A parameter-tuned genetic algorithm to optimize two-echelon continuous

review inventory systems

Seyed Hamid Reza Pasandideh, Assistant Professor

Department of Industrial Engineering, Qazvin Islamic Azad University, Nokhbegan Ave., Qazvin, Iran
Phone: +98 281 3665275, Fax: +98 281 3665277, E-mail: SHR_pasandideh@sbu.ac.ir

Seyed Taghi Akhavan Niaki, Professor

Department of Industrial Engineering, Sharif University of Technology
Phone: +98 21 66165740, Fax: +98 21 66022702, E-mail: niaki@sharif.edu

Nafiseh Tokhmehchi, M.Sc. Student

Department of Industrial Engineering, Qazvin Islamic Azad University, Nokhbegan Ave., Qazvin, Iran
Phone: +98 281 3665275, Fax: +98 281 3665277, E-mail: nafiset@ymail.com

Abstract

This paper deals with a two-echelon inventory system for a non-repairable item where the system

consists of one warehouse and m identical retailers and uses continuous-review (R,Q) ordering

policy. To find an effective stocking policy for this system, a mathematical model with the objective

of minimizing the total annual inventory investment subject to constraints on the average annual order

frequency, expected number of backorders, and budget is formulated. The mathematical model of the

problem at hand is shown to be nonlinear integer-programming and hence a parameter-tuned genetic

algorithm is proposed to solve it efficiently. A numerical example is provided at the end to illustrate

the applicability of the proposed methodology.

Key words: Multi-echelon inventory; Continuous review policy; Nonlinear-integer programming;

Meta-heuristic algorithms; Genetic algorithm

1
 
1. Introduction

Successful inventory management is recognized as a crucial activity to increase operational

efficiency across competitive business, to improve customer service, and to reduce inventory costs at

different locations of a supply network. One of the most important aspects of inventory management

that has vital role in supply chain operations is the distribution of goods in multi-echelon inventory

systems.

The multi-echelon inventory systems are becoming more prevalent and have begun to draw

more attentions from both practitioners and academicians in many industries and communication

networks. For instance, the military's usage of multi-echelon knowledge achievements is quite well

known and air force used a model for a multi-item, multi-echelon, multi-indenture inventory system

as a method to compute recoverable spare stock level for the F-15 weapon system (Muckstadt 1973).

Multi-echelon spare parts inventory systems have been discussed broadly in the literature.

METRIC, one of the earliest models in this topic is a multi-echelon technique for recoverable item

presented by Sherbrook (1968). The objective of this mathematical based-depot supply system model

is minimizing expected backorders subject to budget constraints with compound Poisson demand. He

also approximated outstanding orders at the retailers. According to this study, the appropriate policy

for high-cost, low-demand items is (s – 1, s).

Deuermeyer and Schwarz (1981) developed a model based on an exact, single facility (R,Q)

model of Hadley and Whitin (1963) to analyze service level in a system consisting of one warehouse

and a number of identical retailers. Svoronos and Zipkin (1988) proposed several refinements of this

model in a multi-echelon inventory system. They approximated each facility as a single location and

calculated the mean and variance of the warehouse and retailer lead-time demand. Graves (1985)

presented a multi-echelon inventory model with the failures generated by the compound Poisson

process and deterministic shipment time from the repair depot to each site for a repairable item with

one-for-one replenishment. He also presented an approximation for the steady-state distribution of net

inventory level with ample serves at the repair depot and determined the average and the variance of

outstanding orders at the retailers.

2
 
 Axsäter (1990) presented a simple solution procedure for a two-echelon inventory system

with one-for-one replenishment, constant lead-time, and independent Poisson demand at retailers. He

used an inventory cost function and focused directly on evaluating the average costs. Furthermore,

Axsäter and Zhang (1996) considered a two-echelon inventory system with one warehouse and a

number of identical retailers with constant transportation time and compound Poisson demand at

retailers. They provided a simple recursive procedure for the evaluation of holding and shortage costs

at different control policies. DeBodt and Graves (1985) presented an approximate model to minimize

the expected costs including a fixed ordering cost, an echelon inventory holding cost for each level,

and a back order cost for end item in the multi-echelon inventory system controlled by continuous

review policy. Svoronos and Zipkin (1991) described a simple technique to approximate steady state

behavior in a multi-echelon with one-for-one replenishment and stochastic transit times of the parts

between locations.  

Hope et al. (1997) formulated a constrained optimization model in a single location controlled

by (R,Q) policy and developed three heuristic to solve it. The objective of this model was minimizing

total inventory investment subject to constraints on order frequency and customer service. Axsäter

(2000) presented a method for exact evaluation of control policies that provide the complete

probability distributions of the retailer inventory levels in a two-echelon inventory system consisting

of one central warehouse and N retailers. This system is controlled by different continuous review

(R,Q) policies with constant transportation times and independent compound Poisson demand

processes at retailers.

Seo et al. (2001) developed an optimal reorder policy to utilize centralized stock information

for a two-echelon inventory system consisting of one warehouse and multiple retailers controlled by

continuous review batch ordering policy. Axsäter (2001) evaluated a technique where a high-demand

system is approximated by a low-demand system in a two-echelon inventory system with stochastic

demand. Marklund (2002) investigated a two level distribution system consisting of one warehouse

and a number of non-identical retailers. In order to control the replenishment process at the

warehouse, he introduced a new policy by centralized information in which retailers implement

continuous review (R,Q) control policies. He also presented a method for exact evaluation of the

3
 
expected inventory holding and backorder costs for the system. Axsäter (2003) considered a two-

echelon distribution inventory system consists of a central warehouse and a number of retailers

controlled by continuous review installation stock (R,Q) policies. He presented a simple method that

uses normal approximations for the retailer demand and the demand at the warehouse in order to

approximate optimization of the reorder points.

Kiesmüller et al. (2004) developed analytical approximations based on asymptotic result from

renewal theory for performance characteristics of a divergent multi-echelon network controlled by

continuous review (s,nQ) installation stock policies under compound renewal demand. Caglar et al.

(2004) investigated a two-echelon, multi-item spare parts inventory system and presented a

mathematical model with the objective of minimizing the system-wide inventory cost subject to

constraint on response time at each field depot. They also used a heuristic algorithm to solve it

efficiently.

Axsäter (2005) determined warehouse backorder cost and provided a newly decentralized

way with optimizing sum of expected holding and backorder costs to warehouse and retailers

regarding their reorder point in a two-echelon distribution system with installation stock (R,Q)

inventory control policy. Seifbarghi and Jokar (2006) developed an approximate cost function to find

optimal reorder points of given batch sizes in a two-echelon inventory system consisting of a

warehouse and many identical retailers with lost sales and independent Poisson demands controlled

by continuous-review policy. Jokar and Zangeneh (2006) developed a model in a two-echelon

inventory system consisting of one warehouse, several retailers, and two items with lost sale and

demand substitution. They also presented a heuristic algorithm to find cost effective based stock

policies. Al-Rifai and Rossetti (2007) investigated a two-echelon inventory system consisting of a

central warehouse and a number of identical retailers controlled by (R,Q) inventory policy for non-

repairable items. The objective function of their model is minimizing the total annual inventory

investment subject to constraint on average annual order frequency and expected number of

backorder. They solved the model by decomposing the system by echelon and location. They also

derived expressions for the inventory policy parameters and developed an iterative heuristic

4
 
optimization algorithm. Haji et al. (2008) considered a two-echelon inventory system consisting of

one warehouse and a number of non-identical retailers with Poisson demand in which warehouse is

facing a uniform and deterministic demand ordered by each retailer and introduced a new ordering

policy for inventory control.

In this paper, an inventory system is considered in which there is a network of inventory

holding facilities organized into two levels. More specifically, the problem that is considered consists

of a two-echelon non-repairable item inventory system of one warehouse and m identical retailers.

We consider the reorder policy for a continuous-review distribution system, utilizing the total

inventory investment in both echelons subject to constraints on the average annual order frequency

and expected number of backorder. The dominant model of this system in practical applications is

based on the assumptions of unlimited warehouse and retailers' budget. These assumptions can lead to

a serious underestimating of the spare parts requirements. To deal with this dilemma, warehouse and

retailers' budget constraints are also considered. Considering a new objective function and several

constraints makes the model more applicable to real-world inventory control systems. In addition, the

solution method that is based on a parameter-tuned meta-heuristic algorithm seems more compact and

simpler than the ones provided in earlier studies.

The remainder of the paper is organized as follows. In section 2, the problem is defined

precisely. Section 3 is dedicated to the mathematical formulation of the problem. Comprehensive

explanation of the methodology proposed to solve the model is discussed in section 4. In section 5,

parameter adjustment and numerical example are given. Finally, conclusions are provided and future

research directions are proposed in section 6.

2. Problem definition

Consider a two-echelon inventory system of non-repairable items consisting of a warehouse

and m identical retailers in which all installations use continuous review (R,Q) policy to replenish

their inventories. The system is assumed to work in the following manner:

At the beginning of a period, an outside supplier with unlimited capacity delivers the bulk of

inventory directly to the warehouse. The warehouse allocates the stock to the retailers. The demand

5
 
at a retailer level is either satisfied or backordered. Backorders, both at the warehouse and retailer

levels, are filled according to the first in first out (FIFO) policy. At both echelon, (R,Q) ordering

policy continuously monitors the inventory position (minus backorders plus on hand and on order

inventory) for each item. It means that as soon as the stock level declines to the reorder point R , an

order of batch size Q is placed. Note that the real lead-time at the retailer level consists of two

components: retard and delay times. Retard time is the time between placement of an order by a

retailer and the release of a batch by the warehouse (Svoronos and Zipkin, 1988). Delay time is due

to the ordering and transportation times. As a result, the effective lead-time at the retailer level is the

sum of the waiting time due to a lack of stock in the warehouse (retard) and the transportation and

ordering times (delay) .In this paper, we assume that the retard time at the retailer level is zero. In

other words, the real lead-time at the retailer level is equal to retailer's delay. Figure (1) provides a

pictorial representation of the system under study.

Central
Supplier
warehouse

Retailers

Figure (1): The two-echelon inventory control system

In order to define the problem precisely, a set of critical assumptions are required as follows.

a. The demand process at each retailer is a Poisson process with an annual rate Dri .

b. Warehouse and retailer's backorders are allowed.

c. The supplier has unlimited capacity with a constant lead-time.

d. Average annual ordering frequency at the warehouse and retailers are limited.

6
 
 e. Expected number of backorder at the warehouse and retailers are limited.

f. The warehouse budget for all items is limited.

g. The retailers' budget for all items is limited.

3. Problem formulation

The problem at hand is formulated with the objective of minimizing the total annual inventory

investment subject to constraint on average annual order frequency, expected number of backorder,

and budget. To do this the following notations are required.

3.1 Notations, parameters, and variables

The following notations, parameters, and variables are used for mathematical formulation of

the problem:

k Number of inventory items

m Number of retailers

r An index for the retailers

w The warehouse index

i An index for the items where i  1,..., k

TC Total inventory investment of both echelons ($)

Ci Unit cost of the ith item ($)

Dw i Demand rate of the ith item at the warehouse level (in units of Qri )

Dri Demand rate of the ith item at the rth retailer (unit per year), r  1, 2,..., m

I w i ( Rw i , Qwi ) Expected on-hand inventory at the warehouse for item i (in units of Qri )

I ri ( Rr i , Qri ) Expected on-hand inventory at retailer r for item i (units)

B wi ( R ri , Q ri ) Expected number of backorder at the warehouse for item i (in units of Qri )

B ri ( R ri , Q ri ) Expected number of backorder at retailer r for item i (units)

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N wi Average order frequency at the warehouse for item i (orders per year)

N ri Average order frequency at retailer r for item i (orders per year)

Qwi Warehouse batch size of item i (in units of Qri )

Rwi Warehouse reorder point of item i (units)

Qri Retailer r batch size of item i (units)

Rr i Retailer r reorder point for item i (units)

Lwi Warehouse delay for item i (years)

Lri Retailer r delay for item i (years)

Nw Target order frequency at the warehouse (orders per year)

Nr Target order frequency at retailer r (orders per year)

Bw Target number of backorder at warehouse

Br Target number of backorder at retailer r

Xw Available warehouse budget for all items ($)

Xr Available retailers' budget for all items ($)

H wi Warehouse lead-time demand for item i

Hri Retailer r lead-time demand for item i

F (x) The cumulative distribution function of the standard normal distribution

f (x) The probability density function of the standard normal distribution

 The mean of the lead-time demand

 The standard deviation of the lead-time demand

Now, the inventory control system under consideration can be formulated as the following

constrained optimization model:

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Minimize total inventory investment

Subject to:

Average annual order frequency at the warehouse level  N w (1)

Average annual order frequency at a retailer r level  N r , r  1, 2,..., m (2)

Total expected number of backorders at the warehouse level  Bw (3)

Total expected number of backorders at retailer r level  B r , r  1, 2,..., m (4)

Total warehouse purchase  X w (5)

Total retailers' purchase  X r (6)

Thus, the mathematical formulation of the problem becomes:

Minimize:

k k
Min TC  m  C i I ri ( R r i ,Q ri )   C i Q ri I wi ( Rw i ,Qw i ) (7)
i 1 i 1

Subject to:

k
1 Dwi
k
Qi 1
 Nw (8)
wi

k
1 D ri
k
Qi 1
Nr (9)
ri

B
i 1
wi ( Rw i ,Qwi )  B w (10)

B
i 1
ri ( R r i ,Q r i )  B r (11)

C Q
i 1
i wi Qr i  X w (12)

k
m C i Q r i  X r (13)
i 1

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 R w i  Q w i i  1,..., k (14)

R r i  Q ri i  1,..., k (15)

Q ri  1 i  1,..., k (16)

Q wi  1 i  1,..., k (17)

Q ri ,Qwi , R ri , and Rw Integers i  1,..., k (18)

Equation (7) gives the objective function of the model and refers to the total inventory

investment of both echelons. Constraints (8) and (9) assure that average order frequencies at the

warehouse and retailers are not greater than the target order frequencies at the warehouse and retailer

levels, respectively. Constraints (10) and (11) assure that the total expected number of backorders at

the warehouse and the retailers are not greater than the corresponding target numbers. Constraint (12)

assures that total warehouse purchase is not greater than the available warehouse budget for all items.

Constraint (13) assures that total retailers' purchases is not greater than the available retailers' budget

for all items. Constraints (14) and (15) assure that when a replenishment order is received, the

outstanding backorder are satisfied. Constraints (16) and (17) show that warehouse and retailer batch

size are greater than zero. Finally, constraint (18) represents the ranges of the decision variables.

The expected on-hand inventory of the warehouse is calculated using the following equation

developed by Hadley and Whitin (1963): 

Qw i  1
I w i  B w i ( R w i , Qw i )  R w i   E[ H w i ] (19)
2

Similar equation can be used to calculate the expected on-hand inventory of retailer r. Furthermore,

Svoronos and Zipkin (1988) developed the mean and the variance of the lead-time demand at the

warehouse as:

mDri Lwi
E[ H wi ]  (20)
Qri

mDri Lwi m [1  exp( p Dri Lw i ) cos( p Dri Lwi )]


Qri 1
V [ H wi ]   (21)
Qri
2
Qri2 p 1
p

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 Where

 p  1  cos(2 p / Q ri ) (22)

 p  sin ( 2  p / Q ri ) (23)

And N r i and Dw i are given as follows:

Dr i
Nri  (24)
Q ri

mDr i
Dw i  mN ri  (25)
Qri

Svoronos and Zipkin (1988) developed the mean and the variance of the lead-time demand at retailer

r as:

E[ H ri ]  Dri Lri  V [ H ri ] (26)

The warehouse backorder of the ith item is obtained via Equation (27). Similar equation can be used

to calculate the retailers' backorder quantities of the ith item (Hopp and Spearman 2001).

1
Bwi (Rw i ,Qw i )  [  (Rw i )   (Rw i  Qwi )] (27)
Qw i

Where

2 (x   ) 2 (x   ) (x   ) (x   )
 (x )  {(  1)[1  F ( )]  f ( )} (28)
2  2
  

As hinted before the demand process of item i at retailer r is Poisson with an annual rate

of Dri . However, the demand at the warehouse level does not follow a Poisson process. This is due to

the fact that when the stock-out is backordered in the retailers and the demand process at each retailer

is Poisson, the arrival process of the orders at the warehouse is a superposition of the order processes

from the retailers, specifically, a superposition of independent renewal processes, each with Erlang

inter-renewal time with Qri stages and rate per state Dri (see Svoronos and Zipkin 1988).

In the next section, a search-based algorithm is developed the inventory model of the problem

at hand.

11
 
4. A solution procedure

The model that was formulated and introduced in the previous section belongs to nonlinear

integer-programming (NIP) problems and involves a complex shape of search space. These

characteristics lead us to use a meta-heuristic algorithm to solve such a hard problem reliably.

Genetic algorithm (GA) is one of the most efficient intelligent randomized search procedures

for solving optimization problem based on the principle of survival of the fittest in biological

evaluation and genetics, introduced first by Holland (1975). Although GA was successfully applied to

some inventory control problems, the application of GA to multi-echelon inventory systems is still

rare.

4.1 The proposed GA method

The underlying GA's idea is to generate an initial set of random solution called population.

Each individual in the population is called a chromosome that is represented as a candidate solution to

a problem and consists of a number of genes .The chromosomes must go through a successive set of

solution called generation and the fitness function is used to evaluate all individuals. Crossover and

mutation operators are used to create new chromosomes called offspring. A new population is created

with respect to fitness value of chromosomes. The population of solution become better and better

from generation to generation until satisfying solution is obtained.

Generally, the proposed GA woks according to the scheme that is described and given in

Algorithm (1) as follows.

1. Input initial requirements

2. Set generation = 0

3. Create initial population of solutions randomly

4. Evaluate all individuals of the current generation via the fitness function

5. Repeat the following until a satisfying solution is obtained

-Select parents using roulette-wheel method

-Apply crossover on parents

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 -Make random mutation

-Evaluate each chromosome using fitness function

-Preserve the best chromosomes among parents and offspring

-Set generation = generation + 1

-Select new population

6. Output

Algorithm (1): The general steps involved in the proposed GA

4.2 Chromosome

One of the most important factors for successful implementation of GA is designing a more

suitable chromosomal structure. In this article, the chromosomal solution consists of a matrix with

four rows and k columns. The first and the second rows show replenishment batch sizes and reorder

points of all items at the warehouse level, respectively. The third and the fourth rows show

replenishment batch sizes and reorder points of all items at the retailers, in turns. Furthermore, each

column shows the replenishment batch sizes and the reorder points at the warehouse and the

replenishment batch sizes and the reorder points of the retailers for each item. These lead to a 4×k

matrix as the chromosomal structure of all items depicted in Figure (2). Note that due to the constraint

described in (18), each matrix component (gene) must be integer.

Q wi Qw1 Qw 2 ... ... ... .... ...... .... .... Qwk

R wi Rw1 Rw 2 ... ... ... .... ..... .... .... Rwk
Q ri Qr 1 Qr 2 ... ... ... .... .... .... .... Qrk
R ri Rr 1 Rr 2 ... ... ... .... .... .... .... Rrk

Figure (2): The chromosomal structure

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 4.3. Initial population

As noted previously, the initial population of solutions is generated randomly. Although

random generation covers almost all of the search space, a high-quality solution, obtained from

another heuristic technique as an initial population, might help a GA to find better solution.

4.4 Evaluation

A fitness function is required to evaluate the chromosomes of each generation. In most GA

applications, the objective function of the optimization model at hand is considered a fitness function.

However, as explained before, the inventory model of this research has 10 constraints on the average

annual order frequencies, the expected number of backorders, and the budget. These characteristics

make the probability of a generated chromosome being feasible very low. In order to promote this

chance, a penalty function is defined to be a positive and known sum of squared violation of each

constraint. As a result, the penalty and the fitness function in which violation per constraint is denoted

by Ei is defined as follows:


10
i 1
Ei2 The chromosome  feasible region
Penalty function=

0 The chromosome  feasible region

(29)

Fitness function = Penalty function + objective function

4.5 Initial requirement

The initial requirement described in step 1 of Algorithm (1) consists of two parts:

1. Model data: consists of proper constants to calculate required parameter such as

D r i , Lw i , L ri , and C i . These values are determined by the user and depend on the system ability

and economic criteria.

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2. GA data: consists of the probability of performing crossover called crossover rate denoted by pc and

the probability of performing mutation called mutation rate denoted by p m . The number of

chromosomes that is called population size and is denoted by Pop_size plays the main role in the run

time of the algorithm to reach the near-optimal solution.

4.6. Parent selection

At this stage, parents are selected using one of the most popular selection methods called

roulette-wheel. In this method, the parents are chosen based on the probability distribution of their

fitness value and copied into the mating pool. Thus, the chance of selecting the best individuals

becomes higher.

4.7. Crossover

After parent selections, several pairs of chromosomes are selected randomly from mating pool

by predetermined crossover rate ( pc ) and are mixed to produce offspring. In a crossover operation,

some of the genes in the first selected parent are replaced with the corresponding genes in the other

parent. In the proposed GA, at first a binary chromosome is created for the parents under

consideration. Then, the matrix components (genes) of the two selected parents that correspond to

zero values of the binary chromosome are replaced with each other. Those genes that correspond to

value one do not change. As an example, the crossover operation of six items is performed as given in

Figure (3).

4.8. Mutation

To explore new solutions, mutation operator performs random alteration in chromosome

genes by a predetermined mutation rate of p m . For the mutation operation of this research, first a

random chromosome whose components are between 0 and 1 is created and applied to the selected

parent. Then, the parent genes that correspond to values less than p m are mutated within the

15
 
boundaries of their corresponding variable. The other genes of the offspring are exactly the same as its

parent. Figure (4) illustrates a mutation operation in which p m is set at 0.25.

15 43 5 83 9 30 7 355 121 18 21 62
21 382 61 12 7 5 41 82 33 121 41 74
62 31 191 23 82 9 3 90 48 44 371 11
93 28 341 44 10 14 1 10 51 37 45 23

Parent1 Parent2

1 0 0 1 1 0
0 0 1 0 1 0
0 0 0 1 1 0
1 0 0 0 1 1

Binary chromosome

7 43 5 18 21 30 15 355 121 83 9 62
21 382 33 12 41 5 41 82 61 121 7 74
62 31 191 44 371 9 3 90 48 23 82 11
1 28 341 44 45 23 93 10 51 37 10 14

Offspring 1 Offspring 2

Figure (3): An illustration of the crossover operation

0 . 36 0 . 38 0 . 61 0 . 64 0 .5 0 . 84
0 . 11 0 . 77 0 . 93 0 . 31 0 . 49 0 . 24
0 . 83 0 . 29 0 . 28 0 . 01 0 . 38 0 . 71
0 . 51 0 . 65 0 . 41 1 0 . 59 0 . 27

Randomly generated chromosome

15 43 5 83 9 30 15 43 5 83 9 30
21 382 61 12 7 5 33 382 61 12 7 168
62 31 191 23 82 9 62 31 191 1 82 9
93 28 341 44 10 14 93 28 341 44 10 14

Parent Offspring

Figure (4): An illustration of the mutation operation

16
 
4.9 New population

During this phase, the fitness function value of all members consisting parents and offspring

are evaluated. After evaluation, the chromosomes with better fitness scores are selected to create new

population. In order to achieve better solution, the fittest chromosomes must be preserved at the end

of this phase. Note that the number of selected chromosomes must be equal to Pop_size.

4.10. Termination

The population of solutions improves from generation to generation based on the theory of

survival of the fittest. GA obtains a near optimal solution when the fittest member of the population

satisfies a termination condition. In this research, the algorithm stops when the fitness function values

for several consecutive generations do not improve.

In the next section, a numerical example is given to illustrate the application of the proposed

methodology in real-world environments.

5. Numerical illustration

Consider an inventory control system of this research that consists of six items with the

general data given in Table (1).

Table (1): General data

item Dr i L wi Lr i Ci

1 9.00 0.01 0.59 23.00

2 2.00 0.40 0.21 143.00

3 71.00 0.50 0.11 176.00

4 14.00 0.10 1.00 831.00

5 15.00 0.05 0.21 16.00

6 40.00 0.06 0.45 123.00

m =6, N w =12, N r =24, Bw =4, Br =2, X w = 2003545, X r =1500433

Qwi  [1, 50], Qri  [1, 30], Rwi  [0, 45], Rri [0, 25]

17
 
 In order to determine the best value for GA parameters (the crossover & mutation rates and

the population size) that result in a better solution, a fine-tuning procedure is followed. In this

procedure the proposed GA runs 150 times with different values of pc , p m , and Pop_size. Then the

fitness function is recorded in each run. Table (2) shows the results of the first 25 runs.

To investigate the relationship between the fitness value and the parameters, a regression

analysis using the SPSS software is then employed. This relationship is obtained as

Fitness  101515.529  37488.559 Pc  10919.906 Pm  885.129 Pop _ size 

54555.486 Pc 2  49565.787 Pm2  2.746( Pop _ size ) 2  8526.294 Pc Pm 
103.750( Pop _ size ) Pc  135.701( Pop _ size ) Pm

Next, the LINGO software is employed to the following optimization problem in which the best GA

parameter values are found.

M in Fitness  101515.529  37488.559 Pc  10919.906 Pm  885.129 Pop _ size 

54555.486 Pc 2  49565.787 Pm2  2.746( Pop _ size ) 2  8526.294 Pc Pm  (30)
103.750( Pop _ size ) Pc  135.701( Pop _ size ) Pm

Subject to:

0  pc  1 (31)

0  pm  1 (32)

Pop _ size  0 (33)

As a result, the combination of the crossover rate of 0.52, the mutation rate of 0.18, and the population

size of 175 results in the best solution.

Employing the proposed GA with the obtained values of the parameters and after one hundred

generations, the algorithm converges to the following solution with a total inventory investment of

$9016.42:

11 9 48 6 14 35
5 2 40 2 18 7
6 1 4 1 2 1
6 0 1 21 6 10

Furthermore, the graph of the convergence path of the GA is presented in Figure ( 5).

18
 
 Table (2): Numerical results of 25 runs

No. of problem Pc Pm Pop_ size Fitness

1 0.10 0.01 50.00 68703.84

2 0.10 0.01 200.00 20257.72

3 0.10 0.01 100.00 38467.87

4 0.10 0.40 100.00 30670.78

5 0.10 0.40 200.00 37633.25

6 0.10 0.95 50.00 119752.33

7 0.10 0.95 100.00 78870.47

8 0.10 0.95 200.00 47556.75

9 0.50 0.01 200.00 19707.38

10 0.50 0.01 100.00 24761.40

11 0.50 0.40 100.00 36219.62

12 0.50 0.40 150.00 41641.57

13 0.50 0.40 200.00 32147.98

14 0.50 0.40 50.00 38157.20

15 0.50 0.95 150.00 55337.74

16 0.50 0.95 50.00 108021.08

17 0.50 0.95 100.00 49865.37

18 1.00 0.01 150.00 20066.67

19 1.00 0.01 50.00 90170.75

20 1.00 0.40 100.00 40397.76

21 1.00 0.40 150.00 48007.82

22 1.00 0.40 200.00 18482.64

23 1.00 0.95 150.00 70515.29

24 1.00 0.95 50.00 115671.24

25 1.00 0.95 200.00 44777.06

19
 
 Fitness value

 
Number of Generations

Figure (5): The graph of the convergence path

7. Conclusion and future research directions

In this research, a new model for a two-echelon inventory system was developed to find the

continuous review inventory control parameters that minimize the total annual inventory investment

subject to constraints on the average annual order frequency, the expected number of backorder, and

budgets. This model is closer and hence more applicable to real-world inventory problems than the

other existing ones. We also explored the use of a GA to solve this problem efficiently. Future

research may extend the model by considering different assumptions or different solving methods .In

addition, many variations in GA operators, initialization method, fitness definitions, and replacement

strategies are obviously possible and might lead to more efficient solutions.

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