Determination of base-stock levels in a serial supply chain: a simulation-based simulated annealing heuristic

Abstract

This paper presents simulation-based heuristic methodologies to compute installation base-stock levels in a serial supply chain so as to minimise the total supply chain cost. A simulated annealing heuristic is proposed to compute the installation base-stock levels for different installations in a serial supply chain. In addition, a simple heuristic to determine the installation base-stock levels is also presented. Simulation is used to evaluate the installation base-stock levels yielded by the proposed simulated annealing heuristic and the simple heuristic. A best-move local search is also used as a benchmark procedure. The solution constructed by the simple heuristic is initialised as the seed solution to both simulated annealing heuristic and the best-move local search, and their performances are studied. All the solution methodologies are extensively evaluated with different supply chain test problems. The solutions yielded by the proposed solution methodologies is compared against the optimal installation base-stock level which is obtained through a complete enumeration of the solution space for each of the supply chain test problems. A comparison of the performance of all the solution methodologies shows that the proposed simulated annealing heuristic initialised with the heuristic solution as the initial seed solution performs the best by consistently producing good-quality solutions with little computational effort.