Daily Archives: August 19, 2014

When It Comes to Optimization, You Need Every Insight You Can Get!

Even though it’s been almost a decade since Strategic Sourcing Decision Optimization (SSDO) has been not only readily available, but affordable (especially when one considers that back to back Aberdeen Studies in the noughts demonstrated that advanced sourcing, which is based on optimization, saved an average of 12% per event, which means that companies that employed optimization on large categories often saw an ROI after their first event), most mid-size and larger companies aren’t using it. In fact, most mid-size and larger companies haven’t even tried it!

Why is this? There is a laundry list of reasons, but the most important are probably:

  • misinterpretation and misinformationThere is still a lack of understanding about what optimization is and how important it is to your strategy sourcing efforts. A lot of people believe that optimization is only for the largest categories, the most complex categories, companies with complicated manufacturing supply chains, etc. This is not true. Optimization is relevant to every strategic sourcing project, small and large. The only question is how important is it — does the event revolve around the optimization or does the optimization revolve around the event?
  • fearBecause it’s misunderstood and, more importantly, because it is math, it is feared. (It’s important to remember that less than 1 in 7 American adults are “proficient” at math. This means that while your senior analysts with a strong Operations Research (OR) background will be hesitant of optimization, your average buyer will be, to borrow a colloquialism, scared sh!tl3ss. And, unwilling to admit this fear, he will do everything he can to come up with dozens of excuses as to why optimization is not applicable to your problem or why other methods will perform better.) And moreover, because of the misinformation out there which doesn’t tell you that the good solutions handle all the math for you, and all you need to do is specify the demands and the constraints (and their priorities if not all constraints can be simultaneously solved), people avoid (strategic sourcing decision) optimization when they should be embracing it.
  • costOptimization solutions used to be expensive. Very expensive. Back when there were only a couple of known solution providers (in the e-CHAOS pack), and sourcing suites started in the six figures, optimization solutions, even for a single event, were six figures, and sometimes seven for unlimited use. If you weren’t guaranteed of a high six figure return off of your first event, and a high seven figure return over the course of the year, this was a big risk to take. But that was then, and this is now. Today, optimization solutions start in the lower end of the five figure range, and unlimited annual licenses start in the lower end of the six figure range. And their power and performance is at least ten times what it was a decade ago. Models that used to run for hours now solve in minutes and an analyst can run dozens of what-if scenarios in a day, quickly getting to the best price-value trade-off for the organization.

So how do we get optimization into the hands of the masses, and more importantly into your hands (if your colleagues are holding your organization back)?

We deal with the roadblocks we discussed.

How do we deal with the roadblocks?

We start with education. We educate people that they don’t have to be a math whiz (because the math whiz is only needed to build the solution, not to use it), that a strategic sourcing decision optimization solution isn’t hard to use, that it doesn’t cost a lot, and that it does generate a return. And we hit them on all fronts. Third Party, Provider, and Practitioner.

To date, it’s been mainly third party, and, unfortunately, mainly SI spreading the message of optimization. But now we have a few providers working hard to spread the message as well. BravoSolution, who has been kind enough in the past to sponsor SI to help with this effort (and who offered you an Illumination on The Future Of Optimization) has been working hard to spread the messages of Optimization, Analysis, and the integration thereof in what they call High Definition Sourcing for a few years now. A new provider in the SSDO arena, and the first new provider to provide a true SSDO solution since Iasta back in the 2007-2008 timeframe, that we’ll announce shortly, is also taking up the challenge.

And Trade Extensions, who has also been kind enough to sponsor SI to help with this effort, and who has also been providing industry leading optimization solutions and education for a few years now, has just doubled down on the education effort, starting with a new INSIGHTS series focussed entirely on optimization. Consisting of a series of nine interviews with Founder, Chairman, and Optimization Guru Arne Andersson and CEO, Freight Trader, and Master Buyer Garry Mansell, this series will attempt to burn away the fog on optimization, make it a standard part of your sourcing suite, and lay the foundation for a series of follow-up educational offerings which will include white-papers and webinars on the subject.

Because optimization is for everyone, not just the 1%!