Deep reinforcement learning for selecting demand forecast models to empower Industry 3.5 and an empirical study for a semiconductor component distributor

A semiconductor distributor that plays a third-party role in the supply chain will buy diverse components from different suppliers, warehouse and resell them to a number of electronics manufacturers with vendor-managed inventories, while suffering both risks of oversupply and shortage due to demand uncertainty. However, demand fluctuation and supply chain complexity are increasing due to shortening product life cycle in the consumer electronics era and long lead time for capacity expansion for high-tech manufacturing. Focusing realistic needs of a leading distributor for semiconductor components and modules, this study aims to construct a UNISON framework based on deep reinforcement learning (RL) for dynamically selecting the optimal demand forecast model for each of the products with the corresponding demand patterns to empower smart production for Industry 3.5. Deep RL that integrates deep learning architecture and RL algorithm can learn successful policies from the dynamic and complex real world. The reward function mechanism of deep RL can reduce negative impact of demand uncertainty. An empirical study was conducted for validation showing practical viability of the proposed approach. Indeed, the developed solution has been in real settings.