Supply Chain Modeling and Simulation Techniques

There’s a saying in the statistics profession, “All models are wrong, but some are useful.” This saying is attributed to the British statistician George Box. What he meant is that all models must be summaries of reality, and because they are summaries, they are wrong to some degree. Builders of models must select key variables that capture the essence of a situation because it is not possible to include all the different variables that exist in a situation and address all their possible interactions. In a paper published in the Journal of the American Statistical Association, Box said, “Since all models are wrong the scientist cannot obtain a “correct” one by excessive elaboration. On the contrary following William of Occam, he should seek an economical description of natural phenomena. Just as the ability to devise simple but evocative models is the signature of the great scientist, so over elaboration and over parameterization is often the mark of mediocrity.” ( Box, G. E. P. (1976), “Science and Statistics” (PDF), Journal of the American Statistical Association, Vol. 71: 791–799)

An example of this is a famous mathematical model that captures the essence of the relationship between energy and matter in the universe. That model says energy equals mass times the speed of light squared, expressed as: E = mc2. There are many other variables (beyond energy, mass and the speed of light) that could potentially be included in a more elaborate model, but they would only increase the complexity and not significantly improve the model’s accuracy.

 SCM Globe models and simulates supply chains by focusing on the flow of products through a network of facilities. Flow can be modeled using basic differential equations from fluid dynamics. Flow is influenced by demand for products at facilities and the storage capacity at facilities. Flow is also influenced by cargo capacity of vehicles moving products between facilities plus vehicle speeds and trip frequencies on delivery routes.

A map is another example of a model that summarizes reality. To contain all the detail of the real world a map would have to be as big as the world itself. So maps leave out a lot of detail, yet many are still quite useful.

SCM Globe combines a useful mathematical model with a useful map. It captures the essence of any supply chain anywhere in the world but leaves out some of the details and complexity. Yet it still creates an accurate picture of any supply chain you wish to explore. Listed below are links to pages in this online guide where you can learn more about techniques and best practices for building supply chain models and using simulations to explore options and solve problems:

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To make SCM Globe accessible to a wide audience of students, professionals and business people, we have summarized and simplified certain aspects of supply chain modeling. Other simulation applications track more individual variables, and have more features and calculating capabilities, but that also makes them more complicated and more expensive.

Our approach is to focus on the interactions between just the four supply chain entities: products; facilities; vehicles; and routes. We also employ a map-based user interface throughout. In this way, we present the essential supply chain activities in an easily understandable and usable format — making supply chain modeling and simulation accessible and useful to a wide audience at an affordable price.

We continuously make improvements and add selected new features based on feedback from customers and reviewers. Recently, we developed a set of reporting templates that enable people to use data produced by simulations to create monthly Profit & Loss Reports and generate supply chain performance indicators.See more in the online guide section Analyzing Simulation Data – scroll down to the heading titled “Download Simulation Data to Spreadsheet Reporting Templates”.

simulation-icon-thumb MODELING, SIMULATION AND TRAINING SERVICES

Advanced supply chain modeling, simulation, optimization, and risk assessment services are available through our consulting partners. They can work with you online or in person. Find out more by inquiring at info@scmglobe.com or contacting Michael Hugos at mhugos@scmglobe.com

 

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