Simulation Software

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SIMULATION SOFTWARE

Companies that engage in e-commerce rely on software for a variety of things, from ensuring security, operating servers, and managing customer relationships to providing visitors with online shopping carts and payment systems. By definition, software consists of instructions that tell computers what to do. Although it's customary to view hardware and software as separate and distinct elements that work in tandem to make a computers operate, the two are actually enmeshed together at many different levels. Software normally is placed in one of two different categories: system software and applications. Applications are software programs that users apply to various tasks, ranging from enjoyment to productivity. One particularly useful kind of application allows companies to generate simulations—models or pictures of what might happen in different situations.

In the past, simulation software was used almost exclusively in the fields of industrial engineering and statistics. In the 1960s, conducting simulations on large mainframe computers was a difficult task. However, by the early 2000s business professionals in many different industries were using simulation software to model different business scenarios and solve problems. For the most successful companies, this form of software had become a necessary tool for doing business because the global business climate was complicated and uncertain. A number of factors—including pressure from investors, the demands of customers, the impact of new technologies, domestic and international government regulations, legal issues, the environment, and even the cost of shipping products—made it difficult for corporate executives to make important decisions and position their companies for success.

By allowing companies to experiment with new ideas in artificial environments without taking any risks, simulation software evolved into a powerful tool for making more efficient, effective decisions, and for allocating resources in the most optimal ways. As Darwin magazine explained: "Simulation software doesn't draw conclusions for the user, but it reduces the time an executive needs to glean valuable insights from reams of data. Using it maximizes both a computer's remarkable ability to crunch through thousands of figures and details as well as the human capacity for generating insights and making decisions."

Many companies perform simulations or create models using spreadsheet programs like Microsoft Excel. When VisiCalc, the first spreadsheet program for desktop computers, was introduced in 1979, it changed the financial world. Banks and other companies were able to save hours of work by automating certain financial tasks, and it became possible to conduct a virtually unlimited number of "what if" scenarios simply by plugging in different sets of numbers. This approach was especially valuable to investors, legitimate and otherwise.

The simulations created by spreadsheets often are one component of the overall decision-making process. For example, at oil company Royal Dutch/Shell, they became an important part of an approach called scenario planning. The purpose of scenario planning is to identify several different stories about, or visions of, how large-scale forces will have an impact over time. Peter Schwartz, one of the pioneers of scenario planning, used spreadsheets to add a quantitative complement to the narrow scenarios his department created at Royal Dutch/Shell, thus making them more appealing and convincing to the company's management.

In addition to using spreadsheets alone, companies also rely on other types of software programs that focus specifically on simulation. Many of these applications work with spreadsheet programs. In the early 2000s, leading companies used software products that helped them analyze decisions. Working in tandem with spreadsheet applications like Microsoft Excel, these programs created diagrams, decision trees, and other graphical representations of data from the spreadsheet. These could include sequences of choices and possible events in chronological order. Software products like these also were able to help users evaluate the potential risks involved in a decision and see which variables were the most important or influential. In addition to decision tree analysis, these applications relied on other techniques to provide simulations. Among them were various forecasting methods, including a mathematical technique known as linear programming, which involves allocating resources optimally in order to meet objectives; and Monte Carlo simulation, which is useful for modeling random events.

Although simulation software can be applied to many different e-commerce situations, one particularly prominent application involves the management of company supply chains. Supply chains can include all of the different parties or entities that are involved (including suppliers, distributors, and production facilities) in the process of taking parts or raw goods and turning them into finished products. Simulation software can be used to emulate changes or fluctuations in any given number of variables (like supply and demand) so that companies can see how changes in some variables impact the conditions of others. This allows them to better prepare themselves, increase the supply chain's efficiency, and find the optimal balance between customer satisfaction and cost savings.

Another critical application of simulation software is in a company's warehouse. Many companies that achieved success in the world of brick-and-mortar commerce quickly discovered that that e-commerce was a different game. Rather than shipping relatively small numbers of large orders to retail chains or distributors, high volumes of smaller orders for individual consumers must be processed. This presents a new set of requirements for retailers, such as providing customers with real-time information about available products in inventory. This also changes the way products get moved behind the scenes in a company's warehouse.

In the early 2000s, companies relied on a complex array of warehouse management software (WMS), overhead scanners, conveyor belt systems, wireless computer networks, wearable computers, hand-held bar code scanners, and portable printers to streamline operations and automate the movement of goods through their warehouses, many of which had become very sophisticated operations. Some e-tailers used simulation software to generate models or simulations of their existing warehouses, based on the conditions different variables. For example, software can be used to emulate what would happen if an e-tailer were faced with a sudden influx of orders, a shortage in warehouse workers, or both. Software also can be used to figure out optimal ways to configure the physical layout of a warehouse, based on how goods and people move through it.

As explained in Warehousing Management, "Computer simulation models can represent all the detail of a warehousing facility, such as operating strategies, docking areas, conveyors, picking and storage, just to name a few. When a model is executed in the computer, simulated time advances the model just as the warehouse would actually operate. The model automatically collects statistics on bottlenecks, equipment utilization, inventory and throughput, and generates reports for analysis and optimization."

As computers continue to play central roles in everyday business processes and the business world becomes more complex, simulation software likely will continue to be an essential tool for successful companies. According to Michael Schrage, author of Serious Play: How the World's Best Companies Simulate to Innovate, simulation technology will play an increasing role in the corporate world during the early 2000s, becoming as commonplace as spreadsheets or e-mail.