Category Archives: Miscellaneous

How Not to Excel at Forecasting

Simply put, use Microsoft Excel. It’s appalling that a recent survey by ToolsGroup and the Global Market Development Centre (GDMC) found that even though two-thirds of companies in the consumer goods supply chain consider demand volatility and forecast accuracy a high businesses priority, half still rely on Excel spreadsheets for forecasting.

Relying on Excel for forecasting is like relying on:

  • a Longship to get you across the Atlantic
  • your first guess on Let’s Make a Deal to be the right one
  • a shareholder proxy getting on the ballot at a Fortune 500
  • Florida surviving a hurricane season without any major city suffering damage
  • the price of fuel going down and staying down for an upcoming series of spot buys
  • natural resource supply to be consistent and predictable year-over-year
  • a flip of a fair coin to come up heads seven times in a row

Now, it’s true that:

  • the Vikings did make it across the Atlantic in a Longship, but a single storm could sink it
  • the first door you pick, with one-in-three odds, could be the right one, but the odds are actually twice as good if you switch
  • an activist shareholder can sometimes get a proxy on the ballot if he or she has enough time and money, but as pointed out by John Gillespie and David Zweig in Money for Nothing (How the Failure of Corporate Boards is Ruining American Business and Costing Us Trillions), examples are few and far between
  • even though no storms made landfall in Florida in 2011, this is Not a common occurrence
  • gas prices did consistently drop in the USA between September 2008 and December 2008, but have been otherwise steadily rising for the last five years
  • in some years the rice, sugar, and corn crops are almost the same as in the previous year, but given the increase in hurricanes, tsunamis, droughts, and other natural disasters in recent years, this is not a common occurrence
  • yes, heads can come up seven times in a row when flipping a fair coin, but the chances of this happening are less than 1%

In other words, you can forecast with Microsoft Excel, but your chances of doing well, especially given that 90% of spreadsheets have non-trivial errors (and collectively cost enterprises billions, as Fidelity and Fannie Mae found out), are (vanishingly) small (as the complexity of the forecast increases). One has to remember that there’s no intelligence behind a spreadsheet and they are just a source of peril that can cost your organization millions without anyone noticing.

Pop Goes The Squirrel!

Hammy has been driving Verne crazy again over the hedge. Dark Verne is creeping back to the surface. And I bet this is what’s playing in his head right now …

RJ played guitar, Hammy played bass.
Name of the band is Over the Hedge.
Everybody tell me have you heard?
Pop goes the squirrel.

RJ played keyboard, Hammy played drums.
It drives Verne crazy and when the time comes.
Everybody tell me have you heard?
Pop Goes The squirrel.

It goes something like this: (p p p pop)

RJ and Hammy had a crazy dream.
See their pictures in a magazine.
Every wild critter needs a twirl.
Pop goes the squirrel.

RJ and Hammy getting smart (it seems).
Made more money on a movie screen.
Every little nest needs a bird.
Pop goes the squirrel.

One two three and four is five.
Dark Verne is plotting poor Hammy’s demise.
Mentos and coke and Microwave on high.
Pop goes the squirrel.

Six seven eight and nine is ten.
Make sure it works with nitroglycerin.
Say what planet are we on? The third!
Pop Goes The squirrel.

And Every time Verne wonders where the world went wrong,
Ends up lying on his face going ringy dingy ding dong.

And every time Verne wonders if the world is right,
Ends up across the cosmos in black arachnid’s night.

RJ played guitar, Hammy played bass.
Name of the band is Over the Hedge.
Everybody tell me have you heard?
Pop goes the squirrel.

RJ played keyboard, Hammy played drums.
At least until Verne with dynamite comes.
Everybody tell me have you heard?
Pop Goes The squirrel.

The Hubris Hypothesis is Alive and Well in Supply Management

It looks like we’re back to the merger and acquisition frenzy again in the space, which seems to begin anew at the start of every boom in the continual boom-bust cycle that Wall Street so favours. Big cash-rich giants are again gobbling up cash-poor gnomes in an effort to bolster either the breadth of their offerings or expand their (potential) customer base. This is a good thing and a bad thing. If you’re on the market for supply management technology, or a customer of one of the cash-rich giants, this can be a good thing. If you’re a shareholder of the cash-rich giant, or a customer of the cash-poor gnome, this can be a bad thing. If you’re anyone else, it probably doesn’t affect you.

It’s probably a bad thing if you’re a shareholder of the cash-rich giant as 4 out of 5 mergers and acquisitions fail to deliver the expected value, and often fail to do so spectacularly. As Richard Roll notes in his classic paper on “The Hubris Hypothesis of Corporate Takeovers”, decision makers in acquiring firms pay too much for their targets on average. I believe this to be especially true in the enterprise software space where the value of a platform decrease at a rate that is in-line with the expected depreciation of a new car purchase. Every time a newer, better, piece of software hits the market, the value of all existing platforms drops. And since, in the enterprise software space, all acquisitions tend to do is freeze innovation on the platform of at least one party, if not both, until integration is achieved, value drops — and in this space, it’s rarely regained. While the value associated with software doesn’t disappear as fast as it does on Wall Street every time a newly created bubble finally bursts, it still disappears. And it’s not like we don’t have our own horror stories like the i2-Nike PR nightmare, the Hershey Foods WMS failure, or the ERP/MRP fiasco that brought down the multi-billion pharmaceutical Foxmeyer. And while none of these are directly related to M&A, they do demonstrate how any attempt to integrate even partially incompatible systems can wipe out hundreds of millions (or more) of value.

Similarly, if you’re a customer of the cash-poor gnome, it can also be a bad thing if your system is “locked down” until the features/functionality is integrated with the giant’s platform, that you will eventually be forced to implement (when the term of your original agreement runs out). Chances are that you bought the gnome platform because the giant platform wasn’t what you needed, was way more extensive than what you needed, or didn’t deliver enough value from the extra functionality relative to the cost.

But if you’re customer of the cash-rich giant, who, chances are, is no longer capable of innovating it’s way out of a wet paper bag, this can be a great thing. As soon as the initial integration headaches are solved, you’ll have access to new, innovative to you, functionality without having to find a new vendor, do custom integration, or even do extensive mods to the platform you have — especially if you’re using a hosted/SaaS service and it just gets enabled in the next release. And, if the giant is fair to you, as a loyal customer who had to wait, the additional cost won’t be that significant and will be drawfed by the new-found value your organization can generate.

But if you’re not a customer of the cash-rich giant or the cash-poor gnome (and not a shareholder of the cash-rich giant either), this is definitely a great thing. As we’ll delve into in more detail in a future post, when you’re on the market looking for a new supply management technology platform, you’re asking three questions (if you’re doing it right) before seriously considering a vendor: can the vendor support me, are they stable enough to support me, and are they still innovating. While it is often straight-forward to answer the first question, it’s hard to answer the second if the company is private and hard to answer the third if you’re not intimiately familiar with the space and the competition (as innovation can be relative). But if a vendor gets acquired, you know that it likely wasn’t stable enough as most companies that get acquired are cash-poor, have limited growth options on their own, or have a specific innovation or customer a cash-rich giant wants (and once a cash-rich giant sets their sights on a target, that target’s resources will be consumed with either friendly bids, or hostile bids, which would still limit its ability to support you). And if a vendor does the acquiring, then there is a good chance that it’s not innovating (at the rate it used to) or not capable of further growth without a fresh blood infusion (which would eventually limit innovation).

This means that every merger and acquisition identifies two more companies that, at the very least, should be given serious scrutiny before being added to your list of potential solution providers, if they should even make the list at all (at least until a succesful integration is completed — which, if one of the fish is really big, could take years) as a merger or acquisition usually signals a lack of innovation on one side and cash on the other. And, more importantly, it shines a light on those companies in the middle — stable, growing, and full of innovation ready and waiting to take your Supply Management practice to the next level.

A new wave of best-of-breed players is rising in the space. Since they haven’t yet been entangled by the hubris hypothesis, it might be time to give them a serious look.

Thirteen Years Later, And It’s Still All About the Pentiums

Rock on, Al Yankovic, Rock on!

Because It’s All About The Pentiums (Original Video!)

Al may have been Running with Scissor, but no one did a better job of predicting the future of the IT industry.

     
My new computer’s got the clocks, it rocks
But it was obsolete before I opened the box
You say you’ve had your desktop for over a week?
Throw that junk away, man, it’s an antique
Your laptop is a month old? Well that’s great
If you could use a nice, heavy paperweight

  It’s All About the Pentiums
    by “Weird Al” Yankovic (@alyankovic)

We’re not mysterious. We’re Canadians!

I got a chuckle out of this recent article over on Inbound Logistics on “Ten Tips for Getting Shipments Across the Canadian Border” which said that businesses underestimate the complexity of the Canadian customs process because it can be very difficult before addressing the mysteries of the clearance process. Mysteries? Are they serious?

Let’s look at the arguments.

The Canada Border Services Agency continually revises compliance requirements
And the US doesn’t? And Europe doesn’t?

Hidden Charges
According to the article, unexpected and additional delivery charges are a significant issue for Canadian consumers. This has nothing to do with getting shipments across the Canadian Border, but everything to do with the importer doing its research beforehand.

Trade Agreements Offer Economic Incentives
Isn’t this a good thing? Yes, it takes some effort to navigate NAFTA, but it’s not that hard — and many customs brokers have it all mapped out.

Trusted Shipper Programs Speed Clearance Process
And isn’t this a good thing too? And easily understood! I’m confused? What’s difficult and mysterious?

Consolidation is key for smaller shipments
Yes, consolidated shipments clear the border as a single unit and can speed importation, but it’s not necessary. It depends on what you are importing and what you are importing it for. Especially since, for some importers, a full truck can be a “small shipment”.

Canada has gone (almost) paperless
And the fact that border clearance is largely conducted through web-based portals and online transactions is a great thing. It really speeds up, and clarifies, the process.
(But yes, you have to use that new-fangled computer thingie. But it is 2012, after all!)

Your government may pay you for shipping to Canada
The Duty Drawback program in the U.S. reimburses businesses for import fees paid on materials used in the manufacture of goods than subsequently exported. Nothing mysterious or difficult about this either — just a bit of paperwork that is, in effect, another good thing.

All provinces are not the same
Ok, so this adds a bit of spice to the process, but we’re talking about a country with only 10 provinces, not 50 states. And the only real issue is taxation. Some provinces use a harmonized sales tax that combines the federal goods and services tax with the provincial sales tax, while others keep them separate. Either way, it’s one tax, and one simple lookup table. The multiplication tables you learned in grade school are more complex.

Be sure you can reach your customers
Uhm, isn’t this a requirement wherever you import? It has nothing to do with Canada. Sure, we are the second largest country by area, but like the article says, 80% of our population lives within 100 miles of the US border, and everyone else knows that if you want variety, you make your weekly / monthly / annual pilgrimage to the closest city. (The 80/20 rule works great!)

Partner with an experienced logistics provider
Huh? And what does this have to do with Canadian import complexity? Nada, zip, zero.

So, final score:

Relevant Issues 3 (Compliance Requirements, Taxes, e-Filings)
Universal Issues 2
Irrelevant Issues 3
Benefits 2

Verdict? Joke!

Look, here’s what you need to know. We’re friendly. While that means we play nice with American and European security regulations in addition to global security initiatives, and that’s why we update our policies regularly, it also means that we’re an open book. Not sure, all you have to do is go to the CBSA website, which has everything you need. Don’t know where to start? Remember, we’re friendly — you can always send an e-mail or pick up the phone and ask. Our country was, and is, built on immigration and our prosperity is built on global trade. Just follow the process, you can rest assured that you can speed through our border clearance (except, maybe at the Detroit Windsor Tunnel which experiences some of the highest cross-border traffic volumes).