Category Archives: Guest Author

Analytics II: What is Analysis?

Today’s post is by Eric Strovink of BIQ.

Ask a statistician or an applied mathematician, and she’ll probably tell you that analysis is either (1) building predictive models based on historical data, or (2) deciding whether past events are statistically significant (i.e., ascertaining whether what actually happened is sufficiently different than what might have happened by random chance).

But most of us aren’t applied mathematicians or statisticians, so we can get into trouble very easily. For example, we typically haven’t got a particular hypothesis to test (which is critical), and that means any patterns we might “find” are immediately suspect. That’s because in any dataset one can always come up with a hypothesis that generates significant results if one looks hard enough. With regard to predictions, we generally aren’t confident about the predictive power of our models, because we are neither facile with advanced predictive modeling techniques, nor do we have access (in general) to a sufficiently large sample of “known outcomes” to which to compare our predictions. Without a massive dataset like that provided by the Netflix Prize competition, there is no hope of refining a solution.

Of course, practical analysis work can be done without any advanced statistical or modeling techniques. Practical analysis boils down to “finding stuff in your data” that you either didn’t know about, or weren’t sufficiently aware of. That’s the basis of what business analysts do every day. Which salespeople are selling, and which aren’t? What products are selling where, and what aren’t? What was their profit margin, and why? What are the costs associated with running the business, and are they reasonable or unreasonable? And so on.What’s required in order to come up with these answers is well understood:

  1. Acquire data from one or more sources.
  2. Transform like data sources into a common format, and link unlike-but-related data sources together with common keys (or computed expressions that result in common keys).
  3. Create a schema for the data sources, obeying the conventions of a [selected] database system.
  4. Load the data sources into the database system.
  5. Issue queries against the database, and, when useful, format the results into reports.

Steps 1 through 4 are accomplished out-of-the-box by every ERP or accounting system, although only for a small subset of the useful data in an organization. Step 5 is also accomplished by ERP or accounting systems, on that same subset of data, but (historically) rather poorly. That’s why there has been such a large market for “Business Intelligence” or “BI” tools that put some necessary functionality back into Step 5.

However, when the data aren’t generated by the system that’s reporting on them, or aren’t resident in one of a handful of ERP systems to which a BI system can attach automatically, then we hit the essential problem with business data analysis. This problem is either ignored or deliberately misunderstood by most IT organizations, and it’s simply this: business analysts, in general, are either unwilling or unable to accomplish the following:

  • Transform data;
  • Create database schemata;
  • Load database tables;
  • Issue SQL queries.

And, even if they can accomplish those steps, exploratory analysis usually can’t be justified by management because the above process takes too long (and therefore costs too much, causing the expected value of the analysis to be negative). Which means, IT departments, that you can buy the business people all the data warehouse tools you want, and it won’t make a whisker’s bit difference with respect to their ability to analyze data. Sure, you could hire a data expert to help them, but that won’t work either (I’ll save that explanation for part III).

Previous: Analytics I: Optimization Comes of Age

Next: Analytics III: The Data Expert and His Warehouse

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Have You Been Aribaed: The Harbinger of Getting Paid

Today’s guest post is from Richard Adin, founder of Freelance Editorial Services and blogmaster of An American Editor. It originally appeared on An American Editor on September 23, 2010 and is reprinted with kind permission.

Have you been aribaed (that’s ariba + ed to somewhat simulate the verbing of a company name)? I have and I must admit, I don’t like it.

It’s the modern megacorporation’s way of further shafting (squeezing mercilessly) the little person who really can’t fight back. It isn’t the battle between near-equals or almost-near-equals or even fantasy-almost-near-equals, but the battle of multiple giants against an ant.

Okay, I hear you asking, “so what’s the problem?” The problem is this: freelance editors are generally 1-person small businesses. They do not make million-dollar grosses, do not file SEC reports quarterly, and do not worry about being delisted on the stock exchanges. Instead, they worry about keeping expenses down, getting enough business to earn a living that is at least equivalent to what they could earn working at the local convenience store, and getting those who hire them to pay them the agreed-to amount on time. In other words, we are part of that cadre that both Republicans and Democrats seemingly want to protect when they speak of small business but consistently fail to protect because we don’t fork over enough cash to them.

What is Ariba? Ariba is a megacorporation1 that serves as an intermediary between suppliers and clients for invoicing and payment. I assume that the reason for a company to sign on with Ariba is so that it can eventually eliminate its own accounts payable department, saving the costs of writing checks, verifying invoices, and, of course, all the costs associated with having human beings working in these departments; I don’t know this for certain.

So far, so good — right? Well, setting aside the idea that if American companies continue to forcibly retire low-level workers so they can increase the perks to very-high-level executives there soon will be only a handful of people able to afford to buy the company’s products because the vast majority of people will have no disposable income (and let’s face it, if you manufacture a book, how many copies of a title is the company CEO likely to buy), there is nothing particularly wrong with delegating to a third party bill paying.

Except when you — the supplier of labor or goods — are aribaed, because when you are aribaed, you have to pay Ariba a percentage of your invoice in order to get paid. Imagine this. MegaMonolith Corporation (MM) hires you to edit a book and because of competition and outsourcing to packagers, in order to compete you have had to set your price at the same level as it was in 1995.

So you do the job with great skill and care, working long days and weekends to get the job done in time to meet MM’s compressed schedule — and getting no additional monies for working more than 8 hours in a day or on weekends — and submit your invoice for payment. Previously, your invoice went directly to MM, the client.

But out of the blue MM gets the bright idea to use Ariba. Now you get your chance to be aribaed. In order to edit books for MM, you have to get a purchase order (just like before, so no big deal) but now you have to submit your invoice through Ariba, who won’t process your invoice unless there is a matching purchase order. On the surface it looks great until you get your check and discover that you’ve aribaed — Ariba charges you a percentage of your invoice for sending you the money you are owed. And, if you don’t join Ariba, process your invoices through Ariba, and pay Ariba’s fee, you can no longer sell your services to MM. Welcome to the group of people who have been aribaed!

On wonders if MM needs to replace a thousand computers is it likely that Dell or IBM will voluntarily pay this fee? My guess is not, but they have the power that us freelancers don’t and offer goods that are relatively unique, which we don’t. In the end, it is the small fry like us who will pay MM’s operational costs or be barred from doing business with MM.

Ariba’s pitch is that it is a place of networking. Other potential customers will find you in its database and send you business. And my great-great-great-great-grandmother will be elected president of the United States right after her resurrection. Do they really think we are so naive as to believe that the people who make the decision to hire a freelance editor are searching Ariba’s database?

Unfortunately, just as many publishers have forsaken quality for quarterly returns, so they will squeeze the little person because they can’t squeeze the IBMs and Microsofts of the world. They will squeeze where they can, which means the workers in the trenches. And aribaing freelancers is just one more way to do so. It is a natural next step to the outsourcing of editorial services to packagers that began in earnest in the late 1990s as a way to squeeze editorial pricing.

Are you ready to be aribaed? If not, get prepared, because it is coming.

Thanks, Richard!

1 As per a recent post by Debbie Wilson on the Gartner blogs, it is a megacorporation with a market cap of 1.73 Billion.

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Analytics I: Optimization Comes of Age

Today’s post is by Eric Strovink of BIQ.

I remember my first experience with optimization. I was taken to a guidance counsellor’s office at my local high school, where a special terminal was set up. This terminal was connected to a system that would allegedly try to find the “best” college for me. It asked many questions. Questions like, “Would you prefer a warm climate?” and “Would you prefer an academic setting with equal numbers of men and women?” Well, duh. Those were easy answers.

My goal was to attend one of the premier engineering schools in the US. I wanted MIT or CalTech or Stanford or Carnegie Mellon. I’d be happy with Rice. If my grades or scores weren’t good enough for the snooty super-competitive schools, I’d try for Rensselaer or Northeastern.

The system ended up choosing an entirely unsuitable school, evidently equally weighing my academic preferences and my social and geographic preferences.

What’s my point? Well, in a microcosm, this has been the essential problem with optimization. When you provide a “constraint” — and let’s be precise, here, the term really is “constraint” — an optimizer will not look outside that constraint for options. It cannot. It is a mathematical engine, and it can’t read your mind and figure out which is a “soft” requirement and which is a “hard” requirement. As far as it’s concerned, they’re all requirements, and, by whatever God you (don’t) believe in, it will find a solution that fits those requirements, if there is one.

That’s one reason why optimization has struggled to find its way.

I was listening to my wife talking to a survey telemarketer the other day. She said, “I really don’t have an opinion about Blue Cross’s responsiveness to patient needs. I’ve never had Blue Cross.” There was a pause. Then she said, “But how can I have an opinion on a 1 to 10 scale, if I’ve never used them?” There was another pause. She said, “OK, but ….” There was another pause. She sighed, and said, “OK, 5.”

What’s my point? Well, do you really know the answer to what kind of constraints you should impose on your optimization model? Or are you supplying an answer because you don’t know the answer, but you have to supply something? And after the optimization model has solved, can you remember all the places where you guessed, but you didn’t really know? What if you forgot one of those places? And what if that one guess caused the model to solve in a really non-optimal way (non-optimal from your perspective, not its)?

That’s another reason why optimization has struggled to find its way.

The breakthrough has come with what I’ll term “guided optimization”. If you hike in the White Mountains of New Hampshire, for example, you have a large number of excellent trails to choose from. Many of them are safe climbs that lead to outstanding views and vistas; but others lead up steep, often wet cliffs that are unsuitable for casual hiking. You need a guide; in this case, any of the excellent guide books from the Appalachian Mountain Club. In the case of optimization, your guide usually needs to be an experienced practitioner who can help you set up your model, show you how to move constraints to find inflection points in your model, and so on. (The good news is that lots of vendors provide guided services now, and it isn’t that expensive. Especially when you consider that optimization can be incredibly valuable.)

Companies that provide guided optimization services, like Trade Extensions, have enjoyed solid growth and have left a legacy of satisfied customers. You can always use optimization software on your own (Trade Extensions is no exception); but until you really understand what you’re doing, it can be unwise.

Optimization vendors have claimed for years that their systems are usable by novices. I don’t dispute that there are cases where this is true, and has been true. But for me, it’s a case of crying wolf: there have been so many claims, for so many years, with so many tears, that I’m solidly in the “get a guide” camp. I do hope, though, that optimization vendors will take additional steps to make guidance unnecessary. the doctor has assembled a pretty comprehensive list of what needs to happen.

At the end of the day, if you can’t do analysis yourself, you’re less likely to do it at all; which, as you’ll see in the next installment, is the theme of this series.

Next: Analytics II: What is Analysis?

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The Strategic Sourcing Debate, Part VI: Yup. It’s still dead!!

Today’s guest post is from Dalip Raheja of The MPower Group, who declared that Strategic Sourcing is Dead, and who has returned to poke the hornet’s nest once more.

A very special thanks to those who engaged in a substantive debate, whether you agree or disagree with us. I am grateful for your time and kind consideration of our arguments and hope that you will continue to engage in the conversation. That was the Intended Consequence. The Un-Intended Consequence was the tone and tenor of some of the reactions. Let me apologize to those who got quite offended by my writing/language skills. As I have said in almost every conference I have spoken at over the years, I am a 3rd world immigrant trying to make a living here and learn the language at the same time, and that is still obviously a challenge for me.

I did not realize that this was a contest and that the doctor was playing Simon Cowell. Had I known this, I at least would have gotten a haircut and put on a nice suit! But let’s forget for a moment who won or lost, according to the doctor, and let’s look at the substantive points made by a number of the respondents. I will address some of them here, and others in a later post.

Clearly, Tim Cummins (IACCM, The Death of Procurement) and I mostly agree on the substance of the hypothesis. Where we may disagree is how to solve some of these issues. What is unique about IACCM is it represents a very innovative nexus in that it brings both the buy and the sell sides together. Especially if you fundamentally believe at the end of the day that the Intended Consequence for both sides is to establish relationships (commitments according to Tim) which create and deliver mutual value beyond the contracted transaction. In fact, there are organizations where both of these functions (buy AND sell side contracting) have been organized under a single leader and we think that is just a fascinating opportunity to maximize value. We call it the JANUS model (feel free to come up with your own name). We think one of the Next Practices the community should adopt is that the Sourcing/Supply Chain function should be an integral part of the sales process (Mpower Blog). Let that sink in for a while and hopefully you will agree. For a detailed discussion between Tim and me on this topic, you can listen to a recording of the webinar Tim and I just delivered:

It is also interesting to note the most recent post entitled “(The) Strategic Sourcing (Debate Part V): My 2 Cents” where the author states in his opening paragraph:

“It’s called strategic, but it’s not used strategically.”

Strategic sourcing, for the most part is seen as a procurement function, and typically, a transactional process leveraging tools such as RFx and Reverse Auctions in a tactical manner. Some large consulting firms, who offer services, treat Strategic Sourcing services similarly and mainly are utilized as “staff-augmentation”. For manufacturing organizations, where materials can be 60%-80% of the cost of goods, sourcing of direct materials needs to be approached as a Supply Chain challenge. Take the direct materials at the point of consumption and work backwards in the supply-chain several tiers, and understand costs. When the Supply Chain is worked cooperatively with suppliers, an organization can ask the question “How we reduce each others costs without adversely impacting each other’s margins”?

No disagreement with what he has to say. He does go on to give some examples of exceptions and while I don’t agree with all his examples, I would be very happy to agree there are many examples of pockets of excellence and we should find them and extract the Next Practices. However, I still maintain that to make the kind of dramatic change we need to make, mere CPR at this stage may not be enough.

In the post titled “Where does Strategic Sourcing fit in?”, the author shares a very similar professional background as mine (been there/done that, speaker and advisor) and has clearly posted a very thoughtful, measured response and I could not agree more with the gist of what he has to say. He lays out three questions, which he writes are even more fundamental, and I am happy to concede his point for a minute. What becomes obvious is we both end up in the same place … it hasn’t worked, it ain’t working, and it needs fixing right away.

“Do your senior executives understand the enormous potential of modern supply management (only one element of which is strategic sourcing)?”

I concur with this totally and this is exactly the argument we are laying out. What the author calls the “enormous potential” is what we are referring to when we talk about the destroyed value. And it is very clear senior executives do not understand that their Sourcing/Supply Chain organizations can help them get at this value because they only see their Sourcing organizations focused on cost/TCO.

“Do your senior executives understand how to achieve that enormous potential — i.e., how to build the transformation roadmap and how to support it?”

The quick answer is no. The more detailed answer is almost all organizations assume if they keep investing in their infrastructure (the consonants), they will get the results. And if the past few years have proven anything, it’s that this misses the whole issue of the vowels … how will these practices and the latest gizmos and technology be Adopted, Executed, Implemented, Optimized and Utilized?

“If the answer to the first two questions is ‘no’, are you prepared to take a leadership role in helping your senior executives achieve the necessary awareness? If not, then debating the ‘strategic sourcing is dead’ question is moot at the company level.”

And this gets at the crux of the issue because in a large majority of the cases, the answer to number three is a resounding NO!!! Furthermore, the follow-up question is why are we still where we are after 25 years? Until we understand that issue, I’m not sure how we go about determining how to fix it. Our research suggests that the biggest reason is the singular focus on cost (TCO etc.) gets in the way of senior executives achieving the necessary awareness because cost is but one element of their decision criteria and that is why we must fundamentally alter the sourcing process and initiate the process with their decision criteria while not abandoning cost.

The author then goes on to say:

 

  • Believe it or not, 25 years after the birth of strategic sourcing, many companies of all sizes still are not aware of “true” strategic sourcing.
  • Equally astonishing, a surprising number of companies believe they are using strategic sourcing, but in fact are not.
  • Perhaps as a reaction to the need for “quick wins” in the current business environment, some companies who previously used a true strategic sourcing process have since “dumbed down” their process into a tactical ghost of what it used to be.
  • As noted above, trying to introduce and embed strategic sourcing without the supporting pillars of a transformation roadmap is likely to generate only short-lived benefits.

 

And to all of the above, I have a simple one word response … AMEN!! And that is exactly why we are issuing the clarion call to acknowledge that it hasn’t worked, it ain’t working, and we need to fix it right away. It was also very heartening to see a reference to a Transformation Roadmap because that is exactly what we have been recommending and delivering to clients for more than a decade. I will agree we are going further and saying the current approach and process (even with the latest technologies, decision optimizers, risk simulators, etc.) ain’t gonna work; and, we can either keep trying to fix it or we can all agree that we need to apply a fresh perspective and come up with something totally different.

So please join the debate, and yes, debate implies a conversation. All I ask is that we keep the confrontations constructive and stay away from the name calling, innuendo, and disparaging comments. We will be the first ones to admit that if we are now right, then obviously we too have been wrong in the past. And if you are truly a committed defender of the status quo, our best wishes to you. I will respond to some of the other commentary in a later post. I will also provide my reading of the Doctor’s TVM and Gartner’S DDVN.

Thanks, Dalip!

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(The) Strategic Sourcing (Debate Part V): My 2 Cents

Today’s guest post is from Sudy Bharadwaj, ex-analyst extraordinaire of the Aberdeen Group, former VP of MindFlow, former CMO of Informance, and, most recently, a star at Inovis.

There is lots of debate in the blogsphere about what is strategic sourcing — whether or not it’s dead, alive, or a zombie. Over the past several months, discussions with consulting firms, large/small enterprises1, and technology vendors has revealed a few items:

“It’s called Strategic, but its not used Strategically”

Strategic sourcing, for the most part is seen as a procurement function, and typically, a transactional process leveraging tools such as RFx and Reverse Auctions in a tactical manner. Some large consulting firms who offer services, treat Strategic Sourcing services similarly and mainly are utilized as “staff-augmentation”. For manufacturing organizations, where materials can be 60%-80% of cost of goods, sourcing of direct materials needs to be approached as a Supply Chain challenge. Take the direct materials at the point of consumption and work backwards in the supply-chain several tiers, and understand costs. When the Supply Chain is worked cooperatively with suppliers, an organization can ask the question “How we reduce each others costs without adversely impacting each other’s margins”?

The Starting Point

One area missing in many Strategic Sourcing processes is a clear understanding of objectives of the process, the organization, or even a sourcing event. Is the focus on cost? A quick answer can be yes, but further details shows that enterprises are balancing cost with quality, supplier performance, and a host of other factors. A large consumer goods company recently awarded contracts which were 10% higher than the previous year to a different supply-base, due to very poor supplier performance the original supply base the prior year (late shipments). The objective of that sourcing event was shifting to more reliable suppliers while keeping the cost of the category within 15% of the previous year. Therefore, a 10% increase in costs actually exceeded expectations.

How are some enterprises leveraging Strategic Sourcing? They are leveraging strategic sourcing initiatives in other areas of their business.

Examples:

Product Design Process Understanding cost structures, supplier capabilities and/or metrics when in the design process and adjusting as needed pays large dividends, since changes later on during the product lifecycle can results in much higher costs or longer innovation cycles. A consumer electronics manufacturer recently had to eliminate a product launch, due to the fact that a critical component, which was cost-effective at lower volumes, was more expensive at higher volumes, thus causing the product’s profitably to fall below acceptable levels.

Manufacturing Knowing which suppliers adversely affect production can be key in understanding qualitative factors (such as cost) vs. quantitative factors such as quality. If a specific supplier is 5% less expensive than others, but, due to inconsistent quality, causes lower yields, is that 5% in savings costing 10% in other costs such as product re-do’s, overtime, or waste?

Supply-Chain Strategy. By having extended supply chains, organizations now off-load much of development and manufacturing of their products to third parties. Should organizations take back some of this manufacturing, perhaps a final assembly step, in order to drive cost savings, perform better customer satisfaction (by offering custom final assembly), or achieve other objectives?

Is Strategic Sourcing Dead?

For some organizations, it may as well be, since top-performers leverage Strategic Sourcing in manners described above, or in other ways, thereby outperforming their industry peers. These top performers also take a multi-year view. For example, in year 1, develop an understanding of the cost structure of key materials or components. In year 2, leverage this knowledge and work with those suppliers who can attack the key parts of cost, lowering the overall cost of a product, thus increasing profitability, or maintaining profitability as the organization faces price-pressures. In year 3, the organization may start to drive out cost by (1) aggregating specific key components across it’s supply-base, (2) taking positions on these components in commodity markets, and (3) requiring the supply-base to purchase these components from the commodity positions.

Thanks, Sudy.

1 Primarily Manufacturing firms in a variety of industries: Hi-Tech, CPG, Process, Oil & Gas, Pharmaceuticals, Discrete Manufacturing, etc.

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