60 Years Ago Today A New Era in Air Transport Was Born

Sixty (60) years ago saw the first flight of the C-130 Hercules transport aircraft. Originally designed as a troop, medical evacuation, and cargo transport aircraft, the airframe was adapted over the years to airborne assault, search and rescue, scientific research, aerial refuelling, patrol, and aerial firefighting — and now it is the main tactical airliner for military forces around the globe. There are now over 40 models and variants of the Hercules in service in more than sixty (60) countries.

With a range of 1,300 miles or 2,000 kilometers, take-off capability from short and unprepared strips, and the ability to fly with one engine shut down, back in 1954, the new Hercules represented a considerable step forward in supply and transport capability. And this was just the beginning. A number of enhancements have been made to the Hercules over the years to the point where it’s still poised to be the transport vehicle of choice for years to come. Right now, the US Air Mobility Command, Air Force Materiel Command, and the Air Force Research Labs are in the early stages of defining requirements for the C-X next generation airlifted program to replace the C-130s and C-17s. But this isn’t the first time a program has been proposed to replace, rather than improve, the C-130s. Programs to replace the C-130s were proposed as early as the 1980s, but the end result was always improvement of the C-130 design. The most likely outcome is a next generation C-X that takes into account everything learned over the years and produces a next generation Hercules transport vehicle.

You Need to Get Sustainable Because Customers Won’t Pay!

As per Monday’s post on Do as I Say, Don’t Do as I Do, while customers say they try to buy from companies with a good record on sustainability and ethics, but don’t always, the reality is that only 9% of UK customers and 16% of US customers rate ethical company/brand in their top 3 attributes, being considerably more concerned with value for money, price, and quality. Furthermore, while most customers say they will pay more to buy from a sustainable company, they won’t pay more than an extra 5%.

As a result, the inclination of most senior buyers might be to forego sustainability and ethics when sourcing and go for the supplier that provides the best value for money, quality, or price, especially since that’s what the average buyer wants. But this reactionist approach is the exact opposite of what you should be doing! In fact, you should be doubling down on sustainability efforts.

Consider what the average consumer wants to buy. Fashion. Electronics. Media. Now consider what these items are made of. Cotton. Rare earth Minerals. Paper. All of these items are in limited, decreasing, supply. Increased drought and increased need of limited farmland for food production are causing cotton prices to increase. Rare earth minerals are decreasing but demand in modern electronics gadgets is steadily increasing. And paper, well, there are only so many trees and some take decades to grow.

In other words, costs are going to go up — and, at some point, costs are going to go up significantly. At that point in time, the best strategic sourcing and negotiation skills in the world aren’t going to be worth a dime because you can’t source for less than cost, and if costs skyrocket because there is (much) more demand for the materials than there is supply, your costs skyrocket and your consumers go elsewhere.

But if you double down on sustainability, and source products that use alternative, more readily available, and if possible, renewable materials, from suppliers that focus on recycling and material recovery, then your costs will stay down while your competitors’ costs go up. That’s why, despite your inclination to follow your customers, you have to do a 180 in the other direction to make sure that you keep those customers as time moves on.

Keelvar: Are They Right For You?

As a preamble, in today’s post we’re not going to discuss whether or not optimization is right for you because the answer is an unqualified “it is” because there does not exist a vertical that is unable to benefit from an appropriate optimization solution that supports the right model. If you are a 100M+ company, you should be using optimization. Maybe not on all categories, because you don’t source categories where the return doesn’t exceed the cost of the effort, but on the large and strategic ones.

Instead, as a follow-up to yesterday’s post, we are going to discuss whether or not Keelvar is right for you.

Right now, most of the companies that use optimization are in the high-end of the market, with a few leading companies at the high-end of the mid-market dabbling in it. Furthermore, most of the optimization solution vendors out there are focussing on this market. As a result, as per a previous post, most of the mid-market is not using optimization because they see it as too costly and too difficult. Seeing this, Keelvar decided that what was needed was a solution that was focussed entirely on the mid-market and, more specifically, at the lower end of the mid-market. That’s the solution they built.

This has advantages, in that they have a large market they can go after, and disadvantages in that the simplifications required to make the solution useable by that market limit the solution’s flexibility and power for large problems that require complex models and powerful solutions capabilities. But since the high end market already has good solutions, that’s okay. Given the different needs of the lower mid-market, the higher mid-market, and the global multi-nationals that need almost customized solutions, and the different needs of well-staffed and well-educated Supply Management organizations and poorly-staffed organizations that need to augment their solutions with a lot of services, there is still plenty of room in the market for a new entrant as even the six market segments just defined (3 tiers, without services and services required) aren’t adequately covered by the current players.

So if you’re in the lower-end of the mid-market and you’re ready to start optimizing your sourcing, you should head on over to Keelvar’s site and check them-out. The solution might just work for you, and with event pricing starting in the low five figures and unlimited annual licenses starting in the extremely low six figures, it won’t take long to see an ROI — especially since Keelvar makes optimization affordable on an event basis on categories as low as 500K to 1M and on an unlimited basis on categories as low as 100K to 250K (because if you have an unlimited license, why not use it on every event — it doesn’t take long for 10K savings to add up!).

Keelvar: Strange Name. Uncommon Results.

In our last post we talked about a new entrant to the Strategic Sourcing Decision Optimization arena that was about to take up the education gauntlet. That new entrant is Keelvar. A spin-out from the 4C research laboratory in the Department of Computer Science at University College Cork that raised 750K Euros in 2012, it was formed as a Software-as-a-Service (SaaS) company to help purchasers establish a balanced and cost-effective outcome between large and small suppliers, which can be critical to indigenous industry by way of a price-gathering mechanism that supports communication of creative ways in which waste can be removed, helping government departments and multinational companies reduce costs. (Source: Silicon Republic)

It does this by augmenting its auction and RFX-based technology platform with true strategic sourcing decision optimization technology, but doing so in such a way as to hide the inherent complexity from the average buyer. Unlike many competing solutions on the market, the Keelvar UI is designed using a wizard-based workflow that guides the user in the setup of a combinatorial auction that is then solved using an optimization engine that uses a mix of solver technology developed at the 4C research laboratory and commercial solvers.

The solution walks the user through a simple process that even an average buyer can handle. The user needs to only:

  • Define the event typeThe solution comes with a number of pre-configured event types, each of which has appropriate corresponding bid templates.
  • Select the products and services and define the lots (contracts)The bidding sheets can be auto-generated off of these templates.
  • Select the suppliersWho will be bidding? The system then sends out the appropriate auto-generated bid sheets, tagged to each supplier.
  • Accept the bidsWhen the bids are returned, the user has to specify what bids are accepted and are to be used in the scenario.
  • Define the constraints.For each pre-configured event type, the system supports a number of pre-defined constraints. These include:
    • Supplier Limits (Risk Mitigation)
      where the buyer specifies a minimum or maximum number of suppliers
    • Award Splits (Allocation and Capacity)
      where the buyer can dictate that a supplier, or the winning suppliers, get an award split, minimum, or maximum award
    • Quality/Delivery Requirements (Qualitative)
      if the model is a freight model, the suppliers can specify lead times and the buyer can insist upon a maximum lead time, etc.
  • Run the ScenariosThe solution then runs the unconstrained scenario, the constrained scenario, and outputs a report that summarizes the constrained scenario cost, the number of bidders, and how much more it costs than the unconstrained scenario.
  • Define What-If Scenarios (Optionally)The user can specify constraints to add or drop, run the scenario again, and compare it previous (and the unconstrained) scenario.
  • Output a full award reportOnce the user is happy with a scenario.

It’s as easy to use as an auction tool, which is something that cannot be said for many of the optimization solutions out there, and no math or understanding of optimization is required. Plus, it’s a true SSDO solution as it is based on solid mathematical foundations (as the scenario can be built and solved as a MILP model), supports true cost model (as some of the templates allow different cost factors to be defined), supports reasonably sophisticated constraints (and enough to meet the minimum requirements of a SSDO solution), and has what-if capability. It’s definitely not the most sophisticated or powerful tool out there, but it doesn’t need to be.

For your average mid-size company at the lower end of the range, the solution gets the job done and does it in a way that the buyer can understand. There are thousands upon thousands of companies out now that don’t need more than this.

So if you’re in the lower-end and you’re ready to start optimizing your sourcing, you should head on over to Keelvar‘s site and check them-out. The solution might just work for you.

When It Comes to Optimization, You Need Every Insight You Can Get!

Even though it’s been almost a decade since Strategic Sourcing Decision Optimization (SSDO) has been not only readily available, but affordable (especially when one considers that back to back Aberdeen Studies in the noughts demonstrated that advanced sourcing, which is based on optimization, saved an average of 12% per event, which means that companies that employed optimization on large categories often saw an ROI after their first event), most mid-size and larger companies aren’t using it. In fact, most mid-size and larger companies haven’t even tried it!

Why is this? There is a laundry list of reasons, but the most important are probably:

  • misinterpretation and misinformationThere is still a lack of understanding about what optimization is and how important it is to your strategy sourcing efforts. A lot of people believe that optimization is only for the largest categories, the most complex categories, companies with complicated manufacturing supply chains, etc. This is not true. Optimization is relevant to every strategic sourcing project, small and large. The only question is how important is it — does the event revolve around the optimization or does the optimization revolve around the event?
  • fearBecause it’s misunderstood and, more importantly, because it is math, it is feared. (It’s important to remember that less than 1 in 7 American adults are “proficient” at math. This means that while your senior analysts with a strong Operations Research (OR) background will be hesitant of optimization, your average buyer will be, to borrow a colloquialism, scared sh!tl3ss. And, unwilling to admit this fear, he will do everything he can to come up with dozens of excuses as to why optimization is not applicable to your problem or why other methods will perform better.) And moreover, because of the misinformation out there which doesn’t tell you that the good solutions handle all the math for you, and all you need to do is specify the demands and the constraints (and their priorities if not all constraints can be simultaneously solved), people avoid (strategic sourcing decision) optimization when they should be embracing it.
  • costOptimization solutions used to be expensive. Very expensive. Back when there were only a couple of known solution providers (in the e-CHAOS pack), and sourcing suites started in the six figures, optimization solutions, even for a single event, were six figures, and sometimes seven for unlimited use. If you weren’t guaranteed of a high six figure return off of your first event, and a high seven figure return over the course of the year, this was a big risk to take. But that was then, and this is now. Today, optimization solutions start in the lower end of the five figure range, and unlimited annual licenses start in the lower end of the six figure range. And their power and performance is at least ten times what it was a decade ago. Models that used to run for hours now solve in minutes and an analyst can run dozens of what-if scenarios in a day, quickly getting to the best price-value trade-off for the organization.

So how do we get optimization into the hands of the masses, and more importantly into your hands (if your colleagues are holding your organization back)?

We deal with the roadblocks we discussed.

How do we deal with the roadblocks?

We start with education. We educate people that they don’t have to be a math whiz (because the math whiz is only needed to build the solution, not to use it), that a strategic sourcing decision optimization solution isn’t hard to use, that it doesn’t cost a lot, and that it does generate a return. And we hit them on all fronts. Third Party, Provider, and Practitioner.

To date, it’s been mainly third party, and, unfortunately, mainly SI spreading the message of optimization. But now we have a few providers working hard to spread the message as well. BravoSolution, who has been kind enough in the past to sponsor SI to help with this effort (and who offered you an Illumination on The Future Of Optimization) has been working hard to spread the messages of Optimization, Analysis, and the integration thereof in what they call High Definition Sourcing for a few years now. A new provider in the SSDO arena, and the first new provider to provide a true SSDO solution since Iasta back in the 2007-2008 timeframe, that we’ll announce shortly, is also taking up the challenge.

And Trade Extensions, who has also been kind enough to sponsor SI to help with this effort, and who has also been providing industry leading optimization solutions and education for a few years now, has just doubled down on the education effort, starting with a new INSIGHTS series focussed entirely on optimization. Consisting of a series of nine interviews with Founder, Chairman, and Optimization Guru Arne Andersson and CEO, Freight Trader, and Master Buyer Garry Mansell, this series will attempt to burn away the fog on optimization, make it a standard part of your sourcing suite, and lay the foundation for a series of follow-up educational offerings which will include white-papers and webinars on the subject.

Because optimization is for everyone, not just the 1%!