Category Archives: Technology

Probabilistic Chips ARE NOT Going to Improve Your Supply Chain Software

It simultaneously humours and scares me every time non-technical folk decide to write about a new piece of technology and how it is going to revolutionize whatever domain they regularly write about. The latest example is this recent piece over on Supply Chain Brain that says one should look for breakthrough technologies this year.

The article, which correctly notes that adoption of ERP systems led to:

  • Stumbling
    as a lack of depth in planning functionality in ERP systems did not lead to integrated planning
  • Failed Promises
    as the ERP is not the de-facto data model for the enterprise or even the end-to-end supply chain
  • A Lack of Agility
    as it has failed to deliver any sensing capabilities that would drive supply chain agility

went on to say that 2011 would be the year when breakthrough technologies using probabilistic chip logic, parallel processing for near-real time response, and artificial intelligence would hit the market. WHAT THE FRACK? Are you kidding me? Did Supply Chain Brain really publish this? Was it written by the Scarecrow from the Wizard of Oz? Let’s examine these technologies in more detail.

  • Parallel Processing
    Your average solution is already taking advantage of this. It’s called a multi-core chip which has been standard in every server for years now. Sure most applications are not written to be multi-threaded or take advantage of multi-cores, but, in order to allow the developers to handle increasing complexity and code-sprawl, most applications are written as multiple modules that are assigned their own processes, and the OS will balance the processes among the cores to speed up overall performance.
  • Artificial Intelligence
    We have been promised (true) AI for 55 years and it has never materialized. What makes you think the next 55 are going to be any different? And how are supply management applications going to deliver a technology that does not even exist yet?
  • Probabilistic Chip Logic
         Obviously the author has no fracking clue what PCL is. Because if the author did, the author would know that PCL, by its very definition, CAN NOT improve computational results. In fact, what PCL actually does is WORSEN computational results. (It will make a decision optimization model worthless since optimization requires millions of calculations and the propagated error would soon be so bad that there will be no accuracy left.) In some applications, like video and audio compression and decompression, small losses in accuracy are not only acceptable but often unnoticeable. It turns out that if you are willing to accept small losses in accuracy, you can do the computations with significantly less energy.
         Most of the voltage required by a computer chip is used to overcome the electrical “noise” created by constantly moving electrons in the chip materials. If this noise is not drowned out by a high enough voltage, then a chip may not be able to accurately determine if an electron flowed through one of its transistors. (Chips produce their bits, 0s and 1s, by measuring the absence or presence of an electron in a transistor.) If the voltage is decreased, the signal-to-noise ratio decreases and the probability of registering an incorrect bit increases. It turns out that the nature of electricity means that voltage (and energy) requirements can be significantly decreased if one is willing to accept an increase in the probability of a bit being mis-read x% of the time, which for some applications (like video and audio signal processing) only results in a small loss of precision.
         Thus, the use of a probabilistic chip can decrease your energy requirements (and corresponding operational costs of computing machinery), but cannot improve the processing accuracy of any applications so using it (although it can speed the chips up slightly since lower voltage utilization means they can run faster without overheating). And, at least for now, one will get (considerably) more speed from parallel processing.

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.

Could Word Smarts Get You That New Supply Management System Sooner?

You’re an ambitious Supply Management Professional who wants to do the best job you can. (That’s why you read SI everyday.) However, it’s tough to be the best when you don’t have the best tools at your disposal, as it limits your productivity and savings potential. You know you need that new system (be it spend analysis, decision optimization, or next generation supplier information management) and the sooner you get it, the better you’ll do.

However, you know that the company still has tighter reins on spending that are tighter than a prairie dog’s butt in a dust bowl. You need to get around them. Your boss has to want to buy that new system if you have any hope of getting it. How are you going to make that happen?

Ask smart. As per this recent post in the Harvard Business Review on “why it’s better to be smart and wrong than just silent”, if you ask smart, even if you’re wrong, you impress your boss and make it easier for her to help you. Similarly, if you ask for a new supply management system smartly, it will be easier for the boss to agree with you and fight your case.

Which is more likely to get the boss’ support?

I’ve been doing my homework and I think our best chance of hitting that 15% savings target is to identify the categories with the biggest savings potential, not the categories we spend the most on. We’ve been hitting those hard for the past two years and I don’t think there are much savings to be had in them at this point. If we procured a modern spend analysis system, we could quickly rank our categories by total spend and then compare the prices to index prices for the categories using these indexes I’ve identified. A single report would identify our most likely opportunities. Furthermore, we could use the tool to compare our purchase order totals to invoice totals at the end of every quarter and make sure the supplier isn’t overcharging us. And that’s just the beginning of what we’ll be able to do.

or

I don’t know how we’re going to save 15%. Maybe we should buy some consulting services from Supply Management Vendor XYZ and then buy whatever new-fangled tool they recommend.

I don’t know about you, but I think one way is superior.

And if you can spin it in a way that will let your boss take all the credit, then you’ll probably double your chances of success.

What do you think? Can you apply psychology to this situation or not?

Are You Keeping Up with Your Customers?

As per this recent post over on TechCrunch, Global E-Commerce Revenue To Grow By 19 Percent In 2011 To $680B. That’s right, your customers are embracing e-Commerce in droves. How about you?

How many events are conducted on-line? How many payments are made by ACH, p-Card, or wire? Be honest. While you might still need the physical meetings, you don’t need the paper — and that includes the cheque. So if you are still doing things the old-fashioned way, maybe its time to finally break down and buy an eSourcing and eProcurement suite? Your suppliers, and the trees, will thank you.

BravoSolution: Making Spend Analysis More Useful to the Average Supply Management Professional, Part II

In yesterday’s post we discussed how, for one reason or another, spend analysis is not used enough in the average organization. But, as I said before, this doesn’t have to be the case. Spend Analysis can continue to deliver value year over year if it is properly integrated into daily supply chain activities. And the key to making this happen in your average Supply Management organization is integrating spend analysis not only into the (e)Sourcing process but the e(S)ourcing suite.

In BravoSolution’s Collaborative Sourcing Suite, Spend Analysis is integrated into the Contract Management, Compliance (& Spend) Management, and Performance Management solutions and will be integrated into Risk Management in the next version of the solution that is currently under development. In todays post, we will discuss the benefits of integrated spend analysis and what is available in BravoSolution’s suite.

By integrating Spend Analysis into the Contract Management solution, BravoSolution assists an organization in achieving a global view of sourcing and spend. From day one, an organization can not only track the contract details, but can track forecast data (total spend, cost reduction, demand management, etc.) and spend on an on-going basis by business unit and time-period (by setting up the periods for which spend is to be tracked). Then, on a regular basis, current and forecast saving reports can be (re)run with the click of a mouse button. For selected contracts, the actual savings report will summarize forecasted spend, actual spend, spend variance, expected savings (to date), actual savings, and variance, and the forecast savings report will summarize cost reduction, demand management, process savings, cost avoidance, cost increases, and total savings.

By integrating Spend Analysis into the Compliance Management solution, and matching all the way down to the unit level to find variance from contracts, Spend Analysis can help the Supply Management organization quickly pinpoint negotiated savings leakage and stem the losses. More importantly, the reports can be configured to report leakages and variances by supplier and contract (against the contract value and invoiced cost). If the variance calculations factor in discounts, rebates, and pricing tiers, then actual losses can be quickly computed. Then the recovery process can begin. BravoSolution’s suite, which includes integrated messaging for supplier performance tracking and hooks into performance management, includes the ability to track amounts paid and overpaid by supplier and contract to assist in recovery.

By integrating Spend Analysis into Performance Management, not only can spend be tracked by supplier, but spend can be broken down into high, average, and low performing suppliers. These reports can be high-level, based upon overall performance scores, or by individual KPIs from supplier scorecards. In addition, trends can be analyzed and the organization can determine whether spend to high performing suppliers is increasing, holding steady, or decreasing and whether or not action has to be taken. These trends can be plotted or (spider) graphed automatically, and benchmarks can be built and tracked over time.

And by integrating Spend Analysis into Risk Management, Risk Management can be taken to the next level. But that’s the subject of a future post.

So how successful can you be if you integrate Spend Analysis into Contract Management, Compliance Management, and Performance Management? Theoretically, the sky’s the limit (as spend analysis is now doing more than just measuring spend). Practically, the results are looking very promising. While BravoSolution only finished the initial integration of their core suite components with Spend Analysis last year, BravoSolution’s first four case studies are looking quite promising.

After an initial 3 month roll-out to a handful of advertising and marketing groups in a large media organization, the organization decided to roll out the contract and compliance management solutions to all 30 of its global groups. A second organization was able to get 50% of its spend in a compliance program in less than six months. A third organization was able to develop a performance management solution that it could roll out to thousands of franchisees to determine the appropriateness and effectiveness of its global contracts. And while the final savings numbers won’t be known for a while, the savings are tracking in the range enabled by High Definition Sourcing, 10% to 30%.