Category Archives: SaaS

ERP is NOT Always the Answer

Reading this recent article on “Mitigating Risk and Exposure from Subsidiary Operations” in Industry Week, one could get the impression that the only way to mitigate risk is to deploy one or more (connected) ERP systems to manage corporate data. Nothing could be further from the truth. While you do need consistent data and compatible systems, you don’t need an ERP. But I guess I should have expected such misleading advice given that the article was written by a VP at SAP, one of the biggest ERP vendors in the world.

According to the article, in order to mitigate risks to the company’s supplier, quality, liquidity, financial reporting, and unbudgeted spending, a company must streamline and automate mostly manual systems to:

  • enable the sourcing group to automatically provide information on preferred suppliers and negotiated terms to every subsidiary
  • enable headquarters to have ongoing visibility into cash-on-hand and receivables and payables across the organization
  • streamline the financial consolidation process
  • streamline inter-company purchasing transactions
  • implement collaborate processes such as forecasting and budgeting

Furthermore, according to the article, to accomplish this automation, a company needs to either:

  • deploy the same ERP system across the company,
  • deploy a two-tier ERP with simple data integration, or
  • deploy a two-tier ERP with process integration.

First of all:

  • A (cloud-based) SaaS e-Sourcing/e-Procurement platform with contract & supplier management can maintain preferred suppliers and terms and be accessible by every subsidiary.
  • A shared (cloud-based) SaaS accounting / finance system will allow headquarters to have a view into each subsidiary’s financials …
  • … and this shared system will streamline financial consolidation.
  • A (cloud-based) SaaS e-Procurement system will streamline inter-company purchasing, and
  • a cloud-based inventory / distribution / warehousing / logistics management system will allow for collaborative forecasting and budgeting.

So you don’t even need an ERP at all to accomplish the stated goals. Furthermore, while you do need integrated data, you can maintain this data with a simple relational database and integrate it using an off-the-shelf data analysis package with good ETL (extract-transform-load) tools that can merge flat-file data dumps from each system into one file/database for analytics purposes.

This isn’t to say that an ERP at headquarters to maintain master data isn’t worthwhile, just that you don’t need one, and that you certainly don’t need ERP deployments at all of your subsidiaries to accomplish the goals, which is important because enterprise ERPs generally cost seven figures and the cost is generally not justifiable for a small subsidiary.

Mobile Supply Chain Management: The Dream Will Take a While to Manifest

A recent article over on the Technology Evaluation Centers site on “mobile supply chain management: the dream is becoming reality” started off by making a great point — ultra-portability still means restricted ease of use and functionality, and even though the release of the iPad by Apple last year began a hardware revolution that opens up a new horizon for supply chain management (SCM) systems for businesses, it’s going to take a while before tablets become common place in the supply chain. While possibilities are opening up for mobile devices now that we’re seeing true touch-screen tablets hit the marketplace, we have to remember that enterprise platforms are typically a few years behind consumer applications, and we’re only starting to see consumer applications use the features of these mobile devices.

First of all, the Android tablets are only starting to hit the market place. Until there are a number of affordable options that match the iPads power, there’s only one tablet option — the iPad, and it’s not really an option when you consider Apple’s closed ecosystem and the fact that any app can be rejected any time for literally any reason.

Secondly, resolutions are not much better than what you find on a small laptop display, which limits the amount of data that can be displayed on one screen. This means that, until the 10″ tablets get better resolution and / or 3D display capability, the analytics and reporting abilities will be limited, and this will limit the usefulness of a tablet for analytics and/or reporting applications.

Thirdly, computing power is limited, so not only are you limited to SaaS platforms, but due to the data requirements, you’re limited to wherever you have good wifi.

Of course, once the Android tablets take off, resolutions improve, wifi is more universal, and more business applications appear that are designed specifically for mobile devices, it will be a different story. But that’s still a few years away.

If a Deal Is Too Good To Be True, IT IS!

This is just as true in technology and services as it is in products. If you get four bids for a new technology platform and / or (integrated) services package and three are plus or minus 20% and one is 1/3 of the price, I guarantee that lowball bid is too good to be true. And if you did your homework, you’d instantly know it and disqualify it.

You buy a product or service because it’s cheaper to buy than to build or perform it in house. However, that product or service still has a cost to the vendor, in terms of manpower and resources — costs the vendor has to meet in order to deliver you a quality product or service. If the vendor doesn’t cover these costs, and make a fair profit, one of two things is going to happen — the vendor is going to go out of business trying to serve you at an unsustainable level or the vendor is going to deliver a significantly inferior product or service to stay afloat.

I’m reminding you of this because a number of companies have not only been looking for new solutions now that we’re into a slow recovery, but because a number of companies, desperate to reduce costs, have been rebidding everything under the organizational umbrella, including the supply management platform(s) and service contracts. And in doing so, many of them have been getting unbelievably low bids from a handful of vendors who are desperate to win (new) market share — and the companies are seriously considering these bids. These bids are unbelievable for a reason — they’re not real. They’re up front costs, and as soon as you sign on the dotted line, you’re going to be hit with “change fees”, “service costs”, “upgrade fees”, etc. if you want the same level of service being offered by the competition, who are all in the same ballpark at sustainable bids. Or, even worse, the vendor is just going to give you the platform or an initial spending report, and then disappear until renewal time because the cost only covers platform support, not project or customer support. Or, and this is the worst situation of all, the vendor is trying to build a new business (in a new vertical) and thinks it can use you as a marquis customer to attract new customers, who it will overcharge to make up for the loss on you. If it works, you’re in luck, but the vast majority of the time what happens is that either the vendor fails to deliver, because they didn’t understand the true success requirements or they didn’t understand how much it would cost and how long it would take to make you a success, and then shuts down the business. If you’re lucky, they just shut down the vertical and you get to keep using the platform until you can find a new vendor. If you’re, not, the whole vendor goes tits up and you’re left holding the empty bag.

The worst part is that every month, if not every week, I hear of yet another company who signs on the dotted line with one of these vendors offering “unbelievable” deals that “can’t be matched” — and, even worse, the company is one that should know better (because there are success stories that illustrate it understands many of the precepts of good supply management). Especially when it’s so easy-peasy to determine if a bid is reasonable or not.

It’s easy to determine a reasonable range for a (bundled) technology platform (and /) or service. All you have to do is build a should cost model. Let’s say you’re buying a SaaS e-Procurement platform and want regular project management support, best-practice training, and custom integration to your in-house technology platform. Then you know the vendor will have, at least, the following costs:

  • Platform Delivery & Maintenance
  • Account & Project Management Personnel
  • Development Personnel

If the SaaS license will require 1/50th of their data centre resources, then the base overhead to support you will be 1/50th of their data centre and support team costs. If you require about 20 hours a week of account and project management support and training, then you will require half of a senior resource who has expertise in your industry and categories. If the custom integration is expected to take two man years, than you will need the equivalent of two developers on the vendor’s staff dedicated to you.

Now, if the average cost to maintain a small data centre, or rent part of a data centre, that will support 50 similar-sized enterprise clients is 3M, then you can quickly estimate that it will cost the vendor 60K (+- 10K for a margin of error) just to have you on the books, before it lifts a finger. If the senior resource required to support you on your projects is a 120K to 150K resource, then it will cost the vendor 60K to 75K to dedicate this resource to you half of the time. And if the average developer with the necessary skills is going for 70K to 90K, that’s another 140K to 180K that the vendor needs to outlay to support you. Then, there’s the vendor’s cost of sale, which, depending on commissions structures and expenses, is probably in the 15% to 25% range, and the need for the vendor to make a fair profit, say 10% to 15%, to keep investors happy. If you add it all up, you get:

Cost $ Range
Platform Delivery & Maintenance 050K to 070K
Account & Project Management Personnel 060K to 075K
Development Personnel 140K to 180K
Subtotal 250K to 325K
Cost of Sale 040K to 070K
Profit 025K to 050K
Total 315K to 445K

This tells you that any bids you get in and around the 315K to 445K range are reasonable, that if you get any bids that are more than 600K, the vendor either doesn’t understand what you want or is trying to rip you off (up front), and that if you get any bids less than 250K, either the vendor is planning to not support you to the level you need to be supported, the vendor is planning to make it up later with “change fees” and “service fees” when you’re locked in to a long term contract and held captive, or the vendor is looking to make a poster child out of you and take unfair advantage of the relationship (and then leave you holding the empty bag if things go south).

Regardless of why the vendor gave you the unbelievable bid, one thing is clear. If you accept it, you will get screwed.

Lavante – The Newest Contestent in the SIM Arena

As mentioned in yesterday’s post, Lavante is the latest provider of Supplier Information Management solutions in the Supply Management space (which includes Aravo, AECSoft (just acquired by SciQuest), CVM Solutions, Hiperos, and Rollstream, which have all been covered on SI). And while it arrived late, it comes ready for battle.

Since you all know by now what a good SIM solution should do (and if you don’t, reread the classic vendor SIM posts linked above), I’m not going to waste any time describing what it should do or spend a lot of time on the details. Instead, I’m going to mention all the standard stuff that the platform does and then focus on what makes Lavante different from the competition and why it should be included in your SIM vendor short list.

Like its competitors, Lavante allows you to collect detailed information on all of your suppliers, including detailed information on each contact. By default, this detailed information includes tax information, headquarters information remit-to information, business structure information, ERP (System) information, ownership information, certifications, services/materials information, risk management information, insurance information, bank information, and user defined summary information. A supplier has the option of entering all of the information on-line or downloading a template. Lavante can import your current supplier master (in a standard format such as XML) or provide a buyer with a (CSV) template to enter information for new suppliers. The information collected can be customized for every supplier, notifications on change can be configured at the element level, and approvals can be required before critical information is changed.

In addition to the standard browser interface, suppliers can also respond to e-mails or faxes (and even call a rep who will enter the information for them if they are still technologically illiterate). The supplier interface allows a supplier to log-in and manage 100% of their information, which minimizes buyer effort if suppliers take an active role in buyer interaction.

At any time, a buyer can get a list of all suppliers who have not provided requested information as well as suppliers who have registered and completed their profile. The buyer can also see which communication attempts have been tried or whether or not the supplier has not provided an e-mail or fax number.

The distinguishing characteristics of the platform are the following:

  • it was built on the cloud
    it was designed to be 100% multi-tenant and cloud compliant from day one
  • extremely configurable
    many early platforms only had the ability to send an alert when a change was made; later ones allowed for alerts to be configured to change type; Lavante’s platform allows each individual data element to be marked as notify/don’t notify on change
  • automatic validation of Tax ID
    Lavante does a real-time check of every TIN that is entered and a supplier is not allowed to register without a valid TIN that matches their name
  • multi-mode outreach
    whereas most providers assume browser or e-mail data provision, Lavante also accepts faxes and integrates OCR and provides supplier outreach services that will get suppliers onboard by e-mail, fax, or phone if necessary
  • a supplier portal that equals the buyer portal
    suppliers were an afterthought in many first generation SIM platforms and a supplier had to log in to a separate instance of the portal for each buying organization they dealt with; in Lavante’s platform, a supplier can manage their data for all buyers who use Lavante through a single log-in — information needs to only be entered once and common information is segregated from buyer specific information
  • very large supplier database
    Lavante, which started as a recovery audit vendor, has been around for 10 years and has amassed a database of over 2 Million vendors that its client do business with — as a result, it has current information on over 2 Million vendors in its database

Plus, Lavante can use this platform to streamline its recovery audits and save an organization up to 10X more than a recovery audit without access to detailed information would save. So when you add the initial savings that will come from 1099 reporting compliance with reduced SIM (when 20% to 40% of supply base information needs to change annually) resource requirements and more successful cost recovery audits, the solution pays for itself almost immediately. Plus, since it’s true multi-tenant cloud, Lavante can turn your organization on in less than an hour.

“Trendspotting”

Editor’s Note: Today’s post is from Dick Locke, Sourcing Innovation’s resident expert on International Sourcing and Procurement. (His previous guest posts are still archived.)

the doctor requested that I look at Panjiva’s new product, Trendspotting, which they are advertising on their site and blog. It has some good points, but it also has many not-so-good points that will ultimately render it unusable for many purchasing people.

Let’s look at the three main features:

“Crack the HTS code.”

The world really does need an HTS-to-your language translator. I don’t think there’s one into English, and this definitely isn’t one. From their demo page, put in “computers” and see what happens. You won’t find anything. OK, that’s a trick because I know that the entire global customs community calls them “automatic data processing machines.” So, type that in the search box.

You get a list of potential HTS codes. Here the system shows its US-centricity. I’m in Mexico, the internet knows I’m in Mexico (when I go to Google.com I get their Mexican home page) but Panjiva gives me the special 10-digit US codes. That’s still helpful in the goal of finding the right countries if you are in North America. It’s not so helpful if you are somewhere else.

“Find countries”

Pick the first HTS code (8471.30.01.00) and click “Trends.” You get some really helpful data on laptop imports. You can see that the two primary sources are China and Malaysia. You can see their trends. This is really a handy sourcing tool. However you can get the same data free from the US International Trade Commission‘s web site. I’ve been advocating doing that for about 14 years in my seminars. The USITC site is less graphically pleasing and slightly harder to use, however. Panjiva did a good programming job.

“Find suppliers”

Here it really falls apart. You would expect to find Lenovo and Foxconn as suppliers of laptops. They’re not listed. However, you do find Autoliv China Inflator Company Ltd, who makes airbag inflators. What’s going on here?

It’s a data source problem. They list companies for one of two reasons. One is that a company shows up as a sea freight shipper of automatic data processing machines on a public data base. There’s no such data base for air shipments. Very few laptops travel by ocean.
I’ve been using this kind of data for more than a decade. It has two more big problems. First if the words “automatic data processing machines” (ADP machines) show up on import documentation, the exporter gets listed. That gets items that connect to, contain, or are parts of ADP machines. Second, many companies have set up legal entities in China that purchase for them. The Chinese entity (i.e. HP China) buys the goods, and ships them to HP US. HP would show up as both the exporter and importer and you would never find the name of the manufacturer.

Of course, your results could be different than mine. Try it on a product where you know what the countries are and where the suppliers are and see what happens. Maybe it will work better for you than for me.

Thanks, Dick.