CAPS on Sourcing Optimization

I broke away from the many conference duties long enough to catch one workshop, e-Optimizing Your Strategic Sourcing Process. This was put on by Dr. Phil Carter and Dr Larry Giunipero and I had particular interest as I was one of the interview pool that they used while developing their findings on advanced sourcing optimization. They both made the trip to Indianapolis to meet with me and our leading optimization developers to discuss the industry, usage patterns and embedding new technology within the traditional strategic sourcing process.

Of course, they did a very nice job presenting the subject and did a particularly good job translating it down into manageable parts for easy comprehension. This can be a very complex topic and their discussion was useful for both a novice and moderately experienced users.

After going through some common strategic sourcing situations with assessments and strategy development, they captured the essence of where optimization should be applied. I commonly refer to this as my “Optimization Rule of 3s” for fundamental simplicity and they included two extra which are all based on large numbers of:

  • Potential Suppliers (Rule 1)
  • Items/services to be Purchased (Rule 2)
  • Geographic Needs (Rule 3)
  • Specifications
  • Constraints/Business Rules

The last one, I believe is an implied application, since business rules and constraints are necessary by default to have any need for analytical assessment. According to their research, some commonly used constraints include: limiting spend with a supplier (or group), assigning a spend amount with a MWBE supplier, allocating business for specific traffic lanes or locations, and avoidance of single sourcing.

Also, the research pinpointed some of the distinct advantages of bid optimization:

  • Finding the lowest cost that covers all items
  • Test impact of alternate business rules
  • Analyze all bids
  • Reduction of bid analysis cycle time
  • Effective multi-round strategy
  • Verifiable process
  • Transparency of process to suppliers
  • Alternative to reverse auctions

I found one example very interesting where a supplier offered an alternative to the buyer which would save an additional $4,000,000 but require an additional 18 FTEs. The company chose not to pursue that option but had all the information necessary to make the right decisions (the CEO actually made this decision).

Most importantly, the covered what they felt was the future of advanced sourcing optimization technology which was summed up by saying that they expect much higher adoption and usage of bid optimization in the future and added that most companies should be strongly considering the usage of these tools. Iasta even got a nice plug at the end and was listed as one of the leading 5 vendors providing this type of tool for complex award decisions.

Still quiet

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