Using AI Approach to Solve an Integrated Three-Echelon Supply Chain Model with Strategic Alliances

Abstract

This paper develops a mathematical inventory model of deteriorating item taking into account a three-echelon supply chain vertical integration through strategic alliances. The objective of this model is to minimize the joint total relevant cost and to devise a compensation policy. Due to the complexity of the non-linear problems, it is not possible to find the global optimum analytically. Following the physical phenomenon of annealing, a soft computing method, Simulated Annealing (SA), has been developed to find the global optimum for the complex cost function through stochastic search process. A numerical example, sensitivity analysis, and the effects of the compensation policy on the optimal results are presented to validate the results of the proposed integrated model. The proposed mathematical model shows how an integrated approach to decision making can achieve a global optimum.