Monthly Archives: March 2007

(Spend) Analytics vs. (Decision) Optimization

I had a very interesting conversation with Eric Strovink, my co-author of the Spend Analysis and Opportunity Wiki about the power of analytics and how they can reduce the complexity of award optimization when applied after an RFP or Auction to the point where, in his view, optimization might not even be needed at all.

Most of you probably think advanced analytics, like those provided by BIQ, are only for Spend Analysis. In this regard you’re wrong. Dead wrong. But I understand why. Most spend analysis products are built on the idea of one cube built on historical transactional data merged from the ERP, AP, and any other spend database you have in your posession, spend, and augmented with external sources – which is then essentially frozen (even if it is updated daily with data). The good ones come with dozens of built in best-of-breed reports, and allow you to build hundreds more – but on that one cube. Therefore, you can’t use it on your RFP or auction data, because it’s pre-award data – and not the transactional data that’s allowed in the cube.

But what if instead your organization had a spend analysis product that allowed you to build a spend cube any time you wanted – on any data you wanted – on any dimensions you wanted – and then throw it away when you’re done? Then there would be nothing to stop you from building a cube on your RFP or Auction data, building reports by supplier, by cost, or by property (minority supplier, quality, historical on time delivery), building cross tabs and tree maps, and then changing the cube to look at the data a different way.

You wouldn’t need optimization or a plethora of deterministic reports to find out who the lowest cost supplier was, who the highest quality supplier was, who the lowest cost supplier was relative to your quality metric, or any other query that can easily be answered by rank and cross-tab queries.

You’d still need optimization, because it couldn’t tell you the best way to make the 50-30-20 split between three top suppliers subject to your qualitative and on-time delivery requirements when your freight costs vary to each local ship to location, but it would greatly simplify the optimization process. First of all, you could easily see which suppliers do not make the cut in quality or in on-time delivery metrics and eliminate them with a couple of rankings. Then you could quickly analyze total cost rankings based on presumed 100% awards to each suppliers and quickly determine that you could only do the split between three of the top five bids, since the rest of the bids are just too high consider. Furthermore, you could eliminate the need for the quality or on-time delivery constraints since you have eliminated all suppliers that do not meet the requirements. Now you have reduced model size and model complexity, and significantly decreased solve time.

In addition, with all the insight you are able to gain with true analytics on the RFP or Auction data, you are much more likely to get the model right the first time. No more running a model, getting a solution, deciding the solution doesn’t quite work, adding a constraint, and running again. Furthermore, you no longer have a need to run a model with the just the quality constraint, or just the on time delivery constraint, or just the 50-30-20 constraint to determine how each constraint impacts the “best award”. For a sophisticated model where you might have run a few dozen what-if scenarios in the past to understand the interaction of the various costs, factors, and constraints in your quest to build the “right” model, you might now only need a few what-if scenarios to get it right.

And, more importantly, optimization becomes a lot friendlier. You know you have the right data, you know you have the right costs, you know you have the right factors, and you know you have the constraints. In other words, you know you have the right model – which means you know you have the right answer, even if you are a novice! No longer do you need to rely entirely on the math to get it right – the math is only needed in the final step!

That’s Spend Management 2.0! (Sorry Tim.)

Supplier Information Management with Aravo

Aravo is a provider of an on-demand Supplier Information Management solution based in San Francisco with the goal of enabling business to rapidly onramp all of their suppliers and corresponding information. During my last trip to San Francisco, I was fortunate enough to be able to sit down with them and talk about what makes their solution unique.

Aravo focuses on what they call the Supplier Information Lifecycle that starts with the initial engagement, proceeds through supplier selection, and continues through supplier relationship management. Aravo contends that most systems do a poor job of supplier information management and that good, centralized, supplier information management is essential
to process efficiency, error prevention, rapid supplier on-boarding, compliance, and good, actionable decision support. For the most part, I have to agree.

I’m a big believer in Supplier Relationship Management, since I believe this is the foundation for innovation, performance, and risk management. Furthermore, when you get right down to it, you can’t have good SRM if you don’t know your supplier – and that involves knowing who they are, where they are, what they do, who to contact when things go wrong, what their financials are, etc., etc., etc. To do this effectively requires good centralized data management. Furthermore, without good, centralized data management, each individual in your organization who requires such data will have to spend time searching for it when she needs it, and updating it in her own applications when she finds it is out of date, leading to a lot of lost productivity over the course of a year when you add up how much time people spend just searching for and updating supplier information.

This is where Aravo’s solution comes in. They have a suite of tools that supports a slew of data formats and a suite of tools that supports a slew of common ERP, eSourcing, and eProcurement applications. Furthermore, their J2EE-based web-services stack makes it easy for them to integrate many different systems that use many different data formats. This allows them to do true integration of all of your supplier data – and do it across your enterprise. They can suck it in from each and every system you use, and when it is updated, push it back. Furthermore, not only can everyone in your organization use the same supplier information system, but each individual can choose to retrieve just the data that they need when they need it.

Aravo also has a few other advantages compared to other supplier enablement solutions. Recognizing that every supplier has different levels of e-competency and that every buyer has differing levels of supplier information needs, Aravo has invested time in developing multiple supplier views, each with different levels of detail. Furthermore, recognizing that some buyers might prefer to have third parties manage their supplier on-boarding and data maintenance issues, the system also permits definition of third parties with different levels of data management permissions. Finally, they support role-based dashboards that allow each user to keep track of their enablement projects and determine how many suppliers are in the system, how many suppliers have their information up-to-date, and how many more suppliers need to be enabled.

Sourcing Innovation Sponsorships: Your Questions Answered

(1) What are Sourcing Innovation traffic levels?

On average, on a daily basis, unique page views are in the 1700 – 1800 range and specific article views (i.e. a direct click-through to an article from a link) are in the 600 range. They are still increasing month-by-month, and often week-by-week.

(2) At our company, we have different budgets for everything. Can the “sponsorship” be billed separately from the “sponsorship advisory services”?


(3) I only have authority for marketing/PR/advertising. Can I just buy a sponsorship?

You can start off with just a sponsorship and add the advisory services at a later time, as long as you continue to sponsor the blog (since the sponsorship advisory services program is only offered to sponsors).

(4) I’m not in marketing/PR/advertising and do not have a budget for sponsorship, but I am interested in the sponsor advisory services program. Do you have a non-sponsorship advisory program?

Not at this time, but I do make a living as an independent consultant, and you are free to contact me in that regard at any time.

(5) What are the sponsorship benefits vs. the sponsorship advisory program benefits if I choose to start with just basic sponsorship (and pursue the advisory program at a later time, when I have the budget)?

Blog Sponsor Benefits, as advertised previously, are:

  • a linked company logo on the topmost section of the right-hand side of the Sourcing Innovation blog
  • a “sponsor welcome” post describing your organization and offerings, and then one “interview”, (blogger) “commentary”, or sponsor “update” post each quarter (subject matter at blogger’s discretion)
  • unlimited permission to reproduce blog content, with citation, for marketing initiatives during the sponsorship period
  • attendance, and blog coverage, of one sponsor event per year in Canada or the US
  • assistance with two webcasts or podcasts per year
  • one affiliate content link

Sponsor Advisory Program Benefits, as advertised previously, are:

  • virtually unlimited off-site advisory services:

    (availability for four calls of up to ninety minutes each per month to discuss anything related to your technology, business, strategy, or market is guaranteed)

  • generous e-mail advisory services:

    the primary sponsor contact(s) may send as many e-mail inquiries as they like to the Sourcing Innovation Blog Editor throughout the sponsorship period; the Editor will attempt to respond to most requests promptly, subject to the caveat that responses that require time to construct a reasonable answer may be delayed due to availability or deferred to the next telephone conversation

  • one free day of on-site advisory services per six-month period
  • invitation to any private event sponsored or co-sponsored by Sourcing Innovation
  • one original vendor-independent technology, process, or solution white paper at half off (up to 10 pages)

(6) What is the minimum commitment for just a blog sponsorship?

Three months. (But note that certain beneftis require a six month or one year commitment.)

(7) What is the minimum commitment for the sponsor advisory services.

Six months. (And, if purchased separately from the sponsorship, the blog sponsorship must be continued throughout the duration of the advisory services.)

5th International Symposium on Supply Chain Management

The Purchasing Management Association of Canada (PMAC), McMaster University’s e-Business Research Center (MeRC), and Ontario Research Network for Electronic Commerce (ORNEC) have just announced the 5th International Symposium on Supply Chain Management (see leaflet) taking place in Toronto at The Grand Hotel & Suites in October and have just put out their Call for Contributions. As you may recall, I attended the 4th International Symposium on Supply Chain Management last year, and there were a lot of great presentations, which I blogged about in numerous entries, including New Technology Strategies for Supply Chain Management.

Green Still Going Strong

Fuel-efficiency is still the craze. Consider the new design by the Massachusetts Institute of Technology, the University of Cambridge, Boeing, and Rolls Royce for a new mid-range aircraft that travels at 0.8 mach, runs considerably quieter than current generation jets, and uses 25% less fuel, as described in this Economist article. GE has a new efficient incandescent bulb that will eventually deliver the same environmental benefits as compact fluorescent lamps.

Carbon discussions are heating up, including discussions on an American carbon-trading system. (Good thing we now have CarbonTracker to help us measure how much carbon dioxide is in the atmosphere and where it is being released.) Furthermore, we might still be able to use carbon-based fuels, like coal, if we turn the waste product into a liquid or solid and store it underground. Alternatively, if sandstone and saltwater are available, we might be able to inject the gas directly into the ground, according researchers at MIT. IBM is creating carbon dashboards to help corporations understand and lower their supply chain’s carbon emissions and even a supermarket chain (Tesco) is introducing carbon labelling for its products in an attempt to send shockwaves through the supply chain.

Alternative fuels are popping up all over the place. BiOil wants to turn animal fat and waste vegetable oil into domestically produced, cleaner-burning biodiesel. (After all, BioFuels power just opened a 5-megawatt power plant in Oak Ridge North, Texas.) Dyanmotive wants to use plant material to produce bio-oil. Ryan Katofsky and Microgy want to use biomass to produce additional megawatts. (In other words, besides producing milk, Bessie will now be powering your appliances.)

It’s not just about ethanol anymore, even though DuPont is attacking ethanol energy efficiency.

This is good since the amount of money spent on clean energy is expected to quadruple in the next decade, according to Clean Edge. And Europe will be leading the way. (Although an honorable mention must go to Nevada where the Solar One is almost complete.)

Even conventional fuels are becoming cleaner. Ultra-Low Sulphur diesel is now available across America.

And green companies are the new IT when it comes to funding. Think Nordic, which is about to produce a line of all-electric sedans, just received 25M in funding. (GM is also planning an all electric car, but it will not hit the market until 2010, whereas Think Nordic expects to be in full production by 2008.) Imperium Renewables just roped in a 214M Series B found of funding for its biodiesel efforts. CoalTek just nabbed 33M for its clean coal endeavors. LS9 just scored 5M for its search to derive alternates to fossil fuels through plants and microbes.

This is all good news, since precipitation changes are already occurring, and will continue to occur, thanks to global warming. This could make faucets run dry. Furthermore, climate change is likely to result in higher food prices thanks to diversion of basic food stuffs to meet growing energy demands.

It’s a good thing that at least the EU is taking action to reduce greenhouse gas emissions. According to the agreement reached on March 9th, 2007, governments are supposed to lower emissions to 20% below those of 1990, boost the percentage of energy consumption that comes from renewable sources to 20%, and ensure that biofuels make up at least 10% of fuels used for transport by 2020.

Now, if only all mansions could be green.