Feedback Form
Home Features Mastermind Forums About Advertise Blog Network Contact Be An Author

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

(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.





Guest Post Optimizing Value in the Economic Downturn and Recovery - To learn more about this author, visit Jon Hansen's Website.

Like this article? Share it with your friends

Article Feedback
 Article Feedback No article feedback found.
  Leave Your Feedback
article feedback

Article Feedback
John Brennan
John Brennan Ed.D. Dr. Brennan is President of Interpersonal Development, LLC, a training and development firm. Interpersonal Development has provided sales training and coaching to more than 3,000 sales reps from over 100 companies. A native of Australia, Dr. Brennan received his doctorate from the University of Rochester. His dissertation researched the effectiveness of Behavioral Modeling Technology in training people in interpersonal skills. While he has spent most of his career designing or delivering training, he was also a Vice-President of Sales of a training and development franchise with operations in 25 markets. Dr. Brennan has designed and delivered sales training in North America, Asia, Europe, Australia and the Middle East. He has been a guest speaker at numerous national and regional professional conferences. When Microsoft wanted Best Practices articles on sales for their web site, they called Dr. Brennan. The results are at http://office.microsoft.com/en-us/FX011387391033.aspx His firm’s clients have included Volvo, The Prudential, Merrill Lynch, Eastman Kodak, Gannett, Equifax Europe, the Economist Group and countless small businesses. - Visit John Brennan's Website


To learn more about the Evan Elite Author Program please contact us.

About The Author


Jon Hansen
(Visit Jon's Website) Personal Profile: http://www.linkedin.com/in/jwhansen

Jon Hansen is a Platinum author on EvanCarmichael.com
About The Author

View Author Blog
View Author Blog

View Author Video
View Author Video

Free Downloads


Jon Hansen's

Complete
List Of
Small-Business-Consulting
Articles

Name
Email
If you enjoyed this article, get Jon Hansen's Complete List of Small-Business-Consulting Articles For FREE!

More Jon Hansen
How can I promote kanban procurement practices
Guest Post Optimizing Value in the Economic Downturn and Recovery
What is a reasonable cost model for providing a 3PL warehouse management service Survey Result 1
Is There a Difference Between Purchasing and Procurement A PI QA
Are Multiple Supply Chains Important Survey Response 5
Public Sector Procurement and the WalMart Effect
New Zealand Public Sector eSourcing Transparent Procurement encourages Competition Investment
What are the 3 biggest challenges faced by supply chainpurchasing professionals today Survey Result 19
How can I turn my companys operations into a competitive advantage
Similarity Hueristics Iterative Methodologies and the Emergence of the Modern Supply Chain
Free Downloads


 
 
 


Evan Elite Authors
Staging Diva  
Dave Kurlan  
Jay Kubassek  
Evan Elite Authors

Become An Author
Have you written articles that would be of value to entrepreneurs? Become an expert on our site by publishing them! Expose yourself to a wide audience, drive more traffic to your website and get more sales! Click Here for details.
Become An Author

Evan's Latest Video
Modeling the Masters: Learn the true secrets behind Walt Disney's business success factors & grow your company! Video produced by Phanta Media
Evan's Latest Video

Business Opportunities
"Learn straight from Evan how you can Make a Full Time Income (And More) from a Website"

How to Start An Online Business

Click Here To Learn More
Business Opportunities



Evan's 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:
Evan`s Newsletter

Free Downloads
Disappearing Leader Icon Disappearing Leader
100 Success Tips Icon 100 Success Tips
Meditation Guide Icon Meditation Guide
Law of Attraction Icon Law of Attraction
Create A Mission Statement Icon Create A Mission Statement
Free Downloads - Complete List

Entrepreneur Tools and Guides
Top 50 Political Blogs
Top 50 Political Blogs
Top Political Blogs of 2009
 
Top 50 Geek Business Blogs
Top 50 Geek Business Blogs
Top 50 Geek Business Blogs
 
Entrepreneur Tools and Guides

SEO For Africa
SEO For Africa
Afi Enyonam Mlatawu Agoe, Togo,
SEO For Africa

If I Were A Startup...
Travis Hartley, 426% Growth in 2 Years
Travis Hartley
426% Growth in 2 Years
Adam and Matthew Toren , $200k to $3.4 Mil in 3 Years
Adam and Matthew Toren
$200k to $3.4 Mil in 3 Years
If I Were A Startup... - Complete List

Famous Entrepreneurs
Philip Knight, Nike
Bill Gates, Microsoft
Bill Gates
Microsoft
Famous Entrepreneurs - Complete List

Entrepreneur Advice
Jay Conrad Levinson, Guerilla Marketing
Jay Conrad Levinson
Guerilla Marketing
Seth Godin, Ideavirus Author
Seth Godin
Ideavirus Author
Entrepreneur Advice - Complete List

Popular Articles
(Premium Authors)

     10 Common Business Planning Errors
By Sandra Bekhor
     The Foundation of Website Design
By Sandra Bekhor
     Winning in the Recession – 10 Essentials for Professional Practices
By Sandra Bekhor

Have A Suggestion?
Toronto Salsa Classes / Toronto Salsa Lessons 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 and Sean Combs!
Have A Suggestion?

More Evan Carmichael
More Information