Particle Swarm Optimization Approach in a Consignment Inventory System

Consignment Inventory (CI) is a kind of inventory which is in the possession of the customer, but is still owned by the supplier. This creates a condition of shared risk whereby the supplier risks the capital investment associated with the inventory while the customer risks dedicating retail space to the product. This paper considers both the vendor’s and the retailers’ costs in an integrated model. The vendor here is a warehouse which stores one type of product and supplies it at the same wholesale price to multiple retailers who then sell the product in independent markets at retail prices. Our main aim is to design a CI system which generates minimum costs for the two parties. Here a Particle Swarm Optimization (PSO) algorithm is developed to calculate the proper values. Finally a sensitivity analysis is performed to examine the effects of each parameter on decision variables. Also PSO performance is compared with genetic algorithm.