Optimization Backed Sourcing Platform … Or Bust Part IV

This is the fourth part of a five part series that revises and ties together key ideas outlined last year on Sourcing Innovation across multiple posts. Regular readers will be familiar with much of the content, but the integrated perspective should help to cement the ideas in regular readers and new readers alike.

This post is largely based on Why Your First Generation Sourcing Platform Is Not Ready For Modern Sourcing.

As per our earlier posts, first generation sourcing platforms, circa 2005, were a miracle cure for the average Sourcing organization that was drowning in data and demands to save, save, save without enough time or resources to tackle even a fraction of the categories that needed to be under management.

For example:

  • First generation Spend Analysis systems helped the Sourcing team identify the largest spend categories and the largest organizational suppliers, which were prime candidates for the first strategic sourcing evens put through the new sourcing platform.
  • First generation RFX systems helped the Sourcing team capture more data from more suppliers than ever before and not only better qualify potential suppliers but collect more detailed bid breakdowns for analysis.
  • First generation e-Auction systems helped the Sourcing team put non-strategic high-dollar categories with very little complexity out to bid for quick savings success.
  • And, most importantly, first generation decision optimization systems allowed the sourcing team to build realistic cost models, capture constraints, and devise realistic award scenarios that identified real savings.

In other words, many organizations that acquired these suites and applied them successfully saw year-after-year returns of 10%+ on the spend brought under management. And a few are even seeing some savings today, but just like the second auction saw little savings and the third auction saw a price increase, the year-over-year return is dropping. Why? Because while these first generation platforms were infinitely more powerful than anything that had come before, they weren’t designed to capture the full extent of complexity in an average category — complexity that has been considerably increased since the early days of sourcing due to increased outsourcing, increased globalization, increased regulation, and a constantly evolving global marketplace. Back in the day, no one would have thought that even a simple paper tender (that’s right, paper) would encapsulate all nine dimensions of sourcing complexity.

Not only is there just no way to do a strategic analysis and justify a strategic decision without a basic level of true mathematical optimization capability that can take all costs and constraints into account, but there is also no way in a standard suite to:

  • Collect the full breadth of supplier responses
    as the limited form-based data collection in first generation solutions don’t allow for expressive responses, bids, or varying from a rigid, inefficient, yes/no fixed cost template
  • Create dynamic drill-down graphical reports
    as the built-in static reports with limited, if any, 2-d graphing options don’t allow for modern graphical analytics
  • Conduct multi-user sourcing events
    as they were set up for non-collaborative single-user sourcing events and not modern, complex, categories that require entire teams
  • Create accurate cost models
    as the limited cost models, with little or no formula support, are too primitive for many of today’s complex categories
  • Support dynamic workflows
    that adapt to the categories and the organizational needs, as everything has to fit the rigid workflow or the suite cannot be used

A modern sourcing platform is needed, and by now it should be quite clear that it should be optimization-backed, but there is still one common argument that is used by many vendors to try and skirt the issue, and while it’s not valid, it can sure be convincing when spoken by a charming and charismatic salesmen — and this is the topic of the fifth and final post in this series.