Monthly Archives: January 2010

Trade Extensions Demonstrates Optimization is Not Just for the Private Sector

As I just finished my recent series on The Role of Optimization in Strategic Sourcing, I wanted to run a few recent case studies to demonstrate the power and benefits of optimization to make it clear just what you’re missing by not using this wonderful piece of sourcing technology. Since I talk with some of the people at Trade Extensions regularly, I decided to ask them since it seemed like the quickest (and easiest) way to get what I wanted.

Now, I must say that I was a little surprised by what I received, and you might be as well. Now, many of you probably know that Trade Extensions powers BidSmart by Schneider Logistics, that it is used by A.T. Kearney in many of their high-profile consulting engagements and that, like their peers, they have several of the largest Fortune 500 companies in the world as clients. What you may not know is that they also have a significant number of public sector clients in Scandinavia, including the cities of Stockholm and Gothenburg, Greater Stockholm Public Transport and The Swedish National Traffic Agency. The case studies I received detail just a few of their successes within this sector.

Even though optimization isn’t restricted in terms of applicability, when you consider that:

  • most public sector operations, at least in North America, are woefully behind the private sector
  • most public sector operations, at least in North America, require the “lowest bidder” to win the award, no matter how unattractive their bid might be or how poor their past performance was
  • most public sector operations, at least in North America, have so much red tape and politics at play that getting the cross-functional team on-board necessary for success is a pipe dream

the last thing I was expecting was a set of public sector case studies.

So what did optimization do for the very forward-thinking Swedish public sector?

  1. It reduced the cost of cleaning services by over 6%.
    This amounted to a savings of over 200,000 Euros of up-front saving plus considerable on-going administrative savings as the ability to accept a package bid reduced the number of contracts that had to be administered from 42 to 1!
  2. It reduced the cost of bus services by over 1,000,000 Euros.
    While the average cost reduction was only 2.4%, in the public sector where union wages rise every year (with the cost of petrol [gas])), that’s pretty good — especially when the routes for a bus service are fixed!
  3. It reduced the cost of road resurfacing (while reducing the risk of possible collusion between suppliers) by over 1,000,000 Euros!
    Again, while the average cost reduction was only 2.7%, since union wages and the cost of materials rise every year, this is also quite good! Also, the design of the event (a large number of contracts were split into 2 separate contracts, one for the production and delivery of asphalt to a specific site, and one for the laying of the asphalt) had the desired effect in terms of allowing smaller suppliers to participate in the event.
  4. It reduced the cost of domestic travel (w.r.t. flights) by over 55%!
    Before the Trade Extensions event, which allowed bidders to submit bids on single contracts or a combination of contracts, the average contract cost for the Swedish National Public Transport Agency for the long distance public transport system was about 13,500,000 Euros a year. After the combinatorial event which considered 27 bids from 8 bidders, the cost was reduced to about 6,000,000 Euros a year! Incredible!

If you want more information, feel free to contact Chetan Raniga, Business Development Manager (Americas) at your convenience. He’ll be happy to discuss these, and other, sourcing categories (and case studies) with you.

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New and Upcoming Events from the #1 Supply Chain Resource Site

The Sourcing Innovation Resource Site, always immediately accessible from the link under the “Free Resources” section of the sidebar, continues to add new content on a weekly, and often daily, basis — and it will continue to do so.

The following is a short selection of upcoming webinars and events that you might want to check out in the coming weeks:

Date & Time Webcast
2010-Jan-19
14:00 GMT-05:00/CDT/EST		 Get the Most from your Plant Assets
Sponsor: Infor
2010-Jan-19
11:00 GMT-07:00/MST/PDT		 Cost Modeling: Going Beneath the Price Tag (Censeo Consulting Group)
Sponsor: Sourcing Interests Group
2010-Jan-20
14:00 GMT-08:00/AKDT/PST		 Spend Analysis: A shot in the arm for (better) sourcing
Sponsor: Zycus
2010-Jan-21
11:00 GMT-05:00/CDT/EST		 Supply Management Excellence – Using Supply Base Manager
Sponsor: RockySoft
2010-Jan-21
14:00 GMT-05:00/CDT/EST		 Learning to Use Value Stream Maps Webinar
Sponsor: AME
2010-Jan-21
14:00 GMT-05:00/CDT/EST		 The Power of 10 in 2010: A Webinar Series
Sponsor: IQ Navigator
2010-Jan-21
14:00 GMT-05:00/CDT/EST		 Securing Federal Information Systems: Privileged Identity Management
Sponsor: Lieberman Software
2010-Jan-21
14:00 GMT-05:00/CDT/EST		 European CPOs: Capitalizing on the Best Opportunities
Sponsor: Ariba
2010-Jan-21
14:00 GMT-05:00/CDT/EST		 Best Practice Strategies for Contingent Workforce Management in 2010
Sponsor: IQNavigator

Dates Conference Sponsor
2010-Feb-8 to
2010-Feb-10		 The 4th Annual Front End of Innovation Europe
Amsterdam, Netherlands, Europe (North-America)		 PDMA
2010-Feb-11 to
2010-Feb-14		 International Outsourcing Forum 2010
London, England, UK (Europe)		 Arena
2010-Feb-15 to
2010-Feb-17		 The 2010 Outsourcing World Summit
Lake Buena Vista, Florida, USA (North-America)		 IAOP
2010-Feb-17 to
2010-Feb-17		 2010 National Electricity Forum
Washington, D.C., USA (North-America)		 U.S. Department of Energy
2010-Feb-21 to
2010-Feb-23		 Supply Chain Forecasting & Planning Conference
Phoenix, Arizona, USA (North-America)		 IBF
2010-Feb-21 to
2010-Feb-24		 Logistics Conference 2010
Orlando, Florida, USA (North-America)		 RILA

They are all readily searchable from the comprehensive Site-Search page. So don’t forget to review the resource site on a weekly basis. You just might find what you didn’t even know you were looking for!

And continue to keep a sharp eye out for new additions!

If You Still Don’t Think We Need a Leonardo da Vinci …

… then take a look at this recent Harvard Business Review blog post on “the decade in business ideas”. I found it thoroughly depressing. Let’s take a close look at the most influential management ideas of the millennium (so far):

  • Shareholder Value
    Yes, businesses exist to generate a return for their shareholders and yes they should, but there’s more to value than profit and there’s more to business than just creating profit. As the article points out, the pursuit of shareholder value eclipsed all and pushed the consideration of stock price effects deep into operational decision making, which is precisely where it does not belong. As Jack Welch proclaimed, “Shareholder value is a result, not a strategy.”
  • IT as a Utility
    IT may be, and in many cases probably should be, a service, but it’s not a utility in the traditional sense by any means. You just can’t equate ERP and Data Analysis with electricity and water. One powers your equipment, one powers your decisions. One refreshes your employees, the other refreshes your business. Saying IT is a utility is buying into the BS that BI can be used to automate business decisions. It can’t. Period.
  • The Customer Chorus
    Just because new, social network, technology has made it easier for customers to provide feedback in droves, this doesn’t mean that you should listen to each and every one. Just because every customer and his dog can describe their problems doesn’t mean that they know what the right solution is. Fact of the matter is, they usually don’t. And if you try to make everyone happy, you’ll end up pleasing no one. You have to pick a market, which is likely becoming more niche by the day, and go after it.
  • The Creative Organization
    Creativity is good, to a point, but only to a point. It’s one thing to encourage creativity when trying to innovate a new product, but another to encourage creativity across the board in marketing, sales, operations, etc. You see, not every new idea will work. In fact, many will fail. And while failures are good (as long as you learn from them), too many at once will take down your business. You have to make changes one by one, keep the ones that work, and replace the ones that don’t.
  • Behavioural Economics
    Economics studies the production, distribution, and consumption of goods and services and behavioural economics focusses on the selfishness of the economic agents that produce, distribute, and consume the goods. Now while it’s important to understand your audience, you can’t assume that your entire market is selfish … just like you can’t assume that your entire market is rational.
  • High Potentials
    Yes, high potential leaders are important, but so are leaders who have reached their potential and, more importantly so are good, talented employees. One man does not make a successful multinational.
  • Competing on Analytics
    What’s wrong with this? Especially since I proclaim the importance of good analytics on a daily basis? Well, the majority of firms are not competing on analytics. They’re competing on automatically generated reports from automatically “cleansed” and “enhanced” data from automatically generated “cubes” that are automatically generated from multiple “data feeds” that are never, ever, ever reviewed by a human. As a result, each stage introduces, propagates, and magnifies the error until a thoroughly inaccurate and useless report is produced. Firms should be competing on intelligence, backed up by analytics hand-driven by intelligent, educated, users.
  • Enterprise Risk Management
    Okay, this one isn’t too bad. Risks are multiplying, and you have to be prepared for them, but instead of trying to identify and manage risks after making a operational decision, wouldn’t it be a novel idea to identify the risks associated with each option before making the decision (and then choosing the one with the least, or most manageable, risk)? Or is that just too crazy?
  • Open Source
    Okay, this one isn’t bad either, but unless you’re planning to be a service company, you’re not going to even make enough profit to stay in business, yet alone achieve the “shareholder value” that everyone is so relentlessly pursuing.
  • Going Private
    This is one of the three, straight-up, good ones in the mix. It lets you get away from the relentless, and meaningless, Wall Street focus on quarterly earnings (which has killed long-term planning and the research labs that made North America great after WWII and made the US economy the most significant global economy by far for decades) and get back to business. However, it’s not really a “management idea” (as it’s a business structure).
  • Reverse Innovation
    This is the second of the three, straight-up, good ones in the mix. No reason innovation can’t come from foreign markets. However, this isn’t much of a “management idea” either (as it’s a form of innovation).
  • Sustainability
    This is the last of the three, straight-up, good ones in the mix. And while it’s not really a “management idea” either, it’s an important “management goal” because, let’s face it, you can’t make profits tomorrow if there is no tomorrow.

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You Can Compare Apples to Oranges!

And they’re not that different after all!

All you have to do is gently desiccate them in a convection oven at low temperatures over the course of several days, mix the dried samples with potassium bromide, grind them in a small ball-bearing mill for two minutes, press 100 mg of each of the resulting powders into circular pellets having a diameter of 1 cm and a thickness of approximately 1mm, and record their spectra at a resolution of 1cm-1 using a Nicolet 740 FTIR spectrometer.

And when you’re all done, as per the above graph, you’ll find out that apples and oranges are very similar!

So, for those of you who are still claiming your solution can’t be compared to your competition because they’re “apples and oranges”, for e.g., I guess your bubble has been burst.

Source: Apples and Oranges — A Comparison, “Annals of Improbable Research”, May/June 1995.

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This is Scary! We Have To Fix This!

Last month, MSNBC published an article on “Why American Consumers Can’t Add” that’s frightening. Look at these statistics:

  • Only 2 in 5 Americans can pick out two items on a menu, add them, and calculate a tip.
  • Only 1 in 5 Americans can reliably calculate mortgage interest.
  • Only 13% of Americans were deemed “proficient”. That means
    less than 1 in 7 American adults are “proficient” at math.

Furthermore

  • 20 M Americans — roughly 1 in 9 of Americans aged 18-65 — pay someone to fill out their 1040EZ: a one-page tax form with around 10 blanks to fill out
  • The U.S. Ranks 25th of 30 industrialized nations in math scores, down near Serbia and Uruguay!
  • 50% of American 17 year olds couldn’t do enough math to work in an auto plant

And if this isn’t bad enough,

  • In 18 US states, not even one elementary math class is required for teacher certification
  • Some U.S. teaching colleges allow admittance as long as students have math skills equal to their future students — that is, as long as they could pass a grad 5 math class. (Are they smarter than a 5th grader? You have to wonder!)
  • In some states, you can pass the teacher certification exam without answering even a single math question correctly!

Not only did our collective lack of math skills contribute to the current fiasco — after all, if you’re paying $100 to a tax preparer for 3 minutes of work, taking out 250% APR payday loans, and agreeing to 1,000% overdraft protect loans from your bank, how could you possibly see through the consequences of an (unpredictable) adjustable-rate mortgage or make a sound bet on their future earnings potential or fight with financial planners over fees that are swallowing one-third of your retirement savings.

We can forget about a recovery and any hope of regaining former glory if we don’t fix this — and do it fast. Math is becoming more and more necessary in just about every profession, and supply chain in particular. How can you do an analysis, break down a cost model, or even know whether or not the offer you’re getting is any good if you can’t do enough math to figure out a total landed cost per unit?

I don’t know what the answer is, but it has to start at the foundation. No more teachers who don’t know at least 1st year University math, and no more curriculums that don’t give math at least the same level of importance as every other subject. We need to get back to the three R’s, Reading, wRiting, and aRithmetic … because Math is now the common language of the world. If you can’t read and write math, at the rate the information revolution is progressing, there might soon come a time where you can’t communicate at all!

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