Thinking Through Event Size Limits – Courtesy of a Sourcing Optimization Guru (Part 1)

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When I worked at FreeMarkets in the early days before the advent of self-service sourcing tools, we used to think events with over 500 line items (grouped into half a dozen or so lots) were large. The items and the groups we lotted them into were generally part of the same category or families. At the time (15 years ago), we were using sourcing technology that was incredibly rudimentary compared with the power of tools that are available today that leverage the ability to conflict different bids from suppliers based on flexible submission capability. Moreover, bids can now cascade across different supply chain elements including raw material costs/requirements, transportation costs, value added steps, etc., and we can bring them together in a common event.

It’s truly rocket science compared to what we had available back at FreeMarkets. But it also raises the question: How big is too big for an event? My colleague Michael Lamoureux, who with a few folks behind Trade Extensions and CombineNet, is one of the smartest half a dozen academics in the room on the topic (albeit Michael is also a procurement generalist with dizzying knowledge across just about every topic on the subject), recently chimed in on the subject.

In framing the argument, Michael asks the question: When it Comes to an Event, How Big is Too Big? Are 5 categories too many to include in an event? How about 10 (or 50) commodities? Or 5,000 lanes? He then makes the case that “if you’re sourcing with optimization, the bigger the better.”

As Michael suggests:

“Tackle as many categories at a time that overlap with at least one other category, especially if you are dealing with physical goods that are coming from common locations. The way you save on logistics costs is to minimize the number of trucks, which occurs when you can combine as many shipments as possible as to minimize the number of LTL shipments.”

While I’m no academic on the topic of sourcing optimization, I have published some “pop” research papers on the topic and used the capability myself before. And while Michael makes the right philosophical argument, I would argue that pragmatically, 90% of procurement organizations aren’t ready to go “as big” as he suggests. It’s not just because of skills – most procurement teams don’t have the buy-in from the business to combine different areas together in a single optimized decision that impacts supply chain, manufacturing, distribution and even sales processes and outcomes.

Alas, I don’t want to rain on the advanced sourcing parade. And to prove it, I’ll share a few more of Michael’s thoughts (and some additional commentary) in Part 2.

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