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FinanceApril 16, 2021

Supply Chain Simulation: what you need to know

By: CCH® Tagetik

Read this blog to learn what you need to know about the Supply Chain Simulation

2020 Illustrates the Need for Better Supply Chain Scenario Planning

Supply chain management often promotes artificial intelligence (AI) as a universal benefit.  While the transformational power of AI is evident, too much faith is put into supply chain simulation platforms that are neither accurate nor predictive. 

As many supply chain organizations have discovered during the COVID-19 pandemic, supply chain simulation software is only as beneficial as the data behind it and the ability of its algorithms to apply advanced analytics to forecasting.

What is Supply Chain Simulation?

Gartner defines simulation as “the use of a mathematical or computer representation of a physical system to study constraint effects.” 

While the adoption of AI-based supply chain simulation is growing, only 42% of supply chain organizations have adopted agile methodologies, simulating projects and allowing a quicker realization of risks and reallocation of efforts. 

The success of an organization’s supply chain simulation depends on many factors, including: 

  • The development of a realistic model 
  • Access to structured and unstructured data 
  • Advanced analytics
  • Software that can determine the outcome to different scenarios 

This last factor, also known as predictive analytics, is the basis for successful supply chain simulation software.  Predictive analytics enable supply chain planners to visualize and analyze how events will unfold and allow them to make pre-emptive decisions to position their organization for the best possible outcome. 

The main benefits of supply chain simulations include: 

  • The ability to review how different components in the supply chain interact 
  • Measuring the impact of potential changes in the supply chain 
  • Testing upgrades and changes before implementing them in the real world using a digital twin 
  • Evaluating different scenarios 
  • Posing what-if questions 

A transformational business benefit of supply chain simulation is optimization-based scenario planning, determining how to optimize key metrics such as supply chain cost, risk, efficiency, and inventory. 

CCH® Tagetik Supply Chain Planning enables our clients to run simulations to navigate disruptions and challenges.  One such customer, Country Malt Group, used CCH® Tagetik to outperform an unexpected spike in sales for home brewing when craft brewing was experiencing an unprecedented decrease in sales.  Country Malt Group simulated how this shift affected their supply chain.  This allowed them to respond to the demand changes as they arose rather than react after they happened. 

When to Use Supply Chain Simulation

A supply chain simulation has multiple elements, including analyzing the product mix, evaluating different scenarios, and answering what-if questions related to strategy.  Here are some examples of when to use supply chain simulation.

Product Mix Analysis 

One of the main challenges facing supply chain organizations is deciding on the right product mix.  Some products may harmonize with the organization’s long-term strategy, while others may not but are still turning a profit.  In most instances, these decisions are complex, and it is difficult to evaluate how they will affect an organization’s overall profitability.  Simulations provide valuable answers to the product mix questions, allowing planners to weigh possible outcomes before implementing a strategy, resulting in more significant profit margins. 

Scenario Analysis

Typically, supply chain planners face multiple options when sourcing products.  There are many decisions around supplier location, price, delivery cost, shipping, tariffs, risk, continuity of supply, and quality.  Using a predictive analytics-based scenario analysis allows planners to evaluate these and other factors to determine which of many alternatives offer the lowest risk, maximize profit, and best support the organization. 

What-if Analysis 

What happens if the global economy collapses?  Or if the world’s busiest trade route becomes blocked?  Last year, no one would have predicted these events and their disruptive power.  S&OP what-if analysis enables supply chain planners to simulate what would happen if X, Y, or Z occurs.  It highlights risks not only to the bottom line but also throughout the supply chain.  CCH® Tagetik for Inventory Optimization prepares planners for market demand changes with advanced scenario modeling and constraint-based planning.  Planners model and run what-if scenarios and see how an act impacts forecasts across supply chain plans. 

Conclusion

Supply chain simulation is a growing, practical process essential for success in today’s turbulent landscape.  In 2020, 73% of companies experienced supply chain disruptions due to the pandemic.  There has never been a greater need for simulation software, such as CCH® Tagetik Supply Chain Planning.  As organizations face these supply chain challenges, they need the certainty offered by a supply chain simulation strategy supported through advanced predictive analytics. 

To learn more about our CCH® Tagetik Supply Chain Planning, check out here.

CCH® Tagetik
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Wolters Kluwer (AEX: WKL) enables finance, legal, tax, and healthcare professionals to be more effective and efficient. We provide information, software, and services that deliver vital insights, intelligent tools, and the guidance of subject-matter experts.

We understand the complex challenges that face the Office of the CFO and translate that knowledge into intuitive, enterprise-scale CCH Tagetik performance management software solutions that drive business results.

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