Performance of deep reinforcement learning algorithms in two-echelon inventory control systems

Abstract

This study conducts a comprehensive analysis of deep reinforcement learning (DRL) algorithms applied to supply chain inventory management (SCIM), which consists of a sequential decision-making problem focussed on determining the optimal quantity of products to produce and ship across multiple capacitated local warehouses over a specific time horizon. In detail, we formulate the problem as a Markov decision process for a divergent two-echelon inventory control system characterised by stochastic and seasonal demand, also presenting a balanced allocation rule designed to prevent backorders in the first echelon. Through numerical experiments, we evaluate the performance of state-of-the-art DRL algorithms and static inventory policies in terms of both cost minimisation and training time while varying the number of local warehouses and product types and the length of replenishment lead times. Our results reveal that the Proximal Policy Optimization algorithm consistently outperforms other algorithms across all experiments, proving to be a robust method for tackling the SCIM problem. Furthermore, the (s, Q)-policy stands as a solid alternative, offering a compromise in performance and computational efficiency. Lastly, this study presents an open-source software library that provides a customisable simulation environment for addressing the SCIM problem, utilising a wide range of DRL algorithms and static inventory policies.