Monthly Archives: December 2010

Who’s Going to Upset the Market in 2011?

The best predictor of a paradigm shift’s success long-term is how upset it makes people.
     Stephen Wolfram, Interview with Christopher Meyer

I just realized something. A whole year has gone by and there has been nothing upsetting in the space. It’s been (well) over a year since I’ve seen anything that made me say “this is going to change things”. Sure, a lot of platforms have gotten better this year. For example, a number of e-Procurement and Supplier Relationship Management platforms have improved greatly in term of features, usability, or both, but there’s nothing fundamentally new on the market. And while a couple of platforms have embraced mobile computing, the functionality offered is minimal and not much beyond the information that can be sent in e-mail alerts (or approvals).

I shouldn’t be surprised, because many companies cranked back on R&D, or put it on hold, when the recession hit full swing. As a result, many companies haven’t been doing much R&D. However, some companies were smart enough to realize that a recession is an opportunity to be great, and kept going full steam ahead, but when you look at what they did, they just improved upon what they had. I really haven’t seen any new ideas in almost two years. As a result, there’s not much for me to be excited about, or much for the market to get upset about.

Now that the recovery, albeit a jobless one, is in full swing, hopefully things will turn around. But we also have to contend with the reality that some companies released great products and platforms in 2008/2009 that still haven’t reached their potential because many companies just stopped buying. In fact, in a few cases, at the current rate of market adoption, these companies are still about five years ahead. While I know a few of them will keep improving and keep innovating, what incentive do they have to release something entirely new if the market still hasn’t understood and adopted the powerful solutions they still have? One area where this is the case is decision optimization. Many companies still have not even tried this technology, even though it’s one of only two technologies repeatedly found to deliver double-digit percentage returns (with the other being spend analysis). And many companies who have are still not using it at its full potential. This is probably why, of the six true providers of strategic-sourcing decision optimization, only three appear to be moving forward with the technology, and, in my view, only two appear to be making real progress. What’s the incentive to move forward if the market won’t keep up with you?

But if 2011 doesn’t bring some new offerings that upset the market, I fear that the market will start to languish. And considering only half of CPOs have a seat at the table, we can’t afford this. So who’s going to upset the market in 2011?

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Finally An Article That Demonstrates That The Cloud Is Filled With Hail!

StorefrontBacktalk recently ran a great article on how it’s not so soft in the cloud after all. On December 5th, the web site of U.K. grocery giant Tesco ground to a halt after a surge of customers tried to take advantage of a new loyalty-card promotion. This was AFTER Tesco had announced that Akamai would be offloading 90% of the load to make sure nothing would go wrong.

And, of course, once the site went down, the call centre got overloaded too. And what happened when the failure was investigated? Akamai blamed the failure on a part of the Tesco site that was not being supported by Akamai’s cloud services, passing the buck.

And if all transactions eventually have to pass through, or be recorded in your systems, the bottleneck will still be there and all the cloud will do is accelerate your failure.

That’s why I’ve warned you again and again and again that the cloud is not a fluffy magic box.

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The 9 Cs of Site Selection

A couple of weeks ago I penned a post on Finding the Right Site where I discussed a recent article in Strategy + Business on five factors for finding the right site and noted that I thought there were at least six critical factors. It wasn’t long before Dick Locke corrected me and upped the count to seven. However, after reading this recent article in Global Services on Location Selection Best Practices, I am now convinced that there are 9 Cs of site selection.

In addition to the five Cs, outlined in the Strategy + Business article, of:

  • Cost
    What is the total cost of the location, including the costs of land, office equipment, communications, wages, training, taxes, infrastructure, and wages. etc.
  • Capacity
    What is the current availability of talent in the region and the expected availability in years to come? etc.
  • Capability
    What percentage of the talent has the specific engineering skills that the company needs (and/or can be easily trained to acquire those skills) and how easy will it be to find the talent to build and maintain the appropriate operational environments? etc.
  • Communications
    What will be the ability to seamlessly share information between the site and headquarters without cultural, language, or distance obstacles? etc.
  • Culture
    What is the ability of the location to attract talent that will fit in with the company culture? etc.

And the two additional Cs identified by myself and Dick Locke of:

  • Competition
    How many similar companies are setting up in the region? etc.
  • Citizenship
    What is the marketing impact of the location? Are you going to participate in the local economy? etc.

I now believe the following two factors are equally important:

  • Core
    Is the core infrastructure sufficient for your operations? Chances are that you’re going to need a lot of power and water. Can the infrastructure handle it, or is it already at capacity? If the operation can’t go down, are redundant power, water, and/or communications feeds available? You can’t always wait for the infrastructure to catch up.
  • Call
    An extended site visit is absolutely essential before you make a long-term commitment to a new location. A 2-day fly-by to sign the papers and celebrate is not enough to make a selection. The location has to be surveyed, the talent pool has to be evaluated on the ground, and the local living conditions have to be experienced. Someone has to spend at least a few weeks, if not a few months, evaluating the ins and outs, ups and downs, and pros of cons of any location on the short list before a final decision is made. And unless this factor gets its own category, and weighting, it won’t be done and “gotchas” will go undetected.

Selecting the wrong site will cost you tens, if not hundreds, of millions, so take your time and use the 9 Cs to select the right one.

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A Short Term Win IS NOT A Long Term Gain

I was really disappointed by this recent blog over on the Harvard Business Review that said you should play stupid to win smart in negotiations. While it’s true, and great advice if you’re making a one-time purchase of an expensive, over-priced, and always marked-up item, it’s not the best way to build a good long-term relationship with a (potentially) important supplier. How do you think the relationship is going to go if the supplier figures out six months in that you played him for a fool?

Ask yourself before your next negotiation.

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Have Low Cost Brands Priced Themselves Out of the Supply Chain?

A recent article over on World Trade Magazine that describes a new spin on just in time describes the impact of SKU proliferation on supply chains and how many distributors and 3PLs now have to deal with replenishment requests from retailers that are less-than-pallet or less-than-case. As a result of name brand and private-label brand proliferation across many categories of consumer goods, there are now more products competing for the same shelf space and retailers are carrying less stock of each item and issuing more frequent replenishment requests for fast-selling items.

The article also notes that, as a result of the recession and a (dramatic) increase in quality in private label brands, we’re seeing consumers move from premium brands to what might be appropriately called, more mainstream products, and staying there. This means that private label brand sales are steadily increasing at the expense of name brands of similar quality that have gone from being the low-cost option to the more expensive option. At some point, a tipping point will be reached and the name brand product will disappear from the shelf.

Think about it logically. As sales of a certain brand increase, that brand becomes a top-seller and an important contributor to the store’s bottom line in that category. Priority will be placed on the brand to minimize the risks of stock-out and to find ways to decrease the cost to maintain the increasing sales trend. In-stock thresholds will be bumped up and order quantities will increase, decreasing the amount of storage available, and in-stock thresholds for, the low-cost name brands. At some point, the replenishment cost for the low-cost name brand, which will always be less-than-pallet and/or less-than-case will become prohibitive, as it will increase the product’s cost (in contrast to the decreasing cost of the private-label brand which now has sufficient volume to be replenished economically), and the sales will start to drop substantially relative to the private-label brand. At this point, the retailer will just drop the low-cost name brand, knowing it will be able to make up most of the sales in its own private-label brand. It’s been happening for years.

Here in Canada, President’s Choice, the private-label brand of Superstore (owned by Loblaws Inc, which is a top 2 or top 3 grocery retailer in most Canadian provinces), has been bumping low-cost name-brand alternatives off of the shelves for years. For many types of products, your only choice now is private-label or considerably more expensive name brand. And since PC products are often as good as the similarly priced low-cost name brands, or no-name brands, if not better, no one cares. (In some categories, you literally have to pay twice as much for a premium brand to find something better.) In the US, Target is a prime example. They have their own housewares and clothing lines, and they are often better than many of the more expensive name brands. As a result, many stores typically only carry the Target brands or the (considerably) more expensive premium brands.

In other words, it seems that the low-cost brands, that launched big in the 80’s, have now priced themselves out of business as the big-retailers now individually account for enough demand that they can not only cut production and distribution costs, but marketing costs as well. As that can typically shave another 10% off of the product price, it looks like the days for are numbered for many of these brands. I wonder if ABC(c) knew when it introduced its now-classic Why Pay More campaign in the late 80’s (in Canada) that it was the beginning of the end. Less than 20 years later, it would be dumped by Colgate-Palmolive to Phoenix Brands where it continued its slide into brand obscurity.

Any differing opinions?