Simulation-based optimization of process control policies for inventory management in supply chains

A simulation-based optimization framework involving simultaneous perturbation stochastic approximation (SPSA) is presented as a means for optimally specifying parameters of internal model control (IMC) and model predictive control (MPC)-based decision policies for inventory management in supply chains under conditions involving supply and demand uncertainty. The effective use of the SPSA technique serves to enhance the performance and functionality of this class of decision algorithms and is illustrated with case studies involving the simultaneous optimization of controller tuning parameters and safety stock levels for supply chain networks inspired from semiconductor manufacturing. The results of the case studies demonstrate that safety stock levels can be significantly reduced and financial benefits achieved while maintaining satisfactory operating performance in the supply chain. 2006 Elsevier Ltd. All rights reserved.