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Inventory polices

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Products by Considering Discount: Two Calibrated Meta-heuristic Algorithms

PII: S0360-8352(16)30429-6

DOI: http://dx.doi.org/10.1016/j.cie.2016.11.013

Reference: CAIE 4529

Revised Date: 30 October 2016

Accepted Date: 12 November 2016

Please cite this article as: Akbari Kaasgari, M., Mohammad Imani, D., Mahmoodjanloo, M., Optimizing a Vendor

Managed Inventory (VMI) Supply Chain for Perishable Products by Considering Discount: Two Calibrated Meta-

heuristic Algorithms, Computers & Industrial Engineering (2016), doi: http://dx.doi.org/10.1016/j.cie.2016.11.013

This is a PDF file of an unedited manuscript that has been accepted for publication. As a service to our customers

we are providing this early version of the manuscript. The manuscript will undergo copyediting, typesetting, and

review of the resulting proof before it is published in its final form. Please note that during the production process

errors may be discovered which could affect the content, and all legal disclaimers that apply to the journal pertain.

Optimizing a Vendor Managed Inventory (VMI) Supply Chain for Perishable

Products by Considering Discount: Two Calibrated Meta-heuristic

Algorithms

1

Master student, Department of Industrial Engineering, Mazandaran University Science and

Technology, Behshahr, Iran

2

Assistant Professor, Department of Industrial Engineering, University of Science and

Technology, Tehran, Iran,

3

Faculty members, Department of Industrial Engineering, Mazandaran University Science and

Technology, Behshahr, Iran

1

Optimizing a Vendor Managed Inventory (VMI) Supply Chain for Perishable

Products by Considering Discount: Two Calibrated Meta-heuristic

Algorithms

Abstract

Vendor Managed Inventory (VMI) is one of the inventory management strategies that reduce

costs, increase responsiveness and improve collaboration between the members of supply chain.

Although the VMI can reduce response time and deterioration in perishable supply chain (PSC),

but there is a few reports on using VMI for PSC. In this paper VMI strategy is used for managing

the inventory of perishable product at two-level supply chain with single vendor and multiple

retailers. After passing a specific time of product lifetime that called the critical time, the product

would be perished by a probability distribution function. It is probable that the inventory of

product is not sold after the critical time, therefore the management system will use discount to

stimulate demand. Then a proposed model is formulated as a nonlinear programming model. The

objective function of the proposed model is minimizing the total cost of supply chain including

the cost of fixed ordering, holding, discount, and deterioration whereas replenishment cycles and

order size for retailers and also production time needed to supply inventory of each retailer can

be determined through the proposed model. Since the model is a NP-hard problem, a Genetic

algorithm (GA) and a Particle Swarm Optimization (PSO) algorithm are developed for solving it

appropriately and the results are presented that PSO algorithm has a better performance for

solving of the proposed model in this paper.

Taguchi method is an applied to calibrate the parameters of the algorithms in to provide reliable

solution. Finally, the conclusion and further research are presented.

Key words

Vendor Managed Inventory, Perishable Supply Chain, Discount, Genetic Algorithm, Particle

Swarm Optimization

1- Introduction

Management of supply chain is a set of approaches to integrate suppliers, manufacturers,

warehouses and retailers effectively, So that the product could be produced with an appropriate

amount, and distributed at right time and place. Inventory management is one of the key issues in

supply chain management. Therefore several strategies have been proposed to manage inventory.

Also demand variations in the supply chain and bullwhip effect are related to inventory

management (Simchi-Levi, D. et al, 2007, (Sadeghi et al 2014). VMI is one of the strategies for

an agile supply chain that can reduce the time of response to customers demand through

coordination among supply chain members. In VMI supply chain vendor is responsible to

inventory management. Clearly the vendor controls inventory level of retailers based on service

level agreements, so it can be an efficient way to manage the inventory of perishable products.

Its conceptual structure was mentioned by Magee in 1958 with the aim of clarifying the

responsible member of inventory management (Magee, J.F., 1958), (Disney, S.M et al 2003).

2

The past researches were indicating that VMI can improve the supply chain performance by

reducing inventory levels and increasing the replenishment rates (Nagoor Gani, A. and

Sabarinathan, G. 2013). Nowadays, VMI strategy is used in many supply chains at world class

production.

Sadeghi, .J et al (2014) considered a model with single vendor, single warehouse, and multi

retailers based on the VMI strategy. The vendor faced two limitations in the number of orders

and budget. The nonlinear integer programming model developed to determine the order size, the

shortest possible way and replenishment cycle for vendor and retailers. Ghare and Schrader

(1963) presented the first model which considered the deterioration factor as an effective matter

for inventory management. They proposed an EOQ model for items with exponential failure

distribution function and a deterministic demand. Then, Emmens, H. (1968) studied on the

failure of radioactive nuclear generators by using a similar approach. Covert and Philip (1973)

and Philip, G.C. (1974) developed their research by considering a failure rate variable for

perishable products. Weiss, H.J. (1980) studied on perishable inventory with fixed life. Yu, Y et

al (2012) studied a VMI supply chain with deteriorating raw material and deteriorating product.

They considered a known and fixed deterioration rate and deterministic demand of retailers.

They developed a VMI model to calculate the total cost of inventory and deterioration. In that

model, a common replenishment cycle of product and the replenishment frequency of the raw

material were considered as decision variables. In addition, they proved the convexity of the cost

function and used the golden search algorithm to solve the problem. Yu et al. (2011) didn't

consider a deteriorating raw material and studied just pricing impaction on the VMI system.

They proposed a meta-heuristic approach for solving their complex model. In contrast, Yu, Y et

al (2012) focused on a cost-based VMI system and proposed an exact analytical methodology for

problem solution.

Sankar Sana, S. (2010) studied an inventory model for perishable products in a supermarket. In

that model, the products deteriorated after a specific time with a probability distribution function.

Reducing the sale price to stimulate the customer demand was their strategy. Bramorski,T.

)2008(provided a model to determine the policies of perishable products inventory. They used a

demand stimulation to prevent deterioration by adjusting the price of the products which are

deteriorated. The purpose was to sell the entire inventory before expiration and earn higher

profits. Results of the model showed that by offering discounts to older products, customers will

be more willing to buy. Shen, D. et al (2011) studied inventory management model for

perishable agricultural products in a simple two-level supply chain. They formulated the problem

to minimizing the total cost of system and showed that collaboration between vendors and

retailers can reduce supply chain costs.

VMI strategy was utilized in previous studies for perishable products. But discount depending on

the remaining lifetime of the product is an issue that has not been considered for perishable

products in VMI models. Due to probable deterioration, it is necessary to use demand stimulation

strategies such as discounts in such models. The discount of perishable models was often a

quantity discount. The other modes of discount such as the discount related to the expiration date

had been found rarely. The reason of these gaps may be a lack of sufficient knowledge about the

capabilities of VMI strategy and proper methods for controlling the inventory in perishable

supply chain. The present study investigates issue of inventory management in a perishable

supply chain. Perish means that the product is deviated of its normal and expected performance

The value of products decreases during the time in this study such as vegetables and fruit and

3

fresh food. The lifetime of these products is considered as a random variable with probability

distribution function.

In this paper, VMI strategy is used to manage the inventory of perishable product at two-level

supply chain with single vendor and multiple retailers. It is probable that the inventory of product

is not sold after the critical time (the critical time is a moment of time that product begin to

deteriorate; in the other words, the effects of the deterioration are visible. Experts can use

indicators to measure the effects of the deterioration on the product.), therefore the management

system will use discount to stimulate demand. The problem is formulated as nonlinear

programming model to minimize the total cost of supply chain including the cost of fixed

ordering, holding, discount, and deterioration whereas replenishment cycles and order size for

retailers and also production time needed to supply inventory of each retailer can be determined

through the proposed model.

The second section of the present study explains the conditions, parameters and symbols of

problem. The third section presents the model of minimizing the costs of the two-level supply

chain for perishable products with a single vendor and multi-retailer. Since the model is a NP-

hard problem, the fourth section explains meta-heuristic algorithms including GA and PSO

algorithms to solve the problem and using of the Taguchi Method to calibrate meta-heuristic

algorithms parameters. The fifth section explains numerical examples, compares algorithms and

sensitivity analysis of model parameters. The sixth section presents the conclusion and future

researches.

In this section, VMI model will be discussed at a two-level supply chain including a single

vendor and multi-retailer with a perishable product which its value decreases during the time and

a random lifetime. It assumes that the deterioration of product is negligible before the critical

time (the critical time is a moment of time that product begin to deteriorate; in the other words,

the effects of the deterioration are visible. Experts can use indicators to measure the effects of

deterioration on the product.) and perish is begun after it. Vendor supplies inventory for retailers

by a fix and finite rate of production. Problem is formulated as a nonlinear programming model.

The objective function of proposed model is minimizing the total cost of supply chain including

the cost of fixed ordering, holding, discount, and deterioration. Replenishment cycles and order

size for retailers and also production time needed to supply inventory of each retailer can be

determined through the proposed model. In this paper, Deterioration cost is equal to price of

products that are deteriorated (See Yu, Y et al, (2012)). According to situation of problem,

assumption can be listed as follows:

The inventory is considered as a function of time.

Deterioration is dependent on keeping conditions.

Product can be stored at both retailers and vendors locations.

Demand is uncertain.

Critical time is a random variable that follows a probability distribution function.

Replenishment rate is immediate and lead time is zero.

Shortage is not allowed.

4

Deterioration cost is equal to price of products that are deteriorated (See Yu, Y et al, (2012)).

Production rate is finite.

The perishable cost and discount cost at vendor location is equal to zero.

Due to uncertainty in demand and keeping conditions, it is likely that the optimum cycle

occurs before or after the critical time, so two different modes will be defined for the

problem. The first mode is the Basic mode and second mode is the Discount mode that is

explained as follows:

Common notes are shown in table.1 and notes of Basic and Discount modes are shown in

tables.2 and 3 respectively.

note description note description

i Counter index of retailers i 1, 2,..., m S Fixed ordering cost at vendor location

in replenishment cycle ($)

m Number of retailers P Production rate

(percent / unit / time), i

hi Unit holding cost at i-th retailer

location ($ / unit / time)

0

levels for i-th retailer (percent / unit / time),

hiv Unit holding cost at vendor location to

i-th retailer($ / unit / time)

0 i 1

RPi Sale Price before discount of i-th retailer ($ Unit deterioration cost at i-th retailer

/ unit)

pi location ($ / unit / time)

Fixed ordering cost at i-th retailer location Z TCVMI Expected value of total cost of VMI

Ti in replenishment cycle ($) supply chain (sum of discount and

non-discount modes) per unit time ($ /

time)

Basic Mode (C i ct i ), ( ri 0 ) :

Condition of problem in this mode is expressed as follows:

Product be sold before of the critical time subject to demand condition.

Replenishment cycles are smaller than critical time.

Deterioration does not happen.

There is no need to discount.

There are no deterioration and discount costs.

Cost at retailer location is expressed as the sum of fixed ordering cost and holding cost.

Cost at vendor location is expressed as the sum of fixed ordering cost and holding cost.

5

Table 2: Basic mode notes of the model

note description note description

Demand of i-th retailer in the Basic HC i Basic v Holding cost at vendor location

Di Basic (t ) mode (unit /time) to i-th retailer in the Basic

mode in replenishment cycle

($)

I i Basic t Product inventory at i-th retailer TC i Basic Total cost at i-th retailer

location in the Basic mode at time t location in the Basic mode per

unit time ($ / time)

Qi Basic Order size of i-th retailer in the Basic TC Basic v Total cost at vendor location in

mode the Basic mode per unit time ($

/ time)

I i Basic v t Inventory of product at vendor location

to i-th retailer in the Basic mode at t-th

Zi1 Fix ordering cost at i-th retailer

location in the Basic mode per

time unit time ($ / time)

t i Basic Assigned Production time to i-th Zi 2 Holding cost at i-th retailer

retailer in the Basic mode (s) location in the Basic mode per

unit time ($ / time)

Assigned Production time of all Fix ordering cost at vendor

t Basic retailers in the Basic mode (s)

Zi3

location of i-th retailer in the

Basic mode per unit time ($ /

time)

HC i Basic Holding cost at i-th retailer location in Zi 4 Holding cost at vendor location

the Basic mode in replenishment cycle of i-th retailer in the Basic

($) mode per unit time ($ / time)

Fig 1: inventory level of product at retailers and vendor location in the Basic mode

Fig.1 shows that vendor produces product to i-th retailer in a period equal to t i Basic with amount

of Qi Basic and sends to i-th retailer in a proper time subject to level of retailers inventory, in

other word vendor is responsible for managing of retailers inventory. For retailer, replenishment

cycle is smaller than critical time and product will be sold without discount.

Since in the Basic mode there is not deterioration, so deterioration and discount costs will not

exist.

Discount mode ( ct i C i ):

Condition of problem in this mode is expressed as follows:

Product be sold both before and after of the critical time subject to demand condition.

Replenishment cycles are larger than critical time.

Deterioration happens after critical time at retailers location.

6

There is need to discount.

There are deterioration and discount costs.

Cost at retailer location is expressed as the sum of fixed ordering, holding, deterioration

and discount costs.

Cost at vendor location is expressed as the sum of fixed ordering cost and holding cost.

Notes of this section are shown in table. 3.

note Description note description

Critical time at i-th retailer Production time of all

ct i location

t Discount retailers in the Discount

mode

1 t ct i Function sign (function HC i Discount Holding cost at i-th retailer

H (t ct i ) indicates the presence or location in the Discount

0 t ct i absence of deterioration) mode in replenishment

cycle ($)

i i H t ct i Deterioration rate of

product at i-th retailer

HC i Discount v Holding cost at vendor

location to i-th retailer in

location (percent / unit / the Discount mode in

time), 0 i 1 replenishment cycle ($)

Demand of i-th retailer in PC i Discount Deterioration cost at i-th

Di discount (t ) the Discount mode (unit retailer location in the

/time) Discount mode in

replenishment cycle ($)

ai , bi , c i Input parameters of selling DC i Discount Discount cost at i-th

reduction price function due retailer location in the

to discount of i-th retailer Discount mode in

replenishment cycle ($)

ri price after discount of i-th location in the discount

retailer (percent), mode per unit time ($ /

0 ri 1 time)

function due to discount of

TC Discount v Total cost of vendor

location in the Discount

i-th retailer mode per unit time ($ /

time)

i Deterioration parameter of

exponential distribution

Zi5 Fix ordering cost at i-th

retailer location in the

, function of i-th retailer discount mode per unit

i ct i time ($ / time)

f ct i i e 0 ct i

,

0 ct i 0

Since deterioration of

product is a random

variable, it can follow any

probability distribution

function that

f x 1 can be

meaningful to it. In this

7

research, exponential

distribution function

explains the behavior of

deterioration random

variable.

cost at i-th retailer location

retailer location in the

Discount mode at time t in the Discount mode per

unit time ($ / time)

Qi Discount Order size of i-th retailer in Zi7 Expected value of

the Discount mode deterioration cost at i-th

retailer location in the

Discount mode per unit

time ($ / time)

vendor location to i-th discount cost at i-th retailer

retailer in the Discount location in the Discount

mode at t-th time mode per unit time ($ /

time)

t i Discount Assigned Production time Zi9 Fix ordering cost at

to i-th retailer in the vendor location of i-th

discount mode retailer in the Discount

mode per unit time ($ /

time)

Z i 10

Expected value of holding cost at vendor location of i-th retailer in the

Discount mode per unit time ($ / time)

Fig 2: inventory level of product at retailers and vendor location in the Discount mode

Fig.2 shows that vendor produces product to i-th retailer in a period equal to t i Discount with

amount of Qi Discount and sends to i-th retailer in a proper time subject to level of retailers

inventory, in other word vendor is responsible for managing of retailers inventory. For retailer,

replenishment cycle is larger than critical time. Before the critical time, there is no deterioration

and after critical time, deterioration begins gradually and randomly. Therefore, the gradient of

change demand will be faster by discount (see Fig. 2). Before the critical time, the product is sold

without discount and after it, the product is sold with discount. Since in the Discount mode there

is deterioration, so deterioration and discount costs will exist at retailer location.

8

In this section, Basic mode and Discount mode are formulated as a mathematical model

individually according to the description of the previous section and Fig.1 and 2. Total cost of

VMI system is formulated by the sum of costs in the Basic and Discount modes.

Total cost of i-th retailer in Basic mode is formulated by Eq.(1) to (6). Demand can be

considered related or not related to inventory. According to Sankar Sana, S. (2010) in places like

supermarkets high level of inventory it can encourages customers to buy more and more. In fact

more inventory gives the customer a wider selection. Demand in Eq. (1) is related to i and

I i Basic (t ) .

Subject to description of Eq. (1) change of inventory in each moment is related to i (fixed part

of demand) and inventory at retailers location ( I i Basic (t ) ). By increasing i and i

(dependence of demand and inventory to each other), the change of the inventory ( dI i Basic (t ) )

dt

will be increased and the inventory ) I i Basic (t ) ( will be decreased. So using the negative sign for

i and i in Eq. (2) is reasonable (for more information see Sankar Sana, S. (2010)).

(2)

I i Basic (C i ) 0 i 1, 2,..., m

dI i Basic (t )

i i I i Basic (t ) 0 t C i I i Basic (0) Qi Basic

dt

By Eq. (2):

By replacing the I i Basic (C i ) 0 in Eq. (3), order size of i-th retailer is obtained by Eq. (4) as

below:

Holding cost of i-th retailer in a replenishment cycle is obtained by Eq. (5) as below:

Ci

HC i Basic hi I i Basic t dt i 1, 2,..., m (5)

0

9

As mentioned in section 2, in this mode at retailer location replenishment cycle is smaller than

critical time, so there are no deterioration, deterioration cost and discount cost.

Total cost of i-th retailer per unit time is obtained by sum of fixed ordering cost and holding cost

at i-th retailer location by Eq. (6) as bellow:

TC i Basic 1 T i HC i Basic

Ci i 1, 2,..., m (6)

Total cost of vendor in Basic mode is formulated by Eq.(7) to (13). Yu, Y et al (2012) proposed

the change of inventory at vendor location equal to production rate and deterioration rate of

inventory. (For more information See subsection 4-2, Eq. (8) to (10) of their paper)

In some studies about perishable products, the critical time was considered for product (See

Sankar Sana, S. (2010)). Since our model in this paper is focused on discount at retailer location,

so we considered the perishable cost and discount cost at vendor location equal to zero.

Therefore the change of inventory at vendor location is equal to production rate.

i 1, 2,..., m

(7)

dI i Basic v (t )

P 0 t t i Basic v

dt

That t i Basic v is equal to production time at vendor location to i-th retailer; therefore subject to

I i Basic v (t i Basic ) Qi Basic and Qi Basic in equation (4):

i / i exp i C i 1 (10)

t i Basic i 1, 2,..., m

P

Production time for verifying the demand of all retailers is obtained by Eq. (11):

10

m i / i ex p i C i 1 (11)

t Basic

i 1 P

Holding cost at vendor location to i-th retailer in a replenishment cycle is obtained by Eq. (12):

ti Basic

HC i Basic v hiv I i Basic v t dt i 1, 2,..., m (12)

0

The perishable cost and discount cost at vendor location is equal to zero.

Total cost at vendor location per unit time is obtained by sum of fixed ordering cost of vendor

and the sum of holding cost of i-th retailer at vendor location by Eq. (13) as bellow:

TC Basic v 1 S HC i Basic v

m (13)

Ci i 1

Total cost of i-th retailer in Discount mode is formulated by Eq.(14) to (23). Demand of i-th

retailer before the critical time is the sum of fix section of demand and inventory level as

mentioned in section 3-1. After the critical time and start of deterioration, the demand is a

function of price indirectly. In fact, a manager stimulates demand by reduction of price. Another

word, the reduction of price through increasing discount will be caused increasing the demand.

Therefore demand is dependent on price indirectly (Sankar Sana, S. (2010)). Demand is

described by Eq. (14) as below:

i i I i Discount (t )

0 t ct i i 1, 2,..., m 0 i 1 i 0

Di Discount (t ) (14)

(ri ) ai bi ri c i ri

2

ct i t C i i 1, 2,..., m 0 ri 1

Change of inventory in each moment before the critical time is related to i and I i Discount (t ) as

mentioned in section 3-1. After the critical time by increasing deterioration rate ( i ) and

discount (that is a function of reduction price ( ri ), the inventory level is decreased through

Eq. (16). (See Sankar Sana, S. (2010)).

dt i I i Discount (t ) ri ct i t C i I i Discount (C i ) 0 i 1, 2,..., m

(16)

11

By using Eq. (15) and (16), I i Discount (t ) is obtained by Eq. (17) and (18) as below:

I i Discount (t ) (18)

ri ri exp C i i ex p t i / i ct i t C i i 1, 2,..., m

By using Eq. (17) and (18), order size of i-th retailer is obtained by Eq. (19) as below:

i (ct i )

ri i C i cti i (cti )

i (19)

Qi Discount 1 1 e i 1, 2,..., m

i e

i e

Holding cost of i-th retailer in a replenishment cycle is obtained by Eq. (20) as below:

Ci cti Ci

HC i Discount hi I i discount t dt hi I i Discount t dt I i Discount t dt i 1, 2,..., m (20)

0 cti

0

In this paper, the deterioration cost is equal to price of products that are deteriorated. (See Yu, Y

et al, (2012)) .Deterioration cost of i-th retailer in a replenishment cycle is obtained by Eq. (21)

as below:

Ci

PC i Discount pi i I i Discount t dt i 1, 2,..., m (21)

ct i

The Discount cost is considered as a difference of price between before of discount and after of

discount multiplied by demand that will be sold at discounted prices. Discount cost of i-th retailer

in a replenishment cycle is obtained by Eq. (22) as below:

Ci

DC i Discount RPi RPi 1 ri D i Discount t dt i 1, 2,..., m (22)

ct i

Total cost of i-th retailer per unit time is obtained by sum of fixed ordering cost at i-th retailer

location, holding cost, deterioration cost and discount cost of i-th location by Eq. (23) as bellow:

Ci

Total cost of vendor in Discount mode is formulated by Eq.(24) to (30). Change of Inventory at

vendor location is obtained by Eq. (24).

0 t t i Discount i 1, 2,..., m

dI i Discount v (t ) (24)

P

dt

12

At the beginning of production, inventory is zero at vendor location.

That t i Discount is equal to production time at vendor location to i-th retailer; therefore

I i Discount v (t i Discount ) Qi Discount and Qi Discount in Eq. (19):

i e 1 e 1 e (27)

i

t i Discount Q i Discount / P i 1, 2,..., m

P

Production time for verifying the demand of all retailers is obtained from (27):

i e i (ct i ) 1 ri e i C i ct i 1 e i (ct i )

i (28)

m m

t Discount t i Discount

i

i 1 i 1 P

Holding cost at vendor location for i-th retailer in a replenishment cycle is obtained by Eq. (29):

ti Discount

HC i Discount v hiv I i Discount v t dt i 1, 2,..., m (29)

0

Subject to what was said in section 3-1, deterioration and discount costs will not exist at the

vendor location.

Total cost at vendor location per unit time is obtained by sum of fixed ordering cost of vendor

and the sum of holding cost of i-th retailer at vendor location by Eq. (30) as bellow:

TC Discount v 1 S HC i Discount v

m (30)

Ci i 1

13

The sum of mathematical expectation of costs in Basic mode and Discount mode provides the

total cost of VMI system.

Fix ordering cost at i-th retailer location in the Basic mode per unit time ($ / time)

Z i 1 Ti / C i 0 ct i C i i 1, 2,..., m (31)

Holding cost at i-th retailer location in the Basic mode per unit time ($ / time)

Z i 2 1/ C i HC i Basic 0 ct i C i i 1, 2,..., m

(32)

Fix ordering cost at vendor location of i-th retailer in the Basic mode per unit time ($ / time)

Z i 3 S / C i 0 ct i C i i 1, 2,..., m (33)

Holding cost at vendor location of i-th retailer in the Basic mode per unit time ($ / time)

Z i 4 1/ C i HC i Basic v 0 ct i C i i 1, 2,..., m

(34)

Fix ordering cost at i-th retailer location in the discount mode per unit time ($ / time)

Z i 5 T i / C i 0 ct i C i i 1, 2,..., m (35)

Expected value of holding cost at i-th retailer location in the Discount mode per unit time ($ /

time)

C i

Z i 6 1/ Ci HC i Discount f ct i d ct i

0

0 ct i C i i 1, 2,..., m (36)

Expected value of deterioration cost at i-th retailer location in the Discount mode per unit time ($

/ time)

C i

Z i 7 1/ Ci PC i Discount f ct i d ct i 0 ct i C i i 1, 2,..., m (37)

0

Expected value of discount cost at i-th retailer location in the Discount mode per unit time ($ /

time)

14

C i

Z i 8 1/ Ci DC i Discount f ct i d ct i

0

0 ct i C i i 1, 2,..., m (38)

Fix ordering cost at vendor location of i-th retailer in the Discount mode per unit time ($ / time)

Z i 9 S / C i 0 ct i C i i 1, 2,..., m (39)

Expected value of holding cost at vendor location of i-th retailer in the Discount mode per unit

time ($ / time)

Ci

Z i 10 1/ Ci HC i Discount v f ct i d ct i 0 ct i C i i 1, 2,..., m (40)

0

Z TCVMI : Expected value of total cost of VMI supply chain (sum of Basic and Discount

modes) per unit time ($ / time)

MinZ TCVMI

(41)

m m

Z

i 1

i1 Z i 2 Z i 3 Z i 4 Z i 5 Z i 6 Z i 7 Z i 8 Z i 9 Z i 10

i 1

(42)

S.t :

0 C i 10 i 1, 2,..., m

The objective function is demonstrated by sum of costs in the Basic mode and Discount mode. In

other words, any retailer can sell the product with or without discount based on the uncertainty of

demand and keeping condition.

The proposed model is a complex nonlinear problem which cannot be solved in a reasonable

time. In addition, decision variables are placed as non-linear form in objective function. In such

condition, meta-heuristic algorithms will be more efficient than exact methods and will be

converged to near-optimal solution in a reasonable time (Deep, K. Das, K. 2013).

Since the model was a NP-hard problem, a Genetic algorithm (GA) and a Particle Swarm

Optimization (PSO) algorithm were developed for solving it appropriately and results were

presented that PSO algorithm has better performance for solving of proposed model in this

paper.

Various examples were generated. Parameters tuning was performed for both algorithms. At

first, the model was solved by GA algorithm and then PSO algorithm was used to evaluate the

quality of GA algorithm solutions. The solutions of GA and PSO algorithms were compared with

15

each other by CPU time, Objective Function and RPD (%) criteria and the results showed that

PSO algorithm has better performance.

GA is an evolutionary algorithm which provides near optimal solution for optimization problem

after being inspired by the concepts of mutation, inheritance and search for answers in feasible

area. In the first step of GA, a set of feasible solutions are randomly generated which is called

initial population. Every member of the population is called a chromosome and the chromosome

represents a feasible solution of problem. A set of chromosomes that are produced in one

iteration of the algorithm is called a generation. In every generation, eligible chromosomes

(parents) are selected for the production of the next generation according to the fitness value

((Aryanezhad, M. B. et al 2012), (Pasandideh & Niaki, 2008), (Michalewicz 1996), (Goldberg

1989), (Chang, Y.H. 2010), (Al-Tabtabai & Alex, 1999),(Shahsavar, Niaki, & Najafi, 2010)).

PSO is a population-based algorithm inspired by collective behavior of birds or fish. PSO

searches the feasible solutions and tries to find a near-optimal solution to the optimization

problem. In the first step of PSO, a set of feasible solutions is generated randomly and is called

initial population. Every member of the population is called a particle which represents a feasible

solution for the problem. A set of particles that are produced in every step of the algorithm is

called a swarm. PSO uses a vector procedure to find the solution. The particles are moved based

on linear combination of the global best solution vector and the local best solution vector that is

called velocity vector. These combinations are generated randomly. In PSO, primary particles

are generated randomly. Then the global best solution is determined by evaluating the fitness of

them. According to the global best solution, speed of particles movement will be determined to

generate the new swarm. After a series of movements in the particles, fitness of their current

position will be evaluated. And algorithm is repeated if it does not satisfy stopping criteria ((Sue-

Ann,G. et al 2012), (Haupt RL, Haupt SE.2004)).

Chromosomes

In this research, the chromosome is shown in the form of a matrix with 1 m size. Where m is

the number of retailers and every element of the chromosome represents the replenishment cycle

related to the retailer (decision variables). Fig.3 shows an example of a chromosome in a

problem by 4 retailers. For example, in Fig.3, the number of first element is equal to 2.724. It

shows replenishment cycle of first retailer. Replenishment cycle to each retailer limits by lower

bound of zero and upper bound of ten. It produces as random real string.

Evaluation

When GA is used for optimization of problem, a fitness value must be allocated to the produced

chromosome (solution). In this research, fitness value is the same as objective function value

because the problem does not have any restriction except the logical restriction which determines

the upper bound of the decision variables. The logical restriction is considered at the time of

producing the chromosomes. So, the fitness value is evaluated after each chromosome that is

produced.

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Initial population

In this step, a set of chromosomes is randomly generated in the authorized bound of decision

variables. Their objective function is evaluated and then, they are sorted based on it.

Crossover:

Two chromosomes (parents) must be selected for crossover process. In this research, the

program asks the user to use one of the roulette wheel, tournament, and random methods. In

crossover, one of the single-point, double-point, or uniform methods may be selected by using

the roulette wheel. According to the selected method, offspring are produced by exchanging

some genes and their fitness value will be evaluated for the next generation. Fig. 4 shows

example of the crossover with uniform methods.

Fig 4: an example of uniform crossover in a problem by 4 retailer

Mutation

The utilization of mutation operator helps to search the neighbor solutions of present solution

and prevent the creation of local optimal solution. In the mutation process, a certain number of

the genes of a chromosome are selected and the mutation operator is performed on them

according to the type of decision variables. After mutation, the fitness value of chromosomes

will be evaluated. Fig.5 shows an example of mutation operator.

Fig 5: an example of mutation in a problem by 4 retailer

Iteration of generations

After mutation and fitness evaluation of created chromosomes, the population are merged and

sorted based on the fitness value. Then, some members of population are selected for the next

generation according to number of the initial population. In addition, the best present iteration

solution and the objective function value are determined.

Stopping criteria

In each iteration, the stopping criterion will be checked and if satisfied, the algorithm stops.

Algorithm stop means that the user has been consented to the convergence of the algorithm. In

other words, the user has been satisfied with the best solution founded up to now. In this

research, stopping criteria is an upper bound of iteration and is an input parameter, so before

stopping the algorithm, generation, crossover and mutation are repeated.

In this research, the particle is shown in the form of a matrix with 1 m size. Where m is the

number of retailers and every element of the particle represents the replenishment cycle related

to the retailer. Fig.6 shows an example of a particle in a problem by 4 retailers. For example, in

Fig.6, the number of first element is equal to 3.801. It shows replenishment cycle of first retailer.

Replenishment cycle to each retailer limits by lower bound of zero and upper bound of ten. It

produces as random real string.

17

Fig 6: an example particle in a problem by 4 retailer

By evaluating the fitness of each solution (objective function of each solution in this study), the

local best solution and the global best solution are updated. Then, the particle velocity is updated

that it is shown in equation (43).

Vk (gen +1) = C1 l1 (x lb

k

- x k (gen)) + C2 l2 (x gb

k

- x k (gen)) + W Vk (gen) (43)

c1, c 2 0 : Acceleration coefficients that control the improvement of particles position

l1 , l 2 : Uniform random numbers that were used in uniform function in the (0,1) interval.

k

x lb : Vector of the local best position for k-th particle

x k (gen) : Position vector of k-th particle in gen-th iteration

k : Vector of the general best position for k -th

x gb particle

w :Coefficient of inertia 0 w 1

The inertia coefficient is used to balance the local and the global solutions. By considering a

large inertia coefficient, an algorithm is converged to global search, whereas by considering a

small inertia coefficient, the algorithm obtains a local search (Shi and Eberhart 1998a,b).

The position of the particle, the local and the global best positions and velocity vector are

updated in every iteration and algorithm is repeated if it does not satisfy the stopping criterion.

The best solution is stored in each iteration. In this research, stopping criteria is an upper bound

of iteration that is an input parameter.

Since the Meta-heuristic parameters impress the quality of solution, it seems reasonable to use

Parameter tuning methods including the Taguchi method . In quality control, running of

algorithms is called process. Model and fitness function are input and process is output. The

values of the input parameters can be tuned by using the experimental design (Sadeghi, J. et al

2014).

Considering different factors with different levels is called factorial experiment of design. In

order to reduce the number of experiments, Taguchi developed the fractional factorial

experiment (FFEs) Roy, R (1990), Cochran W.G. and Cox, G.M. (1992). Taguchi divided the

effective factors of experiment into two parts: controllable, S (signal) and uncontrollable, N

(noise). Using the orthogonal arrays, Taguchi studied a large number of factors (decision

18

variables) with a small number of experiments (Mousavi, S.M et al 2013). In other words,

maximizing the rate of S / N in the design of experiments is his purpose (Sadeghi, J. et al 2014).

In this research, the cost function is utilized as a response variable with a less -better preference.

The rate of S / N should be greater- better and its formula will be calculated in Eq. (44) (Phadke,

M.S. 1989):

n (44)

S 10log 1 y i2

N n i 1

y i : Response variable

n : Number of iteration

Taguchi method is used in this research because it is a cost-effective and labor-saving method

(Mousavi, S.M et al 2013). Finally, it is recommended to study Taguchi et al. (2005) in order to

get familiar with more details of Taguchi method.

Since the present study uses two meta-heuristic algorithms including GA and PSO to solve the

problem, two sets of parameters are needed to calibrate. The parameters in need of calibration

and their levels are shown in Table 4 and 5. Based on the number of factors and their levels,

Minitab software proposed 27 experiments for GA and 16 experiments for PSO algorithm. To

obtain reliable results, each experiment is run 5 times and their average are used to calibrate

parameters. Fig. 7 and 8 show S / N ratio of GA and PSO algorithm respectively.

Factor of parameter

Max It 100 200 300 200

N Pop 150 75 50 75

Pc 0.3 0.5 0.7 0.7

Pm 0.1 0.2 0.3 0.3

mu 0.1 0.15 0.2 0.1

Parent selection Random selection Roulette wheel Tournament Random

method (A) selection selection selection

Probability selection 0.05 0.15 0.25 0.15

of single point

crossover (B)

Probability selection 0.05 0.15 0.25 0.25

of double point

crossover (C)

Factor parameter

Max It 100 200 300 375 375

19

N Pop 150 75 50 40 40

Phi 1= Constriction Coefficient 2 2.05 2.1 2.15 2.15

Phi 2 = Constriction Coefficient 2 2.05 2.1 2.15 2.15

Fig 7: The mean S/N ratio plot for each level of the factors for GA

Fig 8: The mean S/N ratio plot for each level of the factors for PSO algorithm

Analysis

Since the model was a NP-hard problem, a Genetic algorithm (GA) and a Particle Swarm

Optimization (PSO) algorithm were developed for solving it appropriately. The results were

presented that PSO algorithm has better performance for solving of the proposed model in this

paper.

8 examples of different sizes including 4, 5, 10, 12, 20, 25, 30 and 35 retailers were generated.

Parameters tuning was performed for both algorithms. At first, the model was solved by GA

algorithm and then PSO algorithm was used to evaluate the quality of GA algorithm solutions.

The solutions of GA and PSO algorithms were compared with each other by CPU time,

Objective Function and RPD (%) criteria and the results showed that PSO algorithm had better

performance.

RPD (Relative Percentage Deviation) is one of the criteria to compare the efficacy of meta-

heuristic algorithms. In fact RPD shows deviation of algorithm solutions in different iterations

against the best solution that obtained from algorithm iterations (See Naderi et al 2009).

The RPD is calculated by Eq.(45).

RPD 100

Minsol

A lgsol is an objective function value that the algorithm obtains for each of the problems and

Minsol is the best solution for every problem. According to equation (45), it is clear that the less

RPD is better. In other words, the smaller amounts of RPD shows that the algorithm is more

efficient approximately. Table (6) shows RPD of PSO is smaller than RPD of GA in all

examples. Considering the RPD criteria, one can conclude that PSO algorithm is more efficient

than GA to solve the presented problem.

Each example is run 10 times by GA and PSO algorithms and the average of CPU time,

Objective Function and RPD (%) is shown in Table 6. Fig. 9, 10, and 11. Amount of CPU time

and Objective Function and RPD (%) are compared in different examples respectively. Table 6

shows CPU time of PSO is smaller than CPU time of GA in all examples and Objective Function

of PSO is smaller than Objective Function of GA in all examples expect the 20 retailer example

and RPD of PSO is smaller than RPD of GA in all examples. Therefore PSO algorithm offers a

better solution and converges to optimal solution earlier than GA algorithm in all examples

expect the 20 retailer example. In general, one can state that PSO is a better algorithm for solving

the proposed model of VMI perishable supply chain.

20

Table 6: Results of comparison algorithms

problem of retailer CPU time (S) RPD (%) ($/time(s)) CPU time RPD

($/time(s)) (S) (%)

small 4 5816.8661 111.3496 0.0001 5988.5471 218.6072 0.2374

5 6279.1048 214.2798 0.0000 6797.1247 236.8029 0.0020

medium 10 13096.1703 209.3444 0.0020 14308.2062 225.8329 0.0411

12 16141.4493 217.6922 0.0001 17628.1238 293.9971 0.5238

large 20 28245.2116 342.1873 0.6209 26956.1473 391.8357 0.8129

25 31813.4152 126.1809 0.0000 32934.5104 276.0179 0.0076

30 39014.2536 261.7495 0.0232 40138.9137 310.2514 0.5014

35 47151.9281 252.6588 0.0415 48397.2659 316.3622 0.2066

It should be noted that all calculations were done on a personal computer with Intel (R) Core

(TM) i7- 2670QM CPU @ 2.20GHz, 8.00 GB RAM memory and MATLAM R2014a and

Minitab 17 software.

The results of the analysis in this research show that PSO algorithm is more efficient than GA.

So sensitivity analysis of i , ri , i and i input parameters on the replenishment cycle of

retailers and total cost of VMI supply chain are investigated by PSO algorithm. It should be

noted that sensitivity analysis is performed on the first retailer in a problem by 35 retailers. To

find the sensitivity analysis of 1 parameter, the model is run 10 times for each example and the

average of results is shown in Fig. 12 and 13. By increasing 1 parameter, C 1 will be decreased

and TCVMI ($/time(s)) will be had an increasing trend. In other words, by increasing 1 from

0.28125 to 0.78125, the amount of TCVMI ($/time(s)) will be increased from 47556.1724 to

47799.3237 and the amount of C 1 will be decreased from 5.7351 to 4.9967.

Fig 13: The trend of TCVMI ($/time(s)) versus the change of 1 in a problem by 35 retailers

To find the sensitivity analysis of r1 parameter, the model is run 10 times for each example and

the average of results are shown in Fig. 14 and 15. By increasing r1 parameter, C 1 will be

decreased and TCVMI ($/time(s)) will be increased. In other words, by increasing r1 from 0.2000 to

21

0.9000, the amount of TCVMI ($/time(s)) will be increased from 47341.6882 to 47892.5671 and

the amount of C 1 will be decreased from 7.0627 to 6.1051.

Fig 15: The trend of TCVMI ($/time(s)) versus the change of r1 in a problem by 35 retailers

To find the sensitivity analysis of 1 parameter, model is run 10 times for each example and the

average of results is shown in Fig. 16 and 17. By increasing 1 parameter, C 1 will be decreased

and TCVMI ($/time(s)) will increase. In other words, by increasing 1 from 0.2000 to 0.9000, the

amount of TCVMI ($/time(s)) will be increased from 48226.5993 to 49109.6995 and the amount of

C 1 will be decreased from 8.0586 to 3.9014.

Fig 17: The trend of TCVMI ($/time(s)) versus the change of 1 in a problem by 35 retailers

To find the sensitivity analysis of 1 parameter, the model is run 10 times for each example and

the average of results is shown in Fig. 18 and 19. By increasing 1 parameter, C 1 will be

decreased and TCVMI ($/time(s)) will be increased. In other words, by increasing 1 from 0.0500

to 0.1000, the amount of TCVMI ($/time(s)) will be increased from 48339.4813 to 48399.3476 and

the amount of C 1 will be decreased from 7.0740 to 6.8326.

Fig 19: The trend of TCVMI ($/time(s)) versus the change of 1 in a problem by 35 retailers

Four under investigation parameters ( i , ri , i and i ) for the first retailer in a problem by 35

retailers, are decreased ten percent and are increased ten percent for drawing tornado diagram.

The total costs of VMI supply chain and replenishment cycle are investigated by PSO algorithm

because the results were shown that PSO is a better algorithm for solving the proposed model.

To find the impact of the decreasing and increasing of the parameters, the model is run 10 times

for each example and the average of results is shown in Table. 7 and Table. 8. Also tornado

diagrams are shown in Fig. 20 and Fig. 21 for Total cost of VMI supply chain and replenishment

cycle respectively.

22

Table 7: amount of parameters and objective functions to drawing the tornado diagram of TCVMI

The amount of parameter TCVMI ($/time(s))

Reduction The base Increment Average of Average of Average of

of ten amount of of ten objective objective objective

percent parameter percent function of function of function of

reduced based parameter Increased

parameter parameter

1 0.1980 0.2200 0.2420 48350.2559 48350.2559 48382.4249

Table 8: amount of parameters and replenishment cycles to drawing the tornado diagram of

replenishment cycle

The amount of parameter replenishment cycle (day)

Reduction The base Increment Average of Average of Average of

of ten amount of of ten replenishment replenishment replenishment

percent parameter percent cycle of reduced cycle of based cycle of

parameter parameter Increased

parameter

1 0.1980 0.2200 0.2420 7.0286 7.0286 6.9464

Table. 7 and 8, fig. 20 and 21 show that 1 (Rate of change in demand due to inventory levels

for i-th retailer) parameter has the greatest impact on the objective function and the

replenishment cycle. This means that when the parameters are increased by a special percentage,

the variation of 1 parameter creates a greater increase in objective function and a greater

decrease in replenishment cycle. Also tornado diagrams show that after 1 parameter the model

is sensitive to 1 . In other words, by increasing the deterioration rate, the total cost of system

increases and replenishment cycle decreases significantly.

The results of the sensitivity analysis and the tornado diagrams show that the total costs of the

system and replenishment cycle are more sensitive to the changes of 1 (Rate of change in

demand due to inventory levels for i-th retailer) parameter than other parameters under

investigation. These results will have a significant impact on the decisions of the experts of

perishable supply chain.

23

6- Conclusion And Future Research

VMI as a strategy for an agile supply chain can reduce the time of response to customers

demand through coordination among supply chain members. Also VMI can improve the supply

chain performance by reducing inventory levels and increasing the replenishment rates. In this

paper VMI strategy is used for managing the inventory of perishable product at two-level supply

chain with single vendor and multiple retailers. The problem is formulated as a nonlinear

programming model. The objective function of proposed model is minimizing the total cost of

the system. Replenishment cycles and order size for retailers and also production time needed to

supply inventory of each retailer can be determined through the proposed model.

Since the model was a NP-hard problem, a Genetic algorithm (GA) and a Particle Swarm

Optimization (PSO) algorithm were developed for solving it appropriately and the results were

presented that PSO algorithm had better performance for solving of proposed model in this

paper.

Various examples were generated. Parameters tuning was performed for both algorithms. At

first, the model was solved by GA algorithm and then PSO algorithm was used to evaluate the

quality of GA algorithm solutions. The solutions of GA and PSO algorithms were compared with

each other by CPU time, Objective Function and RPD (%) criteria and the results showed that

PSO algorithm had better performance.

Sensitivity analysis and tornado diagrams showed that by increasing the a) deterioration rate, b)

discount, c) dependence of demand and inventory to each other and d) deterioration parameter in

probability distribution function of critical time, parameters, total cost of system will be

increased and replenishment cycle will be decrease. Also the model was more sensitive to the

changes of dependence of demand and inventory to each other parameter. Finally, future

research in this area can be done as follows:

Comparing the Taguchi method with other tuning methods such as response surface

methodology (RSM).

Considering the budget and warehouse space constraints.

Considering the discount as a random variable.

Considering other probability distribution function for critical time.

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26

Highlights

The discount is considering in VMI model.

The perishable product is considering in VMI model.

27