Design of a replenishment system for a stochastic dynamic production/forecast lot-sizing problem under bullwhip effect

Inventory has the function of balancing production and demand. To shorten lead time, businesses adopt the make-to-stock approach that satisfies customer’s demand by inventory through forecast. This approach highlights the two contradictory objectives: to lower stock cost and to satisfy customer’s demand. Moreover, forecasting is one of the main causes of the bullwhip effect. Therefore, it is the policymaker’s concern to have good production planning and replenishment control through effective inventory management under such a circumstance. This paper studies a stochastic dynamic lost-sizing problem under the bullwhip effect. To solve this problem, this paper proposes a solution of two-stage ant colony optimization (TACO) and adds a mutation operation in the second-stage ACO. The experiment is mainly composed of two parts, with the first part analyzing the solution quality of the TACO, and the second part discussing the relationships between the bullwhip effect, replenishment (forecast) cycle, and the cost.