What if you could
predict how your supply chain would perform under any circumstance? The value
is obvious, but how is it possible?
Simulation technology has been around for decades, used by engineers and scientists to help predict behaviour under the challenge of real-world variability. However, simulating the end-to-end supply chain has proven challenging due to numerous reasons:
However, the recent convergence of two unrelated factors has brought supply chain simulation to the forefront. The first is the new business climate driving unprecedented demand for simulation; the second factor is the IT evolution enabling the supply of reliable technology to support this new demand.
Why Simulate the Supply Chain?
The answer to this question seems simple. If you could accurately predict the behaviour of your supply chain, you should be much better equipped to make key decisions on strategy and execution. But what type of behaviour can you actually predict using supply chain simulation? And just how accurate will these predictions be?
Discrete event simulation is a unique form of analysis that truly factors time and variability into each individual transaction, decision and movement throughout the supply chain. By creating a detailed model of the end-to-end supply chain that incorporates variability into elements such as demand, sourcing lead times, transport times, handling and production, a simulation will report key point-in-time metrics such as:
If you run multiple iterations, you can also track how drastically the accumulation of these different variables will affect supply chain performance and how wide the swing can be in both a positive and negative direction.
Demand: The New Business Climate
The pace of change, volatility and rapidly evolving consumer behaviours mean that companies must continuously analyse their supply chain strategy and operations to adapt. Companies often need to act quickly and don’t have the luxury of testing their new strategies in the real world before rolling them out across the organisation.
Instead, companies must simulate the behaviour of their supply chain to help predict behaviour and the expected effects of changes on performance metrics including cost, service, sustainability and risk.
So, what’s Driving the Need for Simulation Technology in Business?
1 - The pace of change—Product models that used to last multiple years or even decades are now turning over multiple times each year or even every few months, meaning a continuous management of new product introductions and old product phase-outs.
2 - Volatility—Distribution and unpredictability is the new norm. Fuel and other commodity costs now seem to rise and fall in extremes, with major impact on the landed cost of goods. Suppliers that have been stretched into thin margins or single sourced due to cost measures suddenly fail, leaving supply chain executives in precarious positions. Port congestion and customs delays lead to significant lead time issues.
3 - New consumer behaviours—Today’s customer acts very
different than customers of even a few years ago, and the rise of e-commerce
has drastically altered the consumer’s shopping patterns and expectations.
Making the wrong decision, such as investing tens of millions for capacity in the wrong place or running out of inventory during peak buying periods can put companies out of business. Predicting the effects of these decisions through enterprise simulation helps reduce the risk and validate the decision before it is implemented in the real world.
Opportunities to use supply chain simulation for more robust decision-making or to save a company from making a drastically bad decision are plentiful. So why doesn’t every company simulate their supply chain operations before making critical decisions?
The reality is that until very recently, it simply hasn’t been possible to simulate the complex dependencies of a global supply chain, nor was it possible to simulate the sheer magnitude of products, nodes and transactions that make up these supply chains. The use of simulation software has traditionally been limited to engineers and scientists, in part due to its extreme complexity.
Today, simulation applications have widened the reach and usability of the technology to business analysts who are applying simulation as a key component of their corporate supply chain design practice.
Contributed By Rod Stout, Managing Director, Business Modelling Associates
