Trade Extensions – where supply chain meets production planning

We wrote recently here about the new Trade Extensions platform which is bringing easier optimisation options to clients.

There are two key strategic developments we are seeing in this space (and this is true not only for Trade Extensions but for CombineNet, BravoSolution, Emptoris and other leading advanced sourcing technology firms). Firstly, slowly but surely, the tools are being used for a wider range of sourcing exercises. And that means both new clients picking up on them and existing clients extending their scope.  Secondly, as the tools get easier to use, there is more self-service, with clients running the sourcing exercises themselves rather than on an outsourced basis.

Garry Mansell, CEO of Trade Extensions gave us an excellent example of this extending scope of usage, which actually moves beyond traditional procurement altogether. We’re just going to summarise this here - Jason Busch at Spend Matters US has covered this very fully (here, here and here), so I suggest you check out his excellent posts if you want more detail.

This case study used optimisation tools to go beyond sourcing to factor in broader supply chain design and planning processes – something that, as Jason says, might inspire procurement professionals into “considering how to extend the influence of their sourcing capabilities, addressing potentially larger cost reduction opportunities”.

Garry told Spend Matters that the "problem presented and solved was to supply over 500 components to any one of over 30 manufacturing plants to meet a demand plan for finished goods ... The planning horizon for the finished goods and the components they are comprised from was a 5-year rolling demand forecast ... the requirements of the client and the products themselves made this a problem beyond most ERP planning applications on the market today."

Components had different costs, both purchase cost and also shipping, duty, and storage, and were also subject to supplier volume discounts and capacity constraints.  Just to complicate things further, production lines at the client's suppliers had to go through an extensive and lengthy pre-qualification process. This qualification could take several months per component per production line and had both costs and resource constraints associated with the process.

The responses from the market to be analysed also included regional variances, volume bands, and multiple discount structures. As Jason says, “in other words, the ultimate solution required significant complexity, even compared to hairy sourcing-specific optimization events.  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."

Indeed, few (if any) sourcing tools we know of have ever been configured to solve such a problem.

So the task was simply to produce the lowest-cost solution to meet the provided demand forecast.  But as Garry suggests, "those of you familiar with such things will know problems of this nature are well known as being 'computationally hard' in the industry".

I think I might have used a term including an expletive at that point rather than “computationally hard”!

Stay tuned tomorrow for part 2...

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