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Use of supply chain simulation tools has been increasing of late, driven in large part by the globalization of supply networks and the use of offshoring.
A recent article by PRTM consultants Bob Moncrieff and Tony Paolini provides several interesting examples of how use of such tools has paid off for corporations. As the authors note, “ Until recently, a PhD in decision sciences seemed a prerequisite to design the optimal supply chain network. Today, new simulation and configuration tools can evaluate alternative scenarios automatically and determine the best locations for key supply chain capabilities. These tools provide objective, fact-based guidance to making effective decisions about supply chain configurations, and can eliminate subjective debates.”
Three benefits of simulation tools are cited:
- Gain understanding of multiple variables and their impact on supply chain results, starting simply and adding complexity as the model builds
- The ability to perform time-phased analysis, seeing, for example, a trend towards gradual but significant increases in inventory levels
- The ability to easily perform multiple “what-if” analyses and understand the impact of different operational scenarios.
One example illustrates these points. A sporting goods manufacturer was using U.S.-based assembly of components sourced from Asia, but was questioning whether it should also move final assembly offshore. A static analysis showed that indeed costs would be lowered.
But the company then ran multiple simulation scenarios against that design, particularly against different demands patterns in the company’s very seasonal and difficult to forecast business. It ultimately concluded that potential increases in inventory and transportation costs that would be likely incurred in the real world, combined with lingering concerns about quality from offshore providers, meant the potential per unit savings were just not worth it.
Right now, the market for these types of tools is a bit confusing. There are traditional network optimization vendors such as i2, CAPS logistics (now part of SSA), Manugistics and Insight. There are also a few newer entrants such as Logic Tools, and related inventory optimization vendors such as Optiant, Gain Systems and others. Contract manufacturer Flextronics offers a tool that is more of a true simulation environment.
The goods news is that there are lots of choices, and the ease of use of many of the tools has improved, though first time users invariably require help of a consultant.
Are you using supply chain simulation tools? What are the benefits and challenges? Let us know your thoughts.