Intelligent decision support tool for optimizing stochastic inventory systems under uncertainty

Abstract

Pricing and production policies play a key role in ensuring the added value of supply chain systems. For perishable inventory management, the pricing and production lines must be manipulated dynamically since several uncertainties are involved in the system’s behavior. This study discusses the impact of dynamic pricing and production policies on an uncertain stochastic inventory system with perishable products. The mathematical model of the inventory management system under external disturbance is formulated using a continuous differential equation in which the price and production rates are considered as control factors to optimize total profits, which is described as an objective function. An analytical solution for the optimal pricing and production rate was obtained using the Hamilton-Jacobi-Bellman equation. The unknown disturbance was approximated using an intelligent approach called radial basis function neural network. Finally, extensive numerical simulations were presented to validate the theoretical results and optimization solutions (including the efficiency of the approximation of the unknown disturbance) for the dynamic pricing and production management strategy of an uncertain stochastic inventory system against volatile markets. The performance of the proposed method was analyzed under different stock level conditions, which highlighted the importance of keeping the inventory levels at an optimal range to ensure the profitability of business operations. This management strategy can assist a business with solutions for inventory policies while supporting decision-making processes to facilitate coping with production management disruptions.