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Supply Chain Optimization Simplified


PurchTips - Edition #131

By Charles Dominick, SPSM

 

What Is Supply Chain Optimization?

Some sourcing situations involve constraints and complexities. Constraints are limits on your decision, for example:

Examples of complexities may be:

When you encounter situations with lots of constraints and complexities, it becomes quite challenging to figure out the best supplier selection. For these types of situations, some purchasing departments utilize supply chain optimization technology to support their decisions.

Simplified, supply chain optimization is a technology that applies ?rigorous mathematical techniques to a well-defined sourcing scenario to produce an optimal award allocation,? according to Michael Lamoureux, president of ToP KaTS Consulting and editor of the Sourcing Innovation Blog. Supply chain optimization helps purchasing departments ?arrive at the best decision out of all the possible alternatives.?

When there are multiple bidders, multiple constraints, and lots of complexities, there can be a massive number of alternatives and combinations! And the more options there are, the higher the probability that you will make a suboptimal decision.
Supply Chain Optimization Expert Lamoureux

While it is possible to work out some slightly complex bid analyses by hand, there is a significant chance that using supply chain optimization technology can save money, save time, and reduce errors. But supply chain optimization may not be appropriate for every organization or spend category.

According to Lamoureux, ?You would use [supply chain optimization] to source high-value core commodities, parts, and materials for which there are capacity constraints, associated risks, and multiple potential suppliers.? And because supply chain optimization technology requires a significant investment ? Lamoureux estimates a premium of ?anywhere from $100,000 per year to a few million? dollars above the cost of a standard eSourcing application - it is typically adopted by larger organizations who are able to achieve a larger return on investment due to their spend volume.

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Spotlight On Professional Development Opportunities

Are you tired of not getting enough opportunities, respect, and money out of your purchasing career? Well, guess what? Nothing will change unless you take action towards becoming a world-class purchasing professional.

Earning your Senior Professional in Supply Management® (SPSM) Certification is the action to take if you want to bring the most modern purchasing practices into your organization and achieve your career potential. Learn how to earn your SPSMSM Certification at:

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Want to learn more about today?s topic? Then check out my podcast interview with Michael Lamoureux! Podcasts are digital audio files that you can listen to on your PC, download to your iPod/MP3 player, or burn to CD.

It?s absolutely FREE to download the audio. And, for this podcast only, you can download a transcript for FREE too!

Download This And Other Podcasts For FREE At
www.NextLevelPurchasing.com/podcast.