PurchTips - Edition # 131
Supply Chain Optimization Simplified
By Charles Dominick, SPSM, SPSM2, SPSM3
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.
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.
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