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Questions To Ask An Optimization Vendor II

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Selecting the right supply chain (network) optimization solution can be a challenge. This presentation contains some questions that will help you out.

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Questions to Ask an Optimization Vendor II by the doctor of Sourcing Innovation http://blog.sourcinginnovation.com/2007/12/23/the-12-days-of-xemplification-day-11--supply-chain-optimization.aspx Not all optimization vendors are equal. Not all vendors that claim to have optimization are truthful. A true supply chain optimization solution must satisfy a number of requirements. Before Buying a Supply Chain Optimization Solution
A Few Notes About Supply Chain Optimization You should re-optimize your supply chain on a regular basis … every year if possible. Although it doesn’t make sense to buy and sell manufacturing and distribution center assets every year, you should still model the cost associated with a potential sale, the cost of not renewing a lease, and the (maintenance) cost of each asset you have if new options, such as alternative low-cost distribution centers or the option to sell a manufacturing center, present themselves. Otherwise, you won’t know if it’s the best move or not. If you don’t run the optimization every year, you don’t know if your network is still optimal with respect to your current distribution needs, supply base, and customer base. It might be … and it might not be. Only a supply chain optimization solution will tell you.
Question I Can the solution model my supply chain as is? This is a question you need a resounding yes to. How do you know how much a potential network redesign is going to save you if you don't even know how much your current network design is costing you?
Question 2 Can the solution derive a cost baseline? Once you've modeled your current network, the solution should be able to run the model and tell you how much your network should be costing you. (If your current network is actually costing you significantly more, than either you have some inefficiencies in your processes to work out or you have not accurately modeled your network and need to revise or expand your model.)
Question 3 Can the solution support the construction of a model depicting one or more desired states? If you have a network design in mind, you should be able to construct that design and derive a cost baseline for the network. Similarly, you should be able to define your own modification of a suggested network design and derive a cost baseline for that modification. After all, it's not the lowest cost solution, it's the highest value solution - and that's not necessarily the solution with the lowest cost today, but the network design with the expected lowest cost, and highest value, over the expected lifetime of the network.
Question 4 Can the solution derive an estimated cost of a model you specify under a projected activity range? The reality is that any given solution is only optimal for the specific (set of) demand value(s) and the specific (set of) cost(s) that the model is defined on. However, you're optimizing your network for a future period of time, where demands are only forecasts that could change. Thus, you want a solution that also has simulation capabilities and the ability to run multiple models under multiple demand scenarios and cost differentials to allow you to come up with a network plan that is robust and most likely to save you money over the range of scenarios that are most likely to occur.
Question 5 Does the solution allow you to drill down into the expected cost differential between two models? It's not enough to know that one network design is expected to cost 2M more than another, you also need to know why, especially if the more expensive network design is the one you'd prefer. If you know that most of the costs are associated with lease payments, then you know that if you could negotiate a lower lease price, you could end up with a network design that you like and that is only slightly more than the lowest cost solution. If such a design also has lower risks, then it has a higher value and you can choose it.
Question 6 Does it help you optimize your supply chain improvement investments? Converting from one network design to another will occur a lot of upfront costs associated with asset acquisition, lease, and disposal as well as penalties if you have contracts in place that you need to back out of early. These up front costs need to be covered somehow, and if you only have a fixed amount of capital available for supply chain improvements, you want the model to be able to take that into account and the solution to provide you with different, near-optimal, improvement possibilities that are within your budget today.
Question 7 Does it model the impact of fixed asset disposal or cost reduction on service levels? inventories? greening? When optimizing your network, it's not just about cost and risk, it's also about service optimization, inventory optimization, supply chain greening, and a slew of other initiatives. It's important that such a solution not only allow you to specify all of your constraints, but allow you to calculate whether or not you're trading service level or inventory risk or carbon credits for that cost reduction.
Question 8 Does the solution support sensitivity analysis? If the system tells you a certain network design is likely to reduce your projected service levels by 1%, you want to know how much money is required to bring that down to any threshold between 0 and 1%. Maybe you only have to sacrifice 25% of your maximum savings opportunity to achieve a service level decrease of only 0.1%. That could be a good trade-off -- a 0.1% decrease in projected service levels is much better than a 1% service level decrease, especially when it costs you only 25% of your maximum savings potential to achieve a projected service decrease that's ten times better than the projected service decrease that you would be stuck with if you went with the greedy solution.

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Questions To Ask An Optimization Vendor II

  • 1. Questions to Ask an Optimization Vendor II by the doctor of Sourcing Innovation http://blog.sourcinginnovation.com/2007/12/23/the-12-days-of-xemplification-day-11--supply-chain-optimization.aspx Not all optimization vendors are equal. Not all vendors that claim to have optimization are truthful. A true supply chain optimization solution must satisfy a number of requirements. Before Buying a Supply Chain Optimization Solution
  • 2. A Few Notes About Supply Chain Optimization You should re-optimize your supply chain on a regular basis … every year if possible. Although it doesn’t make sense to buy and sell manufacturing and distribution center assets every year, you should still model the cost associated with a potential sale, the cost of not renewing a lease, and the (maintenance) cost of each asset you have if new options, such as alternative low-cost distribution centers or the option to sell a manufacturing center, present themselves. Otherwise, you won’t know if it’s the best move or not. If you don’t run the optimization every year, you don’t know if your network is still optimal with respect to your current distribution needs, supply base, and customer base. It might be … and it might not be. Only a supply chain optimization solution will tell you.
  • 3. Question I Can the solution model my supply chain as is? This is a question you need a resounding yes to. How do you know how much a potential network redesign is going to save you if you don't even know how much your current network design is costing you?
  • 4. Question 2 Can the solution derive a cost baseline? Once you've modeled your current network, the solution should be able to run the model and tell you how much your network should be costing you. (If your current network is actually costing you significantly more, than either you have some inefficiencies in your processes to work out or you have not accurately modeled your network and need to revise or expand your model.)
  • 5. Question 3 Can the solution support the construction of a model depicting one or more desired states? If you have a network design in mind, you should be able to construct that design and derive a cost baseline for the network. Similarly, you should be able to define your own modification of a suggested network design and derive a cost baseline for that modification. After all, it's not the lowest cost solution, it's the highest value solution - and that's not necessarily the solution with the lowest cost today, but the network design with the expected lowest cost, and highest value, over the expected lifetime of the network.
  • 6. Question 4 Can the solution derive an estimated cost of a model you specify under a projected activity range? The reality is that any given solution is only optimal for the specific (set of) demand value(s) and the specific (set of) cost(s) that the model is defined on. However, you're optimizing your network for a future period of time, where demands are only forecasts that could change. Thus, you want a solution that also has simulation capabilities and the ability to run multiple models under multiple demand scenarios and cost differentials to allow you to come up with a network plan that is robust and most likely to save you money over the range of scenarios that are most likely to occur.
  • 7. Question 5 Does the solution allow you to drill down into the expected cost differential between two models? It's not enough to know that one network design is expected to cost 2M more than another, you also need to know why, especially if the more expensive network design is the one you'd prefer. If you know that most of the costs are associated with lease payments, then you know that if you could negotiate a lower lease price, you could end up with a network design that you like and that is only slightly more than the lowest cost solution. If such a design also has lower risks, then it has a higher value and you can choose it.
  • 8. Question 6 Does it help you optimize your supply chain improvement investments? Converting from one network design to another will occur a lot of upfront costs associated with asset acquisition, lease, and disposal as well as penalties if you have contracts in place that you need to back out of early. These up front costs need to be covered somehow, and if you only have a fixed amount of capital available for supply chain improvements, you want the model to be able to take that into account and the solution to provide you with different, near-optimal, improvement possibilities that are within your budget today.
  • 9. Question 7 Does it model the impact of fixed asset disposal or cost reduction on service levels? inventories? greening? When optimizing your network, it's not just about cost and risk, it's also about service optimization, inventory optimization, supply chain greening, and a slew of other initiatives. It's important that such a solution not only allow you to specify all of your constraints, but allow you to calculate whether or not you're trading service level or inventory risk or carbon credits for that cost reduction.
  • 10. Question 8 Does the solution support sensitivity analysis? If the system tells you a certain network design is likely to reduce your projected service levels by 1%, you want to know how much money is required to bring that down to any threshold between 0 and 1%. Maybe you only have to sacrifice 25% of your maximum savings opportunity to achieve a service level decrease of only 0.1%. That could be a good trade-off -- a 0.1% decrease in projected service levels is much better than a 1% service level decrease, especially when it costs you only 25% of your maximum savings potential to achieve a projected service decrease that's ten times better than the projected service decrease that you would be stuck with if you went with the greedy solution.