Category Archives: Decision Optimization

(Strategic Sourcing Decision) Optimization: Can you afford NOT to do it?

Last week at reSouce 2008, Iasta (acquired by Selectica, merged with b-Pack, acquired by Determine, acquired by Corcentric) provided 5 optimization case studies of recent projects that they did for, or in conjunction with, their e-Sourcing clients (who have free access to basic Decision Optimization in a basic suite license as well as access to enhanced Smart Optimization, with extensive freight support that includes support for LTL and TL at buyer-defined freight brackets, for an additional fee). In one of the projects, they only saved a measly 5.5%! That’s only 55,000 of savings for every 1,000,000. Pocket-change to your CFO, right?

Well, in case you haven’t figured it out yet, I’m being sarcastic. Iasta not only proved the twice-discovered Aberdeen result that optimization saves 12%, on average, above and beyond e-Auctions, but that, for categories with untapped opportunities, this doesn’t capture the true savings that can be extracted from categories that can’t be efficiently analyzed without optimization. Although two of the projects were below 12%, at 7.0% and 5.5% in the worst case, three of the projects were not only above average, but two were considerably above average, clocking in at 35% and 40% savings, respectively. The first project was a new national roll-out for Dairy Queen, who would have spent 29% more had they gone with their pre-optimization strategy for award distribution, transportation, and inventory management. Instead, they walked away with approximately 1.8M in savings while reducing analysis time by over 2/3rds. The second project was a national award of temporary labor contracts for a large insurance company who would have spent 25% more had they used their traditional spreadsheet analysis methodology. Instead, they walked away with 20M in savings AND reduced the analysis phase by over 75% – completing a project that normally took over a month in less than a week. Furthermore, the project that only achieved 18.2% savings was also quite significant – as it was on a 110M hardware category for Conoco Phillips – who also walked away with over 20M in savings. I say “over” because the 75.6% cycle time reduction they achieved also allowed them to capture an additional 1.6M in savings because they were able to complete the project in 2 weeks, instead of the usual 6+ weeks.

Thus, I must ask you again – why aren’t 75% of you even considering optimization? Can you really afford to leave millions … if not tens of millions … on the table when prices are skyrocketing across the board, revenue is falling, and your job is on the line? Especially when a savings of even 5% on a 2M-3M category can be the difference between the company being able to afford your salary over the next year? (And, to be honest, the chances of you not racking up a cost avoidance of at least 5% with optimization on any category of even moderate complexity are quite low.)

Is it because you think it’s hard? Although I would have conceded this point to you even three years ago, and would still concede this point to you if you are using the wrong vendor who still believes that everyone can use a mathematical programming language interface, the fact of the matter is that some vendors, like Iasta who has put a lot of R&D into making optimization usable by the average buyer over the last few years, now offer solutions that you can be up and running on with only a day or two of training. Now, it’s true that you won’t master some of the more advanced features that quickly, but when even the basics will shave 5% to 10% off the total cost of the award, that’s one heck of a good start and your mastery will improve with each project you do. Furthermore, now that most vendors with UI-based optimization products, like Iasta, now offer you a multitude of options to get started, which include full service and guided support in addition to self-serve, you are free to start at your level of comfort. And when buyers with only a few months under their belts are creating scenarios beyond what people like myself could envision as model designers, and suggesting enhancements that experts like myself (who have been designing these types of solutions for eight years now) never even thought of, you begin to understand that it’s really pretty easy compared to the state of affairs of a few years back.

Of course, you do have to know what you are doing – and as I pointed out above, you do need a little bit of training. But it’s often a lot less training than you think, especially if you’re a self-starter (which you should be if you’re in sourcing these days) and willing to take steps to self-educate. In addition to readily available buyer-training (most vendors will give free demos, free support, and schedule training on short notice for their customers – and do it on your site if that’s what you want), there are also a number of resources out there that you can use to begin to understand what optimization is, what it can do, and how you can begin to use it. There’s the optimization archives on this blog, the optimization archives on e-Sourcing Forum [WayBackMachine], the optimization wiki-paper on the e-Sourcing wiki [WayBackMachine] (which also forms the basis for the chapter on strategic sourcing decision optimization in the e-Sourcing Handbook [e-Book available on request]), the Next Level Purchasing (now the Certitrek NLPA) podcasts (Parts I and II), and the extended transcript with commentary (as well as the introductory “purchasing tips” article). And your vendor, with extensive experience, will be able to help you identify relevant issues for any project you wish to undertake.

It might take a little bit of effort initially, but when your analysis time is reduced by 50%, 66%, and even 75%, it will be more than worth it … especially since successive projects will be faster still as you’ll already have the data templates ready for future projects as well as the basic scenarios you need to build and compare defined. Plus, you’ll have to do less projects to meet your savings / cost avoidance targets … which means that you’ll hit your bonus faster. And, if nothing else, isn’t that reason enough for you to take the leap?

As I have already fully disclosed, Iasta is a client and I am responsible for much of the model that their product (and Smart Optimization in particular) is based on, but the UI innovations are entirely Iasta’s, as are the results reported.

The e-Sourcing Handbook (Free e-Book)

The e-book edition of the e-Sourcing Handbook, co-authored and edited by yours truly, and sponsored by Iasta [acquired by Selectica, merged with b-Pack, rebranded Determine, acquired by Corcentric] (an e-Sourcing solution provider), is now available on request (through e-mail).

The e-Sourcing Handbook is your modern guide to Supply and Spend Management Success which utilizes and enhances strategic sourcing technology and best practices. Covering the full spectrum of the e-Sourcing cycle, the handbook helps you understand not only what spend analysis, e-RFx, e-Auction, decision optimization, and contract management are, but where and when to apply these technologies for maximum benefit.

Building on the resounding success of the e-Sourcing Wiki [WayBackMachine] and the e-Sourcing Forum [WayBackMachine] and Sourcing Innovation blogs, the handbook takes the concept of open access to knowledge and best practices one step further by compiling the best information on e-Sourcing to appear on all three public information sources into one definitive source. Furthermore, by mixing content from factual and informative wiki articles with blog postings that are both controversial and opinionated in an innovative manner, the juxtaposition of the two in the handbook allows the reader to see where the boundary lies between information and advocacy. It is the goal of the authors that, through this ground-breaking effort, the reader will gain a better understanding of e-Sourcing and how to take their supply and spend management efforts to the next level.

And, most importantly, unlike some of the recent e-books to pop-up, this is a real book – not a glorified marketing white paper doubled (or tripled) in size with a fancy (spaced-out) layout that contains dozens of colorful, yet useless, images. An exact mirror of the forthcoming print-book, it’s 220 pages of solid content backed up by a 4 page resource section, 8 page glossary, and 22 page bibliography for those who thirst for knowledge. The full table of contents and index are also included to help the reader quickly find what she is looking for.

But perhaps the foreward by co-author Eric Strovink of BIQ (acquired by Opera Solutions, rebranded ElectrifAI) says it best.

The e-Sourcing space has undergone a major transformation since 2000. Vendors who were once dominant or cutting-edge have failed. Many have undergone asset fire sales, become part of the walking-dead, or been absorbed into larger companies; and still others have been forced by their investors into mergers that make little sense to the outside observer.

 

These consolidations have brought about a dangerous commoditization of ideas, along with a slowdown of innovation. Even worse has been the obscuring – by over-enthusiastic and under-educated vendor marketing departments – of deeply important issues that sourcing practitioners must consider and understand in order to be successful.

In response to this, my co-author, Dr. Michael Lamoureux, launched the Sourcing Innovation blog with the specific purpose of educating practitioners and cutting through the marketing babble that had begun to dominate the discussion. Another co-author, David Bush, started the e-Sourcing Wiki (from which the bulk of this Handbook is taken) in a similar attempt to put fundamental e-Sourcing ideas and concepts into a publicly accessible forum. Over the years, David has also built Iasta’s e-Sourcing Forum blog into a credible and useful resource.

These efforts are laudable, but blogs and wikis are sometimes hard to navigate, and effort is often required to extract related information in a useful way. This Handbook is an effort to draw together the knowledge base of the Wiki, along with relevant blog postings, into a coherent and readable framework. Of course, one might argue that none of the authors are readable or coherent – and that may be a fair criticism – but we’ve made a best effort.

Because Michael is a strong and independent voice in the space, it’s appropriate that he is the editor of this Handbook. He has taken an interesting and unorthodox approach, choosing to mix factual and informative wiki articles with blog postings that are both controversial and opinionated. The juxtaposition of the two allows the reader to see where the boundary lies between information and advocacy. This is perhaps the first effort of its kind where two very different resources are interlinked in a constructive, and hopefully interesting, way.

 

I trust that this edition of the Handbook will be the first of many similar efforts, and that together we can collectively energize our space with accurate information and useful insights. Remember, the e-Sourcing Wiki is a public resource – anyone can contribute – so everyone should consider “sharing the wealth” and do so.

Transportunity Identification Requires Decision Optimization

I recently discovered an archived “expert insight” on SupplyChainDigest from last summer on “Transportunities: What Kind of Results Can You Expect from Carrier Bid Optimization Projects” that was pretty good, but lacked advice on the right way to go about the more technical aspects of the project.

The article, which noted that savings in the 5% to 15% range are usually achievable, noted that there are factors that will affect the achievable savings range, namely:

  • How good have you been?
    It will be hard to generate savings if you have already captured them in a prior sourcing project. Remember, fuel costs keep rising, and with labor shortages and inflation, so do savings. You’re only going to capture savings if there are (significant) inefficiencies to be eliminated.
  • How good will you be?
    If you have been unable to capture transportation savings in the past, why will this time be any different? You need to be sure you have the knowledge, tools, and support you need before you begin the project, or you will just be wasting your time.
  • What is your freight profile?
    If you are a low-volume shipper moving light bulky freight from Hong Kong to LA … or need a “reefer” out of Florida after the citrus ripens, you can only expect to do so well or rather not so well. You need regular, high-volume shipments on the same lanes that have not been (properly) sourced in a couple of years if you want to find real opportunities.
  • What is the state of the market?
    In the midst of a capacity crunch, like we were a few years ago, you’re not going to get good rates. However, in the midst of an economic slowdown, like the one we are currently in, conditions are prime to negotiate better rates.

In other words, if you have not been stellar, have the resources at your disposal, and have an appropriate freight profile in a receptive market, then chances are you have a good shot of saving a sizeable chunk of change if you, as the article suggests, broaden the scope of the sourcing project and, most importantly, use the right tool for the job.

It’s critical to use the right tool for two reasons. The right tool enables the right process and, most importantly, the right tool makes sure you aren’t sacrificing other savings opportunities simply to get better freight rates. For example, if you over-allocate to a certain carrier, then you could lose the required volumes needed to achieve the TL rates you need for low freight costs on lanes only served by other carriers. Also, if you lock in freight lanes, then you restrict your supplier pool – and if freight is less than a quarter of your overall sourcing costs, this can be bad.

That’s why you should always source categories at a time in a sourcing project, so you can balance unit cost vs. freight cost, and do freight projects at least once, if not twice, a year where you amalgamate across needs based on expected lane-volume combinations using current contracts and most likely award scenarios.

For more information on the right way to handle freight projects, see my post on Missing the Point … or … The Right Way to Handle Freight.

The 6 Days of X-asperation: Day 4 – Questions to ask your Decision Optimization Vendor

Just like we did in the X-emplification series, we’re going to continue with Decision Optimization as we tackle the generic questions that you should be asking every vendor, and the types of answers you should be expecting.

1. What do I have to do to get a good handle on how to make effective use of this technology, and for an organization of my size, how long is it going to take?

The first thing you have to do is get a good understanding of what strategic sourcing decision optimization is, what it can do for you, and, most importantly, what data you’re going to need. I strongly suggest you read the wiki-paper authored by yours truly if you haven’t already. The wiki-paper will tell you:

  • The requirements of a true decision optimization system
    which will insure you don’t get taken in by a cheap imitation decision support system
  • The basic capabilities a decision optimization system should have to be truly useful for strategic sourcing decision optimization
    which will insure that the decision optimization system you select is most appropriate for the problems your team faces as sourcing professionals
  • The basic requirements for success when using a decision optimization system
    which include good forecasts, appropriate cost breakdowns, and knowledge of the required, vs. desired, business rules
  • Ten strategies for success
    which will help you get the most out of every strategic sourcing decision optimization project

Then you need to figure out what your potential return is from strategic sourcing decision optimization. Although every project will benefit, the reality is that decision optimization is still relatively expensive technology to buy and the amount of work involved in these projects can be considerably more than an auction. This sometimes requires the time of senior professionals, which can add up. If you’re a small or mid-size company whose largest sourcing project is 10M — and you only expect to save 3%, primarily on reduced freight and inventory by way of better allocations, because it’s a buyers market and auctions work very well — then, considering that the cost of buying, maintaining, and using a good solution starts in the mid six-figures a year, it’s probably not for you. However, if you’re a global 3000 company with a dozen or more sourcing projects in the 50M to 500M+ range, and a possibility of savings of 5% to 15% per project, and your total potential savings is in the 50M to 150M range in the first two to three years, then you should identify the right optimization system for you and start using it as soon as possible.

Once you’ve decided optimization is a useful technology, and one you should be using, you need to review the categories that you will be sourcing in the next 12 months, and then rank them by dollar amount and complexity. The projects that appear in the top half of both lists will be good candidates for strategic sourcing decision optimization. (Note that if your annual spend is in excess of 1B, the doctor can tell you right now that properly applied decision optimization technology will generate ROI for you.)

Armed with the potential projects, you need to devise appropriate cost breakdowns for each of the goods and services under consideration, identify other relevant non-cost and qualitative factors, and prepare the appropriate surveys and RFPs/RFQs so that you can get projects underway relatively quickly. Optimization only achieves significant returns if done right – and this requires that you get accurate bids and cost breakdowns where the cost of the good or service is separated from the freight cost, and any relevant costs such as duties, differential costs of waste and returns, and discounts are taken into account. The extra preparation is definitely worth it when you consider that studies done by Aberdeen in 2005 and 2007 (as referenced in the wiki-paper) found that organizations that employ advanced sourcing methods based on decision optimization save an organization, on average, 12% above and beyond what can be saved in an e-Auction or basic sourcing project.

The amount of time it takes really depends upon the skill-level of the people you have. They have to wrap their minds around decision optimization for strategic sourcing, understand what it really is, how they best use it, and how they have to approach decision optimization sourcing projects and data collection to get the most bang for their buck. If they are junior buyers in skill-level, it could easily take them a few months to truly grasp the basic concept, and chances are they will never be able to take full advantage of the tool until you upgrade their sourcing skill level (through an appropriate certification program such as the ISM CPSM or Next Level Purchasing (now the Certitrek NLPA) SPSM, for example). If they are senior buyers in skill-level, they should be able to grasp the basics and re-design the RFXs for the first project within a couple of weeks.

2a. How much functionality is my organization realistically going to be using in 12 months?

Your senior buyers should be using all of the functionality in the strategic sourcing decision optimization tool within 6 – 12 months. The situation now isn’t as it was when these tools were first hitting the market place 7 years ago (at which time the UI alone was so complicated you needed a graduate degree just to understand it). A good tool has a clear UI and good data import capability that allows you to specify the categories and items under consideration, the suppliers who can supply those items, the locations where you need those items (which may be done by way of groupings), and the cost breakdowns (at least by adjusted unit cost and freight cost). The tool should be able to import data from an appropriately formatted excel worksheet, or from an e-RFX or e-Auction module if it is integrated into a sourcing suite. Furthermore, modern software allows each type of constraint that can be defined to be clearly delineated, and step-by-step wizards exist to help you define the constraint appropriately.

Your intermediate buyers should be able to master the basic constraints in this time-frame, and be well on their way to improving their sourcing decisions and relative skill levels.

Even though the tools have improved significantly, strategic sourcing decision optimization, by its very nature, requires a more advanced skill level than other tools in the e-Sourcing suite and your junior buyers may not be up to the challenge. You will need to provide them the training they need to upgrade their sourcing competence to an intermediate level before you can expect them to master the tool, even though your technologically savvy junior buyers will be able to get a reasonable grip on the basics of setting up a scenario and defining simple constraints in a rather short time frame. You have to remember that the use of strategic sourcing decision optimization is advanced sourcing, and this requires more than just a friendly tool – it requires buyer skill.

2b. How much functionality do I really need?

When it comes to model development and solver capability, as much as you can get. This is still a developing technology, and even though you can achieve considerable savings above and beyond an e-Auction just with what’s out there today, there’s still a long way to go.

When it comes to add-ons, it depends on what the company is offering you as an add-on. If it’s services, then, considering you should have guidance on your first few projects, you should strongly consider them if they’re reaonably priced. If it’s custom integration services to your RFX or e-Auction platform, then, assuming these are the right RFX and e-Auction platforms to be using, and the integration is priced competitively, then this is also worth considering. However, if the add-on an enhanced solver module, I’d ask why this isn’t part of the base offering (as it should be).

However, one thing that is important to note, if it’s not easy to load the data into the tool, it likely won’t be used at all. Thus, it’s important to make sure that not only is the import or ETL tool included as part of the basic functionality, but that the import functionality is also easy to use.

2c. And how does this functionality solve my #1 pain today, which is X?

If you’re looking at strategic sourcing decision optimization, chances are you are seeing diminishing savings from your sourcing projects and need a way to improve returns. What you’re looking for here is an answer not based on technical competence, but on sourcing experience. You want the vendor to tell you that their product has been applied successfully by companies in a number of verticals on a number of categories and that, based upon their experience in and around your industry, they expect that you will be able to save in the 5% to 15% range on a well-defined set of categories. You want to know that they have the experience to help you select the right categories to start with that will help you get some quick wins and support for the new technology.

3. How much training is my team going to require to effectively use the software? How long is it going to take them to absorb this training?

It should not take more than a week to get your intermediate and senior buyers up to speed on how to use the tool. However, the training is not really going to be absorbed at a deep level until your professionals apply the tool on a few projects, which should be done under the guidance of an experienced professional who can insure that your team is tackling the project in an optimal manner. Thus, it will probably take a few months, at the minimum, for your senior buyers to truly master the tool.

4. How much is this software REALLY going to cost me in the first year and each subsequent year?

Although real strategic sourcing decision optimization has been around for almost seven years, it only became usable in the last few, and due to its relatively low adoption rate to date, and continued development, it’s still a reasonably new offering. You should expect to be paying in the mid six figures per year, depending on the power of the solution and your hardware and solver license requirements. (Most platforms are built on top of industry leading solvers, such as Ilog’s CPlex, which can run 25K to 50K per license. Plus, you need high end servers if you want to build large models and have them solve relatively quickly. Thus, even an on-demand offering is going to be pricey if you want dedicated solvers and hardware, which you could need if you have large models or intend to use the platform significantly.)

Furthermore, since this technology is still emerging (like real spend analysis), updates should be regular and maintenance will be higher than for e-RFX and e-Auction, so you are probably looking at maintenance (for behind the firewall or ASP solutions) in the 20% range.

Installation should not be time consuming, and should not require more than a few days of consulting. (On-demand should be free if you’re using a basic service that uses shared optimization resources, but if you are asking for dedicated resources, you should expect to pay for some consulting time as a dedicated resource will need to deployed to get this done.)

5. You say you care about your customers and that you are going to provide great service. Prove it!

Ask for references. Talk to them. If the vendor has an upcoming user meeting or conference, ask to go to it. Ask for examples of results their customers have achieved on the platforms recently, and how they can help you achieve the same. But most importantly, ask them if they’ll help you with your initial pilot project at a reasonable consulting rate and see what kind of results they deliver – with their tool.

6. Can I take it for a test drive or a short term lease?

Considering that this software is usually either web-based or a fat client that runs on your desktop, there shouldn’t be any problem for your provider to set you up with a single instance, or copy, for you to use on a pilot project – which they should be comfortable with you undertaking at a low consulting rate – equal to the cost of the consultant that guides you through the pilot project.

7. Can I buy it or implement it in pieces?Just like you should ultimately buy the entire e-RFx or e-Auction tool functionality up-front, you should buy the entire functionality of the strategic sourcing decision optimization tool up-front as well, but I’d hold off on buying dedicated hardware and solver resources until you’re ramped up and ready to maximize usage of such resources, as a single dedicated high-end machine with a dedicated CPlex license will cost you (well) over 50K a year in additional cost. If you’re maxing out your solver, dedicated resources can be worth it when you consider the ROI that accompanies strategic sourcing decision optimization. But if the hardware is just sitting there, that money is better spent on consulting services to help you get up to speed on how to maximize use of the tool.

The 12 Days of X-emplification: Day 11 – Supply Chain Optimization

On Day 2 we talked about strategic sourcing decision optimization, the technology you need to make the right buy given the myriad of constraints you have to adhere to and the large number of costs and bids you need to take into account. Today we’re going to talk about supply chain optimization – the process of optimizing your supply chain, or distribution network, to minimize costs and maximize value.

Even though the only way to truly get the optimal buy every time is to use the optimal supply chain, the reality is that you can’t transform your supply chain overnight for every bid. The realities are that it takes time to acquire, lease, or dispose of distribution centers and warehouses, that you have contracts in place with suppliers and carriers for anywhere from three months to three years in a typical organization, and that changing global distribution patterns requires time to research the regulatory, documentation, and taxation requirements of different countries and trade zones. Thus, when it comes to strategic sourcing, the best you can do is optimize the buy within the supply chain you have available to you today. However, if you can improve the supply chain, then you can reduce your costs and save even more across all of your buys.

Supply chain optimization is something you should do on a regular basis. Whereas in the past, experts would say that it is something you should do only once every five, seven, or ten years – today it is something you should do every year! Today’s optimization solutions are a lot more powerful than they were ten years ago and allow you to build much more sophisticated models, which are now usually solved in hours compared to the weeks that was once required for models of this magnitude.

Even though it probably doesn’t make sense to buy and sell manufacturing and distribution center assets every year, there’s nothing stopping you from modeling the cost associated with such a sale, or modeling the cost of breaking or failing to renew a lease, of each asset you have if new options present themselves, such as alternative low-cost distribution centers or the possibility to sell a manufacturing center to an outsourced contract manufacturer who might be able to manage it more cost effectively. Today’s solutions can model all of the costs associated with acquiring, running, and disposing of an asset in your global distribution network, and can help you truly identify what the optimal network is for you at any given time for any given period of operation. (Thus, every year you can redo the analysis and assume that the network is only going to remain stable for the next year.) You can also tell a good supply chain network optimization solution that certain aspects of the network aren’t allowed to change and that certain aspects of the network must change and have it tell you whether or not your current network is optimal or if you should consider making some changes.

So how do you identify the right supply chain modeling and optimization solution? As with any other technology, you ask the right questions. The following questions should be enough to get you started and help you identify the real solutions with the power you need from the imposters.

1. Can the solution model your supply chain as is?

This is a question you need a resounding yes to. How do you know how much a potential network redesign is going to save you if you don’t even know how much your current network design is costing you? This brings us to …

2. Can it derive a cost baseline?

Once you’ve modeled your current network, the solution should be able to run the model and tell you how much your network should be costing you. (If your current network is actually costing you significantly more, than either you have some inefficiencies in your processes to work out or you have not accurately modeled your network and need to revise or expand your model.)

3. Can the solution support the construction of a model depicting a desired state?

If you have a solution in mind, you should be able to construct that solution and derive a cost baseline for that solution. Similarly, you should be able to define your own modification of a suggested network design and derive a cost baseline for that modification. After all, it’s not the lowest cost solution, it’s the highest value solution – and that’s not necessarily the solution with the lowest cost today, but the network design with the expected lowest cost, and highest value, over the expected lifetime of the network.

4. Can it derive an estimated cost of any model you specify under a projected range of activity?

The reality is that any given solution is only optimal for the specific (set of) demand value(s) and the specific (set of) cost(s) that the model is defined on. However, you’re optimizing your network for a future period of time, where demands are only forecasts that could change. Thus, you want a solution that also has simulation capabilities and the ability to run multiple models under multiple demand scenarios and cost differentials to allow you to come up with a network plan that is robust and most likely to save you money over the range of scenarios that are most likely to occur.

5. Can it allow you to drill down into the expected cost differential between two models and determine why?

It’s not enough to know that one network design is expected to cost 2M more than another, you also need to know why, especially if the more expensive network design is the one you’d prefer. If you know that most of the costs are associated with lease payments, then you know that if you could negotiate a lower lease price, you could end up with a network design that you like and that is only slightly more than the lowest cost solution. If such a design also has lower risks, then it has a higher value and you can choose it.

6. Can it help you optimize your supply chain improvement investments?

Converting from one network design to another will occur a lot of upfront costs associated with asset acquisition, lease, and disposal as well as penalties if you have contracts in place that you need to back out of early. These up front costs need to be covered somehow, and if you only have a fixed amount of capital available for supply chain improvements, you want the model to be able to take that into account and the solution to provide you with different, near-optimal, improvement possibilities that are within your budget today.

7. Can it model the impact of fixed asset disposal or cost reduction on projected service levels? inventories? greening?

When optimizing your network, it’s not just about cost and risk, it’s also about service optimization, inventory optimization, supply chain greening, and a slew of other initiatives. It’s important that such a solution not only allow you to specify all of your constraints, but allow you to calculate whether or not you’re trading service level or inventory risk or carbon credits for that cost reduction.

8. Can the solution support sensitivity analysis?

Building on the last question, if the system tells you a certain network design is likely to reduce your projected service levels by 1%, you want to know how much money is required to bring that down to any threshold between 0 and 1%. Maybe you only have to sacrifice 25% of your maximum savings opportunity to achieve a service level decrease of only 0.1%. That could be a good trade-off – a 0.1% decrease in projected service levels is much better than a 1% service level decrease, especially when it costs you only 25% of your maximum savings potential to achieve a projected service decrease that’s ten times better than the projected service decrease that you would be stuck with if you went with the greedy solution.