Simulation of Supply Chain Risk

Abstract

Supply chains involve many risks. Modeling that risk focuses on probability, a well-developed analytic technique. Simulation is the most flexible management science modeling technique. It allows making literally any assumption you want, although the trade-off is that you have to work very hard to interpret results in a meaningful way relative to your decision.

Because of the variability inherent in risk analysis, simulation is an obviously valuable tool for risk analysis. There are two basic simulation applications in business. Waiting line models involve queuing systems, and software such as Arena (or many others) are very appropriate for that type of modeling. The other type is supportable by spreadsheet tools such as Crystal Ball, demonstrated in this chapter. Spreadsheet simulation is highly appropriate for inventory modeling as in push/pull models. Spreadsheet models also are very useful for system dynamic simulations.