The Sourcing Optimization Grand Master Paul Martyn, as part of his ongoing Sourcing Excellence, published two great posts on how The Most Important Constraint Is Often Left Unspoken and The Real Problem Is Usually Context.

In Part 16, Paul notes that:

Sometimes the most important part of the decision never gets discussed directly.
Nobody says: “We don’t trust ourselves to manage the transition.”
Nobody says: “If this fails, I own the fallout.”
Nobody says: “We’d rather pay more than explain a disruption.”

But they poison the model by insisting on:

Extra incumbent weighting.
Requirements that narrow the field.
Timelines that make supplier change almost impossible.
Risk language that quietly points one direction.

Which ensures that the “optimal” solution is one that keeps the incumbent, even though it’s far from the optimal solution.

Then, in Part 17, Paul notes that context is the harder problem. That while the sourcing team can model price, lead times, freight, capacity, payment terms, supplier performance, etc., the data doesn’t capture:

• a plant manager [who] still remembers a shutdown tied to a supplier change
• marketing does not want packaging changes during a seasonal launch
• finance is suddenly focused on working capital
• operations is protecting uptime
• an incumbent relationship [that] carries more internal support than anyone says out loud

And this is what leads to the insistence of constraints and inflated switching costs in the model that mathematically ensures the “optimal” solution is the one where nothing changes, even though the CFO can clearly see that costs are 5% above market averages with no real explanation as to why the organization has to pay that much to minimize risk, ensure supply, yada, yada, yada.

But here’s the thing, if the real issues are surfaced BEFORE the event begins (and the model built):

• Even though the plant manager is scared of a shutdown, the probability can be computed and the cost can be quantified — as the cost per hour/day/week is known
• The cost of extending the current contract just through the launch can be quantified and the cost of keeping the supplier for the whole contract term vs. just the launch and then switching to a new supplier can be computed
• Up front vs. over-time costs can be modelled and the cost of solutions that require more investment up-front vs. later can be compared and contrasted
• The on-time expectancy per supplier and carrier can be modelled and accounted for
• The true cost of the incumbent preference can be modelled

The great thing about strategic sourcing decision optimization with what-if scenario support is that all costs and constraints, if properly expressed, can be modelled and the true cost of a preferred, vs. market, scenario computed. If the cost difference is inconsequential, then you go with what the people want. If it’s significant, then some real discussions need to happen and some real decisions need to be made.