Inventory management under uncertainty : a military application

Abstract

Inventory management under uncertainty is a widely researched field and many different types of inventory models have been used to address inventory problems in practice [1, 10, 11, 26, 50, 35]. However, there is a lack of published studies focusing on inventory planning in environments, such as the military, that are characterised by uncertainty as a result of extreme events. A critical area in military decision support is inventory management. Planning for stock levels in particular can be a daunting task, due to the uncertainty associated with the future. The military is typically an environment where improbable events can have massive impacts on operations; and the availability of the correct amount of stock can enhance the responsiveness, efficiency, and preparedness of the military, and ultimately save human lives. On the other hand, excessive stock - especially ammunition - can result in huge monetary losses through damages, stock degradation, and stock obsolescence. Excessive ammunition also poses a risk to public safety, and can ultimately challenge a country's ability to control the use of force. It is therefore very important to provide proper attention to determining the required stock levels during military inventory management. This dissertation aims, therefore, to develop a reliable decision support tool that can assist with inventory management in the military. To achieve this, a mixed multi-objective mathematical model is used that attempts to minimise cost, shortages, and stock while incorporating demand uncertainty by means of probability distributions and fuzzy numbers. The model considers three different scenarios, and determines the minimum required stock level and the best order quantity for three different stock categories, for a single ammunition item. The model is converted into its crisp, non-fuzzy, and deterministic counterpart first by transforming the fuzzy constraints into their crisp versions and then deriving the deterministic model of the crisp recourse stochastic model. The corresponding crisp, deterministic model is then solved using exact branch-and-bound embedded in the LINGO 10.0 optimisation software package and the reliability of the solutions in different scenarios is tested by means of discrete event simulation. The reliability of the model is then compared with the reliabilities of the well known (r;Q) and (s; S) inventory models in the literature. The comparison indicates that the mixed model proposed in this dissertation is more reliable in extreme scenarios than the (r;Q) and (s; S) inventory models in the literature. A sensitivity analysis is then performed and results indicate that the model yields reliable solutions with a reliability that varies between 74.54% and 100%, depending on the scenario investigated. The lower reliability is during the high demand scenario, this is caused by the ability of the inventory model to prioritise different scenarios based on their estimated possibility to ensure that stock levels are not unneccessary escalated for highly improbable events. It can be concluded that the proposed mixed multi-objective mathematical model that aims to minimise inventory cost, surplus stock, and shortages is a reliable inventory decision support model for the uncertain military environment.