Category Archives: Decision Optimization

You Say You Know How To Do A Make-vs-Buy Analysis. Are You Sure?

Should you make or should you buy? It’s a difficult question that requires a detailed analysis. Consider the example of a car engine. Do you source each major assembly — the engine, the frame, etc.; or do you source sub-assemblies — the carburetor, the fuel injector, etc; or do you source component parts — the throttle body, the choke pull-off, etc.; and so on. Do you build the final product in house from the major assemblies, or do you have a first tier supplier do it, or do you have one first tier supplier assemble the major assemblies from the sub-assemblies and send those assemblies to another first tier supplier who will assemble the car, or do you chose one of a thousand other supply chain models that can also get the job done?

The figures below hint at the complexity that needs to be considered to truly arrive at a best solution. The best, and most cost-effective, scenario will depend on the particular strengths and cost efficiencies of each supplier in the supply chain.

Engine Complexity

The only true way to find the best, and most cost-effective, scenario is by way of decision optimization with integrated make-vs-buy analysis capability that can span a multi-level Bill of Materials (BOM). While most SSDO (strategic sourcing decision optimization) platforms do not yet support this capability, it is a good bet that most of tomorrow’s will. To find out what other capabilities are forthcoming in the world of decision optimization, visit BravoSolution‘s website, fill out a short 8-field registration form, and receive your free, exclusive, copy of The Future of Optimization, a new Sourcing Innovation white-paper with groundbreaking insight on eight directions that strategic sourcing decision optimization is likely to take in the decade ahead.

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If Optimization Can Clear Transit-Dependent Toronto in Two Hours …

… imagine what it could do to your supply network! While I regularly trumpet strategic sourcing decision optimization, because that’s where many of your significant savings opportunities lie, there are savings to be had throughout the supply chain. Some of those savings come from streamlined shipping. When you consider that each additional day in transit costs you one half of one percent of the value of the goods when you take into account:

  • shipping costs,
  • depreciation costs for limited life-span commodities, and
  • temporary storage costs, etc.

Every day you can take out of your shipping will save you money. By optimizing you network, your routes, your modes, your carriers, and your processes (and documentation), you can often take days off of your average shipment time! So why not optimize your network today? There are a number of providers who specialize in network and inventory optimization, including:

  • Algorhythm
  • Axxom
  • GAIN Systems
  • JDA
  • LlamaSoft
  • Optricity
  • Smart Ops
  • WAM Systems

So take some inspiration from Hossam Abdelgawad, who just won the Young Researcher Award for his work on “Managing Large-Scale Multimodal Emergency Evacuations” and make a connection. Your network will thank you for it.

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Strategy and Innovation Start with Real Analysis

There are two topics this blog always comes back to — decision optimization and spend analysis, and there’s a reason for that. Not only do they both reduce costs more on average than any other technology this blog covers (an average of 12% in the first case and 11% in the second case), but they also improve the quality of decisions, often substantially.

A recent blog post over on the Harvard Business Review on how to “chart a course in strategy and innovation conflicts” did a great job of putting this in perspective. The article, which discussed “east coast” strategy vs. “west coast” design thinking and the “analysis vs. action” schism did a great job of not only pointing out how the best approaches not only come from the intersection, but from the insights that result when a quick and timely analysis can be performed. For example, sometimes you just need to run a quick test to find out if a new pricing strategy will work or if a proposed re-organization is likely to achieve the intended results.

If you have a real analysis solution that allows you to quickly import, cube, slice, and dice your data any way you need it, you can quickly calculate the effects of a new pricing strategy to make an informed decision. And you can quickly analyze how spending would break down across a new organizational structure. A real analysis can help you analyze strategy and spot innovation better, faster, and more cost effectively.

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You Say You Know How To Balance Competing Objectives. Are You Sure?

You need to source some more cocoa for your chocolate factories to keep production moving (and the oompa loompas working). In years past, you’d just hold an auction and cut a contract with the lowest cost bidder, but you can’t do that now that you’re a socially responsible buyer. You can’t buy from some sellers on the Ivory Coast that you know are using child labor, you can’t buy from further away than necessary as long hauls greatly increase your carbon footprint, and you can’t buy inferior products for your luxury chocolate production lines. You can buy some inferior products for your mass economy goods, provided they are blended with higher quality goods, but only so much. You can ship further if the cost is low enough that you can buy carbon credits. And you can source a portion of your award from a select handful of Ivory Coast suppliers who are making an active effort to approve their socially responsible operations.

It’s a complicated decision as you have to balance cost vs. carbon vs. quality vs. brand value. In fact, the only way to truly make the best decision is to use a (strategic sourcing) decision optimization solution that allows for multi-criteria multi-variate optimization that allows a buyer to determine the cost and benefits of various solutions with respect to each objective. In addition, it’s the only way a buyer can truly examine the effect of different weightings of the various criteria under consideration.

While many of the SSDO (strategic sourcing decision optimization) platforms do not yet support this capability, you can be sure that most of tomorrow’s platforms will. To find out what other capabilities are forthcoming in the world of decision optimization, visit BravoSolution‘s website, fill out a short 8-field registration form, and receive your free, exclusive, copy of The Future of Optimization, a new Sourcing Innovation white-paper with groundbreaking insight on eight directions that strategic sourcing decision optimization is likely to take in the decade ahead.

Forget the Champagne – The Real Gift is the Visionary White Paper

In conjunction with the IFPSM (International Federation of Purchasing & Supply Management), BravoSolution just released a brief 18-question survey determined to deduce the current state of sourcing and procurement initiatives globally. If you take just a few minutes of your time to fill out the survey and define the priorities driving your organization’s initiatives, the level of integration that currently exists between your organization’s procurement/sourcing and ERP systems, the applications you currently use, the services you currently use, the benefits you have seen, and the level of value you expect to see, you get entered into a draw to win a free bottle of champagne.

And if you are also willing to fill out an 8-box registration form, you can get exclusive access to the new Sourcing Innovation white-paper on The Future of Optimization!

Even if you are a visionary early adopter who is leading the way in the use of decision optimization who thinks she has a firm handle on where optimization is going, I guarantee you’ll learn a lot from this paper. Even though decision optimization in strategic sourcing has been around for ten years, which would make it a mature technology, in many ways it is still in its infancy. Most solutions barely meet the four pillars that define the basic requirements. Despite the increasing number of players who have started using the term “optimization” in recent years, the doctor still only recognizes six providers as having true strategic sourcing decision optimization solutions. Furthermore, the average solution doesn’t handle complex Bills of Materials, multi-variate trade-off objectives, or true make-vs-buy analysis, which would now seem to be a basic requirement for complex (outsourced) manufacturing. But even this is just the tip of the opportunities iceberg.

So take the survey, fill out the form, get your copy of The Future Optimization, and be the first to get some groundbreaking insight on eight directions that strategic sourcing decision optimization is likely to take in the decade ahead!