Modelling, Simulation, and, most importantly, Decision Optimization … and I’m very glad to see that the ISM recently ran an article in Inside Supply Management on Improving with M&S. Because, as the article points out, once the behaviour of a system is understood, supply managers can realign assets with the intent of finding the arrangement that will yield the most optimal measures of performance.

Furthermore, as the article points out, modelling, in its most basic form, is the creation and arrangement of representational elements that approximate reality. Simulation is the potential interaction, or playing out, of these elements over time. And optimization is the application of rigorous analytical techniques to a well-defined scenario to arrive at the absolute best decision out of a multitude of possible alternatives in a rigorous, repeatable, and provable fashion. Together, the technologies can be used to determine how to balance costs and resources.

The article gives some great tips for novices in MOS (Modelling, Optimization, and Simulation). Specifically, it notes that:

• the goal is not to mirror the real-world system in all its detail but to represent those aspects that are expected to meaningfully affect the performance variables of most interest
  as it is impossible to model everything, there is a need to focus on what is relevant; for example, there may be 50 different cost elements in a breakdown of a component down to raw materials, but if 10 of them represent 80% of the cost, and only 5 of them are variable, focus on those 5 and wrap the other 46 into one
• if the model and simulation are producing behaviour similar to the known real world, then the model most likely is an appropriate, or valid, reflection of that real-world system
  if the model works well, don’t second guess it; unknown is unknown and trying to guess the unknown doesn’t make it known
• we learn through experimentation
  but experimenting with the real system is costly, counterproductive, and could meet organizational resistance
• the process of modelling and simulating a real-world system assists in identifying major system strengths and weaknesses
  strengths which can be leveraged through targeted interventions and weaknesses which can be overcome through appropriate system redesign; the process of identifying strengths and weaknesses and virtually experimenting with changes to the system allows analysts and supply managers to see unintended second- or third-order consequences that might not have been readily apparent otherwise
• selecting and analyzing various supply management activities and processes can be crucial in improving efficiencies and performance
  if the organization doesn’t know where its performance can be improved, then it will not be able to improve its performance

All great tips and all reasons why modelling, simulation, and optimization should be used by each and every Global 3000 organization.