Control theory concepts have been long used to successfully manage and optimize complex systems. Using system dynamics (SD)\r\nmodeling methodology, which is continuous deterministic simulationmodeling methodology, we apply control theory concepts to\r\ndevelop a suitable performance functional (or objective function) that optimizes the performance of a retail supply chain.Thefocus\r\nis to develop insights for inventory management to prevent stock-outs and unfilled orders and to fill customer orders at the lowest\r\npossible cost to supply chain partners under different scenarios, in a two-player supplier-retailer supply chain. Moderate levels\r\nof inventory, defining appropriate performance functional, appear to be crucial in choosing the right policies for managing retail\r\nsupply chain systems.Thestudy also demonstrated howmultiple objectives can be combined in a single performance functional (or\r\nobjective function) by carefully assigning suitable weights to the components of objectives based on their priority and the existence\r\nof possible trade off opportunities.
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