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Friday
Jan092015

Trends in Dynamic Sourcing and Supply Chain Businesses

 

Trade Extensions, Director of Support - Americas, Ayush Sharma


Over the past few years, it has been interesting to observe industry and market trends as businesses emerged from the darkest economic period in the past decade. The market has come a long way. Initially, businesses were unsure of whether positive signs could indeed be trusted. Over the past two years, small but consistent improvements were noticed in several key indicators (manufacturing indices and job growth are good examples). These changes have encouraged category managers and market makers alike, to try out new ideas and focus on growth and operational flexibility as opposed  to focusing on cost alone.

So, should market trends be a point of focus in today’s environment? I believe trends play an important role in informing market decisions in any business environment. However, this article does not aim to discuss broader market trends or the economy in general. The aim is to make observations on trends we are seeing in the Sourcing/Supply Chain Optimization space from both softdollar (business trends) and hard-dollar (analytics) standpoint.

Soft-Dollar Trends

One of the key areas sourcing teams are focusing on is leveraging (the seemingly never-ending) market uncertainty, while coupling this with the utilization of all available information to drive sensible business decisions. Forecasting is still important but there are a lot of operational decisions that could be driven by collecting better data from the supply base. Here are some soft -dollar trends seen in cutting-edge businesses.

 Forecasting is still important but there are a lot of operational decisions that could be driven by collecting better data from the supply base.

Information is Power

Today’s tools have developed significantly in terms of the amount of data that can be collected, aggregated and analyzed. Billions of data points can be numerically evaluated in a few minutes. Companies have started leveraging this technological leap and  today, ask for more detailed information in RFPs than ever before. With the power of optimization, making sense of this data is easier than ever. For example, more businesses are today asking suppliers to disclose exact details of their operation and using it to accurately drive business decisions. In the case of a road logistics company, this could entail finding the exact number of trailers per  trailer size operationally available in the carrier base. Another example could be to take several hundred thousand rows of transactional data and then aggregate this data to calculate a realistic baseline. Companies continue to enjoy the impact of technological leaps and find newer ways to leverage them.

With the power of optimization, making sense of this data is easier than ever

Dynamic Feedback

Another impact of collecting all this information, for example, on a bid sheet, is the ability to analyze this data in real-time and provide suppliers with feedback that can be used to drive better market behavior. Complex feedback mechanisms, such as feedback based on multiple parameters and in different time frames, are becoming more widely used. An example could be that of a category, where product cost, fabrication cost and freight all need to be factored into a total cost which forms the basis of a supplier grade. This grade constitutes feedback because suppliers can upload new pricing and watch their grades change.

Beyond Sourcing

A few years back, using optimization to solve sourcing problems was cutting-edge. Today, these problems have become commonplace and sourcing teams are looking for solutions that can offer something beyond sourcing and optimization. The ability to use the dynamics of scale-bidding allow companies to tender different arms of their business in a single project and utilize massive amounts of data to model complex supply chains. An example of this in action would entail a business tendering the raw materials sourcing, fabrication and distribution legs of the business in the same RFP (inviting different suppliers to bid on each leg). The project team can then look beyond the best overall cost and focus on modeling product flows to optimize different factors such as availability, contingency plans, etc.

Hard-Dollar Trends

Any data that is collected, still needs to be analyzed. To this end, bid evaluation and optimization are key components of a modern, functioning supply chain. There are several hard-dollar trends that are indicative of a shift in the way data is analyzed. This is especially evident in multi-billion dollar tenders where collaboration and robust analytics are key decision drivers.

Bundle Everywhere

One of the premises of collaborative optimization is the ability to model supplier constraints and efficiencies. For example, a freight carrier could take advantage of existing routes and provide better pricing if awarded a specific bundle of lanes that fit the carrier’s network. This has been fairly common in freight tenders. However, bundles are  now being used in most direct and indirectmaterial sourcing tenders. The ability for suppliers to provide multiple price points for specific SKUs and substitute specs, while simultaneously bundling them from a manufacturing/availability standpoint was an unrealized horizon until recent times.

The ability for suppliers to provide multiple price points for specific SKUs and substitute specs, while simultaneously bundling them from a manufacturing/availability standpoint was an unrealized horizon until recent times.

Another off-shoot of this trend is the ability to allow suppliers to quote discounts at any level. Most RFPs  used to model tiered discounts based on spend/volume. This is now being extended to allow suppliers to quote discount s based on geographic locations, payment terms, contract terms, and several other criteria. The ability of a tool to accurately calculate the impact of these discounts is critical in achieving efficiencies of scale.

Manage Product Flow, Not Cost

Another trend in recent times has been to look at product flows rather than just a cost-volume breakdown. In a growth environment, product availability is just as critical as product cost. The ability to have a tool dynamically model the supply-demand relationship (separate from traditional network optimization) in a live tender environment is considered a killer competitive advantage. For example, a transportation manager might want to consider the impact of filling backhaul lanes in a dynamic manner (i.e. optimized backhaul loads) when making an award decision.

Optimization tools have long allowed category managers to make smart award decisions by acting as a decision-support engine. These tools have now morphed into a dynamic, living entity where optimization is done at regular intervals and can be used to model production plans, dynamic availability and several other criteria. The combination of hard - and soft-dollar approaches is sure to yield positive results, especially in a market where modeling hundreds of real-world scenarios is increasingly becoming a norm. Today’s tools are enablers that allow businesses to plan for contingencies and make best use of market conditions, for we all know that tomorrow, the market could go anywhere. 

Optimization tools have now morphed into a dynamic, living entity where optimization is done at regular intervals and can be used to model production plans, dynamic availability and several other criteria.

 


 About the Author

Ayush Sharma is the Director of Support and leads Solutions Delivery with Trade Extensions in the Americas. He has worked with several Fortune 500 companies including some of the world’s top retailers. He has a specialized background leading companies to make better decisions using optimization in areas such as Retail Sourcing, Dedicated Transportation, 3PL Logistics Sourcing, Direct and Indirect Materials Sourcing. Ayush has a Masters’ Degree in Supply Chain Management from the University of Texas at Dallas and certifications in Lean Six Sigma and Supply Chain Management. He has also been Technical Director for a local branch of the Institute for Supply Management (ISM), the premier organization for Sourcing professionals in the U.S.