Operations Research is “the use of mathematical models, statistics and algorithms to aid in decision-making. It is most often used to analyze complex real-world systems, typically with the goal of improving or optimizing performance. It is one form of applied mathematics.” (Wikipedia)
The quest for improvement has been a continual one and operations research has been one of the areas that has been traditionally focused on improving operations across the company, particularly in production, operation, scheduling and physical systems. As such, there is a wide body of knowledge upon which can draw to improve procurement and sourcing operations when properly applied and modified. Even Six Sigma’s (Strategic Sourcing) toolbox makes extensive use of techniques and processes that have their foundations in operations research.
But today we are going to talk about the basic process. There are many good overviews of operations research on the internet, but one of the best sites I have found is the “Operations Research Models and Methods” site(at http://www.me.utexas.edu/~jensen/ORMM/) maintained by Dr. Paul Jensen at the University of Texas. On the site, he overviews the basic Operations Research Process, which, simply put, is:
(1) Recognize the Problem
(2) Formulate the Problem
(3) Construct a Model
(4) Find a Solution
(5) Define the Process
(6) Implement the Solution
(7) Repeat and Refine
Essentially, the operations research process is your basic problem solving process, like the introductory problem solving process you might encounter if you were studying (cognitive) psychology, the art of mathematics, or (classical) engineering. Furthermore, it neatly captures the key steps you will have to work through as you attempt to improve and evolutionize your sourcing process.
(1) You first have to define what your primary problem is and what your key goals are. Are you spending too much money? If so, where. Are you spending too much time on the process? If so, why? Etc.
(2) Then you have to formulate and frame the key problem. For example, you believe you’re spending too much on your high volume direct materials or you are spending too much time in your data collection process.
(3) Once you have precisely formulated the problem to solve, you need to model what you believe the solution should look like. Many individuals and organizations skip this step and go straight to the solution identification step. However, if you don’t know what the solution should look like, you risk selecting the wrong solution. For example, if you believe you are spending too much, you might select a (reverse) e-Auction platform. However, if current raw commodity prices are high, this might not save you any money. Conversely, if you instead sought out a strategic supplier who would work with you to improve processes and component reusability, you might save a bundle. Always understand what the solution should look like and what it should accomplish before selecting a solution.
(4) Often this step will be accomplished in practice by selecting a readily available technology, methodology, process, or model from the public domain or commercial marketplace. Don’t try to reinvent the wheel, chances are your problem is not unique and someone else has already solved it for you. For example, the inventor and followers of TRIZ (an innovative problem solving methodology that we will discuss at a later time) have collectively reviewed over 2 million patents and discovered that less then 4% contained a new concept and only 1% contained a revolutionary discovery. The rest were merely improvements on existing solutions and processes. In other words, there is at least a 95% chance that a solution to your problem already exists, and at least a 99% chance that a solution to a similar problem exists that can be adapted to your problem.
(5) Once you have a selected a solution – be it a technology or a new methodology, you need to define how it is going to be integrated into your current operational processes. This step is easy to overlook, but if the introduction of a new process or technology disrupts your daily operations, you will not realize the full benefits.
(6) Once you have identified the right solution and determined how to successfully integrate it into your operational processes, you need to implement it and reap the rewards.
(7) Finally, you need to monitor the process, measure the improvements, and look for ways to continually improve it. Innovation is a continual activity. There’s always room for improvement, but if you do not look for it, I guarantee you will not find it.
We’ll discuss other problem solving methodologies in the future, including some from psychology, innovation, and the Six Sigma toolbox, but first we are going to review the core executable parts of the sourcing cycle where technology solutions can have the greatest impacts to set the stage for what is to come.
Comments? Criticisms? Creative Insights? Email me at thedoctor<at>sourcinginnovation<dot>com.