Evolving Hybrid Deep Neural Network Models for End-to-End Inventory Ordering Decisions

Abstract

Background: Over the past decade, the potential advantages of employing deep learning models and leveraging auxiliary data in data-driven end-to-end (E2E) frameworks to enhance inventory decision-making have gained recognition. However, current approaches predominantly rely on feed-forward networks, which may have difficulty capturing temporal correlations in time series data and identifying relevant features, resulting in less accurate predictions. Methods: Addressing this gap, we introduce novel E2E deep learning frameworks that combine Convolutional Neural Networks (CNN) and Long Short-Term Memory (LSTM) for resolving single-period inventory ordering decisions, also termed the Newsvendor Problem (NVP). This study investigates the performance drivers of hybrid CNN-LSTM architectures, coupled with an evolving algorithm for optimizing network configuration. Results: Empirical evaluation of real-world retail data demonstrates that our proposed models proficiently extract pertinent features and interpret sequential data characteristics, leading to more accurate and informed ordering decisions. Notably, results showcase substantial benefits, yielding up to an 85% reduction in costs compared to a univariate benchmark and up to 40% savings compared to a feed-forward E2E deep learning architecture. Conclusions: This confirms that, in practical scenarios, understanding the impact of features on demand empowers decision-makers to derive tailored, cost-effective ordering decisions for each store or product category.

Keywords

• inventory optimization
• newsvendor problem
• deep learning
• CNN-LSTM
• evolving algorithms
• end-to-end approaches