Integrated inventory and transportation management with stochastic demands: A scenario-based economic model predictive control approach

Abstract

The integration of inventory and transportation operations is a challenging task in multi-echelon supply chain management. Uncertainties in customer demands can have serious consequences, such as inventory fluctuations and transportation changes. Policies of integrated inventory and transportation management aim to find a balance between supply and demand and can minimize the total operating cost for the entire supply chain. In this study, we propose a scenario-based economic model predictive control (EMPC) framework for integrated inventory and transportation management of multi-echelon supply chains with stochastic demands. The proposed scenario-based EMPC framework can provide real-time optimal operations for automated inventory and transportation management with a minimum operating cost and a guaranteed risk probability. As the number of scenarios is linked with the risk probability, we develop a design condition to choose the number of scenarios and ensure that optimal operations from the proposed framework can guarantee the desired risk probability. Finally, we present a case study of a three-echelon supply chain benchmark to demonstrate the effectiveness of the proposed EMPC framework and provide several comparison results to show its performance.