Monthly Archives: April 2014

If You Do Not Get Sustainable Results, Blame Yourself! (Repost)

This post ran two years ago today. Two years later, the problem remains because a number of organizations still have not figured out it’s Sourcing and Procurement and follow-through. Solutions need to be end-to-end or savings leak!

Let’s Talk!

It’s deja vu all over again!

Robert Rudzki is not the only blogger and consultant to recently hear that a potential client had, just a few years ago, hired a large consulting firm to do a high-profile “strategic sourcing program” with nothing sustainable to show for it, as he indicated in his recent SCMR blog post on Deja vu all over again. I’ve heard the same sentiments echoed to me by a number of consultants at a number of small and mid-size niche and specialty services and software providers in the e-Sourcing & Supply Management space in recent months.

It would appear that a common trend last time money flowed into laggard Supply Management organizations before the recent downturn was to simply hire a Big-X consulting firm to fast track the organization to strategic sourcing success. While this is a great way to fast-track a project, and a contract, that is expected to result in significant savings, the only thing that is fast-tracked from a finance perspective is payment to the consulting firm that runs all the way to the bank! As leading Supply Management professionals know, a contract does not guarantee savings. The only way to achieve savings is to execute against the contract and make sure savings are realized. Just because you have a new contract that allows you to source widgets at $8 a pop, instead of $10 a pop, this doesn’t mean you are going to save $200,000 on your annual purchase of 100,000 widgets. For the savings to materialize, all of the following has to happen:

  • the buyer has to place the order with the contract supplier
  • within the contracted lead-time and the supplier
  • has to ship on time
  • using the approved carrier and shipping arrangement
  • and pay all required third party and government export fees
  • and file all appropriate paperwork at the same time your organization, or a 3PL acting on your behalf,
  • files all of the appropriate import and compliance paperwork
  • and pays any associated duties to make sure that
  • the product arrives at the warehouse when its supposed to
  • where it is received, inventoried, and appropriately stored which results in
  • an invoice being accepted and verified against the contracted rates and
  • paid at the appropriate time only when all goods are received and verified as acceptable.

Simply put, if

  • the order is placed with the wrong supplier
  • or placed late and the order has to be expedited
  • or shipped late and a different shipping method has to be used
  • or export documents are not filed on time
  • or fees are not paid and fines are issued
  • or import documents are not filed on time
  • or taxes are not paid and fines are issued
  • or the product is not properly inventoried or stored and can’t be found and unnecessary replacements need to be ordered
  • or the invoice is not verified and the old rate is still being charged
  • or the invoice is paid late and a penalty is applied

then those (significant) savings negotiated on your behalf go out the window. And you’re not going to get them back! First of all, once they’re gone, they’re gone. Secondly, because you weren’t actively involved in the project and didn’t insure that the knowledge that you required to achieve a sustainable transformation was transferred, you’re not going to be able to keep costs down when you renegotiate the contract in this economy where supply is tightening and costs are rising. So you’ll pay even more, even if the rate should stay almost flat.

In order to get results, you have to work with the consultants to understand the strategic sourcing process, the strategies applicable to your organization, the goals of each individual project, the savings opportunities in each project, the key contract terms, the changes that need to be made to capture the savings and adhere to each contract term, the key metrics, the measurements that need to be made regularly, and the warning signs that something is happening / has happened that could jeopardize the savings the organization expects. Failure to do any of this is a sure-fire way of making sure that nothing changes and that your organization continues to leave money on the table.

In short, if your organization continues to be one of those organizations that leaves up to 40% of the contract value on the table because you did not do all of the above, don’t blame the service provider unless you did all of the above. As Charles, Bill, and Bob said in their recent books on The Procurement Game Plan, Managing Indirect Spend, and Next Level Supply Management Excellence, success is your responsibility and you have to actively manage your service providers and make sure that the knowledge required for a sustainable transformation is transferred to you.

So put an end-to-end solution in place. And let’s Never Talk Again about this!

IBM is Predicting the “Software-Defined Supply Chain”

In a recent article over in the Supply Chain Quarterly, Paul Brody, the Vice President and Global Industry Leader of IBM, told us that we need to Get Ready for the Software-Defined Supply Chain, and SI agrees. But the big questions of when, how, and where the transformation will start are still up in the air.

According to the article, this is the most exciting time in manufacturing since Henry Ford put the Model T on a moving production line. A wave of new technologies is emerging, maturing, and converging in a way that will reshape product design and manufacturing, shifting from a world defined by hardware and logistics constraints to one that is largely defined by software. However, despite these exciting new opportunities, the supply chain leadership at some of the world’s top companies is more focused than ever on perfecting an increasingly obsolete business model.

This is because most big manufacturing companies are overlooking the three critical technologies [that] are transforming manufacturing: 3-D printing; a new generation of intelligent assembly robots; and the rise of open-source hardware. Individually, each of these trends is transformational; together their power is multiplied.

This is all true, but the transformation is still limited to design and prototype production. Why?

While it is true that, with 3-D printing, solid parts are convertible from software design to reality at the touch of a button which instructs the machine to gradually build up an object one layer at a time by depositing materials like plastics and metals in very thin layers one atop the other, this process is slow. Something that can be moulded in a few minutes will take at least a few hours, and maybe a day, with one of these printers.

And while it is true that a new generation of robot assembly stations may cost as little as $25,000 per robot and require minimal effort for installation, which often equates to a day, or less, of a technician’s time, these low cost robots are still limited in the scope of tasks they can perform and rely heavily on complex programming which can be very hard to debug.

And while it is also true that the shared-resource model of open-source software development has spread into the realm of hardware design and that, from mechanical systems to networking equipment, hundreds of product designs are now available to anyone, no reverse engineering required, not many companies are producing this hardware. They’d rather produce their own proprietary hardware and sell it at a(n extravagant) profit. So unless you can produce the hardware you need to produce the products you need, you’re stuck with cobbling together your own designs using low cost parts (like the raspberry pi with controller add-ons or the upcoming $99 Intel board).

The reality is that while all of this technology, as it matures, will get cheaper and become more available, will start to transform manufacturing, manufacturing based on open source platforms, low-cost robots, and 3-D printing is not going to become mainstream for quite a while. However, it is going to transform design — since a designer can custom print in less than a day, on his workshop desktop, a prototype for any part he can design and conduct initial testing and analysis without having to configure a custom mould or manufacturing process. He can then use low-cost programmable robots to test streamlined, automated, production processes, and then build a test line out of open source hardware. However, once everything works as expected, because manufacturing requires economies of scale, the small-scale programmable robots are going to be replaced with larger, customized, high-speed robots; the printers with traditional moulding, bending, and cutting; and the equipment with proprietary equipment under a 24/7/365 support contract with a 1 to 4 hour response time.

Design is being revolutionized by those ready to move into the 21st century, but it will be a while still before large-scale manufacturing is revolutionized.

Big Data = Big Mistake recently published a great article on Big Data that asked Are We Making a Big Mistake which contains the best description SI has seen yet for Big Data: Big Mistake!

Why? Because, even though there are times we might want correlation to be causation (because then we could put an end to IE once and for all), it is not, never was, and never will be. never, Ever, EVER!* And, as pointed out in the article, just because a correlation algorithm works great for predicting trends, such as the spread of influenza, three years in a row, this doesn’t mean it’s going to work well the fourth year. Randomly identified statistical patterns in data are just that — randomly identified statistical patterns in data.

The Google example in the article is a huge example of how big data can fail in a massive, embarrassing way. In Nature 457, published 19 February 2009, Google published a paper entitled detecting influenza epidemics using search engine query data that detailed how they were able to track the spread of influenza across the US more quickly than the Centers for Disease Control and Prevention (CDC). Using a big data algorithm that detected a correlation between what people searched for and and whether they had flu systems, Google was apparently able to track the spread of influenza with only a day’s delay, compared to the week or more it took the CDC to assemble a picture based on reports from doctors’. This theory free approach worked for four years, and then failed spectacularly in 2013 when it drastically over-estimated peak flu levels, as chronicled in this article on When Google Got Flu Wrong over on

To put the issue of correlation vs causation into terms everyone can understand, if correlation was causation, Microsoft would be on trial as an accomplice to felony murder in every state in the United States, since the declining usage of internet explorer directly correlates with the declining murder rate in the US:

In other words, if correlation was causation, then using Internet Explorer invokes violent tendencies which leads to murder, and its continued existence is criminal.**

This is the problem with big data today. Everyone is using it to try and detect potentially useful correlations, instead of trying to support or disprove useful, actionable, theories. Why? Because, as the article states, figuring out what causes what is hard, and some would even claim it to be impossible.

Correlation might work in the short term, as it did for Google that was able to predict the spread of influenza for a few years, but it always fails in the long term. And if you have no idea what is behind a correlation, you have no idea what might cause that correlation to break down. Just like a stock market trading algorithm, it might work for a year, a month, a week, a day, or a minute. You just don’t know.

That’s why relying on correlation-based big-data algorithms is a big mistake. While they will give you interesting patterns to examine, relying on them will lead you down a dark and winding road that leads to the edge of a deep canyon (that you are aren’t going to see until you fall in). Unless you can come up with a reasonable theory and support it with the data, it’s just an interesting pattern — and you should continue on your merry way until you find an interesting pattern you can actually explain unless you too want to end up with egg on your face.

That’s why Sourcing Innovation Still Prefers Big Brains to Big Data, and likely always will. We might be slaves to the corporations in the continuum, but that doesn’t mean we have to be slaves to stupidity.

* Everyone should know by now that correlation is not causation given that Pinky and the Brain gave you all a great Lesson in Statistics six years ago (when they were still in the employ of a certain Burlington sourcing provider …)

** It’s distribution was criminal for a while when Microsoft tried to create a browser monopoly by embedding it in the Operating System in a way that led Windows users to believe there was no other choice, as monopolies are illegal in many countries, but, I’m sorry to say, the continued existence of IE is not criminal, just sad and frustrating.

890 Years Ago Today

David I becomes King of Scots. And while one could write a nice treatise about how he was a pious king, a reformer and civilizing agent in a barbarian nation and on the effects of his changes on Scottish cultural development, I’m not going to. (Wikipedia) There are full bodies of work out there you can read if you are interested.

The only reason SI is mentioning his royal coronation 890 years later is because he was the first to bring Scotland into the modern era. Despite the fact that it is England’s northern neighbour, the Scot’s didn’t have their own coinage until David’s reign, even though the Celts (which immigrated from Northern France) were producing coins as early as 80 BC and the Anglo-Saxons, after the departure of the Romans around 450 AD, began to produce their own coinage around 600 AD with the Viking colonization of the north-east of England (that minted coins in York). Charlemagne produced denier in the Kingdom of the Franks around 755 AD, and when Eadgar became king of England in 959, he introduced a silver penny that was used throughout the whole of England. But Scotland didn’t get their own coin for another 170 years!

The modern economy runs on the global banking system, which runs on banknotes, which was a replacement for the copper, silver, and gold coins that defined the monetary system of the time. This was an important first step in Scotland’s economic development, and a reminder of just how young our modern global economy really is when some places, known to be inhabited for millennia, didn’t even have coins a thousand years ago!

But the Scots learned fast. Now they are one of the most fiscally sound countries in Europe and even considering Independence in the fall (in a national referendum on September 18) as they believe they can do better economically on their own than as part of the UK!

Anyone have any thoughts on this?