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What is optimization?Optimization is a proven, and arguably, the most effective way to solve complex business problems—specifically ones that involve hundreds, thousands, or even millions of interdependent variables. In its simplest terms, optimization takes a business problem involving many interconnected variables and expresses it as a set of mathematical equations. These equations are solved with the help of software that restates the best solution in practical business terms. What makes optimization so powerful is how it combines applied mathematics and computer science to identify an optimal solution to a given problem, which would otherwise be unsolvable through any other means. Although modern-day optimization leverages fast computers and robust algorithms, its historical and most notable applications date back to World War II where military leaders needed to determine the best way to transport materiel and troops to a war zone. Since the 1960s optimization technology has helped many companies across multiple industries, including manufacturers with production planning, airlines with flight schedules and yield management, and investment companies with portfolio management, to name a few. Thanks to advances in computing power and sophisticated algorithms, optimization is gaining rapid acceptance as the most effective approach to developing B2B e-commerce solutions—specifically in supply chain management and strategic sourcing of direct goods and services. Why is optimization better than other decision support approaches to web-based sourcing and procurement of high-value purchases?In procuring direct goods and services and/or high-value indirect items, buyers are typically faced with a multi-dimensional problem. They must consider multiple factors, such as price, quality, delivery, warranty, etc. across multiple suppliers and weigh all those variables against specific purchasing policies or business rules, such as:
Trying to manually identify the best possible solution involving so many variables and purchasing policies (which can number in the thousands—even millions of possible purchase outcomes) is often impossible. Optimization lets buyers consider a multitude of interdependent factors across all suppliers—simultaneously—before recommending the optimal solution. Other decision support approaches simply cannot provide this level of analysis. They may help you examine isolated factors such as price or rank all purchase criteria within a single supplier, but no other system can literally look at the “whole” problem, including all of the interconnected variables concurrently, and then determine the optimal solution. For example, non-optimized systems may allow you to:
Although these simplistic systems show you side-by-side comparisons and supplier rankings, they don’t help buyers in key areas of procurement/Bill of Materials (BOM) analysis:
Most importantly, non-optimized systems don’t help in determining the best combination of bids among multiple suppliers to meet the buyer’s overall requirements—at the lowest total cost (that incorporates both price and non-price factors). This is especially critical since buyers almost never award 100% of a complex RFP/RFQ to a single supplier. In fact, determining the optimal supply base allocation of any given RFP/RFQ award is a “must-have” capability for today’s buyers and optimization is the only technology that quickly and effectively addresses this need. How is optimization used in Emptoris 5?Within Emptoris 5, Emptoris’ optimization technology adds new capabilities to three key areas of the sourcing process for strategic goods:
Since optimization allows for an enormous number of purchasing variables and policies to be considered in analyzing bids, it also brings a new level of flexibility for buyers to structure their RFPs/RFQs. At the same time, optimization opens new avenues for suppliers to submit creative pricing options that benefit both parties. When it comes to bid analysis and award, optimization guarantees the best possible decision based on user-defined weightings of all purchase factors and business rules, and each supplier’s response to the RFP/RFQ. What are the key benefits?Optimization does much more than just automate and facilitate the sourcing and procurement process over the Internet. It introduces a new technology platform that allows buyers and suppliers to do what has not been possible until now—online or offline. For the first time, buyers are empowered with a quantifiable tool to make the most effective procurement decisions that incorporates both price and non-price factors—while complying with all purchasing policies and business rules. At the same time, suppliers are empowered to bid on RFPs/RFQs with unprecedented flexibility that protects their profit margins and actually increases revenue potential. Save time—optimization handles the most sophisticated strategic sourcing activities while shortening the cycle time for both buyers and suppliers. Tasks that took months or weeks now happen in days or even hours. Save money—awards based exclusively on lowest price would save money but are not realistic given the myriad of non-price factors and purchasing policies buyers must consider. With Emptoris 5's optimization, buyers have a quantifiable way to cut procurement costs while weighing all variables and business rules. Improve buyer/supplier relationships—as a technology platform, the Portfolio’s optimization expands the range of possibilities for both buyers and suppliers during the sourcing process. For example, suppliers can submit bids with flexible pricing structures and buyers can analyze bids incorporating any number of purchase criteria or performance factors. To find out more on our optimization technologies, call 781 993-9212.
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