What to Look for in a Strategic Sourcing Decision Optimization Solution

Once it is understood that Strategic
Sourcing
Decision
Optimization
is
the
application
of
rigorous
analytical
techniques
to
a
well-defined
sourcing
scenario
to
arrive
at
the
absolute
best
decision
out
of
a
multitude
of
possible
alternatives
in
a
rigorous,
repeatable,
and
provable
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.