Proceedings of the 1999 Winter Simulation Conference P. A. Farrington, H. B. Nembhard, D. T. Sturrock, and G. W. Evans, eds. SUPPLY CHAIN VS. SUPPLY CHAIN: USING SIMULATION TO COMPETE BEYOND THE FOUR WALLS George Archibald Nejat Karabakal Paul Karlsson IBM Corporation 140 East Town Street Columbus, OH 43215, U.S.A. ABSTRACT It has been said in this world of virtual corporations that it is no longer companies that compete, but supply chains. When you look at the model of a corporation today, the traditional vertically integrated business seems to be a thing of the past. A prime example of this is Nike. They own no factories, trucks, or stores, yet are one of the world's most successful retail firm. Today's supply chains reflect this trend in that few firms control the entire supply chain from end to end. Most companies rely on a mix of suppliers, transportation resources, assemblers, warehousing firms, and retail outlets to bring their product to the market. As a result of this mix of outside firms, it is often difficult to know the impact of changes or poor performance on the supply chain. What is needed is a tool that can give visibility of the entire supply chain that allows for the testing of numerous "what if" scenarios such as outsourcing, consolidating vendors, collaborative planning, or implementing e-business. Only with this capability will you and all of your supply chain partners be able to effectively compete against your competitors’ supply chains. 1 INTRODUCTION The Supply Chain is the series of activities that an organization uses to deliver value, either in the form of a product, service, or a combination of both, to its customers. Recent trends in the economy have de-emphasized the benefits of vertical integration (economies of scale, access to capital, large physical infrastructure investment, etc.) and instead focused on the benefits of being specialized and focused (speed, agility, rapid growth, deep skills, etc.). These trends have forced even large organizations to rely on hundreds or even thousands of external firms or suppliers to deliver value to the marketplace. As this shift has taken place, the importance of managing and coordinating the activities between these disparate entities has become paramount. Today that effort is often referred to as Supply Chain Management or SCM for short. SCM can be defined as achieving a sustainable competitive position and maximizing shareholder value by optimizing the relationship of process, information, and physical goods among internal and external trading partners. This optimization process involves the following activities: 1. Customer Demand Planning 2. Customer Order Fulfillment and Customer Service 3. Strategic Sourcing and Procurement 4. Production Logistics 5. Distribution Networks and Warehouse Management 6. Transportation and Shipment Management 7. Integrated Supply and Demand Planning Successful SCM requires an integration of these activities into a seamless process. This process must include the organizational departments responsible for each activity and the external suppliers and customers who are part of the equation. The goal is speed-to-market, agility, and flexibility to respond more quickly to actual customer demand, while keeping cost at a minimum. Herein lies the potential of an integrated SCM process. A critical additional component is the information systems required to monitor these activities. Information is the key. It must be bi-directional between the organizational departments and suppliers/partners to truly leverage the supply chain. Typically, SCM costs represent a majority of the operating expenses of most companies. These costs can range from as low as 30% to as high as 75%. In addition to reducing operating costs, SCM can provide additional 1207