Category Archives: Best Practices

Software Acquisition Insider Tips, Part IV

Forego the Escrow (because It’s All About the Data)

You’ll be hard-pressed to cheerily find a vendor who won’t agree to put their code in escrow for you, in case they go bankrupt, and laugh all the way to the bank when they do so. That’s because your average vendor knows that it’s no effort for them and useless for you. Why?

  1. You probably don’t have software developers working for you, and have no ability to do anything with the code.
  2. Even if you do have a couple of developers, who probably spend most of their time doing integration projects and not core development, they’re not going to be able to translate 1,000,000 lines of code — or more — and do anything sensible with it any time soon. It will be months, and maybe years, before they are fluent in the code.
  3. If the software was remotely hosted, it will be a monumental effort to get a local copy compiled, linked, loaded, configured, hooked up, and populated with your data. Monumental. Especially if you need a recent version, because you have no idea how to do this and neither does your team. You could be facing months of downtime before you figure it out, if you ever do.
  4. Even if you half an IT team with a few competent developers, there’s no guarantee that the escrow code-base is going to be up-to-date (many vendors never update the escrow code-base because they know you’ll never check if they do) or that it’s going to contain the documentation you need to make sense of it, if it has any documentation at all!

You’re only safe if you have a stable application installed behind your firewall that your team, or third party system integrator, can maintain or if you’re using an on-demand application that could easily be replaced with one or more competitor products at the drop of a hat.

What you really need is a data availability agreement which allows you to get a complete extract of your data in a neutral format (like XML or CVS) at any time, and guarantees that you will get a complete data extract within 24 hours if the provider stops supporting your product at any time for any reason. That way, you can just switch to a competitive on-demand solution, load up your data, and keep on truckin’.

Is it Software or Service?

Many software products aren’t really software products at all. In other words, there is some incantation that has to be performed by the software vendor, in the form of services, configuration, or other magic, on a regular basis, to keep the software running. In this case, you haven’t bought software, you’ve bought software plus services. What’s even worse is that you’ve single-sourced it. If the vendor goes broke, or can’t deliver, you have no options.

Always ensure that you can procure services from multiple third party vendors, not just from the software vendor. Even better, make sure that whatever magic process the software vendor is performing can be easily transferred to your own staff. If there are special tools that the vendor uses, insist on owning them yourself. If the vendor cannot provide them, or is unwilling to train your personnel to use them, then find another vendor — fast.

Software Acquisition Insider Tips, Part III

Read the Contract

Don’t Be Fooled By the Presence of an SLA

The majority of Service Level Agreements (SLAs) are designed for one purpose — and one purpose only — to give you a false sense of security that will cause you to overlook the fact that the wording insures that the vendor will be able to keep your money for the length of the contract, no matter what. Your average SLA will run for a dozen or more pages with lots of fancy wording around “Level 1” problems, “Level 2” problems, and so on with detailed text spelling out your responsibilities and consequence-free reprieve time for the vendor while you lodge your complaint and fill out the necessary documentation.

When you take out all the superfluous text and boil it down to the essentials, you quickly find out that your average SLA is toothless and promises very little. While there may be a process for every issues that could arise, the language will always be sufficiently vague that a lawsuit couldn’t be filed, as a case couldn’t be won, nor would it be worth your while to do so. And it’s a waste of time to argue it, as your vendor’s attorney’s will be just as good as yours, and for every point the vendor’s attorney concedes, he’ll introduce two more that could be used to screw you even worse in the long run.

The ideal SLA, and the only SLA with value, is one that allows you to terminate the contract at any time without leaving any money on the table under a pay-as-you-go kind of contract. (That’s why SaaS solutions can often be the best value for your money as many SaaS vendors will allow you to go month to month after a minimum period of time.) This is the only SLA that counts as the vendor understands that unless it keeps delivering a quality product backed by quality service that earns your business, your business is something it might not keep. There is no stronger incentive to a vendor than your ability to walk away.

There’s No Such Thing As A Free Lunch

Free modules? Free support? Free training? Not likely! Either it’s included in the price, is being offered as an enticement to lock you in for a fixed term, or it’s being offered in an attempt to divert your attention away from a complex SLA that benefits the vendor and not you. If you want the extra module, extended support, or training, offer to buy it a-la-carte instead. Anything that ties your hand contractually is not only not free, but very, very expensive — especially if it locks you into a long term commitment to a solution that doesn’t deliver the results you expected.

Don’t Get Fooled by the License Fee in Disguise

Many traditional enterprise software platforms have a clause buried deep in the SLA that requires you to pay the annual maintenance fee, or lose the right to use the software altogether even though you have years left on the contract. That’s not a maintenance fee, that’s a license fee. Make sure the maintenance fee is a real maintenance fee for support and bug fixes. If you’ve licensed the software, and paid six or seven figures to do so, you should retain the right to use the software for as long as you desire, even if such use doesn’t come with free assistance.

Don’t Get Screwed By The New Release

As sure as the sun rises in the east, the vendor will come out with a new release not long after you’ve bought the current version and expect you to pay a large tranche of money to get it. You may get offered a small “upgrade” discount, but you’ll pay, then pay again, and pay again, and again for as long as you own the software. If you can’t do business with a vendor that simply charges you a fixed, steady, predictable monthly rate for the software — with no surprises — consider at least going with a vendor who will fix the price of the upgrades up-front. At least you’ll be able to plan for the expenditure and know up front how much the software is really going to cost you over its lifetime.

Seven Innovative Paths to Consumer Products Success

Last fall, Strategy + Business published an article on The Unique Advantage that pointed out the trick to succeeding in consumer products industries isn’t necessarily being first to market, but being hard to copy. When you consider that eighty percent of new product introductions in a typical mature industry yield less than $7.5 Million in sales in their first year, it can take a while to recoup that R&D investment, and being hard to copy becomes critical to long term financial success.

So how do you gain that advantage? One way would be to start with the seven suggestions offered by Strategy + Business in the article, which I find to be particularly relevant as, with a few simple tweaks, you can also use the suggestions to transform your procurement organization into a procurement leader as these “best practices” are “hard” to copy without a significant amount of effort and forward thinking by your peers.

  1. Technology
    Technology innovations can yield significant returns in revenue, brand growth, and margins. For example, in health care, new products that match a new technology with a new market need deliver a median brand growth of 11%, double the median growth of 5% for products that address only an existing need. And in procurement, advanced sourcing technologies typically yield 12% savings, while traditional technologies do good to yield half that. Furthermore, technology innovations take time to copy.
  2. Claims
    Claims can add substantial value when they are tied exclusively to a product and can be held for a significant period of time. For example, in 2006, Mars developed a new line of chocolate bars, CocoaVia, which it labeled “heart-healthy” because of the demonstrated cardiovascular benefits of flavanols, a natural antioxidant in cocoa beans. The claim provides a sustainable point of differentiation because Mars owns patents related to processing technologies that are designed to retain higher concentrations of flavanols than regular chocolate manufacturing processes. Similarly, if you adopt a sourcing or procurement technology which an analyst firm hs found to regularly save similar organizations 10% or more, you are much more likely to get quick buy-in across the board, which is necessary for the promised returns.
  3. Ingredient Synonymy
    You can carve out an enviable market position by becoming virtual synonyms for your category — like Kleenex and Planters. Similarly, you can carve out an enviable organizational position of organizational innovator by getting involved in NPD early and helping the development team identify alternative low-cost sources of high-quality materials that can be used in product development.
  4. Unique Brand Characteristics
    Strong brands can build an identity in consumers’ minds that transcends products. This type of positioning can act as a springboard for new opportunities, as it did for Coca-Cola with Zero, Singapore Airlines with “Asian values”, and ESPN in themed-dining. Similarly, if your procurement department is viewed as a leader with unique cost saving capabilities, you’ll become more involved in every aspect of the organization as you’re asked to lead cross-functional teams that will help the organization identify new operational paths that will cut costs and raise revenues.
  5. Product Experience
    Successful products have an emotional component that builds a bridge to consumers, becoming part of their lives. Consumers want the product, and not a cheap imitation. Similarly, successful procurement methodologies and technologies make a user’s job so easy that they want to use the product.
  6. Packaging
    Packaging innovation can leverage technology, emphasize unique brand characteristics, enhance the product experience, and prove very difficult to duplicate. Similarly, a good procurement initiative is packaged in a very effective B2B 3.0 wrapping that promises to make a user’s life easier while improving their value to the business.
  7. Vertical Integration
    If you can keep a tight rein on your unique methods and processes, you can maintain a significant advantage in the consumer goods marketplace. Similarly, if a procurement department can insure that its best practice methodologies are applied consistently and not corrupted, it can ensure that expected savings are realized, making it a corporate hero.

And if you apply leading technology that supports claims of success, become synonymous with innovation, demonstrate a unique aptitude to cutting cost, make your users’ lives easy, package the experience, and keep the chaos under control, since you will, by the very application of these methodologies, also be:

  • Addressing TCO
  • Increasing Spend Under Management
  • Getting a Handle on Procurement Operations Costs
  • Increasing the number of NPDs/NPIS where you have a material role early in the development cycle
  • Managing your Customers and Suppliers

You will be increasing your mastery of procurement, and on your road to becoming the leader that Accenture and Hackett regularly praise in their surveys and book of numbers.

The Value of AfterMarket Service in a Down Economy

MCA Solutions recently released a white-paper entitled “The Value of AfterMarket Service in a Down Economy” by Morris A. Cohen, the Panasonic Professor of Manufacturing and Logistics at The Wharton School of the University of Pennsylvania. In it, the author puts forward initiatives for your service business that he, and MCA, believes will generate revenue and profit for your business in 2009.

Aftermarket service presents some unique opportunities that make it a prime candidate for delivering value in the current financial climate. When you consider that many companies have slashed their budgets for new product and service acquisitions, it should be obvious that many companies will be looking to get more life out of their current products and services and looking to aftermarket service providers to help them.

According to the white-paper, increasing your market share of aftermarket parts and services will allow your company to generate a more predictable, high-margin revenue stream that will also increase customer satisfaction and retention. In addition, leading enterprises such as Cisco Systems, KLA-Tencor, Boeing and Tellabs have proactively undertaken strategic service management initiatives and have seen ROI benefits (in as little as two months) that include:

  • Cash flow improvements of 10%
  • Inventory reductions of 15% to 50%
  • Service level improvements of 5% to 20%
  • Customer retention through new and differentiated service offerings
  • Dramatically increased service revenues
  • Higher levels of global coordination

So what are some of the areas of opportunity?

  1. Reconfigure the Service Supply Chain to Respond to Changing Costs and Customer Requirements
    Best-in-class companies view inventory as a competitive weapon
    and typically employ multi-echelon inventory optimization and other resource deployment strategies to achieve superior product and service availability.     However, these days, service
    providers must also look to optimize the design and configuration of their service support network (locations, repair capacities, customer assignments, etc.) as a key strategy for achieving the lowest total cost and maximized customer service solution    .
  2. Reduce Overhead and Increase Time-to-Value Through Outsourcing and SaaS
    Service providers can expand their capability with a lower cost structure by outsourcing non-core capabilities to their suppliers. Logistics, warehousing, IT services, etc. can all be outsourced to low-cost, high-quality providers — freeing you up to focus on what you do best.
  3. Reduce Cost Through Optimization of Service Value Chain Resources
    Companies who use traditional planning tools developed for finished goods supply chains often hold far too much inventory with the wrong mix of parts. Getting the right mix of parts in the right places can lower overhead costs, improve service, and increase overall service profitability.
  4. Increase Revenue Generation with Customer-Focussed Service Offerings
    In a downturn, customers demand higher levels of performance from aftermarket service providers. This can be achieved through appropriately designed differentiated service offerings on a pay-per-performance model that will set you apart from the competition.

These are all great suggestions and each of them will help you save money while increasing the value you can bring to your customers. For more suggestions, as well as insight into how to approach each of these areas of opportunity, I recommend checking out the full white-paper that dives into these opportunities in detail. It’s worth a read.

The Value of Market Intelligence in a Down Economy

A recent Sourcing Interests newsletter contained an article on “the value of obtaining market intelligence in a down economy” that should not be overlooked, especially since many organizations might be tempted to eliminate (or at least severely reduce) the budget for market intelligence in difficult economic times.

The article makes a good argument for the retention of the effort (and associated budget):

  • the utilization of market intelligence is an integral part of the sourcing process
    (and without it, how likely are you to know what the true cost of a good or service is)
  • the intelligence gathering process is a reiterative one
    it’s not a “one and done” approach, which should be obvious since market conditions are constantly changing and the big winners are those who sense a change early
  • it enables ongoing supplier relationship management
    which is key in difficult times; look at the auto industry: the American automakers (who consistently score less than 200 on the OEM-Supplier Working Relations Index[WRI]) are all failing while the Japanese (and Korean) manufacturers, who coooperate and collaborate with their suppliers, are doing much better (and rocking the WRI charts)
  • it isn’t as expensive as you think it is
    a lot of the data and information you need to spot trends and focus in on the core issues and data points is low-cost, and often free; consider the following providers of low-cost market intelligence

    • Professional Organizations
      the professional organizations you belong to usually have large collections of quality information and data that is free to member (organization)s
    • Trade Publications
      for a subscription that literally costs a few dollars a month, you can often get unlimited access to the complete publication archive on its website
    • Your 401(K)
      Most 401(K) plan websites post analyst reports, which are free to investors. (And those that don’t post on the website usually make the reports available for the cost of postage.)
    • Conferences
      Most conferences these days include a CD with the complete presentation archive, and many conferences are starting to record the presentations and making the DVD(s) available to attendees for a few hundred dollars.
    • Industry Professionals
      If you attend a conference, seminar, or workshop where an individual or organization presents his, her, or its work, chances are they’ll be more than happy to share their research and / or data with you if you just ask.
    • Your Supply Base
      Chances are that your suppliers, who want you to succeed because they need your business, will be more than happy to share any insights and data they have with you (that pertains to your joint business) if you just take the time to talk to them.
    • Your Internal Experts
      Your people on the front lines probably have a decent sense of what’s happening before management does. Talk to them, and let them steer your analysts in the right direction.
    • The Blogs
      Bloggers delight in providing you with free information.

Market Intelligence is critical for good decision making. It identifies risks before they materialize and insures that your contracts have appropriate risk mitigation clauses built in. It leads to savings and cost avoidance that would never be identified without it. And it doesn’t require multiple high five-figure subscriptions to analyst firms … just some elbow-grease, intelligence, and smartly selected memberships and limited-access plans with the appropriate analyst firms that allow you to access the key research you need (identified from lower cost sources) and leave the research you don’t.