Category Archives: Technology

First out of the Gate: Bob Ferrari

Everytime I launch a new cross-blog series, I always wonder who will be first out of the starting gate, trying to be the first to capture the readers’ minds and hearts. This time it was Bob Ferrari of Supply Chain Matters and The Ferrari Group who posted his Seven Grand Challenges for Supply Chain Management yesterday.

In his first post, he lays out his seven challenges and tackles the first three head on, promising us two more posts on the last two challenges before the week is up. Bob’s Seven Grand Challenges are:

  1. Ubiquity of Portable Computing Leading to Real Time Sensory Networks
  2. True Supply Chain Business Intelligence and Decision Making Tools
  3. Managing the Explosion of Data and Information Needs in Global Based Value Chains
  4. Managing Supply Chain Risk Management on a Global Basis
  5. Who Assumes Ownership for the Extended Supply Chain?
  6. Articulating the Value and Consequences of Supply Chain Directly to the C-Suite
  7. A Global Shortage of Talent and Skills in Supply Chain Management

I really like #2, because it meshes with my seventh challenge of Opportunity Analysis. Today’s supply chains are filled with untapped opportunities, and you’re going to need good business intelligence and decision making tools to find them. And we’re definitely on the same page with #4! Risk is everywhere, and supply chain disruptions are still rising rapidly, due, primarily, to poorly managed, if not unmanaged, risk.

I’m not convinced of #1, #3, and #5 though.

1. I can certainly see the value of Real-Time Sensory Networks and systems self-updating as soon as product is detected in area B when it was in area A, but I don’t think this is going to add that much efficiency, especially if we had integrated physical, financial, and information-based supply chains where all it took to accept a complete shipment was logging into the shared system and checking “received”. Plus, I don’t want to see us become over-dependent on technology. What happens on that fateful day, which always happens eventually, when it fails and no one knows how to do it manually?

3. I believe that managing the data explosion is an IT challenge, because it goes well beyond just supply chain and supply chain systems. Data explosion is everywhere, and it’s IT’s job to build the databases, marts, and warehouses we need to manage it. It’s Supply Chain’s job to select from the best systems out there. Bob makes some great points in his post, but I’m not sold.

5. I think this is a great question to ask, but it’s not really a challenge, because, in my view, it’s trivial to answer. The CEO. Today, your company is your supply chain. Sure you have a CSCO who’s job is to manage the chain on a daily basis, but the buck should ultimately stop with the CEO. Nonetheless, I’m waiting to see what Bob has to say on this one …

And #’s 6 and 7 certainly have me thinking!

If we go back to the Top Three challenge, David Bush of e-Sourcing Forum and Iasta proclaimed that the top-three challenges of supply chain today were Adoption, Adoption, Adoption. This is a cry I’m hearing from e-Sourcing and e-Procurement companies across the board. And even though this is the perfect economy for those providers, because e-Sourcing and e-Procurement software is about the only way to reign in your spending during the deflationary/slowdown/recession economy we’ve been in for a while now, the cry only seems to be getting louder. Maybe it is a longer term challenge than I give it credit for. I’m anxious to see what Bob offers up on this one!

I’m definitely on board with #7! If you check out the talent category here on SI, you’ll see that I’ve essentially been whining about this problem since day one! It’s a huge challenge right now, and it’s going to be for at least the next five years. However, history tells us that talent shortages tend to resolve themselves over a ten to fifteen year window. Once demand gets high enough, and stays high enough for a few years, students, anxious to have a job when they graduate college / university, see that as a good career choice and take educational paths that will prepare them for that careeer. Young professionals ready for a career change go “back to school” (through night courses, part time programs, private programs, etc.), prepare themselves for that industry, and move on in. Simultaneously, the industry, desperately short on talent and needing to get through the day, re-engineers its processes, automates as many tactical functions as it can, and learns to do more with less. After ten to fifteen years, the talent shortage drops to a manageable level. And I’m looking at a twenty to twenty-five year window with these challenges. It’s definitely a major challenge … but is it important enough to knock, say, GHG Tracking and Reduction off of my list? I don’t know. But I’m definitely anxious to see what Bob has to say on this one too!

A Savings Template to Save Money Now with Green IT

During the summer slumber, I brought you two posts on how to green your data centers and keep more green in your bank acount and how to green your desktops and keep even more green in your bank account where I told you Green IT would save you bags upon bags of money. If you missed these posts while on vacation, I’d highly recommend getting to them sooner rather than later because, depending on the size of your business, you’re IT is likely costing you anywhere from thousands a month to hundreds of thousands a month more than it needs to – money you can start recapturing tomorrow by switching to Green IT today.

The simple truths of the matter are the following:

  • it costs more to power your average workstation or server over its useful life than it costs to buy it
  • your average workstation and server needs to be replaced every three years, or, at the very least, downgraded to supporting lesser intensity tasks

but, when you switch to Green IT:

  • power becomes a fraction of the cost, as a Green IT solution will normally be 60% to 90% more power efficient, depending on your needs
  • your hardware lasts twice as long – and ends up costing you much less on an annual basis (especially since green thin clients are cheaper than workstations!)

So how much will you save? It depends on how big you are and how many machines you have. The more machines, the more you save. Fortunately, it’s not that hard to come up with a high-level rough estimate. All we need to do is roughly calculate your current annual hardware and energy costs and your expected annual hardware and energy costs with a Green IT solution and calculate the difference.

We can estimate your current annual costs as follows:

  • regular_workstation_costs + regular_workstation_energy_costs +
    high-end_workstation_costs + high-end_workstation_energy_costs +
    server_costs + server_energy_costs

And we can estimate your expected annual Green IT costs as follows:

  • sunray_costs + sunray_energy_costs +
    CP20_costs + CP20_energy_costs +
    server_costs + server_energy_costs

Based on this, we can make some realistic assumptions and calculate a potential savings for an organization of 100 people with an IT staff of 20.

We’ll start by assuming we’re talking a traditional office, such as an insurance firm, where their IT needs are moderate. We’ll assume that only IT needs high-end workstations, that they are able to get by on 12 servers (which is on the low-end as some organizations have up to 2 servers per employee), and that they are located somewhere where energy is relatively cheap, at 10c/kWh (roughly the national average in the US as of June, 2008). We’ll assume that they can buy lower-end hardware and get regular workstations for 600 with low-end 10,000 hour 17″ LCD monitors for 200, higher-end IT workstations for 1,200 with mid-range 10,000 hour 21″ LCD monitors for 400, and get by on mid-range Dell servers at 3,000 a pop. Furthermore, we’ll assume more-or-less industry-average power requirements of 124 watts per hour per regular workstation, 372 watts per hour per higher-end workstation, and 638 watts per hour per mid-range server. We’ll also assume that these are good corporate citizens that turn their workstations off every night when they go home, that energy costs are only going to increase 7% per year, and that the organization gets three years of useful life out of a machine and four out of a monitor.

We’ll then assume that each regular workstation can be replaced with a SunRay thin client, and that each core on the virtualized server can support five clients; that each high-end workstation can be replaced with a CP20 thin client, and that each dual-core on the virtualized server can support five clients; and that there is a 6:1 consolidation ratio using virtualization technology. Making these assumptions, we calculate that this organization is overspending on IT by over 40,000 a year! Greening their IT would allow them to hire another office administrator or sales agent! Plus, they’re unnecessarily harming the environment! The energy used by 100 workstations in 1 year is equivalent to 88 barrels of oil or 4,318 gallons of gasoline and it’s production results in 38 tons of CO2 and 13 tons of landfill waste!

If we extend the calculation out over 3, 5, and 10 year time horizons, we see that the numbers become very significant very fast.

Years 1 3 5 10
Traditional IT Cost 61601 187642 314096 632442
Green IT Cost 21371 64654 108014 216837
Green IT Savings 40230 122989 206081 415605

And this is a low-end estimate! If the organization needs higher-end, and costlier, workstations that suck up even more energy, and its employees never turn them off, and if they can achieve an 8:1 ratio on the SunRay’s (which is obtainable if all the workstations are used for the majority of the time is word-processing and e-mail) and a 5:1 ratio on the CP20’s (which is obtainable with the right server configuration), the cost savings double to over 80,000 a year, and to almost 1,000,000 over 11 years! That’s an awful lot of green for your average small business with only 100 employees!

Years 1 3 5 10
Traditional IT Cost 107661 329552 552395 1114620
Green IT Cost 21987 66403 110883 222425
Green IT Savings 85674 263149 441512 892195

And these might even be lowball estimates for your organization, depending on your true IT needs and optimal configuration. A recent implementation by the Green Data Center reduced the total IT energy costs for a small company by 93% a year (which, for a company with 250 machines, translates into roughly 29,000 a year in energy savings)! Another study found that a local college could replace 500 machines and save 300,000 in hardware and energy costs per year! And since the implementation cost was estimated at 303,000, this organization had an ROI of only 12 months!

So how do you save money? Like I said before, you start with a green audit that results in an executable action plan that will allow you to save money as soon as you CFO gives you the green light. One company you can call is NCS Network, operators of the Green Data Center who have significant experience with Green IT and who have helped clients across North America.

Furthermore, if you call NCS Network and mention that you heard about them on Sourcing Innovation, not only will you get 10% off their standard audit quotes if you book before September 30, 2008, but they’ve guaranteed me that the first 10 callers who mention Sourcing Innovation will receive a free Green IT consultation. You can call them toll free at 1-877-GREEN-60 or send them an e-mail.

So Go Green today and save!

For you number crunching types, you can download the spreadsheet I used to do the calculations, which I’ve outlined below, and plug in your own estimates to get a ball-park of your savings potential.

The full calculation for each element of your current IT costs are:

  • regular_workstation_costs = number_of_regular_workstations * (cost_per_regular_workstation /useful_workstation_life + monitor_cost / useful_monitor_life)
  • regular_workstation_energy_costs = number_of_regular_workstations * avg_watt_per_hour * avg_hours_per_day * avg_days_per_year * avg_cost_watt_hour
  • high-end_workstation_costs = number_of_high-end_workstations * (cost_per_high-end_workstation / useful_workstation_life + monitor_cost / useful_monitor_life)
  • high-end_workstation_energy_costs = number_of_high-end_workstations * avg_watt_per_hour * avg_hours_per_day * avg_days_per_year * avg_cost_watt_hour
  • server_costs = number_of_servers * (avg_server_cost / server_lifespan)
  • server_energy_cost = number_of_servers * avg_watt_per_hour * 24_hours_per_day * 365_days_per_year * 2.22_data_center_energy_overhead_factor1 * avg_cost_watt_hour

The full calculation for each element of the green IT costs are:

    • sunray_costs = number_of_sunrays * (300_per_sunray / 7_years_useful_life + monitor_cost / monitor_useful_life)
    • sunray_energy_costs = number_of_sunrays * 7_watts_per_hour * avg_hours_per_day * avg_days_per_year * avg_cost_watt_hour
    • cp20_costs = number_of_cp20s * (600_per_cp20 / 7_years_useful_life + monitor_cost / monitor_useful_life)

    • cp20_energy_costs = number_of_cp20s * 25_watts_per_hour * avg_hours_per_day * avg_days_per_year * avg_cost_watt_hour
    • server_costs = number_server_cores * avg_cost_per_core / server_lifespan
    • server_energy_costs = number_of_server_cores * avg_watt_per_hour * 24_hours_per_day * 365_days_per_year * 2.22_data_center_energy_overhead_factor1 * avg_cost_watt_hour

 

When estimating server cores in your Green IT solution, use the following calculation:

  • server_cores = sunrays/clients_per_core + cp20s/clients_per_core + current_servers/consolidation_factor

where SunRay clients per core will usually be between 4 and 8,
where CP20 clients per core will usually be between 2 and 5,
and where consolidation_factor will usually be between 5 and 10.

Note that power for workstations can be as high as 1,000w/h, with low-end typically between 120w/h and 180w/h, mid-end between 300w/h and 500w/h, and maxed-out development or gamer machines requiring as much as 1,000w/h. Note that server power requirements generally start at around 500w/h for low end servers, 700w/h for mid-range servers, and typically go up to 1,500w/h (or more) for high-end servers. In comparison, depending on what type of processor the blade uses, and whether or not you have a rack-mount cooling solution, power requirements per core can go as low as 32w/h (using a Xeon-chip and rack-mounted water cooling).

1 In an average data center, 55% of the power utilization is due to overhead from lighting, air-conditioners, UPS, etc.

 

Automation Does Solve the Supplier Enablement Problem …

… but it has to be done right! Regular readers of the Supply Chain Management Review will remember an article from about four months ago that attempted to address “How Automation Solves the Supplier Enablement Problem”. Noting a study from Aberdeen that found that enterprises with properly deployed supplier enablement strategies are able to drive down their costs by 71 percent, while also realizing an average cost more than 45 percent lower than their peers, the article noted that the utilization of automated processes instead of manual systems improves supplier enablement.

The article is right in that automation improves supplier enablement, right in that it is an ongoing effort that requires the utilization of software and the deployment of services, and right in that you have to engage the proper buyer-automation strategy. But it’s wrong when it states that only key and high-volume/high-dollar mid-tier suppliers should be integrated directly into the on-line marketplace. I understand why the recommendation is being made — it’s authored by an employee of a vendor of a marketplace solution that still uses punch-out and hosted catalogs — B2B 2.0 solutions.

(Simply put, the B2B 2.0 vendor logic is as follows:
(1) High dollar, high volume, low-maintenance members of the supplier community are usually already punch-out enabled, and, thus, easy to hook up directly,
(2) About half of the high dollar, high-volume, high-maintenance members of the supplier community will be punch-out enabled, and easy to hook up directly. The rest will likely have staff dedicated to maintaining catalogs in a common format, so it won’t be too much work to get these catalogs on a regular basis in a form that allows most of the products and services to be automatically imported into the vendor’s hosted catalog. Furthermore, the transaction revenues should come close to covering our hosting costs, but
(3) Low-dollar, low-volume members of the supplier community are not only not likely to be punch-out enabled, but also not likely to have an up-to-date catalog in a modern, standard, data-format. Hosting these catalogs will require a lot of work on our part at a cost much greater than the transaction revenues we are likely to see from them.
Thus, since
(1) a buyer’s key suppliers are high-dollar, high-volume, low-maintenance suppliers who are already punch-out enabled, and since
(2) a buyer’s mid-tier suppliers are high-dollar, high-volume, high-maintenance suppliers with good catalogs in a clean XML format,
we’re safe in recommending that the buyer integrate these suppliers directly into the on-line marketplace as it will be relatively easy and cost effective for us. But since low-dollar/low-volume suppliers who are not punch-out enabled and without good catalogs drive up our costs, drive down our margins, and risk pricing us out of the deal, we have to recommend that buyers deal with this group on a company-specific basis and host some of their enablement and offer encrypted email channels for other low-volume suppliers … because, not being B2B 3.0, we just can’t do it at an affordable price-point.)

If you are still using a vendor who is still on B2B 2.0, then the approach outlined in the article is the right one for you, since there is a cost associated with every supplier you integrate and you should only integrate suppliers where you’ll achieve an ROI. However, if you’ve progressed up the value-chain to B2B 3.0, then it doesn’t matter what format the supplier has their data in — punch out, hosted catalog, flat-file, on-line database, or proprietary XML. This is because a B2B 3.0 solution uses meta-search, web services, agents and mash-up technology that can automatically convert and search the suppliers’ catalogs, in any format it happens to be in, in real time, to the format used by your procurement or marketplace solution, and the cost for each supplier, once you’ve purchased and deployed the solution (which is usually implemented as a web-service) is minimal, and, more importantly, always fixed because it is SKU and format agnostic.

Furthermore, B2B 3.0 gives the supplier the choice on how he wants to be enabled … he can come direct from his existing XML punch-out, he can send you his catalog, he can send you his web-based database connection information, or he can just send you the URL of his web-site with on-line, real-time, pricing information. He can even direct you to a third-party marketplace that is already hosting his catalog if he wants to. And regardless of where your suppliers’ data comes from, the enabling technologies of B2B 3.0 will give you a single, simple, unified, and meta-search enabled view of your suppliers and their product and service offerings. This is because B2B 3.0 technologies aggregate the catalogs, punch-outs, and marketplace listings into a single, virtual marketplace customized for you.

That’s why B2B 3.0, a revolution that is about to take the enterprise software world by storm, is so critical to your future success. As the first generation of enterprise technology to enable true B2B e-Commerce that consists of simple, fast, low-cost transactions at true market prices, it’s also the first generation of technology with no limitations on content or community, as it’s able to take advantage of the full underlying connectivity offered by the Internet. For more information on B2B 3.0, check out the inaugural Sourcing Innovation Illumination Introducing B2B 3.0 and Simplicity for All, and for more information on how the right automation truly solves the supplier enablement problem, watch for the upcoming Sourcing Innovation Illuminations that will describe how Simplifying B2B for Suppliers Enables Buyers and how Content Enablement Technologies Enable e-Procurement 3.0.

Cross-Blog Challenge: The “Seven Grand Challenges” for Supply Management

Back in the spring, ComputerWeekly.com, ran an article on the “Seven Grand Challenges for IT over the next 25 years”, as reported by Gartner. They were:

  • Elimination of the Manual Recharge
    With the increasing ubiquity of portable battery-powered devices, the development of batteries that can be charged remotely or devices powered by a remote source
  • Parallel Programming
    Allow multiple, slower speed processors to perform tasks in parallel
  • Non-tactile, Natural Computing Interface
    Remove the need for the mouse, keyboard, etc. and give us the Star Trek computer, or at least the virtual 3-d display being proposed in movies like Paycheck
  • Automated Speech Translation
    To allow communication with computers in any language, as well as communication between any two people speaking any two languages with the aid of the machine
  • Persistent and Reliable Long Term Storage
    Given a recent estimate (by Dr. Francine Berman) of 161 exabytes (1018) of digital data generated in 2006, the need for storage is increasing exponentially.
  • Increase Programmer Productivity 100-fold
    The removal of uncertainty in meeting future software demands will rest in increasing the productivity of the programmer.
  • Identify the Financial Consequences of IT investing
    Conveying the business value of IT in readily understood terms.

As a technologist by training, I found these very interesting for a number of reasons.

First of all, these challenges are not mutually independent. Increasing programmer productivity will require the creation of better programming environments that will not only allow programmers to code better and faster, but to also take advantage of parallel programming. We already have 8-core machines available for home and small-business use (by way of the Mac Pro, for example), but today’s implementation of today’s parallel programming techniques (achieved primarily through multi-threading) are challenging even for expert programmers. In addition, a natural computing interface will need to involve speech, and we don’t even have speech recognition software that is acceptable out of the box – it still has to be trained for each specific user, who has to actually train herself to talk consistently, to achieve useful accuracy – and it’s generally incapable of differentiating between when speech is part of a sentence or a verbal command – and the utterance of “Do Not Delete. Document is … “, for example, during transcription could delete the entire document!

Secondly, without the wide-spread introduction of entirely new types of technologies, or the re-introduction of old technologies thought destined for the trash bin, they may not be obtainable. For example, how are you going to eliminate the manual recharge? We can’t send traditional AC or DC current through the air – the best we can generally do is radio waves and light rays. Light rays are blocked by opaque objects, leaving radio waves – the low-energy, long wavelengths of the electromagnetic spectrum. Now, since these waves are a form of energy, it is possible to continuously receive these waves and “harvest” the energy by directing it at a rechargeable power source, like PowerCast is doing, but the vast majority of today’s devices require a lot more power than you’re going to get from conventional radio waves – so we’re going to need to create devices that require significantly less power or that are capable of capturing the energy we generate. This technology has existed for quite some time in the form of balance wheel escapements used in self-winding watches that power themselves from the movement of the wearer. In the near term, the solution will probably come in the form of miniaturization and power-reduction and the combination of multiple power harvesting technologies.

Thirdly, they recognize that the greatest challenge will likely always be conveying the value of new technology, and, more importantly, of funneling dollars into R&D to allow for the development of the new technologies that will be required to allow the value, and role, of IT to continue to increase.

Fourthly, they got me thinking about what the grand challenges are for supply and spend management. I have my ideas, and will share them in a future post, but first I want to propose this as the foundation of the next Sourcing Innovation cross-blog series, that will run September 15 (2008) through September 26 (2008), and challenge every blogger and guest-blogger in the space to come up with his or her own seven grand challenges for Supply & Spend Management.

As with previous cross-blog series, I will maintain a complete listing and cross-blog linking of contributions and publish guest posts from those guest-bloggers who wish to post on SI. I’ll also kick-off the series with my own list on September 15. While you’re waiting, you might want to go back and check out some of the previous cross-blog series which included:

Supply Chain Digest’s Eight Step Forecasting Process Using Demand Planning Software

Every now and again I like to address the forecasting process because, as a sourcing and procurement professional, you are often negotiating contracts against a perceived volume leverage based as much off of a forecast as it is based on historical data. In Part I we reviewed judgmental and statistical forecasts and explained why you need to balance both methodologies when generating your forecast, in Part II we addressed commodities forecasting and how you need to base it on the right data and the right factors, and in Part III I directed you to “Forecast Less and Get Better Results” on SupplyChain.com that demonstrated that the conventional wisdom that companies need to project forecasts and plans far into the future at a highly granular level is not necessarily right. Then, in Forecast with Foresight, I pointed you to a Supply & Demand Chain Executive article on a study about “re-thinking demand management” that noted that active/predictive demand management is necessary for good forecasting.

Part of active/predictive demand management is good demand planning. Good demand planning involves good demand planning software, so it was nice to see the Supply Chain Digest editorial staff print a short guide on how to attack the process, even if the first two steps didn’t fully address the problem.

The process, which was still quite good, that they presented was:

  1. Load Historical Data and Create Master Data
    Identify the key data elements that need to be considered and load them.
  2. Clean the Historical Data
    There are almost always problems with the quality and completeness of the data loaded into the system. E.g. “demand” may not be true demand, because it is taken from “sales” data, and will not include “stock-outs”.
  3. Generate a Statistical Forecast for Existing Products
    Use demand planning software with built in statistical models to find a “best fit” that will give you a starting forecast.
  4. Prepare Forecasts for New Product Introductions (NPI)
    Use the demand planning software to identify products with similar sales trajectories which will be used as the starting forecasts for the NPIs.
  5. Override Statistical Forecasts with Judgmental Input
    Use data from sales channels, knowledge about changes in market conditions, and expert insight to smooth the forecasts into the most realistic forecasts possible.
  6. Adjust the Baseline Forecasts for Promotions
    In certain industries, like consumer goods, promotions can have a huge impact on sales volume and need to be factored into the baseline forecasts.
  7. Manage Vendor Managed Inventory (VMI) and Collaborative Planning, Forecasting and Replenishment (CPFR) Processes
    Be sure to communicate data to both customers and internal managers responsible for these programs.
  8. Generate a “One Number” Forecast
    Integrate forecasting into a Sales and Operations Planning (S&OP) that brings together executives from key areas of the company to ultimately agree on a single forecast number and execution plan that will drive both the demand and supply sides of the enterprise.

The one change I’d make would be to replace the first two steps with the following:

  1. Do a Spend Analysis
    A spend analysis project, performed by a spend analysis expert that uses a real spend analysis tool, will load all of your relevant data, cleanse it, normalize it, and properly classify it in multiple spend cubes. The resulting cubes will allow you to perform the analyses necessary to identify which data is relevant, which data is statistically significant, and, more importantly, which products require significant forecasting efforts and which products are relatively stable year after year. Products with relatively stable sales do not need significant forecasting efforts, because expected demand can be easily determined from the spend analysis. On the other hand, products with variable sales, especially those products with a seasonal demand that are heavily influenced both by manufacturer promotions and competitor’s promotions for similar products, require detailed forecasting efforts.
  2. Load the Relevant Data
    Once you have identified those products that require forecasting efforts, you can load the associated data that is needed to run the statistical models, to determine the effects of planned promotions, and determine the appropriate demand forecasts.