In his post, Charles does a commendable job summarizing the basics from the rather lengthy and descriptive discussion we had together on the podcast. Consider his short synopsis of sourcing optimization and commodity management (the podcast provides an entirely other level of detail in each of the areas):
Sourcing Optimization: "The whole idea behind optimization is that rather than force suppliers to bid...on set criteria [and] set lot structures, that you begin to invite creativity into the process," according to Jason Busch, Founder of Azul Partners and Editor of spendmatters.com. With creative bid data captured, "you can run your own constraints against them and you can run scenarios and drive outcomes from them."
Commodity Management: Hedging is the practice of agreeing on a commodity purchase price for a future delivery in order to achieve cost certainty in a volatile pricing environment. Busch advises that commodity management tools "can help you better forecast and model where prices might go" and simplify compliance with hedging-related accounting rules.
If you're interested in getting beyond the basics of strategic sourcing, RFX capability and reverse auctions, download our latest research on the topic: Advanced Sourcing Technologies and Platforms to Broaden a Portfolio. In the case of advanced sourcing and commodity management technologies, the differences between basic tools and the next level capabilities we describe in our analysis can be massive -- as can the results companies achieve.