Category Archives: Technology

Forecasting, Part II

Back in January, I wrote an introductory post on demand Forecasting that discussed a really good article called Outlook Warm and Sunny that ran in APICS Magazine.

In the post, I noted that the proper combination of judgmental and statistical and statistical methodologies can often be used to create better forecasts than either method alone, because humans can make mistakes and statistical methods are very slow to react to changing market conditions.

Well, a month or so ago, Purchasing ran an article titled “Commodities forecasting: It’s all in your head”, that addressed the subject of commodity price forecasts. The article indicated that of the three types of commodity price forecasts – those based on judgment, those based on historical price data, and those based on commodity futures prices – the judgmental forecasts have the best record of accuracy.

Although this worries me, since the risk of human error is just as real in commodities forecasting as it is in demand forecasting, and I would strongly recommend that you use a good statistical model that incorporated historical prices and futures pricing before making a judgment as to what the price will be in the future, the article does have some good advice.

First of all, it notes that if you are going to use personal judgment in commodity forecasting, you have to base it on the right factors. Specifically, you need to review the right data, and the most critical data is:

  • market intelligence
  • global economic trends
  • supplier safeguards against volatility
  • your own company’s strategies

Market intelligence is probably the most critical. Be sure to watch the international marketplace to determine supply, demand, pricing, and trading trends. Economic conditions that affect supply and prices are changeable, and usually global.

The article concludes with ten forecasting tips.

  1. determine corporate price goals and adjust them to economic realities
  2. reduce purchasing pricing strategies to monthly or quarterly intervals to represent the rapid dynamics of the marketplace
  3. adjust actual timing of buys to monthly or quarterly events
  4. analyze and adjust the structure of supply contract agreements
  5. pay close attention to inventory levels
  6. ensure true supply tie-in with operational action plans
  7. study global pricing and sourcing trends
  8. survey primary suppliers’ operating rates, inventory, and costs
  9. analyze the secondary sourcing market for alternate suppliers
  10. determine potential supply alternatives for commodity products

Good advice for CIOs, Good advice for CPOs

A few months ago, Baseline Magazine ran an article called “Ditch Your Blackberry”, which chronicled an interview with personal productivity guru David Allen, and which contained good advice beyond that imparted in the title.

According to Allen, personal technology IT helps people connect, but it often adds more stress than it alleviates. Yes its true that without technology, your productivity would likely crash and burn, but technology is a double edged sword. If you are unproductive to begin with, technology will just be something else you use unproductively.

Technology keeps you down in the weeds all day, often keeping you from seeing the big picture. The larger perspective. It’s important not to lose sight of what you are trying to accomplish and what people need to be involved in a conversation. And when it comes to productivity, it’s important not to forget the human equation. What does “done” mean? What does “doing” look like? Where does it happen? And who is doing it? The biggest challenge is usually to define your work. Technology can’t do that. It can only help you do your work once it’s defined.

Furthermore, technology cannot take into consideration all the subtleties of collaboration. The biggest issue with collaboration technology is that people tend to make it overly complex, thinking it’s going to make work simpler, but the truth is, you have to make technology as simple as possible with as few moving parts as you can get by with, in order to leave lots of room for flexibility as things change.

In other words:

  • You need good processes. Technology will not fix a bad process.
  • Don’t lose sight of your goals when using technology.
    It’s there to serve you, not the other way around.
  • Success depends on collaboration, and, although technology can enable collaboration, it does not create it.

Software-as-a-Service and the Need for Speed

RSAG Research recently released their first annual “Software-as-a-Service and the Need for Speed” Benchmark Report 2007-2008 that found that retailers are feeling the “need for speed” when it comes to delivering new IT-enabled capabilities. This desire is driven from both internal and external pressures; customers are demanding better service from retailers (particularly for multi-channel customer order management), while the internal IT department is challenged to keep up with demands both from within and outside the company.

RSAG classifies retailers as winners, average, and also-rans. Whereas 34% of respondents “don’t know” what the value of SaaS is to their companies,

winners, defined as retailers with sales above the industry average sales growth of three percent, only 19% of winners are unsure what the value of SaaS is to their organization, and 41% of winners have “moderate” or “high” expectations from SaaS implementations over the next two years.

There are additional, subtle differences in how winners view SaaS as an option. Whereas average and laggard companies view SaaS as a “Fix”-It solution to do more, do it faster, and do it for less, winners view the SaaS delivery model as a way to accelerate value. Winners are also more influenced by their desire to meet the needs of their customers and trading partners then they are by IT’s capabilities or the cost of systems acquisition and integration.

It’s nice to see that at least in one industry, the majority of “winners” are starting to see the value of the SaaS delivery model and how it can enable an organization in weeks or days, and not the months or years it often takes to install behind-the-firewall enterprise-wide solutions.

In addition to a lot of great statistics, the report offers some good bootstrap recommendations for finding candidate SaaS applications for companies in general.

  • Examine the IT backlog and pick a target application with relatively low risk but demonstrable value to start, remember that
  • ROI wins, and be sure to
  • ensure top-executive support.

Eye-For-Procurement Technology For Procurement Highlights II: John LaPorta’s Presentation

John LaPorta’s (Procurement, IBM) presentation on “It’s not just about the technology: How to accelerate procurement skills and gain a real competitive advantage” was one of the best presentations at the Technology for Procurement Forum in San Francisco, put on by EyeForProcurement last month, and my favorite.

In this presentation, John tackled a favorite topic of mine, the talent crunch and how the most severe shortage of skilled labor in history is nearly upon us. ( Now might be a good time to start getting on your leading’s blogger priority customer list, before it’s too late. ) In this presentation, he reminded us of the following frightening statistics:

  • 25% of the world’s population will reach retirement age in the next three (3) years
  • employers estimate that 39% of their current workforce and 26% of new hires will have basic skill deficiencies

In other words, you could lose a quarter of your workforce in the next few years, but with the increasing skill requirements of knowledge requirement jobs, even if you can find a replacement (which is not guaranteed in an economy where the unemployment rate has dropped below the lowest rate during the recent IT bubble), he or she is not likely to have all the skills you need.

To this end, John is recommending that you, like IBM (and you can never go wrong with IBM, right? – well, okay, you can argue that sometimes you can, but they’re right on the money this time), develop or adopt a Procurement Capability Accelerator program to teach new hires the skills they need to have in months, and not years, using tailored development and coaching programs that compress two-to-three years of experiential learning into six months through heavy use of mentoring. I know you might not think you can spare your senior employees for these large buckets of time, but just think about how much worse this problem will be when they retire and take their knowledge with them.

John notes, rightly so, that one of the keys to this approach is finding the right tools and technologies that your employees can learn and adapt to quickly as well as identifying any tools and technologies that you can use to make the learning, and specifically the e-learning, process more efficient. It’s all about the right people, processes, and technology and the key is not to overlook any one of these focal points and attack all three with the appropriate level of attention and rigor.

I know you’d rather be an ostrich and stick your head in the sand then truly contemplate the magnitude of the talent problem sneaking up on you, but the sooner you realize that the only way to tackle the problem is to act now and turn your procurement officers into performance officers, the better off you’ll be in the long run. Moreover, if you’re prepared for the coming workforce turnover, you’ll have a significant competitive advantage. While your competitors are unsuccessfully scrambling to find talent that just isn’t available, you’ll have it in place.

And remember, as Deming said, if there’s a problem on the floor, it’s management, not the people. So act now.

Informance: Manufacturing Performance Management in Disguise

Last week I re-introduced you to Aravo, a hidden gem in the supply chain space with their mastery of Supplier Information Management (SIM) that goes so far above and beyond what you get with traditional packaged e-Sourcing suites that even Oracle, one of the few companies that not only eats its own dog food and drinks its own champagne but also tries fervently to have it for every meal, and Google, one of the few powerhouse research labs left in existence thanks to the short-sighted venture craze and short-term return strategies of the last decade that saw the likes of some of the greatest labs (like Xerox Park, Bell Labs, etc) more-or-less disappear from existence, have decided to adopt the solution.

This week I’m going to introduce you to another hidden gem in the supply chain space that you might not notice otherwise – and it goes by the name of Informance (acquired by Epicor). Although I did introduce them to you back in this post in January, I doubt you took much notice as I didn’t go too much beyond the press release and web-site in my introduction as I was still struggling to understand where the true value of their solution lies.

However, thanks to a concerted effort by their new Chief Marketing Officer, the infamous Sudy Bharadwaj (who temporarily replaced Tim “Mr. Perfect” Minahan at Aberdeen before the arrival of Vance Checketts after market-making stints at MindFlow and i2), their messaging (and website) has been considerably cleaned up and clarified and their knowledge center has exploded. (Their recent series of benchmark studies, reminiscent of Sudy’s record-breaking research performance at Aberdeen of 5 studies in 7 months, is particularly enlightening as to the importance of the type of solution they offer.) After reviewing the cleaned up messaging, the new materials, and a few discussions with Sudy, I’ve finally figured out what Informance really does and how it goes beyond traditional manufacturing solutions to allow centralized operations and contract manufacturing customers to improve their distributed and outsourced manufacturing processes.

In a nutshell, even though they are currently advertising their solution as Enterprise Manufacturing Intelligence (EMI, not to be confused with the EMI Group), what they are really doing is Manufacturing Performance Management (MPM) – which could be explained as next generation Supplier Performance Management (SPM). In Supplier Performance Management (as promoted by Ariba (acquired by SAP), Emptoris (acquired by IBM and sunset in 2017), and Ketera (acquired by Deem), among others), you collect, analyze, and disseminate relevant supplier performance metrics to determine where your suppliers are performing well and where they are performing poorly. You then use this information to optimize your supply base, identify your strategic suppliers, and collaborate with them to root out identified performance issues and develop processes for improvement.

Manufacturing Performance Management (MPM) takes supplier performance management to the next level by not only identifying where performance is lacking (relative to best-in-class) at the plant level but also by providing actionable information upon which you can base performance improvements. By tapping into bi-directional information flows, what-if scenario analytic capabilities, six sigma, lean, and TPM knowledge bases, and heuristic improvement strategies, the system can not only tell you that production is down, but it can pinpoint the specific manufacturing line within the specific manufacturing plant that is not producing its fair share of units, determine the reason for the decreased production (breakdown, lack-of-inventory shutdown, labor shortage, etc), and provide you with a solution to fix the problem (increase safety stock, redesign your transportation network to prevent delays, increase staff levels, etc).

The importance of being able to go beyond identifying a problem to identifying one or more potential solutions in your manufacturing and contract manufacturing operations cannot be over-stressed. Just one of the benchmark studies I referenced above serves to highlight the drastic performance gaps between laggards and best-in-class performers. The Food and Beverage benchmark study found that best-in-class performers have 6,800% fewer process failures (0.25% vs 17%), 828% fewer equipment failures (1.69% vs 14%), and 33,333% fewer shutdowns (0.03% vs 10%). In addition, best-in-class have 10,909% fewer changeovers (0.11% vs 12%), 1,145% less operational downtime (0.96% vs 11%), and over 60,000% fewer production adjustments (0.01%, rounded up, vs 6%).

In addition to the bi-directional information flows, what-if scenario analysis, and actionable insight, Informance also offers real-time performance monitoring, proactive before-the-fact notifications, and multi-level dashboard monitoring that starts at the plant floor manager and goes all the way up to the COO. This is not to downplay their plant solution, which I’d still consider labelling EMI (Enterprise Manufacturing Intelligence), since contract manufacturers can also proactively use this solution to improve their operations and become supplier of choice to their customers, but merely to note the extent to which their enterprise solution goes beyond traditional EMI into the beginnings of true MPM. So be sure to check them out, and their expanding knowledge center in particular.