Monthly Archives: July 2006

Problem Solving Series V: Evaluating the Solution

This is the fifth post in a series of posts designed to introduce you to problem solving strategies that you can use to attack your sourcing and supply chain problems. Last Sunday we discussed three methodologies that you could use to find a solution. Today we are going to discuss methodologies you can use to evaluate a solution and determine whether or not it is acceptable or if you should continue looking for a better one.

The first methodology you can use is to estimate the costs and benefits. For example, if your strategy to reduce spend is to switch carriers to a carrier quoting a lower truckload rate, calculate how many shipments will actually qualify as a truckload, how many shipments will go at the less then truckload rate, and add up the cost. Then factor in any associated switching costs. If the total savings are still a material percentage after all factors are taken into account, then you have a partial solution. However, if the savings do not meet your objective, you will have to find another partial solution or look in an entirely different place.

The next methodology you can use is trial and error. There are two ways you can go about this. The first way is to implement the best solution you can identify for a minimum trial period (equal to the minimum amount of time it will take to determine if it is having any effect), collect all the information you can, and analyze the solution. For example, if you were trying to consolidate your supply base but could not decide which group of four suppliers out of a candidate set of six was the most appropriate, you could take your best guess, allocate the award accordingly for two quarters, and track the progress. If progress was good, you’d continue with the strategy. If progress was mediocre, you’d know that you were probably close and look for a few tweaks, such as switching out one or two suppliers or tweaking the purchase order process. If progress did not improve (or got worse), you’d attack the problem from a different angle with your revised knowledge and find a different solution.

The second way to use trial and error, which may not always be possible, is to implement two (or more) competing options that you are having difficulty evaluating to see which option is actually best. For example, let’s say you are trying to determine whether or not you should continue to spend your time sourcing non-strategy indirect commodities or outsource the categories to a third party organization that specializes in procurement of indirect materials. If you have done your research, you’ll realize that some parties report substantial success while others see very little benefit. In this situation, you could outsource half of your indirect categories for a trial period and keep the other half in house. If the procurement organization obtains significantly better performance then you (have traditionally) obtain(ed), then you know that outsourcing is the way to go. If the procurement organization does not obtain significantly better results, then maybe you should maintain internal control over your indirect categories for the time being and analyze the situation again in a year or two.

The point is that you have options, and you should not be afraid to try them. Sometimes you get surprised.

Next Sunday we will discuss some general strategies that will help you with every stage of the problem solving process.

The Wired 40 (Innovative Companies)

This month, Wired released it’s annual list of The Wired 40, a list of trendsetting companies that Wired believes is leading the way. This list included software companies in the Supply Chain / Customer Relationship Management space.

In particular,

  • (10) SAP, for rolling its own code and crafting slick modules for everything from analytics to HR and
  • (15) SalesForce.com for its upcoming web-based business platform that will offer 2,000 on-demand applications from purchasing to recruiting.

Of course, the big question is why? In the case of SalesForce.com, it is clear. As one of the first true Software-as-a-Service providers, they paved the way for competitors in their own customer relationship management space, such as Salesboom.com, as well as true Software-as-a-Service providers in the sourcing space, such as Iasta and Procuri

But in the case of SAP, I find it murkier. What have they done in the last year that not only warrants a place on the list, but a place so high on the list? Are they big? Yes. (After all, Gartner Dataquest just ranked them #1 in the ERP, CRM, and SCM markets!) Are they growing? Yes. Are they releasing new applications every year? Yes. Will they continue to improve? Yes.  (And if you asked me which stock to buy as a long term investment, I’d probably pick SAP.)

But are they trendsetting? I don’t think so. In the past year, SAP has essentially been doing what it has always done, build business software and acquire new technology to supplement its offerings. And, as always, it has been cautious and methodical about what it builds, when, and what technologies it uses. It made a calculated decision when it embraced web-services, and it took its time moving toward an on-demand model.  The reality is that trendsetters are risk-takers, and the reality is that risk-taking isn’t always good for business, especially if you’re a software company.  (Now Google might be doing great today taking risks, but Netscape was doing great a decade ago when it was taking risks.  But not all risks pay off, and SAP knows that.  Trendsetters try to change the market, and some succeed.  However, more often than not, the companies that ultimately succeed are those companies that embrace the market, something SAP understands very well.)
 
If the list was a list of top software companies, or influential software companies, or even wildly successful software companies, then it would definitely deserve a (very) high place.  But the Wired 40 is a special list, a list of trendsetting risk-taking companies destined to lead the way into the future.  Now, there’s absolutely no question that SAP will continue to be around for a long time, but since SAP’s strength is the production of systems for well defined business processes, and not the definition of new process or software solutions, I fail to see how it is trendsetting like Google or SalesForce.com.  

Of course, if they continue on the path they hesitently started on with their recent acquisition of Praxis, then I might have to rethink my take on SAP as an SCM/CRM follower.  After all, as David Bush states over at e-Sourcing Forum, if they continue to acquire and integrate  best of breed on-demand solutions with traditional applications, they will be able to deliver a compelling client solution.  Of course, if they do the usual and simply use the Praxis’ acquisition to keep current SAP customers in the fold (of which Praxis has about 100), then they will be wasting a fine opportunity to earn that prestigious ranking that Wired bestowed upon them.

But that’s just me. Any differing opinions?

Product Information Management

Product Information Management, or PIM, according to Wikipedia, refers to the providing of product information for use in one or more output media and/or distribution channels, potentially involving multiple geographic locations. It involves ensuring that all of the data in your different systems, and those of the parties you interact with, is synchronous and synonymous. Even though it sounds like an easy problem to solve, just reference a master copy, it is still one of the biggest supply chain challenges. Global Logistics & Supply Chain Strategies on SupplyChainBrain.com magazine recently ran an article entitled The Long Journey Toward One Version Of The Truth describing how the inefficiencies in product information management are significant contributors to supply chain inefficiency and that data synchronization, internally and externally, can significantly help companies achieve one version of the truth.

PIM sounds simple enough:

  1. link to third party and legacy applications and import data into a centralized model,
  2. transform data by identifying and resolving duplicates and errors and enrich the data with external info, and
  3. synchronize the data by capturing all updates into the central master and pushing updates to the linked applications,

but when you consider that many organizations have dozen of systems with dozens of data formats and protocols for interfaces, its quite a challenge – especially when your suppliers, customers, and partners use different systems with different data formats and protocols.

I think the future of PIM lies in the exchange – where a third party maintains the master product information on behalf of a supplier and all of the users subscribe to this party to obtain the correct data. However, this does not resolve the integration issue, but I think this issue will eventually go away as on-demand SaaS (Software-as-a-Service) goes mainstream and the True SaaS providers integrate to the exchanges on your behalf.

After all, as reiterated in the article, the benefits are clear and well documented and include increased sales due to faster time to market, improved on-shelf product availability, improved productivity in the maintenance and publication of product masters, fewer errors to reconcile, lower transportation costs as a result of lower error rates, and more tax credits due to the ease in which they can be identified.

Feel free to share your thoughts.

How do you define American?

I found the recent article What is an American car, anyway? on CNNMoney.com quite thought provoking as it noted that the Chrysler PT Cruiser is built in Mexico by a company based in Germany, despite the fact that Chrysler is seen as part of the traditional American big three. Moreover, when a Toyota is just as likely to be made locally as a Ford, just what does “American car” mean. And to make matters even more confusing, it looks like an alliance between Renault, Nissan, and GM (the tenth, seventh, and largest car manufacturers) is in the works.

For that matter, just what is an American product? Think about all the products you use in the run of a day. You get up in the morning and use your coffee maker, an appliance likely to be made by General Electric – in China. You go to work and use a computer, which is likely made of components sourced from China, Taiwan, and Japan, even if it is an IBM or a Dell. I could go on, but you get the point.

I’m also guessing that a significant amount of the food an American eats in a day isn’t even American grown, due to the large amount of imports from Canada, Mexico, South America, and other parts of the world.

Now, I don’t have the answer. But I’m curious as to what my readers and fellow-bloggers think, even my fellow Canadian ones, who can instead answer “what is a Canadian product”?

The Elite (Supply Chain Technology) Consolidator’s Menu

Last week, in No Prix Fix Here: A Consolidator’s Menu Part 1 and Part II , Jason Busch of Spend Matters, despite his general skepticism of technology acquisitions, outlined a number of opportunities in the spend management sector that might just be “too good to pass up”. As always, most of these were prime specimens. However, I think a few good morsels were left off the consolidator’s menu and think some of the offerings require a better description if the goal truly is to wet the palette.

Jason started of with the amuse bouche and recommended the last remaining stand-alone spend visibility powerhouse, Zycus , a vendor with strong classification, analysis, and services capability (not to mention a good story to tell for SAP customers) . A fine choice indeed, but let’s not forget TrueSource, even though it appears they may have been ordered already.

For an appetizer, Jason offered a contract management company and a quartet of on-demand offerings. Let’s start with contract management. Although a sophisticated palette might prefer Nextance, a riskier palette might want to try Upside, a new taste sensation from the North. With respect to the on-demand offerings, I think a more refined description is required before a choice can be made. For a light appetite, Hedgehog and Iasta are the true choices, having been designed as on-demand from the ground up. However, when comparing Hedgehog and Iasta, it’s like comparing chips and salsa to oysters rockefeller and caviar.  Whereas chips and salsa will leave you hungry for the main course, the oysters rockefeller would be a full meal on its own for many!  Hedgehog has a lightweight auction offering while Iasta has a full end-to-end strategic sourcing offering that covers the full executeable strategic sourcing cycle (at least in my book).  Vertical Net and Global eProcure are much heavier fare, with their on-demand offerings coming later in the game.  Furthermore, with their large customer bases, and significantly higher (venture) capital investments, Vertical Net and Global eProcure may only be tempting to those with heartier appetites.  However, there are still some significant differences between these two players.  Even though Global eProcure has a number of services offices all over the globe (including China and India), they focussed on breadth to Vertical Net’s depth.  Furthermore, the spend and performance management offerings of VerticalNet might be more soothing to those who tend to get heartburn even thinking about global low cost country sourcing.  And for those with a hefty appetite, I’d make it a quintet and add Procuri to the mix as one of the few pure-play on-demand solutions on the market.  Finally, for those with an appetite for supply risk management, let’s add Apexon to the menu in addition to Vendor Mate and JV Kelly.

Now on to the main courses for our potential consolidators.

For Salesforce.com, Jason offered up Procuri and Ketera. Both fine choices, but I have to wonder, given the depth of their competitive offering, why Iasta was left off this menu?

For SAP and Oracle, Jason offers Rearden Commerce , an exquisite choice for such discerning diners. However, I’d want to insure that meal consisted of one of the on-demand appetizers and was followed by a specialty consulting desert such as Aptium Global to help them weave affordable solutions for the small and mid-size markets.

For Ariba , although Jason is most likely too modest to ever add his own company, Azul Partners, to the desert menu (or at least a service company with a similar marketing and messaging focus), it would certainly be the creme-de-la-creme for Ariba, a company that should be dining with a fatter wallet. After all, when research has demonstrated that Ariba users are “out-performing their peers in multiple areas“, with the exception of the true on-demand diners (such as Iasta and Procuri) which help buyers get more spend under management more quickly then traditional solutions (see The On-Demand Supply Management Benchmark Report: Enterprises Turn to the Web and Find Quicker and Better ROI to Help Achieve Supply Management Goals ), there should definitely be less diners in our elite specialty restaurant, especially in the traditional installed arena.

Finally, for Procuri, I would recommend it gobble up every small on-demand friendly services provider it can afford, for their customer bases, before SalesForce.com decides its dinner time!