Hybrid Deep Learning Approach for Coupled Demand Forecasting and Supply Chain Optimization

TL;DR

This paper introduces a hybrid AI framework combining LSTM-based demand forecasting with MILP optimization to improve supply chain efficiency and resilience in volatile industries.

Contribution

It presents a novel integrated framework that jointly minimizes forecasting errors and operational costs, outperforming traditional separate approaches.

Findings

Significant reduction in forecasting errors (MAE, RMSE, MAPE)

Inventory costs decreased by 5.4%

Stockouts reduced by 27.5% and service level increased to 97.8%

Abstract

Supply chain resilience and efficiency are vital in industries characterized by volatile demand and uncertain supply, such as textiles and personal protective equipment (PPE). Traditional forecasting and optimization approaches often operate in isolation, limiting their real-world effectiveness. This paper proposes a Hybrid AI Framework for Demand-Supply Forecasting and Optimization (HAF-DS), which integrates a Long Short-Term Memory (LSTM)-based demand forecasting module with a mixed integer linear programming (MILP) optimization layer. The LSTM captures temporal and contextual demand dependencies, while the optimization layer prescribes cost-efficient replenishment and allocation decisions. The framework jointly minimizes forecasting error and operational cost through embedding-based feature representation and recurrent neural architectures. Experiments on textile sales and supply chain datasets show significant performance gains over statistical and deep learning baselines. On the combined dataset, HAF-DS reduced Mean Absolute Error (MAE) from 15.04 to 12.83 (14.7%), Root Mean Squared Error (RMSE) from 19.53 to 17.11 (12.4%), and Mean Absolute Percentage Error (MAPE) from 9.5% to 8.1%. Inventory cost decreased by 5.4%, stockouts by 27.5%, and service level rose from 95.5% to 97.8%. These results confirm that coupling predictive forecasting with prescriptive optimization enhances both accuracy and efficiency, providing a scalable and adaptable solution for modern textile and PPE supply chains.