Category Archives: Market Intelligence

When It Comes to Optimization, You Need Every Insight You Can Get!

Even though it’s been almost a decade since Strategic Sourcing Decision Optimization (SSDO) has been not only readily available, but affordable (especially when one considers that back to back Aberdeen Studies in the noughts demonstrated that advanced sourcing, which is based on optimization, saved an average of 12% per event, which means that companies that employed optimization on large categories often saw an ROI after their first event), most mid-size and larger companies aren’t using it. In fact, most mid-size and larger companies haven’t even tried it!

Why is this? There is a laundry list of reasons, but the most important are probably:

  • misinterpretation and misinformationThere is still a lack of understanding about what optimization is and how important it is to your strategy sourcing efforts. A lot of people believe that optimization is only for the largest categories, the most complex categories, companies with complicated manufacturing supply chains, etc. This is not true. Optimization is relevant to every strategic sourcing project, small and large. The only question is how important is it — does the event revolve around the optimization or does the optimization revolve around the event?
  • fearBecause it’s misunderstood and, more importantly, because it is math, it is feared. (It’s important to remember that less than 1 in 7 American adults are “proficient” at math. This means that while your senior analysts with a strong Operations Research (OR) background will be hesitant of optimization, your average buyer will be, to borrow a colloquialism, scared sh!tl3ss. And, unwilling to admit this fear, he will do everything he can to come up with dozens of excuses as to why optimization is not applicable to your problem or why other methods will perform better.) And moreover, because of the misinformation out there which doesn’t tell you that the good solutions handle all the math for you, and all you need to do is specify the demands and the constraints (and their priorities if not all constraints can be simultaneously solved), people avoid (strategic sourcing decision) optimization when they should be embracing it.
  • costOptimization solutions used to be expensive. Very expensive. Back when there were only a couple of known solution providers (in the e-CHAOS pack), and sourcing suites started in the six figures, optimization solutions, even for a single event, were six figures, and sometimes seven for unlimited use. If you weren’t guaranteed of a high six figure return off of your first event, and a high seven figure return over the course of the year, this was a big risk to take. But that was then, and this is now. Today, optimization solutions start in the lower end of the five figure range, and unlimited annual licenses start in the lower end of the six figure range. And their power and performance is at least ten times what it was a decade ago. Models that used to run for hours now solve in minutes and an analyst can run dozens of what-if scenarios in a day, quickly getting to the best price-value trade-off for the organization.

So how do we get optimization into the hands of the masses, and more importantly into your hands (if your colleagues are holding your organization back)?

We deal with the roadblocks we discussed.

How do we deal with the roadblocks?

We start with education. We educate people that they don’t have to be a math whiz (because the math whiz is only needed to build the solution, not to use it), that a strategic sourcing decision optimization solution isn’t hard to use, that it doesn’t cost a lot, and that it does generate a return. And we hit them on all fronts. Third Party, Provider, and Practitioner.

To date, it’s been mainly third party, and, unfortunately, mainly SI spreading the message of optimization. But now we have a few providers working hard to spread the message as well. BravoSolution, who has been kind enough in the past to sponsor SI to help with this effort (and who offered you an Illumination on The Future Of Optimization) has been working hard to spread the messages of Optimization, Analysis, and the integration thereof in what they call High Definition Sourcing for a few years now. A new provider in the SSDO arena, and the first new provider to provide a true SSDO solution since Iasta back in the 2007-2008 timeframe, that we’ll announce shortly, is also taking up the challenge.

And Trade Extensions, who has also been kind enough to sponsor SI to help with this effort, and who has also been providing industry leading optimization solutions and education for a few years now, has just doubled down on the education effort, starting with a new INSIGHTS series focussed entirely on optimization. Consisting of a series of nine interviews with Founder, Chairman, and Optimization Guru Arne Andersson and CEO, Freight Trader, and Master Buyer Garry Mansell, this series will attempt to burn away the fog on optimization, make it a standard part of your sourcing suite, and lay the foundation for a series of follow-up educational offerings which will include white-papers and webinars on the subject.

Because optimization is for everyone, not just the 1%!

Trade, Treaties, and Embargoes — What Does It Mean to You?

You might think that the domain of trade agreements, treaties, and embargoes belongs to the government, and while that might have been true in the past when governments ran their part of the world, it is no longer the case now that we are in the era of multi-nationals. It used to be that the wealth and power of a company was largely dependent on the wealth and power of the country it belonged to, as the country regulated its trading rights and the treaties of the country determined where the company could trade and how much wealth and influence it could gain, but those days are long gone. Now we have companies with valuations in excess of dozens of countries. For example, only 25 countries have a GDP higher than Apple’s 500 Billion valuation.

We are now at a point where trade agreements are largely determined by the interests of large multi-national corporations. Consider the Trans-Pacific Partnership which is currently in negotiation between 12 countries in the Asia-Pacific region. This proposed agreement is stirring up angst in a number of the participating countries as global health professionals, internet freedom activists, environmentalists, organized labor, advocacy groups, and elected officials have criticized and protested the negotiations, in large part because of the proceedings’ secrecy, the agreement’s expansive scope, and controversial clauses in drafts leaked publicly. (Wikipedia) For example, StopTPP.org is claiming the TPP will turn the Pacific Ocean and its peoples into a giant privatized corporate lake characterized by non-union workers, Wal-Mart supply chain feeders, poisoned, landless agricultural labourers, a dying biodiversity, and rising, drowning sea levels. And Wikileaks, in a post earlier this year, says the TPP is Sacrificing the Environment for Corporate Interests because the current draft text of the Intellectual Property Rights Chapter is forcing nations to change laws and to prosecute in defense of the biggest corporate interests in the field of IP rights. Furthermore, the Environment Chapter does not include any enforcement mechanisms serving the defense of the environment, simply enforcing the lowest common denominator of environmental interests as the standard.

The way things are going, large Corporations Will Soon Rule the World, or at least the economic world, and they will be the entities that create the major trade agreements and trade embargoes. And those agreements will not only determine their fates, but yours. They will, directly or indirectly, determine who you do or do not do business with. If non-compete supplier clauses, favoured by big mega-brands that dominate the market and go head to head with each other at every opportunity, that prevent a supplier from doing business with a company’s main competitor become commonplace (again), by doing business with one customer you will be preventing business relationships with a second and simultaneously determining who you target customer base will be. Similarly, if your competitor is doing business with a customer that insists in a protected supply chain, that competitor, given the opportunity, will attempt to lock up parts of the supply base and limit your options.

In other words, if you don’t learn the language, logistics, and consequences of trade, treaties, and embargoes, you might fall victim to their (un)intended consequences while your competitors prosper.

On the Subject of Trade Treaties, Continued

On Tuesday, when we noted that Russian (Border) Trade Agreements are nothing new, we pointed out that it was the Six Hundred and Ninety First anniversary of the Treaty of Noteborg. Then, yesterday, when we wrote on the subject of Historical Trade Treaties, we noted that it was the Two Hundredth Anniversary of the Anglo-Dutch Treaty of 1814, also known as the Convention of London.

The reason for these posts were to point out a number of things:

  • Trade, Treaties, and Embargoes are nothing new,
  • Today’s trade agreements and partners are not necessarily tomorrow’s trade agreements and partners,
  • The outcomes are not always what you would expect.

Trade, Treaties, and Embargoes are nothing new

Written peace treaties, with economic ramifications, have been around for at least 4,500 years. For example, archaeologists have found clay cylinders dating from about 2,500 BC that record a treaty between the two Sumerian cities of Lagash and Umma that were looted 18 miles apart. The second cylinder describes a one-time penalty of 144,000 gur of grain that Umma had to pay Lagash.

And while the Continental System was one of the most comprehensive attempts at an embargo throughout all of history, the concept of an embargo, which is the partial or complete prohibition of commerce and trade with a particular country, the origin of the embargo is in the blockade, which was initially designed to cause military exhaustion and starvation, but which evolved over time to target the populace (to build internal dissension in the enemy) as well as the military. And blockades have been around for over 2,500 years. For example, back in 458 BCE, the Athenians blockaded the island of Aegina in the Saronic Gulf during the first Peloponnesian War.

Trading Agreements and Partners are in constant flux

A trading agreement generally only lasts as long as the agreement is beneficial to both parties. Once it is no longer beneficial, one of three things will generally happen:

  • it will be executed minimally to completion, if it ends soon,
  • it will be renegotiated, if it doesn’t end soon but both parties want to maintain a relationship, or
  • it will be broken, and one or both parties will risk penalty or retaliation because they feel it can’t be worse than the current agreement.

The outcomes of a Trade Agreement, Treaty, or Embargo are not always what you expect

In the case of an agreement, the agreement might go exactly as planned. The first party might deliver to the second party the exact quantity of goods specified for the exact duration specified in the agreement, and then stop. The agreement might work out so good for both parties that they double down and trade even more. Or, it might work out so bad that they almost immediately negotiate an end to the agreement.

In the case of a treaty, it might strengthen relations or it might weaken relations.

But in the case of an embargo, the exact opposite of what is desired can happen. It might be the case that all parties in the coalition respect the embargo and stop trading the designated goods and services to the party for which the embargo applies. And it might be the case that some parties in the coalition refuse to respect the embargo and continue to trade with the embargoed party anyway.

But even if the first case is the reality, it is not necessarily the case that the embargo will have the desired effect. It could be the case that the embargo, designed to weaken a party, actually strengthens a party. Sometimes the ancient* proverb is right and the enemy of my enemy is my friend and the embargo, instead of hurting the intended party, causes them to strengthen their trading relationship with another party and makes two parties you want weakened stronger.

And, going back to Tuesday’s post, just like the Continental System backfired on France, as it only made Britain and Russia stronger when Russia started trading with them again in 2010, any embargoes on Russia, which is no longer the Super Power they once were, is just going to backfire on any western country that hopes that the embargo is going to weaken Russia. All the embargo is going to do is strengthen Russian ties with its Middle Eastern and Asian neighbours, and China in particular. The New Silk Road will be here sooner than you think.

So what does this mean for your Supply Management Organization?

* An early expression of this concept is found in a Sanskrit treatise on statecraft dating to the fourth century BC.

Could You Be Doing It Right? Part III: Big Data

In last Friday’s post, we asked if you were doing it wrong. In particular, we mentioned category management, supply chain risk monitoring, and big data, and asked if you were doing them wrong. We noted that even though a number of companies have jumped on these runaway bandwagons, most have yet to grasp the reigns and take control of the wagon and get it on the right track.

Why is that?

Fundamentally, it’s the same reason that there are no world class Procurement Organizations in Asia Pacific — the classic Triple-T problem.

  • Talent
    the organizations don’t have the right talent to properly manage the initiative
  • Technology
    the organizations don’t have the right platforms to capture the right data and support the right processes
  • Transition Management
    the organizations don’t have the right processes in place to handle the necessary organizational shift to properly manage the initiative

Once the talent, technology, and transition management is in place, the organization has what it needs to fully embrace the initiative and take it to the next level. And do it right.

Where should your Supply Management Organization start? By identifying the core capabilities that are required in each “T” category and finding the right talent, technology, and transitions management for the initiative, the organization will be well on its way.

In the rest of this post, we’re going to talk about the requirements for an organization to get on the right category management track.

Talent for Big Data

Good big data scientists need the following hard and soft skills:

  • Algorithms
    there’s no magic algorithm where big data is concerned as every problem is unique and requires a unique (variant of an) algorithm
  • Domain Knowledge
    the scientist needs to know when she can be confident in the data and when she can’t; if there is not enough data, or the data is too random or skewed from expected patterns, then the scientist needs to know to trust judgement over data
  • Technical Skills
    the scientist needs to use sophisticated tools to perform her analysis
  • Logic
    the data, and algorithms, are very precise and the data scientist needs to be as well
  • Teaching
    since the majority of organizational employees will not understand what the big data scientist does, she will have to be able to explain what is needed data-wise, what the meaning of the results are, and how confident the organization can be in the results in simple terms
  • Perseverance
    since big data isn’t as simple as just dumping a bunch of data into an algorithm and accepting the result; the first, second, and tenth try won’t always generate a useful result — sometimes the data scientist, like an archaeologist, has to dig, dig, dig

Technology for Big Data

Appropriate technology platforms for big data will have at least the following features:

  • Big Data Stack
    You need an infrastructure that is scalable, replicable, and fault-tolerant.
  • Domain Specific Algorithms
    That can run on the stack and analyze the right data in the right way to generate some useable facts.
  • Powerful Reporting Engine
    That can not only generate reports useful to the scientist but to others in the organization.
  • Powerful ETL Middleware
    As you will need to extract, transform, and load data from a wide variety of sources.

Transition to Big Data

In order to transition to an organization that properly uses big data, the organization needs to hire someone with good change management skills and give that person the tools and C-suite support he or she needs to get it done. That person also needs to be a natural born leader and someone who can work with teams to get it done.

This isn’t a complete (laundry) list of what is required for big data, but it’s a good starting point. Get the right talent, technology, and transition management in place, and your organization will be well on its way to big data* success.

* Especially if you hire a good big data scientist who recognizes that sometimes the data doesn’t have to be all that big to derive a useful fact!

Could You Be Doing It Right? Part II: Risk Monitoring

In last Friday’s post, we asked if you were doing it wrong. In particular, we mentioned category management, supply chain risk monitoring, and big data, and asked if you were doing them wrong. We noted that even though a number of companies have jumped on these runaway bandwagons, most have yet to grasp the reigns and take control of the wagon and get it on the right track.

Why is that?

Fundamentally, it’s the same reason that there are no world class Procurement Organizations in Asia Pacific — the classic Triple-T problem.

  • Talent
    the organizations don’t have the right talent to properly manage the initiative
  • Technology
    the organizations don’t have the right platforms to capture the right data and support the right processes
  • Transition Management
    the organizations don’t have the right processes in place to handle the necessary organizational shift to properly manage the initiative

Once the talent, technology, and transition management is in place, the organization has what it needs to fully embrace the initiative and take it to the next level. And do it right.

Where should your Supply Management Organization start? By identifying the core capabilities that are required in each “T” category and finding the right talent, technology, and transition management for the initiative, the organization will be well on its way.

In the rest of this post, we’re going to talk about the requirements for an organization to get on the right supply chain risk monitoring track.

Talent for Supply Chain Risk Monitoring

Good risk managers need the following hard and soft skills:

  • Analysis
    On what services, products, components, and raw materials is the organization (most) dependent and which of these are sole-sourced and/or in scarce supply.
  • Mapping and Modelling
    What does the multi-tier supply chain look like and how can it be represented in software?
  • Mitigation Planning
    If a certain raw material, component, product, or service becomes temporarily, or even permanently, unavailable, what other options can be put into action?
  • Insight
    The greatest risk is always where you least expect it. You will need someone with great insight to not only determine what types of risk you may face, but how your organization can most effectively monitor for them.
  • Sportsmanship
    You will need a great team player to bring it all together.
  • Crisis Management
    When the proverbial sh!t hits the fan, and the organization goes into panic, you need a strong, level-headed crisis manager to get them back on track quickly, and without loss.

Technology for Supply Chain Risk Monitoring

Appropriate technology platforms for risk monitoring will have at least the following features:

  • Supply Chain Mapping
    the platform should map your supply chain multiple tiers down to the source raw materials for any raw materials you are dependent on
  • Event Monitoring
    the platform should identify any natural or man-made disasters that can disrupt your supply chain
  • Mitigation Planning
    the platform should allow the risk manager to put together plans of action should any required part or raw material become unavailable
  • Response Management
    the platform should allow the incident management team to manage the response to a disaster when it occurs
  • Mobile Interface
    as people need to be able to access the platform from anywhere, wherever they are, as the disaster could take out your primary offices

Transition to Supply Chain Risk Monitoring

In order to transition to a proper supply chain risk monitoring framework, the organization needs to hire someone with good change management skills and give that person the tools and C-suite support he or she needs to get it done. That person also needs to be a natural born leader and someone who can work with teams to get it done.

This isn’t a complete (laundry) list of what is required for proper supply chain risk monitoring, but it’s a good starting point. Get the right talent, technology, and transition management in place, and your organization will be well on its way to risk management success.