Monthly Archives: September 2010

Want a Successful Supply Chain Enterprise? Architect It!

As per Wikipedia, an enterprise architecture is a rigorous description of the structure of an enterprise that describes the terminology, the composition of the subsystems, their relationships with the external environment, and the guiding principles for the design and evolution of an enterprise. The goal of an enterprise architecture exercise is an operational description of the organization that is comprehensive and includes enterprise goals, business functions, business processes, roles, organizational structures, business information, software applications, and computer systems that are in alignment.

Done right, an enterprise architecture provides the logical framework that establishes the links between business strategy and organizational structures, processes, databases, and technologies and improves organizational performance by decreasing organizational cost, reducing complexity, reducing risk, and increasing organizational agility — keys to success in today’s tough economic climate.

Furthermore, the integrated view of business and IT architectures not only allows for improved performance, but limits operational risk by allowing for the controlled coexistence of old and new processes. It’s a great recipe for success as it allows for the controlled evolution of the supply chain function from good to great.

As proof that it works, consider this recent article in Startegy + Business on Strategy by Design which discussed how even a large (UK) government agency, which had been largely paper-based with fragmented workflow processes and outdated IT systems, was able to reduce the average time to process claims by more than 70% while slashing the number of processing centers by 60% by adopting the discipline of the EA process.

So how does one master Enterprise Architecture and build a successful supply chain enterprise? According to the article, the organization focusses on the dimensions of:

  • Strategic Alignment

    that focusses on achieving real business results

  • Leadership & Staff Development

    where top management communicates the intended value throughout the organization

  • Performance Measurement

    that accurately captures the impact of the EA initiative on a regular basis is critical to strengthen the message

  • Organizational Structure and Formal Processes

    that provide a strong foundation

It’s a good message, and a good plan.

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Empower? Or Incitement?

It’s that time of year when Emptoris holds their annual conference, invites all the bloggers (but me) to their peace pipe pow-wow, and somehow stirs them into a blogging frenzy which results in the temporary flooding of the bitstream with post after post about Emptoris. It wouldn’t be so bad if we got good information out of it. However, possibly due to the “selective reporting” favored by members of the previous management team, this hasn’t been the case historically.

And while it does look like the new team is working harder at being open and communicating (except where financials are concerned, but it’s certainly better to share nothing at all then inflate the numbers by 20M), despite the flurry of activity over the last few days (which likely isn’t the end), we haven’t received much in the way of useful information yet, and, more importantly, it looks like most of the bloggers (except Bob) have missed the only point that matters. But first, a recap of the stories to date:

Spend Matters

  • “Emptoris Empower Kicks Off — What’s on My Mind to Focus on?”What to ask? What to ask?
  • “Emptoris Empower Dispatch: Emptoris is Thriving — But What’s Behind the Numbers?”They claimed 91% “booking sales” growth in the first half of this year, and that a lot of new business is from “channel partners”.
  • “Friday Rant: Emptoris Echos — Cloudy With a Chance of Software”Emptoris takes to the clouds with echOS — is a cloud-based delivery system built to streamline the deployment and management of Emptoris solutions.

Procurement Leaders

  • “Emptoris Empower: procurement’s moments of engagement”Geoffrey Moore’s keynote got everyone excited.
  • “Emptoris Empower: beating the benefits drop-off”Patrick Echkhert’s presentation (on behalf of Cardinal Health) made a great point, implementations have to revolve around a sustainable savings/benefits plan.
  • “Emptoris Empower: the case for mastering risk”Accenture’s Randall Moore explained how becoming a risk master leads to real returns and that technology and talent investments can pay for themselves 8-fold when you reach a level of mastery.

Gartner (Debbie Wilson)

  • Dispatch From Emptoris Empower 2010$2 million investment in its data center infrastructure. Some procurement friends expressed frustration with gaps in functionality that aren’t being addresses quickly enough.

Supply Chain Matters

  • “Emptoris 2010 Customer Event- An Anticipated Report of Glowing Progress”The management team has been clearly focused on getting closer to customer needs, while making implementation of its technology easier for customer to navigate and manage.
  • “Emptoris Empower 2010 Customer Event- Summary Impressions”Over 100 customers went live with Emptoris applications this year. Emptoris signed a global agreement with SAP regarding the use of SAP Business Objects technology for business intelligence reporting and analysis needs across the Emptoris suite of applications. A new and transformed management team.

That last point is key, if you happened to catch one of Wednesday’s press releases, you’ll see that Emptoris added three new senior executives. Add this to the number of new executives the new CEO has brought in since his arrival, and you’ll see that the current management team is almost entirely new. At this point, he’s only a few executives away from an entirely new management team (and I will be thrilled the day it’s entirely new). This will be the key to their success (or failure) in the future.

In my view, Emptoris’ biggest problem historically has been their management team, which appeared to be hand-picked by the former CEO to mirror his corporate philosophy (and never challenge his way of doing things) — which obviously wasn’t the right one for Emptoris (because, if it was, why did they never truly make profitability and need yet another funding round last year just to stay afloat, almost 9 years after formation?). I hope the new team maintains the “get close to the customer and figure out what they need” strategy. In this economy, I think that’s your only chance of success.

Sunk Costs ARE NOT Underwater Treasure

You’d think it would be painfully obvious that dollars sunk into historical IT investments have nothing in common with chests of Spanish Doubloons on lost underwater wrecks, but given the tendency for most organizations to hang onto their archaic IT systems, one has to wonder. Really, really wonder. Especially when many organizations are still drowning in red ink.

It’s not how much you spent on a system, it’s how much value it’s generating now. Maybe it was worth 1M a year and 2M in integration costs five years ago when it enabled you to streamline operations and shave 5M in the first 2 years, but if you’re still spending a million and not saving a single cent, then it doesn’t matter that you spent 7M — what matters is that you are spending 1M a year with nothing to show for it! Enterprise software prices have dropped considerably over the past decade while functionality has increased exponentially. Today, that Million will get you an end to end e-Sourcing AND e-Procurement suite with some professional spend analysis and category services thrown in (and then some) — a solution that could easily save you millions.

When evaluating your technology solutions, past expenditures should never enter the picture. Only current expenditures should be considered, and only in the ROI calculation. That’s all that matters — the expected return on the current solution vs. the expected return on a new solution. If a new solution has an expected ROI that is greater than the current solution (factoring conversion costs into account and amortizing them over the expected utilization period, which should never be more than a few years), you switch. It’s that simple.

And until you realize this, you’re never going to get the true analytics solutions you need to really cut costs. Remember, as I’ve been saying for years, Business Intelligence (BI) is not analytics. As echoed in this recent article on Analytics by Ritu Jain over in the Supply Chain Digest, a lot of users, industry analysts, and consultants have not fully grasped the difference between business intelligence (BI) and analytics. They continue to consider simplistic query and reporting and OLAP drill-down capabilities to be analytics, thus limiting themselves to traditional BI systems that provide simple alert, monitoring, and dashboard capabilities — and then use the erroneous sunk-cost argument to justify sticking with current systems that just don’t do the job.

And without these modern systems, the company will realize the cost savings potential of true analytical capabilities such as forecasting, data mining, predictive modeling and optimization [that] provide businesses with an understanding of why something is happening, when it can occur again, [and ] what will be the future impact of decisions, so that outcomes can be optimized. So bury your sunk costs in the history ledgers. That’s where they belong.

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You Don’t Put Up With This Crap When You’re Making a Major Purchase …

Let’s say you’re out to buy a new car, you know what you want, so you walk into the biggest dealership in the area, walk up to a salesman, point out the vehicle, and say:

“I want that one!”.

At this point the salesperson says:

“Fine Choice: Top of the line. Powerful engine. No Fade Paint Job. Exceptional Performance. I can let you have this beauty for only 40,000”.

At this point you’re a bit taken aback, because you thought the MSRP was 30,000 and you also thought there was a manufacturer’s rebate for 5,000 as part of the year end clear-out. So you go down the street to the next biggest dealership, walk up to a salesman, point out the same vehicle, and say:

“I want that one!”.

The new salesperson says:

“Excellent Choice. Solid vehicle. V6 engine. High quality paint job. Great performance. I can sell it for 35,000 and throw in service for three years.”

So you say to yourself that sounds about right, maybe the first person was confused about what car, model, and features I wanted and you decide to go back to the first dealership because you know they are bigger, move more inventory, and are more likely to be able to offer the best price. You walk up to the salesperson and say

“I just visited the dealership down the street and they said I could have that car for only 35,000.”

At this point, the first salesperson says:

“Oh, that car! Sorry, I misunderstood. I can let you have that car for only 20,000.”

At this point you say to yourself what the heck is going on here? You know that the automotive market is very competitive now. No one quotes a price above MSRP and no one drops the price, even on a luxury car, more than 20% anymore as the fierce competition for limited market share combined with the price transparency of the internet age has taken the vast majority of margin out of car sales. So if the sales person is dropping the price 50%, you know you’re buying a piece of junk that will be back in the shop every other month running up repair bills that will quickly exceed the purchase price of the car. So you get out of there as fast as you can and cut a deal with the second dealership for 27,000 after a fair round of negotiations.

In other words:

You Don’t Put Up With This Crap When You’re Making a Major Purchase …

So Why Do You Put Up With It When You’re Buying Your Enterprise Software?

It seems that not a week goes by where I don’t hear a vendor complaining about how a (certain) other vendor dropped their price by 50% or more at the last minute to steal the deal. You’re probably saying “what’s the problem with that, the customer negotiated a great deal, right”? Wrong! In many of these cases, the (certain) vendor in question literally bends the customer over the table, sticks a vacuum cleaner in their backside, and sucks out every dollar the customer has in one-time “implementation fees”, “support fees”, and “upgrade fees” as the initial quote didn’t include the “enterprise” version, didn’t include “training”, didn’t include (24/7) support, and didn’t include implementation costs, etc. (while the other vendor’s quote included all this at a price that, in the long run, would have been multiples less than the “best price”).

In other words, the next time a vendor suddenly drops their price by a ridiculous amount, tell them to take a hike — before they cut the bottoms out of all of your pockets with the knife they used to “slash” their price.

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