Daily Archives: March 14, 2007

Veni, Vidi, Wiki

In case you missed it, the eSourcing Wiki launched today. Sponsored and launched by Iasta, the goal of the site is to publish information of best practices on topics within supply management. The wiki is devoted to building a knowledge/resource center for both Iasta clients and global purchasing professionals.

In the words of the spend evangelist Jason Busch, Wikis like eSourcingWiki allow readers to actually contribute to a collective body of knowledge and research. Imagine, for example, if a whitepaper on sourcing decision support was not written by a single vendor or analyst firm, but a collective body of the best minds in the market. And think about how that whitepaper could become a living document that was continuously evolving based on reader input and criticism. That’s a Wiki. And that’s the framework that David has created which allows others to come in and modify and contribute content as they see fit (with a few restrictions, at least in some areas of the site).

Although only three mini-wikis are live now, the site is set to explode over the next few months. Not only have Wikis been drafted for each major stage of the strategic e-sourcing process (as the reader will see on the main Wiki Series page), but wiki drafts on a significant number of related topics are already under development. (Look for a wiki on Cost Reduction and Avoidance, inspired by the original weekend series (I, II, and III) last summer, next month.) Iasta’s goal is to pump them out as fast as the editor-in-chief can get to them (and once their User Conference is over in May, I’m sure a few more will hit the wire in rapid succession).

Finally, you can read the full launch announcements over on Spend Matters and eSourcing Forum.

Pros To Know (in the Supply and Demand Chain)

Supply & Demand Chain Executive recently published their annual Pros to Know for 2007, honoring supply chain leaders driving strategic transformation in the industry. In addition to Jason Busch, founder of Azul Partners and blogger extraordinaire of SpendMatters, whom I voted for in A Public Nomination, I’m happy to report that the two other bloggers I nominated were also named Pros to Know: Dave Stephens, founder of Coupa and author of Procurement Central, and David Bush, co-founder of Iasta and editor of eSourcing Forum. In addition, two other prominent bloggers in the sourcing and procurement space also made the cut: Tim Minahan, marketing guru of Procuri, and Charles Dominick, founder of Next Level Purchasing and author of the Purchasing Certification Blog.

Furthermore, Supply & Demand Chain Executive also selected three other bloggers to their hall of fame: John F. Martin, author of the Building SaaS blog for his tireless promotion of On-Demand; Annrai O’Toole, CEO of Cape Clear Software and author of the Clear Thinking blog for his efforts to cut through the clutter of the SOA (Service Oriented Architecture) space; and John Radko, strategist for B2B connectivity provider GXS and author of the On Demand B2B blog for his commitment to spreading the word about the power of connectivity On-Demand brings to B2B.

According to the article, “New media” are playing an important role in raising both the expertise of supply chain professionals and awareness of the increasingly strategic nature of Supply Chain in the enterprise. In the “blogosphere,” a network of Web logs, or “blogs,” authored by a growing number of industry veterans is playing its part by offering analysis of current events and trends, as well as a healthy dose of best practices. The blogs are sometimes serious, sometimes tongue-in-cheek, occasionally self-serving — the bloggers often are executives at solution providers, and other blogs are sponsored by solution providers — but almost always insightful and frequently entertaining. Supply & Demand Chain Executive recognizes the 2007 “Blogger” Pros to Know for their contribution to spreading the supply chain gospel.

It looks like Supply & Demand Chain Executive is finally catching on to the fact that it’s not the traditional media, but the new media that is driving the space. Maybe that’s why the publication has improved significantly over the past few months.

Sometimes it’s okay to get Rapt up in revenue

These days it seems like everyone is focussed on cost savings. This is not a bad thing, considering the vast majority of companies are not best-in-class, which means the vast majority of companies, on average, are probably spending too much on their purchases. But despite some vendor claims that revenue is, and will remain, flat, or that there’s nothing you can do about it since the market sets the price and constitutes the demand, this is not true.

We all understand that the fundamental goal of business is to make money, or profit, and we all learned the same calculation in our first business class: Profit = Revenue – Cost. This tells us that, as a business, there are two levers we can manipulate to increase profitability, Cost and Revenue. Now it’s true that we as sourcing and procurement professionals have a lot more control over cost then we do on revenue, but that does not mean our focus on cost should be myopic. We should also understand the revenue side of the equation and work with marketing on the pricing side of the equation, because neither the market price, the highest price marketing predicts they can get, nor the price at which demand (or consumption) is maximized is the optimal price.

If your goal is to maximize profit, the optimal price is the one where the profit equation is maximized, and this means this price is determined as much by cost as by revenue, and we all know that the cost for a product is not fixed – it depends upon the supplier we use (which determines a host of physical attributes such as quality, appeal, etc.) and, more importantly, the quantity we order. Generally speaking, the cost per unit will decline if we order more units, but this is usually only true to a certain point. Each supplier has a base capacity they can produce on their production lines during their regular hours of operation. To exceed this capacity they will have to add shifts, add lines, or both – which will increase the cost per unit. Or if your product requires a raw material in short supply, costs will increase as you try to divert supply away from your competitor, and there will be a point where you just will not be able to secure more material.

Is marketing, or if you’re big enough, product pricing, going to understand all of the factors that contribute to product cost – and, if so, are they going to understand the factors and inter-relationships as well as we do? Probably not. And that’s why sometimes we need to get Rapt up in revenue – to make sure that not only does the organization choose a price-point that theoretically achieves their profit, margin, or market-share goal (which, without our assistance will probably be based on cost-data that is only an approximation, and not necessarily a good one), but that the price-point is realistic and that the forecasted demand can be met in the intended time-window.

Furthermore, as the users of some of the most advanced analytic and business intelligence tools in the organization (spend analysis, cost modeling, and decision optimization, for example), we are much more likely to understand that our historical data alone is not necessarily sufficient or accurate enough to predict future demands, that different product features and price-points will have a considerable impact on actual sales, that costs can vary significantly by feature and demand level, and that the only way to analyze all of these variables and make the best pricing decision is to use a good decision support tool based on sophisticated analytics and optimization to model the different scenarios at different price points and obtain a true picture of feature – price point – demand level correlation.

And that’s why tomorrow I will introduce you to Rapt, a decision analytics and price optimization solution provider whose gaol is to help companies maximize their revenue opportunities.