Optimisation – the ‘next big thing’ for procurement, and Trade Extensions case studies

I'm going to be writing quite a lot - both here and in the form of White Papers - about optimisation and advanced sourcing techniques over the next few months.

But I wonder if 'optimisation' is the right terminology for it, and I'm racking my brain to think of an alternative title. It doesn't really explain its power, because the more I get into the topic, the more I'm convinced it is currently under-used by most organisations, and (whisper it softly) could be the biggest 'new' thing for procurement since category management.

Of course, it isn't 'new' really; I remember Heinz winning the CIPS SM Awards about 6 or 7 years ago with a piece of work that had optimisation at its core. But it is new in the sense that still relatively few procurement people or functions fully understand it or use it as they could.

We also happen to have several of the world's leading solution providers in this area as sponsors, although I can say, hand on heart, that is not why I'm excited about the potential.  If you want to start getting into the topic in more detail now, Jason (Spend Matters US) has recently written two posts here and here featuring a couple of case studies from Trade Extensions, who are "one of  the two leading independent optimization players that do not sell a broader sourcing / supply management suite (as a primary offering)", as Jason says.

Optimisation enables the buyer to consider a wide range of options from the market, and allows suppliers to propose alternative solutions that the buyer may not have even considered. It was first used extensively for complex logistics and transportation projects, but its applicability goes far wider than that.  In the case of the first of Jason's  case studies, it was applied to a packaging requirement:

"Using advanced data gathering and sourcing optimization approaches that allowed for suppliers to offer greater creativity in their responses while simultaneously taking advantage of a competitive market approach, the company was able to evaluate bid responses factoring into account a range of variables. These included: volume discounting, combinatorial bidding (packages), alternative production locations and lead times, supplier impact and dependency and fixed and variable cost elements".

The second case study is around temporary labour; an innovative category to which to apply optimisation, but the complexity again shows why advanced sourcing solutions can be so useful.

"The project was large in scope, involving nearly 200 stakeholders, 5,000 workers, 600+ job descriptions across 36 locations, 10 skill categories and 104 suppliers. Using the sourcing platform, the organization was able to gather information and conduct evaluations at multiple local, regional and global levels by individual sub-category based on specific job descriptions, locations and skill categories".

The case studies are well worth reading, and as I say, we'll be coming back to this area regularly.  We'll explain the potential benefits in more detail, and we'll even court controversy when we suggest that it changes the whole nature of the traditional procurement 'strategic sourcing' or 'category management' approach in a very fundamental manner.

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