Sourcing Optimization: How It Works & Why It Matters

If sourcing optimization can create significant cost and time savings, what exactly does it do?

Sourcing optimization uses advanced algorithms and automation to improve procurement decisions across cost efficiency, supplier diversity, supply chain resilience and other business priorities. It allows you to evaluate complex bid structures, analyze trade-offs and look beyond price by accounting for factors such as sustainability, risk and supplier capabilities.

In procurement, this means you can identify the most suitable supplier or combination of suppliers within the cost, quality, capacity, service or time restrictions attached to your sourcing event.

For example, imagine your team is running an ocean freight event and wants to find the best carrier.

Price may only be one part of the decision. Your team might also need to consider transportation time, whether a carrier is an incumbent and whether each carrier satisfies certain qualitative conditions. You may also want to limit the number of carriers awarded business within a particular region. Now you need to find the right balance between cost, service requirements and how business is allocated across carriers.

Doing all of those calculations manually is extremely time-consuming and may be practically impossible for larger sourcing events. Each additional lane, supplier, rule and constraint increases the number of possible award combinations. Scale that across thousands of awardable lanes and the problem can quickly become too complex to reason through reliably in a spreadsheet. Sourcing optimization evaluates those combinations mathematically to identify feasible, optimal award scenarios.

This is where sourcing optimization using Keelvar’s Sourcing Optimizer comes into play.

Keelvar’s Sourcing Optimizer puts this approach into practice, combining powerful optimization with an intuitive sourcing experience, supplier engagement and the flexibility to support a wide range of suitable categories and event types.

It lets your procurement teams run RFQ and RFP events, model complex bid data and compare award scenarios across the variables and constraints that shape the final decision.

Sourcing optimization is the approach. Sourcing Optimizer is the Keelvar product that lets your team put it into practice. To take a closer look at the platform, you can see a product tour or request a demo in a matter of seconds.

Traditional eSourcing digitizes core sourcing activities such as creating events, collecting supplier bids and comparing responses. Sourcing optimization builds on those capabilities by adding mathematical optimization and scenario modelling, allowing procurement teams to evaluate award strategies against multiple business rules, constraints and objectives.

That doesn’t mean optimization is only relevant to highly complex sourcing. Straightforward events can still be run efficiently within an optimization-enabled sourcing solution. The difference becomes more significant as the event grows in size or complexity, where basic sourcing tools can struggle to evaluate the number of possible award combinations and trade-offs involved. The table below lays it all out.

The advantage of an optimization-enabled sourcing solution is that procurement teams don’t have to choose between software for straightforward events and a separate tool for complex sourcing. The same environment can support simpler sourcing processes while providing deeper modelling and decision support when the event requires it.

While AI can speed up sourcing work, complex events still demand strong decision logic. That’s the central role that sourcing optimization plays within agentic sourcing.

Agentic sourcing uses specialized AI agents across the sourcing lifecycle to support activities such as event preparation and design, supplier engagement, bid analysis and winner determination. It can apply different combinations of AI agents, automation, optimization and human input depending on your buying goal.

Sourcing optimization comes into play when the challenge extends beyond completing the next task into working out which award delivers the best overall outcome. It can also serve as the analytical and decision-making engine that agents draw on when evaluating complex trade-offs, constraints and multi-factor awards. For example, optimization can help your team:

• Evaluate thousands or millions of possible award combinations
• Balance price against capacity, service, risk, sustainability and other constraints
• Compare alternative scenarios before making an award
• Understand how changing a rule or priority affects the final outcome

For a repeatable, high-volume and lower-complexity sourcing event, more of the process may be handled through Autonomous Sourcing. For a higher-spend or more complex event, your team may stay much more closely involved while sourcing optimization handles the heavy analytical work behind the decision. AI agents can support both types of sourcing activity, with their role adapting to the requirements of the event.

Put simply:

• Agentic Sourcing applies specialized AI agents across the sourcing lifecycle, from event preparation and supplier engagement through to bid analysis and winner determination.
• Autonomous Sourcing helps execute suitable sourcing workflows with greater autonomy.
• Sourcing Optimization provides deep analytical and decision-making capabilities when an award involves complex rules, constraints or trade-offs.

These capabilities can also work together. When an agent encounters a sourcing decision that requires deeper analysis, sourcing optimization can provide the underlying decision logic needed to evaluate possible award scenarios and determine the optimal outcome against the requirements of the event.

Keelvar brings these capabilities together within the same sourcing platform. This gives your procurement teams the flexibility to apply more autonomy where the work is repeatable, while using deeper optimization and human judgment where the sourcing decision demands it.

Few sourcing platforms can claim deep capabilities across both optimization and autonomy, and this combination is a major part of what sets Keelvar apart. That breadth is reflected in the 2026 Gartner Market Guide for Sourcing Applications, which recognized Keelvar across both Advanced Sourcing Optimization and Autonomous Sourcing.

Sourcing optimization uses combinatorial optimization to find the mathematically optimal award allocation while satisfying the business rules, policies and operational limitations defined for the event. Rather than simply selecting the lowest bids, it can evaluate cost alongside constraints and non-price requirements to determine the best feasible award.

Keelvar’s Sourcing Optimizer applies this capability within a broader sourcing solution. Buyers can collect and validate supplier bids, define constraints and preferences, and use optimization to calculate award scenarios. The product also includes capabilities that support the wider event process, including AI-assisted event design and event management.

Once you define the rules, the optimizer uses them alongside bids, discounts and qualitative data to calculate optimal award scenarios. You can build and compare different what-if scenarios in seconds, changing constraints or requirements to see how each decision affects cost and other sourcing objectives. This makes trade-offs visible before you choose the award strategy that best fits your goals.

Run scenario analysis using Keelvar’s Sourcing Optimizer to make strategic sourcing decisions based on complex data

The idea behind our Sourcing Optimizer is simple: procurement teams need a solution that allows them to quickly and easily define their restrictions using a set of simple, understandable rules. It was important to our users that these rules could be created by anybody - on the spot - without needing to be programmers or Excel experts.

Using Keelvar’s Sourcing Optimizer can help you:

• Increase savings potential
• Improve collaboration and transparency
• Reduce sourcing cycle times
• Gain more strategic insight and control
• Increase adoption

Finding the cheapest carrier using the “Low Cost Baseline” scenario

What does sourcing optimization with Keelvar’s Sourcing Optimizer look like in practice? Let’s find out by going back to our example of running an ocean freight event. In this instance, you want to find the cheapest carrier based only on the prices submitted, without any additional restrictions.

The event has already been set up in Sourcing Optimizer and will consist of the following columns:

• A lane identifier column that uniquely identifies a given lane.
• A business unit column, which identifies the business unit that will be served by the given lane.
• An origin and destination column, which indicates the country from which the shipment originates, and the country to which the shipment is destined.
• An equipment type column which indicates the type of equipment to be shipped.
• Two columns which indicate shipment requirements:
  • Direct Required (i.e. whether a direct or indirect shipment is required); and
  • Max Transit Time (the maximum permissible time that it can take for the cargo to be shipped).
• 7 columns whose cells are to be completed by the carriers. These are our bidder input columns.

Carriers have already submitted their bids, so all that’s left for you to do is use the sourcing optimizer to find the lowest-cost supplier. To do so, you use something called a “scenario”: a grouping of rules that the optimizer uses to translate and calculate the optimal results.

One of the major advantages of using a modern optimization eSourcing software solution is that it lets you build and evaluate many different supplier awarding scenarios in minutes.

This scenario is called the Low Cost Baseline. Its only purpose is to calculate the cheapest supplier for each lane. Once you press “evaluate”, the Sourcing Optimizer calculates a result and you’ll be able to see exactly which carrier won which lane.

When comparing carrier bids, the analysis can include more than a single freight rate. Supplier submissions may contain freight charges, handling charges, documentation fees, transit times and other relevant commercial or service information. These bid-side inputs can then be evaluated alongside the buyer’s own award rules and constraints when modelling scenarios.

Sourcing optimization with real-world constraints

The first example is straightforward. Finding the cheapest carrier per lane could still be managed in Excel. However, the real world gets more complicated when you introduce constraints.

In this scenario, let’s assume your ports or loading bays have a capacity restriction and can’t support more than two carriers at a time. You still want the cheapest carrier, but under the condition that two carriers can be supported at a given moment in time.

Returning to the Keelvar Sourcing Optimizer platform, you can meet this challenge by adding a new scenario to your ocean freight event. To do this, create a new scenario by simply pressing the “Add a scenario” button. As a next step, you can add a “Limit Winners” rule.

This “Limit Winners” rule presents you with three primary choices:

1. Which bidders to apply the rule to;
2. Which lots to apply the rule to; and
3. The number of permitted winners.

The rule may be applied to all bidders, or you may choose specific bidders, or bidders from a pre-defined bidder group.

Next, you must select which lots the rule will apply to, which may be all lots, a specific subset, or a pre-defined lot-group.

Finally, you may limit the award to be at least, at most, or exactly a specific value. In this example, your procurement team would configure the rule to “limit the number of winners for all bidders on all lots to at most 2”.

Once the rule has been added, your new scenario is ready for evaluation. All that you need to do next is press “evaluate” and observe the results.

Sourcing optimization can add value across sourcing events of different sizes and complexity levels. It becomes particularly powerful as the number of bids, suppliers, locations, award possibilities or competing business constraints grows, helping teams make better sourcing decisions without relying on increasingly difficult manual analysis.

The method isn’t limited to one industry or only to highly complex sourcing events. It can support straightforward sourcing needs through to massive events involving hundreds of suppliers and thousands of awardable items or lanes. It’s particularly valuable when your team needs to evaluate more than price. Common examples include:

• Transportation and logistics: Lanes, rates, carrier capacity, transit times, reliability, equipment requirements and emissions can all influence the award. Keelvar’s transportation offering currently supports scenario analysis across cost, transit time, CO₂ emissions, reliability, capacity constraints and lane alternatives.
• Direct materials: Volume, capacity, lead times, quality, location and supplier risk can affect how business should be allocated.
• Manufacturing: Procurement teams may need to balance unit cost against capacity, quality, lead time and continuity of supply.
• Packaging: Specifications, volumes, locations, supplier capabilities and sustainability requirements can create complex award decisions.
• Retail: Multi-location and multi-category events can require cost, service, availability and supplier capability to be considered together.

The ocean freight walkthrough on this page isn’t an isolated example. Sourcing optimization can be applied across a wide range of sourcing needs, with transportation and logistics providing a strong example of how the technology can scale from relatively straightforward events to highly sophisticated award decisions.

A major beverage company used Sourcing Optimizer to standardize logistics sourcing across regions, moving away from manual processes and bringing scenario analysis into its decision-making. In 2024, the company reported €15 million in savings and a 62% reduction in the time required to launch sourcing events. You can read the full success story here.

Meanwhile, Siemens worked with Keelvar to bring advanced sourcing technology into its strategic procurement processes. Using our platform’s optimization capabilities, Siemens has been able to support more sophisticated competition design, helping its teams get more value from complex sourcing events and move beyond straightforward bid comparison. Read more about Siemens’ work with Keelvar here.

• Increased savings potential: Compare the total award rather than treating each bid or line item in isolation. This can uncover supplier combinations, discounts or allocations that are difficult to identify manually.
• Improve award accuracy: Complex sourcing problems can be difficult to reason through manually without simplifying the problem or relying on approximations. Optimization solvers evaluate the defined problem mathematically, helping teams identify an optimal feasible award and realize the value available within the rules and constraints of the event.
• Increased collaboration and transparency: Build different scenarios and show stakeholders how changing a constraint or priority affects the outcome.
• Reduced cycle times: Reduce the time spent cleaning bid data, rebuilding spreadsheet calculations and manually comparing possible awards.
• More strategic insight and control: Test your sourcing assumptions before committing to an award and understand the cost or operational impact of different choices.
• Increased adoption: Give procurement users a way to build and adjust business rules without requiring programming skills for every change.

One global technology company moved from running one major annual global air and ocean sourcing event to 17 events in 12 months, achieving $60 million in cost avoidance during that period. They praised the ability of being able to get their best-case scenario from submitted event data in a matter of seconds.