This story describes an emerging way to simulate complex systems.
After 20 long years of incubation by university labs and think tanks, complexity science -- a set of theories describing how complex adaptive systems like stock markets, supply chains, and even rain forests work -- is finally being put into practice. Using a new breed of computer simulation, a coterie of startups, most based in New Mexico near the Santa Fe Institute, the birthplace of complexity science, is making the theories tangible. And their clients are discovering that these simulations can make a substantial difference to the bottom line.
The oldest of the startups, Santa Fe-based BiosGroup, recently ran a simulation to help Procter & Gamble (P&G) achieve an inventory reduction of 25 percent in its immense supply network. For Southwest Airlines, BiosGroup, a joint venture between Santa Fe Institute biologist Stuart Kauffman and the consulting firm Cap Gemini Ernst & Young, made a computer model of the airline's freight delivery operation and showed the airline how to save some $2 million a year.
Here is how it works.
The details of these kinds of complex, adaptive simulations, which many see as more black magic than science, can be tricky, which is why practical business applications didn't appear until the latter half of the '90s. But the principle is straightforward: all complex systems share some profound similarities. Each of them is massively parallel: they have many quasi-independent "agents" interacting at once. (An agent might be a single firm in an economy or a baggage handler at an airline.)
These simulations gave results which were not obvious from a conventional way of thinking. At Southwest, they found that "it turns out to be faster, on average, to let packages take the long way around: if an aircraft was flying to the destination eventually, even after several intermediate stops, it was better to leave the package on board and eliminate the loading and unloading."
And at P&G, they discovered that "if the company ran its delivery trucks more frequently but less full, it could drastically reduce the cost of inventory in its warehouses."
Please read the whole article for more details and examples about this small but promising new way of simulating business applications.
Source: M. Mitchell Waldrop, for Red Herring, January 22, 2003
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