Regular readers, especially those who followed my summer series over on eSourcing Forum, will know that my favorite statistic to quote is Aberdeen’s finding (from their Success Strategies in Advanced Sourcing and Negotiations: Optimizing Total Costs and Total Value for the Next Wave of e-Sourcing Savings in June of 2005) that the application of optimization tools to analyze total costs, and of flexible bidding functionality to uncover creative supplier solutions has enabled early adopters to identify an average incremental savings of 12% above those that basic, price-focused auctions alone have generated . This month, Aberdeen released the follow up on this study with The Advanced Sourcing and Negotiation Benchmark Report: The Art and Science of the Deal which found that enterprises that are employing advanced sourcing techniques are still identifying an average savings of 11.9% per sourcing event. Furthermore, best-in-class enterprises are identifying an average savings of 13.7% per event. Considering that savings from basic sourcing techniques tend to reach saturation after a handful of events, the fact that these companies are not only fighting off stagnation but still thriving is exemplary of the power of advanced sourcing and negotiation, which includes bid optimization, cost modeling, flexible bidding, life-cycle sourcing, and Total Cost of Ownership / Total Value Management scoring techniques.
That’s why I spend so much time on true decision optimization for strategic sourcing – which, as I’ve pointed out before, must include the capability to capture all fixed and variable real-world costs accurately (including flexible bidding, tiered bidding, and life-cycle cost support), to accurately model real world constraints (which impacts cost modeling and TCO/ TVM), and to accurately solve the model (using an optimization algorithm that is sound and complete). True decision optimization for strategic sourcing supports and complements all aspects of advanced sourcing and negotiations, and I’m sure Paul Martyn will have more to say on the topic over on Combine Notes, as CombineNet was a report sponsor. (I also expect David Bush will analyze some of the key findings over on eSourcing Forum as Iasta was also a report sponsor – so be sure to keep your eyes on that blog as well.)
In the meantime, if you haven’t yet started to use decision optimization in your high-value or strategic events – and statistics are telling me that the vast majority of you are not, start evaluating and test-driving the solutions the market has to offer. After all, It Pays to be World Class.