One Night Stand or Dating? Sourcing Meets Supply Chain: Optimization Goes Dutch (Part 2)

Click here for Part 1 of this post.

Garry continued: "Of the 30 manufacturing plants, on average each used 20 different components to manufacture its product. These components had delivered costs that varied by origin location, the production line they were produced upon and the final location they were to be delivered to. Customs duties and the cost of carrying stock were just two of many other elements that made up a delivered price for each component. Just to add further complications the pricing of these components to the final plant were subject to volume discounts, package bids, minimum and maximum volume pricing offers and capacity constraints."

"A further level of complexity in the sourcing of these components was that all producing production lines at the client's suppliers had to go through an extensive and lengthy pre-qualification process. This qualification process could take several consecutive months per component per production line and had both costs associated with the process and was constrained by the available resources of the client to audit and qualify the production line for each specific component."

"Operationally the system had to be multi-user since information was being supplied from and to many parts of the business. Internal needs and rules existed regarding which users would be allowed to view different parts of the input and output data. It is easy to see that no human brain, no spreadsheet and very few of the existing ERP solutions on the market today could handle this level of complexity and produce a truly optimized answer."

To this, we would also add that few (if any) sourcing tools we know of have ever been configured to solve such a problem. But the ultimate solution, as you'll read about in the final post in this series, undoubtedly suggests the value of tearing down the supply chain design, demand planning (including S&OP) and sourcing walls once and for all. You'll see that this example shows the benefits of procurement and supply chain getting hitched (even in a shotgun setting, if that's the only possibility on offer).

Jason Busch

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