Daily Archives: June 22, 2006

Procurement Lead Time Optimization

As I pointed out in my companion post on e-Sourcing Forum today, Lead Time Optimization, or applied Total Value Management Decision Optimization, is another innovative capability that some leading sourcing organizations are latching on to.

When you translate Lead Time Optimization, which Zara has used to design a flexible supply chain that allows the company to take a garment from design through the manufacturing process to store shelves in 10 days, to Procurement you focus not on maximizing profit but on minimizing costs against possible demand fluctuations.

In this scenario, you do not optimize your awards on a forecasted demand value, but a forecasted demand range and the solution you select is not the lowest cost solution at any specific demand point but the solution which maintains a lower cost over a demand range. The solution you select will, on-average, be lower than other solutions and yield a solution that is expected to be near-optimal regardless of what happens.

This requires a tool that allows you to capture not only all of your business constraints and supply chain flexibility requirements, but the costs associated with new suppliers, supply base consolidation, and mixed transport options. This in turn requires the ability to define global costs, cost modifiers that specify transportation mixes, and what if scenarios to take different possibilities into account. Outside of SupplyChainge’s offerings, these tools are rare, but I know for a fact that Iasta is pursuing a solution that will incorporate many of these best practices. (See David’s original post on LTO.) I personally can not wait as there are too few players in the decision optimization market place and I personally think that many needs are currently going unmet because of it.