The Role of Optimization in Strategic Sourcing – Implementation Issues

This series discusses the recent report from CAPS Research on the role of optimization in strategic sourcing. The primary goal is to highlight, clarify, and, in some cases, correct parts of the report that are important, confusing, or incorrect to insure that you have the best introduction to strategic sourcing decision optimization that one can have.

The chapter starts out with a list of ten questions designed to help organizations evaluate the appropriateness of optimization for their sourcing event. And while I still contend that every event can benefit, the question list will help you determine how beneficial optimization could be. In short, the questions were:

  1. How complex is the buy?
    The more complex the buy, the more value decision optimization will offer but, unless you are an expert, the more likely you are to need provider support (at least in the beginning).
  2. What prior experience do you have?
    There is a learning curve associated with optimization.
  3. Do you need a suite or will a stand-alone solution suffice?
    If you can get by with a stand-alone solution, you can often get off to a faster start.
  4. Do you have accurate and clean data?
    You need clean data to create historical baselines and accurate models.
  5. What do you expect to get from using optimization?
    Does a more thorough and powerful analysis have a good chance of finding a significantly better solution?
  6. How powerful does the optimization software need to be?
    Will the software you have in mind cut it?
  7. To what extent is training provided?
    Implementing optimization requires trained buyers, trained customers, and trained suppliers.
  8. What is the sourcing strategy?
    Optimization does not establish sourcing strategies, it merely plays a role in them … and it plays a much stronger role in some strategies vs. others.
  9. Are there global suppliers who will require language translation?
    Does the software support the languages of your supplier base or are there resources available to do the necessary translations?
  10. How much creativity can your organization accommodate?
    Optimization allows you, and your suppliers, to get quite creative. Are you ready for this?

Next it goes on to discuss the resources required. While you will need each of the resources identified in your organization, you won’t necessarily need all of the resources on each team. For small projects, all you will need is a category expert with an intermediate level of optimization knowledge and a support person who can assist the suppliers in entering their bids. For reference, in addition to support personnel from your optimization solution provider who should be available as needed, the resources that need to be available to you in your organization if you are to make full use of sourcing optimization include:

  • team leaders
  • category experts
  • optimization champions
  • optimization power users
  • training and education resources
  • internal IS/IT resource

Then it goes on to discuss the different types of solution models you have to choose from, which basically fall into three categories:

  • Full Service
    The solution provider, working with your category manager, handles the event on your behalf and you never touch the tool.
  • Hybrid Service
    The buying organization uses the tool and runs the event and the solution provider is used for support as needed behind the scenes.
  • Self Service
    You do everything.

It concludes by discussing a number of awareness and training issues and process requirements. Some of the more critical awareness issues include:

  • the fact that optimization can improve sourcing decisions
  • change management is necessary
  • the support of an expert to facilitate implementation is necessary in the beginning
  • there will be a learning curve
  • training will be necessary for anything beyond simple models
  • every project should have a plan that includes the strategy and goals

Finally, the following implementation tips should be heeded:

  • the sourcing process must be established
  • specifications, the statements of work, and the RFX must be clear
  • supplier inquiries need to be responded to in a timely manner
  • any requests for bundled bids must be attractive to a sufficient number of suppliers
  • expectations must be reasonable in light of current market conditions

Next Part V: The Optimization Sourcing Cycle

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