Daily Archives: September 5, 2011

I’m Sorry, but 40% is a Long Way from 100%!

Yesterday’s post lamented the poor quality of American Education as per a recent ACT survey that found that only 25% of high school students are prepared for college graduates, which followed the results of the National Assessment of Adult Literacy by the Department of Education that found six of seven of American adults are not “proficient” at math. A recent article over on SIG on the evolution of reverse auctions and best practice tips that stated reverse auction capability in the Fortune 500 approaching 100 percent based on an Aberdeen study which found that 61% [of companies] responded [to a survey] in 2009 that they were using eSourcing Tools, with 65% of those using e-Auctions. In other words, 39.5% of companies were using e-Auctions in 2009. 40%, or 4/10, is a long, long way from 100%. It’s not even a majority!

It’s terrible that Aberdeen implied it. It’s horrible that the author indicated it. It’s abysmal that the SIG editor allowed it. All I can say is FAIL!

How can we minimize our costs while maximizing the use of our current assets?

Modelling, Simulation, and, most importantly, Decision Optimization … and I’m very glad to see that the ISM recently ran an article in Inside Supply Management on Improving with M&S. Because, as the article points out, once the behaviour of a system is understood, supply managers can realign assets with the intent of finding the arrangement that will yield the most optimal measures of performance.

Furthermore, as the article points out, modelling, in its most basic form, is the creation and arrangement of representational elements that approximate reality. Simulation is the potential interaction, or playing out, of these elements over time. And optimization is the application of rigorous analytical techniques to a well-defined scenario to arrive at the absolute best decision out of a multitude of possible alternatives in a rigorous, repeatable, and provable fashion. Together, the technologies can be used to determine how to balance costs and resources.

The article gives some great tips for novices in MOS (Modelling, Optimization, and Simulation). Specifically, it notes that:

  • the goal is not to mirror the real-world system in all its detail but to represent those aspects that are expected to meaningfully affect the performance variables of most interest
    as it is impossible to model everything, there is a need to focus on what is relevant; for example, there may be 50 different cost elements in a breakdown of a component down to raw materials, but if 10 of them represent 80% of the cost, and only 5 of them are variable, focus on those 5 and wrap the other 46 into one
  • if the model and simulation are producing behaviour similar to the known real world, then the model most likely is an appropriate, or valid, reflection of that real-world system
    if the model works well, don’t second guess it; unknown is unknown and trying to guess the unknown doesn’t make it known
  • we learn through experimentation
    but experimenting with the real system is costly, counterproductive, and could meet organizational resistance
  • the process of modelling and simulating a real-world system assists in identifying major system strengths and weaknesses
    strengths which can be leveraged through targeted interventions and weaknesses which can be overcome through appropriate system redesign; the process of identifying strengths and weaknesses and virtually experimenting with changes to the system allows analysts and supply managers to see unintended second- or third-order consequences that might not have been readily apparent otherwise
  • selecting and analyzing various supply management activities and processes can be crucial in improving efficiencies and performance
    if the organization doesn’t know where its performance can be improved, then it will not be able to improve its performance

All great tips and all reasons why modelling, simulation, and optimization should be used by each and every Global 3000 organization.