A STUDY ON FUZZY INVENTORY CONTROL

SYSTEM UNDER DEMAND UNCERTAINTY

Master’s Thesis Presentation 2010.02.15

Author : Achmad RIADI
Supervisor: Prof. Saburo TSURUTA

Logistics System Engineering

Course of Maritime Technology and Logistics
Tokyo University of Marine Science and Technology
Contents
1. Introduction
2. Review of Past Studies Related to Fuzzy
Application in Inventory Control
3. Data Used for the Dynamic Simulation of
Inventory Control
4. Model Design for the Dynamic Simulation of
Inventory Control
5. Result of the Simulations
6. Conclusion
7. Future Research Direction 2
Introduction
Background

1. Inventory is needed to allow balancing

between supply and demand.
2. Careful inventory control is needed to
make good economic sense.
3. Considering demand uncertainty is
important in inventory control.

3
Introduction (cont.)
Problem
In an ordinary inventory control system, the demand
uncertainty is measured by statistical model of a normal
distribution, specified by Mean and Standard Deviation.

Prediction of Mean and Standard Deviation of demand used

in an ordinary inventory control system is not always
precise.

Many methods have been carried out for the precise

prediction of future demand:
- Adaptive forecasting, such as Moving Average, etc.
- Fuzzy system. 4
Introduction (cont.)
Objective
To investigate the effectiveness of Fuzzy inventory
control system for controlling the inventory,
especially with the presence of demand uncertainty.

In what condition Fuzzy inventory control system is

effective?
When Fuzzy inventory control system is more
effective?

5
Review of Past Studies Related to Fuzzy Application in
Inventory Control
Problem Domain:
 Solving demand uncertainty by utilizing demand as Fuzzy
variable.
 Showing the effectiveness by comparing the inventory control
systems (ordinary, moving average and Fuzzy inventory
control system)

Differences between this study and the other past studies:

 Utilizing demand as Fuzzy variable with membership
functions.
 Comparing the inventory control systems by dynamic
simulation with the possibility that the value of future
demand will change. 6
Data Used for the Dynamic Simulation of
Inventory Control
Many data have been collected and the following data have been
decided which are appropriate with the needs of the study.

 Demand Data
Perpetual demand with normal distribution specified by:
Mean : 651 units/day
Sta. Dev. : 200 units/day
 Lead Time Data
Constant 2 days.
 Relevant Costs Data
Holding Cost : 20% of unit cost per annum.
Ordering Cost : ¥688 / order (0.47% of unit cost)
Stockout Cost : 0% ~ 4% of unit cost per unit.
Unit Cost : ¥150 7
Model Design for the Dynamic Simulation of
Inventory Control

There are three dynamic simulation models, which

have been designed in this study:
 Ordinary Inventory Control System.
 Moving Average Inventory Control System.
 Fuzzy Inventory Control System.

Basic method for controlling inventory is periodic

review inventory control (base stock policy).

8
Model Design for the Dynamic Simulation of
Inventory Control (cont.)
Periodic Review Inventory Control (Base Stock Policy)

Source: Ballou, R.H (2004)

T = Re-orders period M* = Maximum
inventory level
∗ 2CD Q∗
Q = T= M ∗ = d T + LT + z(s ′ d )
H D
9
Model Design for the Dynamic Simulation of
Inventory Control (cont.)
Dynamic Simulation Model for Ordinary Inventory Control System
simout_oq simout_dlvry

To Workspace 6 To Workspace 7

|u| simout_so

Wrap To Zero Stockout To Workspace 2

In
-i Out K Ts
2 Delay z simout_inv
z-1
Lead Time Variable Subtract 1 To Workspace 1
Inventory
Integer Delay

0.08 simout_hc
0
Switch 2 Holding Cost To Workspace 3
Constant 2
round 150 simout_uc
Demand
Switch 1 Rounding To Workspace 4
Unit Cost
Function
0

Constant 1 ~= 0 688 simout_oc

Compare Ordering Cost To Workspace 5

To Zero
M* = d(T+LT) + z(s’d) 5820
Subtract 2
5820 units Maximum
Inventory Level
Order
Quantity

Q∗
T=
Review Period D
5 days 10
 Model Design for the Dynamic Simulation of si mout_oq

T o Workspace 6
si mout_dl vry

T o Workspace 7

Inventory Control (cont.)

In
-i Out K Ts
z
2 Del ay

Dynamic Simulation Model for Moving Average Inventory Control System Lead T i me Vari abl e
Integer Del ay
Subtract 1
z-1
Inventory

0
Swi tch 2
Constant 2
round
Demand
Swi tch 1 Roundi ng
Functi on
0

Constant 1
Out4 In1

Movi ng Maxi mum Subtract 2

Inventory
Out1
Out2
Out3

Out5
Out6
Out7

Average Orde
Level Quant

In1 Revi ew Peri od

In2

In3

In4

In5

In6

In7

In8
Movi ng Out1

Out2

Out3

Out4

Out5

Out6

Out7
Sum 1 Vari ance

Roundi ng
round
Functi on 2

Sum 2

Math
sqrt
Functi on

round 2.3

Roundi ng safety factor, z

Sum 3 Functi on 3

11
 simout_oq simout_dlvry

Model Design for the Dynamic Simulation of

T o Workspace 6 T o Workspace 7

Inventory Control (cont.)

In
-i Out K Ts
z
Dynamic Simulation Model for Fuzzy Inventory Control System
2

Lead T ime
Delay
Variable Subtract 1
z-1
Inventory
Integer Delay

0
Switch 2
Constant 2
round
Demand
Switch 1 Rounding
Function
0

Constant 1
Maximum
Inventory
Level

Subtract 2
Standard Order
Mean
Deviation Quantity

Review Period

round

Rounding
Fuzzy Logic Function 2
Controller

12
 Model Design for the Dynamic Simulation of
Inventory Control (cont.)
Process inside the Fuzzy Logic Controller Block
Uncertain Inputs
(mean, std. dev) Output
Fuzzy Inference
System by ANFIS
with linguistic Max. Inventory
variables Level

Fuzzy Inference System includes membership functions, rules, and

output parameters.

ANFIS will construct a Fuzzy inference system with some

parameters are tuned (adjusted).

13
Result of the Simulations
Simulation Conditions
Demand standard
Demand mean
deviation
Condition 1
(There is no change with the Expected demand Expected demand
future demand or the future mean standard deviation
demand is same as the
expected demand)

Condition 2-A
(Future demand mean is Vary from -50% to Expected demand
uncertain, demand standard +50% of expected standard deviation
deviation is fixed) demand mean (step (fixed)
is 10%)
Condition 2-B
(Future demand mean is Expected demand Vary from -50% to
fixed, demand standard mean (fixed) +50% of expected
deviation is uncertain) demand standard
deviation (step is
10%)
14
Result of the Simulations (cont.)
Simulation Results with Condition 1
(there is no change with the future demand)

Total Relevant Costs between Three Inventory Control

x103 Systems (Seed Num. 100)
140 15.47% >
Ordinary inventory control system
135 Ordinary Inv.
MA inventory control system
Total relevant costs (¥)

130 Contr. Syst. 1.15% >

Fuzzy inventory control system
Ordinary Inv.
9.43%125> 0.38% < Contr. Syst.
Ordinary120
Inv. Ordinary Inv.
Contr. Syst.
115 Contr. Syst.
110
105
100
95
SC is 0% of SC is 1% of SC is 2% of SC is 3% of SC is 4% of
unit cost unit cost unit cost unit cost unit cost
15
 Result of the Simulations (cont.)
Simulation Results with Condition 1
(there is no change with the future demand)

Ordinary Moving Average Fuzzy

Service Level (%) 99.41 98.77 99.29

Conclusion of Simulation Results with Condition 1

When the stockout cost is not considered, Fuzzy inventory control
system is more effective.
When the stockout cost is considered, ordinary inventory control
system is more effective.

16
Result of the Simulations (cont.)
Simulation Results with Condition 2-A
(demand mean is uncertain, demand std. dev is fixed)
Total Relevant Costs with Uncertain Demand Mean
(In Case of Stock out Cost = 0% of Unit Cost)
2.5
Ordinary Expected Demand
Moving Average Mean
Total Relevant Costs

2.0
Fuzzy Service Level
98.34%
1.5
Percent Different
13.43% 1.0

0.5

0.0 Service Level

50.83%
0.5 0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5

Demand Mean

17
Result of the Simulations (cont.)
Simulation Results with Condition 2-A
(demand mean is uncertain, demand std. dev is fixed)
Total Relevant Costs with Uncertain Demand Mean
(In Case of Stock out Cost = 4% of Unit Cost)
2.5
Ordinary Expected Demand
Moving Average Mean
Total Relevant Costs

2.0
Fuzzy

1.5

1.0

0.5

0.0
0.5 0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5

Demand Mean
18
Result of the Simulations (cont.)
Simulation Results with Condition 2-B
(demand mean is fixed, demand std. dev is uncertain)
Total Relevant Costs with Uncertain Demand Std. Dev.
(In Case of Stock out Cost = 0% of Unit Cost)
1.3
Ordinary Expected Demand
Moving Average Std. Dev.
Total Relevant Costs

1.2 Service Level

Fuzzy
98.95%
1.1

0.9
Service Level
98.21%
0.8
0.5 0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5

Demand Std. Dev.

19
Result of the Simulations (cont.)
Simulation Results with Condition 2-B
(demand mean is fixed, demand std. dev is uncertain)
Total Relevant Costs with Uncertain Demand Std. Dev.
(In Case of Stock out Cost = 4% of Unit Cost)
1.3
Ordinary Expected Demand
Moving Average Std. Dev.
Total Relevant Costs

1.2
Fuzzy

1.1

0.9

0.8
0.5 0.6 0.7 0.8 0.9 1 1.1 1.2 1.3 1.4 1.5

Demand Std. Dev.

20
Conclusion
• When there is no change with the future demand:
Fuzzy inventory control system is more effective (stock out cost is not
considered)
Ordinary inventory control system is more effective (stock out cost is
considered)

• When the future demand mean is uncertain:

Fuzzy inventory control system is more effective.

• When the future demand standard deviation is uncertain:

Stockout cost is not considered:
Fuzzy inventory control system is effective only when the future
demand sta. dev. lower than the expected demand sta. dev.
Stockout cost is considered:
Both ordinary and Fuzzy inventory control system is effective. 21
Future Research Direction

 The other uncertainties such as supply uncertainty,

lead time uncertainty and costs uncertainty can be
present in inventory control.

 Comparing the result of this study with the result

of the other studies with different Fuzzy system.

 Concerning the multi echelons/stages within the

supply chain is also interesting for the future
research.

22
 Thank You
For Your Attention

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