INVALS: A Forward Looking Inventory Allocation System

TL;DR

INVALS is a forward-looking inventory allocation system that optimizes warehouse and trailer utilization by considering future demand, reducing overstocking, and improving efficiency through advanced optimization techniques.

Contribution

The paper introduces INVALS, a scalable MILP-based system that incorporates future demand and optimal transport theory for improved inventory allocation.

Findings

Labor utilization increased by 34.70%.

Trailer occupancy increased by 37.08%.

Allocation matches global optimal solutions in ~90% of cycles.

Abstract

We design an Inventory Allocation System (INVALS) that, for each item-store combination, plans the quantity to be allocated from a warehouse that replenishes multiple stores using trailers, while respecting typical operational constraints. We formulate a linear objective function which, when maximized, determines the allocation plan by considering not only the immediate store needs, but also its future (forward) expected demand. This forward-looking allocation significantly improves the utilization of labor and trailers in the warehouse. To reduce overstocking, we adapt from our objective to prioritize allocating those items in excess which are sold faster at the stores, keeping the days of supply (DOS) to a minimum. For the proposed formulation, which is an instance of Mixed Integer Linear Programming (MILP), we present a scalable algorithm using the concepts of submodularity and optimal transport theory by: (i) sequentially adding trailers to stores based on maximum incremental gain, (ii) transforming the resultant linear program (LP) instance to an instance of capacity constrained optimal transport (COT), solvable using double entropic regularization and incurring the same computational complexity as the Sinkhorn algorithm. Compared against the planning engine that only allocates for immediate store needs, INVALS increases labor utilization by 34.70% and item occupancy in trailers by 37.08% on average. The DOS distribution is also skewed to the left, indicating that higher-demand items are allocated in excess, reducing the days they are stocked. We empirically observed that for ~90% of the replenishment cycles, the allocation results of INVALS are identical to the globally optimal MILP solution.