Monthly Archives: January 2014

Machine-to-Machine Networking Can Take Predictive Analytics a Long Way

… but the day the machines can figure out that sunlight through a window is causing the machine to malfunction is the day the machines take over and kill us all!*

What brought on this rant? A recent piece over on ThomasNet on Machine-to-Machine Networking that said thanks to predictive analytics, BMW found that the bug wasn’t in the machinery; sunlight coming through a window in one facility was slowly heating up machinery to temperatures beyond optimum range and affecting the components being produced. While this is correct, it is misleading. The reality is that thanks to embedded sensors and M2M networking, the analytic software that powered the predictive analytic engine noticed that the core temperature in part of the machinery producing cylinders on one production line increased during the day while the core temperature of the same machinery on an identical production line (in another plant) stayed constant once the machine heated up. Since it’s generally a bad thing when a machine overheats, the software alerted the production manager that the machine was running too hot late in the day and probably needed to be serviced.

At this point, the production manager would assign an engineer to inspect the machine and run some basic tests, only to find that everything was working fine. However, armed with the data that the machine was overheating, upon finding no probable internal causes, the engineer would examine the surroundings, particularly at the time when the machine typically overheated, and notice that it was in the direct path of sunlight later in the day. Since engineers know that light is a heat source and that metal observes heat, especially when it is in the path of direct sun for hours, the engineer would conclude that at least part of the problem was the direct sunlight, shield the machine, and monitor the performance, and core temperature, for the next few days. At this point, the engineer would notice that the core temperature and production quality stayed constant and would then be able to conclude that the sunlight was the cause of the problem.

All the M2M-enabled predictive analytics package for preventive maintenance is able to determine is that something is not operating at typical performance levels, be it heat, throughput, energy usage, etc. It points you to the source of the problem, not the root cause. You’ll still need a smart engineer to figure out why the machine is overheating, why the energy usage has shot up, why the defect rate is increasing, etc. In a few cases, the software will be able to determine that a sensor is broken, a connection is down, or a part is broken when data cannot be retrieved, checksums are incorrect, or scans come back with known error types. But this is not the typical behaviour. On average, the best you’ll be able to figure out is that a part needs to be replaced, but not what’s wrong with it. In many cases, it will be cheaper to just swap out the part then to try and diagnose and fix it, so you’ll do just that and not worry about what went wrong. It’s a valid approach, as it keeps the machine up, costs down, and saves you money in the long run — but not one that helps you figure out why the part wore out. Was it a defect in the part or a problem with the machinery it’s embedded in? If the former, you don’t care what the defect was — only that the supplier replace it under warranty. If it’s a problem in your machinery (such as voltage spikes causing the part to burn out early), then you’ll (eventually) suffer multiple part failures and want to know the root cause (but you won’t be able to even suspect the machinery until you have the 3rd such failure).

the doctor is all for predictive maintenance and using sensors and machine-to-machine networking to be efficient and cost-effective about it, but wants all providers and promoters of such technology to be very clear about what it can, and can’t do. It can detect variances (and abnormal operational conditions) and correlate them to patterns that suggest potential problems and a need for part replacement, but it can’t say for certain why those problems exist. In the hands of a smart engineer, it will help to diagnose the machine or part that is source of a rare or difficult problem much faster than the engineer could track the source machine or part on her own, but it won’t be able to identify the root cause. That will still require brainpower. The machines can’t replace us yet. Remember that before you get oversold.

* Unless the machines need us to power The Matrix. The scary thing is that the day of dread may not be too far off! The NSA is building Skynet, Amazon is building autonomous drones, GE and Boeing are trying to make everything smart, and 3-D printing is at the point where we can now make primitive replicators. And everyone seems to have forgotten about Asimov’s three laws of robotics, thinking AI is still decades off when you can buy a GPU on a high-end PC graphics card that can do over 4 Trillion instructions per second. (In comparison, peak performance of the Intel 8088 processor was a mere 1 Million Instructions Per Second.) The computational power exists — all that is missing is the algorithm.

Join the doctor at ProcureCon Canada!

ProcureCon Canada will take place from March 17 through March 19, 2014 at the Hyatt Regency in Toronto. Attend and join over 100 leading practitioners in Sourcing and Procurement to share insights, best practices, and case studies to drive your Supply Management in 2014. Sourcing Innovation readers save 25% when registering with code PCA14SI. Click here to learn more.

Through months of research, ProcureCon Canada has identified a Supply Manager’s top priorities for 2014 and has speakers and sessions to address the identified topics, including:

  • Increasing automation and centralization in your processes to enhance productivity, cost savings, and value
  • Creating lifelong value in procurement
  • Minimizing risk in the supply chain
  • Optimizing supplier performance and relationship management
  • Leveraging the latest procurement technologies for better business results

So join ProcureCon Canada and the doctor who will be moderating the panel on Optimizing Spend Analysis and Visibility to Maintain Cost Reductions at 11:55 am on Tuesday, March 18, 2014.

If you’re looking to start a spend analysis effort or improve the returns from your current effort, this is a chance to get some of your questions answered. In addition the e-Book Spend Visibility: An Implementation Guide, co-authored by the doctor and Bernard Gunther (of Lexington Analytics, which was acquired by Opera Solutions), is still free and available at this link. This e-book, which has been downloaded over 10,000 times, provides detailed guidance on how to start your spend analysis and visibility journey.

Looking forward to seeing you at ProcureCon! And remember to register with the “PCA14SI” code.

Prediction Time Again? Ugh. Part II

In yesterday’s post we noted that back in the noughts, many Sourcing and Procurement technologies were naughts when it came to delivering on their promises, and left a bad taste in the mouth of many earlier adopters, including those that can benefit a company the most. To this end, we highlighted the four examples, in no particular order, of e-Auctions, e-Invoicing, Spend Analysis, and Punch-Outs. Then we asked what are the leading Supply Management companies promoting today?

Today’s leading Supply Management companies are promoting:


Sophisticated e-Auction platforms that allow multiple auction formats, weighted-bids, preliminary RFXs, custom lots, sophisticated award rules (all, at least two suppliers, pre-defined split, etc.), weighted bids, and even built-in real-time decision optimization. The platforms today are infinitely better than the platforms ten years ago, but the song still sounds the same to the CXOs who signed off on the first generation e-Auction platforms only to get burned in the noughts.

Unlike the early point-technology providers, the leading platforms are not selling a single technology point solution and promising you that one-size will fit all, they are selling an integrated platform that can accept invoices from just about any channel you get them from, in almost any format — EDI, cXML, Supplier Network, PO-flip, e-mail/fax to OCR, print-to-Cloud and/or custom dual-entry. Whereas a good e-Invoice solution in the past was successful if you managed to get 90% of the 20% of suppliers who constitute 80% of your spend on-board after a three year slog, today’s solutions can easily accommodate 98%+ of your suppliers out-of-the-box and can be rolled out globally in as little as 12 months! However, the Finance executives who tried the early entrants in the e-Invoice market ten years ago and got burned are once bitten, twice shy.

Spend Analysis

In 2005, BusIQ released BIQ, a spend analysis tool that can be used by anyone to build a spend cube on any spend dataset export(s) anyway they wanted and do so in a matter of hours (for a five figure price tag)! Introducing the concept of layered-rules and mapping by exception, it completely transformed the approach to spend analysis which was, until then, based on sophisticated OLAP cube construction (which could take days, or weeks, depending on the number of rules and the size of the spend data set) and often required teams of Indians in the back-room of your provider’s off-shore support centre frantically mapping the unclassifiable exceptions in the hope enough of your data could be mapped in time to pass the sniff test. But with BIQ, a spend master could build a cube in a few hours, create dozens of ad-hoc reports, and follow her hunches until a unique, and valuable, savings opportunity was identified. Since it only took a few hours (or days) of her time, the cost to explore a hunch dropped from tens of thousands to rebuild a cube to a few hundred dollars, and savings opportunities could be identified quickly and easily. It raised the bar, and pushed a number of providers to substantially improve their offerings while simultaneously decreasing the price. Spend Analysis is something every Supply Management department should do and a tool every Sourcing and Procurement professional should have at their disposal, but since the early adopters typically had to fork over six figures for an ROI that proved to be much less than they expected, these initial early adopters are now hesitant to take a chance on a new solution as they believe that spend analysis is still a “fool me once, shame on you but fool me twice, shame on me” buzzword.


Today’s vendors are selling complete, cloud-based, integrated consumer-like shopping portals that integrate punch-out 2.0 instances with buyer-and-supplier catalog management and third-party portals, offering consistent federated search across the punch-outs, catalogs, and portals along with buying-organization price verification, maverick spend detection, and integrated split purchase-order generation. This means that the technology integrates seamlessly, the integration is managed by your SaaS provider, if the price presented by the supplier is not the contract price the buyer is alerted in real time, purchases for off-contract products or products at off-contract prices can be prevented, or at least held until the price is corrected, and each supplier can get their own, customized, purchase order that they can flip back into an invoice (at the push of a button) once the product(s) are shipped. But organizations that got an IT migraine that was beyond their wildest expectations when they tried punch-out 1.0 early in the noughts still fear that there aren’t strong enough painkillers on the market to deal with the cluster head-aches they expect will accompany any new punch-out implementations.

So now you know why SI feels that, for the most part, 2014 will be 2013 part II and 2009 part VI. Until the early adopters get the message loud and clear that today’s technology is truly a decade ahead of its predecessor technology and leaves the problems of its predecessors in the past and until the economy forgets the financial crisis and returns to a growth- and innovation-focussed economy, and not a cost-cutting and market-retention economy, progress will continue to be a slow, up-hill battle and will be limited by the choices of the market leaders.

Prediction Time Again? Ugh. Part I

Why can’t a new year come without all of my fellow bloggers making hopeful, yet unrealistic, predictions about the upcoming year? And why can’t they stop inquiring about mine? Because, the reality is that 2014 is going to be 2013 part II, which was 2012 part II, which was in turn 2011 part II, which was in turn 2010 part II, and which was in turn 2009 part II. Supply Management, like many sectors, has yet to finish recovering since the financial crisis of 2007-2008 and there has been relatively little in the way of game-changing innovation to pull people back to the table, primarily because a lot of the best (and most innovative) solutions on the market that companies should be buying sound like the solutions they bought ten years ago — solutions which never delivered on their promises.

Back in the noughts, many Sourcing and Procurement technologies were naughts when it came to delivering on their promises, and left a bad taste in the mouth of many earlier adopters. Consider the following examples, in no particular order:


Typically, e-Auctions worked great the first time when the consulting or solutions company was allowed to pick the category the solutions’ company knew would work great (based on current market conditions), but then backfired the second time. When the auction was run the first time, the supply (greatly) exceeded demand, and the buyer was able to cut a lot of fat out of the margin. But then, as the global economy was growing, by the time the buyer got back to the category, supply was constrained, the supplier’s raw material costs were rising, and there was no fat left to trim. Lucky buyers saw a cost reduction of 2% or 3% (compared to the 12% or 23% they saw in the first auction) but unlucky buyers actually saw costs increase!


In the early days, Procurement and AP Automation technology suppliers were promising to solve this problem by way of cXML, OCR, or Supplier Networks, each of which have their failings. cXML required the supplier to have a solution that was capable of delivering invoices in cXML, which, in the early days, was limited to suppliers who also used Ariba (who developed the protocol), and as this was a small percentage of the supply base, it was a dismal failure. OCR, which was, and is, still maturing, also proved to be a train-wreck as it failed miserably on poorly formatted invoices, invoices with fonts that were too small, invoices that were hand-written or that had hand-written notes, and invoices that used unrecognized abbreviations — which, combined, were the majority of invoices.

Spend Analysis

In the early days, the tools were very difficult to use, classification and cleansing was even harder, and most companies had to outsource the analysis which often costed high six figures when all was said and done. In addition, since most vendors didn’t understand the operations of the company intimately, or the many ways the different business units categorized their data, and relied heavily on simple auto-classification to speed up the project (and attempt to make it more profitable for them), the classifications were often filled with classification and categorization errors that could only be corrected by changing the rule set and rerunning all the data, which typically took the provider at least a week. And if you wanted to see the data classified (or cubed) another way for comparative purposes, forget it.


The purported answer to catalog proliferation, all punch-outs did was proliferate their own set of of problems. Just like many AP departments were drowning in paper (invoices), many Procurement departments were drowning in paper (catalogs). Punch-outs were supposed to solve that problem, as all you supposedly had to do was punch-out from your shopping-cart to a punch out to find what you wanted, no catalogs needed. Well, for this to work, the supplier had to support punch-out, the supplier had to have enough technical sophistication to support multiple pricing models (and always apply your contract pricing), and your IT team had to have the technical sophistication to properly integrate your supplier’s punch-out. And then you had to rely on the supplier to actually get the contract pricing right. Did everything go right all the time? Not even close.

And what are the leading Supply Management companies promoting today? Come back tomorrow to find out.

Supply Management Should Drive M&A Evaluations

But don’t look to e-Auctions to save the day. As per SI’s recent post, the entanglements of e-Auctions could get in the way.

Last fall, e-Sourcing Forum published a two-part series on M&A and e-Auctions, stating that what’s old may be new again (Part I and Part II), which claimed that e-Auctions could be a perfect tool for procurement in post M&A scenarios as they provide a competitive advantage for industries frequently involved in M&A activities. They can, if the situation is right, or they can be as useful as a trap door in a life-boat. There is no one-size fits all sourcing tool, and if you get it in your head to force-fit a sourcing tool to your situation, e-Auctions should be on the bottom of your list because they can bust as bad as they boom.

The rationale presented for their selection as the potential perfect e-Sourcing tool in the post-merger environment is based on the fact that e-Auctions can:

  • put negotiations directly into the hands of the suppliers,
  • create fair competition between suppliers by creating a level playing field,
  • provide suppliers with more direct/immediate feedback on their position in the market, and
  • drive “truer” market pricing and justifications for establishing baselines post-merger.

This is all true provided that:

  • the majority of suppliers, including those that are currently preferred, are willing to negotiate through the auction,
  • the buyer designs the auction in a way that is fair to all suppliers,
  • the auction platform can support real-time feedback to all suppliers taking part in the auction, and
  • the suppliers don’t collude and don’t make unrealistic bids in an effort to win the auction, hoping to make up the unsustainable loss either in volume or add-on fees or future business.

In order for auctions to work, especially in a post-M&A scenario, a number of conditions need to hold true.

  • supply has to at least equal, and preferably exceed, demand as per our post on the entanglements of e-Auctions,
  • there has to be enough qualified suppliers to make the auction competitive — if only two suppliers can supply the custom product or service you need, the auction ain’t gonna do squat except offend suppliers who should be your strategic partners,
  • there has to be enough volume to make the event worthwhile — saving 1% on 100,000 is not going to be worth the time and effort, and, most importantly,
  • there has to be enough categories that meet these requirements that are available to source in the first year, as it will typically be the case that both companies have contracts in place for a large number of their high-spend or high-volume categories, and, furthermore,
  • these categories have to be significantly larger than they were before the merger — if the merger does not yield enough common categories that are available to source at volumes that are high enough to be more attractive to the supply base than each company would source on its own, then the merger / acquisition is not going to yield any sourcing quick wins by way of e-Auction.

If neither company has a lot of spend under contract, neither company has a large number of complex products or services that can only be sourced from one or two suppliers, and both companies source a large number of overlapping products and services, then, if the market is ripe, the supply base is willing, and the buying team can design and deliver a fair and professional e-Auction, then e-Auctions can drive M&A success. But if the opposite is true, all e-Auctions will do is get the M&A team into trouble.

As with every sourcing exercise, it must start with a situational, and spend, analysis to see what’s what.