Daily Archives: April 3, 2009

Rant On Jason, Rant On (Procurement Solution Providers Are Doom and Gloom Too)

I tried to post this comment on Spend Matters, in response to Jason’s latest rant on Getting Angry about doom-and-gloom procurement practitioners, but his comment mechanism is “broken” due to an apparent mismatch between his CFML and Database (but I’m not a Cold Fusion expert, so I can’t say for sure). So I’m posting it here.

Jason, I hope your next rant is about how this is the time for the vendors and solution providers of the space to stand up and seize their opportunity to shine by helping buyers achieve never-before-achieved levels of productivity and savings that will help them shake the doom and gloom of this recession which, as you point out, provides Procurement and Supply Management with one of the greatest opportunities it’s ever had to shine.

Instead of putting their marketing engines into overdrive and making sure that all of the procurement and supply management departments, who desperately need solutions, are aware of their offerings and the problems their solutions can solve, I’ve seen many (of the smaller) vendors slash marketing budgets to 0 to “conserve cash” and reduce marketing and sales head count.

And instead of escalating New Product Development (NPD) to create leaner, meaner, easier-to-use solutions that can be brought on-line faster (and making use of streamlined out-of-the-box ready-to-start SaaS deployments), they’re putting NPD on hold and eliminating Product Managers, Quality Assurance, and Development Positions.

And most importantly, instead of taking their own advice and bringing in external experts who can help them get lean, mean, and thrive in a recessionary price-compression environment, they’ve cancelled all contracts and put a moratorium on external contractors until the recession is over.

As a result, the obvious has happened. Pipelines have dried up. Revenue has dived (as current customers have less to spend). And, in an effort to “survive”, they’ve slashed head-count by 10% to 50%, further impeding their ability to sell, build better solutions, service existing customers, and, most importantly, take on new customers. But, for some, even this won’t be enough as many of the smaller vendor’s aren’t sitting on years of operating expenditures in the bank. Their investors will likely have them on the block before year’s end. (You have to remember that many of the smaller vendors in this space are VC funded.)

There’s a reason I penned the “Dumb Company“, “Dead Company“, and “Your Marketing Really, Really Sucks” series (links below). I’m seeing the same mistakes being made again and again. Mistakes that were made by technology (based) solution providers in the last two recessions THAT ARE NO LONGER AROUND. Having worked for, and with, a number of start-ups and small companies (and collected piles of worthless stock in the process) earlier in my career, I see the writing on the wall. A number of companies that I thought were the more innovative companies in the space are acting like scared-stiff software providers instead of procurement enablers and blindly marching down the path to oblivion. If we lose them, the Big Co’s lose competition, and instead of thinking that solution X doesn’t need to be improved for 5 years, the Big Co’s will become the ERP providers of our space and we’ll be lucky if they update their solutions every 10 years!

So Rant On! Help me shake these dazed solution providers out of their slumber, because if we don’t, all of the buyers we so desperately want to help are going to suffer.

If you’re a vendor reading this and you think this post doesn’t apply to you, think again. Based on my conversations and observations over the last three quarters, and my personal experiences working for, and with, a number of failed technology providers during the last two recessions, at least 9 out of 10 vendors in this space are making at least one potentially serious error at this point. And while one mistake won’t kill you, in a prolonged recession, it doesn’t take many. So I advise you … take a good hard look at yourself before shrugging this post off and going back to business as usual. I’ve already removed 3 service provider links from my Company List I hadn’t heard of over the past three weeks … and I’m really not looking forward to removing companies I have heard of, talked to, and rooted for.

Summary Link:

Dumb Company

How Dumb is Your Company
Dumb Company
Dumb Company (The Lyrics)
Dumb Moments in Business not Aerospace, Automotive, or Bailout Related
Why Some Companies are Being Dumb

Dead Company

Dead Company
Dead Company II: If You’re Hoarding Cash … (You’re Not Going to Last)
Dead Company III: Fear is the Enemy
Dead Company IV: Avoiding the GraveYard
Dead Company V: More Ways to Avoid the GraveYard
Dead Company VI: New SI Offerings
Dead Company VII: Even More Ways to Avoid the GraveYard

Your Marketing Really, Really Sucks

Marketing is NOT Optional
How to Build a Bat House
The Brain Gives Pinky a Marketing Lesson
Web Marketer, Don’t Be Misled!

Are You Paying Too Much For Your Power? (Energy Sourcing)

A recent article over on Supply Management . com which literally asked if you had money to burn brought up two very good points:

  1. Buying energy in a volatile market demands specific skills.
  2. In this economy, you can’t overlook your energy costs if you’re in a market where you have a choice.
    In the UK and many states in the US, a business with high energy costs can save millions, if not tens of millions, a year with a well negotiated energy contract. (Savings of 20%+ are not uncommon for some of the energy sourcing specialists.)

Considering that energy prices have increased at an annual average rate of 15% per year in the US over the last decade, and continue to increase, the savings opportunity for a company that has never sourced energy in a competitive market is tremendous. But buying energy is not easy.

First of all, as the article points out, if you wield a big stick you can expect to see “lights out” as energy suppliers, who know their product is in demand, know that you don’t have a lot of options and that if you’re unreasonable, everyone else will walk away too and one way or another, they’re going to sell their product, which is in ubiquitous demand, and make a profit.

Secondly, you have to understand the factors that impact the pricing, what can be fixed, what must be left variable, what can be negotiated, and what can’t. If you’re buying energy, there are often raw material (oil, coal, natural gas, etc.), generation, transmission, and distribution costs. Depending on the market, the raw material costs may be variable and tied to indices (especially if the raw material is natural gas or oil). The generation costs are usually fixed per energy unit. The transmission costs, which generally refer to the costs of moving energy from the source of generation to local distribution systems, may be separate from the distribution costs, which generally refer to the costs of delivering energy to your facilities via the local distribution systems, if the provider has to use third party lines. The transmission and distribution costs can usually be fixed (per energy unit) as well.

Thirdly, you have to understand that the biggest savings usually result from longer term contracts, especially when you are able to lock in fixed prices (across the board). A one year contract is not very attractive to most providers, especially if you want fixed costs, but a three year to five year contract can be very attractive and incentivize the provider to offer significant discounts (because they know that even though commodity markets can go haywire in the short term, costs always trend rather predictably when smoothed out over the long term).

Fourthly, you need to be familiar with the standard agreements and clauses that an energy provider will insist on, or negotiations will take a long time at best, if they don’t fall apart. You need to be familiar with the local legal and regulatory requirements, so you know what is negotiable, and should be familiar with the Base Contract for Retail Sale and Purchase of Natural Gas and Electricity that was made available for download by the North American Energy Standards Board in 2006. (NAESB WGQ Contract Standards and Models) As with any RFP, the presentation of a standard contract up-front, with blanks for the costs and terms under negotiation, can greatly speed the process.

Fifthly, you need to use a best-of-breed e-Sourcing tool to manage the process so you can build TCO models and maximize your return from the sourcing effort. If your sourcing tool is not amenable to the quirks of an energy model, consider using a dedicated energy tool provided by the energy experts, such as Energy Window or Power Advocate.

Sourcing energy might seem strange, and it might be complex, but if energy costs are a significant percentage of your budget, can you really afford to leave millions on the table?