Impact of modelling approximations in supply chain analysis – an experimental study

Abstract

This paper presents a study of the comparison of the quality of results obtained at different levels of detail using a supply chain simulation. Analysis of supply chain is typically carried out using aggregated information to maintain the level of complexity of the simulation model at a manageable level. Advances in simulation have provided the ability to build comprehensive (detailed), modular models. The quantitative effect of detailed modelling on the corresponding analysis is investigated in this paper. A three-echelon supply chain is analysed using simulation models of varying levels of detail. Using each of these models, four sets of intensive experiments are performed. The first experiment intends to test whether the supply chain dynamics themselves depend on the modelling accuracy that represents the supply chain. The second and third experiments are conducted to test whether the effectiveness of the strategies employed to reduce the supply chain dynamics vary depending on the type (different detail) of model representing the supply chain. In the fourth experiment, statistical techniques are employed to identify which modelling aspect has the most influence on the supply chain dynamics. It is found that the approximations used in modelling, such as delays and capacity, have more impact on the outcome of supply chain analysis than end customer demand. Evidence that both the basic problem (supply chain dynamics) and the solution (strategy to reduce the dynamics) are greatly influenced by the modelling accuracy are presented.

Acknowledgements

We would like to thank the anonymous reviewers for their constructive suggestions which helped in clarifying and improving this paper. The work was supported by the National Institute of Standards and Technology Grant and State of Arizona Information Technology and Commerce Institute Grant.