Benchmarks Will Re-Define (Re-)Sourcing .. but that is Just the Beginning!

Today, benchmarks are used to determine how well an organization has performed to date. While constant measurement is important, it doesn’t really add value. Tomorrow, benchmarks will be used in conjunction with optimization to not only measure progress, but to help the analyst determine the most appropriate method for re-sourcing an existing category that will be the most likely method for delivering additional savings going forward.

Tomorrow, before a category is re-sourced, an optimization will be re-run on market-adjusted historical data to compute a market baseline, which is the proper definition of a benchmark, that will be used to determine a if there is a potential savings opportunity using strategic sourcing decision optimization. If there isn’t, then a better approach will be defined for the category.

More specifically, the current market pricing for the commodities, as defined by the benchmark, will be compared to current organizational pricing and the differential will be used to adjust all of the historical prices for a baseline optimization. In addition, the distribution model will be updated as appropriate (with new lanes, new carriers, and new temporary storage options added) and current rate tables will be included. If this baseline optimization indicates a reasonable savings opportunity, then the category will be re-sourced using a multi-round negotiation process backed by strategic sourcing decision optimization.

If, on the other hand, this baseline indicates that costs are likely to rise, then the organization knows that it should change the sourcing approach and instead try for a contract extension at current, or only slightly increased, rates.

More details can be found in SI’s recent white-paper, sponsored by Trade Extensions, on Optimization, What Comes Next, but this is just the beginning. Automated Optimization, Stratified Optimization, and TVM Optimization will find opportunities that your organization never knew existed (and never will without these techniques).

To find out how optimization, when taken to the next level, will completely redefine your strategic sourcing and category management, download SI’s latest white-paper on Optimization, What Comes Next.