Not only does packaging cost you money to produce, it can prevent you from being seen as a responsible corporate citizen concerned about sustainability if it is excessive and not reusable or recyclable. But more importantly, poor packaging can greatly increase your shipping costs. If it increases your product size by 50%, that’s at least a 33% reduction in the number of items you can ship in each truck or on each pallet. Moreover, if your packaging is poorly designed, or your box size poorly selected, your pallet efficiency might be considerably less than optimal! If a poor choice of box dimension cost you 15% or more in area efficiency, that’s going to increase your shipping costs by another 15%. Consider this example from a recent Supply Chain Digest piece on “the impact of packaging optimization on transportation management”. A simple package redesign increased the number of units that could fit on a pallet from 120 to 300 while increasing pallet utilization from 77% to 91%, which represents an 18% improvement in area efficiency. This represents a savings of 60% in transportation costs! Even if your savings potential was only half that, that’s considerable. So don’t forget to optimize your packaging.
Category Archives: Decision Optimization
Sourcing Innovation Welcomes Trade Extensions as New Lead Sponsor
Sourcing Innovation is pleased to welcome Trade Extensions, an innovative provider of negotiation and decision optimization platforms, as it’s newest lead sponsor. The Trade Extensions solution, which represents the next generation of on-line, real-time, sourcing and transportation decision optimization solutions, has been growing as rapidly in depth, breadth, and usability as the company itself.
Trade Extensions, which expanded into the UK with its Cambridge area office in 2007 and into the US with its Houston office in 2008, is rapidly becoming known as the leading player in the global sourcing decision optimization market, which, as we know, is quite small in both the strategic sourcing and transportation domains (with the other players essentially limited to Algorhythm, CombineNet, Emptoris, and Iasta in the former and APL Logistics, Axxom, Llamasoft, SCA Technologies, Schneider Logistics, and TC Logic and a handful of others in the latter). Despite still being relatively unknown to the North American mass market, it has already won over some very big players including AT Kearney, BP, Colgate-Palmolive, Dow, Siemens, and Schneider (who use their platform to power BidSmart) in addition to the dozens of other big name clients it has throughout Europe and, now, through the United States as well. This is probably because it is one of the few vendors with a platform that can handle extremely large events (with tens of thousands of lanes/items and hundreds of thousands of bids) and find optimal solutions in relatively short time-frames. (The recent CAPS Research Study took care to note that most of the solutions it reviewed could not handle extremely large events.)
Their solution, which I covered on The Eleventh Day of X-Mas, is a self-service SaaS platform that can be sourced on a per-event basis or on an annual basis. In addition to full-featured e-RFX, e-Auction, and project management, it’s negotiation platform just added contract management functionality and spend analysis capabilities. It’s bid forms are customizable, each item can have as many attributes and prices as it requires and prices can be in a matrix format, it can support arbitrary formulas in price calculations, and scenario rules and filters can be defined with Excel uploads.
Furthermore, it’s a true strategic sourcing decision optimization platform, meeting all of the requirements outlined in the wiki-paper. That’s one of the most impressive aspects of their offering. Many providers who have tried to integrate optimization into real-time auctions have either failed or cut corners. They did neither. Another great capability is their constraint, or rule, flexibility. Rules can be based on filters, act on any attribute, and be created as templates which can be saved and re-used across scenarios.
Trade Extensions is another innovative company that I suspect you’ll be seeing a lot of in the years ahead.
So join me in welcoming Trade Extensions as Sourcing Innovation’s newest lead sponsor.
I Wish Inventory Optimization Was Mainstream!
A recent article on Supply Chain Digest made the claim that “inventory optimization is starting to go mainstream”. If only that were true! Consider this statement from Noha Tahomay (Vice President at AMR Research) in the first “Supply Chain Leader Virtual Roundtable on Inventory Optimization” where she says that despite clear benefits … the adoption of inventory optimization is still very limited and asks why can such a powerful tool not be more widely adopted. While she postulates that it might be due to the lack of executive sponsorship and the lack of alignment between the goals of the tools and the organizational structure, the reality is that inventory optimization is still not mainstream because optimization is still feared.
It shouldn’t be the case, because it’s not 9 years ago where you needed a PhD with his own server farm to use any of the tools, but it is. People still don’t understand it, they still mistrust it, and they still fear it. It’s unfortunate, but true. That’s why inventory planning, scheduling, and forecasting will sell but inventory optimization will collect dust on the virtual shelf. The problem is that not enough vendors are offering these solutions and the vendors are not making strong attempts to educate the market on the power and simplicity of these modern tools when that should be their first priority. It’s the same problem that exists in the strategic sourcing decision optimization marketplace … very few providers (basically Algorhythm, Combinenet, Emptoris, Iasta, and Trade Extensions) and very little effort to spread the word from any of them. Both spaces need an evangelist … like Paul Martyn was at Combinenet back in the day. If easy-to-use self-service solutions were commonplace back then, things might be different today.
e-Leaders Speak: Garry Mansell of Trade Extensions on “Strategic Procurement through Optimisation”
Today’s guest post is from Garry Mansell and Chetan Raniga of Trade Extensions.
Lord Leverhulme, the British industrialist, famously said: “Half the money I spend on advertising is wasted – the problem is I do not know which half.”
He could have quite easily have been talking as a buyer today. Maybe not as much as half of all budgets are wasted, but the sentiment is the same and it is clear to those who work in procurement that there are opportunities to be had if you only knew where to look.
The challenge of knowing where to look will only increase as supply chains become more complicated and buyers have to consider the influence of numerous external factors – be it globalisation, fluctuating fuel prices or the economic downturn in general.
What makes it even more complicated is that most buyers are not attempting to simply minimise cost – but also to implement wider strategies. The strategies will obviously vary by company and sector, but could include developing suppliers in new markets; reducing their carbon footprint to meet environmental obligations; or managing dependency on certain suppliers.
The number of factors buyers have to consider often makes it very difficult for them to be sure that they have chosen the best solution from their available options. As a result, there is the real possibility that opportunities are missed. To minimise this risk, it is vital that sourcing professionals use the latest techniques and analytical tools which insure that these opportunities become apparent very quickly.
With traditional processes, strategic procurement is not easy. Furthermore, even if buyers try to collect strategic data other than cost, they often end up having to optimise on cost alone because of the limitations of analytical tools.
The software tools that have been developed by modern providers of decision optimization software, like Trade Extensions, can interrogate any factor in the final analysis. As a result, buyers are not limited in the types of information that they can request from suppliers and make use of. It is this freedom that identifies solutions that will be missed by more basic methods of analysis.
OPTIMISED PROCUREMENT
The procurement process always involves a number of important steps: specifying requirements, inviting suppliers, collecting bids, providing feedback to bidders, final negotiations, and the ultimate decision.
It is vital that companies complete these steps, but getting a great result from a sourcing event is determined by the analysis of data collected. This is a key strength of decision optimization software, including the software we provide at Trade Extensions. When buyers use decision optimization software, all of the offers collected can be optimised to take into account numerous factors in addition to cost. This means that strategic objectives can be met whilst keeping cost to a minimum.
ANALYSE THIS – WHY CHOOSING SUPPLIERS CAN BE COMPLICATED
Figure 1 is a very simple example that illustrates how even basic procurement projects can become quite complicated. Attempting to solve this will provide some insight into the strengths of decision optimization platforms like those offered by Trade Extensions’. (The answer is at the end of the post.)
In this example, each supplier is allowed to bid for all contracts although no supplier is large enough to handle more than three. In addition, suppliers have the opportunity to offer a discount if they are awarded more than one contract – an opportunity taken up by the second and third suppliers.
Although it can be done manually, finding the cheapest combination of suppliers takes a bit of effort. (Editor’s Note: For an example of how it might be worked out, refer to the transcript of the joint optimization podcast [part I and part II] between Sourcing Innovation and Next Level Purchasing. Note the significant amount of work involved for even a simple problem.)
Now, try to imagine a procurement project with 2000 items and 1500 suppliers making numerous offers, packaging bids, and offering different discounts where cost is not the only decision criterion. In this scenario, there are potentially millions of combinations to consider. This is impossible to do manually, but modern decision optimisation software can often identify solutions to problems of this magnitude in a matter of seconds.
Optimisation ultimately involves buyers asking interesting questions to test the implications of choosing different combinations of suppliers. The list of potential questions is limitless. One minute a buyer could be considering the result based on price, company size and payment terms and seconds later they could see what the result would be based on price, environmental rating and supplier capacity.
This type of rapid optimisation capability implies that many different possible scenarios can be considered in a very short amount of time. This also implies that the software is flexible enough to allow buyers to run scenarios and optimise against revised offers while they are negotiating with suppliers in the final stages of a tender. For example, a buyer can quickly advise a supplier how much they would need to reduce their prices (or perhaps reduce their lead-time, for example) in order to win a certain amount of business.
This is the type of data analysis that allows buyers to solve their own challenges while providing them with a reassurance that they have chosen the optimal solution based on the given constraints and supplier proposals. This approach puts buyers firmly in control by allowing them to manage the millions of individual pieces of data they collect. This allows them to achieve their strategic objectives through optimisation. And that’s why we believe that decision optimisation is the key for those buyers who want to emerge from the recession victorious.
Supplier B: Contracts 1 and 5
Supplier C: Contracts 2, 3 and 4
Thanks to Garry and Chetan.
Supercalifragilisticexpialidocious … At Least One User Understands Decision Optimization!
CAPS Research recently released their focus study on “the role of optimization in strategic sourcing” by Larry Giumipero and Philip Carter. I’ll dig into it in future posts (in the fall; I’ll let you enjoy what’s left of the summer before I get into the heavy stuff), but for now I’d like to say that I was thrilled to see this quote in chapter 9 on the future of optimization:
The vision is to push optimization to all buyers. The eventual goal is to run every item we buy through the system.
For those of you who are Christian, I urge you to shout Hallelujah from the rooftops! This is how it’s supposed to be. Every sourcing professional is supposed to be using decision optimization on every sourcing event … even if all they do is run an unconstrained scenario to understand what the lowest cost option is and how their preferred award stacks up. (While it’s okay to spend 10% more for 20% more value, unwittingly spending 20% more for 10% more value is not a smart move. Ever.)
I was also very pleased to see that at least one user thought that optimization could be used to optimize the entire supply chain (as it can) and that
We are always looking for international sources and new suppliers to run optimization.