Category Archives: Market Intelligence

aPriori, rationi viam ad sumptus! Caput II

In yesterday’s post, we re-introduced you to aPriori, the masters of Enterprise Product Costing that have been working their cost reduction magic for a full decade, taking out mountains of cost before the first part is produced! We noted that, even though it’s been over half a decade, the masters of costing have stayed the course and are still focussed 100% on taking cost out during the design and production phases, where up to 80% of the cost of a product is locked in. They do this through complex process models, built on CAD geometry, that they embed in sophisticated VPEs (Virtual Production Environments) which are populated with accurate cost data for each material, machine, and overhead factor that contributes to the total production cost.

Today we want to highlight the major improvements made in the last five years.

Significantly More Production Process Models!

When SI first reviewed aPriori, their out-of-the-box capabilities were limited to metal-based parts only, and there were only a few dozen process models. Now they can handle virtually any metal and plastics component you can think of and support over two hundred production process models out of the box. In addition, they recently signed some very big name electronics manufacturers and are adding electronics process models to their repertoire, and a few of these will likely be available out-of-the-box this year.

Significantly More Virtual Production Environments!

Now that they have close to 100 customers across the Americas and Europe, that produce their components across the Americas, Europe, Asia, and even Africa, they have up-to-date cost models and accurate VPEs for every major geography out-of-the-box. An engineer, or buyer, can get a rough idea of production cost for any supported production process in any geography before even engaging with a supplier, who can, of course, provide even more accurate cost data specific to their factory.

Support for Every Standard CAD File Format and Just About Every CAD System

The more customers you get, the more CAD systems and file formats you have to work with. At this point in their evolution, aPriori now supports every standard CAD file format and every major CAD system currently in use in the manufacturing sector.

Improved UI

It looks better, responds faster, and integrates the best of CAD and OLAP. The main screen has three sections: the component view, the cost model, and the process model. Each displays the high-level information, but in each the user can drill down as deep as she desires.

Full Excel Export Capability

Not only can the user copy and customize process models and VPEs, update / override any cost, and save any scenario – but they can also export the full scenario and underlying cost model to excel for analysis, review, and distribution.

Powerful Comparison Reports

The user can compare multiple process models, and associated costs, for a part side-by-side, and, if desired, export the full comparison report to Excel.

Roll-Ups and Automatic Process Model Generation and Solution

A user can create a component-based production should-cost model that rolls-up the production should-cost model for each part and the system will automatically cost the full component using the individual part geometries and identified (or default) production processes and, if desired, the lowest cost production process for the entire component.

The improvements save their customers millions every year. For example, the construction equipment manufacturer that saved over 500K annually just on frame and door production also saves over 200K annually on cage rear pivot production. The manufacturer thought that machined casting w/x-Ray was the best way to produce the part, but the aPriori solution was able to determine that a two-step process that first burned the part farm from plate and then machined holed the cavities could reduce the cost from 16.56 to 10.05 on 22K cage pivots per year.

And it’s not just construction equipment manufacturers that save. Thermo King, which produces temperature and climate control products for the transportation industry, analyzed 5.679M in annual spend across 294 sheet metal parts and quickly identified a potential savings of 900K (16%) and realized 400K of this in just 12 days! And a a 6.5B manufacturer of commercial trucks that analyzed 7.7M Euro in spend across 86 sheet metal parts was quickly able to identify that 17 of the 86 parts were “outliers” (and nowhere near expected costs) and through additional analysis was able to identify better production methods that led to a confirmed savings of 1.6M Euro (21%).

It definitely helps to know your expected production costs aPriori!

aPriori, rationi viam ad sumptus! Caput I

When we last covered aPriori in 2007 and 2008 in aPriori and The Sourcing Maniacs 2008 Vendor Tour Part III, they were very focussed on Enterprise Cost Management (ECM) and taking cost out of the design phase. Fast-forward six years later, and nothing has changed, except, of course, the depth, breadth, and usability of their platform — which has grown in leaps and bounds.

Unlike traditional sourcing applications, including advanced spend analysis and decision optimization, that are limited to component cost-based should-cost models, aPriori can also factor in design and production factors to model the full production cycle of the part you are buying (if it’s metal, plastic, or, in some cases, electronics-based) and give you a true understanding of what the part should cost to make. The reality is that the cost of a part is dependent not only on its design, but on the production process employed. As noted in our first post, a supplier that’s always made a certain part a certain way might not realize that new technology or materials would allow them to make that part significantly cheaper if they used a different process. Since the aPriori application instantly and directly interfaces with your CAD program and interrogates the solid model to extract the geometric cost drivers, the aPriori application can automatically determine all the process routings that can be used to make the part, compute the costs associated with each step based upon standard machine, material, and labor costs, and compute the total cost of each part on a per unit basis by factoring non-geometric cost-drivers such as production volumes, the selected supplier or factory set-up selected, and the exact routing and machines used. This is because the aPriori application currently supports over 200 out-of-the-box process models in over 12 major process groups (including, but not limited to, Bar & Tube Fabrication, Casting, Forging, Machining, Plastic Moulding, Powder Metal, Roto & Blow Moulding, Sheet Metal Sheet Plastic, Stock Machining and Rapid Prototyping.

In addition, because the application supports the creation of complete VPEs (Virtual Production Environments) that encapsulate the production processes, a customer can fully model the production and overhead costs associated with each production process supported by a factory in question, including local labour, power, maintenance, and other overhead costs to create a fully accurate should-cost production model, which can be compared to alternate production processes in the factory and other factories modeled with an appropriate VPE. This allows for the true identification of the lowest cost because, as the Sourcing Maniacs documented in their vendor tour post, the COGS is a combination of raw material costs, labor costs, production overhead costs, and margin and these costs not only vary by locale and production process, but in their interaction. For example, just because you identify three ways to make a part and each requires three steps, this doesn’t mean that each process is going to be roughly equal in cost. Not only do different processes require different amounts of manpower or energy (for energy-intensive equipment like lasers, etc.), but reordering the steps can change the manpower or energy required in subsequent steps.

Let’s take, for example, the production of the main Frame sides and door for a piece of heavy machinery construction equipment. An aPriori customer was cutting the entire frame using a laser process. While this seemed efficient, as only one piece of machinery was required, cutting the entire frame and door using a laser cost them 75.54 per frame and door combination, and they required over 14,000 of these combinations a year. That’s over a million dollars on just one part! If, however, as discovered by aPriori who analyzed the geometry and ran it through every possible production process that was available to the manufacturer, they switched to a two-stage production process that involved an initial laser cutting of the frame and door followed by an NC Punch process to punch out the internal cavities, the time required to produce a single frame and door combination decreased by 14 minutes and the cost decreased by 56% to 33.29 (as laser cutting is expensive compared to NC punch).

So what’s new with aPriori? Come back for Part II.

Top 12 Challenges Facing India in the Decades Ahead – Prologue

India is the land of contradictions and, as outlined by Jean Dreze and Amartya Sen, it certainly does have An Uncertain Glory ahead of it. It could very well be the 2nd largest economy in the world by 2050, or it could slip out of the top ten and hover three quarters of the way down the top 20 list. Why?

Despite the fact that the Republic of India boasts the 2nd largest population in the world, and the fact that it boasts the largest number of English speakers outside of the United States (Source: Wikipedia) it currently faces more challenges than any emerging country, and certainly any emerging country in the BRICS (Brazil, Russia, India, China and South Africa), and on some metrics, ranks worse than some of the poorest countries in Africa!

While it does have a great opportunity before it, it also suffers from some of the greatest misfortunes of any country on the planet, despite the fact that it is, at the same time, probably the greatest example of democracy on the planet. Consisting of 28 states, 7 union territories and 3.288 Million square kilometers, India has 22 languages of official status in the eighth schedule to the Indian Constitution, 7 major religious groups (Hindu, Muslim, Christian, Sikh, Buddhist, Animist, & Jain), and caste based reservations as a result of the caste system that plagued India until the end of British rule! It also has 6 recognized national parties and 47 recognized state parties. (Imagine the difficulty of getting anything agreed on with that many different viewpoints butting heads!) To put this in perspective, in contrast, the United States, consisting of 50 states and 4 [unincorporated organized] territories, only has to deal with, at most, 2 major languages [English and Spanish] and almost 96% of Americans who declare religion are Christian. Furthermore, there are only 2 major parties and 3 minor parties (Libertarian, Green, and Constitution parties). So, the fact that India has survived, and grown (over the past thirty years in particular), as a constitutional democracy for 66 years is quite impressive.

But the fact remains that this constitutional democracy is plagued with problems and issues that have to be addressed, and solved, if the country is to continue to grow, and flourish in the coming decades, as some optimists are predicting. In the next twelve posts (over the next twelve weeks) in the series, SI will dive into twelve of the most prominent issues to present you with a clear picture of the major challenges that lie ahead of India in its quest to become the next great Asian superpower and the center of your global supply chain.

Stay Tuned!

Planes, Trains, and Automobiles — Which is the Safest Way to Travel?

Even though flying is still believed to be the safest mode of travel, with the death risk for passengers of commercial airlines being one in forty-five million flights, compared to the risk of dying in a train crash being one in 156,169, trains could become the safest way to travel, especially if some of the recent innovations to railroad safety are universally implemented.

Specially equipped freight cars pass over railroad tracks as sensors gather multiple data points on their condition. Rail-side detectors scan passing rail cars to evaluate their integrity. Trackside ultrasonic technology identifies internal flaws in passing wheels. These are just a few of the new technologies that have been developed to ensure rail security and prevent accidents, as chronicled in this recent article over on Inbound Logistics.

Widespread adoption of these, and other, safety technologies could result in 2012, which was the safest year ever in the United States for rail according to the AAR (Association of American Railroads), being the 10th most safest year by 2022 and make accidents a rarer occurrence than they are in aviation. According to the FRA (Federal Railroad Administration) Office of Safety Analysis, there were 10,918 rail incidents in 2012, of which 662 were fatal. Incidents include train accidents, highway-rail incidents, and other incidents. The total number of train accidents were 1,743, of which 5 were fatal. The primary causes were human factors (656), track defects (577), and equipment defects (205) with signal defects and miscellaneous causes accounting for the remaining (305) accidents. More automation and safety systems can eliminate the amount of human involvement required, greatly reducing the number of accidents due to human factors, and better monitoring systems would detect the vast majority of track, signal, and equipment failures before they led to incidents. After all, there’s a finite amount of track (of 138,565 miles in the US), a finite number of crossings, and a finite number of trains on those tracks, which can only be in one location at any time. Good automated control systems can eliminate crossing and switching incidents and head-on collisions, and better monitoring that detects 98%+ of defects before they lead to accidents will reduce the accident rate, at least on track, by 98%. The highway crossings will still be an issue, especially if a driver is dumb enough to race the lights, but more crossing bars will help there as well. It might be the case that highway crossings prevent train travel from ever being safer than airline travel, statistically speaking, but there’s no reason that rail (only) incidents can’t be all but eliminated with better technology.

Especially now that there is the incentive to do so! As the Inbound Logistics article on where safety and innovation converge points out, railroads are experiencing a competitive resurgence as an energy-efficient freight transportation option, and this means a lot of money is being pumped into rail, and this amount will increase as time goes on as operating efficiencies can make rail more competitive than truck for trips as short as 500 miles! In addition, with the increasing densification of (mega) cities, and (mega) regions that cluster multiple (mega) cities, it will soon be that the only option left for efficient transport of people will be high-speed rail. North America will have no choice but to bite the bullet and build high-speed rail systems in order to maintain its geographic competitiveness, or the best and brightest from its talent pool will migrate to growing (mega) cities and (mega) regions in Europe and Asia, especially in the finance and technology industries where time is money and people can’t afford to sit in traffic for three or four hours a day (as the net result is a complete sacrifice of their personal life).

And if railroads don’t keep up with safety improvements on their own, because of the money involved, legislation will eventually help them along. For example, legislation passed in 2008 requires that all railroads implement positive train control (PTC) technology on main lines used to transport passengers and toxic-by-inhalation material by 2015. This technology, designed to automatically stop or slow a train before certain types of accidents occur, should go a long way towards reducing fatal accidents.

But it sounds like legislation isn’t required, as the rail industry is already pushing for stricter safety standards than the government requires. One example, as outlined in the Inbound Logistics article, is that the AAR Tank Car Control Committee has already petitioned the US Department of Transportation Pipeline and Hazardous Materials Safety Administration (PHMSA) to adopt higher standards for DOT-111 tank cars carrying packaging group type I and type II commodities (which include explosive liquids such as crude oil and ethanol).

In other words, while the rail industry has a way to go, one day rail could be as safe, or safer, than air. Let’s hope it gets there because the rails are again The Road to Riches. The various forms of the automobile may have temporarily overshadowed them, but their glory days have returned.

Good SaaS vs. Bad SaaS

A recent post over on Richard Anson’s blog on “11 Crucial Tactics for SaaS Pricing”, while written for new SaaS vendors who need to know how to price their solutions, did a great job of helping to point out some of the key elements of a good SaaS solution sales process vs. a bad SaaS solution sales process as well as some key elements of a good SaaS solution from a customer’s perspective vs. a bad SaaS solution from a customer’s perspective.

In particular, it focusses in on some of the key non-functional characteristics that should be examined in your SaaS purchase process. These non-functional characteristics can easily be summarized in a quick side-by-side comparison of good SaaS vs. bad SaaS.

 

Good SaaS Bad SaaS
Value-based Cost-based
ROI-justification Process Improvement
Business Case Justification Potential Manpower Reduction
Priced According to Company Size and Utilization One Price Fits All
Competitively Priced Priced Out of the Ballpark

 

In other words, if the SaaS solution is good, it will be competitively priced, and priced according to your company size and intended utilization, come with a business case justification, deliver a proven ROI, and clearly deliver ongoing value.

And if a SaaS solution is bad (for you), it will be priced out of the ball-park with respect to its competition (and be either too expensive to deliver value or too cheap for the company to sustain over the long term, which will lead either to the provider’s failure or substantial price increases at contract renewal time), have little in the way of a solid business case justification, or have a poor ROI over the short and/or long term. SaaS is more than features, functionality, hands-off management, and a cool web experience — it’s about delivering value to your bottom line.

For insights on how to cost out the TCO of a SaaS solution, and compare that TCO to an installed solution, see SI’s classic post on Uncovering the True Cost of On-Premise Sourcing & Procurement Software. For insights on what constitutes a good SaaS contract, see SI’s classic posts on SaaS Contractual Considerations (Part I and Part II). And remember, as per SI’s recent post on Maximizing ROI from Technology, it doesn’t matter how strategic the IT Vendor is, it only matters how strategic the solution they offer is.