Frequently asked questions: Award optimization

Is it more challenging to use award optimization for the contract allocation compared to working with Excel?

No, a lot easier. Award optimization is made for buyers and focuses on the topic of contract allocation. Evaluations and scenario comparisons are visualized. But of course, they can also be exported and further processed in Excel.

How do I know that I should use award optimization?

You should use award optimization for contract allocation if

  • you have different locations to serve
  • you have a variety of products/services/materials to tender
  • your suppliers are subject to regional or capacity restrictions
  • you have to take into account regionally different requirements and awarding priorities
  • you need the optimal multiple source strategy
  • you want to balance the strengths/weaknesses of your incumbent suppliers
  • you want to optimize freight costs or exchange costs
  • your Excel evaluation has reached the limit of complexity
  • you want to display the value of specific award preferences
  • you moderate the discussion in a steering committee 

What is a (awarding) scenario?

An awarding scenario describes the rules for a comprehensive supplier allocation package. Each award package fulfills several constraints. The more restrictions, the more complex the scenario.

What is a business rule?("constraint")

A constraint (or business rule) in an awarding scenario is a quantitative or qualitative requirement for the award decision.

For example:

  • The contract has to be allocated to at least two, at most five different suppliers
  • At least 50% of the contract's volume has to be allocated to suppliers from Munich.

What is optimization?

Optimization means finding the optimal solution for a problem.
In award optimization, the optimal solution is the most cost-effective contract allocation that meets all business rules. Mathematical algorithms ensure that the calculation of the limit value (minimum) is conducted within seconds.

For some scenarios, there is no solution. That may also be valuable information.

How many individual information (individual quotes or price points) can the award optimization used by source:net process?

Hundreds of thousands and more. In the order of 1 million and above, the computing times become somewhat longer.

What types of business rules ("constraints") are supported?

There are business rules of the customer (procurement, specialist, management) and the business rules of the supplier.

The usual client business rules refer to internal requirements, such as:

  • Existing contracts: "Since we still have a contract with the existing supplier, he must receive at least one order for € 100,000."
  • Quality requirements: "Only internally certified suppliers may be awarded."
  • Risk minimization: "A site must be supplied by at least two independent suppliers, one of which must be an incumbent supplier."

The usual supplier business rules refer to:

  • Capacity: "We can't deliver more than 3,000 pallets per week to Munich."
  • Discounts and packages: "If we get all shipments to Spain and Portugal, we can provide a discount of 15% on all island shipments in Spain".

Besides, alternative specifications, cost models and pricing factors can be considered. For example

  • differing lead times
  • alternative grammages for packaging tenders
  • additional product variants 

The business rules are modeled using the following constraints:

  • Allocation constraints set up distribution rules. ("At least 50% to incumbent suppliers")
  • Limits constraints define threshold values. (Capacity limits / Minimum useful utilization)
  • Qualitative constraints define performance requirements. (Certifications / Delivery times)
  • Discount constraints represent discounts and special costs. ("3% discount on reaching a total turnover")

Further constraints can be developed and added.