Category Archives: Market Intelligence

Keelvar: The Little Engine that Could

In case you haven’t guessed, this post is about The Little Engine That Could not only get up the big hill, but after scaling the hill, decided to follow the tracks up to Alaska, tackle, and climb, Mount McKinley (also known as Denali), which is the highest mountain in the United States at 6,190.5 meters (or 20,310 feet), and not stop until it reached the summit.

For those of you who missed our prior posts, namely Keelvar: Strange Name. Uncommon Results., Keelvar: Are They Right for You, and Re-introducing Keelvar, An Optimization-Backed Sourcing Platform, Keelvar, which is the newest, and still the smallest entrant, to the strategic sourcing decision optimization game, and one of the few (correction: two) vendors to provide a fully integrated optimization-backed sourcing platform (with integrated RFX and e-Auctions), has been making great strides since it spun-out of the 4C research laboratory (in the Department of Computer Science) at the University College of Cork a mere four years ago in 2012. Since then, it has been advancing faster than all of its peers except Trade Extensions, and has emerged to become a top contender for the provision of optimization-backed sourcing platforms. In fact, as hinted at in an upcoming Pro piece, the doctor expects that Keelvar will grow faster than 4 of its 5 five competitors over the next few years.

So what’s so great about this little upstart? The first thing to note is the ease-of-use of the platform. The platform, which embeds a simple-to-follow seven-step best practice sourcing platform, literally guides even the most junior of buyers through the most complex events the platform can handle, and the side-bar navigation makes it a breeze to quickly access any step in the process. (The tried-and-true best-practice methodology is strikingly similar to what MindFlow used back in the day, but it never had such an easy to use, clean, and modern interface.)

The second thing is the speed of improvement. Since SI last reviewed the platform last fall, a number of considerable of enhancements have been made that go well beyond usability. Extensive supplier self-service has been added (which allows the supplier to manage not only the response and bid process, but the team assigned to it – all the buyer has to do is invite one supplier rep, and that supplier rep can create the supplier organization’s records, add users, give them appropriate, fine-grained read/edit rights to the documents and bids, and manage all of their effort without any buyer involvement whatsoever). Single-sheet smart-load (which allows the platform to detect field-types, field-status, and other relevant information without a user having to define a lot of meta-data or use the cell-based encoding required by other platforms) has been developed. And parametric bidding is in quality assurance.

Parametric bidding is, in a world, cool. Often in the acquisition of fleets, computers, cell phones, etc., the buyer doesn’t precisely know the exact configuration details that are desired until the last minute. In this situation, the buyer has to either create a huge number of potential configurations for bidding, or pick a few and hope for the best. With parametric bidding, the supplier can bid on a base configuration and define all of the options they offer against that configuration as well as the price increments (or decrements) for that option. When the final configurations are selected, the system will automatically calculate the appropriate costs (and discounts) from the parametric sheet for the optimization model, with no effort at all required by the user. This is a feature that is jut not seen in first generation sourcing platforms. Watch for it.

Keelvar, which was first named as a SpendMatters company to watch last year (and which will soon be covered in depth on Pro by the doctor and the public defender), is a company that you should be keeping a really close eye on. Optimization-backed sourcing platforms are the future. and right now there are one of only two providers with a single, integrated, end-to-end, solution. We may see more in the future (with BravoSolution working on integrating its two product lines, SciQuest’s acquisition of CombineNet, and Determine’s acquisition of Selectica), but Keelvar (and Trade Extensions) have an early lead that gets larger every day their competitors work on integration (as opposed to innovation).

Now, you’re probably worried about adoption, because first generation platforms were, for the most part, so damn hard to use (to put it bluntly), but second generation optimization-backed sourcing platforms are actually quite easy to use and focussed around adoption. For more information on how to get Higher Adoption, check out the linked white-paper. And for more information on Keelvar, we recommend checking out their new, open, Keelvar support portal.

SourceMap: Striving to Bring Supply Chain Visibility to the Masses

SourceMap is a supply chain mapping tool that is designed to help an organization map out their end-to-end supply chain to help them gain critical insight and understanding into their performance, costs, sustainability, and risk. Especially risk. Most companies don’t understand the risks hidden in their supply chain — the sole-source parts, the over-dependence on high-risk geographic areas, or the ability of a single port strike to knock out multiple shipping lanes. (Nor do most companies understand the cost of risk, which is discussed in detail in Sourcing Innovation’s upcoming white-paper on Playing With Fire, but that’s a discussion for another post.)

SourceMap, born as a research project at the MIT Media Lab to publish and measure the environmental footprint of all the products on earth, was launched as a public platform for supply chain mapping in 2009 that allowed individuals to see every aspect of a product’s life — the good and the bad. Then, in 2011 it partnered with the MIT Centre for Transportation and Logistics to pursue opportunities in automating supply chain visualization and risk management. Shortly after, the 2011 Tohuku tsunami hit and wiped out over 45,000 buildings, damaged over 144,000 more, shut down all of Japan’s ports (including 15 that were located in the disaster zone). All told, it did over $300 Billion in damages and sent shockwaves throughout global supply chains. Companies were scrambling to understand the impact on their supply chains, SourceMap was approached, an incorporation followed, and the private sector solution was born.

Hands-down, SourceMap is the best visualization of the supply chain to hit the scene since Resilinc, which is, in Sourcing Innovation’s view, is still the leader in Supply Chain Risk Management solutions, but if all an organization needs is visibility and Supply Chain Visualization, SourceMap is now a leading contender in that arena. SourceMap has the ability to use an organization’s ERP data, public data sources, and survey data from the organization’s suppliers, the suppliers’ suppliers, down to the raw material suppliers, to create a complete point-to-point map of the supply chain that an organization can use to trace it’s products from source-to-sink on a (Google Earth) Map and visually see what is happening. This is a very powerful feature that allows an organization to gain insights into their supply chain that they never knew before. And just like an organization is typically shocked the first time they run a spend analysis (we spend that much with who?!?), they are typically just as shocked when they run a map and see that a number of distributors and tier 1 suppliers are using, or outsourcing a significant portion of, spend to the same tier 2 supplier and just pushing the single-source point of failure an organization is trying to avoid one step further down into the Supply Chain.

And the SourceMap solution, which only needs common location data points, can quickly import and combine all data sources an organization can get its hands on and SourceOne can often create a starting supply chain map for an organization in less than an hour. It’s not complete or perfect, but it allows the organization to quickly drill into the supply chain and see where the data, and focus, is needed.

SourceMap is quickly becoming the new supply chain visibility solution to watch, and for a real in-depth analysis, Sourcing Innovation would recommend the in-depth write-up that the doctor and the prophet collaborated on over on Spend Matters Pro (membership required) that provides four pages of deep insight into the solution.

One Hundred and Twenty years Ago Today

Mr. Charles Dow published the first edition of the Dow Jones Industrial Average, a mere 12 years after Mr. Charles Dow composed his first stock average (of nine railroads and two industrial companies). And while there have been many averages, including a number created by Mr. Charles Dow himself, the Dow Jones Industrial Average (DJIA), the second oldest US market index (after the Dow Jones Transportation Average) is the most famous of these. The only index that come close in fame is the S&P 500.

It’s famous as many investors believe it can be used to describe the market, but all it can really be used for is a baseline to compare the return on specific investments in a historical period to the index. A good investor should beat the index, and a bad investor doesn’t hit it. However, simply judging a price against a price weighted index doesn’t really tell you much about the market, just the historical performance of a small portion of it. It’s a useful measurement of past performance, but not necessarily a good indicator of future performance of the market overall. But all analysis has to start from somewhere, and this did give rise to a new era in stock market analysis, which, for better or worse, did lead to new advancements in analytics and computing, we have to at least recognize it.

Economic Sustentation 09: Oil & Gas Price Shocks

For the last twenty (20) years or so the West Texas Intermediate Crude Oil Price chart has been bouncing up and down like a yo-yo in the hands of a novice who doesn’t know how to work it, but doesn’t stop trying. And any other chart you pull up for international oil and natural gas prices is going to look similar. In other words, as we stated in our damnation post, within a one-year period, prices can double or be cut in half with little or no warning. And either situation will run havoc with your supply chain.

If prices double seemingly overnight, your costs are going up — way up. If you have a contract, you might be able to insist that your supplier absorb the increase since they were, at signing, charging you higher than market cost since they were taking a risk over a predefined period. But, at some point, their margins go to zero, and soon after that, the supplier is not going to put up with it anymore, especially if they are struggling financially. Then the shipments stop.

But it’s not much better when prices drop. While the first to cry foul when prices rise, suppliers are the last to play fair when the prices drop. Arguments that the deal was so good they were losing money on delivery, arguments of higher overhead costs, and arguments of temporary blips are brought to the table whenever you ask for a price concession, even if the contract guarantees you one.

So what can you do?

1. Tie Prices to an Index – Updated Daily, Averaged Weekly or Monthly

Base the contract on index prices, averaged weekly or monthly, and tie the price to that cost on the purchase order date. You’ll pay more if prices rise quickly, but you’ll also pay less when prices fall faster than expected. Then, you can simply acquire good prediction algorithms that have performed well over the long term, and plan for the shocks and not waste time arguing when they happen, leading to much more cordial relationships that can be focussed on service and customer service.

2. Master Predictive Analytics

Don’t just acquire an algorithm, understand it, and run models with slight market changes to see how oil prices shift when other correlated indicators shift. Get better than the competition and over the course of years, you will always, always, always come out ahead.

OR, if this is too mathematically advanced for you, and you are willing to accept sub-optimal outcomes (which will still be better than what you get now)

A. Always Lock Prices in for the Long Term.

So the cost stays the same unless a ceiling or floor, defined as a price percentage, is met. If the average price over a month goes up or down more than, say, 10%, then the price shifts by a fixed percentages, such as half of that. In addition, negotiate for clauses that allow the organization to auto-renew automatically at the current price at an time in the last six months, for the same time-frame.

B. Make sure the ceiling and floor shifts with every price change.

While the cost shift will be absolute, the price should only change every time the price changes by more than a fixed percentage from the price being paid, not the locked-in price.

C. Reduce Oil and Natural Gas Dependence.

Invest in renewable power sources such as solar, hydro, and geothermal so that, over time, you become less dependent on oil and natural gas and the price uncertainty they bring.

Why You Need MROaaS

Yes, you need MROaaS. Everyone needs MROaaS. ( But don’t tell your boss you need MROaaS, spell it out, because we all know what she’s likely to hear when your tongue trips over this one. 😉 ) Next to T&E (not T&A), it’s probably the biggest tail-spend savings opportunity in the enterprise. And it deserves to be addressed.

MROaaS, short for MRO-as-a-Service, which is itself short for Maintenance-Repair-and-Operations-as-a-Service (which is very unsexy when you say it this way), is, for large organizations that need to maintain a lot of inventory on hand, the biggest overlooked outsourcing opportunity in the business. Inventory is costly (and many estimates put annual inventory overhead at 25% of product cost). But not having the right inventory at the right place at the right time is even costlier. (Downtime leads to lost production and, ultimately, lost sales which is very costly when you still have to pay the day-to-day overhead, including your employees’ salaries.) And MRO is often the biggest consumer of long-term inventory (because the majority of goods for sale will move in and out within a few months, or even a few weeks, while MRO inventory could shit on the shelf for two years). So inventory optimization alone is a good reason to have good MRO.

But that’s not the only reason to have good MRO. The reality is that, in an average organization:

  • over 20% of inventory on the shelf is excess and/or obsolete
  • fill rates for most MRO storerooms are closer to 75%
  • there is supplier “lock-in” even where alternative sources of supply exist

And the losses mount quickly.

But these aren’t the only problems organizations face. Most also have to deal with

  • recall inventory not getting identified and then being used when it shouldn’t (which creates hazards)
  • significant expediting when a part is out of stock and it is needed yesterday
  • inefficient returns management when the wrong part gets shipped or a part is identifies as bad six months (or three years) down the road (when it might not even be returnable)

And the losses continue to mount.

But with good MRO:

  • excess and obsolete inventory can be reduced by up to 90% (or more)
  • fill rates can exceed 95%
  • alternative sources of supply are easily identified
  • recall inventory is immediately identified and returned
  • expediting becomes the exception rather than the rule
  • returns are properly handled in a timely fashion

And the organization stops bleeding red.

And this is why the organization needs good MRO. But why does it need MROaaS. Slowing down the cash hemorrhage is one thing. Improving the organization’s overall health is another. Good MRO can add value in a lot of ways. In addition to the inventory optimization that will see the results above, it can also provide:

  • proactive shipment monitoring to insure the right shipment is made at the right time
  • lean process improvement to take time and cost out of the process
  • supplier consolidation to allow for more volume-based cost reduction opportunities and more time to focus on each supplier
  • supplier development programs to insure that supplier performance improves over time

And this is just the tip of the iceberg a good MRO program can provide. But a typical organization, which never gets to the MRO tail-spend, is not an expert in MRO. It’s not even a novice in MRO management in most cases. This is where MROaaS comes in. For the most part, the only organizations that are true MRO experts are those that provide MROaaS. And since it takes true expertise to go from cost reduction to value generation, you need MROaaS.

And if you are still not convinced, the doctor and the maverick have put together a detailed four-part series over on Spend Matters on the subject that should provide all the education you need on why MROaaS is something that has to be considered if MRO spend is a significant part of the organization’s tail spend. Parts I and II are already up and available here:

  • MRO as a Service (Part 1): Embedding Procurement as the Value Engine
  • Unpacking and Applying the Value Streams of this Model: MRO-as-a-Service (Part 2)