A four step methodology for using simulation and optimization technologies in strategic supply chain planning

Supply chains are real-world systems that transform raw materials and resources into end-products that are consumed by customers. Supply chains encompass a series of steps that add value through time, place and material transformation. Each manufacturer or distributor has some subset of the supply chain that it must manage and run profitably and efficiently to survive and grow. Decisions about how to plan a company's supply-chain operations can be operational, tactical or strategic. Strategic decisions are the most far-reaching and difficult decisions to make. These decisions are characterized by complexity, interdependence and uncertainty. Simulation and optimization modeling techniques are used to help make supply-chain strategic decisions. The "four-step methodology" (network optimization, network simulation, policy optimization, and design for robustness) is a proposed approach to supply-chain strategic planning that attempts to leverage the strength of multiple modeling techniques. Each step solves a different part of the master planning problem, using either optimization, simulation or simulation-optimization. By using complementary modeling approaches together in the four-step methodology, the supply-chain planner's activities and decisions can be greatly improved.