Daily Archives: July 16, 2006

Problem Solving Series V: Evaluating the Solution

This is the fifth post in a series of posts designed to introduce you to problem solving strategies that you can use to attack your sourcing and supply chain problems. Last Sunday we discussed three methodologies that you could use to find a solution. Today we are going to discuss methodologies you can use to evaluate a solution and determine whether or not it is acceptable or if you should continue looking for a better one.

The first methodology you can use is to estimate the costs and benefits. For example, if your strategy to reduce spend is to switch carriers to a carrier quoting a lower truckload rate, calculate how many shipments will actually qualify as a truckload, how many shipments will go at the less then truckload rate, and add up the cost. Then factor in any associated switching costs. If the total savings are still a material percentage after all factors are taken into account, then you have a partial solution. However, if the savings do not meet your objective, you will have to find another partial solution or look in an entirely different place.

The next methodology you can use is trial and error. There are two ways you can go about this. The first way is to implement the best solution you can identify for a minimum trial period (equal to the minimum amount of time it will take to determine if it is having any effect), collect all the information you can, and analyze the solution. For example, if you were trying to consolidate your supply base but could not decide which group of four suppliers out of a candidate set of six was the most appropriate, you could take your best guess, allocate the award accordingly for two quarters, and track the progress. If progress was good, you’d continue with the strategy. If progress was mediocre, you’d know that you were probably close and look for a few tweaks, such as switching out one or two suppliers or tweaking the purchase order process. If progress did not improve (or got worse), you’d attack the problem from a different angle with your revised knowledge and find a different solution.

The second way to use trial and error, which may not always be possible, is to implement two (or more) competing options that you are having difficulty evaluating to see which option is actually best. For example, let’s say you are trying to determine whether or not you should continue to spend your time sourcing non-strategy indirect commodities or outsource the categories to a third party organization that specializes in procurement of indirect materials. If you have done your research, you’ll realize that some parties report substantial success while others see very little benefit. In this situation, you could outsource half of your indirect categories for a trial period and keep the other half in house. If the procurement organization obtains significantly better performance then you (have traditionally) obtain(ed), then you know that outsourcing is the way to go. If the procurement organization does not obtain significantly better results, then maybe you should maintain internal control over your indirect categories for the time being and analyze the situation again in a year or two.

The point is that you have options, and you should not be afraid to try them. Sometimes you get surprised.

Next Sunday we will discuss some general strategies that will help you with every stage of the problem solving process.