Monthly Archives: October 2008

Operational Performance is More Than Just Operations

One thing you’ve probably noticed as a long-time reader of this blog was a lack of coverage of Aberdeen Research for the past year or so. To be honest, I haven’t been that thrilled with the work coming out of Aberdeen since the Harte-Hanks acquisition, which culminated a year long departure of some of the best talent in the Analyst world, including practice leaders Tim Minahan (who is now CMO of Ariba), Sudy Bharadwaj (who is now CMO of Informance), and Vance Checketts (who is now COO of Mozy) and Beth Enslow (who is now SVP of Supply Chain Risk Management at Marsh), one of the visionaries behind proper Supply Chain Finance. (Of course, to be fair, I should point out that the departures likely had more to do with the former CEO than the looming acquisition by Harte-Hanks.)

I had pretty much planned to continue ignoring Aberdeen, until I stumbled upon a rather lengthy article in Intelligent Enterprise that claimed to define what sets best-in-class companies apart from an operational performance perspective (and that set me off). Basically, as far as I’m concerned, although they still draw useful conclusions about the forest, they are still lost in the trees.

According to the article, which starts off by noting that best-in-class companies succeed by finding the right key performance metrics and tying day-to-day decisions to larger corporate goals, best-in-class performance can be defined based on the following four metrics:

  • Customer Satisfaction
    percent year-over-year change in customer satisfaction
  • Customer Issue Resolution Capability
    percent year-over-year change in the speed with which customer issues are resolved
  • Conversion of Inquiries to Sales Leads
    percent year-over-year change in the rate at which inquiries are converted to leads
  • Sales Forecast-to-Plan Performance
    percent year-over-year change in the accuracy of sales forecast-to-plan measurement

What?!? Although customer satisfaction is key to customer retention, since only monopolies tend to be able to get away with lousy customer service, and although sales are the life-blood of the company, as they are often the only thing Wall Street cares about, there’s a lot more to performance than just today’s customer satisfaction and sales metrics! For starters, there’s innovation and drive.

But I understand why Aberdeen is ignoring these critical factors, among others. How do you measure innovation … whose impact goes far beyond simply sales of an end product and marketshare into mind-share, brand, and influence on overall corporate culture. And how do you capture drive, which is more than just the hours you clock but how much of yourself you put into succeeding in each and every one of those hours on … and off … the job. Certainly not as easy as you can come up with a check-the-box metric on customer satisfaction (which I personnally don’t believe is as simple to measure as “are you satisfied“, but it looks like I’m alone in that view) or a forecast-to-plan metric, which is easily calculated as dollars forecasted vs. dollars sold (which is actually pretty useless given the dark, damp places most companies blindly pull forecasts from).

But how can you say you’re performing if you’re not constantly trying to innovate? Unless you have a (partial) monopoly, in today’s marketplace, you’re dead in a year or two if you’re not continually improving your product or service offerings (or both). And if your employees don’t care about their jobs, how much effort are they going to put into quality and making a product that truly satisfies the customer and, moreover, what’s to stop your best employees from exiting en-masse the next time your competitor goes on a big recruitment drive and offers them all a 10% raise? I’m sorry, but customer satisfaction and sales conversions alone don’t define best-in-class … not even close!

Is Private Equity the Manufacturing Cure for the Credit Crisis?

I found a recent Industry Week article that discussed how private equity [is] helping mid-size manufacturers thrive in [an] increasingly competitive global marketplace quite interesting. The article, which noted that help from the right private equity firms can allow mid-sized manufacturers to bring more efficient and productive systems into the organization that are designed to facilitate operational improvements such as reducing waste and improving throughput, also noted that a recent Ernst & Young study found that companies sold by private equity firms increased in enterprise value at an annual compounded rate of 24% during the time they were in a PE firm’s portfolio — double the rate of comparably publicly traded companies. In addition, buyout firms also increased the earnings before interest, taxes, depreciation and amortization (EBITDA) of these portfolio companies 33% faster than their publicly traded counterparts did. Finally, these companies had productivity levels 33% higher than publicly traded company benchmarks.

The article then put forward five benefits of private equity investment that mid-market manufacturing businesses can expect from the right private equity firm.

  • Sparked Business Growth
    A good private equity firm brings efficient systems into a company, narrows the focus, identifies new markets and integrates value-added processes. This gives a company a solid foundation for growth.
  • Strategic Planning Partnership
    A good private equity firm will have a network of resources, including a board of directors with experience in the manufacturing industry, that they will use to assist management teams in setting and achieving strategic objectives.
  • Long-term Growth Plan
    Private equity, not subject to the whims of Wall Street, can allow for steadier, longer-term growth. It gives the company the flexibility to make decisions that will pay-off in the long run as the company doesn’t always have to worry about quarterly earnings statements.
  • Global Competitiveness
    A good private equity firm has the resources to help a manufacturer enter new markets and serve global customers.
  • Liquidity
    Private equity provides liquidity that allows owners to cash out or diversity assets.

So is it the answer to the credit-crisis? For some firms, I think the answer is yes, especially if they have solid people, solid products, and a history of satisfying solid customers and really need a cash infusion to stay competitive. With good foundations, the right PE firm will be able to take their operation from shaky to stable and take their performance from good to great.

The Sourcing Maniacs 2008 Vendor Tour Part VI: Coupa

When we left the Sourcing Maniacs, they had just finished learning about Co-exprise and Sourcing Lifecycle Management. We join them wandering the streets somewhere in Pittsburgh, PA.

Yakko Enterprise Cost Management and Predictive Analytics.
Wakko True Spend Analysis.
Dot Sourcing Lifecycle Managment.
Yakko The Sourcing World is sure a whole lot bigger than we ever thought it was!
Wakko Maybe it was good we got canned.
Dot We’d never have learned all of this if we were still locked in the corporate boardroom.
Wakko So where next?
Yakko Good question! Do we stay with the C’s or move onto the D’s?
Dot I’m curious what that little upstart by the name of Coupa is up to.
Yakko So am I. When they first appeared, I remember we laughed about the idea of an on-demand SaaS e-Procurement application … but after everything we’ve learned so far on this journey, I’m thinking that maybe we wrong and they were right … that maybe new technology is the future of e-Procurement, not legacy behind-the-firewall ERP add-on technology.
Dot After all, new best-of-breed sourcing technology appears to be revolutionizing sourcing, so maybe procurement can be revolutionized as well!
Wakko So where are they?
Yakko I think they’re back in California!
Dot I don’t want to go back to California just yet.
Wakko So what do we do?
Yakko They’re SaaS … and I hear they’re covered regularly by new media – so that should mean that everything we need to know is online. Let’s use the web! I think that’s a cyber-cafe up the street.
  The maniacs enter the cyber-cafe.
Dot So where do we start?
Yakko, of course!
  The maniacs go to and start surfing.
Yakko Wow … what a diverse customer base. Government organizations, science institutes, universities, mid-size companies, even a hockey team.
Dot Multiple major releases a year … I remember that sometimes we couldn’t even get one major release out in an 18-month period!
Wakko And look at that Pricing! It’s even more insane than I am! How can they possibly start at only $295/month and make money? We’d be losing money hand over fist at $2995/month if we were still at our old job!
Yakko Must be something to do with SaaS. Let’s read more about that.
Yakko surfs.
Here’s a great article by the doctor on the e-Sourcing Wiki. According to the article, SaaS allows for great economies of scale, a single multi-tenant instance, and a total cost of ownership that is much, much lower than the traditional on-premise model that we used to promote. Plus, as per this article I found on Sourcing Innovation, they deploy on the Amazon cloud that allows them to keep their infrastructure overhead ridiculously low and only pay for the computing resources they use.
Dot Is on-Premise really that much more expensive? I thought we had a great TCO in the old days.
Yakko I just found this great on-premise vs SaaS TCO calculator on the Coupa site that allows you to factor in license, support, upgrade costs, database costs, application server costs, implementation costs, and annual internal support costs for an equivalent procurement system and it’s surprising. If you managed to score a great deal and get an installed e-Procurement license for only 50K, with an annual industry average support fee of about 20K, and get it installed for 25K, and your tream trained for 25K, your first year cost would be $158,000 and your five year cost would be over $350,000! On the other hand, an enterprise level coupa license for a mid-size business with 1000 users, that costs about 17K with equivalent training costs, if my math is right, would only cost $42,000 the first year, and have a five year cost of only $110,000 … which is less than 1/3 of the five year cost for an on-premise application.
Wakko Wow! That’s less than my annual baloney bill!
Dot And what I spent on Gucci when we had a full time job!
Yakko I guess SaaS really stands for Sumptuary Allowances Actuate Savings!
Dot You’ve been reading the dictionary again, haven’t you?
Yakko It’s almost as interesting as the Universe.
Wakko But I thought you already knew all of the words in the English language!
Yakko I did … but they keep adding more! Did you know that almost 20,000 words are added per year?
Dot Plus all the ones you invent!
Yakko Yassuredly.
  At this point the sourcing maniacs really get off topic and start arguing how many parts of the brain it takes to source, so we’ll skip ahead until they get back to their Coupa discussion.
Dot So what we we doing before Wakko demonstrated how to eat sphaghetti with chopsticks?
Yakko Investigating Coupa I believe.
Wakko And their wacko pricing that’s less than my annual baloney bill!
Yakko And SaaS … which appears to totally rock …
Wakko … almost as much as I rock America!
Dot So, I guess the big question is … at that price, does it do what it needs to do?
Yakko Well, according to the doctor, who wrote an introductory e-Procurement Wiki Article, e-Procurement has up to 9 steps, with the first seven being key: requisition, authorization, purchase order, receipt of goods, invoice, reconciliation, and payment.

Now, according to the Coupa site, it supports requisitioning, multi-level rules-based and workflow-based authorizations, purchase order management, goods receipts and inventory management, invoicing, and integration with existing platforms which allow you to do reconciliation and e-payment.

Dot Shouldn’t it do reconciliation and e-payment?
Yakko Considering that the data you need for reconcilation is probably in your ERP or CM system anyway, built in reconcilation probably isn’t that important, and considering that not only do many companies use AP systems to pay, but that most e-Procurement platforms don’t include a built-in e-Payment mechanism, and simply interface with external e-payment systems, it looks like it’s pretty competitive.
Wakko Okay … there’s got to be something missing at that price! We would have charged $500K a year for this back in the day!
Dot Heck, we would have tried for a million! Gucci and Prada ain’t cheap, you know.
Yakko I guess we’ll just have to try it out!
  Silence ensues for about 15 minutes while they try it … all of it … out.
Yakko That was …
Wakko, Yakko, & Dot Awesome!

Editor’s Note: For more information about Coupa, see this list of indexed posts.

Also, since I’m a little tired of typing, we’re going to break for a week or so … and pick up where we left off early next month.

The Sourcing Maniacs 2008 Vendor Tour Part V: Co-exprise

When we left the Sourcing Maniacs, they had just finished learning about BIQ and the true meaning of spend analysis. We join them wandering the streets of Southborough, MA.

Yakko, Wakko, & Dot We’re the sourcing-maniacs
We’re zany to the max
We lost our pay-to-play contracts
Without a job we can’t relax
We’re sourcing-maniacs!
Wakko & Yakko Come join the ‘Riba Brothers
Dot And the ‘Riba Sister, Dot
Wakko, Yakko, & Dot Just for fun we ran around the corp’rate parking lot
They locked us in the boardroom whenever we got caught
But let us loose from the caboose
And now you know the plot!
Wakko So where are we going next, Yakko?
Yakko I don’t know, but I think we should move onto the C’s.
Dot Any cool C companies nearby?
Yakko None that I know of. I think they’re all in Pennsylvania, Illinois, or California.
Dot Well, we’re from California.
Wakko And I always thought Illinois was a railroad!
Yakko So Pennsylvania it is!
Wakko Pennsylvania is a railroad, too!
Dot So who’s in Pennsylvania?
Yakko If I recall correctly, CombineNet and Co-exprise.
Wakko CombineNet? I don’t think we’re smart enough to work for them. I still have problems with double-digit multiplication, I couldn’t do com-bin-a-tore-e-ul op-ti-my-za-shun!
Dot I guess it’s Co-exprise. What do they do?
Yakko Something called SLM.
Wakko Sea Level Measurement? In Pennsylvania? Cool! Do they have any yellow submarines?
Yakko I think it stands for Sourcing Lifecycle Management.
Wakko Oh. Well, maybe they have some baloney sandwiches. I’m hungry!
Dot You just ate two servings of Boston Baked Beans, drank enough tea for a party, and finished it off with an entire Boston Cream Pie!
Wakko I know … but I’m always hungry for baloney sandwiches.
Dot So which way to Pennsylvania?
Yakko Yakko licks his finger, sticks it in the air, and pauses.
This way!
Dot Let’s go!
  As per their nature, they start to sing.
Yakko, Wakko, & Dot We’re off to see Co-exprise
We’re gonna get our exercise
As it’s 600 miles away
But we’ll learn about SLM
And if it has a hidden gem
And how it can help you save
  The song goes on for a few hundred more versus which somehow manage to include references to roman aqueducts, visitors from Beetlegeuse Seven, South-going Zax, and something called PffT, which I always thought was the sound my cat made when she was cross. Including it herein would be almost as bad as subjecting you to Vogon poetry, so we’ll skip ahead to when the Sourcing Maniacs land in Wexford, PA.
Yakko, Wakko, & Dot We’re the sourcing-maniacs
Wakko Brooktree Road! I think we’re almost there!
Dot I see lots of office buildings!
Yakko This must be the place!
Dot Do you think they’ll talk to us?
Yakko Why wouldn’t they?
Dot They’ve been in stealth mode, hardly talking to anyone in the media besides the doctor and …
Wakko And?
Dot It looks like this place is access-controlled.
Yakko Well, rumor has it that a number of big companies that have DoD contracts are considering using Co-exprise’s solution. Companies that do military projects have to insure their suppliers have a basic level of data security in place, at least SAS 70!
Wakko Do you think anyone from the military could be in there now?
Yakko Relax, Wakko. I’m sure the military has forgotton all about that little incident where you mistakenly procured a real Tomahawk missile instead of the model rocket you were coveting.
Wakko But I almost blew up the valley!
Yakko But you can’t aim. It harmlessly exploded in the ocean. No harm done.
Wakko But the General said …
Yakko Look, someone’s coming out. Maybe we can talk to them out here. Would that be okay with you?
Wakko Ok …
Yakko Hi, I’m Yakko. Do you work for Co-exprise?
Man-in-Black Yes, I do. Yakko … Yakko … why do I know that name?
Dot I’m Dot.
Man-in-Black Dot. Hmmm. Wait a minute, you’re the Sourcing Maniacs!
Yakko & Dot That’s us!
Man-in-Black I heard you were let go from Ariba a while back. Sorry to hear.
Yakko & Dot Well, can you at least tell us about SLM and what you do?
Man-in-Black Man-in-Black pauses and thinks for a bit.
Well, we have been slowly spreading the SLM message, which we believe is the first major revolution to hit the direct sourcing space since one of our founders co-invented the reverse auction at GE, and we do want to get the Co-exprise message out when the time is right, so I’ll make you a deal. You promise to keep things under your hats for a couple of months, and I’ll tell you about the future of direct sourcing. Deal?
Yakko & Dot Deal.
Man-in-Black Wakko?
Wakko Wakko, who has somehow developed a fear of all men dressed in black, looks out from behind Yakko.
Yes, sir?
Man-in-Black Is it a deal?
Wakko Yes, sir!
Man-in-Black OK, follow me.
Dot Where are we going?
Man-in-Black The coffee shop on the corner. The most discreet place is a public place.
Man-in-Black So, do you know what Sourcing Lifecycle Management is all about?
Dot Managing the e-RFX and e-Auction process?
Man-in-Black Well, that’s what many people think, but it’s much more than that.

Many providers, particularly those that only service the indirect sourcing space, believe that sourcing starts with an e-RFX or auction for a commodity, results in a contract, and ends with order delivery. But things aren’t so simple in the direct space.

In the direct space, the lifecycle starts way back at new product design as you are sourcing not a pre-defined commodity part, but a custom-made part. You have to insure that the design is appropriate with respect to the capabilities of your potential supply base; you have to insure that the raw materials are available, in the requisite quantities, at the appropriate times, in the manufacturing regions; and you have to make sure that the projected cost does not exceed the maximum cost that would make the end product viable for sale in your target market. You also need to collaborate with your supply base in the design, as needed, to optimize the design for production.

Once you have the design, you need to go through a negotiation and collaboration intensive sourcing process to select one, maybe two, suppliers who will manufacture the part for you. This involves the sharing of confidential information, which needs to be done in a secure manner, as well as collaboration on forecasts and target delivery dates.

Once you have an award, you have to manage the procurement, which usually has to coincide with the procurement of other custom parts, which have to hit a single location at the same time for integration into the final end-product, which then has to be packaged and shipped to the end customer. This involves coordination between manufacturers, 3PLs, assemblers, and end retailers. Plus, you still have to insure prices are contract prices, charges are valid charges, and that the i’s are dotted and the t’s crossed, as you would in indirect procurement.

As you can see, whereas indirect sourcing can often be accomplished with just e-RFX, e-Auction, and Contract Management — with Spend Analysis and Decision Optimization for higher-value projects — direct sourcing requires extensive integrated project management capabilities, product lifecycle management, collaboration capabilities, Bill-of-Material management, and the ability to easily integrate with third party platforms.

Yakko, Wakko, & Dot We … we … never knew.
Dot We always thought it was just e-RFX, e-Auction, and good data management.
Yakko & Dot So how do you do all that?
Man-in-Black With a great code-base, of course! Although I have to be really careful with what I say now, especially until our next release hits beta later this year and hits full release late this year or early next year, I can tell you a few things that are already more-or-less public knowledge.

First of all, our platform is entirely new, built from the ground up to handle the direct sourcing process, which our senior management and developers are intimately familiar with. This allows us to do things that retrofitted indirect sourcing platforms can’t do.

Second, we have our own universal data model that underlies our application and it can integrate with data in over 1500 different formats.

Third, we have PLM built in at the core, and this allows us to enable direct sourcing professionals to track a project from beginning to end and always access the most recent data, regardless of which module they are in.

Fourth, we have fine-grained security that allows us to assign access permissions down at the data element level that indicates who can see the data, where (by IP), when, and how they can access it (read-only, view-only, etc.).

Fifth, we’ve integrated a compliance tracking module that allows companies to track regulatory requirements such as REACH, ITAR, etc. from product inception to product end-of-life, and insure that such requirements are met at every stage of the sourcing process.

Sixth, we’ve re-invented “spend analysis” for direct sourcing. Although I can’t say anything yet … we’re still finalizing the initial product offering and working on getting our first beta projects under way, I can say that our founders and developers have been involved with spend analysis since the days of FreeMarkets, and know why traditional “spend analysis”, developed in the indirect world, just doesn’t cut it in the direct world.

Dot Can we see it?
Man-in-Black Definitely not.
Yakko & Dot Can you tell us more about it?
Man-in-Black Not yet. But you’ll be able to read all about it soon enough.
Dot When?
Man-in-Black When the story hits the blogs. We’ll show the right people at the right time. Right now we’re totally focussed on getting the next release of the product out and pleasing our current customers, who include some of the bigger names in manufacturing, and getting beta projects underway at some of the biggest names in manufacturing.
Yakko & Dot Until then?
Man-in-Black You go on your merry way. Have a nice day.
The man in black gets up and walks away, leaving the Sourcing Maniacs speechless, again, as their view of the Sourcing World broadens with each vendor they talk to.

The Sourcing Maniacs 2008 Vendor Tour Part IV: BIQ

Yakko I really don’t know why we’re here. Spend Analysis is so yesterday, all the analysts say so. I think the doctor needs to give himself a check-up for recommending it to us.
Wakko Really?
Yakko Anyone can build a Spend Analysis system, all you have to do is follow the old Frictionless Commerce strategy from 2002, and grab technologies off the shelf. You take an OLAP database…
Wakko Like Microsoft SQL Server or Hyperion?
Yakko Right. Then you slap on a front-end OLAP viewer…
Wakko Like Databeacon or Business Objects?
Yakko Yes, exactly. Then you find someone to family and map your A/P transactions…
Wakko Like Grihasoft or Spend Radar?
Dot Yup. Then, ta da!
Wakko Ta da?
Yakko Ta da!
Dot That’s all there is to it!
Yakko Right!
sound of crickets chirping
Wakko I don’t get it.
Dot What’s not to get? You’re done!
Wakko Why?
Yakko Why not? You can drill around your spend! You can even run some canned reports!
Dot Yippee! Drill, drill, drill! Report, report, report!
Wakko I still don’t get it.
Yakko OK, I’ll explain it slowly. You’ve never had this view of your spending before. You were never sure whether all of your IBM spend was really being counted, because there were lots of different entries for IBM in the Vendor Master. Plus, you weren’t really sure what commodities you were actually buying, because the GL code didn’t tell you, and the vendor alone wasn’t good enough. Now you can see, pretty accurately, exactly what you spent with whomever on equipment, on consulting, on maintenance, and so on. And, you can see who spent it, by cost center. And when. And how it was booked to the GL.
Wakko So what?
Yakko What do you mean, so what?
Wakko So what do I do with the Spend Analysis system once I can see all that?
Yakko You take action! You source some categories! You fix process mistakes!
Wakko No, no, what do I do with the Spend Analysis system next?
Yakko With the Spend Analysis system?
Wakko Yes.
Yakko Next?
Wakko Yes, next.
Yakko Well, you… um…
Dot You refresh your data every month, and…
Yakko and… well, you can see how your initiatives are progressing…
Dot and… um…
Yakko er… well…
sound of crickets chirping
Dot Maybe we better ask BIQ after all!
Yakko We’re here … I think.
Dot Are you sure? All I see is a house on a hill. Where’s the big corporate headquarters? The parking lot? The sign on the door?
Yakko the doctor did say that BIQ was, in Ariba terms, a micro-operation organized as a virtual organization.
Yakko knocks on the door
Eric Strovink  Uh-oh! Here comes trouble. What do you guys want?
Dot Define Spend Analysis!
Yakko In twenty-five words or less!
Wakko And then get us some baloney sandwiches! I’m hungry!
Eric OK, let’s start with the basics. Where’s the data?
Yakko In the accounting systems! In payables!
Eric Well, that’s one place. But what about PxQ data on invoices, by vendor, by commodity? How about cell phone usage? Facilities? Fleet vehicles? Equipment repair records? Contract labor detail? HR salary and benefits data? T&E? How about the revenue side? Sales, leases, loans, mortgage data? Insurance claims? Web clicks? Medical records?
Dot That’s a lot of data.
Eric Yes, it is. That’s why BIQ customers typically build dozens of datasets, not just one “A/P dataset.”
Yakko Wait, they build them themselves?
Eric Of course. If you had to pay a third-party services organization to build 75 datasets, could you afford it?
Dot 75??
Eric That’s at just one company.
Yakko But I thought it was hard to build datasets and map data.
Eric There are plenty of reasons to pay someone to build and map datasets, but you should always have the option to build and map them yourself, and it should be easy.
Dot Do people build datasets frequently?
Eric Yes, and they change them all the time, too. Serious data analysis requires flexibility. You need to be able to build datasets quickly — in minutes — and you need to be able to modify them in real time. You need to change their structure on the fly, map them on the fly, and whip them into whatever shape you need for the analysis that you have in mind. And then you need to do the same thing for the next analysis.
Yakko But how can you make those kinds of changes if the dataset is shared by hundreds of users?
Eric You can’t. That’s why sharing a dataset across hundreds of users that’s supposedly going to be used for ad hoc analysis just doesn’t work.
Yakko So much for my off-the-shelf technology idea.
Dot But where’s the server?
Eric There doesn’t need to be one. BIQ runs perfectly well on your laptop, supporting very large datasets — on an airplane, on a desert island, wherever. Or you can connect to a server. Or both.
Dot What about reports?
Eric BIQ populates your own Excel models with OLAP data, then books them by dimension. It’s a much more powerful paradigm than static reporting. And furthermore…
Wakko interrupting
Wait a minute, I think I get it!
Eric Get what?
Wakko I get what you do with the Spend Analysis system next, after you build an A/P dataset! You build more datasets, lots of them. And you modify the ones you have. You keep learning from your data by looking at more and more of it, in new and different ways.
everyone stares at Wakko for a moment
Yakko I can’t believe it! He actually uttered a coherent thought.
Dot I’m stunned.
Wakko I’m hungry.
Eric And I’m going back to work.
Eric Strovink disappears back into BIQ headquarters.