Ardent Partners’ recent research report, Sourcing and Procurement: The 2016-2017 Technology and Innovation Outlook Report, chronicles the evolution of sourcing and procurement technologies over the last two decades to where they are today and poised to go tomorrow. This report, which is chock full of great insights on many advanced, distinct sourcing and procurement technologies, has spawned a series here on CPO Rising that looks in depth at each of the innovative solutions coming onto the market today and in the near future. Today’s installment: Optimization-based sourcing tools.
Optimization-based sourcing tools are a set of advanced sourcing tools that allow Chief Procurement Officers (CPOs) and their sourcing and procurement teams to once again “solve” the Big Data “problem” as it relates to sourcing. Teams charged with conducting sourcing events often become inundated with large amounts of supplier information, like bids, prices, and logistical items, like shipping lanes. Optimization-based sourcing tools provide CPOs and their teams with the means to aggregate, parse, and analyze all of the sourcing data to “optimize” their souring decisions rather than relying on traditional data management and analysis in Excel, which can be ill-suited for large datasets, or “eyeballing” it and making gut decisions, which can have disastrous consequences. Optimization-based sourcing tools enable:
- Supply Chain Optimization, which is a high-level, data-driven process by which CPOs and their teams examine supply chains for hidden opportunities to save more in the short and long-term and avoid/mitigate risk. Using optimization tools, sourcing and procurement teams can examine supply and demand in a given market or region for a particular commodity or category and make more cost-effective decisions. They can take advantage of supply gluts of a given commodity or use the process and technology to mitigate supply risks, like a labor strike, price fluctuation, or natural disaster. In short, supply chain optimization allows sourcing and procurement teams to be agile and responsive to sudden market shifts and take advantage of them.
- Network Optimization, like supply chain optimization, is a data-driven analysis of an enterprise’s supply chain, but it takes a more granular look of the data to unlock hidden opportunities. It looks within an enterprise’s supply base for purchasing opportunities that can be immediately leveraged to increase efficiencies and drive cost savings. It looks for depressed demand, supply gluts, price fluctuations, and perhaps favorable financing terms at the micro, supplier level, rather than at the macro, market level. In a sense, network optimization is the “little brother” to its “big brother,” supply chain optimization.
Whether teams engage in supply chain or network optimization, optimization-based sourcing tools are the engines that can drive these dynamic processes that, in turn, can save enterprises a lot of time, money, and allow them to mitigate risk. They are all part of a data-driven approach to tackling complex, global supply management challenges in a world where there are fewer certainties and greater risk. But thanks to the rise of Big Data and powerful analytic tools, there are also greater opportunities to maximize performance and drive value across supply chains.
Want to learn more? Get your hands on Ardent Partners’ latest and greatest technology-focused research, Sourcing and Procurement: The 2016-2017 Technology and Innovation Outlook Report! Click here to download (registration required).