Oaug Sourcing Optimize
Transcript of Oaug Sourcing Optimize
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Sourcing ptimizationPresenter Name: Jayeeta PalOrganization Name: Infosys Technologies Ltd.
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Agenda
IntroductionIntroduction
Problem StatementProblem Statement Sourcing Optimization SolutionSourcing Optimization Solution
Oracle Sourcing CycleOracle Sourcing Cycle
Where does Sourcing Optimization fi t in SourcingWhere does Sourcing Optimization fit in SourcingCycleCycle
Oracle Sourcing Optimization FeaturesOracle Sourcing Optimization Features
Myths and RealitiesMyths and Realities BenefitsBenefits
Sourcing Optimization IllustrationSourcing Optimization Illustration
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Agenda
IntroductionIntroduction
Problem Statement Sourcing Optimization Solution
Oracle Sourcing Cycle
Where does Sourcing Optimization fit in Sourcing Cycle Sourcing Optimization Features
Myths and Realities
Benefits Sourcing Optimization Illustration
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INTRODUCTION
Oracle Sourcing Optimization
Creates optimal solutions and award recommendations
while allocating business to suppliers Takes care of business policies and goals.
Generates better and faster award decisions.
Was originally released in Sourcing Mini-Pack J.
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Agenda
Introduction
Problem StatementProblem Statement Sourcing Optimization Solution- The Next level in Sourcing decisions
Oracle Sourcing Cycle
Where does Sourcing Optimization fit in Sourcing Cycle Oracle Sourcing Optimization Features
Myths and Realities
Benefits Sourcing Optimization Illustration
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Problems in the Real Life Scenario
Client in the manufacturing sector faced a problem while
allocating business. The client was using earlier versions of Oracle
applications(11.5.8).
Sourcing team manually handled evaluations/analysis ofquotes/bids while awarding business to supplier.
Absence of a decision support tool.
Multiple bids and line items received from large number of
suppliers.
What - If Analysis process is time consuming sincemanually done.
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Real Life Scenario Non-ideal Situation
Business
Policies andgoals
BuyerBidAnalysis/Evaluationdone manually
Award
Decision
Bid 1
Build
MultipleScenarios
Bid 2
Bid 3
Correct?
Supplier 1
Supplier 2
Supplier 3
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Major Challenges
Advantage of
smaller/quality vendors
Adhere to
Business policies and goals
Perform quick What-If
Award Analysis
Make Faster
Award Decisions
Need forDecision Support tool
Eliminate Time
consuming manual Analysis
BuyingBuying
GroupGroup
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Agenda
Introduction
Problem Statement Sourcing Optimization SolutionSourcing Optimization Solution
Oracle Sourcing Cycle
Where does Sourcing Optimization fit in Sourcing Cycle Oracle Sourcing Optimization Features
Myths and Realities
Benefits Sourcing Optimization Illustration
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The Solution
ORACLEORACLE
SOURCING OPTIMIZATIONSOURCING OPTIMIZATION
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Award generation - Ideal SituationBids frommultiple
Suppliers
Business Constraints No sole Sourcing of an
item Preference to Minority
Owned Business
Create scenariowith constraintsand objectives
Optimal
award
Run Ilogs
CPLEX Optimization
Engine in Oracle
What - If
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What is Sourcing Optimization?
Sourcing Optimization uses mathematical analytics to
arrive at the best possible solution given a set ofpurchasing policies and objective represented in the formof business constraints.
It guides the buyer in making Award decisions.
It helps in analyzing and evaluating supplier bids andquotes.
Referred to as a scenario modeling tool.
Optimization is the next level in Sourcing decisions.
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Optimization in Strategic Sourcing
Strategic Sourcing is an institutional procurement process
which uses advanced technology to help an organizationto make better buying decisions.
Strategic Sourcing was introduced by General Motors in1980s.
Strategic Sourcing involves identifying the Supply market,
current companys procurement requirement, identifyingsuppliers to be present in the negotiation cycle.
Sourcing Optimization is a key component in StrategicSourcing.
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Sourcing Optimization in Oracle
Sourcing Optimization is a decision support tool.
It helps in evaluating suppliers responses to provide thebest award recommendation while adhering to thepurchasing policies and goals.
It is also referred to as Award Optimization in Oracle
terminology. Configurable award rules build in compliance with policies
such as minority business preference or multi sourcing ofcritical items are taken into consideration while generatingaward recommendations.
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Reviews on Sourcing Optimization
Oracle Sourcing Optimization helps you defineOracle Sourcing Optimization helps you define
in business terms your criteria for deciding how toin business terms your criteria for deciding how toaward the business, and then it determines whataward the business, and then it determines whatwill be the optimal award given the constraintswill be the optimal award given the constraintsthat you specify.that you specify.
The application of optimization tools to analyze totalThe application of optimization tools to analyze totalcosts, and of flexible bidding functionality to uncovercosts, and of flexible bidding functionality to uncover
creative supplier solutions has enabled early adopters tocreative supplier solutions has enabled early adopters toidentify average incremental savings of 12% above thoseidentify average incremental savings of 12% above thosethat basic, pricethat basic, price--focused auctions alone have generatedfocused auctions alone have generated
Aberdeen
Group
German Bertot,
group manager,Oracle Sourcing
Product
Management.
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Agenda
Introduction
Problem Statement Sourcing Optimization Solution
Oracle Sourcing CycleOracle Sourcing Cycle
Where does Sourcing Optimization fit in Sourcing Cycle Oracle Sourcing Optimization Features
Myths and Realities
Benefits Sourcing Optimization Illustration
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Sourcing Cycle in Oracle
Sourcing activities precedes purchasing activities
Various processes in the Oracle Sourcing are:1. Identifying Sourcing Team
2. Creating Negotiation Document
3. Determining Item attributes/Price Structure4. Identifying Vendors
5. Identifying Sourcing rules of engagement
6. Publish negotiations7. Evaluate supplier responses
8. Award responses
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Attach header level details
Buyer enters RFQheader details
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Enter lines
Buyer enters RFQ line
details
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Add item attributes
Buyer adds multi scoringattributes for the item inline1 in RFQ
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Enter controls/rules
Buyer adds controls to theRFQ
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Identify Vendors
Invite suppliers in the
negotiation cycle
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Create Quotation
Supplier EIP acknowledges participation in the
negotiation process and creates a Quote inresponse to the RFQ.
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Supplier enters quote valuesfor all the attributes andQuote price.
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Quote Analysis and Evaluation
The buyer receives bothresponses from thesuppliers and evaluatesboth quotes by line items.
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Award business
The buyer now completes theaward and this action triggers thecreation of Blanket Purchaseagreement/Standard Purchase
Order.
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Agenda
Introduction
Problem Statement Sourcing Optimization Solution
Oracle Sourcing Cycle
Where does Sourcing Optimization fi t in SourcingWhere does Sourcing Optimization fit in SourcingCycleCycle
Oracle Sourcing Optimization Features
Myths and Realities Benefits
Sourcing Optimization Illustration
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Sourcing Optimization in Sourcing
Cycle
Define
SourcingRequirements
Determine
ItemRequirements
Vendor
Identification/Selection
Define Sourcing
Rules ofEngagement
Publish
Specifications and
Sourcing Document
Receive Supplier
responses
Quotes/Bids
Analyze
Vendor
Quotes/Bids
Award
Responses
Sourcing
Optimization
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Agenda
Introduction
Problem Statement Sourcing Optimization Solution
Oracle Sourcing Cycle
Where does Sourcing Optimization fit in Sourcing Cycle OracleOracle Sourcing Optimization FeaturesSourcing Optimization Features
Myths and Realities
Benefits Sourcing Optimization Illustration
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Oracle Sourcing Optimization
Features
Sourcing Optimization comprises features like Scenario Objectives,
Business Constraints, Sourcing Optimization, What if Analysisand Scenario Acceptance.
Scenario
Objectives
Business
Constraints
Scenario
Optimization
What-if
Analysis
Scenario
Acceptance
Sourcing Optimization
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Sourcing Optimization
Feature Description Allows buyers to create scenarios that can help in creating
the best award. Allows buyers to achieve maximum savings while meeting
business policies and goals. Particularly useful in cases of large line items and a large
number of Competitive bids.
Change from Prior Releases
The above functionality was originally released as a patchfor 11i.10.Set Up Steps
Profile Option PON: Enable Award Optimization to Yes
at Site level
ScenarioObjectives
BusinessConstraints
ScenarioOptimization
What-ifAnalysis
ScenarioAcceptance
Sourcing Optimization
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Sourcing Optimization
Responsibi lity: Sourcing Buyer
Navigation: Sourcing Home Page>Select the Auction Number.
Sourcing Optimization begins after buyer receives responses from all suppliers
(Evaluation phase)
Buyer kicks off the SourcingOptimization process afterreceiving the bids from thesuppliers.
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Scenario Objectives
The buyer chooses an objective that defines what the
optimization engine should consider to generaterecommendation. The objective Maximize award quantity and minimize
award amount will cause the optimizer to try to award
quantities indicated on the negotiation while minimizing thetotal cost of the award. Buyer can choose the following objectives seeded in the
system while creating a scenario:
Maximize Award Quantity and Minimize Award AmountMaximize Award Quantity and Minimize Price/Score ratio.Maximize Award QuantityMinimize Award AmountMinimize Price/Score ratio
ScenarioObjectives
BusinessConstraints
ScenarioOptimization
What-ifAnalysis
ScenarioAcceptance
Sourcing Optimization
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Creating Scenario Objectives
Responsibi lity: Sourcing Buyer
Navigation: Sourcing Home Page>Select the Auction Number> Award
Optimization from the Actions LOV
Buyer creates the
scenario for theoptimization process.
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Business constraints
Buyers specify the purchasing policies or goals in terms ofconstraints.
There can be business constraints and rules that need to be
followed, such as: No sole-sourcing of an item
Maximum business that can be awarded to any supplier isX
Minimum spend with the primary supplier is Y
ScenarioObjectives
BusinessConstraints
ScenarioOptimization
What-ifAnalysis
ScenarioAcceptance
Sourcing Optimization
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Types of Business constraints
Constraints can be defined at three levels viz.
Header level
Header constraints span all the lines in the negotiation.
Buyer can put a cap on the budget amount so that theaward amount is not exceeded.
Constraints can also be set up to exclude suppliers
that do not meet cutoffs for header attribute scores,header attribute group scores or total score.
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Types of Business Constraints...contd. Line level
The buyer can decide whether or not a line award can be splitbetween multiple suppliers.
Price and score cutoffs can be defined for the lines so as toeliminate bids that do not meet the cutoff.
Line constraints can be used to limit the maximum amount orquantity awarded for a particular line.
The buyer can specify if he or she wants to award all lines in agroup to the same supplier.
Supplier LevelSupplier constraints can also be set up based on business
classifications such as Minority Owned, Women Owned, etc.Setting up constraints based on Approved Supplier List
statuses can ensure that a certain percentage of the businessis awarded to approved suppliers
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Adding Constraints in Scenario
Buyer can createHeader/line/Supplier levelconstraints.
Responsibi lity: Sourcing Buyer
Navigation: Sourcing Home Page>Select the Auction Number> Award
Optimization from the Actions LOV
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Supplier Constraints
Adding the supplier constraintsthat 80% of the award should goto the Veteran supplier.
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Scenario Optimization
The buyer can compute the optimal award allocations for ascenario with a single click.
Oracle Sourcing uses ILOGs CPLEX optimization engineto generate the optimal award allocation that satisfies the
constraints. Optimization results are displayed in both graphical andtabular formats for ease of interpretation.
The buyer can easily view savings resulting from theoptimal solution for the scenario.
The constraints are summarized and supplier typeconstraints are graphed so the buyer can see how theseconstraints were met.
ScenarioObjectives
BusinessConstraints
ScenarioOptimization
What-ifAnalysis
ScenarioAcceptance
Sourcing Optimization
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Scenario Optimization
Result views in piecharts
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What-If Analysis
Through What-if Analysis buyer can define multiple scenariosand compare optimization results.
The buyer can edit an existing scenario or copy it to create anew scenario to quickly generate alternate scenarios.
The buyer can create such scenarios e.g. no more than 5
suppliers are awarded. Another scenario might stipulate minimum award percentage to
Minority or Women-owned businesses. The buyer can compare the optimal solutions for different
scenarios; the buyer may realize savings that would otherwisenot be apparent.
ScenarioObjectives
BusinessConstraints
ScenarioOptimization
What-ifAnalysis
ScenarioAcceptance
Sourcing Optimization
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What If Analysis
Alternative scenarioscan be built before the
final decision
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Agenda
Introduction
Problem Statement Sourcing Optimization Solution
Oracle Sourcing Cycle
Where does Sourcing Optimization fit in Sourcing Cycle Oracle Sourcing Optimization Features
Myths and RealitiesMyths and Realities
Benefits Sourcing Optimization Illustration
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Myths and Realities
It is a Decision support tool; not an intelligent one.
Guides the buyer in taking the correct decision; does notenforce it.
Given a complete scenario, it will find the optimal answer;but can not build the proper scenario.
In cases where constraints clash, the tool cannot generatethe award and hence no result is found.
The buyer has to define the scenario, ensure all the dataare present and correct, make sure all the constraints are
present and analyze the alternatives. Hence it does notreplace a human being.
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Agenda
Introduction
Problem Statement Sourcing Optimization Solution
Oracle Sourcing Cycle
Where does Sourcing Optimization fit in Sourcing Cycle Oracle Sourcing Optimization Features
Myths and Realities
BenefitsBenefits Sourcing Optimization Illustration
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Benefits
Purchasing professionals can save effort and time whileselecting vendors for award.
Speeds the awarding process.
Increases accuracy in decision making.
Helps in performing What-If analysis quickly with multiplescenario building.
Buyer has the advantage to view the percentage savingsin each case of scenario optimization.
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Agenda
Introduction
Problem Statement Sourcing Optimization Solution
Oracle Sourcing Cycle
Where does Sourcing Optimization fit in Sourcing Cycle Oracle Sourcing Optimization Features
Myths and Realities
Benefits Sourcing Optimization IllustrationSourcing Optimization Illustration
S i O ti i ti Ill t ti
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Sourcing Optimization Illustration
Supplier 1
Bid Price=$110
Supplier 2
Bid Price=$150
Veteran
Scenario 1Scenario 1
Award recommendationwithout constraint
Scenario 2Scenario 2
Award recommendationwith Constraint
0
10
20
30
40
50
60
70
80
Award Spl it
Supplier 2
Supplier 1
0
20
40
60
80
100
Award Spli t
Supplier 1
New Entrant2 Suppliers
bidding for
Laptop
CarryingCase order
Scenario 1: Without Constraint
Bid Price of Supplier 1 < Bid Price of Supplier 2
100% of Order wi ll go to Supplier 1
Scenario 2: With Constraint
ConstraintMinimumMinimum 80% of business should80% of business shouldbe awarded to the Veteran supplierbe awarded to the Veteran supplier
In spite of Bid Price of Supplier 1 < Bid Price of Supplier 2
80% of Order will go to Supplier 2 & remaining 20% to
Supplier 1
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Thank You