Oaug Sourcing Optimize

8/13/2019 Oaug Sourcing Optimize

1/53

Sourcing ptimizationPresenter Name: Jayeeta PalOrganization Name: Infosys Technologies Ltd.


2/53

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


3/53

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


4/53

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.


5/53

Agenda

Introduction

Problem StatementProblem Statement Sourcing Optimization Solution- The Next level in Sourcing decisions


Where does Sourcing Optimization fit in Sourcing Cycle Oracle Sourcing Optimization Features

Myths and Realities



6/53

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.


7/53

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


8/53

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


9/53

Agenda

Introduction

Problem Statement Sourcing Optimization SolutionSourcing Optimization Solution



Myths and Realities



10/53

The Solution

ORACLEORACLE

SOURCING OPTIMIZATIONSOURCING OPTIMIZATION


11/53

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


12/53

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.


13/53

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.


14/53

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.


15/53

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.


16/53

Agenda

Introduction


Oracle Sourcing CycleOracle Sourcing Cycle


Myths and Realities



17/53

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


18/53


19/53

Attach header level details

Buyer enters RFQheader details


20/53

Enter lines

Buyer enters RFQ line

details


21/53

Add item attributes

Buyer adds multi scoringattributes for the item inline1 in RFQ


22/53

Enter controls/rules

Buyer adds controls to theRFQ


23/53

Identify Vendors

Invite suppliers in the

negotiation cycle


24/53

Create Quotation

Supplier EIP acknowledges participation in the

negotiation process and creates a Quote inresponse to the RFQ.


25/53

Supplier enters quote valuesfor all the attributes andQuote price.


26/53

Quote Analysis and Evaluation

The buyer receives bothresponses from thesuppliers and evaluatesboth quotes by line items.


27/53

Award business

The buyer now completes theaward and this action triggers thecreation of Blanket Purchaseagreement/Standard Purchase

Order.


28/53

Agenda

Introduction



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


29/53

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


30/53

Agenda

Introduction



Where does Sourcing Optimization fit in Sourcing Cycle OracleOracle Sourcing Optimization FeaturesSourcing Optimization Features

Myths and Realities



31/53

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


32/53


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



33/53


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.


34/53

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


What-ifAnalysis

ScenarioAcceptance



35/53

Creating Scenario Objectives


Navigation: Sourcing Home Page>Select the Auction Number> Award

Optimization from the Actions LOV

Buyer creates the

scenario for theoptimization process.


36/53


37/53

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


What-ifAnalysis

ScenarioAcceptance



38/53

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.


39/53

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


40/53

Adding Constraints in Scenario

Buyer can createHeader/line/Supplier levelconstraints.


Navigation: Sourcing Home Page>Select the Auction Number> Award

Optimization from the Actions LOV


41/53

Supplier Constraints

Adding the supplier constraintsthat 80% of the award should goto the Veteran supplier.


42/53

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


What-ifAnalysis

ScenarioAcceptance



43/53

Scenario Optimization

Result views in piecharts


44/53

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


What-ifAnalysis

ScenarioAcceptance



45/53

What If Analysis

Alternative scenarioscan be built before the

final decision


46/53


47/53

Agenda

Introduction




Myths and RealitiesMyths and Realities



48/53

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.


49/53

Agenda

Introduction




Myths and Realities

BenefitsBenefits Sourcing Optimization Illustration


50/53

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.


51/53

Agenda

Introduction




Myths and Realities

Benefits Sourcing Optimization IllustrationSourcing Optimization Illustration

S i O ti i ti Ill t ti


52/53

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


53/53

Thank You

Documents

Oaug Sourcing Optimize