Trade Extensions Dispatch: Is The Supply Chain Ready to Be Defined by Sourcing?

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Trade Extensions sells the most advanced sourcing optimization technology that Spend Matters has encountered on the market today (read our research, linked below, if you want to understand why). It’s capable of tackling extremely complex multitier sourcing challenges. This is one of the reasons Coupa is buying it.

Yet today, most customers are just scratching the surface of what the tool can enable in the majority of their sourcing events (if not all). Trade Extensions wants to change this. At the provider’s Redefining E-Sourcing customer event in Atlanta Thursday, Ayush Sharma, director of client services in the Americas for Trade Extensions, provided a number of case examples about how customers could use the platform today to consider sourcing and supply chain considerations in the same bid. He noted these represent actual use cases, yet less than 5% of bids going through the platform involve this level of sophistication.

One example he shared involved the apparel supply chain for jeans (which is delightfully coincidental given another Spend Matters post on cotton prices today).

Ayush notes that every “pair” of jeans starts in a cotton field:

  • Here, the commodity is harvested and rolled into a large bundle
  • Then it is cleaned and processed — 60% of raw cotton is dirt
  • It is then shipped to a conversion facility and converted into denim cloth
  • The next stop in the jeans supply chain is when it is shipped to the production facility that makes the jeans
  • Finally, it is shipped to a single distribution center (or multiple centers) and the retail store (if there is a retail store)

Today, all of these functions are viewed and managed independently from a sourcing and supply chain perspective. A raw material team buys cotton. Distribution/logistics groups handle ocean, truckload and air freight (if applicable). And others may handle warehousing or other considerations separate from freight in certain cases.

But there are significant advantages to be gained from combining these efforts. As Sharma suggests, “Why not load them within the confines of a single project” and gain the value from the virtual “vertical integration” of the supply chain.

In such an event, different groups of suppliers can interact with the same project without even knowing the other information that is being collected. Raw materials suppliers bid cotton (and apparel companies can have the option of locking in costs over a longer-horizon, if they hedge, through exchanged-based cotton contracts — not an example Ayush shared, but one that could be modeled in the tool). Carriers bid ocean lanes and land lanes, and plants provide pricing for conversion costs and other parameters.

By analyzing these elements together, it becomes possible to optimize for total cost of ownership across the supply chain factoring into account raw material prices, logistics costs, inventory holding costs, working capital, shipping costs and capacity utilization (from a production standpoint) — just to name select inputs driving total cost.

Yet this scenario remains as likely as most of us are to fit into a pair of real skinny jeans. But not because technology is incapable of enabling it. Most organizations are just not ready to think about the supply chain itself being defined by sourcing.

Want to understand how to do this in practice? Our analysis of Trade Extensions and sourcing optimization explains how this is possible. Today.

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