Like this article? PLEASE +1 it! Evan Signature
Evan Carmichael Top Header
Share for a Cause









(Guest Post) Optimizing Value in the Economic Downturn [and Recovery]

Written by: Jon Hansen

Article Overview: This article is the second in a three-part series of guest articles on optimization by Dr. Olga Raskina, Lead Scientist, with Emptoris, the supply and contract management solutions provider. As we push on through the troubled economic environment, corporate leaders are laser focused on bringing supply chain management under tighter financial guidelines. An article I recently read in Supply Chain Digest highlighted the typical urgency felt by procurement managers to cut supply chain costs.

Free Download - Is supplier incumbency a major problem with government contracting? By Jon Hansen
Name: Email:

(Guest Post) Optimizing Value in the Economic Downturn [and Recovery]

By Dr. Olga Raskina, Lead Scientist, Emptoris

This article is the second in a three-part series of guest articles on optimization by Dr. Olga Raskina, Lead Scientist, with Emptoris, the supply and contract management solutions provider.

As we push on through the troubled economic environment, corporate leaders are laser focused on bringing supply chain management under tighter financial guidelines. An article I recently read in Supply Chain Digest highlighted the typical urgency felt by procurement managers to cut supply chain costs.

As I read the article, I thought about how the typical knee-jerk reaction to reducing costs has often had adverse longer term effects: strained supplier relationships, diminished quality and diminished reliability among them.

While managers preach the importance of strategic relationships and decisions based on total cost, we are sometimes too easily willing to sacrifice that mantra in an attempt to resolve short term financial issues. The SDC article quotes one procurement manager as saying, “Forget about all that strategic stuff. We need to lower our costs right now.”

Of course, we can identify with the urgency. However, this mindset seems to ignore the possibility of cutting the costs while maintaining good supplier relationships — and improving overall business value to the organization.

I would actually propose that the downturn can in fact be addressed in a way that is actually beneficial to an organization — specifically in achieving these seemingly conflicting goals of costs vs. supplier relationships. The key to success, I believe, is in sourcing optimization.

Let me provide a brief case. As companies become increasingly spend-conscious, of course the demand for certain products drops, leaving suppliers with more inventory than usual and an increased willingness to sell.

In this environment, many suppliers seek creative ways to improve sales (and/or decrease inventory) and are often willing to negotiate new deals. These deals may take the form of volume discounts or better non-price terms such as decreased delivery time or improved warranties. And with such offers, comes an opportunity for revision and reevaluation of the existing purchasing agreements (and strategy).

The ability to analyze all aspects of a deal is critical in taking advantage of market conditions. For example, a majority incumbent supplier might have invested in fuel efficient, alternative specifications that can meet the buyer’s requirements — while a minority incumbent may have lost a large customer giving him more capacity to meet the buyer’s volume. An evaluation based primarily on costs may ignore these supplier realities.

Optimization, part of a bigger science called Operations Research, makes this analysis possible.

Operations Research, in a nutshell, is the discipline of applying advanced analytics to help make better decisions. Optimization, in turn, utilizes mathematical algorithms to rapidly solve a business problem by evaluating “all possible outcomes” (or many outcomes) and selecting those ones that yield the best solution.

When applied to supply chain operations, optimization helps the sourcing professional simultaneously evaluate thousands of different procurement inputs. This evaluation can take into consideration the global market, specific current supply chain conditions, and individual supplier conditions, and offers solutions that address the buyer’s [and supplier's] goals in the best possible way.

Optimization goes far beyond simple spreadsheet-like comparisons. It helps ensure that no possible scenario or solution is overlooked and no money is “left on the table.” Although it may sound intensive, with the correct application of technology it can eliminate weeks of tedious side-by-side evaluations that attempt to simultaneously analyze the inputs.

Optimization is often limited by the “human factor.” According to different studies, a person can attend to 6 to 18 factors of evaluation simultaneously. However, as you know, any company-wide supply chain initiative involves thousands of factors and parameters, each affecting the bottom line.

Optimization-driven technology allows the procurement manager to evaluate the “new best state” of their supply chain and to react promptly. This could be as simple as relaying some or all key factors that affect a decision on suppliers.

By allowing suppliers to compete on more than just cost, you empower them to be creative. Once the suppliers understand the buyer’s goals, they can offer alternatives based on their own competitive advantages, and avoid being squeezed on just price.

Offers based on these competitive advantages might include:

- Alternative Specifications

- Extended Warranty Terms

- Discounts on Packaging

- Rebates for Bulk Orders

Depending on how extensive or creative the buyer wants to get, the goals of a new relationship might also involve overhauling the supply chain risk structure. This might include, for example, contemplating a switch from a single source supplier to a multi-source scenario or a local to a global operation.

Knowing your true total cost, beyond just price, when creating an agreement is critical.

In sum, I would propose that there are three critical benefits that Optimization can impart, particularly in an uncertain economic environment and recovery:

* Rapid response to the changing market conditions, including the ability to renegotiate existing deals and quickly achieve better total costs;

* Rapid evaluation of suppliers’ capacity, including the ability to rapidly add more suppliers to the operation;

* Ability to maintain and strengthen supplier relationships.

By making the negotiation about more than price, optimization allows the suppliers to be creative and offer more complex deals, compete on different direct and indirect cost factors, and not feel pressured to simply reduce the price.

Dr. Olga Raskina, Lead Scientist, Emptoris, Inc.

Olga has been an active member of the Institute for Operations Research and Management Science (INFORMS) for many years, and serves as vice-chair on the Boston Informs and on the Informs Subdivisions Council, focusing on promoting the value of Operations Research to businesses. Olga has Ph.D. degree in Operations Research from Columbia University.

Editor’s Note: As is the case will all guest posts I would like to stress that neither Emptoris’ appearance in the Procurement Insights Blog, nor the positions presented by Dr. Raskina in the article are to be construed as an endorsement by Procurement Insights.

Related Articles
  How to Guest Blog
  Guest Blogging For Free Website Traffic
  Career Change in an Economic Downturn
  Five Benefits Of Accepting Guest Writers On Your Blog
  Business Opportunity Blossoms as Canadian Recession Starts to Recover

Home > Small-Business-Consulting > Jon Hansen > Guest Post Optimizing Value in the Economic Downturn and Recovery
Article Tags: brief case, business value, contract management solutions, corporate leaders, downturn, economic environment, guest articles, knee jerk reaction, management solutions provider, mantra, mindset, olga, procurement manager, procurement managers, sdc, supplier relationships, supply chain costs, supply chain management, urgency, willingness



Related Forum Posts
Re: The Best Websites to Publish Your Articles Re: The Best Websites to Publish Your Articles - I think we should not forget to say about Guest Posting here. Guest posting in popular blogs are always the best place to publish your articles. Though article submission sites are there at one side, doing a guest post in a popular blog gives you the immediate results. That definitely redirects you new readers from that guest blog to yours, if you have a related blog then it works great. Of course, guest posting builds good relationship with other marketers and experts. This helps you to achieve a growth for the long term. Thanks.
Contingency Planning and Disaster Recovery: A Small Business Contingency Planning and Disaster Recovery: A Small Business - Contingency Planning and Disaster Recovery: A Small Business Guide Donna R. Childs, Stefan Dietrich 2002 "Among the countless tragic lessons of 9/11, an overlooked but important discovery was the lack of preparedness among small and midsized businesses for responding to disaster. While most of the media attention was naturally devoted to...., the very existence of thousands of small businesses was determined by whether or not they had adequate insurance, sufficient technological support, and viable disaster contingency plans." (People who live in hurricane prone areas need this as well...and who knows when a fire might not strike...) Table of Contents 1. Preparation 2. Response 3. Recovery 4. SAmple IT Solutions Basic safety practices Okay, the TOC isn't [i:2fu76idt]too [/i:2fu76idt]helpful, but there's lots of valuable info in this book, as to ensure that [i:2fu76idt]your [/i:2fu76idt]losses won't be catastrophic. How people cope with suddenly seeing their homes and all their possessions gone, what kinds of insurance to get, etc. etc.
Re: Twiiter an sales Re: Twiiter an sales - Twitter is very useful for sales and marketing specially for the promotion of products and services. Do the following while active on Twitter:- 1. Follow the people having same interest 2. Post Unique and eye catching content 3. Post Images 4. Take your user name as your favorite product name or brand name. 5. Re tweet, replies and make favorite the posts 6. Create list of people interacting with you 7. Try to active at least 5 day a week.
Re: Social Media Marketing - For B2B Products & Services Re: Social Media Marketing - For B2B Products & Services - Great Post!! I also agreed that because now days you can increase traffic through social media site Facebook and twitter. When you are creating a Facebook fan page, create attractive welcome page and add as many friends as you can then communicate with your friends. Post comment for your friends post like their status etc and just improve your communication and ask them to like your fan page. Run Facebook Applications like network blog and connect it to twitter.
Re: Search Engine Optimization Re: Search Engine Optimization - As an Internet marketing strategy, SEO considers how search engines work, what people search for, the actual search terms typed into search engines and which search engines are preferred by their targeted audience. Optimizing a website may involve editing its content and HTML and associated coding to both increase its relevance to specific keywords and to remove barriers to the indexing activities of search engines.


Recommended Article for You close

  How to Guest Blog

Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.



Featured Article


Bottom Footer
Share for a Cause












Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!
Name:
Email:
Popular Articles

African Technology Development

The Neglected Art of Receiving

Improve E-mail: Avoid the Quicksand

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.