An inventory-routing problem with stochastic demand and stock-out: a solution and risk analysis using simheuristics

Abstract

Supply chain operations have become more complex. Hence, in order to optimise supply chain operations, we often need to simplify the optimisation problem in such a way that it can be solved efficiently using either exact methods or metaheuristics. One common simplification is to assume all model inputs are deterministic. However, for some management decisions, considering the uncertainty in model inputs (e.g., demands, travel times, processing times) is essential. Otherwise, the results may be misleading and might lead to an incorrect decision. This paper considers an example of a complex supply chain operation that can be viewed as an Inventory-Routing Problem with stochastic demands. We demonstrate how a simheuristic framework can be employed to solve the problem. Further, we illustrate the risks of not considering input uncertainty. The results show that simheuristics can produce a good result, and ignoring the uncertainty in the model input may lead to sub-optimal results.