To simulate or not to simulate…

KerryZuber

It was approximately 12 years ago when the company I was working for made the difficult decision to outsource the board manufacturing shop.  After a very trying six month transition, the management team was questioning the wisdom of the move.   Deliveries from the subcontractor were consistently late and quality problems were worse than at any time in recent memory.  Much of these problems were not the direct responsibility of the subcontractor as we were quickly learning how much of the hidden factory had failed to transfer (which was not reflected in the process documentation).     We were at serious risk of missing key revenue goals for the year and our customers were rapidly losing confidence in our delivery capabilities.

I was asked by the site leader to assess exactly how much of our missed revenue was the direct consequence of the outsourcing predicament and what would our year-end performance look like if the situation didn’t improve.  Under normal circumstances, these questions would have been extremely difficult to answer given that the CCA’s were only a subset of the materials required for assembly and the low volume, high mix of our sales activity made general assumptions impractical.   Fortunately, we had recently invested in a response management tool that provided us with some very easy to use simulation capabilities.   In a matter of hours, I was able to not only identify all of the revenue that was impacted by late supplies from the subcontractor, but also create a range of scenarios with different assumptions concerning future performance.     These simulations helped us to rationalize priorities and additional investments in risk mitigation that proved to be instrumental in minimizing the impact to revenue and customer satisfaction.

While this experience made it easy to further promote the value of the simulation tool, many of my peers in supply chain management were significantly less enthusiastic.   They argued that our aerospace business was not very volatile and that we had been profitable and successful at managing the business without any simulation tools for years.

Much has changed in the business climate since those days, with much greater demand volatility driven by both the global market place and the speed of new product introductions.   The combination is the perfect storm for creating sales and operations plans that are quickly at odds with reality.   Never has the need for simulation capabilities been greater and yet I’m still surprised by the number of companies who have not made investments in this area.

In a survey by the Demand Management Solutions Group (DMSG) almost half of the 130 respondents said that less than 25% of the decisions related to demand exceptions were supported by technology solutions.    Other supply chain surveys have consistently highlighted simulation capabilities as one the key business technology gaps needed to improve S&OP performance.    In my experience, companies that are testing the various demand scenarios (and their supply chain risks and capabilities to support those scenarios) are more prepared to react when change does occur.

So when faced with questions about your organizations readiness to address possible variations in the demand or supply picture, if you haven’t yet invested in a simulation tool, you probably can’t fully appreciate  the performance improvements (or risk mitigation) that they can provide.

KerryZuber

Kerry Zuber is vice president of business consulting at Kinaxis and is responsible for guiding the company’s pre-sales consulting department, which specializes in establishing the value of the RapidResponse service for prospective clients and identifying specific solutions that fit client needs. Kerry is also instrumental to the development and execution of initiatives under the Kinaxis Partner Program.

Kerry joined Kinaxis in 1999 as a senior solution consultant and was responsible for the definition and implementation of extended business solutions with several of the company’s largest customers. Kerry has a long history in supply chain leadership positions, as well as APICS CPIM certification, a bachelor’s degree in business administration and extensive training and certification in the implementation of lean enterprise practices.

More blog posts by Kerry Zuber

Discussions

  1. Hi Kerry,
    What about building MVA process model based on operational data ?
    I think you need both capabilities:
    1. Simulation to predict results before changes in the process are made.
    2. On line monitoring (Using MVA models) for better understand the current process problem and improve the knowledge to build better simulations.

    If you don’t have operation data, simulation will be the only way to improve your process.

    Your comments will be appriciated.

    Best regards,
    Shimon Padan

  2. Dear Kerry
    Many do not distinguish between simulation and prediction.
    In prediction we use real values of the process and a statistical formulation such as MVA.
    Whereas a simulation is basicly built on knowledge and assorted parameters known
    to have theoretical rellation to that process outcome.

    Here are my questions, on which I would greatly appreciate your feedback:
    1. When writting this article what type of forcasting did you use Simulation as I understand it or Prediction as explained above?
    2. Also please tell us what software (simulation tool) did you use to do the evaluation of expected revenue loses?
    3. What company produces that tool?

    Thanks for your kind answer
    Shuki Weiss
    Rehovot
    Israel

  3. With reference to the comment made by Shuki Weiss.
    Many tools exist in the market place that utilise demand planning, MRP and ERP systems to provide the management team the opportunity to evaluate where they should be focusing their efforts to reduce risk and improve performance. Calculation of lost revenue due to poor supply is relatively easy number to determine if you have the data systems in place.
    The ability to be able to run a What-if scenario is beyond MRP as it is too busy doing the day job but all large manufacturing and supply companies should avail themselves with the capability of decision support tools

    Examples can be found at http://www.barloworldoptimus.com/

    I don’t want this to come across as a sales pitch, there are a number of providers in the market place and the decision as to which tool/provider should not be made lightly as it will (if chosen and used correctly) be invaluable.

    Kind Regards

    Mark Rowbotham
    Barloworld Optimus

Leave a Reply