"Optimisation" vs. "Optimization": Translates the Same; Extracting Value From Complexity

When I first met Peter Smith (who is Managing Director of Spend Matters Europe LTD and Editor of Spend Matters UK/Europe), I knew the man understood procurement. And I knew he could write based on his recent book published by The Economist press: Buying Professional Services. But to be candid, I was not sure how up to speed on new procurement technologies he was. He, too, I think expressed some concern that I'd spend too much time educating him on the topic. Boy, were both of us wrong. In the first Spend Matters Europe/UK research paper, Sourcing Optimisation -- Extracting Value from Complexity, Peter goes into excellent and eloquent detail as he unearths the value of sourcing optimization technology from a true executive, practitioner mindset. The paper, which is free for download (as all Spend Matters research is) via the above link, looks at the ways in which optimization tools are changing and how organizations can achieve increased value and performance from large-scale and complicated sourcing challenges.

The first part of the paper examines the range of factors that define what makes certain procurement exercises complex and difficult to execute. Peter explains why the process for complex procurement requirements has some inherent flaws; particularly in that it relies on the buyer making judgments that could be better explored by suppliers in the market. The second part of the paper examines recent developments in technology that are opening up a different approach to contracting, whereby suppliers have more scope to express different views of how they would like to meet the buyer's requirements. also captures a number of the benefits of optimization in a succinct manner, including:

  • "Cost reduction; by allowing suppliers to optimise their own cost profile through their offerings, the overall cost of the chosen contracting strategy and supplier portfolio is almost always more favourable than that which would be obtained from conventional procurement methods."
  • "Understanding of the whole supply chain; as well as cost benefits, understanding the dynamics of the supply chain (which is an outcome of a well-designed optimisation process) may bring further options or identify risk points and sensitivities."
  • "Transparency; the audit trail for decision making is very clear, with the costs of any constraints or supplier preferences absolutely clear and documented."

Peter also suggests some "critical factors" in optimization technology selection criteria:

  • "The strength of the underpinning technology and the optimisation 'engine'. Can it cope with the size of your contracting events, and the range of constraints and variables you are likely to want to examine? That is perhaps the most fundamental question to ask."
  • "The user-friendliness and flexibility of the solution, including integration, scalability and the ability of clients to manage all types of event across multiple categories without significant external assistance after a reasonable initial learning curve."

If you're curious about the application of sourcing optimization technology to complex sourcing events, Peter's analysis of the subject, Sourcing Optimisation -- Extracting Value from Complexity, makes a great and useful read. And it proves once and for all that he's more technical -- at least on a functional solution and business process level -- than he thinks he is!

Check out some other recent Spend Matters research covering optimization, e-sourcing and related commodity management technologies:

A Personal Lesson: Reaching the Limits of Reverse Auctions and Strategic Sourcing: When Collaborative and Quantitative Approaches Would Have Delivered More

A Foundational Look at the Evolution of Sourcing Technology and Platforms

Jason Busch

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