Category Archives: Technology

For Real Value, You Must Own the TCO

CRM Buyer just published one of the best articles I’ve ever stumbled across. In TCO, ROI, and the Difference Between Price and Cost, the author makes a point that is overlooked far too often by far too many buyers when they are shopping for new supply chain solutions:

      Customers must be sure that THEY own the definition and calculation of TCO and don’t allow the vendor to drive the agenda.
      

As the author clearly states, vendors will try to manipulate and obfuscate the true TCO of their solution and it will be different for each installation. Plus some of the costs, like risk and opportunity, are nebulous and hard to define. Vendors will try to make other vendors’ solutions look risky when, in fact, for you they might be less risky.

That’s why, on multiple occasions, I’ve tried to lay out the true, long term, costs of supply management solutions, as I did in this post in Uncovering the True Cost of On-Premise Sourcing & Procurement Software, in this post The Total Cost of Ownership Equation in a Green Economy, and this post on Know Your Software TCO & TVM, for example. The true, long term, cost is always more than you think and much more than the vendor will let on. It’s like the car example given in the article. If you’re going to sell after five years, the total cost is the price plus five years of maintenance and repairs (and insurance and gas) minus the expected selling price, and when everything is factored in, a more expensive car that costs more but retains its value might be worth more than a cheap car that loses the majority of its value and costs four times as much to maintain.

Before you make a decision, you have to determine the total cost of each solution over the intended lifetime. Only then you can decide if the solution with the greater (annualized) cost truly brings more value. If a solution costs 20% more but increases productivity by 40% or decreases risks by 30%, it might be worth it. However, if a solution costs 100% more but brings no additional value of any kind, it’s not worth a second look. And this is not something you will know until you slice through the vendor obfuscation and normalize the costs, which is something you can only truly do if you own the calculation.

Logistics Carriers: Black Boxes are Coming

As per this recent article over on Logistics Management, all five leading U.S. trucking companies endorse EOBRs for commercial trucks. The rationale: to verify legal duty status of their drivers.

Schneider National, U.S. Xpress, Hunt Transportation Services, Knight Transportation, and Maverick USA are endorsing the “Commercial Driver Compliance Improvement Act” (S. 3884) put forward by Senators Mark Pryor (D-Ark) and Lamar Alexander (R-Tenn) which, if passed, would require (commercial) trucks have electronic on-board recorders (EOBRs) within three years. The companies have formed the industry coalition “Alliance for Driver Safety & Security” to urge Congress to pass legislation designed to improve highway safety.

The alliance believes that EOBRs will improve safety on our nation’s highways by applying technology to document driver compliance to the hours of service rules because early evaluation of the Comprehensive Safety Analysis (CSA 2010) data suggests that carriers with higher levels of hours of service compliance have lower crash involvement.

But will they really verify legal duty status? And, more importantly, will they really improve highway safety? If your truck has two drivers, will a box tell you who was driving? And if a driver really wants to push through, I’m sure it won’t be long before someone figures out a way to bypass them, just like your best car thief can bypass any car alarm or lojack in 60 seconds (or less). But more importantly, how will it directly improve highway safety. While it’s true that a tired driver is more likely to get into an accident than an alert driver, how is a black box going to determine if a driver is tired or not? Every driver is different. If the driver didn’t sleep the night before due to illness or personal stress, the driver might tire in just a few hours on a crowded highway. But if the driver got a great night’s sleep, is rested and relaxed, doesn’t have to deal with demanding driving situations, and breaks every few hours, he or she might be able to easily drive 12 hours in a day, especially if he or she gets the next day off.

While I’m all for safety, I can’t help wondering if there is an ulterior motive by some of the bigger players to bankrupt the smaller players. These boxes are going to cost at least 500 per truck, and there are going to be installation, maintenance, and training costs on top. This could break a small carrier operating on a razor-thin margin, and offer no additional security or safety if the carrier’s drivers are professional self-conscious drivers who always obey the rules and keep good books.

But what do you think?

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What’s the Right Number of Approvals?

In a recent piece by ChainLink Research on “how a legal department can add value”, the author noted how gaining efficiencies is not only about technology, but about process. Referencing Cisco’s big push to get to “one-approver per function”, the article noted that it’s important to ask what is the real ROI of having additional approvers and what is the related impact on revenue and customer satisfaction. It’s important to ask how much time the extra approvals take and what the time-value of money is for holding up orders for that many extra days. And what is the cost to the organization if approver number 17, who is the least affected by the purchase, decides to reject the order 7 days into the process when the product is needed on day 10?

While it’s probably impossible to build some hard and fast rules that will always apply, it is important to set some ground rules as to when another approval is needed, and when an approval can be skipped or automated. For example, does every order over $10,000 need to be signed by three approvers? What if the order is for four new servers at a cost of $20,000 and the purchase has already been approved in principle in the budget (for an amount up to $25,000)? Should not the CTO’s approval alone be sufficient once the product has been selected (provided proper procurement policies have been followed)?

At most there should be one approver per function, and the approval of functions that are minimally impacted should probably not be required at all if at least one of the approvers is a senior manager or the purchase is not high dollar and at least one of the approvers has deep product and/or service knowledge. And any approvals that can be automated should be. For example, a $500 spend on office supplies for approved products from an approved supplier should probably not require three manual approvals.

Any thoughts as to what the right number of approvers is?

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An Integrated View Is Needed, But Integrated Dashboards Are Deadly

A recent piece from ChainLink Research on going “from complexity to clarity” suggests a “management dashboard” that allows a manager to see the status of the end-to-end supply chain and the potential implication of a decision with respect to its impact on key metrics is the key to getting a grip on your complex supply chain.

It sounds great in theory, but it’s very dangerous in practice. Why? In addition to all the reasons I’ve already given you on why dashboards are dangerous and dysfunctional (in this post and this post), when you start chaining dashboards from different systems, you introduce the following additional risks:

  1. inconsistent views
    Different systems may calculate metrics in different ways. For example, the WMS (Warehouse Management System) may present an on-time delivery rate of 90% while the SIM (Supplier Information Management) System has an on time delivery rate of 85%. Which is right? What if they’re both right? For example, the WMS may calculate on-time as percentage of shipments that arrive on the designated day using arrival time while the SIM calculates the on-time as the percentage of shipments that arrive complete on the designated day.
  2. propagated errors
    What if the dashboards propagate erroneous metrics that are used in calculations to produce even more erroneous metrics? For example, what if the WMS incorrectly calculates on-time using date and not delivery time, and doesn’t capture the reality that everything after 11:00 am is late (as the truck can’t be unloaded during the normal shift if it doesn’t arrive by 11:00 am)? An inflated metric is then passed to the IMS (Inventory Management System) which uses this metric in its perfect on-time metric, which calculates this metric using parts that pass visual inspection but not quality testing. An inflated metric is then passed to the SIM system which might calculate perfect orders using orders that pass initial component testing, but ignore failures or returns within the full integrated QC (Quality Control) testing process.
  3. overconfidence
    The more information you have, the less likely you are to notice missing information. For example, if you have a dashboard that tells you your highest spend categories, current sourcing projects, upcoming payables, on-time orders, missing orders, expiring contracts, current and past-due project tasks, etc. you might not notice that your logistics costs are going through the roof.

In other words, integrated dashboards don’t necessarily improve visibility, but they do increase risk!

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