcher Kimbrough et al. (2002) used genetic algorithm to solve the bullwhip effect found in MIT beer game. Genetic algorithms are also being used for planning of supply chain. Researcher Merkuryeva and Napalkova (2008) used multi objective simulation based genetic algorithm (MOSGA) for multi echelon supply chain cyclic planning and optimisation and Naso et al. (2007) used genetic algorithm for scheduling. Lam et al. (2008) propose genetic algorithm approach to develop a collaborative supply chain network, i.e., a supply chain network with genetic algorithm and showed that GA approach is capable of shortening the processing time and reducing operating time in the network. ODonnell et al. (2009) use genetic algorithm to reduce negative effect of sales promotion in supply chain. They show how GA can be used to assist supply managers in predicting reorder quantities along the supply chain as well as can reduce bullwhip effect. Researcher Disney et al. (2000) describes a procedure for optimising the performance of an industrially designed inventory control system using genetic algorithm. Zhou et al. (2002) used genetic algorithm for balancing the allocation of customers to multiple distribution centres in the supply chain network. Lu et al. (2007) also used genetic algorithm to reduce bullwhip effect.

Methodology

Theoretically, the bullwhip effect does not occur if all orders exactly meet the demand of each period, otherwise results in greater safety stock which can lead to either inefficient production or excessive inventory as the producer needs to fulfil the demand of its predecessor in the supply chain. This also leads to a low utilisation of the distribution channel. Despite of having safety stocks there is still the hazard of stock-outs, which result in poor customer service. Furthermore, the bullwhip effect leads to a row of financial costs. It will increase the inventory cost, backorder cost, distribution cost etc. In order to reduce the bullwhip effect in supply chain a systematic approach is applied in this research. The approach follows:

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T. Yesmin and M.A.A. Hasin establishment of the existing ordering quantities setting objective function setting inventory polices and costs for different purposes apply genetic algorithm.

At the very beginning, the demand data of the customers and the inventory policy of the existing system has been studied to find out the existing ordering quantities (which was set by a simulation). The second step is to set the objective function for the mathematical model. The main objective here is to reduce costs of supply chain for each member, which will ultimately reduce the total supply chain cost (TSCC). The logic works here if the TSCCs are lowered, then automatically bullwhip will be reduced as to maintain a lower cost each member will order less and thus demand amplification will be reduced. Then the inventory policy of the existing system is studied to set the different costs for the experiment to be performed with the help of genetic algorithm. Genetic algorithm is a search technique to find approximate solutions to optimisation and search problem. It is a problem solving method that uses genetics as its model of problem solving. All the genetic information gets stored in the chromosomes. The chromosomes are divided into several parts called genes.

Solution approach for the case

Supply chain management is relatively a new concept in most of the business industries of Bangladesh, but the good part is, management of different companies are now being interested to achieve an effective supply chain. Since supply chain is relatively new here in our country, people are unaware of the problems like bullwhip effect as well. In order to study the bullwhip effect in the context of Bangladeshi industries, this research is performed on the basis of collected data from one of the noodles manufacturer of Bangladesh and a chain shop of a leading superstores keeping that noodles.
Figure 1 Supply chain network of the assigned product
Retailer

1 2 3

FACTORY

WAREHOUSE

DISTRIBUTOR

Retailer

Retailer

Noodles manufacturer here has its own strategy to produce and complete the supply chain of this product. It has its own central distribution centre (named warehouse in this research) from where the distributors coming from the whole country takes the products. The distributors then go to the retailer shops to supply the products and from there, the product reaches to the end customer. There are a number of retailers and a number of distributors. In order to make the study more applicable, the chain superstore is considered as retailer and the study was conducted on the three branches of that store. So, the supply chain network studied in this research consists of six members: one factory,

Determination of optimal ordering quantity and reduction of bullwhip effect 199 one warehouse, one distributor and three retailers. It is a multistage supply chain where the products go from factory to warehouse, from warehouse to distributor and from distributor to three retailers, which are basically three superstores.

5.1 Establishment of the existing ordering quantities

In order to find out the ordering quantities for the existing system customer demand data and different inventory policies are needed.

5.1.1 Collection of demand data of the customers

In order to compare the approach taken here with the existing situation, demand data of the customers for 52 weeks have been collected directly from the market in the form of a ranch of data. Table 1 shows the customer demand for the three above mentioned retailers which are randomly generated (Davis, 1985).
Table 1 Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 Customer demand for Retailer 1, Retailer 2, and Retailer 3 Customer demand for Retailer 1 10 11 13 14 11 15 12 10 13 15 13 15 10 11 12 14 15 12 11 10 11 10 11 12 13 14 Customer demand for Retailer 2 17 14 15 16 17 18 19 14 16 17 15 14 16 17 14 15 19 18 15 16 17 16 18 20 14 16 Customer Customer Customer demand for Week demand for demand for Retailer 3 Retailer 1 Retailer 2 17 16 15 16 17 21 13 17 15 11 12 13 15 13 17 12 11 15 14 16 14 17 11 10 14 13 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 15 12 11 10 12 13 14 13 10 10 12 14 13 12 11 12 14 11 12 15 12 13 14 10 12 13 17 15 14 17 18 19 15 14 16 15 16 15 15 16 17 15 16 17 14 15 16 17 16 16 17 15 Customer demand for Retailer 3 18 19 13 12 15 13 15 16 14 17 13 15 16 16 13 15 13 14 13 12 16 14 15 14 12 11

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5.1.2 Inventory policies for supply chain members

To find the ordering quantities for the existing data, information about the inventory policies are essential. Here all the members of the supply chain have their own inventory policy except the customers.
Table 2 Elements Beginning Inventory (units) Lead time (week) Ordering cycle (week) Replenishment point (cases) Inventory policies for each member of the supply chain Retailer 1 20 1 1 10 Retailer 2 20 1 1 10 Retailer 3 20 1 1 10 Distributor 75 1 1 60 Warehouse 90 1 1 100 Factory 100 1 1 100

In this research a fixed amount of beginning inventory for each member of the supply chain is assumed. However, ordering cycle time is set according to the real scenario. Lead-time is also collected from real data. Replenishment point is different for different members. Each of the retailers keeps stock equal to one weeks minimum demand. Distributor keeps two-week demand of the retailers as a stock. Warehouse also keeps double of the average demand of the distributor and the factory keeps the stock whatever the warehouse keeps.

5.1.3 Existing ordering policy for the supply chain members

Based on the collected customer demand and the inventory policy, ordering quantities are calculated for each of the member of the supply chain by a simulation in Microsoft Excel 2007 on the basis of the following equations (Kimbrough et al., 2002),
Order for each member = Max (0, Indicated order) Indicated order = Demand from the immediate downstream + Adjusted inventory stock + Shortage quantity Adjusted inventory stock = Replenishment point Inventory level

Table 3 shows the ordering quantities for each of the supply chain member of the existing system calculated from the simulation. It should be clearly noticed that orders do not vary that much in the down streams of the supply chain which are the retailers, but it varies in a greater number in the up streams of the supply chain, which is clearly a symptom of bullwhip effect. After the analysis of the demand data for each member of the supply chain, it is clearly visible that bullwhip effect is present in the studied supply chain.

Determination of optimal ordering quantity and reduction of bullwhip effect 201

Table 3 Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 Existing ordering pattern for one year for the assigned product Retailer Distributor Warehouse Retailer 1 Retailer 2 Retailer 3 1, 2, 3 (total) (units) (units) (units) (units) (units) (units) 10 12 15 15 8 19 9 8 16 17 11 17 5 12 13 16 16 9 10 9 12 9 12 13 14 15 16 9 10 9 14 14 15 12 24 11 16 17 18 19 20 9 18 18 13 13 18 18 11 16 23 17 12 17 18 15 20 22 8 18 18 13 13 20 19 20 11 13 24 15 14 17 18 25 5 21 13 7 13 14 17 11 21 7 10 19 13 18 12 20 5 9 18 12 23 20 7 11 18 11 17 17 58 38 45 49 44 63 34 38 47 42 37 44 40 41 45 39 49 45 35 44 42 44 37 44 40 45 57 42 30 40 51 45 43 42 101 18 52 53 39 82 5 42 56 37 32 51 36 42 49 33 59 41 25 53 40 46 30 51 36 50 69 27 18 50 62 39 41 41 212 0 10 54 25 125 0 7 70 18 27 70 21 48 56 17 85 23 9 81 27 52 14 72 21 64 88 0 0 76 74 16 43 41 Factory (units) 424 0 0 0 0 15 0 0 22 0 2 113 0 47 64 0 131 0 0 109 0 50 0 106 0 77 112 0 0 64 72 0 28 39

Note: 1 unit = 20 single packets of noodles.

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Table 3 Week 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52

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Existing ordering pattern for one year for the assigned product (continued) Retailer Retailer 1 Retailer 2 Retailer 3 Distributor Warehouse 1, 2, 3 (total) (units) (units) (units) (units) (units) (units) 7 10 14 16 12 11 10 13 16 8 13 18 9 14 15 6 14 14 18 14 17 14 15 17 18 13 17 18 11 16 17 18 15 16 18 13 12 20 9 17 17 16 10 17 11 15 12 11 20 12 16 13 10 10 37 44 40 47 44 44 38 43 44 41 36 45 46 44 46 35 42 37 32 51 36 54 41 44 32 48 45 38 31 54 47 42 48 24 49 32 23 70 21 72 28 47 20 64 42 31 24 77 40 37 54 0 74 15 Factory (units) 5 117 0 95 0 50 0 101 20 20 17 130 3 34 71 0 94 0

Note: 1 unit = 20 single packets of noodles. Figure 2

450 400 350 300 U n its (in c a se s) 250 200 150 100 50 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 Retailer 1 Retailer 2 Retailer 3 Retailer 1,2,3 Distributor Week (s) Warehouse Factory Customer Demand

Graphical representation of the existing ordering pattern and actual sale for each supply chain member (see online version for colours)

Determination of optimal ordering quantity and reduction of bullwhip effect 203

5.2 Setting objective function

A member of supply chain usually has to pay maximum five different types of cost which are described details in below.

5.2.1 Inventory cost

Inventory cost (Kimbrough et al., 2002) is for holding inventory, which depends on inventory level. The formula for inventory cost is,
INVCi (t) = INVi (t) Hi (t), if INVi (t) 0

Here, INVCi(t) inventory holding cost for member i at time t INVi(t) Hi inventory level for member i at time t inventory unit holding cost price for member i at time t.

5.2.2 Backorder cost

Back order cost (Kimbrough et al., 2002) is a type which rises if any members inventory is not enough to meet the demand from downstream members of the supply chain. The formula for back order cost is,
BKCi (t) = UFDi (t) Bi (t),

Here, BKCi (t) UFDi (t) Bi (t) back order cost for member i at time t back orders for member i at time t backorder unit cost price for member i at time t.

5.2.3 Ordering cost

Third type of cost is ordering cost (Chan et al., 2006) for placing orders. The formula for ordering cost is,
OCi (t) = R i (t), if Oij (t) > 0, 0, if Oij (t) = 0

Here, OCi(t) ordering cost for member i at time t Ri(t) Oij(t) ordering cost at time t order from member i for member j at time t.

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5.2.4 Distribution cost

Fourth cost is distribution cost, which consists of shipping cost, item cost, and cargo cost (Han and Damrongwongsiri, 2005), arrives when a member of supply chain delivers items to the buyer and the buyer pays for it. The formula for distribution cost is,
DCi (t) = {a ij (t) + bi (t)} x ij (t) + x it (t) VCij (t) Qi

Here, aij(t) bi(t) xij(t) Qi unit shipping cost from member i to member j at time t unit price of the item for member i during time t number of units distributed from member i to member j at time t cargo capacity of the member i.

VCij(t) cost of per cargo shipping from member i to member j in time t

5.2.5 Production cost

Finally production costs (Chan et al., 2005) which is applied to only factory when it orders from production line. The formula for production cost is,
PCi (t) = Dij (t) CU i (t)

Here, PCi(t) Dij (t) CUi(t) production cost for factory demand that member j receives from member i in time t production unit cost price for member i at time t.

The main objective is to minimise the TSCC. So the objective function Z is minimising the TSCC.
Z=

(C
t =1

11 (t) + C12 (t) + C13 (t) + C 2 (t) + C3 (t) + C 4 (t)

The above objective is the summation of the six other objectives which are, 1 Minimise the supply chain cost for retailer 1 at week t (C11(t)): Retailer 1s supply chain cost consists of inventory cost, backorder cost and ordering cost. Minimise,
C11 (t ) = INVCi (t) + BKCi (t) + OCi (t) = INVi (t) H i (t) + UFDi (t) Bi (t) + OCi (t)

Determination of optimal ordering quantity and reduction of bullwhip effect 205 2 Minimise the supply chain cost for retailer 2 at week t (C12(t)): Retailer 2s supply chain cost consists of inventory cost, backorder cost and ordering cost. Minimise,

C12 ( t ) = INVCi (t) + BKCi (t) + OCi (t) = INVi (t) H i (t) + UFDi (t) Bi (t) + OCi (t) 3 Minimise the supply chain cost for retailer 3 at week t (C13(t)): Retailer 3s supply chain cost consists of inventory cost, backorder cost and ordering cost. Minimise,
C13 (t ) = INVCi (t) + BKCi (t) + OCi (t) = INVi (t) H i (t) + UFDi (t) Bi (t) + OCi (t)

Minimise the supply chain cost for distributor at week t (C2(t)): Distributors supply chain cost consists of inventory cost, backorder cost, ordering cost and distribution cost. Minimise,
C2 (t ) = INVCi (t) + BKCi (t) + OCi (t) + DCi (t)

= INVi (t) H i (t) + UFDi (t) Bi (t) + OCi (t) + {a ij (t) + bi (t)} x ij (t) + x ij (t) VCij (t) Qi

Minimise the supply chain cost for warehouse at week t (C3(t)): Warehouses supply chain cost consists of inventory cost, backorder cost, ordering cost and distribution cost. Minimise,
C3 (t ) = INVCi (t) + BKCi (t) + OCi (t) + DCi (t) = INVi (t) H i (t) + UFDi (t) Bi (t) + OCi (t) x ij (t) + {a ij (t) + bi (t)} x ij (t) + VCij (t) Qi

Minimise the supply chain cost for factory at week t (C4(t)): Factorys supply chain cost consists of inventory cost, backorder cost, ordering cost, distribution cost and production cost. Minimise,
C4 (t ) = INVCi (t) + BKCi (t) + OCi (t) + DCi (t) + PCi (t) = INVi (t) H i (t) + UFDi (t) Bi (t) + OCi (t) x ij (t) + {a ij (t) + bi (t)} x ij (t) + VCij (t) + Dij (t) CUi (t) Qi

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5.3 Setting inventory policies and costs 5.3.1 Inventory policy

To reduce bullwhip effect a detail inventory policy must be set. In order to reduce the order amplification fixed order interval model for inventory policy is chosen (Tersine, 1988). In fixed order interval model, orders are placed at a fixed interval.

5.3.2 Associated costs determination

After setting the inventory policies the next step is to fix different costs and other values associated with the supply chain for each of the members. Table 4 has all the values needed for the cost functions. These costs and other parameters are collected from extensive study of each member of the supply chain network.
Table 4 Elements Unit holding cost (Hi) Unit back order cost (Bi) Ordering cost (Ri) Unit price of the item (bi) Unit shipping cost (aij) Cargo capacity (Qi) Cost of per cargo shipping (VCij) Production unit cost price(CU) Different costs associated in the supply chain Retailer 1 Hi = 2 Tk/case 20 Tk/case Retailer 2 Hi = 2 Tk/case 20 Tk/case 37 Tk. Retailer 3 Hi = 2 Tk/case 20 Tk/case 40 Tk. Distributor Hi = 1.5 Tk/case 20 Tk/case Warehouse Hi = 1 Tk/case 20 Tk/case Factory Hi = 1 Tk/case 20 Tk/case

35Tk. -

35 Tk. b2 = 220 Tk/case Tk 4

38 Tk. b3 = 200 Tk/case Tk. 4

80 Tk b4 = 180 Tk/case Tk.11

400 units

400 units

200 units

1,100 Tk.

400 Tk.

60 Tk.

180 Tk./case

Note: 1 USD = 74 Taka(Tk.)

Determination of optimal ordering quantity and reduction of bullwhip effect 207

5.4 Apply genetic algorithm 5.4.1 Setting chromosomes

In order to apply genetic algorithm, the chromosomes first have to be set. Genetic algorithm is applied for 52 weeks. The chromosome for week 1 is shown in Table 5.
Table 5 Week 1 Chromosome inputs for first week Retailer 1 3 Retailer 2 2 Retailer 3 5 Distributor 10 Warehouse 14 Factory 10

5.4.2 Assumptions
In order to find the optimal ordering policy a number of simulations are conducted where the extra demand of each member should not be more than 25 units to minimise the bullwhip effect. It implies that the extra amount can vary from 0 to 25 unit(s) along with the actual demand of each member. A further analysis is conducted where the extra demand is allowed to vary from 0 to 10 unit(s).

5.4.3 Genetic algorithm parameters

Three different generation numbers (1000, 10000, 20000) are tested where various combinations of other parameter such as initial population (40, 80), crossover rate (0.25, 0.5) and mutation rate (0.5, 1) are also used.

Experiments performed with the help of genetic algorithm

The experiment is conducted with the help of DEV C++ version 4.9.9.0 and Microsoft Excel 2007. Different parameters of Genetic algorithm have been applied and a number of combinations have been tried to find out the optimal ordering policy, which will have the minimum cost. Genetic algorithm finds the extra ordering quantities for all the six members and costs for each week as well as the TSCC for all the six members. Two different sets of analysis are done where in the first experiment chromosomes can vary from 0 to 25 and in the second experiment chromosomes vary from 0 to 10, which are categorised as, 1 2 Experiment 1 (chromosomes between 025) Experiment 2 (chromosomes between 010)

6.1 Experiment 1
Table 5 shows the value of Z obtained by applying genetic algorithm with various combinations of parameters and where the chromosomes are set to vary from 0 to 25. In this experiment the parameters are set to generation 1,000, 10,000, 20,000; population 40, 80; crossover 0.25, 0.5 and mutation 0.5, 1.

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Retailer 1 Total supply chain cost (Tk.) 14,030 14,265.2 14,092 13,657.8 13,393.2 15,144.55

Retailer 2

Retailer 3 Distributor Warehouse

Table 6

Week

Factory Retailer 1 Retailer 2 Retailer 3 Distributor Warehouse Factory Total Order (to supply Week Order (to Order (to Order (to Order (to Order (to Order (to Order (to Order (to Order (to Order (to Order (to production chain production distributor) distributor) distributor) warehouse) factory) distributor) distributor) distributor) warehouse) factory) cost (Tk.) line) line) 20 17 17 16 21 24 17 18 15 17 13 13 18 16 21 13 17 15 17 17 14 19 13 15 14 15 51 51 51 45 53 54 11,645.9 10,902.4 48 54 58 12,584.3 50 51 52 45 54 57 12,871.85 49 53 55 57 12,935.7 48 45 50 65 12,141.15 47 12 15 18 14 12 19 48 51 52 10,432.5 46 15 46 50 50 10,450.5 45 14 47 48 48 6,594.4 44 11 18 19 15 21 18 18 16 19 23 57 60 60 13,520.5 43 16 20 46 48 52 9,424.05 42 15 16 49 49 60 10,476.6 41 11 17 14 18 15 16 15 16 17 15 20 14 12 11 50 51 51 10,530.75 40 12 17 18 50 56 64 13,925.65 39 17 15 16 46 50 60 10,250.4 38 15 17 16 49 48 47 45 51 51 46 49 46 50 48 57 46 44 53 51 52 56 12,102.05 37 19 16 13 49 53 57 62 12,697.2 36 10 23 17 50 48 55 55 9,043.3 35 11 16 14 41 50 51 60 11,432.45 34 13 21 16 50 55 46 51 49 49 51 52 48 51 52 52 54 46 51 52 57 52 52 66 51 54 54 9,185.25 33 21 17 17 55 56 58 64 76 10,741.6 32 13 19 20 52 59 54 60 60 11,433.25 31 12 19 20 51 54 64 66 59 66 61 55 57 65 52 53 69 63 64 56 60 50 51 53 64 55 64 83 46 51 52 5,520.8 30 10 18 13 45 48 60 47 50 62 9,287.7 29 18 14 14 48 51 53 43 43 61 7,934.5 28 14 15 19 52 61 65 49 49 53 14,618.25 27 18 21 21 60 64 65

10

18

12

14

13

17

14

16

16

17

15

18

12

20

14,579.75 15,298.15 12,409.05 13,209.9 13,665.8 13,393.05 11,153.4 11,447.95 15,259.4 15,572 15,435.3 13,458.2 17,308.8 11,300.4 12,353.6 12,549.7 17,222.7 15,237 16,011.2 25,978.7

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13

19

10

17

17

11

16

15

12

17

16

13

15

17

14

11

23

15

12

15

16

15

17

17

19

20

18

13

18

19

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10

19

21

11

17

Optimal ordering quantities for supply chain member for Experiment 1

22

10

23

23

12

19

24

12

20

25

15

14

26

15

16

Note: Total supply chain cost (Tk) = 660,109.8

Determination of optimal ordering quantity and reduction of bullwhip effect 209

6.1.1 Best result of Experiment 1

After a series of experiments the best result of the combinations for Experiment 1 is found as: generation: 1,000, number of initial population: 80, selection method: roulette wheel method, cross over type: single point crossover, cross over value: 0.25, mutation value: 1, value of Z: Tk. 660,109.8 per year, stopping condition where best value did not change is G: 50.
Figure 3
90 80 70 Units(in cases) 60 50 40 30 20 10 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 Retailer 3 Retailer 1,2,3 Week(s) Distributor Warehouse Factory Retailer 1 Retailer 2

Graphical presentation of ordering policy for Experiment 1 (see online version for colours)

6.2 Experiment 2
In Experiment 2, the values of Z are obtained by applying genetic algorithm with various combinations of parameters and where the chromosomes are set to vary from 0 to 10. In this experiment the parameter are set to generation 1,000, 10,000, 20,000; population 40, 80; crossover 0.25, 0.5; mutation 0.5, 1 and chromosome limit from 010. Following Table 6 shows the values of Z for different combinations of the parameters.

6.2.1 Best result of Experiment 2

The best result of the combinations for Experiment 2 is the following one, where, Generation: 20,000, number of initial population: 80, selection method: Roulette wheel method, cross over type: single point crossover, cross over value: 0.5, mutation value: 1, value of Z: Tk. 403981.15 per year, stopping condition where best value did not change is G: 50.

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Table 7

Factory Retailer 1 Total supply Order (to Week Order (to Week Order (to Order (to Order (to Order (to Order (to production chain distributor) distributor) distributor) distributor) warehouse) factory) cost (Tk.) line) 17 16 16 17 17 21 13 17 15 12 14 13 15 14 18 12 12 15 14 16 14 18 11 11 14 13 47 47 47 41 42 43 6,351.6 8,395.2 44 44 45 7,106.4 50 51 52 42 43 44 7,417.7 49 45 46 51 8,101.9 48 44 45 46 7,215.7 47 14 13 15 11 14 14 42 42 47 6,250.5 46 16 41 43 45 6,907.25 45 12 48 48 50 7,210.75 44 11 47 47 47 6,056.1 43 14 17 17 14 15 17 17 16 16 17 19 43 43 43 5,974.1 42 12 16 45 45 47 6,229.7 41 11 17 43 43 44 5,936.4 40 12 16 16 14 15 13 14 13 12 16 14 16 14 12 11 43 44 44 5,998.4 39 14 16 17 45 46 46 6,495.45 38 14 15 15 43 43 43 5,921.15 37 12 16 14 42 44 47 44 43 43 44 43 41 43 47 44 47 42 43 46 45 47 48 6,117 36 10 15 17 42 46 46 46 5,000.1 35 10 16 16 42 43 43 44 5,104.4 34 14 17 16 47 47 44 46 42 45 47 45 45 45 45 46 41 46 48 48 49 42 43 47 46 46 52 6,014.9 33 14 15 15 44 45 55 55 59 4,923.25 32 15 19 13 47 48 46 50 50 5,628.25 31 13 18 16 47 50 52 50 52 50 46 47 45 47 50 48 45 45 47 49 43 46 48 50 49 43 50 49 48 48 49 4,779.4 30 11 17 14 42 44 46 44 44 50 5,057.85 29 11 15 13 39 40 44 42 43 45 4,614.95 28 12 15 20 47 47 53 45 45 48 3,673.8 27 15 18 19 52 53 54 7,818.7 7,935.9 8,040.6 9,449.4 9,338.6 8,653 8,455.4 9,879.1 9,328.3 8,808.5 8,310.9 7,950.9 9,718.1 8,360.2 9,549.7 9,034.7 9,112.9 10,188.9 9,526.7 9,840.9 10,472.5 10,234.8 10,396.7 9,953.4 11,232.2 13,908.2

Retailer 1

Retailer 2

Retailer 3 Distributor Warehouse

Factory Total supply Order (to Order (to Order (to Order (to Order (to production chain cost distributor) distributor) warehouse) factory) (Tk.) line)

Retailer 2

Retailer 3 Distributor Warehouse

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Optimal ordering quantities for supply chain member for Experiment 2

22

11

16

23

12

18

24

12

20

25

13

14

26

14

16

Note: Total supply chain cost (Tk) = 403,981.2

Determination of optimal ordering quantity and reduction of bullwhip effect 211

Figure 4
70 60 50 Units (in cases) 40 30 20 10 0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

Graphical presentation of ordering policy for Experiment 2 (see online version for colours)

Retailer 1

Retailer 2

Retailer 3

Retailer 1,2,3 Week(s)

Distributor

Warehouse

Factory

Comparisons between results before and after applying GA

Comparisons between the results after applying genetic algorithm for both the analyses and the existing system are conducted in this section. In order to find out which one is the best ordering policy, a detail comparison has been accomplished between the existing ordering policy and the ordering policy obtained after the application of genetic algorithm in Experiment 1 and Experiment 2.

7.1 Comparison on the basis of cost

The main basis of comparison is the TSCC. The ordering quantities and costs achieved from Experiment 1 clearly show that the TSCC reduced to Tk. 660,109.8 from Tk. 1,334,995.0 after applying genetic algorithm and in Experiment 2 the TSCC reduced to Tk. 403,981.2. So, the value of total cost of supply chain evidently shows that genetic algorithm has the ability to reduce TSCC.
Table 8 TSCCs before and after applying GA Existing system Total supply chain cost (Tk.) 1,334,995.0 Experiment 1 660,109.8 Experiment 2 403,981.2

Eventually, both the experiments show that genetic algorithm is capable of reducing TSCC and thus the bullwhip effect is also reduced.

7.2 Comparison on the basis of variability of ordering quantity

Table 9 shows the variability of ordering quantity through out the whole year before and after the application of genetic algorithm.

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Table 9

T. Yesmin and M.A.A. Hasin

Highest and Lowest ordering quantity before and after GA Retailer Retailer 1 2 Retailer 3 25 Distributor 101 Warehouse 212 Factory 424

Before applying genetic algorithm

Highest order quantity Lowest order quantity Highest order quantity Lowest order quantity Highest order quantity Lowest order quantity

19

24

18

After applying genetic algorithm in Experiment 1

21

23

24

60

66

83

10

14

11

41

48

50

After applying genetic algorithm in Experiment 2

16

20

21

55

55

59

10

14

11

39

41

43

Though the demand of customers, beginning inventory, lead time, ordering cycle are same for both the cases of before and after the application of genetic algorithm, the variability of ordering pattern is more in the supply chain members before using genetic algorithm. Since the variability of the ordering pattern decrease, which implies that the bullwhip effect (which is the amplification of demand in each members of the supply chain) also decreases. After applying genetic algorithm the ordering patterns for each week is much more stable than the ordering pattern of the existing case, which is also the indication of the reduction of bullwhip effect.

7.3 Comparison between Experiment 1 and Experiment 2

In order to find the best optimal ordering quantities for each of the six members of the supply chain, an extensive search with different combinations of the parameters of the genetic algorithm has been used which is mentioned in Experiment 1 and in Experiment 2. In Experiment 1 chromosomes vary from 0 to 25 and in Experiment 2 chromosomes vary from 0 to 10. In both the cases, the TSCC is reduced than the existing ordering policy. However, in Experiment 2 the TSCC is lower than the result of Experiment 1 and the variability of demand is also reduced than the results of Experiment 1. This research shows that with a lower limit of chromosomes, genetic algorithm is capable to reduce the TSCC more and thus to mitigate the bullwhip effect largely by reducing the variability of the demand. As well as this research also shows that variation of the value of limit to the chromosomes has a great impact on the reduction of bullwhip effect.

Determination of optimal ordering quantity and reduction of bullwhip effect 213

Conclusions

The results of the experiments show that genetic algorithm is capable of reducing TSCC and thus bullwhip effect from a complicated supply chain network as it reduced the TSCC from Tk. 1,334,995.0 to Tk. 660,109.8 in Experiment 1 and to Tk. 403,981.2 in Experiment 2. These analyses also show that limit set to the chromosomes while applying genetic algorithm is important in order to reduce the bullwhip even more. Lower range chromosomes (0 to 10) provide a better result than the range set in higher limit, which was from 0 to 25. Further study by varying the chromosomes and value of the cost parameters can be conducted in future.

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