Agents of Change

Computerworld - When it comes to IT projects, it doesn't get much better than this: Procter & Gamble Co. saves $300 million annually on an investment of less than 1% of that amount.

Indeed, P&G's use of agent-based modeling helped it transform its supply chain system so fundamentally that the company no longer even calls it a supply chain. The Cincinnati-based maker of Tide, Crest, Pringles, Pampers, Clairol and 300 other products now calls its connections to 5 billion consumers in 140 countries a "supply network."

"Chain connotes something that is sequential, that requires handing off information in sequence," says Larry Kellam, P&G's director of supply network innovation. "We believe it has to operate like a network, like an internet, so everybody has visibility to the information."

Many of the insights that have enabled P&G to transform a chain into a network come from agent-based computer models it developed with BiosGroup Inc. in Santa Fe, N.M. Their work is a real-world example of what mathematicians call "agent-based modeling of complex, adaptive systems," a discipline pioneered by BiosGroup and other mostly Santa Fe-area companies, laboratories and think tanks.

The idea is that many systems that are enormously complex overall are in fact made up of semiautonomous local "agents" acting on a few simple rules. By modeling and changing the agents' behavior, one can understand and optimize the entire system.

Agent-based modeling, while not yet commonplace, is catching on, especially at companies with large, complex supply or transportation networks. In addition to P&G, the following companies have tried it and cite benefits that include cost savings, reduced inventories and better customer service:

• Southwest Airlines Co. used software agents to optimize cargo routing.
  
• Air Liquide America LP, a Houston-based producer of liquefied industrial gases, reduced both production and distribution costs with agent-based modeling.
  
• Merck & Co. used agents to help it find more efficient ways to distribute anti-HIV drugs in Zimbabwe.
  
• Ford Motor Co. used agents to simulate buyer preferences, suggesting packages of car options that optimized the trade-offs between production costs and customer demands.
  
• Edison Chouest Offshore LLC, an offshore service company in Galliano, La., used agents to optimize its deployment of service and supply vessels in the Gulf of Mexico.
  

In P&G's computer simulations, software agents represent the individual components of the supply system, such as trucks, drivers, stores and so on. The behavior of each agent is programmed via rules that mimic actual behavior, such as, "Dispatch this truck only when it is full" or "Make more shampoo when inventory falls to x days' demand."

The simulations let P&G perform what-if analyses to test the impact of new logistics rules on three key metrics: inventory levels, transportation costs and in-store stock-outs. The models considered alternate rules on ordering and shipping frequencies, distribution center product allocation policies, demand forecasting and so on.