Monthly Archives: July 2019

Remember that Sustainability Requires a Shared Understanding

With raw materials getting scarcer, energy costs getting higher, environmental conditions getting worse, and people upset by this all around, sustainability is becoming more important to the supply chain not just from a brand perspective, but from a long term business survival perspective.  But it’s not enough to just say you’re going to be sustainable, only use sustainable resources when the option is there, and only use suppliers who accept your sustainability agenda.  You have to walk the walk as well as talk the talk and make sure all parties involved understand what sustainability really means.

For example, using recycled materials where the recycling process takes more energy or creates more carbon than creating new materials from renewable resources is not a smart move.  Sometimes you want to create reusable materials or containers and not just recyclable ones. Etc.

And while it can be easy to state the goals, it can be difficult to communicate exactly what those goals mean and how they should be addressed.  And, more importantly,  why it is important if the sustainable way costs more, takes longer, or displaces traditional suppliers if they don’t change their core business.

And if people don’t accept the why, the how won’t materialize.  So how do you address the how?  Point out anciliary benefits that could be worth more in the medium and long term than the short term (switching costs).  For example:

  • brand reputation
    if it makes customers want to buy from you, especially those that will spend 5% to 10% more to feel sustainable, that’s good … and while most people don’t want to pay more for sustainability, if a rival brand does something unsustainable or politically incorrect and gets a media backlash, all of a sudden your brand becomes favoured
  • risk management
    if the new material is (more) sustainable, easier to produce, more widely available, overall supply risk is lowered and that’s a good thing since every risk that materializes causes a disruption that is very costly to the organization
  • supplier engagement
    if you can find a supplier who lives and breathes for sustainability, they might be much more willing engage with you on joint-development projects for joint-benefit than a supplier mass-selling the same old widget to a wide supply base, especially if it is a widget that hasn’t changed in five years and it’s now high profit and the supplier has become fat and lazy because it gained a large market share that allowed it to be less aggressive in its offering
  • long-term savings
    if, after the switching costs are covered, the longer term cost projects are lower, than it’s worth the up-front investment

And make sure to point out how the decision stacks up with respect to concrete sustainability factors such as:

  • raw materials
    are the materials you are using renewable and can they be extracted with minimal harm to the environment
  • energy requirements
    are the energy requirements associated with your purchase (for production, storage, and transportation) minimal and can they be met with renewable resources
  • waste products
    are waste products minimal and/or reusable and/or reclaimable? can the food waste be used to feed livestock? can the metal waste be melted down and reused?
  • worker treatment
    are all workers who take part in your supply chain treated ethically, responsibly, and fairly, using standard guidelines

If a supply management decision would increase brand reputation, reduce risk, contribute to medium and long term value, enhance supplier relationships, use renewable (and non-environmentally harmful) raw materials, reduce energy requirements, or minimize (or eliminate) waste in production, and do any of this in the context of ethical worker treatment, then, regardless of what definition of sustainability each individual on a cross-functional sourcing team is partial to, it should be easy to agree that such a decision, at least in the mid-term, is sustainable.

Optimization: Is it at least time to move beyond logistics and indirect sourcing?

A big focus of this blog is, of course, Strategic Sourcing Decision Optimization (SSDO), one of the few advanced sourcing methodologies guaranteed to save your organization, on average, 12% if correctly applied (as demonstrated in two back-to-back studies by Aberdeen last decade and discovered over and over again by organizations applying it properly) and the doctor‘s specialty.

But it’s not the only place you can apply optimization in Supply Management to save money. Another area, as covered a number of times on SI, is Supply Chain Network Optimization (SCNO). And, of course, some companies just focus on the intersection and do Logistics optimization. But this is not everything that can be done, or should be done, especially in an age where many industries now see The End of Competitive Advantage and don’t actually own physical assets, leasing them as need be to create the products and services desired by their prospective customers.

In this situation, what matters is Asset Optimization, where you optimize a one-time dynamic network to minimize sourcing, network, and logistics costs to minimize the total supply chain costs associated with the product you wish to produce. This is easier said than done. In sourcing, you are mainly considering bids, lanes, and associated costs to compute the optimal TCO (Total Cost of Ownership), and if lifetime costs and metrics are available, or TVG (Total Value Generated) with respect to a fixed situation. In network optimization, you are optimizing the location of owned factories, supplier production centers, warehouses, and retailers to optimize the distribution costs. But in asset network optimization, you have to simultaneously consider the network and associated distribution costs, the sourcing requirements and associated production costs, and the costs of using, or not using, the resources you already have available and contracts you have already negotiated. In addition, you have to consider the risks associated with each potential supplier and location, the sensitivity of the overall asset network to each supplier and location (and is there a single point of failure), and the ability to dynamically alter the network should a failure occur or customer demands change.  And track all of that information.

Plus you have all of the difficulties associated with each type of optimization. With respect to the network, there will be many alternatives for production site, each site will have multiple, and different, asset lines, and each asset will be qualified for a certain operation with respect to a certain product. In addition, some assets will be more efficient and cost effective, and unqualified assets will have a qualification/certification step, which will require limited manpower – a variable that does not need to be modelled in traditional sourcing or SCNO models. It’s a very difficult problem that requires modelling of multiple types of variables and constraints at multiple levels at multiple times. And this last requirement makes the model even more complex.

Plus, in a traditional sourcing model, you don’t really need to consider “time”, as it doesn’t matter how often the trucks deliver your product, just how many trucks are needed to deliver your product as you are billed FTL or LTL by the delivery. And it doesn’t matter what production schedule the supplier(s) use(s) as long as your products are ready on time, so only the total volume need be considered. But when you are dealing with production models, especially when trying to dynamically construct and optimize an asset network, production schedules are significant. If a certain location only has 30% of capacity left available and can only schedule it during a given time-frame, that has to be taken into account. If some of the products have to be delivered before they can complete the first production run, then there has to be a location that is able to do so. And if a continual supply is needed over nine months, the production cycles should more or less line up with minimal overlap as, otherwise, inventory costs would soar.

It’s a complicated problem, but one that is becoming more and more important in fast moving industries such as fashion and consumer electronics — and one that most SSDO providers can’t address. Why?

First of all, they don’t track the necessary data.

Secondly, they don’t have the right underlying optimization platform.

Third, they don’t have the skills to build the right model.

But recently, a few of the bigger players with optimization have started not only tracking all of the direct (material) sourcing requirements, but assets as well.  So the data is there.

Secondly, a few of the optimization platforms have become significantly more powerful and flexible (and now have the necessary computing power under the hood to support them) and could, at the very least, run a series of optimization models (according to different time-spans, which minimizes the need to consider complex timing constraints in a single model) to tackle problems such as this.

Thirdly, there are independent experts with decades of experience who can help design the right model.

So why are none of the big players doing it?  It seems logical, and soon necessary, if an organization wants to continue to identify, and capture, new sources of value year-over-year.

Enterprise Software Companies Do Need Media Relations (Re-Post)

This post initially ran five years ago, but since the PR frenzy is back (as a result of the M&A frenzy), this needs a re-post!

In yesterday’s post, we insisted that Enterprise Software Companies DO NOT need Public Relations, because they do not. Why? Simple. They DO NOT sell to the public. They sell to big corporations. Big corporations are not the public.

Also, the messaging that you need to sell to a CFO is nothing like the message that you need to sell to an impulsive consumer. Good business is all about productivity, progress, and Return On Investment. Good public relations is all about feeling, connection, sexy, environmental responsibility, or anything else that happens to be the buzz of the day. Good enterprise relations is all about results. Public relations, like consumer advertising, is in constant flux. But the basics of good business never change.

However, the advertising channels through which business advertising have exploded, not only as a result of the rapid expansion of the ubiquity of the world wide web, but of social media as well. As a result, the complexity of media management has increased dramatically. The fundamentals haven’t changed, but the amount of work required to coordinate and manage the effort has. Not to mention the knowledge required to strategically place your advertising and messaging to stand out amidst the noise, which consists not only of a constant stream of advertising and messaging from your competitors but analysis, third party reviews, and random comments. It’s a media jungle, and unless you have a team of full time pros to manage it 24/7, you need help. Even if you do have a team, you probably need guidance.

A good Media Relations Team will help you:

  • Identify the Right Channels
    Which traditional print and online web publications are right for you?
    What are the right channels to advertise your coverage?
    Who are the right people at these outlets to reach out to?
  • Tailor the Message
    While you need to craft and own your message, you also need to recognize that different individuals at different publications who control different channels are interested in different parts of the message you have to deliver. To get your message heard, sometimes you have to focus in on the part that will get a crier’s attention.
  • Spread the Message
    Parts of your message have to spread through others, but thanks to the social media revolution, other parts have to be spread by your organization through social media channels. Managing these can be a full time job, and not the best use of your limited resources. This is best left to an expert.

In other words, you need help, but the help you need is not Public Relations. It’s Media Relations.

And if you really need someone to talk to in order to help you elicit your messaging in a collaborative fashion, hire a subject matter expert (SME) whom can also offer you project management, product development, or thought leadership consulting services. This will jump start those efforts as the subject matter expert will not only be fully familiar with your messaging, but with your modus operandi as well. As a result, there will be little to no learning curve for the SME when it’s time to start the project management, product development, or thought leadership creation. This will pay off in spades as you’ll get your project, product, and/or thought leadership done faster, hit the market faster, and see a significant return faster.

So when it comes to getting help, get the right help. Even if you don’t thank me for it.

Enterprise Software Companies DO NOT Need Public Relations! (Re-Post)

This post initially ran five years ago, but since the PR frenzy is back (as a result of the M&A frenzy), this needs a re-post!

Since we’re on the topic of what really grinds the doctor‘s gears, another thing that really grinds the doctor‘s gears is the incessant insistence by public relation companies that they need to be ingrained in all communication activities undertaken by an enterprise software company. To this I say, BullCrap!

Let’s start by defining what public relations is. As can easily be read on Wikipedia, public relations is the practice of managing the spread of information between an organization and the public. Let’s dwell on this. It’s the management of information flow between the organization and the public. Now let’s dwell on what enterprise software companies do. Enterprise software companies sell software made by their organization to their client organizations. Now let’s dwell on this. They move software from one organization to another organization. Not to the public. As a result, the accompanying information flow is between two organizations, not between the organization and the public. So where does public relations enter the mix?

Let’s dive into what modern Public relations organizations do, or at least try to sell perspective clients, to see if we can make any sense of this.

  • Audience TargetingWhile it’s important to sell to the right audience, enterprise software companies have a pretty good idea of who their audience is. It is companies with a potential need for their software that is their audience, and not only does marketing have a pretty good idea of what their audience is, it is their job to know what that audience is.
  • MessagingMessaging is of the utmost importance, especially with so many other vendors also hawking their wares, and in a world where many customers are looking for partners, or at least software providers who can offer a complete solution (software, services, and training), the messaging often has to be perfect. But this is why you have Marketing — this is their primary job.
  • Social Media MarketingSince many of the decision makers at a potential customer are on social media, this is an important channel in which to place your messaging. With so many social media networks (LinkedIn, Facebook, Twitter, etc.) and so many different individuals in the target organizations to target (employees, directors, C-Suite, etc.), this is a lot to manage, and secondary to the messaging and audience targeting responsibilities of Marketing. So it makes some sense to get some help here — but this help should come in the form of organizations that specialize in social media marketing for B2B organizations, not Public Relations firms that specialize in information flow to the public for B2C organizations.
  • Media RelationsThis is important for any organization that does business and needs to get its message out to the world, even if it is just the corporate sector. However, this relationship should be controlled by marketing, not some third party with a watered down message.

Now it’s no secret that the doctor does not like PR, for a host of reasons (chronicled in his Blogger Relations series), but this has nothing to do with his like of PR. This has to do with his dislike of many PR firms telling enterprise software companies that they need to be embedded in all of their communication processes and work with those companies in a collaborative and consultant manner for months and months to define their targeting, messaging, (social) media, and relations strategy and do all of the work that should be done, or at least managed, by Marketing at a very high cost to you. Not only are you shelling out 10’s of thousands of dollars for them to walk you through an exercise where you do all the work (because, let’s face it, they don’t have a clue what you’re selling, what’s unique about it, or how to uniquely position it), but you’re losing two, three, and sometimes even four quarters of momentum while you go through this drawn out exercise to get a message that your marketing team, possibly with the help of some subject matter experts, could figure out in a matter of weeks! It’s the oldest consulting trick in the book after making up a fad you don’t need — take your money to listen to you elicit what you need. (If you need to talk through your strategy to elicit your messaging, the doctor is certain a quack psychologist will be cheaper.)

So Fire That PR Firm and put your money where you need it:

  • Subject Matter Expert Consultingto help you figure out what is distinct about your solution and missing in your solution space
  • Thought Leadership and Expert Writing Servicesto help you get your message crystallized and down on (white) (e-)paper and in appropriate training materials for your clients
  • Social Media Campaign Managementto manage your messaging through social media and on-line channels

Just like you shouldn’t get taken in by companies selling infinite scrolling websites that you don’t need, you shouldn’t get taken in by companies selling your collaborative PR services that you don’t need either.

Marketing Recognizes Procurement. Does That Mean We’re Sexy Now?

The World Federation of Advertisers, or the WFA, which is a global trade association for multi-national advertisers and national advertisers, quietly launched a Global Sourcing Board about six weeks ago to revolutionize the practice and perception of marketing procurement as per this press release.

According to the press release, the ambition is to reposition procurement as a driver of company growth rather than a seeker of savings, transforming cultures and approach within sourcing teams as well as perceptions across the wider marketing, finance and agency community.

Great ambition, and desperately needed, but how much change is going to be driven by a board of 12 people that meets only four times a year? No matter how big the companies they work for are?

At least we can say if a global marketing organization is recognizing procurement then we must be getting sexy. Too bad they’re not doing more to promote us.