and Supply Chain
Some of the most complex systems in the present
web-centric world are supply chains spanning across enterprises, linking
suppliers and manufacturers to customers all over the world.
Supply chain performance is a resultant of interaction
among the supply chain players like manufacturers, distributors,
retailers, and so on. The behavior of these players affects, and is
affected by structure, policy, material and information flow. Analyzing
supply chains becomes complex given the dynamic interactions among these
entities and the uncertainty associated with demand and supply.
for classifying Supply Chain Simulation:
Simulation is ideal for mapping
these complex interactions and incorporating
uncertainty through What-If Analyses. It can help evaluate supply
chains in terms of performance parameters, without perturbing the reality.
||Granularity: Decision on right layout for loading
bay inside a warehouse requires far more detail than decision on
warehouse location or capacity.
||Abstraction: While conventional simulation
can simulate material and information flow, agent-based
simulations can simulate
the actual behavior of supply chain players, which are impacted
by and in turn affect material and information flow.
||Time treatment: Information / material flow
in most situations occurs at intervals and hence, discrete event
simulations are common. Simulating a network of oil pipelines to
arrive at loads at different locations requires consideration of
||Architecture: A decision, which affects geographically
dispersed stakeholders across a supply chain, is best addressed
through an Internet enabled simulation, while a local decision on
the right stocking policy for a particular depot is addressed through
a desktop simulation tool.
addressed by Supply Chain Simulation:
Supply chain simulation can address decisions where the number
of choices is limited, but the evaluation
is analytically infeasible on account of significant uncertainty
associated with decision variables. A few examples of such decisions
Should one add a new warehouse, given that demand is likely
to go up by 20% next year, for given warehousing capacity, lead
times and desired customer service level?
location: Where should such a warehouse be located, given
lead times, reliability of available modes of transportation, geographical
distribution of customers, and desired customer service levels?
- Choice of
Should one go for a costlier mode of transport, which promises
more reliable deliveries? The cost of lost orders / delayed orders
has to be compared with higher transportation cost.
policy: Should one go for periodic or continuous review
for given monitoring and inventory carrying costs, and uncertainty
in demand? Periodic review systems typically mean higher inventory
carrying and lower monitoring costs.
policy: What should be the desired stocking level for
different classes of products, given uncertainty in demand, lead
times, review periods and desired customer service level?
If one were to allow partial shipments, what will be its effect
on response time and response time of the connected destination
alternative options and evaluating them using an objective output
parameter such as customer service level typically address all these
benefits of Supply Chain Simulation:
Determining stocking levels so as
to balance customer service levels and inventory holding costs has been
a complex task. This is mainly because of uncertain and dynamic demand
/ supply quantities and uncertain supply lead times. Simulation can
help evaluate alternative
stock levels based on impact of these on customer service
levels (order fill rates) and responsiveness (waiting times). Right
stocking policy can:
- Drive down holding costs
- Reduce cash to cash cycle time and improve ROI
- Avoid cost of lost sales
- Improve revenue through better product placement
To conclude, a well-designed supply chain simulation
holds the potential for evaluation of important decisions in a risk-free
environment with minimal costs. If used consistently, it can
help organizations anticipate changes
in supply chain structure and policy, and manage
supply chains proactively.
2000-10 DecisionCraft Inc.