A simulation-based optimization model for balancing economic profitability and working capital efficiency using system dynamics and genetic algorithms

Abstract

Economic uncertainty has been increasing, as evidenced by recent fluctuations in global markets and unpredictable economic indicators such as volatile demand, stock market fluctuations, and unpredictable interest rates. Economic profitability and working capital efficiency are pivotal indicators of a business’s financial health, both of which are adversely impacted by economic uncertainty. However, these metrics may diverge as distinct objectives drive them. There exists a gap in the literature regarding effective strategies for managing the trade-off between these metrics under economic uncertainty. This study addresses this gap by introducing a simulation-based optimization model that integrates system dynamics simulation and genetic algorithms. The proposed model aims to balance economic profitability and working capital efficiency within inventory management under partial trade credit. A recent real case study demonstrates the model’s applicability and reveals its superiority over conventional system dynamics simulation modeling. With its capacity to inform strategic and tactical decision-making, this model emerges as a valuable tool for supply chain and financial managers seeking to ensure financial stability amidst economic volatility.