LQ Opt SMC Periodic Perishable

Journal of the Franklin Institute 349 (2012) 15611582
www.elsevier.com/locate/jfranklin
LQ optimal sliding-mode supply policy for

periodic-review perishable inventory systems
Przemys"aw Ignaciuka,n, Andrzej Bartoszewiczb
a
Institute of Information Technology, Technical University of odz, 215 Wolczanska St., 90-924 odz, Poland
b
Institute of Automatic Control, Technical University of odz, 18/22 Stefanowskiego St., 90-924 odz, Poland
Received 16 November 2010; received in revised form 7 March 2011; accepted 13 April 2011
Available online 22 April 2011
Abstract
In this paper we consider the problem of designing an efcient supply strategy for logistic systems
with perishable goods. In the analyzed systems, the stock at a distribution center is used to fulll an
unknown, time-varying market demand. The stock deteriorates exponentially, and is replenished
with delay from a remote supply source. The objective is to specify a supply strategy such that high
level of demand satisfaction is obtained despite unknown pattern of demand variations. As opposed
to the previous approaches based mainly on heuristics and static optimization, we apply formal
design methodology of sliding-mode control and discrete-time dynamical optimization. We show
that the designed controller ensures full demand satisfaction irrespective of the value of delay and the
demand uncertainty. Moreover, with the application of appropriate reaching law, the controller is
demonstrated to conform to the supplier capacity limitations, and it outperforms the classical order-
up-to policy in terms of higher service level, smaller holding costs, and smaller order-to-demand
variance ratio.
& 2011 The Franklin Institute. Published by Elsevier Ltd. All rights reserved.
1. Introduction
A good inventory control policy has long been identied as a crucial factor in the
efcient management of supply chain [1]. However, despite the considerable research
effort performed in the past [29], no ultimate solution has been found so far. This
n
Corresponding author.
E-mail addresses: przemyslaw.ignaciuk@p.lodz.pl (P. Ignaciuk),
andrzej.bartoszewicz@p.lodz.pl (A. Bartoszewicz).
0016-0032/$32.00 & 2011 The Franklin Institute. Published by Elsevier Ltd. All rights reserved.
doi:10.1016/j.jfranklin.2011.04.003
1562 P. Ignaciuk, A. Bartoszewicz / Journal of the Franklin Institute 349 (2012) 15611582
concerns in particular the systems with rapidly varying demand and nonnegligible
delay, which are becoming commonplace in todays highly competitive global market.
In such settings, the application of control theory may prove a viable approach to
solving the inventory control problem. Nevertheless, it follows from the extensive
review papers documenting the research work performed in the eld for the last ve
decades [29] that numerous aspects of inventory management are not sufciently
addressed at the formal design level. Especially, the systematic design approach has
been scarce in the area of perishable inventory systems. As discussed in [69], the
control of decaying inventories (food, drugs, gasoline, etc.) requires different and more
elaborate procedures than regulating the ow of goods in the traditional systems (with
undeteriorating stock), and in the circumstances of signicant demand uncertainty and
nonnegligible delay only heuristic methods may be available, e.g. [10].
Among the few successful design examples based on formal control-theoretic approach
for perishable inventory systems we may point out the works of Bensoussan et al. [11],
Andijani and Al-Dajani [12], and Boukas and his coworkers [1315]. Bensoussan et al. [11]
considered a continuous-time system with deterministic and stochastic deterioration rates
and zero lead time, and used distributed parameter systems theory to nd a quadratically
optimal replenishment rule. However, the analytical solution of the linear-quadratic (LQ)
problem addressed in [11] can only be provided for a known demand pattern. Andijani and
Al-Dajani [12] and Aliyu and Boukas [13] further pursue the application of LQ optimal
control in perishable inventory systems. They consider the system with immediate stock
replenishment (no delay), and solve the control problem for different quality criteria and
constraints. Unfortunately, the control law is not given in a closed form which limits its
analytical tractability. The optimal control based on the minimization of an appropriate
HN norm in systems with deteriorating inventory was considered in [14] and [15]. In [14]
a piecewise afne control law with the stock level selected as the switching variable was
developed for a production system with zero lead time, whereas a robust controller for the
system with uncertain processing time and delay in control was proposed in [15]. Again,
the strategies described in [14] and [15] require numerical procedures for obtaining the
controller parameters, which hinders the possibility of conducting the formal analysis of
the controller properties.
In this paper, we apply strict, control-theoretic approach to the design of a supply policy
for periodic-review inventory systems with perishable goods. In the considered systems, the
stock at a goods distribution center is used to fulll an unknown, time-varying market
demand. The stock subject to exponential decay is replenished with delay from a remote
supply source. We assume that the delay (lead-time) can span multiple review periods. The
principal design objective is to obtain a high level of demand satisfaction (high service level)
with minimum holding costs, even when the pattern of demand variations is completely
unknown. In addition, the established policy should prevent the rapid uctuations of
demand from propagating to the supplier in the ordering signal. In this way, the bullwhip
effect [16,17] (amplication of demand variations in the generated orders) is avoided, and the
cost efciency of the entire supply chain can be improved.
In order to satisfy the design objectives, we propose to apply discrete-time sliding-mode
(SM) control, which is well known to be an efcient and robust regulation technique
[1823]. Since a proper choice of the switching plane is the key part of the design of SM
controllers [2427], in this work, we determine the plane parameters for LQ optimal
control. In this way, we obtain fast response to the changes in demand, yet with a reduced
P. Ignaciuk, A. Bartoszewicz / Journal of the Franklin Institute 349 (2012) 15611582 1563
order-to-demand variance ratio, thus counteracting the bullwhip effect. In contrast to our
earlier works devoted exclusively to the traditional inventory systems with undeteriorating
stock [28,29], we explicitly consider here the effects of decaying inventory, which makes the
system more difcult to analyze and requires a distinct optimization procedure. In
particular, it requires a different solution to the n-dimensional matrix Riccati equation,
and a different choice of the sliding plane. However, similarly as in [28,29], we obtain
a closed-form expression for the optimal control law, and formulate equivalent set of
advantageous controller properties that are proved analytically. We show that under the
proposed policy the available stock is never entirely depleted despite unpredictable demand
variations, which guarantees the maximum service level (full demand satisfaction from the
readily available resources). We also specify a precise value of the storage space which
should be reserved at the distribution center to always accommodate all the incoming
shipments. This means that the potential necessity of expensive emergency storage outside
the company premises is eliminated. Finally, we show that the order quantities generated
by the presented controller are always nonnegative and bounded, which is required for the
practical implementation of a replenishment rule. Moreover, to explicitly account for
possible supplier constraints, we modify the controller design by employing the concept of
reaching law [30,1921,24] in the form proposed in [21]. The nonlinear controller is shown
to maintain the favorable properties of the original, linear strategy, yet it meets the input
constraint imposed by a saturating supply source without downgrading the system
dynamics. The proposed policy outperforms the classical order-up-to (OUT) ordering rule
in the analyzed system with perishable goods in terms of smaller storage space
requirements, higher service level, and reduced order-to-demand variance ratio.
The paper is organized in the following way. First, in Section 2, we describe the model of
an inventory system with perishable goods. Then, in Section 3, we state the control
problem and design a discrete-time SM controller with the sliding plane selected by solving
an LQ optimization task. We discuss the controller properties, and prove them
analytically. Next, we present the SM controller design based on the concept of reaching
law for the system with input constraints. In Section 4, we compare our approach with the
classical OUT policy. Finally, we present simulation results, in Section 5, and provide
conclusions and managerial insights in Section 6.
2. Problem formulation
We analyze the inventory system involving a distribution center, customers (or retailers),
and suppliers illustrated in Fig. 1. The dashed lines in Fig. 1 represent the ow of
information, and the solid lines correspond to the ow of goods. The customer requests
constitute the demand for the distribution center, which responds to this demand by
Fig. 1. Flow of goods and information.

sending goods accumulated in the local (on-hand) stock. In order to rell the stock, the
inventory management system at the distribution center generates replenishment requests
for the supplier. The supplier responds to the received orders and provides goods for the
distribution center with certain delay. The design goal is to develop a stable control
strategy that will minimize the lost service opportunities (occurring when only a part of the
imposed demand can be satised from the stock available at the distribution center), and
will prevent excessive growth of the on-hand stock. The design procedure should, on the
one hand, explicitly consider the delay between placing of an order at the supplier and
goods arrival at the center, and, on the other hand, it should take into account the stock
reduction of perishable commodities during this delay.
2.1. System model
The model of the analyzed periodic-review inventory system is illustrated in Fig. 2. The
stock replenishment orders u( ) are issued at the regular intervals kT, where T is the review
period and k=0,1,2,y. The order quantity is calculated on the basis of the current stock
level y(kT), the stock reference value yref, and the order history. Each non-zero order
placed at the supplier is realized with lead time Lp assumed to be a multiple of the review
period, i.e. Lp=npT, where np40 is a positive integer. The saturating integrator in the
internal loop represents the operation of accumulating the stock of perishable goods
characterized by the decay factor s, 0rso1. The imposed demand (the number of items
requested from inventory in period k) is modeled as an a priori unknown, bounded
function of time d(kT), 0rd(kT)rdmax. Notice that this denition of demand is quite
general and it accounts for any standard distribution typically analyzed in the considered
problem. If there is a sufcient number of items in the warehouse to satisfy the imposed
demand, then the actually met demand h(kT) (the number of items sold to customers or
sent to retailers in the distribution network) will be equal to the requested one. Otherwise,
the imposed demand is satised only from the arriving shipments, and the additional
demand is lost (we assume that the sales are not backordered, and the excessive demand is
equivalent to a missed business opportunity). Thus,
0rhkTrdkTrdmax : 1
For the considered system with perishable goods the stock balance equation can be
presented in the following form:
yk 1T rykT uR kThkT, 2
Fig. 2. System model.

where uR(kT) is the order received in period k and r=1s represents the fraction of stock
that remains in the warehouse when inventory deteriorates at rate s. For instance, if
s=0.05, then 5% of the stock perishes in each review period and r=0.95, or 95%, of the
stock remains. Note that since 0rso1 we have
0orr1: 3
We assume that the warehouse is initially empty, i.e. y(kT)=0 for ko0, and the rst order
is placed at kT=0. Because of the lead time delay, the rst order arrives at the distribution
center in period np, and y(kT)=0 for krnp. We assume that the goods reach the
distribution center new and deteriorate while kept in the on-hand stock. Taking into
account the initial conditions and the fact that uR(kT)=u[(knp)T], the stock level for any
kZ0 may be calculated from the following equation:
X
k1 X
k1
ykT rk1j uR jT rk1j hjT
j0 j0
X
k1 X
k1
rk1j ujnp T rk1j hjT: 4
j0 j0
Moreover, since u(kT)=0 for ko0, we can write

kn
X p 1 X
k1
ykT rknp 1j ujT rk1j hjT, 5
j0 j0
which provides a closed-form expression for the on-hand stock level in the considered
periodic-review inventory system. To save on notation in the remainder of the paper we
will use k as the independent variable in place of kT.
2.2. State-space representation
In order to proceed with the formal controller design, it is convenient to represent the
model of the considered system in the state space. Let the rst state variable x1(k)=y(k)
reect the on-hand stock level in period k. If we choose the other state variables to
represent the delayed input signal (the pending order) xj(k)=u(knj1) for any
j=2,y,n, then, taking into account the relation uR(k)=u(knp), discrete-time system
(2) can be described in the state space as
xk 1 Axk buk vhk,
6
yk qT xk,
where A is n n state matrix; b, v, and q are n 1 vectors

2 3 2 3 2 3 2 3
r 1 0 ... 0 0 1 1
60 0 1 ... 07 607 6 0 7 607
6 7 6 7 6 7 6 7
6 7 6 7 6 7 6 7
A6 6^ ^ ^ & ^7 6 ^ 7
7, b 6 7, v 6
6 ^ 7,
7 q6 7
6 ^ 7, 7
6 7 6 7 6 7 6 7
40 0 0 ... 15 405 4 0 5 405
0 0 0 ... 0 1 0 0
and the system order n=np1=Lp/T1 depends on the review period and lead time Lp.
The desired system state is dened as
2 3 2 3 2 3
xd1 1 1
6 x 7 6s7 6 1r 7
6 d2 7 6 7 6 7
6 7 6 7 6 7
xd 6 ^ 76 ^ 7yref 6 ^ 7yref , 8
6 7 6 7 6 7
6x 7 6 7 6 1r 7
4 dn1 5 4 s 5 4 5
xdn s 1r
where yref denotes the reference stock level. Consequently, the control objective is to
stabilize the rst state variable (the on-hand stock) at the level yref. Since the goods perish
at the rate s=1r while kept in the warehouse, in order to maintain the on-hand stock at
the desired level, it needs to be relled from the incoming shipments at the rate syref.
Therefore, based on Eq. (2), all the state variables that represent the in-bound shipments
x2,y, xn, should converge to syref once y(k)=yref, precisely as specied in Eq. (8). In a
latter part of the paper we develop a control strategy which meets these design objectives.
We will also show how to choose a suitable reference stock level such that a number of
advantageous properties related to handling the ow of goods is achieved.
3. Proposed inventory policy
In this section, a control-theoretic approach is employed to design an SM controller for

the considered inventory system. In order to combat the bullwhip effect, we select the
sliding plane in dynamical optimization with quadratic performance index. In contrast to
the typical approaches for solving the LQ problem, which are suitable mainly for
numerical implementations and systems with predened dimensions (see e.g. [3133]), in
this paper an analytical method is explored. The method is built on the concept of iterative
substitutions presented in [28,29]. However, the nite goods lifetime considered here does
not allow for direct extension of those results to perishable inventory systems, which
require different and more elaborate analytical treatment at each step of the derivation.
3.1. Controller design
Let us denote the closed-loop system error as e(k)=xdx(k). We introduce the sliding
variable, s(k), described by the following equation:
sk cT ek, 9
T T
where c =[c1 c2? cn] is the vector describing the sliding plane c e(kT)=0 such that
cTba0. Substituting Eq. (6) into equation cTe(k1)=0, the following feedback control law
can be derived:
uk cT b1 cT xd Axk: 10
Using Eq. (7) we can rewrite Eq. (10) as
( " # )
Xn X
n
uk c1
n yref c1 1r cj c1 rx1 k cj1 xj k : 11
j2 j2
3.2. Optimization problem
It is clear from Eq. (11) that the controller properties will be determined by an
appropriate choice of the sliding plane parameters c1, c2,y, cn. In order to counteract the
bullwhip effect, we opt for control that will smoothly react to the changes in market
conditions (reected in the uctuations of demand). Consequently, when a demand change
makes the stock level drift from the target value yref, it is desirable to generate an ordering
signal that will reduce the error at the output yrefy(k) without increasing the rate of
oscillations present in demand. Mathematically, the control objective can be specied as
the minimization of the following cost functional:
1X 1
Ju fuss uk2 wyss yk2 g, 12
2 k0
where the steady-state values yss=yref and uss=(1r)yref, and w is a positive constant used
for tuning purposes. By decreasing w, one tends to damp the controller dynamics thus
preventing the demand variations from propagating towards the supplier in the ordering
signal. High w, in turn, implies fast tracking of the reference stock level yref at the expense
of large and frequently varying input signals, leading to a dead-beat scheme for w=N.
Further insights on the cost coefcient selection having quadratic structure can be found in
[12,13,28,29,34].
Control (11) minimizing index (12) can be presented as
uopt k rgxk, 13
Pn
where r yref c1 1r j2 cj =cn and
c r c c cn1
1 1 2
...
g c
n cn c n cn , 14
Applying the standard framework for solving the LQ problems, e.g. given in [35, ch. 7],
to system (6), the optimal gain vector g can be obtained from
g bT KIn bbT K1 A, 15
where the symmetric matrix Kn n, at least semipositive denite, is determined according to
the following Riccati equation:
K AT KIn bbT K1 A wqqT : 16
The general formulation of control problem Eqs. (13)(16) is similar to the one we
obtained for the systems with undeteriorating stock [28,29]. However, it will be shown
further in this section that the different form of matrix A considered in this work leads to
a different, and more complex form of matrix K, vector c, and the control law for
perishable inventory systems. The details of the derivation are given in the Appendix. As a
result, we get the sliding plane parameters
h i
cT grn1 grn2 . . . gr 1 cn , 17
P
and the LQ optimal SM controller uk rg nj1 rnj1 xj k with
r yref 1r gr 18
and
q
2 2
g 2 2
w 2wr 1 r 1 w r 1 2 2r2 : 19
From Eq. (7) the state variables xj (j=2, 3,y,n) may be expressed in terms of the control
signal generated at the previous n1 samples as xj(k)=u(knj1). Then, since
x1(k)=y(k) and n=np1, we get the nal closed-form solution:
X
k1
uk rgrnp 1 ykg rkj uj: 20
jknp
From the managerial perspective the obtained policy can be interpreted as generating
orders proportional to the difference between the current on-hand stock and its reference
value decreased by the amount of open orders quantied by the rate of deterioration
within the last lead time.
3.3. Stability analysis
A discrete-time system is asymptotically stable if all the roots of the characteristic

polynomial of the closed-loop state matrix Ac are located within the unit circle on the
z-plane. In the considered system Ac=[Inb(cTb)1 cT]A, its characteristic polynomial has
the following form:
detzIn Ac zn rg1zn1 zn1 zr1g: 21
Consequently, all the roots of (21) are located inside the unit circle if 1or(1g)o1. It
follows from Eq. (19) that 0ogo1. Since by denition (3), 0orr1, then all the roots of
(21) are nonnegative real and smaller than one. Consequently, the system is asymptotically
stable and no oscillations appear at the output. We can infer from Eq. (19) that by
changing w from 0 to N, g grows from 0 to 1. Consequently, as the weighting coefcient in
functional (12) is increased, the only non-zero pole moves towards the origin of the z-
plane, which results in faster convergence to the steady state. In the limit case when w=N,
all the closed-loop poles are at the origin ensuring the fastest response offered by a dead-
beat scheme.
3.4. Properties of the linear controller
The properties of the SM inventory policy (20) will be given in three theorems. The rst
theorem shows that the order quantities determined from Eq. (20) are always nonnegative
and bounded, which is a crucial requirement for the practical implementation of any
inventory management scheme. The second proposition species the warehouse capacity,
which needs to be provided to always accommodate the on-hand stock and the incoming
shipments. Finally, the third theorem indicates how to select the reference stock value in
order to ensure full demand satisfaction from the readily available resources. Further
insights on the importance of the indicated properties discussed in the context of the
traditional inventory systems can be found in [28,29].
Theorem 1. The order quantities generated by policy (20) applied to system (6)(8) are
always bounded, and for any kZ0 the ordering signal satisfies the following set of
inequalities:
urukrmaxfr,ug,where 22
r1r r1r grnp 1 dmax

u and u : 23
1r gr 1r gr
Proof. It follows from Eq. (20) and the system initial conditions: u(ko0)=0, and
y(kr0)=0, that u(0)=r. This means that the theorem is satised for k=0. Substituting
Eq. (5) into Eq. (20), we get
kn
X p 1 X
k1 X
k1
uk rg rkj ujg rkj uj grnp rkj hj
j0 jknp j0
" #
X
k1 X
k1
rg rkj ujrnp rkj hj : 24
j0 j0
Let us assume that Eq. (22) is true for all integers up to some l40. Taking into account
relation (24), the order quantity generated in period l1 can be expressed as
" #
X
l1 X
l1
lj np 1 np lj
ul 1 rg r r uj rulr hlrr r hj
j0 j0
" #
X
l1 X
l1
rrg rlj ujrnp rlj hj grul grnp 1 hl: 25
j0 j0
The terms inside the square brackets in Eq. (25) are equivalent to [ru(l)]/g.
Consequently, we have
ul 1 r1r r1gul grnp 1 hl: 26
Since h( )Z0 we get the lower bound of the ordering signal:

ul 1Zr1r r1gr1r=1r gr u, 27
which shows that the rst inequality in (22) actually holds. On the other hand, since
h( )rdmax, we get from Eq. (26) the following upper bound estimate of the ordering signal
generated in period l1:
ul 1rr1r r1gul grnp 1 dmax : 28
Therefore, in order to prove the second inequality in (22), we need to consider formula
(28) and two cases: the situation when maxfr, ug r, and the circumstances when
maxfr, ug u.
Case 1. When maxfr, ug r, or

r1r grnp 1 dmax
rZ , 29
1r gr
we have rnp 1 dmax rg rr, and from (28)
ul 1rr1r r1gr grnp 1 dmax rgrr grnp 1 dmax rr: 30

Case 2. In the situation when rou we get from (28)

r1r grnp 1 dmax
ul 1rr1r r1g grnp 1 dmax u: 31
1r gr
Taking into account relations (27), (30) and (31), it follows from the principle of the
mathematical induction that inequalities (22) are satised for arbitrary kZ0. This ends
the proof. &
Theorem 2. If policy (20) is applied to control the flow of goods in system (6)(8), then the
on-hand stock level is always upper-bounded by yref.
Proof. The warehouse at the distribution center is empty for any krnp=n1. Hence, it
sufces to show that the proposition is satised for any kZn. Let us assume that for some
integer lZn, y(l)ryref. We will demonstrate that it follows from this assumption that the
theorem is also true for l1. Using the inventory balance Eq. (2) the stock level in period
l1 can be expressed as
yl 1 ryl ulnp hl: 32
Applying Eq. (24), we get
"ln 1 ln
#
X p X p 1
lnp j np lnp j
yl 1 ryl rg r ujr r hj hl
j0 j0
"ln 1 #
X p X
l1 X
l1
lnp 1j l1j
ryl rgr r uj r hj g rlj hjhl:
j0 j0 jlnp
33
On the other hand, it follows from Eq. (5) that the term in the square brackets in Eq. (33)
actually represents the on-hand stock level in period l. Consequently, we may write
X
l1
yl 1 r r1gylg rlj hjhl: 34
jlnp
Since h( ) is always nonnegative, and we assumed y(l)ryref, then based on Eq. (18)
we get
yl 1rr r1gyref 1r gryref r1gyref yref : 35
Using the principle of the mathematical induction we conclude that the proposition is
valid for any review period kZ0. &
Theorem 3. If policy (20) is applied to control the flow of goods in system (6)(8), and the
reference stock level satisfies the following inequality
dmax Xnp j
yref 4 g r 1 , 36
1r gr j1
then for any kZnp1, the on-hand stock level is strictly positive.
Proof. It follows from (1) that the realized demand is always upper bounded, i.e. for any
integer kZ0 the inequality h(k)rdmax holds. Consequently, using Eq. (34) we have
for kZnp1:
X
k2
yk r r1gyk1g rk1j hjhk1
jk1np
X
k2 Xn
p
Zrgdmax rk1j dmax rdmax g j1
rj
1 : 37
jk1np
If we apply r=yref(1rgr), then taking into account the theorem assumption (36),
we get
Xn
p j
ykZyref 1r grdmax g j1
r 1 40: 38
A positive stock level in period k implies that the sales were realized entirely from the
readily available resources in period k1. Consequently, considering (38), we conclude that
h(k1)=d(k1), and the maximum service level is achieved for any kZnp. This completes
the proof of Theorem 3. &
3.5. Reaching law based design
The linear controller designed in Section 3.2 may generate high control signal
(excessively large order quantities) in the initial phase of the control process. However,
in the practical situations, the suppliers are subject to various limitations and cannot
provide arbitrary amount of goods in a predened time interval. In the circumstances when
the control signal needs to satisfy the input constraint:
0rukTrumax , 39
where umax4[r(1r)grndmax]/(1rgr) denotes the maximum order quantity that can
be acquired and sent in one review period by the supplier, controller (20) may no longer
ensure satisfactory performance. In order to maintain the favorable properties of
controller (20), and meet input constraint (39), we may modify the design procedure by
employing the concept of reaching law [30,1921,24]. In this approach the system
representative point is not required to be brought onto the sliding plane in one step.
Instead the reaching phase is extended over several periods, and large control effort needed
to immediately overcome a signicant distance from the plane can be relieved. In what
follows we will demonstrate that the favorable properties of the control strategy considered
so far in this work can be achieved with a properly chosen reaching law.
Among the reaching laws presented so far in the literature (see [24] for an excellent
review), one particularly attractive from the point of view of the considered application
(see [29]) is the one proposed by Golo and Milosavljevic [21]. It can be synthesized in the
following way:
sk 1sk Fsk, 40
where
Fsk min9sk9,d1 9sk9 d2 sgnsk, 41
0rd1o1, and d240. The sgn(x) function in Eq. (41) equals either 1 or 1 depending on the
value of x, i.e. sgn(x)=1 if xr0, and sgn(x)=1 for x40. With this law applied
the system representative point is guaranteed to reach the hyperplane s(k)=cTe(k)=0

monotonically in a nite number of steps in a way determined by the choice of coefcients
d1 and d2. Note that the presence of decaying inventories requires a two-parameter
reaching law rather than the single-parameter one sufcient for the traditional inventory
systems [29].
Reaching law given by Eqs. (40) and (41) allows us to avoid negative input signals, and
keep system (6)(8) positive, as it is desired in the considered application. For the purpose
of further analysis we can present Eqs. (40) and (41) in an alternative way:
sk cT ek f k 0, 42
where strictly monotonic function f( ) is dened as
(
f k 1 1d1 f kd2 sgnsk for kok0 ,k0 2 C ,
43
f k 1 0 for kZk0 :
Function f( ) represents the distance that remains to be covered by the representative

point before it hits the sliding plane cTe(k)=0.
Parameters d1 and d2 should be selected in such a way that the input constraint (39) is
always satised. Substituting Eqs. (6) and (17) into cTe(k1)f(k1)=0, we arrive at
X
k1
uk rgrn ykg rkj uj f k 1=cn : 44
jknp
We assume that f(0)=cTe(0)=cnyref(1rgr). Since f( ) is strictly monotonic this

assumption also implies that for any kA[0; k0) function f( ) and coefcient cn have
opposite signs. Initially,
u0 r f 1=cn : 45
Taking similar steps as presented in Eqs. (25) and (26), the order quantity generated
according to Eq. (44) for kZ1 can be expressed in a recursive form as
uk 1 r1r r1guk grn hk f k 2rf k 1=cn : 46
The comparison of Eqs. (43) and (46) indicates that a suitable choice for d1 is 1r.
Consequently, in order to complete the design of the reaching law, we need to select d2 such
that u(k) never exceeds umax. Substituting Eq. (43) into Eq. (46) with d1=1r results in
(
r1r grn hk1d2 sgnsk=cn for kok0
ukr1guk1 47
r1r grn hk1 for kZk0 :
It follows from (1) that 0rh( )rdmax. Therefore, the control signal is nonnegative and
bounded by [r(1r)grndmax]/(1 rgr)oumax for any kZk0. Obviously, no request
placed at the distribution center can be realized until the rst items arrive in period np, and
h(konp)=0. As a consequence, in order to ensure that condition (39) is satised for all
kok0, taking into account Eqs. (46) and (47), we conclude that parameter d2 should obey
the following constraint:
d2 r9cn 9umax 1r grr1r for 0rkrnp
48
d2 r9cn 9umax 1r grr1rgr dmax n
for k4np :
Then, since both g and r belong to the interval (0, 1], even if u(k1)=umax in Eq. (47),
u(k) will not exceed umax. This ends the design of the reaching law. The obtained controller
calculates the order quantities to be placed at the supplier from Eq. (44) with function f( )
dened by Eq. (43). Parameters of function f( ) are selected as d1=1r and d2 as the
largest value satisfying inequalities (48).
3.6. Properties of the nonlinear controller
The properties of the proposed nonlinear policy (44) will be formulated as two theorems.
Theorem 4. If policy (44) is applied to system (6)(8), then the on-hand stock is always
upper-bounded by yref.
Proof. The warehouse at the distribution center is empty for any krnp. Hence, it sufces
to show that the proposition is satised for all k4np. Let us assume that for some integer
lZn, y(l)ryref. We will demonstrate that it follows from this assumption that the
theorem is also true for l1. Using Eqs. (2) and (44) the stock level in period l1 can be
expressed as
"ln 1 ln
#
Xp X p 1
lnp j np lnp j
yl 1 ryl rg r ujr r hj f lnp 1=cn hl:
j0 j0
49
Taking similar steps as in Eqs. (33) and (34), we arrive at
X
l1
yl 1 r r1gylg rlj hj f lnp 1=cn hl: 50
jlnp
Since h( ) is always nonnegative, and f( ) and cn have opposite signs, we obtain

yl 1rr r1gyl: 51
Finally, since we assumed y(l)ryref, then using the denition r=(1rgr)yref, we get
y(l1)r(1rgr)yrefr(1g)yref=yref. Using the principle of the mathematical induction
we conclude that the proposition is valid for any review period kZ0. &
Theorem 5. If policy (44) is applied to system (6)(8), and the reference stock level satisfies
inequality (36), then for any kZnk0 the stock level is strictly positive and the demand is
entirely satisfied from the readily available resources.
Proof. It follows from Eq. (43) that for k4k0 function f(k)=0. Consequently, for kZk0,
nonlinear controller (Eq. (44)) becomes equivalent to the linear control law (20), whose
action inuences the stock level for kZnk0. Since both controllers incorporate the order
history in exactly the same way, then taking into account relation (36), the proposition is
valid as a direct consequence of Theorem 3. This completes the proof. &
4. Relation to order-up-to policies
Let us denote the pending order (the order placed but not yet realized due to lead time)
in period k by O(k). In the considered class of logistic systems, the entire pending order can
be calculated
P by summing up all the orders u(k) generated in the last np periods, i.e.
Ok k1jknp uj. Then, if the demand forecasting is not used, the classical OUT policy
can be synthesized in the following way (see for instance [17] for a concise, comprehensive
explanation of the role of various components of typical inventory management policies):
X
k1
uk yOUT ykOk yOUT yk uj, 52
jknp
where yOUT is the order-up-to level and y(k) is the current stock value. This policy is
suitable in situations when demand follows a slowly varying seasonal trend. On the other
hand, when demand is subject to frequent variations in subsequent review periods, and the
bullwhip effect is of signicant concern, a different ordering rule may typically need to be
applied. A successful modication of the classical OUT policy aimed at smoothening the
order variations and thus counteracting the bullwhip effect in the traditional inventory
systems is the proportional OUT (POUT) policy [17]. When demand forecasting is not
applied, the POUT policy can be presented in the following way:
1 1 X k1
uk yPOUT yk uj, 53
Tn Tw jkn
p
where yPOUT is the order-up-to level, and Tn41/2 and Tw41/2 are constants used for
tuning purposes.
If one compares the control strategies proposed in this paper, Eqs. (20) and (44), with the
classical inventory policies (52) and (53), a similar control structure can be observed. In
essence, all the strategies base the calculations of the order quantity on the measurement of
the current stock level y(k) and the order history. However, the SM policies designed here,
Eqs. (20) and (44), explicitly account for the effects caused by deteriorating stock (quantied
by the powers of r), and thus are more appropriate for systems with decaying inventories. In
particular, the proposed controllers allow us to avoid overshoots and oscillations both in the
output variable and in the ordering signal, which is not guaranteed by the OUT policies for
arbitrary system parameters (delay and decay factor). As a consequence, policies (20) and
(44) will typically result in a smaller order-to-demand variance ratio and will impose smaller
holding costs.
5. Numerical example
Performance of the designed inventory policies, (20) and (44), is veried in a series of
simulation tests. The system parameters are chosen in the following way: review period
T=1 day, lead time Lp=npT=6 days and inventory decay factor s=0.1, which implies
r=1s=0.9. The maximum daily demand at the distribution center is estimated as
dmax=50 items. The supply source is assumed to have capacity limitationsit cannot
accumulate and send more than umax=70 items in one period.
Test 1: In the rst scenario we test the controller performance in response to the demand
pattern shown in Fig. 3, which reects abrupt changes in a seasonal trend. Since the
demand does not undergo rapid uctuations after a change in the trend, the order
smoothening is not required in the analyzed business setting. Instead, the primary objective
here would be to quickly react to a surge or decline in the market conditions, and thus gain
Fig. 3. Demand at the distribution centerseasonal trend.
Table 1
Controller parameter setting in Test 1.
Policy Gain Reference stock level (items)
SM linear (Eq. (20)) g=0.09 yref=3854381

SM nonlinear (Eq. (44)) g=1 yref=2654261
OUT (Eq. (52)) yOUT=460
yOUT=390
an advantage over the competition. Therefore, we set the gain of controller (20) as g=0.09,
such that the fastest responsiveness is obtained without violating the input constraint
u(k)rumax. In the case of controller (44) the gain may be increased to 1 with the
parameters of the reaching law selected as: d1=1r=0.1, d2=43.50 for 0rkr6, and
d2=19.59 for k46 (calculated according to (48)). The target stock level is adjusted as
indicated by (36) to ensure that all of the imposed demand is satised immediately from the
on-hand stock, and the maximum service level is obtained. The gain and target stock level
settings used in the simulations are summarized in Table 1. The operation of the proposed
SM controllers is compared with the classical inventory policy (52) (with a saturation
element added to conform to the input constraint). The order-up-to level for policy (52) is
set as either yOUT=460 items (such that the maximum service level is obtained), or
yOUT=390 items (such that it imposes the same holding costs as policy (44)).
The ordering signal generated by the policies is shown in Fig. 4, and the resultant on-hand
stock in Fig. 5. The nonlinear SM controller (44) (curve b) reacts faster to the changes in
market conditions than the linear scheme (20) (curve a). It also accumulates less resources to
satisfy all of the demand than controller (20), imposing smaller holding costs. The OUT
policy provides faster reaction to demand changes than the linear controller (20). However,
it responds more slowly to the situation in the market than controller (44), and incites
undesirable oscillations and overshoots both in the control signal (the orders placed at the
supplier) and the output variable (the on-hand stock level), thus leading to the bullwhip
effect. The OUT policy imposes smaller holding costs than the linear controller (20). With
yOUT set as 460 items the holding costs HCOUT=0.946HCpolicy (20), and in the second case
with yOUT=390 items, the holding costs HCOUT=0.706HCpolicy (20). However, the classical
ordering rule performs worse in the economical terms than the nonlinear SM policy (44).
When the order-up-to level is set as 460 items to ensure full demand satisfaction, the holding
costs HCOUT=1.341HCpolicy (44). On the other hand, when yOUT is reduced to 390 items to
Fig. 4. Order quantities: (a) SM policy (20), (b) SM policy (44), OUT policy (52) with (c) yOUT=460 items, and
(d) yOUT=390 items.
Fig. 5. On-hand stock level: (a) SM policy (20), (b) SM policy (44), OUT policy (52) with (c) yOUT=460 items,
and (d) yOUT=390 items.
Fig. 6. Sliding variable: (a) policy (20) and (b) policy (44).
match the holding costs of policy (44), then the percentage of demand satisfaction reduces to
98%. In that case oscillations intensify both in the ordering signal and the output variable.
In Fig. 6 we show the evolution of the sliding variable (9). We can see that the system
representative point reaches the sliding plane cTe(k)=0 in nite time, and never leaves a
small band around the plane afterwards. This means that the reaching conditions are met,
and, despite the presence of an external mismatched disturbance, the stability of the quasi-
sliding motion is ensured. In the case of controller (20) the sliding plane is reached in one
step, precisely as assumed in the design procedure, whereas in the case of controller (44) the
reaching phase is extended over several periods (k0=5).
Test 2: In the second scenario we investigate the controller performance in smoothening
the demand variations. For this purpose we assume a highly variable stochastic demand
Fig. 7. Demand at the distribution centerstochastic pattern with mean dm=25 items and standard deviation
dd=20 items.
Table 2
Controller parameter setting in Test 2.
Policy Gain Reference stock level (items)
SM nonlinear (Eq. (44)) g=0.6 yref=2804276

g=0.25 yref=3204316
POUT (Eq. (53)) Tn=Tw=1/0.6 yPOUT=440

Tn=Tw=4 yPOUT=570
Fig. 8. Order quantities: SM policy (44) with (a) g=0.6 and (b) g=0.25; POUT policy (53) with (c) Tn=Tw=1/0.6,
and (d) Tn=Tw=4.
following the normal distribution with mean dm=25 items and standard deviation dd=20
items shown in Fig. 7.
We compare the operation of policy (44) with the classical ordering rule the POUT
policy (53) developed heuristically for the purpose of combating the bullwhip effect in
two dynamical settings specied in Table 2. The reaching law parameters of controller (44)
are adjusted according to (48), and the reference stock level according to (36). The order-
up-to level for policy (53) in each dynamical setting is determined such that the same
holding costs are incurred as in the case of policy (44).
The orders generated by the policies are shown in Fig. 8. In the rst graph we compare
the SM policy (44) (curve a) with the POUT one (curve c) in the dynamical setting g=0.6,
Tn=Tw=1/0.6. In the second plot we depict the ordering signal for the case of reduced
dynamics g=0.25, Tn=Tw=4. It is evident from the plots presented in Fig. 8 that the
proposed SM controller with the sliding plane selected for the LQ optimal performance
Table 3
Bullwhip indicator.
Policy Gain Bullwhip indicator
SM nonlinear (Eq. (44)) g=0.6 0.163

g=0.25 0.102
POUT (Eq. (53)) Tn=Tw=1/0.6 0.489
Tn=Tw=4 0.175
throttles demand variations in a more efcient way than the POUT policy. It is conrmed
by the numerical data given in Table 3. According to the popular bullwhip indicator
proposed by Chen et al. [16] the order-to-demand variance ratio the SM controller
outperforms the POUT policy in smoothening the ordering variations in each of the
analyzed dynamical settings. This clearly shows the benets of application of systematic
design procedures in developing control schemes for the considered class of inventory
systems.
6. Conclusions
In this paper, a new supply policy for periodic-review inventory systems with
deteriorating stock was designed. The policy based on the theory of discrete-time
sliding-mode control guarantees stable system operation for arbitrary lead-time delay and
any bounded demand pattern. Since the properties of SM controllers depend largely on the
choice of the sliding plane, the design procedure concentrates on the selection of the
appropriate plane parameters. In order to counteract the bullwhip effect we propose to
apply dynamical optimization with quadratic quality criterion. The optimization problem
is solved analytically, which leads to a simple interpretation form of the control law.
The control law states that the generated order quantity should be proportional to the
difference between the current on-hand stock and its reference value decreased by the
amount of open orders quantied by the rate of deterioration within the last lead time. The
proposed policy is demonstrated to ensure nite on-hand stock level and full demand
satisfaction without referring to the knowledge of the pattern or statistics of demand.
Moreover, with the application of the appropriately tuned reaching law, the policy
conforms to the supplier limitations without downgrading the system dynamics. The
proposed SM controller obtained from a systematic design procedure outperforms the
classical order-up-to policy in terms of faster dynamics, lower costs, and higher level of
demand satisfaction. It also provides smaller order-to-demand variance ratio, and, thus, it
is superior to the classical ordering rule with respect to counteracting the bullwhip effect.
Acknowledgments
This work was nanced by the Polish State budget in the years 20102012 as a research
project N N514 108638 Application of regulation theory methods to the control of
logistic processes. P. Ignaciuk gratefully acknowledges nancial support provided by the
Foundation for Polish Science (FNP). He is also a scholarship holder of the project
entitled Innovative Education without LimitsIntegrated Progress of the Technical

University of odz supported by the European Social Fund.
Appendix
The solution procedure of the LQ optimal control problem (12) consists of two phases:
rst, we obtain matrix K from Eq. (16), and, afterwards, we calculate the elements of
vector g from formula (15).
Step 1: We intend to determine matrix K from Riccati equation (16). The proposed
solution method uses the concept of iterative substitutions of K into the expression on the
right hand side of (16), discussed in the context of the traditional inventory systems in
[28,29]. However, the presence of decaying inventories considered in this work leads to
nontrivial complications in the obtained equations, which enforces separate mathematical
treatment. The details of the derivation are given below.
We begin with the most general form of matrix K0=[kij]n n, and place it directly in
Eq. (16). After substituting matrix A and vector b, we search for similarities between the
elements kij on either side of the equality sign in Eq. (16). In this way we nd the relations
among the rst four elements in the upper left corner of K: k12=(k11w)/r and
k22=(k11w)/r2 (note that k21=k12 since K is a real symmetric matrix). Consequently,
after the rst analytical iteration, we obtain the following form of K:
2 3
k11 w
6 k 11 k 13 . . . k 1n 7
6 r 7
6 k w k w 7
6 11 11
k23 . . . k2n 7
6 2 7
K1 66
r r 7:
7 54
6 k13 k 23 k 33 . . . k 3n 7
6 7
6 ^ ^ ^ & ^ 7
4 5
k1n k2n k3n . . . knn
Now, we substitute K1 given by (54) into the expression on the right hand side of (16)
and compare it with the left hand side, which allows us to represent the elements ki3 (i=1,
2, 3) in terms of k11:k13=(k11w)/r2w, k23=k13/r and k33=k13/r2. This results in
2 3
k11 w k11 w
k11 w . . . k 1n
6 r r2 7
6 7
6 k11 w 7
6 w 7
6 k w k11 w r2 7
6 11
. . . k 7
6 2n 7
6 r r2 r 7
K2 66 7: 55
k 11 w k 11 w 7
6 w w 7
6 k11 w r2 r2 7
6 . . . k3n 7
6 r2 w r r 2 7
6 7
6 7
4 ^ ^ ^ & ^ 5
k1n k2n k3n . . . knn
After substituting K2 given by Eq. (55) into the expression on the right hand side of
Eq. (16) and comparing with its left hand side, we nd further relations among the
elements of K. For each column j=1,y,n we have

kij k1j =ri1 for irj, 56
while the elements in the rst row of K satisfy the following relation:
k1j k1j1 =rwrj3 for j41: 57
We repeat the substitutions until all the elements of K can be expressed as functions of k11,
w, and r. The nal closed-form expression for K is determined as follows (for the sake of
clarity we present only the upper part of the symmetric matrix K):
2 P Pn2 2j 3
k11 w k11 w 1j0 r2j k11 w j0 r
6 k11 ... 7
6 r r 2 rn1 7
6 P1 P1 Pn2 2j 7
6 2j 2j 7
6 k11 w j0 r k11 w j0 r k11 w j0 r 7
6 k12 . . . 7
6 r2 r3 rn 7
6 P1 P 7
6 n2 2j 7
K6 k11 w j0 r2j k11 w j0 r 7: 58
6 k13 k23 ... 7
6 r 4 rn1 7
6 7
6 ^ ^ ^ & ^ 7
6 7
6 P 7
6 n2 2j 7
k11 w j0 r 5
4
k1n k2n k3n ...
r2n1
In order to determine k11, we substitute (58) for K on the right hand side of (16), and
compare the rst element in the upper left corner of the obtained matrices. This yields
, !
Xn2 X
n1
4n2 2j 2n1
k11 r k11 w r r w r2j r2n : 59
j0 j0
Eq. (59) has two roots:

q X
n2
7 1 2n1 2
k11 r r w17 w2 2wr2 1 r2 12 w r2j : 60
2 j0
In order to determine which of the roots of Eq. (59) constitute the desired unique
solution of the optimization problem, we determine the leading principal minors and the
determinant of K:
! !
wj1 X
j2
wn1 X
n2
2i 2i
M1 k11 ,Mj 2j1 k11 w r for 2rjon, detK 2n1 k11 w r :
r i0
r i0
61

Consequently, only k11
guarantees that for arbitrary w and r all the leading principal
minors and the determinant of K are positive, and, according to the Sylvesters criterion,

K is positive denite. Thus, K given by (58) with k11 specied by (60) is the desired solution
of the Riccati equation (16).
Step 2: Having found K, in order to complete the controller design, we need to determine
vector g from Eq. (15). Substituting Eqs. (7) and (58) into Eq. (15), we obtain
h i
g rn rn1 rn2 . . . r g, 62
where
!, !
knn X
n2 X
n2
g k11 w r2i k11 w r2i r2n1 ,
knn 1 i0 i0
q

which after substituting k11 k11 reduces to g w2 2wr2 1 r2 12 w r2 1 =2r2 :
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Journal of the Franklin Institute 349 (2012) 15611582

LQ optimal sliding-mode supply policy for

Fig. 1. Flow of goods and information.

2.1. System model

Fig. 2. System model.

Moreover, since u(kT)=0 for ko0, we can write

2.2. State-space representation

where A is n  n state matrix; b, v, and q are n  1 vectors

3. Proposed inventory policy

In this section, a control-theoretic approach is employed to design an SM controller for

3.1. Controller design

3.2. Optimization problem

3.3. Stability analysis

A discrete-time system is asymptotically stable if all the roots of the characteristic

3.4. Properties of the linear controller

r1r r1r grnp 1 dmax

Since h( )Z0 we get the lower bound of the ordering signal:

Case 1. When maxfr, ug r, or

ul 1rr1r r1gr grnp 1 dmax rgrr grnp 1 dmax rr: 30

Case 2. In the situation when rou we get from (28)

3.5. Reaching law based design

the system representative point is guaranteed to reach the hyperplane s(k)=cTe(k)=0

Function f( ) represents the distance that remains to be covered by the representative

We assume that f(0)=cTe(0)=cnyref(1rgr). Since f( ) is strictly monotonic this

3.6. Properties of the nonlinear controller

Since h( ) is always nonnegative, and f( ) and cn have opposite signs, we obtain

4. Relation to order-up-to policies

Fig. 3. Demand at the distribution centerseasonal trend.

Policy Gain Reference stock level (items)

SM linear (Eq. (20)) g=0.09 yref=3854381

Policy Gain Reference stock level (items)

SM nonlinear (Eq. (44)) g=0.6 yref=2804276

POUT (Eq. (53)) Tn=Tw=1/0.6 yPOUT=440

Policy Gain Bullwhip indicator

SM nonlinear (Eq. (44)) g=0.6 0.163

entitled Innovative Education without LimitsIntegrated Progress of the Technical

elements of K. For each column j=1,y,n we have

Eq. (59) has two roots:

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where A is n n state matrix; b, v, and q are n 1 vectors