Category Archives: Services

Denali Delivers

Recently I had the opportunity to sit down and talk with one of the partners and co-founders of Denali (acquired by WNS Procurement) in their new headquarters, one of the few boutique consultancies specializing in supply chain with over ten years of experience in strategic sourcing. I was impressed with what I heard. Although the Denali V4 (Volume-Velocity-Value-Vehicle) “triangle” may not go very far in conveying the value they offer, the customized category framework approach they take to sourcing assignments is one of the best approaches I’ve analyzed from a consulting firm.

Even though they have a very good sourcing cycle (essentially your five-step process), they recognized that successful strategic sourcing is about more than just e-Sourcing – sometimes its about supplier development. If you conducted a well-run strategic sourcing event in the last few years, if market prices have remained relatively stable, and if your suppliers are still delivering quality merchandise, then you might already have the right supply base. In this situation, the best way to increase savings is to develop your suppliers and split the savings. After all, there are costs associated with a sourcing event, both for you and your supplier, and any new supplier is going to factor in their amortized costs of always responding to e-Sourcing events in their price.

In addition to their five-step sourcing processes, they also have a six-step process for supplier development. Furthermore, they embed change management into all of their processes to make sure the results they achieve are implentable, manageable, and sustainable – which is key since negotiated changes don’t hit the bottom line until they become realized savings.

Furthermore, they understand that in order to be successful as a boutique, you need to be able to be profitable off of small engagements, especially with smaller companies. To this end, they only hire experienced, senior sourcing professionals and operate virtually to the greatest extent possible, with sourcing professionals scattered all over the U.S. This allows them to effectively tackle projects with teams as small as two-to-three consultants and service these projects successfully with a relatively local contact point. Furthermore, with a highly experienced staff in e-Sourcing, they can tackle very large projects with under ten professionals, whereas a Big-5 consultancy, bursting with newly minted MBAs, might need thirty professionals to do the same work. And since their virtual model means they don’t spend a lot of money on over-priced office space, their rates are still very competitive.

Furthermore, they’ve progressed beyond just a simple supply chain consultancy to a full-ranged operation that now offers their clients marketing intelligence, training, and staffing services – which means that they can leave your organization in an effective position to follow through and deliver the savings they negotiate after their engagement is over.

Just this year Denali launched their subscription-based service offering, Denali Intelligence, which consists of three levels of Total Sourcing Intelligence market research services specific to sourcing and sourcing professionals. Their category-specific marketing research consists of category market reports, updated semi-annually, monthly market updates for key market indices, and weekly updates that highlight relevant news and events – covering over 150 spend categories across nine different portfolios. They also offer supplier profiles and specialized market research services. All of this is available through their intelligence portal that users of subscribing organizations can log in to whenever they like.

Typical contents of a market report included commodity definition, supply category description & context, category overview & background, demand update, supply base characteristics, key cost drivers, price changes, trends, forecasts, insights, and best practices. More-or-less everything you need to do to augment your sourcing processing with the information you need to develop the right strategy, target the right suppliers, and negotiate the right contract. Some also contain information on industry regulation, risk outlook, and market news, where appropriate. The report I reviewed, on distribution transformers, also analyzed the supply category in the context of Porter’s Five Forces Analysis and included interest rate forecasts.

This Market Intelligence offering is in addition to their SupplyStaff staffing and recruiting services that they use to help their clients hire full time employees and short-term and mid-term contractors as well as augment their staff on a temporary basis for specific projects. Unlike other staffing services, like their consultancy, they only focus on supply chain staffing and this is a big plus for firms who need more than just someone who’s been processing purchase orders for the last twenty years.

All-in-all, they’ve got a great sourcing process and you should definitely consider inviting them to the table next time you are looking to take your sourcing to the next level. They’re just aren’t that many boutiques out there that compete on their level. If you’re in manufacturing, you’ve also got providers like Aptium Global and ThreeCore, if you’re in a services industry, you’ve got the Provade (acquired by Smart ERP Solutions) solution, but if you need help across the board, you just don’t have many choices. I hope to highlight more as the year goes on, but when you consider the relatively small number of experienced senior sourcing professionals and the very large need for these people (whether your company recognizes this need or not), you know there aren’t that many.

the doctor’s Guest Posts: The Year in Review

Over the past year, I’ve blogged a number of guest posts over on eSourcing Forum, including forty posts last summer as part of the weekend series. For new(er) readers to the blog, here is a list of all guest posts over on eSourcing Forum with direct links.

Weekend Series Posts on e-Sourcing Forum [WayBackMachine]

Purchasing Innovation I: An Introduction
Purchasing Innovation II: TRIZ
Purchasing Innovation III: The Verifier Approach
Purchasing Innovation IV: Innovation Continued
Purchasing Innovation V: Sourcing the New Organization
Purchasing Innovation VI: CrowdSourcing
Purchasing Innovation VII: The Road Ahead
Purchasing Innovation VIII: Transforming New Product Development
Purchasing Innovation IX: The Purchasing Evolution!

On Demand I: The Good
On Demand II: The Not-So-Bad
On Demand III: And the Coming Pretty …

Cost Reduction and Avoidance I: An Introduction
Cost Reduction and Avoidance II: Metrics
Cost Reduction and Avoidance III: Incentivize for Success!

Supply Risk Management I: An Introduction
Supply Risk Management II: Risks and the Need for Resilience
Supply Risk Management III: Managing Risk

Supplier Performance Management I: An Introduction
Supplier Performance Management II: The Road to Success
Supplier Performance Management III: Best Practices

Demand Driven Supply I: An Introduction
Demand Driven Supply II: Stages and Implications
Demand Driven Supply III: Challenges and Implementation

Center Led Procurement I: An Introduction
Center Led Procurement II: A Center of Excellence
Center Led Procurement III: Best Practices

Procurement Outsourcing I: Is it right for you?
Procurement Outsourcing II: Selecting a PSP
Procurement Outsourcing III: Getting the most out of your PSP

Optimization I: A Powerful Tool
Optimization II: Why it was Relegated to the Shadows
Optimization III: Why it’s time is finally here
Optimization IV: POE or BoB?

Six Sigma I: An Introduction
Six Sigma II: Innovative Quality
Six Sigma III: Value Based Strategic Sourcing

Weekend Series Wrap Up I: Process and Technology
Weekend Series Wrap Up II: Supply Chain Management
Weekend Series Wrap Up III: The Innovation Revolution

Miscellaneous Posts on e-Sourcing Forum [WayBackMachine]

* Lead Time Optimization: Groundbreaking New Technology or just Applied Total Value Management-based Decision Optimization in Disguise?
* Sustained Sourcing Success
* Are there any limits to procurement’s role?
* Outsourcing Gets Tough
* Design for Supply
* The Benefits of an End-to-End e-Sourcing Suite
* Accelerating Value with On-Demand: An Aberdeen Perspective
* Supplier Enablement Enables Savings

And just in case you missed it, here’s a link to the chaos-causing post on Emptoris’ optimization over on Spend Matters:
The Doc’s Perspective on Emptoris’ Optimization*

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.

Getting Fit With T.G.I. Friday’s

Whereas most restaurants believe, like the American School System, that when it comes to calories, the more the merrier, T.G.I. Friday’s, as noted in a recent Knowledge @ Wharton article, realizes that when it comes to healthy eating it is the right portion of the right food at the right price, not calories, that counts. As a result, they have introduced the “right portion, right price” menu where they have added six new smaller entrees to their line up that offer approximately one-third less food at one-third less cost.

Even though such a move has failed for other restaurants in the past, giving the nation’s well-recognized obesity problem, as partially documented in Super Size Me and Fast Food Nation, and the fact that Friday’s is reducing prices as well as portions, there’s a decent chance that such an initiative could work out well for Friday’s, especially since they are still offering regular sized offerings at the same price.

Besides, when you note that eating is both a taste sensation and a visual experience, there is a good chance that you can always counter the American belief that “more is better” with an appropriate presentation, as some of the finer restaurants do in bigger cities. After all, recent studies (referenced in the article) have dictated that the environment (or the amount of food served) plays a large role in how much we choose to eat, so serving the right amount with the right presentation might actually work. Regardless, it’s interesting.

eSourcing Communications

Avotus recently released a whitepaper on “eSourcing for Communications” and Why You Need More than Ariba (acquired by SAP), Procuri (acquired by Ariba), and SAP‘s “Frictionless Commerce”.

According to the white-paper, sourcing and procuring business-critical products and services such as voice and data communications requires a solution specifically designed for the complexities of that environment. This is because the communications market is changing and creating new and unique challenges, modern communications system configurations are becoming more complex, and market pricing is difficult to determine without the proper infrastructure and expertise.

Some of the difficulties that the paper points out are:

  • long procurement cycles for new communications contracts
  • incorrect or incomplete implementation of new contracts
  • limited or no visibility into corporate communications infrastructure and usage
  • lack of an automated system to verify, reconcile, and pay communications invoices
  • negotiations with carriers may elicit a rock-bottom price but this price may not necessarily encompass high quality service levels or accurate implementation and billing

Furthermore, it points out that an organization must specify the scope of the project, the exact network connections, technologies, and locations, including demand volume, and terms and conditions, including required performance levels for the services, in order to obtain a worthwhile bid.

The report then claims that general purpose systems, built around a commodity and single-purchase structure, do not have the ability to handle the kind of complex relationships that are typically involved in communications environments.

And although this paper provides a lot of good advice on communications procurement, this is one point where I can’t agree. (Although I understand why they would argue it – since they provide a communication analytics solution.) Here are six reasons why I disagree:

  1. If you break down your needs into the network connections required by technology and by location, then, assuming you specify the required service and performance levels and capture the associated performance levels specified, you can ask suppliers to bid by technology and location and allow an apples-to-apples comparison on bid components.
  2. Most leading RFP technologies allow for the specification of bids on a line by line basis, and the leading ones will allow qualitative factors (such as service or performance levels) and tiered bid structures or discounts to be captured.
  3. A true sourcing decision optimization tool will allow for the construction of a scenario that takes into account all component costs, discounts, and relevant service levels and produce a hypothetical optimal solution by technology and location. This will allow the buyer to determine which provider is the most cost-effective in each location and each technology and evaluate the strengths and weaknesses of each bid.
  4. The best way to get a great deal in communications is to understand where the best deals are to be had, not in network design or vendor selection – since a well-designed network is a cost-effective one and most vendors will be cost-competitive when they want your business. This requires a spend analysis 2.0 tool, not a customized RFX, usage tracking, and invoice management platform.
    Take cell phone usage for example, the utilization across your user-base will lie on some variant of a bell curve – with most of the users being near the middle. The best way to get a great deal is to use a great spend analysis 2.0 tool like BIQ, find out what the median user base is, ignore the low and high utilization users, and cut a great deal on a plan for the majority. For the minority, if they are low utilization users, just don’t give them a phone (and keep shared phones on hand for when they travel and actually need a phone), and if they are high utilization users, figure out if they actually need the phone that much. If they do, get them individual plans on a case-by-case basis, and if there are enough of them, negotiate a different deal with a different carrier.
    For regular phone lines, analyze your historical usage data to better qualify your needs by technology and location, identify your best performing suppliers, and compare the bid results of your top suppliers (as identified by your decision optimization tool) to determine who to negotiate with.
  5. Usage management and invoice reconciliation is important, but it too can be done with a spend analysis 2.0 tool that allows you to build cubes on the fly from all relevant data.
  6. A good spend analysis tool connected to an appropriate marketplace with a database of all standard vendor pricing can be used to gage the true market price.

Nevertheless, they do have a decent recommendation for a telecom procurement cycle:

  1. Design the specific network required
  2. Decide which vendor(s) is (are) capable of providing the required services (at the required performance levels)
  3. Source the network and negotiate the contract(s)
  4. Begin the many coordinated provisioning projects to implement the designed network
  5. Order the services from one or more vendors depending on network scope
  6. Indicate acceptance (or not) of the individual service components
  7. Receive and validate the invoice(s) during the entire life of the network … from the first circuit installation to the last circuit disconnect.
  8. Change network scope through service additions, changes, and disconnects as the business dictates.
  9. Before the contract expires, determine latest scope of inventory, usage, and costs.
  10. Begin the sourcing process again sufficiently before the end of the current contract to ensure adequate time for proper vendor evaluation and selection, should a change of vendors be required.

My Responses to Emptoris

Since the blog software trashed my formatting, here are my responses to Emptoris’ “Setting the Record Straight”* on Spend Matters [WayBackMachine].

Response, Part I

(1) They should read the post again.

(a) I said MindFlow was in many ways far superior, that MindFlow had a better sourcing model, and that it contained many elements that should have been incorporated. In other words, it had, to the best of my knowledge at the time JB asked me to write my post on “The Optimization Doc’s Perspective on Emptoris”*, better features. It DID NOT have a better engine. I even acknowledged this during the great debate last summer in “Old News Keeps Flowing”. As you well know, there’s a difference between what the model supports and what the underlying engine can solve. The Emptoris engine, being based on a current version of ILog CPlex, with custom in-house extensions, is superior.

(b) I did not state there was a limit as to the number of constraint instances the Emptoris solution could handle – I simply quoted an article indicative of a representative large model the engine has solved.

(c) There is a difference between stating I did not see much progress in the product with respect to the information available and stating that a development team has been resting on its laurels. The reality in a software company is that

  • a team could be working its butt off, innovating like crazy, but have its work delayed or cut from a release, or three, because product management feels other enhancements are more important, schedules are tight, and there is not enough QA to cover everything and
  • considering the skills required to build an optimization solution, it’s often the case that these individuals are among the company’s best developers, and they could have been reassigned to the complex analytic algorithms of the spend analysis solution.

My observation was on the product, not the team!

(2) Their marketing person could be a little more honest in the fourth paragraph … although, in my opinion, they did retain the best product management talent a company could ever hope to acquire, by the time the acquisition completed, MindFlow management had let go of almost all of its engineers, including some of the best software developers I’ve ever worked with. That being said, Emptoris did acquire all the IP, code, design documents, research, notes, etc. … and their team is definitely competent enough to make use of any innovations Emptoris did not have at the time of acquisition.

(3) Emptoris is correct in that:

( a) MindFlow did not identify conflicting constraints … glad to hear their product does that now – this is something that should be advertised, as the only other solution I know that does this (or at least does it well) is CombineNet

( b) MindFlow did not do sensitivity analysis automatically (but this really isn’t too hard to automate, at least with respect to their definition)

(c) MindFlow did not support counts (it could have, the base functionality was there, but the architect chose not to build on it)

(4) Emptoris is mostly correct in that:

( a) MindFlow did not identify secondary suppliers;

it wasn’t automatic, but you could create a “what-if” scenario off of the original, exclude primary suppliers, and get secondary suppliers

(5) Emptoris is not correct with respect to:

(a) MindFlow did not support Step Volume Discounts;

the last version of the model did, but I seem to recall it was not obvious through the UI that it did

(b) MindFlow lacked supplier-specified capacity constraints:

it had them, but, as with the bundles, the buyer had to create them

(c) MindFlow did not have an ability to specify a limit on attributes other than price and quantity;
it did by way of the qualitative constraints, but it was not as straightforward as it could be

(6) I cannot comment on:

(a) “handling of delivery constraints”, as I do not know precisely what Emptoris means by that

(b) bid adjustments on any numeric value; this is easy enough to do, but it requires front-end as well as back-end support, and I do not know what was ever done on the front-end in that regards in the MindFlow solution; I’m guessing not much

(7) If Emptoris now has

( a) alternate support,

( b) ship-to support,

( c) automatic conflict constraint identification, and

( d) flexible attribute support then

(i) their solution is more powerful than any analysis of easily, and not-so-easily, locatable public information will lead one to believe and

(ii) they should be advertising this information, since it clearly sets the solution apart from the vast majority of other optimization(-based) solutions out there.

(8) As per my previous comment on Spend Matters in “The Optimization Doc’s Perspective on Emptoris”*, I was not evaluating the overall Advanced Sourcing Service. I was focused only on what JB asked me to focus on, the optimization component. I have also analyzed the entire offering, with respect to everything I know, and that was my last post.

(9) As for their final paragraph, I fully understand why they should not want to brief me, and more important than the points they list, is the missing, unwritten, point (3): as an optimization expert, if you simply provide me with an idea I did not have before (they did not in this post, but I have to admit a few things they mentioned I only started thinking about seriously within the last year or two), then there is a good chance I could figure out how to do it on my own.

With respect to their points (1) and (2), that is unfortunate, since it also implies they can no longer brief JB either, as he also consults with their competition from time to time, and his blog is the only blog in the space that is read more regularly than some of the big publications! (I’m getting more hits everyday, and I believe more than many of the blogs in the space, but SpendMatters has over a year on me and still holds the top spot.)

(10) I’d like to see more posts from Emptoris in the future! I know the Emptoris philosophy is more along the lines of “share as little as humanly possible”, but I’m of the opinion that if you have something good, you shouldn’t be afraid to show it! It certainly helps analysts and buyers figure out where you stand from a competitive perspective and reduces the FUD factor, and, I assume, would also help sales, since people would see where the application is better and better suited to their needs.

Response, Part II

Their Edelman paper – “Reinventing the supplier negotiation process at Motorola (Internet enabled supplier negotiations software platform)” – does not help a user as much as their post does. (As the post outlines a few capabilities that the MindFlow model did not have.) It only proves that as of 2004, although they had a better engine than MindFlow, they did not necessarily have a better model.

Emptoris MindFlow
Key dimensions: Suppliers, items Key dimensions: Suppliers, Products, Ship Tos
Item Substitutions Native Model Dimension
Tiered Bids Tiered Bids
Discounts / Rebates Discounts / Rebates
Penalties (Missed Terms) Usage Costs
Bundles Bundles
Min/Max Suppliers Supplier Risk Mitigation
Preferred Vendor / Minority Award /

Offset Proximity Award / Min-Max Award

 General Purpose Group-Based

Supplier Allocation by Volume
Budgetary Limit Award Group-Based Supplier Limit by Cost
Non-price Factors / Switching Costs General Purpose Fixed Costs
Supplier Qualification General Purpose Exclusions
Split Award Generic Meta-Allocation Constraints
Terms Support General Purpose Qualitative Constraints

For those readers who want to read the details for themselves, and if you are interested in an optimization solution, I would encourage you to do so, below are some links you can use, as the link Emptoris provides simply takes you to the INFORMS presentation abstract. The first link is free (after you sign up for an account if you don’t have one), but since it is a plain text link, it is missing the figures and a few of the more sophisticated equations. The second, Goliath, link is free if you are a member ($19.95/month), or $4.95 otherwise. (It looks like it may be text-based also, so I’d be wary of buying the article from this source, but I would check this link first if you are Goliath member.) The last link is Emerald, and I believe it will provide a true copy of the original article, but it is the most expensive, at a GBP of 14.50.

Access My Library (no longer available)

Goliath (no longer available)

Emerald

Although they likely cannot comment, with respect to the following paragraph from that paper, I’d be very interested in knowing how they overcame the over-aggressiveness of the implicated CPlex pruning algorithms to improve accuracy and increase the chance you truly are finding an optimal solution without sacrificing performance. Was it simply extensive trial and error and incremental parameter tweaking, or did they uncover a hidden secret of CPlex?

“Some of the rules had straightforwrd linear formulations, while others, such as complex discount structures, were nonlinear and also required very large coefficients that in most cases introduced numerical instability. We had to reformulate them to make them tractable and still accurate. The resulting MIP formulation was very complex and in many cases, especially for large auctions, was not readily solvable by commercial optimizers. We then introduced heuristics that reduced some of the problem coefficients, guided by the branch-and-cut strategy using knowledge of the specific problem structure, took advantage of the variable dependency, and iterated the solution to improve accuracy without increasing complexity. In addition, by using the appropriate settings of numerous CPLEX integer solve parameters, such as diving and probing, we further improved performance. Altogether these actions produced robust and scalable solutions, allowing the software to solve problems with hundreds of items and thousands of bids in a few minutes.”

My experience with CPlex is that it’s aggressive branch-and-bound pruning algorithms can be fooled even by small models. And it only gets worse in version 10. I have evaluated/constructed a number of small models that solve in less than a 10th of a second using default algorithms in CPlex (on a reasonably high end server), but whose accuracy is off by close to 1%. In comparison, other solvers solve these same models in less than a second (although three to seven times slower) and reach true optimality. Although users want fast solutions, depending on model size, and scenario value, I believe most will wait a few extra seconds or minutes for even half a percentage point, since this translates to 50K on a 10M scenario. In other words, I’m curious as to whether or not they have made any non-resource intensive significant advancements with regards to controlling trade-off in solution-time vs. optimality.

Addendum

I agree with Jason Busch when he says that regarding consulting to or advising different companies in the sector, I would strongly urge all bloggers, analysts, and journalists to disclose any and all past and current commercial affiliations just as Michael and I do on our blogs. For those who are interested, these links are here, as well as on the sidebars of our blogs.

Spend Matters Disclosures* (original may not be available, but Jason Busch maintains a page for his clients upon request)

Sourcing Innovation Client Disclosures and FAQ