Category Archives: Decision Optimization

Headline From the Land of D’OH: Bypassing Proven Supply Sources Invites Unacceptable Risk

Really? I did not know that! Tell me more!

Don’t we all know this by now? Needless to say I was a little disappointed when I saw this headline in Industry Week on “bypassing proven supply sources invites unacceptable risk”, one of my favourite publications in recent times as they usually avoid the obvious diatribe I expect from the WSJ (and used to expect from the now deceased Purchasing) and focus on the core issue, such as how to maintain quality and proven sources of supply in tough times.

There wasn’t a single sentence in the article that I don’t think we all know by now. We know cheap often translates into poor quality, lack of service, and all too often as of late, recalls. We know that production line downtime costs tens or hundreds of thousands of dollars. We know that moor Procurement needs to meet regularly with Engineering and they have to work together to maintain the necessary budget.

What we need is advice on how Procurement can stave off the incentive to “go for the lowest cost no matter what” when the top line design and production managers know that the associated costs of such a decision far outweigh the savings. We need some advice on how Purchasing can qualify the total cost and risk associated with a decision and show that “the 10% cheaper solution will in fact cost the company 10% more”. We need a discussion of cost modelling, optimization, and simulation that can be used to demonstrate the true total costs.

And when health and safety is on the line, we need the reminder that even the simplest of parts can spell disaster. Remember, it was a single O-ring that resulted in the Challenger disaster. That’s right, a single vulcanized rubber part brought down a Billion dollar piece of equipment. We can’t overlook quality, but until the cost of poor quality is quantified, uneducated business leaders will continue to do so. So let’s teach our buyers about cost modelling and optimization every chance we get. It’s the only way we’re truly going to end this view of relentless cost cutting as business as usual.

Optimization is Supply Chain’s Simulation

A recent article over on Industry Week pointed out how Simulation is “Empowering Product Engineers to Save Time, Money (and the Planet Too)”.

According to the article, simulation helped:

  • NatureWorks design a new biodegrade chip bag for SunChips,
  • Balzer Pacific Equipment Co. design and manufacture a new barge to carry 6,000 tons for a client that required less steel and saved $20,000 in steel costs, and
  • Unverferth Manufacturing Co to create a new strip-till subsoiler in only 3 months that was ten times stronger than its predecessor, required less parts and cost thousands less to make.

Optimization offers similar benefits to your supply chain. It:

  • allows you to redesign your supply chain network to be more efficient,
  • allows you to source the optimal amount of product at the optimal cost, which saves you a ton of money,
  • and allows you to complete sourcing projects in weeks that used to take months.

So stop waiting and just do it.

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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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