Originally posted on on the e-Sourcing Forum [WayBackMachine] on Tuesday, 11 December 2007

Ten years ago, the world was a simple place to do business. Make an honest product, follow the import and export regulations (which, relatively speaking, were few and far between), avoid known toxins, and you were all set to go. Today – different story. You have to document, and report on, everything you do, familiarize yourself with various hazardous material safety and bioterror acts, and keep on top of a never ending slew of regulatory compliance acts coming out of the European Union, including the directives on the Restriction of Hazardous Substances (RoHS), Waste Electrical and Electronic Equipment (WEEE), and End of Life Vehicles (ELV).

Probably the most important act in the US is the Sarbanes-Oxley Act (SOX) of 2002, otherwise known as the Public Company Accounting Reform and Investor Protection Act of 2002, which established a new quasi-public agency (the Public Company Accounting Oversight Board, or PCAOB), that was drafted and passed in response to a number of major corporate accounting scandals (including Enron, Tyco International, Peregrine Systems, and WorldCom) in an effort to restore public trust in accounting and reporting practices.

The Sarbanes-Oxley Act contains a number of major provisions that address the disclosure of internal controls at public companies, the certification of financial reports, auditor independence, personal loans to any executive officer or director, insider trading, and required disclosures. Basically, auditors must be independent, independent auditors must “attest” to the disclosure of internal controls, the chief officers must personally certify the financial reports, personal loans to executive officers or directors are banned, and insider trades are prohibited during pension fund blackout periods. Failure to comply with any of the requirements could result in enhanced cival and criminal penalties for violations of securities laws.

In Europe, it’s a different story. Depending on the products you make, it’s either the Restriction of Hazardous Substances Directive (RoHS) that restricts the use of six hazardous materials in the manufacture of various types of electronic and electrical equipment; the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) that broadly covers the production and use of chemical substances; the Waste Electrical and Electronic Equipment Directive (WEEE) that imposes the responsibility for the disposal of waste electrical and electronic equipment on the manufacturers; the end of life vehicles (ELV) that force vehicle producers to have networks of facilities where the last owner of a vehicle may freely deposit such vehicle at the end of its life; or the cosmetics directive that was created to ensure product safety and public health while allowing the free movement of safe products within Europe.

Globally, we have the Kyoto Protocol, various industry codes of conduct, and forthcoming RoHS and WEEE equivalent acts in Asia. It’s a regulatory whirlwind, and it’s not about to stop. That’s why the e-Sourcing Wiki [WayBackMachine] has started a wiki on regulatory compliance. Check it out!

Originally posted on on the e-Sourcing Forum [WayBackMachine] on Wednesday, 24 October 2007

No, this isn’t the 12 Steps to Serenity in a different guise, and I certainly will not be asking you to accept God as your personal savior, which I consider to be a downfall of many such programs as you cannot accept that which is against your fundamental religious beliefs, which are different for every individual, but a methodical process that, if adhered to, should give your purchasing organization the respect and status it deserves in its effort to introduce a technology-enabled program to increase compliance, decrease risk, and deliver savings.

• Define the Value Proposition
  The first step is to clearly define the value proposition and qualify and quantify the expected benefits and the amount of work to get there, by researching the current organizational processes and state. The benefits of an earnest e-Sourcing or e-Procurement effort generally include lower costs, supply security, improved risk control, buying leverage, quality improvements, process efficiency, and continuous improvement. However, it might be hard to get buy-in without some quantification of the expected benefits.
• Credential Check
  In order to sell a business plan to upper management, one will need lots of credentials, not only on paper, but in real-world experience. If no one on the team has successfully implemented a similar project before, it will be important to line up a top consultant, or two, for the project.
• Perfect the Elevator Pitch
  It’s important to nail down a kick-ass elevator pitch early and that everyone on the core team be prepared to pitch it at any time – in the elevator, in the lunch room, and standing in line at the theatre if that’s where a key decision maker happens to ask about how work is going.
• Identify the Stakeholders
  Identify all of the affected parties before building the business case – not after. The stakeholders are the indidivuals who ultimately determine the success of the project – not the implementation team, the vendor, or even management – and if their concerns are not addressed, there could be severe push-back.
• Identify the Big NO!(s)
  After the individuals whose blessing is needed for project approval are identified and the needs of the key stakeholders whose lack of cooperation could bring the project to a grinding halt addressed, it is critical to determine what could cause them to ultimately say “No” and tackle these issues early on.
• Build the Business Case
  This step results in a formal project proposal document that is delivered to each decision maker before the big presentation. It should contain an executive summary, background information, assessment of strategic fit, a market analysis, a proposal, commercial considerations, a financial analysis, risk and sensitivities, options considered but rejected (and why), and a final recommendation.
• Call for Backup
  Hopefully the team identified who its supporters and friends are when it was identifying the key stakeholders and (casually) gathering their input regarding the project. Now it’s time to update them on the formal plan and gather their support before the big presentation.
• Sell the Solution
  Now it’s time for the big presentation, which could be the team’s one and only chance to sell the project. This will require being well prepared for any question that might arise.
• Start the Project
  All aspects of the project must be managed without anyone micromanaging. It’s important to temper urges to move too quickly. A steady and methodical approach will yield less hiccups to be cured and lead to the best results in the long run.
• Socialize
  It’s important to remember that it’s not over until it’s over and that the team is going to need the support of its sponsors every step of the way! Make sure to communicate project status regularly with all stakeholders.
• Sell, Sell, Sell
  Just because management approved the project and the budget does not mean that they can’t change their mind three months in and kill it. Thus, it is crucial that the team constantly sells the project to make sure it reaches the breakeven point, since it is only then that the organization will start to see the significant returns promised.
• Cure the Hiccups
  Nothing ever goes perfectly, and it’s important to be ready when little things go wrong. Make sure there is a slush fund built up to account for these hiccups and extra (consulting) work that may be required.

For more information on how to take your purchasing function to the next level, check out “Quest for Purchasing Fire” wiki-paper on the e-Sourcing Wiki [WayBackMachine], which will also help you to prepare the business case, conduct a reality check, bait buy-in, and manage the transition. It also contains a bibliography of select references that you can go to for even more information.

Originally posted on on the e-Sourcing Forum [WayBackMachine] on Wednesday, 26 September 2007

The benefits of purchasing consortia primarily fall into three buckets: economies of scale, economies of process, and economies of information. Each of these buckets provides a number of benefits to the member organizations.

Economies of Scale

The first type of benefit offered by a purchasing consortiums is economy of scale. The sheer volume of purchasing demand amalgamated by a decent size consortium generally provides each member with economies of scale that they could not hope to obtain on their own. The consortium is generally able to negotiate (much) lower prices for the good or service being awarded than any single member company in the collective. These savings are usually significant, ranging from 10% to 35% according to the Buying Support Agency. Furthermore, by joining together in a consortia, organizations can (effectively) streamline procurement processes. This not only reduces unit cost, but also reduces the overall transaction costs since only one contract needs to be negotiated and implemented.

Economies of Process

The sharing of purchasing information on suppliers, new technologies, market developments, internal users, and historical spending behavior not only avoids redundancy and reduces transaction costs but creates an economy of process above and beyond what each organization could generally achieve on its own. Since the consortium handles a number of buys on behalf of the organization, the organization has a (significantly) reduced workload, especially on the tactical side, and the buyers are freed up to focus on more strategic categories. Furthermore, individual members units are able to improve their results by sharing best practices in certain business processes, leveraging expertise in functional areas, and pooling knowledge about how to succeed in specific regions with the consortium and with each other.

Economies of Information

The consortium of the future offers the benefit of expertise more so than it offers the benefit of scale. Eventually, especially with constantly rising raw material prices, the best practices employed by a competent consortium will squeeze all of the fat out of the supplier’s margins and the best price will be obtained. Once this occurs, the consortium will use its expertise to assist its members in advancing purchasing technology, reducing wasteful consumption, and improving the application of the goods and services they purchase. Since a consortium has access to all of the knowledge of its members, it can tap this knowledge to identify the best potential suppliers with the best potential products and services to meet member needs. Furthermore, this gives it a much better chance of identifying and qualifying low risk suppliers.

For more information on Purchasing Consortia, check out the “Purchasing Consortia: The Emerging Collective” wiki-paper over on the e-Sourcing Wiki [WayBackMachine], which will review different types of classifications, various benefits, potential drawbacks to watch out for and avoid, common fears to quell, selection criteria, consortium success factors, and best practices to get the most out of your membership.

Originally posted on on the e-Sourcing Forum [WayBackMachine] on Tuesday, 24 July 2007

CRMBuyer recently ran an article entitled “Where Should Your E-Commerce Platform Reside” which highlighted the success that many small and medium sized retailers have enjoyed with their adoption of hosted Software-as-a-Service offerings. Although this result should not be surprising, considering the rampant success of SalesForce.com and its smaller competitor, SalesBoom.com, it’s nice to see the media recognizing that the model works.

It’s no secret that I’m a big fan of on-demand, as should be obvious from last summer’s “On-Demand” weekend series “The Good”, “The Not-So-Bad”, “And the Coming Pretty …” and the follow-up wiki “On-Demand / SaaS Application Platforms”, but articles like these serve to demonstrate that it is not a fervently held irrational belief.

The article points out that “SaaS is another step beyond subscription and that not only does the software innovation flow continuously from the vendor to the buyer, and not only does the buyer pay evenly throughout the life of the relationship, but the software ‘lives’ at the vendor location” which is “a small difference with big implications”. Furthermore, since SaaS is designed to radically minimize the kind of customization that becomes a boat anchor with traditional build or buy mentality, it ends up addressing two of the biggest problem retailers often have with software – the cost conundrum and the innovation gap.

In the cost conundrum, large retailers that have legacy systems in place are continually grappling with the “pay me now or pay me later” problem where they either have to pay considerable incremental costs to maintain a legacy product that is almost crippling them in its inadequacy or pay a very large amount to update the system to the new version.

The innovation gap refers to the fact that the average large retailer has only made two to three investments over the past ten years to try and keep its direct and e-commerce businesses near the innovation curve while Web 2.0 technologies are innovating on what seems to be a daily basis. This has resulted in a technology gap that often can’t be bridged even with a spend of US $20M or more

SaaS overcomes both of these because you pay a manageable fee on a monthly basis and your software is updated regularly and automatically as part of your subscription. As the article says, it all comes down to what kind of business you’re in. If you’re not in software, then you really shouldn’t be trying to maintain a full IT department – you’ll never be able to match the staffs and expertise of the large providers, and considering that doing so provides no value add to your business offering, you should not even be trying.

Furthermore, as the article points out “SaaS can provide a clean, contemporary starting point for a cross-channel strategy that front-ends the warehouse, inventory and logistics facilities with the newest technology, designed to evolve with full backward compatibility, instead of forced upgrades and installations”.

The article concludes with seven key characteristics that you should use in assessing SaaS offerings in the marketplace that are not a bad start:

• Solution Strategy
  How does the vendor bridge the almost inevitable gap between the “out of the box” software and what (you think) you need?
• Integration Strategy
  How does the vendor’s solution integrate into your back-end systems?
• End-User Empowerment
  Make sure the system is intuitive and usable by all affected parties.
• Cross-Channel Strategy
  Evaluate how cross-channel features are implemented.
• Cost-Reduction Strategy
  Make sure that the SaaS solution allows you to unplug the costly systems that you are currently running.
• Retailer Differentiation Strategy
  Make sure the solution gives you the tools you need to maintain and extend your differentiation and brand identity.
• Design Strategy
  Make sure to choose a SaaS vendor that designed its platform to be scaleable from the outset for the business that you play in.

Originally posted on on the e-Sourcing Forum [WayBackMachine] on February 12th, 2008.

Author’s Note: This is a joint effort with David Bush.

A lot of vendors these days are claiming to offer SaaS, because that’s the buzzword of the day and people are realizing that unless they are an IT company with their own high reliability, fault-tolerant, data center with redundant Internet connectivity and power providers, it’s usually better to have a technology company manage the software and data center. (And even if they are an IT company with a modern data center, sometimes it’s cheaper to have certain applications hosted and managed by a third party.)

However, just because a vendor offers you an application “on-demand”, this does not mean it’s true “Software as a Service”, or SaaS if you will. If you look beneath the covers, it’s often just a traditional hosted ASP model relabeled as “on-demand” or “SaaS” because either the provider doesn’t know the difference between ASP and true SaaS, or the provider is hoping that you
don’t know and will thus perceive their offering to be better than it really is.

True SaaS requires multi-tenant. To understand this, we’ll review three major advantages of SaaS in detail which you will NOT realize if you just go hosted ASP. (Many of these are described in the “On-Demand” wiki paper).

Instant Deployment

A hosted ASP vendor might be able to get you up fast, but not instantly. A hosted ASP vendor will have to build a new machine, install their software, and put it on their network. If they are really efficient, they will used standard configurations and have a ghost image that they can flash onto a new machine in an hour or two, but this is not instant. And if the network guy is sick that day, it might be a few days before they can get around to the flash and get the new machine tested and in their data center.

A true multi-tenant SaaS offering only requires the creation of a new customer account, and it’s good to go on the current platform with no installs, no customizations, and no new hardware. It should literally take the vendor longer to log the request and collect your information than to make you live.

Instant Upgrades

A hosted ASP vendor needs to update every customer’s machine to upgrade their offering. If they have 200 customers, they have to do 200 upgrades. Could be a few weeks before you see your upgrade, depending on where you fall on their priority list.

With a true multi-tenant SaaS offering, only the main instance is updated and every customer is updated simultaneously. You see the update as soon as its ready.

Economies of Scale

The real benefit of SaaS is the considerable cost savings it allows. An ASP provider has to maintain separate hardware for every customer, which, most of the time, won’t even come close to maximum utilization, and has to maintain a large team of network professionals to maintain all those
machines.

A true multi-tenant SaaS application can use heavy duty multi-core servers and support 10, 20, or 100 customers (using an IBM or Sun rack configuration) on a single hardware platform with built in virtualization and fail-over. With only one machine and one software instance to update,
only a small team of network people is required – this represents a considerable salary cost savings that can be passed on to their customers. Furthermore, because hardware only has to be added occasionally, and because virtualization allows processors to be powered down when utilization is low, the vendor that has a true multi-tenant SaaS application also saves on hardware and energy costs, and can pass this savings onto its customers as well.

Furthermore, the following advantages will not be realized to their full potential if you just go with a traditional hosted ASP solution:

Pay as You Go

The provider will need a substantial set-up fee up front, or will have to jack up your price to cover the set-up costs.

Single Instance

You’re a large organization that has more users than a large server can handle? Too bad. You’ll find your users split across multiple instances. This will be particularly problematic when one instance fails while another stays up.

Free Upgrades

Since an ASP provider has to install each patch separately for each customer, you’ll be paying a large maintenance fee, whether you know it or not. (Some providers will hide it in the monthly fee, but you’re still paying it.)

The customer has the leverage.

Due to the large set-up costs, these providers will insist that you sign long-term hosting contracts. A real SaaS provider will go for a contract as short as three to six months, although you won’t get a discount unless you sign up for at least a year or two.

Regular Automated Data Backup

An ASP provider will claim to do this … and they will buy a separate backup drive for you machine … and all will seem well until your server fails and you realize that they haven’t tested your backup drive in over 2 months (since it takes them a long time to cycle through the testing
rotation) and the last good backup was a month ago.

Built for Change

To an ASP provider, change is great … as long as you don’t do it more than once a year. Just trust us on this one.

Plus, as my pointed out here on Sourcing Innovation in “the doctor gives you a very important reason to go green, ASP is just not as green as SaaS.