Optimal Dual-objective Inventory Strategies for a Two-echelon Capacitated Supply Chain

Abstract

We consider a two-echelon capacitated supply chain consisting of one distributor and multiple retailers, and explore the optimal inventory strategies for each firm. The distributor periodically checks her inventory level and each retailer continuously checks his inventory level. We construct a dual-objective programming model to minimize the inventory costs and the inventory turnover time of the supply chain, and employ a genetic algorithm to solve the model. Subsequently, we numerically analyze the optimal inventory strategies for one distributor and three retailers, and examine the impact of limited inventory capacity on the inventory costs and the inventory turnover time. We show that the limited inventory capacity has a similar impact on the inventory costs and the inventory turnover time. Moreover, we find that the inventory costs and the inventory turnover time of the supply chain are a pair of contradictory optimization goals. Specifically, if the inventory turnover time decreases, the inventory costs will increase, which coincides with the law of antinomies. Firm managers should pay attention to inventory capacity and turnover time when they optimize inventory costs.