How sourcing quickly becomes a combinatorial puzzle

You have run a sourcing project and are very happy with amount of offers you have collected - all you have to do now is choose your suppliers. However, this is not as easy at sounds because with thousands of lots and bidders, the number of possible ways to award contracts is enormous. Basic analysis tools will give you the answers to simple questions such as identifying the cheapest overall supplier but answering the really interesting questions will mean solving complex combinatorial puzzles that require leading edge analysis software.

The puzzle

Asking interesting questions ultimately involves testing the implications of choosing different combinations of suppliers. For example, buyers may want to see the effect of limiting the number of suppliers per region or reducing the percentage awarded to incumbent suppliers. The list of potential questions is limitless and typical examples of constraints that buyers might want to implement are:

Allocate a maximum of two suppliers per plant
Award a maximum of 50% of the total to new suppliers
Only change supplier of ‘Lot X’ if another supplier can provide savings of over €200 000
Reject all bids with a delivery time more than two days
Compensate for increased inventory cost by adding €10 per container per extra delivery day
For risk mitigation purposes, award business to three suppliers with a 50/30/20 split
Ensure that no supplier is awarded more than 70% of its maximum total capacity

In addition, buyers will want to take advantage of volume discounts and packaged bids that suppliers have offered.

This is the type of puzzle that Trade Extensions allows buyers to solve and gives the reassurance that they have chosen the optimal solution based on their given constraints but also taking in to consideration additional proposals from their suppliers.

Supply chain puzzles

In addition to solving combinatorial puzzles for individual sourcing events it is also possible to solve puzzles that span the supply chain.

A typical example is illustrated in the figure below. The task is to distribute products from a number of factories to retail stores via a set of warehouses. In such a puzzle, there will be bids for transportation from each factory to each warehouse, from each warehouse to each retail store, and pricing for the warehouses themselves. The challenge is to find the best combination of transportation and warehousing. Once again the question is easy but the finding the solution is complex because there will be thousands of offers to analyse and the solution will have to take into account a number of constraints such as:

All quality requirements are met
The flow into each warehouse balances the flow out from the warehouse
Volume discounts and capacity restrictions are taken into account
Warehouse A cannot accept products containing a specific component from Factories X and Z

Solving Scenario Analysis

How we do it: Solving puzzles using Scenario Analysis

Trade Extensions is able to solve these types of puzzles by using its Scenario Analysis platform that provides the most powerful support for any sourcing or supply chain decision-making process. It contains a unique way of designing your own business rules with outstanding flexibility. Any piece of information or parameter you have captured – whether from the buyer, supplier, or third party – can be used for creating constraints (e.g. retail stores B,C,D only accept deliveries before 7:00am) and then applying them in a scenario, or “what if” analysis. These scenarios can then be compared side-by-side to determine the best allocation strategy based on the organization’s quantitative requirements (e.g. cost and delivery times) and qualitative requirements (e.g. service KPI score of at least 85 is a necessity). The platform also considers additional information provided by suppliers such as discounts based on volumes allocated by region.

Powering this analysis is a specially developed optimizing solver which combines established optimizing tools with new highly tuned algorithms designed by our world-leading team of algorithm designers.

There is no other sourcing platform that provides the flexibility, depth, and results possible in Trade Extensions so get in touch to see how we can help you solve your puzzles.