Optimization is a hot topic, but will an optimization tool give your sourcing team a strategic advantage?
Why is optimization a hot topic in sourcing circles?
Big data, storage capacity and computing speed give us three parts of the analysis pie.
Software is the fourth part that allows us to create analysis that hasn’t been possible previously.
I believe Thomas Friedman says it best. In his fantastic book “Thank You for Being Late” he explains how software is making complexity invisible.
Think about GPS – it was a $2,000 luxury add for your car five years ago. Waze and Google Maps provide a much better app today for free.
The ability to analyze the data from thousands of drivers to determine the best route is something we now take for granted. In fact, we expect the app to notify us instantly when things change along our route.
This is astonishing if you think about it compared to what was available at a steep price in 2013.
Sourcing teams have traditionally gathered enormous amounts of data.
Analyzing it was the issue.
There are plenty of folks with extraordinary skills in Excel that can crank out analysis.
The time required and the dependence on them is a weakness for any organization.
So, what can an optimization tool really do and is it really a fit for your organization?
My simple description is a tool that can analyze large data sets using multiple constraints very quickly.
That depends on the number of constraints and data points. It could be minutes or at most under an hour.
I am going to share a key takeaway.
You can’t compare the time it takes to create the analysis with a tool like Excel because it is not the same analysis.
This is a higher level of analysis.
Using offline tools can produce an acceptable award scenario but it won’t produce an optimal one. At least not in a reasonable amount of time.
In a recent demonstration a service organization was able to produce an optimal award scenario in under 10 minutes that had 500 constraints in it. Nearly 2,000 locations and multiple providers for each.
In past years this analysis normally took 40 to 80 hours with just 25 constraints.
Once the initial base case was created in the tool, multiple scenarios were produced to determine the optimal scenario and award mix that the client preferred. In the end, they removed a few constraints and forced certain award amounts by supplier to get the mix they wanted without giving up significant savings. This brought the final award to a level they never could have achieved using manual methods.
This is a dream for those that love to ask: “what if?”
The ability to determine the savings from a change in one cost element almost instantly is fantastic.
The service company was able to quickly compare service costs by provider and by geographic area. This will likely become a valuable tool in negotiations with their service providers.
I don’t know if any tool will always produce the optimal award scenario every time.
The more you experiment with an optimization tool, the more you will understand what elements impact your business and by how much.
Do you have events with a sizeable number of items or suppliers and other constraints?
If you do, optimization is a tool you should consider.
Ask better questions, make changes and 2018 will be your best year ever.
Action Step: If you are uncertain where to start the process of change, a procurement professional like myself can provide guidance and expertise to help your organization achieve the results you want.
If you want to go explore this topic in greater detail, please contact me. I invite you to request 30-minute discovery conversation. In my experience the next step will be apparent at the end of the call. I never assume that what I have to offer will be right for everyone, so don’t expect a sales pitch. You can reach me at 973-936-9672.
If you would like to know more ways to reduce costs without changing the way you do business, simply give me a call or send me an email with your contact information and the best time to reach you.
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Until Next Time, I Wish You Great Success in Your Business and in Your Life