Monthly Archives: April 2010

Yes, Austin, Dashboards are Dangerous and Dysfunctional!

Given my long-time stance that dashboards are dangerous and dysfunctional, I was absolutely thrilled by this recent article in Intelligent Enterprise on how metrics can lead in the wrong direction which quoted Robert D. Austin, author of Measuring and Managing Performance in Organizations who said:

“Kaplan and Norton’s cockpit analogy would be accurate if it included a multitude of tiny gremlins controlling wing flaps, fuel flow, and so on of a plane being buffeted by winds and generally struggling against nature, but with the gremlins always controlling information flow back to the cockpit instruments, for fear that the pilot might find gremlin replacements. It would not be surprising if airplanes guided this way occasionally flew into mountains when they seemed to be progressing smoothly toward their destinations“.

If the doctor had a hall of heroes, Robert would have to be the first inductee! Not only will your staff be lulled into a false sense of security when all of the gages in the dashboard are in the “safe” zone (and not look for the faulty wiring about to spark a devastating explosion), but, and this is especially true if their compensation is based on those numbers, they’ll start to perform dysfunctionally if such behaviour improves the score. For example, many call centres once thought (and some still do) that number of calls processed was a good metric. The result? The reps, who do their best to get you off the phone as soon as possible, don’t take the time to understand the true nature of your problem and instead focus on a “quick fix” to get you going again (even if such a fix, like “reboot”, doesn’t fix the issue and will only result in the problem re-occurring again and again). As a result, not only did the number of calls processed a day increase, but the total number of calls processed by the organization increased, because people have to call multiple times to get their problem solved. Not good. Not good at all.

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Know Your Software TCO & TVM

I’m a big fan of SaaS (Software-as-a-Service). I’m a big fan of the many benefits it offers, including almost instant deployment, immediate upgrades, and the fact that the provider handles the administration, maintenance, security, upgrades, backups, and other IT headaches that most companies just don’t have the IT resources for. And I’m a big fan of the economies of scale that are inherent in a true multi-tenant instance. But I am not a big fan of the recent marketing by a number of the vendors in the space that have recently gone “on-demand”. Most of these new “On-Demand/SaaS” providers have taken a myopic focus on TCO in their marketing, and are making strong claims that On-Demand/SaaS is always cheaper – which is not true.

Regardless of the software delivery model you select (on-site, hosted/ASP, on-demand/SaaS), there are a lot of factors to consider with respect to the Total Cost of Ownership and which model is cheaper ultimately depends on the specifics of the vendor pricing and your internal costs of support. A true multi-tenant SaaS provider who takes full advantage of the economies of scale across a large customer base and who passes those savings on to you will often be cheaper, but this is not always the case. Some On-Demand/SaaS providers aren’t as cost efficient as they claim, some solutions require a lot of manual (data) maintenance and user support (which results in hefty service fees), and, let’s face it, some providers, who will do a magnificent job of convincing you that on-site costs more than it actually does, will charge as much as they can get and use the bulk of your monthly subscription fees to line their pocket books with large annual bonuses. If you can’t calculate the true TCO of each solution under considering, you’ll never know which solution is more cost effective and when you’re truly getting a good deal.

I’ve addressed this issue in the past for e-Sourcing and e-Procurement systems in my post on uncovering the true cost of on-premise sourcing & procurement software (spreadsheet), but since many of you will soon be buying / upgrading again now that money has finally started to trickle back into your budgets, I thought I’d address it again. Especially since the calculation isn’t that much more involved for just about any type of Supply Management technology you might be considering. Basically, all you do is compute the (expected) x-2, x-1, x, x+2, and x+2 year amortized solution cost for the length of time, x, that you expect to maintain and use the software (based on typical enterprise solution lifespans in your organization) for each product under consideration, compute the average annual amortized cost, compute the expected savings, and select the solution with the highest ROI that best fits your organization.

Depending on the delivery model, the following will contribute to the total solution cost:

  • License Cost
  • Maintenance Costs
  • (Expected) Upgrade Costs (to Major Versions)
  • Base Hardware & Networking Costs
  • Hardware Upgrade Costs
  • (3rd Party) Data Costs
  • Database / Data Warehouse Costs
  • Application Server Costs
  • Reporting / Analysis / Optimization Engine Costs
  • Other Required Software Costs
  • System Design, Implementation & Integration Costs
  • Security Costs
  • Support Costs
  • (Re-)Training Costs

You calculate the total cost for each time-frame on a cost component basis using expected upgrade schedules, pricing trends, and expected utilization curves. Then you divide the expected total cost of ownership by the time frame and you get your annual amortized cost, or TCO by year.

Then you compute the expected savings by computing the expected cost savings in each of the following primary dimensions:

  • spend reductions (you expect to realize

    equal to savings you expect to negotiate minus savings you expect to lose to maverick spend)

  • efficiency / productivity improvements
  • risk mitigations (which prevent losses due to supply disruptions, non-compliance fines, etc.)

Finally, you can compute the (annual amortized) ROI, or the Total Value Management, of each solution as the (annual amortized) expected savings / expect cost. Then you can truly compare each solution under consideration on a cost, and value, basis.

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Solution Providers — Sourcing Innovation Is Here For You!

Your favorite Reed Business Information Publication may be gone, but you have options — much better ones. Unlike tired old-media publications and web sites, Sourcing Innovation is going strong and growing month over month. Sourcing Innovation attracts up to 15,000 unique pairs of eyeballs every month, who make approximately 50,000 unique visits that access about 250,000 pages. That’s equivalent to the entire Encyclopedia Britannica being downloaded over 50 times, every month.

While Sourcing Innovation may not offer every service the publications offered, it offers quite a few, and I’d argue that some are better. Here are just a handful of offerings that you can take advantage of:

VISIBILITY: Blog Sponsorships and Resource Site Sponsorships

Every visitor sees your logo on every page they load. For a low monthly fee, this can generate 250,000 impressions … and studies have shown that impressions are much more valuable than click-throughs, and enormously better than rotating banner ads that are completely ignored by readers.

THOUGHT LEADERSHIP: Illuminations and Inspirations

You can sponsor a Sourcing Innovation Illumination, SI’s flagship publication designed to educate, inform, and illuminate the market on important problems and solutions. Unlike the productions of many analyst firms, it goes beyond arbitrary metrics and dives into the real issues and challenges that a buyer has to understand before he or she will consider buying your solution. Also, at 7-12 pages, it’s deep enough to convey meaning, but not so long that it isn’t an easy read.

And starting in May, Sourcing Innovation will be launching Inspirations, shorter, more focused white papers that will zero in on problems and solutions within each of the primary focus areas covered by SI. At 3-7 pages, they’ll make good quick-hit introductions to important topics and issues for the busy C-suite executive or on-the-fence prospect.

LEAD GENERATION: New White Paper Library

Sourcing Innovation will be launching a white paper library where you can distribute your white papers on a cost-per-download or cost-per-lead basis.

In addition, SI will be maintaining its joint label and private label writing services which can generate a custom white paper for you that you can use in your lead-generation efforts.

EVENT PROMOTION: Event Advertisements on SI

As described in the FAQ, Sourcing Innovation would be pleased to advertise your event with a logo on the side-bar and a landing page of your choice. Advertised events are also included in the weekly “New and Upcoming Events” post on the blog.

Additional information on these, and other, services can be found in the FAQ.

For more information, e-mail thedoctor <at> sourcinginnovation <dot> com or call 773 598 8846 (US) or 020 7193 4883 (UK).

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-Apr-20

11:00 GMT-07:00/MST/PDT

 Multisourcing Strategy: The Value of Right-Sizing, Right-Placing, and Right-Tasking

Sponsor: Principal Financial Group
2010-Apr-20

12:00 GMT-07:00/MST/PDT

 Shifting Gears: Selling Yourself in a New Direction

Sponsor: ASTD
2010-Apr-20

10:00 GMT-07:00/MST/PDT

 Multisourcing Strategy: The Value of Right-Sizing, Right-Placing and Right-Tasking

Sponsor: Softtek
2010-Apr-21

16:00 GMT-04:00/AST/EDT

 Efficient Water Management

Sponsor: Bright Talk
2010-Apr-22

11:00 GMT-06:00/CST/MDT

 Designing and Managing Multiple Value Chains The Case of FG Brazil

Sponsor: Supply Chain Council
2010-Apr-22

14:00 GMT-04:00/AST/EDT

 Assembly Planning & Validation

Sponsor: PMC
2010-Apr-22

14:00 GMT-04:00/AST/EDT

 Looking to transform your supply chain and save money?

Sponsor: Logistics Management

Dates Conference Sponsor
2010-May-25 to

2010-May-27

 EASTEC 2010 Exposition

Springfield, Massachusetts, USA (North-America)

 SME
2010-May-30 to

2010-Jun-2

 The Canadian Transportation Research Forum’s 45th Annual Conference

Toronto, Ontario, USA (North-America)

 Canadian Transportation Research Forum
2010-Jun-2 to

2010-Jun-3

 Consumer Packaged Goods Forecasting & Planning Innovation

Chicago, Illinois, USA (North-America)

 IE Group
2010-Jun-2 to

2010-Jun-4

 AMR Research Supply Chain Executive Conference

Scottsdale, Arizona, USA (North-America)

 AMR
2010-Jun-7 to

2010-Jun-10

 U Connect 2010

San Antonio, Texas, USA (North-America)

 U Connect

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!

Is China Proving that International Trade is a Zero-Sum Game?

Recently, state-controlled Sinopec spent $4.65 billion (US) to become the first Chinese multinational to buy a direct stake in a major producing oil-sands project in Alberta (Canada) and buy out ConocoPhillips‘ 9% stake in Syncrude Canada Ltd (which is the trophy of Canada’s oil sands projects, producing 350K barrels a day). According to the Globe and Mail, the deal represents the next stage in Chinese investment in the oil sands, as Beijing-controlled companies scour the globe for energy resources and look to diversify the country’s growing imports away from the Middle East.

Sinopec is a subsidiary of China Petroleum & Chemical Corp., which started buying into Canadian Energy projects in 2008 with an initial purchase of a 40% interest in the proposed Northern Lights project in northern Alberta. (It is now a 50-50 partner with France’s Total SA.) China Petroleum & Chemical Corp. is also active in Canada, and will acquire a 60% stake in Athabasca Oil Sands Corp.’s Mackay and Dover projects, a 20% stake in Vancounver-based Teck Resources Ltd, and, in turn, a 20% share in Suncor Energy Inc.’s Fort Hills oil sands project. This is in addition to other holdings in Canada, Venezuela, Brazil, Argentina, and the Middle East.

Wondering what it all meant, I asked Dick Locke, SI’s resident expert in international trade. This is what he said:

 

Well, it means that sometimes international trade is a zero-sum game. That’s when multiple countries chase a disappearing resource.

The US is ill-equipped to deal with this one. Our government and opinion-makers are captured by the duology (if you’ll allow this as a word) of oil producers and car manufacturers who are very conservative about energy strategy. Our population patterns have way too many people living on large lots beyond the reach of effective public transport. China is doing a great job in both solar and wind power development. You probably saw that Applied Materials moved their solar cell manufacturing site and technical expertise to China (Technology Review).

While the Chinese government has real problems with human rights, it does think long term and is doing what’s best for its people in this aspect.

In other words, China knows that it needs more energy than it’s currently producing if it’s going to continue to support and modernize its population, and that, just as the world is looking to China as a producer of consumer goods, China needs to look to the world as a producer of energy … and will have to spend much of what it is making to acquire that energy. At some point, the outflows will have to equal the inflows and international trade will China will become a zero-sum game.

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