We ended our last post by noting that what is important in strategic sourcing decision optimization is:
- The ability to support all of the relevant costs and cost tiers.
- The ability to support all of the fundamental constraint types required for true strategic sourcing decision optimization.
- The ability to generate a model that accurately represents all of the relevant costs and constraints.
- The ability to optimally solve the model in a realistic time frame.
Other requirements, which should go without saying, are:
- Solid Mathematical Foundations
- What If? Capability
Today we are going to discuss each of these points in detail and explain where the true power of a BoB solution like CombineNet is and what’s just confusing marketing hype.
1. The ability to support all of the relevant costs and cost tiers.
Fundamentally, in order to be a true solution for strategic sourcing decision optimization, the application has to support fixed and variable costs, and, furthermore, the application should allow those costs to be bid in a tiered or layered fashion or as discounts, so that a buyer can use the bidding structures that are natural to the commodity or industry they are in. This includes the ability to define unit costs, transportation costs, usage costs, and impact costs as well as sophisticated supplier discounts along the lines of “If you buy 10,000 forks, I’ll give you a discount on 10,000 spoons”.
2. The ability to support all of the fundamental constraint types required for true strategic sourcing decision optimization.
Fundamentally, the optimization solution must support, at a minimum, four basic categories of constraints: (a) capacity constraints, (b) flexible allocation, (c) risk mitigation, and (d) qualitative constraints in order for it to be a real strategic sourcing decision optimization product.
You need to take into account all of your supplier capacities, you need to be able to account for your current contracts and business rules, you need to insure that sole sourcing risks are addressed when required, and you need to be able to take into account your non-cost requirements such as quality, delivery time, and durability (etc.).
3. The ability to generate a model that accurately represents all of the relevant costs and constraints.
Many solutions exist that let you define whatever you want, but under the hood the costs and constraints are simplified and only an approximate representation is used.
4. The ability to optimally solve the model in a realistic time frame.
This is actually a two part requirement. The first requirement is that the system optimally solves the defined model, and not an approximation of the model. The second requirement is is that the system solves the model in a realistic time frame. A small model should not take more than a few minutes. A medium sized model should not take more than a few hours. A large model should solve overnight. Any longer and the usefulness of the solution is limited, especially when sourcing cycles are now completed in weeks, and not months, and all that a buyer may have to make an award decision is a few days.
Furthermore, as I mentioned in my last post, where CombineNet really stands apart from the rest of the pack is:
3. Their ability to generate a model that accurately represents all of the relevant costs and constraints.
4. Their ability to optimally solve the model in a realistic time frame.
5. Their ability to solve larger models than the majority of their competitors.
Simply put, not only can they support all of the basic cost and constraint categories required for true decision support, but the model they generate accurately represents all of the costs and constraints they support and they can solve the model faster than all of their competitors the vast majority of the time. Furthermore, they have the capability to solve larger models than the vast majority of their competitors. And tomorrow we’ll discuss where this unique capability comes from and why that, and not Expressive-Bidding, Expressive-Commerce, Comprehensive Bidding, or whatever-you-want-to-call-it-today-bidding, is what makes CombineNet BoB.