Monthly Archives: March 2011

The Technology Waves Are Always Washing Up On the Shore

But they don’t always make a lasting impression. So how do you know which ones precede a tsunami?

It’s hard to say, but like a tsunami, the waves are not caused by hot air (wind) but deep movements within the (end) user community (geological effects). If you keep this in mind, it is more likely that you will be able to identify the technology waves that will reshape the business landscape.

And you will be able to make sense of this recent report on “the technology waves that are reshaping the business landscape” by Accenture. In the report, Accenture identifies eight trends driving the future of information technology. Some of significant, others not so much. Let’s take them one-by-one.

  • Application Services as Utilities
    One just has to look at the massive success of Apple’s App Store to realize that the end user mindset has shifted from applications as large monolithic software packages locally installed from CDs and heavily supported by local users to to small, point-based solutions, which can be installed from, and live in, “the cloud” on-demand. Where consumers go, businesses, which employ the same consumers, must follow.
  • “Social Identities”
    Facebook has proven that “social identities” are important to our online society. And with a number of “enterprise” platforms working on integrating social technologies, it’s clear this is a significant shift that will shape application design for years to come.
  • Cloud Computing
    Amazon, Google, and other big providers have proven that a number of businesses, for better or worse, want to move to “the cloud”. This is another shift that is here to stay.
  • Analytics
    We’ve been talking about analytics and BI for years, but there’s never really been a sharp jump in demand to identify BI as the next big thing or to indicate that it will be any more important in the year to come than it was in the year before.
  • Data Security
    Security has been a constant issue for over a decade, and the need for security is no greater this year than last year. And most firms are still of the mindset where they are only going to take this seriously when they get breached.
  • Data Privacy
    Data Privacy, which was big in the 90’s, thanks to Facebook, is now big again. The widespread, public, backlash to Facebook’s initial lack of privacy, and controversial privacy agreements, has re-ignited the privacy debate across the globe and privacy is now under the microscope again.
  • Architecture
    Architecture is obviously going to shift as applications move from monolithic software packages to on-demand utilities, but since consumers don’t really care about architecture, it’s going to take a back seat to the application-on-demand movement.
  • User Experience
    Today’s users demand the Rich Internet Application experience. Thanks to Adobe, Apple, and other companies focussed on the user experience, consumers expect a constantly improving experience. This wave is also growing.

Net result, applications as utility on demand, the cloud, social identity, privacy, and user experience will play a major role in technology in the years to come, but analysis, data security, and architecture, will continue to take a back seat to these more prominent issues.

Procurement and Sales Don’t Have to Trust Each Other …

… but they should focus on TCO or TVM.

Unfortunately, as per a recent Procurement and Sales Survey by Greybeard Advisors, discussed in this recent article over on Supply and Demand Chain Executive on “When Procurement and Sales Collide”, price is still the dominant factor in negotiations. This is problematic. Even though some savings can be found in a price reduction, price can only be reduced so much. A supplier cannot reduce price below cost and stay in business. And price reductions, even if they materialize, are not sustainable in the long run.

As Jim Baehr said, procurement executives need to recognize that as we move into a healthier economy, they need to start doing things differently, and they need to start thinking much more strategically. It’s not just price, it’s quality, it’s sustainability, it’s value-add, it’s inventory, it’s delivery, and a host of other factors that contribute to overall cost and limit organizational profit. So while it’s probably healthy that Procurement and Sales don’t trust each other, since this will keep both sides alert and on their toes, it’s unhealthy that they choose to just focus on price when that energy should go into understanding total cost.

How do you achieve allocation success? Focus on demand.

A recent article in Supply & Demand Chain Executive on “5 secrets to allocation success” hit the nail on the head when they focussed in on a demand driven strategy built on product life-cycles. The key to success in the consumer market is to fill real demand at the source, not fictional demand in cluster-based model. It’s not what you think will sell, but what customers actually want to buy. Honing in on that makes all the difference.

The tips detailed in the article were:

  • Use Demand to Drive Allocations
    Last year’s numbers don’t matter, especially if the current instantiation of the product is different, if the economy has soared or tanked, or the market has moved to a new platform. For example, if you’re selling software that runs on discontinued computers or smart-phones, you’re out of luck.
  • Think Locally
    Many retailers allocate product to store clusters in small geographic areas. While this sounds great in theory, since it’s easier to forecast demand based on regional averages, it’s lousy in practice since there can be micro-pockets of customers with similar desires that can result in significantly different demand levels at each individual store due to local economics and cultural factors.
  • Adopt a Push-to-Pull Strategy
    New products should be pushed based upon attribute-based demand profiles and then pulled based upon revised demand forecasts.
  • Hold Some Inventory Back
    Even though most product should be pushed and pulled using just-in-time deliveries, some inventory should be held in reserve, especially for new products, until the demand levels are understood.
  • Make Allocation Management a Priority
    Otherwise, it will go by the wayside.

Are You Willing To Go Out On A Limb?

A recent Industry Week article on how “Manufacturers are Redfining Themselves” had a great quote by Michael Collins who said you can’t cost-reduce yourself to growth. “I look at some of these companies that have been successful and see what they’re doing differently from those that are just floating along. You know what I see? They’re willing to go out on a limb and develop unique strategies. That’s what separates them. And whether you’re trying to grow a business or a supply chain, the net requirements are the same — if you want your supply chain to be successful, you have to invest in it and take chances every now again. New technologies, new processes, and new distribution models will be key to future growth and success.

And you have to rethink the value that the supply chain contributes (from a value-focussed or high-definition perspective). The sidebar provided in the article lists some good starting points, once appropriately translated to the supply chain.

  • Identify “Blue Ocean Space”
    Where are the real savings opportunities that supply chain has not yet tackled. Are there any sacred cows such as marketing, legal, or HR spend where supply chain could make a huge impact? Is supply chain involved in NPD, or only in sourcing after the design has been approved and expensive single-source components locked-in?
  • Think Beyond Processor Mentality
    Real savings come from strategic planning, sourcing, and network design – not tactical PO processing.
  • Offer a Value Proposition that Goes Beyond Sourcing the Cheapest Part
    What about quality, sustainability, and end-customer value? Customers will pay more for high-quality products that give them a (perceived) value end, and since profit is revenue minus cost, any contributions to revenue also have a huge impact on overall business performance.
  • Ask the Right Questions that Identify Risks and Opportunities
    Don’t just focus on opportunities or risks. The greatest success will come from a careful balancing of risk vs. reward.
  • Offer specialized high-value services that can’t be easily duplicated.
    Find ways to save other departments money that they can’t duplicate without your help. For example, better e-negotiations, deeper spend analysis, or better JIT inventory management with 3PL support.

Demand for Procurement Systems is Up In General

But, as far as I am concerned, the specifics are still in question. Over on Software Advice, Michael Koploy recently published a post on “2011 Market Trends: Procurement Systems” where he noted that the six trends he’s following, namely:

  • Demand
  • Cloud Adoption
  • Application Usability
  • Strategic Sourcing
  • Spend Analytics
  • Contract Management

With respect to the first four, he’s definitely right. After 2-3 years of spending freezes, and displacement of seasoned pros from big shops to mid-tier shops, pent-up demand is nearing an all time high. Also, a lot of shops, especially in the mid-tier, have figured out that they’re not IT, shouldn’t try to be, and want the IT to be someone else’s headache. Today’s generation of workers expects usability, and won’t settle for anything less. And with continuing pressures to cut costs (or lose your job), a number of organizations are finally getting behind strategic sourcing, even if they’re not entirely sure what it should mean to them.

But I’m not sure about the last two. Yes, demand for “BI” and “Analytics” is up across the board, but I’m not still convinced that most organizations have any clue whatsoever as to what real “spend analysis” is.

Spend analysis is:

  • NOT automated cleansing and mapping
    Sorry, but someone else’s rule set will not be anywhere close to 100% applicable to your organization’s data, and a rule set only catches known screw-ups in data entry, not unknown ones. Let’s say you’re in IT. Then HP obviously means Hewlett Packard. But if you’re in construction, it could just as easily mean Harry’s Pumps (or, if you’re in apparel, Hilary’s Pumps).
  • NOT automated Top N reports
    While it’s important to track your Top N suppliers, categories, etc., the greatest opportunities for savings aren’t necessarily going to be in your Top N categories or with your ToP N suppliers. Even without an analytics system, chances are your Procurement people have a pretty good idea who the Top N suppliers are or what the Top N categories are and aggressively negotiating them. In many organizations, the biggest opportunities for savings are in the Next N categories and in better optimization of the Top N categories that goes beyond simply identification. In the first case, let’s say the Top N are 40% of spend and the Next N are 30% of spend. Let’s say the immediate opportunities for savings are 3% in the Top N and 9% in the Next N. That’s 1.2% savings on TCO on the Top N and 2.7% savings on the next N. Which is greater? Also, let’s say a number of categories use a common, pricey, metal or mineral that accounts for 30% of total cost and that, if demand was aggregated across the categories, the average cost could be chopped by over 10%. Well, that’s a 3% savings if you buy the metal or mineral on behalf of your suppliers. A Top N report ain’t gonna show you that!
  • NOT a Freakin’ Dashboard
    A dashboard only tracks progress on identified opportunities. It does not track progress on unidentified opportunities! It only allows you to see that you’re not screwing up something you just fixed, it doesn’t show you that you’re screwing up ten other things.

But when most people make their purchase decisions, this appears to be what they are evaluating based on what they buy and how they implement.

Then there’s Contract Management. To be useful to Procurement, a Contract Management (CM) has to do more than simply store and index contracts for easy retrieval. While it’s important to be able to quickly put your finger on a contract when a dispute arises, that’s not management. That’s e-filing. In the context of Procurement, true management is tracking purchases against the contract in near real-time and insuring that before an invoice is paid, it’s paid at contracted rates. This requires some integration of the CM system with the e-Procurement and/or e-Payment system.

So far, most CM systems are still being bought stand-alone or loosely coupled.

In other words, demand for Procurement Systems is up, but not always for the right reason. And this includes demand for new reverse auction features. I’m getting tired of repeating myself, but I guess I have to say it again.

Listen, bub, a reverse auction IS NOT an advanced sourcing application. If you want real savings, you need a decision optimization system.