Category Archives: Decision Optimization

Three Great Tips for Optimizing the Distribution Network

A recent article in Logistics Management on Warehouse and DC Management: 6 Tips for Optimizing the Distribution Network provided a number of great tips for optimizing the distribution network and reducing logistics costs which are expected to quickly surpass the 2008 high (on the US Freight Index) as oil prices increase and availability of qualified truck drivers decrease. The following three tips are particularly pertinent.

  • Ask the Right Questions
    What are the perceived service level requirements? What impacts will changes in delivery lead-time have on revenues in a given market? What are the baseline operating expenses, inventory assets, and capital investments? How do these compare to alternative scenarios? Should the company home-source, near-source, or global-source? Remember, Supply Management must deliver value and balance costs and lead times against revenues and demand times in its redesign.
  • Use an Effective Network Modeling Tool
    Effectively modeling a network in home-grown spreadsheets and databases is impossible for an average enterprise with more than half a dozen locations and global sourcing requirements. Not only does an organization have to effectively model a network and proposed alternatives to identify the best network designs, but it needs to monitor what’s happening with the network, which is not possible if all the organization has is a simple spreadsheet or database tool.
  • Perform an Inventory Optimization Study
    While adding more Distribution Centers (DCs) may reduce transportation costs, it will also increase inventory costs, on average, as more inventory will generally be necessary to meet default stock levels. However, if not all distribution centers service locations with the same service level commitments, then inventory can often be varied to minimize carrying and holding costs. However, a careful analysis, supported by an appropriate toolset, will be required.

Trade Extensions: No Rest for the Wicked-ly Powerful – Part II

As per yesterday’s post, it’s been less than five months since we last checked in with Trade Extensions, who had traded up to a Fact Sheet User Interface and added a slew of new features, including improved RFI support, multi-dimensional rankings in e-Negotiation, Google Earth integration, new incumbent rules, and an OLAP foundation to reporting, including the implementation of a new n-way comparison report. Since then, Trade Extensions has been on a tear to add new functionality as fast as it can to make the platform not only one of the most powerful expressive bidding optimization platforms on the planet, but also one of the easiest to use — listening to its users (which include the Fortune 1000) and adding features and functions that make an average buyer’s life easier, taking usability to a whole new level yet again. And while earth-shattering technology improvements are cool, it is usability that is the ultimate key to to adoption, use, and, ultimately, cost avoidance and reduction in your sourcing organization.

Scenario Creation & Analysis

Not only are there new rules that allow partial awards to be fixed based upon existing scenarios, but the number of constraint categories has doubled. While there were only general and incumbent constraints in the past, there are now an entire category of scenario reference rules and post processing rules. With respect to scenario reference rules, not only can allocations be kept, but bids can be favoured or penalized as well. The post-processing rules are also quite useful. Allocations can automatically be rounded and allocations that don’t meet a minimum number of units can be removed (or re-assigned to the supplier who meets a minimum allocation with the lowest total cost).

Feedback Mechanisms

The buyer now has fine-grained control over what the supplier sees, and can even mix feedback types. For example, if the buyer only wants the top three suppliers to know they are top three, but suppliers four to six to know their exact rank, they can specify that specific rank starts at bidder four, and the top bidders default to “top 3”. In addition, if the supplier does not meet a minimum bid increment, which can be defined in a number of ways (including, minimum dollar or % decrease over last bid), the supplier gets a nice red error that the bid is not acceptable AND a message indicating the minimum increment required. Finally, and this is really cool, the user can define custom color-coded bid feedback fields based on dynamic formulas that now only let the user know where they rank, but how competitive their bid is (against the current bids from the competition) in English using a buyer defined scale such as “Competitive”, “Slightly Competitive”, “Not Competitive”, and “Not Acceptable”.

Plus, the buyer can now chat with users online in an integrated IM client, and immediately see who is online when they log in as it is a widget on their project management dashboard.

Odds and Ends

The “dashboards” for RFX and auction phases have also improved. The summary, bidder summary, and lot summary are now completely customizeable by the user, support custom fields, and user-defined colour codings in the rankings. In addition, there is integrated show/hide, drill-down functionality, and customizeable pop-up (bid, trend, and bidder activity) charts where a user can select one, some, or all of the rows in each report.

They have also added a basic workflow engine that allows buyers to initiate rate requests, lot requests, and allocation publishing requests of project managers / administrators when new needs arise during a project. This allows managers and supervisors to maintain control and a complete project history to be maintained. The workflow is fairly basic at the present time, but I suspect it will mature and fill out quickly given Trade Extensions’ track record of rapid application development over the past two years. (Especially since the feature is being used by a couple of very large companies.)

All and all, it’s a lot of new functionality in a short time frame that makes the tool extremely useable by an average buyer.

Trade Extensions: No Rest for the Wicked-ly Powerful – Part I

It’s been less than five months since we last checked in with Trade Extensions, who had traded up to a Fact Sheet User Interface and added a slew of new features, including improved RFI support, multi-dimensional rankings in e-Negotiation, Google Earth integration, new incumbent rules, and an OLAP foundation to reporting, including the implementation of a new n-way comparison report. Since, then, it would appear that Trade Extensions have been working around the clock to add a host of new features in auctions, reporting, award management, scenario creation and analysis, and feedback mechanisms. They are advancing the platform so fast that only a few companies in the space are currently keeping up with their rate of development. And while nothing added in the last few months is earth shattering, Trade Extensions has again taken usability to a whole new level, which is the key to adoption, use, and, ultimately, cost avoidance and reduction in your sourcing organization.

Auctions

Probably the biggest improvement is the new wizard-based interface that defines different types of RFX and Auctions, including Quick Quote and Simple Auction, that simplify event creation. In the new wizards, the user only needs to define the critical information necessary to create the event and can, if the user so chooses, define everything necessary to set up straight-forward RFXs and Auctions, including lots, on a single screen. While the workflow-driven wizards provided in many of today’s platforms are good, if you just need a quick quote or are auctioning office supplies, you just need to set it and forget it. The platform’s newfound ability to handle simple events with ease while simultaneously allowing for the creation of the most complex events one can think of is quite powerful for an organization that wants a single tool to handle the whole gamut of sourcing events. Now a user can define how much information is required to define an event and enter just that, whether it be a few pieces of information or a few hundred pieces of information. In addition, the new bidder UI is slick, clean, and quite easy to use.

Reporting

Trade Extensions, which supports the Fortune 1000, has added new multi-project reporting which allows for the creation of (roll-up / drill-down) reports across projects. The user can select any set of projects and any set of scenarios in those projects and create a roll-up or comparison report across those projects on any set of dimensions and facts that they choose, which can be organized in a user-defined row-column format. One of the things that Trade Extensions noticed was that a number of users, even when their new OLAP reporting was rolled out product-wide in January, were still downloading reports to Excel for the sole purpose of reformatting them into a preferred or dictated format. So they built this capability, including pivot table functionality, into the tool. Combined with the ability for a user to create fields defined on just about any formula (macro) the user can imagine, there is now no need for a user to have to export to Excel for analysis or report formatting. It’s a very impressive leap forward in reporting and goes well beyond the reporting capabilities of most of the on-line sourcing and procurement platforms that SI has seen.

Award Management

Trade Extensions has created a new set of rules that allows a user to define a scenario that uses allocations from an existing scenario for any subset of the award that they want to fix. No longer does a user have to copy the scenario and define fixed award rules, which can quickly lead to unsolveable scenarios if the user has 20 rules and messes up one or two to create a conflict that results in an unsolveable scenario. Just point at an existing scenario where part of the award is acceptable, indicate that the award for items X and Y at locations A through M are acceptable, and the tool will fix those allocations and build a smaller model that will solve faster (instead of a bigger model with more constraints that solves slower).

Come back tomorrow for Part II which will address the rest of the cool new features in Trade Extensions’ new release.

Transportation Network Optimization Requires Technology

Although it saddens me that most companies will not adopt optimization technology until they realize they cannot “solve the transportation network puzzle” without it, totally missing the savings opportunities that lie in sourcing, I was glad to see that the recent article on “solving the transportation network puzzle” in Logistics Management relayed the need for optimization technology in transportation network optimization. It is the case that that the sheer size and complexity of these networks means technology is required to perform the analytics that enable harvesting the value.

Furthermore, it is no longer the case that a carrier will give you discounted rates just because you have lots of freight. Given the current, and almost continually rising, price of fuel, the cost to maintain their fleet, and the relatively low rates many of them quote the first time around (to try and shave a round or two off negotiation and keep their trucks moving), many providers are no longer able to offer deep discounts unless they want to go out of business, like many of their financially weak breathren have done over the past few years.

Unless the carrier has excess capacity to fill, chances are the buyer will not be ble to wrangle the deal they’re looking for. And, as the article points out, unless the buyer exposes enough information about their needs, and allows the carriers to bid on specific lanes or flows, the buyer will never know that a carrier could have offered a better price in that region and the carrier will never know that they can be guaranteed the specific slice of the business that they can serve cost effectively — and keep quotes down.

And unless the buyer has the right tool to analyze the bids at the lane level, the buyer will never be able to slice the award properly as a large model will have hundreds, if not thousands, of lanes and dozens of carriers bidding on lanes in one or more groups. This generally results in tens of thousands of quotes, depending on volume, which is impossible to analyze in a spreadsheet when regional or volume discounts are also being offered by larger carriers for a minimum percentage of the business. But a modern decision optimization solution can analyze such a scenario in minutes, and allow the analyst to build and solve dozens of “what if” scenarios to understand the impacts of a given decision.

High-Definition Sourcing: Category Excellence Moves to the Next Level


Today’s guest post is from Paul Martyn, Vice President of Marketing for Bravo Solution.
Paul can be reached at p <dot> martyn <at> bravosolution <dot> com.

the doctor — along with many others — has been advocating for “next-generation sourcing” for some time. I couldn’t agree more that modern supply management organizations must take sourcing practices to the next level if they are going to continue to distill value from the discipline and practice.

But like most New Year’s Resolutions, while the aspiration to improve may be great, the effort may be too much for even the most committed. I see this a lot, especially when it comes the challenges of sourcing strategic, complex categories. Not without reason of course, but more and more I also see that the benefits of mastering the art of sourcing these challenging categories far outweigh the difficulties of the actual process.

Strategic categories mean different things to different businesses. For one company, the category may be transportation; for another, packaging material. The common denominator: the business can’t succeed without it, and can’t afford to over-pay for it.

To make decisions based on the most strategic objectives of the business, sourcing teams need to integrate many dimensions of information from areas well outside their domains. For example, if non-price factors like diversity or sustainability are part of the company’s corporate social responsibility initiative, those factors can — and should — be part of sourcing strategies.

As a result, the volume and the sheer variability of the information render common e-sourcing tools or Excel spreadsheets useless for collecting and evaluating proposals. That’s where high-definition sourcing — which combines technology, expertise and process — delivers the goods at the lowest total landed cost, and aligned with the greater organizational strategy.

So how do you know if high-definition sourcing can turn even the most complex categories into real value for your organization? There are generally three scenarios where the opportunity to apply this discipline will help you capture meaningful and sustainable savings

  1. The category leader is frustrated with traditional sourcing techniques
  2. The category is avoided by the faint of heart
  3. Sourcing alone will not deliver the value

Sound familiar? Odds are good that at least one of these reflects what’s happening in your organization. Regardless of which situation you face, there are immediate opportunities to be gained with high-definition sourcing

  • Use technology to design and execute more sophisticated proposal collection and analysis, including the ability to use “what-if” scenarios.
  • Build supplier performance monitoring and triggers for re-evaluating supplier selection into your category management solution
  • Partner with suppliers to drive costs out of the system and strike the perfect balance between suppliers’ pricing and capabilities with buyer business constraints and preferences
  • Tap domain and process experts to bring market and industry best practices to bear on your own sourcing process

The results will be well worth it. Best-in-class companies make the connection between complex categories and the business’ charter. Lowering initial costs is a given. More importantly, these leaders make better decisions based on capabilities and price and secure meaningful — and sustainable — savings.

Thanks, Paul!