Once it is understood that Strategic
fashion, one can define some core capabilities of a strategic sourcing decision optimization platform. Then, when one is looking for a sourcing platform that includes decision optimization, one can determine whether or not the platform includes true strategic sourcing decision optimization foundations.
The following are core capabilities that should be present in any platform that claims to be based on strategic sourcing decision optimization:
- Solid Mathematical Foundations
LP, MILP, QP, and Convex optimization are good foundations. Random sampling, Monte Carlo simulation, and evolutionary / genetic programming are, on their own, not sufficient.
- True Cost Modelling
The models must be accurate and complete. Not “close” approximations.
- Sophisticated Constraint Analysis
At a minimum, capacity, allocation, (risk) mitigation, and qualitative constraints must be supported.
- What If? Capability
The “holy grail”, the tool must be able to generate, analyze, and compare multiple “what if?” scenarios in order to truly be useful to the organization.
In addition, the following capabilities are nice to have:
- Constraint Impact Analysis
Why is this solution “optimal”? Which constraints are driving the allocation?
- Network Modelling
for the analysis of demand across multiple categories and network (re)design
- Automatic Scenario Generation
that automatically creates “what if?” variants of a given scenario to jump-start analysis
For more information, see our recent article on What to Look For in a Strategic Sourcing Decision Optimization Solution over on the new Next Level Supply site. This article, that summarizes and updates some of SI’s best writings on Decision Optimization, including the Next Level Purchasing Optimization Interview and the e-Sourcing WikiPaper, is a good refresher for those of you looking to (re) acquire a sourcing platform based on strategic sourcing decision optimization.