Category Archives: Miscellaneous

Catch the doctor on the West Coast

While I don’t advertise my whereabouts often, because it’s usually the case that I barely have enough extra time to even see everyone who’s put a request in since the last time I was in a certain geographic area, I’m purposely spending a couple of extra days on the West Coast next month to give anyone who’d like to talk to the doctor in person a chance to do so, as I don’t make it over there as much as I’d like.

Specifically, I’ll be in the San Francisco Valley area from October 4th through October 10th and still have some free time on half of those days. If you’d like to meet, e-mail me, let me know where you are (and who you represent if it’s not clear from your e-mail address), and I’ll let you know when I’ll be close(st) to you and what times I have available.

See you soon!

What Is a Smarter Supply Chain?

Late this summer, while most of you were on vacation, the Supply Chain Digest asked a good question — What Is a Smarter Supply Chain?. They attempted to answer this question using the 2009 IBM Report which said that the supply chain of the future needs to be instrumented, interconnected, and intelligent, which is right, but instrumentation and interconnection alone, even enabled by AI workflow management, does not make an intelligent supply chain.

Only one thing makes an intelligent supply chain: smarter people. I’m probably the biggest fan of supply chain technology that there is — focussing primarily on the technical capabilities of the products and platforms when I cover a vendor — but even I recognize that even if you spend millions implementing end-to-end best-of-breed solutions throughout your supply chain, it will all be for nought if your people don’t have the education, experience, and EQ to use it!

Let’s face it. To take full advantage of a spend analysis tool, your sourcing analysts need to understand how to cube, slice, dice, and identify meaningful trends in PO, invoice, and T&E data to identify true savings opportunities. To take full advantage of an e-Negotiation suite, the sourcing professional needs to know when to use RFX, when to use e-Auction, and when to do a fact-based negotiation with the incumbent supplier(s). To take full advantage of optimization, you have to know how to break the cost structures down, what constraints are necessary, and what constraints are unnecessarily imposed by the business. And contract management is more than electronically filing a contract in an electronic vault, it’s ensuring the terms of the contract are adhered to — especially the pricing. I could go on through each stage of the procurement cycle and each stage of the global trade cycle and so on, but the simple fact remains that if you don’t hire smarter people, you won’t have a smarter supply chain. The days of high-school drop-outs pushing paper in the back office are long gone. Time to modernize!

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Pre-Defined Forecasting Models — Are They Worth It?

It seems all of the inventory management and service management platforms these days are touting the myriad of forecasting models in their latest and greatest release, but are they worth it?

It’s a hard question to answer. Here are some of the main arguments from both sides of the fence. You be the judge.

Supporter: You should check out this great new software for inventory and service management (SISM) from Hyper Yard Product Engineering (HYPE). It supports time series, casual, and combined forecasting models that allows you to define forecast types, horizons, target replacement rates, smoothing constants, variance parameters, seasons and trends, target costs, target fill rates, thresholds, and a slew of other parameters. It will save your buyers a lot of time, experts and novices alike.

Detractor: I don’t know. Sounds like a bunch of hoopla to me. Not only do most “experts” believe that only their models are the right models, they are likely to be suspicious of the results unless they can tweak every parameter and analyze the assumptions and algorithm in detail. And even then, if the resulting curve doesn’t adhere to their intuition, they are likely to call it a pile of junk and override it with a manual forecast. As for novices, it’s not very useful either as they aren’t likely to have the competence necessary to understand the inputs or outputs or the reason why one method is preferable to another for a given commodity or category and will likely choose the wrong method and screw-up the parameters.

Supporter:Oh no, not hoopla at all. It’s extremely useful to both parties. It’s a great help to novices as it automatically selects the right model given the commodity or category, sets the parameters based on contract data and historical inventory patterns, and correlates to similar commodities in the system. It greatly increases the accuracy of their results. And since it provides dozens of algorithms, where each parameter and assumption can be overridden, experts will love it as it will contain their algorithm, allow them to tweak the parameters, and override results with a manually derived model where needed.

Detractor:So, the expert can override the system at any time and the novice doesn’t have to choose anything?

Supporter:Correct. An expert can even define a fully manual forecast if the situation is unusual (such as a one of a kind promotion or rapid uptick in the economy) and a novice doesn’t have to do anything.

Detractor:So, the novice gets a free ride until the black swan decides to attack and cause a major catastrophe, and the expert gets to bypass the system entirely. In the first case it’s misused, as no system can compensate for human intelligence and every forecast needs a sanity check, and in the second case it’s not used at all. Sounds like a waste of money to me.

Supporter:No, no. You miss the point. By automating the process, it gives the user time to focus on learning the category so that she can tweak the parameters when she notices an unusual uptick or downtick and so that she can focus on analyzing the forecast and performing the sanity check instead of wasting hours or days trying to manipulate formulas and software to produce the forecast. And since it has so much power, the expert won’t need to override with a manual forecast very often.

Detractor:In theory, yes, but in practice no. Human nature is what it is. Most novices are tactical procurement personnel who don’t understand the math behind forecasting and don’t want to. They’ll drive whatever forecast the system spits out until they drive off the cliff. And most experts are arrogant know-it-alls who don’t believe a dumb system can ever come close to their years of experience and massive ego. They’ll tweak or override every forecast even if there isn’t a compelling reason and even if the forecast is probably right (because only they can be right) and tweaking it makes it wrong. Both ways, the company loses. Not only does it lose the investment in the system, but it loses out when it gets stuck with excess inventory or fails to meet demand.

Supporter:Well, you have to use the system properly to take advantage of its power.

Detractor:Right. And neither party will. Furthermore, if forecasting really was a science and if these tools always worked as advertised, the world would be an easy place. But the reality is that most demand is impulse and spike driven and most forecasting is nothing more than dumb luck in the end. As a result, all those continuous and curve fitting algorithms turn out to be worthless as they can’t model spikes. The reality is that you can get as much accuracy from a kindergartener’s hand drawn curve, especially if it looks “close” to historical demand curves.

Supporter:That’s why these tools also have extensive comparative graphing capabilities that allow you to compare current forecasts against past behavior for similar horizons. You can see whether or not the forecast is in line with what normally happens and whether or not there are any spikes consistent with your expert’s “gut feeling”.

DetractorThat’s nothing more than warm fuzzies, and warm fuzzies mean nothing. It’s as useful as Wall Street’s “risk” algorithms. Heck of a lot of good they did us.

Supporter:That’s why the tools allow you to update the forecasts at any time to take into account the latest changes in demand.

DetractorSo what? Spikes are, by their very nature, unpredictable. All you can do is “smooth” the curve to the new data. An unexpected spike is an unexpected spike is an unexpected spike and you lose millions in sales because of it. Just ask Apple or Nintendo or Sony who seriously underestimated initial demand for a number of their recent products.

Supporter:Look, we both know that no tool will solve all your problems and that spikes only occur in a few categories. For example, for many consumer goods, and many consumables in particular, demand is relatively constant year after year. Some brands or models may sell a little more or less than predicted, but most categories of household goods rise steadily with the population. We’re not going to suddenly start washing our clothes twice as often, start drinking twice as much coffee a day, or buying twice as many CDs. You need to start somewhere, and a tool that’s likely to get most of it mostly right out of the box is a great time saver. Plus, the best way to detect a spike or a drop is to instantly be able to see whether or not demand is following the plan. That’s the true power of these tools.

DetractorMaybe, but if that’s the case, what do you need all the advanced modeling for? Wouldn’t a simple time series with the ability to fully define a forecast by hand be just as good?

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I’m Glad I’m Not a Pundit!

It seems that all the pundits in this space are doing these days are bashing other pundits about missing the point while missing the point themselves. Case in point: Jon Hansen’s recent bashing of Jason Busch*5 (of Spend Matters) over on Procurement Insights where he accused him of remodeling the city while Rome burns. (Followed by another bashing on how the industry he represents has lost its objectivity through familiarity.)

According to Jon, Jason should be more focussed on OECM punting Ariba and taking a 20M hit in the process and what the implications therein are, or that Ariba lost 3B on 1B worth of sales between 2001 and 2005 while suffering a number of implementation failures, then on ways to restructure Ariba for better performance*2, and because Jason’s not, according to Jon, Jason’s missing the point. Well, the first story is important, but until we get the full picture, which could take months, as we don’t know how much of the blame rests with Ariba and how much lies with OECM. (Remember the i2-Nike fiasco? While Nike tried to place all the blame on i2, it was as much their fault as i2’s. First of all, if you’re going to buy predictive modeling software, you should understand the limitations of what you are buying and the requirements of proper use!) And, in the internet age, the second story is ancient history … what’s more important is how they have been performing since then.

Don’t get me wrong — I’m not defending Ariba*1, just pointing out that there are three sides to every story and until we get all three sides (OECM’s, Ariba’s, and the truth), I don’t think it makes sense to start conjecturing on whose fault it is or (as Jon seems to imply) what Ariba did wrong. Let’s face it, this isn’t the first big IT failure, and since most organizations don’t really understand IT and won’t pay for that understanding (and, thus, can’t tell the difference between a proposal that illustrates the company knows what it is doing and a proposal that illustrates that the company is run, and staffed, by a bunch of baboons), it won’t be the last.

The real “big picture” is focussing not on the news story of the day (which, according to his post, he apparently does in all six of his blogs), but on educating the public so they don’t make the same mistakes. That’s why I don’t run stories on the latest deal/customer of Company X (irrelevant), the latest prediction of Research Firm Y (which may or may not materialize), or the latest headline in the WSJ (as most print publications are getting more sensationalistic by the day trying to maintain readership and forgetting what true journalism is really about). This blog is, and will stay, about education. That’s the “big picture”. (And that’s also why less is more! I could publish six posts a day if I wanted to, but if I overloaded you with information-free gibberish, what would you learn*4? You can’t drink from the fire-hose!)

Now I’m sure I’ll be the subject of his next rant*3, but I don’t care. I only care about what fellow supply chain bloggers think, not what media-hungry Bill Mahers think (whose rants don’t always make sense to me), focussed on the most sensationalistic stories they can find, have to say.

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*1It’s fairly well known I’m not their biggest fan, but I do try to be fair, and my history of vendor reviews speaks for itself.

*2 Given that Ariba was involved in a major failure, it’s now critically important that the focus is on finding a fix before it happens again as opposed to beating the issue to death.

*3 It wouldn’t be the first time.

*4 And would there be anything new in those? All you can really do at that speed is repackage existing news stories and content as you would be leaving yourself no time to think.

*5 I’m not defending Jason (as he can defend himself), just using his most recent bashing as an example of the absurdity of the situation.