Optimization Moves into the Sourcing Mainstream

Every so often an academic invention makes its way into mainstream business practice. Sometimes this can take years. Other times, decades. But quite often, it’s worth the wait. Sourcing decision optimization is a great example why. Sourcing decision optimization capabilities help procurement organizations reduce their total supply costs by empowering users to make better decisions while shortening sourcing cycle time. In addition, decision optimization provides a range of additional benefits which include:

  • Making procurement teams focus on the upfront component of setting up the best decision award criteria by putting the actual “decision” factor into the hands of software that provides the mathematically correct answer every time
  • On a total cost basis, saving an average of an additional 5-20% on complex bid categories (e.g., transportation, MRO)
  • Helping procurement organizations to evaluate make vs. buy decisions more strategically
    Enabling strategic sourcing for categories which were previously too challenging to analyze or impossible to source via traditional negotiations or reverse auctions
  • Eliminating the need for building separate spreadsheets and custom formulas to analyze supplier bids and responses
  • Empowering all stakeholders to share project and award decision data across functions (and even divisions), creating a strong team environment
  • Shortening collaborative decision cycle-time through use of real-time analysis

Iasta’s new SmartSource decision optimization makes all of these benefits a reality by automating the decision process to help companies not only identify, but implement savings faster. How does it work? Iasta’s approach provides suppliers with greater flexibility in the sourcing process by allowing them to tailor specific offers to buying organizations. With this information, procurement teams can then select the best combination of suppliers, products and services for their specific needs. Based on a unique set of criteria, organizations might factor in the following types of criteria in analyzing award optimization scenarios:

  • Overall business objectives
  • Sourcing strategy (e.g., supplier rationalization)
  • Risk aversion / supply risk factors
  • Quality standards and supplier performance
  • Minority / women-owned business status

Jason Busch, in his blog, Spend Matters, recently wrote that “optimization is a way to elevate the role of Spend Management by removing organizational barriers, helping procurement move beyond its traditional role. By helping Spend Management leaders to focus on the drivers that impact a decision — rather than the decision itself — it elevates the traditional procurement role. For instance, optimization technology can allow procurement organizations to significantly impact supply chain design.” Using optimization today, procurement teams are impacting supply chain design and award decisions outside of categories for which they traditionally applied offline or services-based optimization approaches (e.g., transportation). For example, Busch cites that “in addition to ocean freight, air freight, LTL, and truckload transportation — all of which remain great categories for optimization — companies have deployed optimization with great results in such categories as MRO, packaging, temporary labor, plastics, labels, and printing.”

The good news is that procurement organizations no longer need to pay hundreds of thousands of dollars to services-based firms to engineer optimization results for them. Nor does optimization require expensive, installed software that drains your IT resources, not to mention your budget. Sourcing optimization technology has finally gone mainstream, and at Iasta, we’re thrilled to make it a core part of our sourcing platform.

The post was originally prepared for the Iasta bi-monthly newsletter – Iasta Insights. If you would like to receive this information automatically, please sign up on the Iasta website.

Still quiet here.sas

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