An integrated three-echelon supply chain model for deteriorating items via simulated annealing method

This paper proposes a three-echelon inventory model for deteriorating items that integrates the upper, middle, and lower levels of supply chain. The different facilities develop their partnership through information sharing and strategic alliances, in order to achieve long-term benefits and global optimum of the system. The mathematical model describes how the integrated approach to decision making can achieve global optimum as compared to independent decision by the supplier, the distributor, and the retailer. Due to the complexity of the non-linear problems, it is not possible to find the global optimum analytically. Annealing is the physical process of heating up a solid until it melts followed by cooling it down until it crystallizes into a state with perfect lattice. Following this physical phenomenon, a soft computing method, simulated annealing (SA), has been developed to find the global optimum for a complex cost surface through stochastic search process. A computer program in C-language has been developed for this purpose and is implemented to derive the optimum decision for the decision maker. Numerical examples and a sensitivity analysis are given to validate the results of the system. The proposed model has potential application in multi-echelon supply chain inventory systems.