Category Archives: RFX

The Role of Optimization in Strategic Sourcing – The Optimization Sourcing Cycle

This series discusses the recent report from CAPS Research on “the role of optimization in strategic sourcing”. The primary goal is to highlight, clarify, and, in some cases, correct parts of the report that are important, confusing, or incorrect to insure that you have the best introduction to strategic sourcing decision optimization that one can have.

In this chapter, the optimization enhanced sourcing cycle is enhanced. The first issue is cycle time. According to the report “at one company, the time from first exposure to the optimization concept to completion of the first pilot run was one year … this is probably fairly typical“. While this is likely true at larger companies, it needs to be clarified that while it takes some companies a while to first buy into the concept and then acquire a solution, a good provider can take you through a pilot on a moderately sophisticated category in under 6 weeks.

The typical cycle times for each activity in the bid cycle given for the example company are worth noting:

  • one day to five months for internal customer engagement
  • one to five weeks for RFQ finalization
  • one day to four weeks to finalize bid submission screens for suppliers
  • one day to two weeks to permit bid revisions and close bidding
  • one to three days to clean bid data
  • one to two weeks for analysis and award recommendations

This says that cycles varied from two weeks and three days to over eight months, which demonstrates that simpler events will not take very long while you should plan for up to six months for very complicated events like rebidding all of your global freight lanes in a single project. (And yes, modern solutions are powerful enough to do just this. A customer of Trade Extensions recently conducted a self-service Billion Dollar event that consisted of 65,000 items, 60,000 transport destinations, and 400,000 bids from over 100 suppliers.)

Finally, as the report states, the total time to complete the sourcing process will be directly related to the number of scenarios tested and the number of rebidding cycles and solving the model with constraints can take from a few minutes for smaller, less complex buys to several hours for large, complex buys. Thus, the more scenarios you want to analyze, the longer it will take. However, you can still run through more scenarios in a day than a spreadsheet would allow you to do in a week, or a month, for more complex models. So while it can take a week or two to analyze all of the meaningful scenarios for a larger project, it’s a drop in the bucket compared to the analysis time if you were still using unmanageable spreadsheets.

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Trade Extensions Trades Up Its UI and e-Negotiation Management Capabilities

About a year ago, I introduced you to Trade Extensions (TE) on the eleventh day of X-Mas. A provider of an extensive on-demand e-Negotiation platform, Trade Extensions is an emerging player in the global e-Sourcing marketplace — one that offers negotiation management, extensive RFX, and (reverse) auctions with embedded real-time decision optimization.

Since my initial coverage, Trade Extensions has made the following significant updates to their platform:

  • a brand new UI across their end-to-end system
    The new UI is crisp, clean, and click-minimal. It’s quick and easy to use and very self evident. Plus, their online help pages are very extensive and updated regularly by the entire TE development and consulting teams.
  • integrated data cleansing & classification capabilities
    Have to fix a lot of data? Just create a rule and map it, just like you’d do in a spend cleansing and classification system.
  • OLAP Reporting for Scenarios
    Users now have access to full OLAP capabilities when viewing scenario results and reports.

In addition, the following features, which I have not covered before, have been improved:

  • extensive modifications to their bid supplement functionality
    Data — pricing, discount(s), rebate(s), etc. — can be captured at any level (supplier, business unit, plant location, etc.) and used for mark-ups, discounts, qualitative scores, or as the basis for any formula(s) the user wishes to define.
  • flexible bid forms
    Not only does TE support full Excel integration, but bid forms can be designed by the user to fit their business needs. There’s no need to force your information into a single system format. A user can create additional worksheets, add columns and rows to existing worksheets as required and add macros and formulas without interfering with the platform’s ability to read completed bid forms.
  • outlier analysis and statistical reporting
    The platform can automatically detect bids that might be too high or too low and flag them for your review (after you define your outlier rules, such as specific bid field values x% away from average / historic / custom calculation). The platform also includes a number of statistics reports, including a parameter statistics report that contains a detailed analysis at the lot and bid level.
  • composed filters
    Filters, which allow you to define constraints on any set of suppliers, ship from locations, ship to locations, products, etc., can now be defined on other filters to allow for very easy, and very powerful, constraint creation.
  • selection sheets
    Excel spreadsheets can be used to define allocation constraints, discounts, penalties, and multipliers … greatly simplifying discount and constraint creation in many cases.
  • project management functionality
    100% integrated into the cohesive e-Negotiation platform, the project management functionality allows for the creation of phases and tasks, the allocation of resources to phases and tasks, and the creation of scopes (by supplier, geography, etc.) as appropriate.

They’ve also continued to increase its power. Consider a recent project run by a financial services firm that tendered all of the components of a direct mail project that would result in the mailing of 1.8 Billion documents. The project, which consisted of 65,000 items, 60,000 transport destinations, and 400,000 bids from over 100 suppliers was valued at $1 Billion with a “B”.

The project was to ultimately deliver documents to the firm’s customers, but to get to that stage each part of the supply chain needed to be tendered. This included design, paper supply, printing, assembly, and transport. The project was completed as a single tender with offers collected on-line and all components tendered concurrently. In addition, suppliers could make conditional offers that reflected their own efficiencies that could present the firm with further savings. This was a project that could not even be attempted by hand as it would take someone close to two weeks just to scan each bid. There’s no way someone could even fathom attempting to optimize this scenario if all they had was a spreadsheet solution that couldn’t handle more than 65,536 rows.

Finally, TE is one of the few players in the market to make their pricing scheme public.

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