Reinforcement Learning Approach for Efficient Inventory Policy in Multi-Echelon Supply Chain Under Various Assumptions and Constraints

Abstract

Background: Inventory policy highly influences Supply Chain Management (SCM) process. Evidence suggests that almost half of SCM costs are set off by stock-related expenses.Objective: This paper aims to minimise total inventory cost in SCM by applying a multi-agent-based machine learning called Reinforcement Learning (RL).Methods: The ability of RL in finding a hidden pattern of inventory policy is run under various constraints which have not been addressed together or simultaneously in previous research. These include capacitated manufacturer and warehouse, limitation of order to suppliers, stochastic demand, lead time uncertainty and multi-sourcing supply. RL was run through Q-Learning with four experiments and 1,000 iterations to examine its result consistency. Then, RL was contrasted to the previous mathematical method to check its efficiency in reducing inventory costs.Results: After 1,000 trial-error simulations, the most striking finding is that RL can perform more efficiently than the mathematical approach by placing optimum order quantities at the right time. In addition, this result was achieved under complex constraints and assumptions which have not been simultaneously simulated in previous studies.Conclusion: Results confirm that the RL approach will be invaluable when implemented to comparable supply network environments expressed in this project. Since RL still leads to higher shortages in this research, combining RL with other machine learning algorithms is suggested to have more robust end-to-end SCM analysis. Keywords: Inventory Policy, Multi-Echelon, Reinforcement Learning, Supply Chain Management, Q-Learning