Category Archives: Market Intelligence

Box Nation

… most of what America is now is just boxes going back and forth …
Stewie, Family Guy, Season 15, Episode 18

Seth MacFarlane is extremely insightful when he chooses to be. We not only have boxes on pallets in containers going back and forth between countries but we have boxes in trucks going back and forth between local warehouses, stores, postal outlets, and consumer residences … it’s a boxes in, boxes out society. And it doesn’t matter how much we optimize the boxes coming in if the boxes going out still cost too much.

The point is, you don’t just optimize the inbound supply chain if the outbound supply chain consists of lots of small deliveries that will considerably eat up the savings you worked so hard to generate. In order to keep costs down, you have to optimize these little boxes as well.

This means that you not only need to optimize:

  • packaging costs
  • (outbound) distribution costs
  • insurance costs

But you shouldn’t do separate sourcing events, because packaging is used inbound and outbound. Plus, distribution inbound and outbound uses trucks … and while inbound might typically use big trucks and outbound might typically use small trucks, not only is the situation sometimes reversed, but the same carriers often have big trucks and little trucks and the more volume you can source, the better the deal you can get.

And then there is insurance. While the insurance inbound will likely be of the supply chain variety, and insurance outbound will likely be small carrier insurance / goods insurance, it doesn’t mean that both policies can’t be sourced from the same provider, and that you can’t get a better deal simultaneous sourcing.

In other words, if you really want to save money and achieve sourcing success in Box Nation, you have to consider all the boxes, not just the inbound ones. And if you want to be successful, use optimization. Check the archives (linked) for more info.

When Selecting Your Prescriptive, and Future Permissive, Analytics System …

Please remember what Aaron Levenstein, Business Professor at Baruch College, said about statistics:

Statistics are like bikinis. What they reveal is suggestive, but what they conceal is vital.

Why? Because a large number of predictive / forecasting / trending algorithms are statistics-based. While good statistics, with good sufficiently-sizeable data sets, can reach a very high, calculable, probability of accuracy a statistically high percentage of the time, if a result is only 95% likely 95% of the time, then the right answer is only obtained 95% of the time (or 19 / twenty times), and the answer is only “right” to within 95%. This means that one time out of twenty, the answer is completely wrong, and may not even be within 1%. It’s not the case that one time out of twenty the prediction is off more than 5%, it’s the case that the prediction is completely wrong.

And if these algorithms are being used to automatically conduct sourcing events and make large scale purchases on behalf of the organization, do you really want something going wrong one in twenty times, especially if an error that one time could end up costing the organization more than it saved the other nineteen times because it was primarily sourcing categories that were increasing with inflation or decreasing according to standard burn rates as demand dropped on outdated product offerings, but one such category was misidentified. If instead of identifying the category as about to be in high-demand, and about to sky-rocket in cost due to the reliance on scarce rare earth metals (that are about to get scarcer as the result of a mine closure), it identified it as low-demand, cost-continually-dropping, over the next year and chose a monthly-spot-buy auction, then costs could increase 10% month over month and a 12M category could, over the cost of a year, could actually cost 21.4M (1M + 1.1M + 1.21M …), almost double! If the savings on the other 19, similarly valued, categories was only 3%, the 5.7M the permissive analytics system saved would be dwarfed by the 9.4M loss! Dwarfed!

That’s why it’s very important to select a system that not only keeps a record of every recommendation and action, but a record of its reasoning that can be reviewed, evaluated, and overruled by a wise and experienced Sourcing professional. And, hopefully, capable of allowing the wise and experienced Sourcing professional to indicate why it was overruled and expand the knowledge model so that one in twenty eventually becomes one in fifty on the road to one in one hundred so that, over time, more and more non-critical buying and automation tasks can be put on the system, leaving the buyer to focus on high-value categories, which will always require true brain power, and not whatever vendors try to pass off as non-existent “artificial intelligence” (as there is no such thing, just very advanced machine-learning based automated reasoning).

All Aboard the M&A Train!

It seems that the M&A train, once sporadic, is now running on a regular schedule (thanks largely to Coupa and it’s 1B valuation that allowed it to raise enough cash to scoop up providers left, right and center). Is this good or bad? The answer is it all depends who you are.

Generally, when a company buys another, it does so with an objective in mind that, should the acquisition help it to complete the objective, helps the buyer and usually the set of customers that the buying company wants to satisfy. This might also include a sub-set of the acquired’s customers, which would then be helped in the process, but may also exclude a set of the acquired’s customers, which would not be help. Then there’s the acquired. Depending on the strength of the company, the goals of the management / owners on acquisition, and the alignment with the buying organization, it might be a good thing, or it might be a bad (or very bad) thing.

What do we mean? Let’s take each affected group at a high level and indicate what could be good or bad.

Buying Company

Potential Positive: New Technology

New technology offers the buying company a host of potential benefits including, but not limited to, new technology to sell its current customer base, new technology to bolt onto in a potentially new customer base, and process insights it did not have before.

Potential Negative: Dis-satisfied Customer Base

Expanding the customer base is not always a positive if the customers being acquired are not happy customers from the get-go. Even if the customers are happy, they might be unsettled by an acquisition …

Buying Company’s Customers

Potential Positive: New Technology

Not only does the buying company have new technology to sell, the existing customer base has new technology, that they might desperately need, to buy, and, moreover, they might also be able to buy at a discount because they are already spending with the vendor.

Potential Negative: Less Support

If the company acquired an unhappy customer base, all of the resources might be tasked with making the acquired customers happy because the company was acquired for those customers. This means that support for current customers would drop. And that’s not good.

Bought Company’s Customers

Potential Positive: Vendor has a bigger piggy bank

If the acquiring company has more resources, those could be spent improving the situation for the bought company’s customers. Better support, tech upgrades, more integrations, etc.

Potential Negative: Acquiring company is Mega-co

… and acquired company is mini-co, acquired only because it’s technology posed a future threat and mega-co decided the best risk mitigation was to buy mini-co when it was small and cheap with just a few customers as the acquisition cost dwarfed the potential losses to market share if mini-co succeeded in their efforts. In this case, Mega-co wouldn’t care at all about the customer base and could just ignore them completely.

Bought Company

Potential Positive: Bigger Piggy Bank

… which could be used to further the mission … but

Potential Negative: Lack of Support

… if the mission of the bought company does not match the mission of the buying company.

So what does this mean for Coupa, Trade Extensions, and their customers? the doctor knows you want to know, but the doctor will not provide his thoughts until the acquisition is complete.

S2P Nirvana is a LONG Way Off!

And no amount of M&A is going to change that.

Why?

  • 1. There are still lots of problems software does not address
  • 2. No provider can address everything, even with a narrow functional focus
  • 3. Benefits only come from integration, not acquisition

1. There are still lots of problems that software does not address.

Software is simply automation of process by way of (mathematical or logical) algorithms. It is not intelligent (despite claims of AI supporters to the contrary), cannot sense the problems you need to solve, and cannot tell you what you are not doing outside of the process it was coded to support.

For example, in spend analysis, it cannot tell you what spend to look at, how to slice and dice it for unidentified opportunities, and where the functionality is lacking. It can identify trends, indicate what processes worked in the past to take advantage of those trends, but cannot identify any new, unknown, variables that could prevent those processes from working again.

2. No provider can address everything, even with a narrow functional focus.

There are at least half a dozen pure-play best of breed providers in pure spend analysis, and these follow half a dozen pure-play best of breed providers in pure spend analysis that were recently acquired, and all have unique capabilities. Thus, when there is still no provider that does it all, and still so much innovation to do in each narrow functional domain, it’s obvious that S2P Nirvana is still a long, long way off.

3. Benefits only come from integration, not acquisition.

Without integration, there are no more benefits than each solution had on its own. Just because the two solutions are now owned by the same provider does not mean there is any benefit besides potential volume-based cost leverage (if the provider can be persuaded) or more staff for additional services support. Benefits come from simplified and expedited processes, which generally only come from smooth integration, and, sometimes, even absorption of a smaller product into a bigger one.

In other words, S2P Nirvana is a long way off and M&A isn’t going to change that, so while the M&A train is going full steam ahead, it doesn’t mean it’s going to get you to your destination any faster.

Dave Caroll was Lucky! United Only Broke His Guitar!

Reading this incident (reported on cbc.ca) about how United is now forcibly removing paying passengers from planes after assigning them a seat and allowing them to board, and knowing how little room there is to maneuver in those aisles, it seems that boarding a plane now comes with the risk of getting broken bones! (While it, fortunately, did not happen this time, getting an arm or leg caught on an armrest or having one’s head banged into the overhead bins could easily result in a dislocation, fracture, or even a break!)

I guess the lesson here is clear! Do NOT fly United! (And when sourcing travel, leave them OFF of the potential preferred carrier list during negotiations.)

For those who have forgotten, you can go view the entire trilogy of videos Dave made about his horrendous experience on YouTube through the links in this 2010 post:

United Breaks Guitars (The Trilogy): 10 Million Views, All Thanks To You!

(FYI: The trilogy is now closing on 20 Million Views.)