The top capabilities of Sourcing Optimization solutions

The vendors considered

Corcentric Platform
SAP Ariba

Exploring the actual market state of the top 5 capabilities

1. RFx creation

The ability to create sourcing events and configure them based on various organizational, category and process requirements.

The average sourcing optimization solution supports the creation of RFx from templates, from Excel via uploads, from scratch or from past events. Users can collaborate during the creation and execution of sourcing events, and items can be organized into lots or groups and configured in a granular way, including the possibility to accept multiple (alternative) bids from suppliers.

Top performing solutions provide more guidance when creating RFx by recommending content (templates to be used, suppliers to be invited, etc.). They do so by using AI/ML to surface content and recommend specific actions, which extends their guidance beyond predefined rule-based workflows. I have also seen how certain providers can automate the sourcing process by supporting cognitive buying in well-defined categories with set-and-forget automation.

2. Bidding and analysis

The capacity to enable suppliers to bid in the most appropriate way and to allow us to analyze/compare offers in various and detailed ways to ensure the right decision-making process (TCO, ESG, etc.).

The average optimization solution allows suppliers to use simple formula-based bids using arithmetic operators to enter their bids. They can propose alternative offers including new/alternative items/services or variants. Suppliers also automatically get feedback on how they are performing compared to the competition.

Solutions can automatically rank the best offers for each item in every lot using a feature comparison matrix or cost roll-ups. Users can evaluate alternative bids with a feature comparison matrix. Also, the scoring/evaluation process can include multiple users who can be restricted to individual elements. Evaluations are weighted by authority, and all responses can be analyzed and plotted (and outliers marked or removed).

Top performing vendors offer suppliers advanced AI/ML-based capabilities to prefill answers based on historical data and, in the absence of historical data, to give advanced price predictions based on the market and the particulars of the buying organization, supplier or individual. Suppliers can enter complex bids and price schemes using functions and market data. These solutions also support advanced methodologies, such as tier-based functions, net promoter scores, etc. I have seen how leading providers provide advanced (pricing) guidance using advanced price predictions that are based on ML that adapts to the market and the particulars of the organization (buy-side and sell-side).

3. Optimization

The capability of the solution to offer strong foundations (analytical techniques, cost modeling, what-if scenarios, etc.) for the definition and execution of complex award scenarios.

Average optimization solutions use a Linear Optimization (LP) solver incorporating home-grown rounding/hybrid algorithms to allocate discrete units efficiently. These solutions offer the flexibility for users to define multiple cost components according to their requirements. Each cost component is treated separately, allowing additive or multiplicative formulas to be applied. Users can also apply individual discounts and constraints to each element.

Users can create scenarios based on existing ones, modifying them with predefined rules. These rules can include options like unconstrained scenarios or scenarios with specific constraints, such as involving three suppliers. Solutions come with a default set of commonly evaluated scenarios. Examples of these scenarios include three suppliers, product splits of 20/30/50, incumbents only and local sourcing. Buyers can use these default scenarios to create additional customized scenarios. They also can perform a side-by-side award comparison by line item based on various dimensions of interest, such as product, supplier, location or any other relevant base or derived dimension.

Top performing providers have deeper and more granular capabilities. For example, they employ a True Mixed-Integer Linear Program (MILP) solver with a powerful branch and bound algorithm. Leading providers offer users the flexibility to define an unlimited number of cost components. They can leverage advanced mathematical functions and establish non-circular interdependencies among the components, allowing for intricate and accurate cost modeling. Scenarios can be automatically generated for comparative purposes using hybrid AI capabilities. This feature enables users to assess and compare different scenarios without the need for manual instantiation, saving time and effort.

I have seen how top performing providers excel in dynamically generating scenario sets using hybrid AI, business goals and rules. Each event or situation can have a custom-generated set of scenarios that align with specific business objectives to ensure that the scenarios are tailored to each event’s unique requirements, maximizing the relevance and applicability of the analysis. In addition, such providers offer capabilities to indicate constraint relaxations, potentially leading to lower costs without significant impacts on established goals. By identifying these relaxation opportunities, users can explore cost-saving options while maintaining the integrity of their objectives.

4. Constraint support

The ability for users to define constraints (capacity, allocation, risk, qualitative) that the solution needs to take into account when solving scenarios.

Average optimization providers allow customers to configure various constraints in a granular way manually. They can define hard and soft constraints, but hard ones are limited to only the constraints that prevent a solution, and the soft ones are only for capacity and/or allocation. Automated constraint relaxation is only possible for capacity and allocation detected to be prohibiting a solution and only according to predefined rules or random selection.

Top performing solutions can dynamically set constraints based on various requirements (interdependent capacity requirements, soft constraints and model sensitivity). They can also automatically relax all constraints preventing a solution from being found using a set of heuristics and knowledge-based rules.

5. Cost modeling

The ability for users to define complex cost models to ensure that all required elements are quantified and can be taken into account in scenarios.

Sourcing optimization solutions have more profound and richer capabilities than generic sourcing solutions concerning cost modeling. Average optimization solutions have a configurable and extensible data model that allows buyers to define and use as many cost components as they want. These elements are treated separately with additive or multiplicative formulas that enable their own discounts and constraints. Multi-year pricing and price breaks/scale are supported.

Top performing providers allow users to define costs based on advanced formulas and to compute future costs based on projected cost trends across raw materials, labor, energy and overhead costs, as well as support for multi-currency at the line-item/cost component level. The platform can use AI or a hybrid approach to compare cost factors against market trends to identify the major cost drivers at any given time. Real-time cost interpolation, using advanced metrics and formulas, is used for more accurate costing and should-costing.

What does a Sourcing Optimization solution do?

Sourcing optimization is a focused view of sourcing solutions that emphasizes the ability to perform scenario planning, deep cost modeling and strategic sourcing decision optimization on award scenarios for large complex sourcing events.

Why buy a Sourcing Optimization solution

Intended to yield optimal sourcing decisions in large/complex sourcing events (i.e., line items, overlapping bidders, objectives and constraints), sourcing optimization solutions enable users to model business objectives, sourcing objectives and ‘constraints’ by product, category, supplier and region and/or event specific rules, e.g., award allocations, diversify spend or various supplier types.

How ‘Market State’ is derived from the SolutionMap dataset

These ‘Top 5’ (of 22) critical digital capabilities stem from the Spend Matters TechMatch workbench — derived from 103 requirements scored in the Sourcing Optimization Spring 2024 SolutionMap solution benchmark

The Top 5 capabilities are the highest-weighted critical capabilities that are central to the displayed solution market benchmark. They have been developed by the Spend Matters team of analysts and refined by procurement users in tech-selection projects using our market-proven SolutionMap benchmarking dataset and associated TechMatch decision-making tool.

Spend Matters® SolutionMap Procurement Technology Intelligence

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Spend Matters® SolutionMap Intelligence Process Overview

Spend Matters SolMap Process

Featured vendors undergo a rigorous, RFI-based assessment process including functionality counter-scoring, supporting materials review, tech demos, and submission of independent customer references. Expert analysts deeply vet solution capabilities prior to ranking inclusion. Only relevant industry players who meet the criteria determined by Spend Matters are invited in order to create a complete view and optimal intelligence for its members.