Category Archives: Technology

Rapt up in Revenue

When I was in sunny California last, I had a chance to sit down with Rapt (acquired by Microsoft) and talk about their rather unique solutions that revolve around pricing strategy, decision analytics, and price optimization that, when combined, can help a company maximize their revenue opportunities.

Rapt’s sophisticated software platform, that integrates more statistical, analytical, and optimization algorithms than you can shake a stick at, was designed to uncover the many complex supply, demand and price relationships that, when harnessed, predictably improve profit and market share. Unlike simpler modeling tools and platform, Rapt can break down products, or SKUS, into features and analyze the impact of each feature on demand. This is one of the reasons why their solution is becoming popular in high-tech.

Let’s say you have three laptops, the Pinta, the Nina, and the Santa Maria, and each are selling quite well. However, like all electronics today, their life-cylce is limited and you need to design your next generation laptop. Each has a different processor, CPU, hard drive, display, and battery life. How do you determine the best configuration for your new laptop? Rapt’s forecasting engine can integrate your historical sales data with marketplace data, analyze the sales patterns and trends at the feature level, determine which features (CPU, hard drive, etc.) are the most popular, determine how much each feature influences the overall sale, and tell you which combination of features would sell the best in a laptop. You can then use it’s Price Director solution to determine the optimal price-point for your product. This product contains advanced algorithms that work on order, inventory, and market data to extract the elastic and cross-elastic effects among products, their attributes, and consumer demands which it can use to determine the optimal price points for revenue or market-share optimization.

However, one of the most interesting facets of our discussion centered around the fact that the largest uptake in their rather unique solution offering was not in consumer goods industries, but in media, and new media in particular. MSN, Yahoo!, CNET Networks, NBC Universal, The Weather Channel, and MTV Networks, among others, all use Rapt’s solution to determine how to price their advertising, which is defined by high variability in demand, uncertain availability of supply, and the rapid innovation and evolution of medium capabilities. If they can tackle one of the most challenging pricing problems out there, surely they can be helpful in more traditional industries. But then again, many companies in these traditional industries most likely have not yet adopted decision optimization in their award process, should-cost modeling in their product design process, or advanced spend visibility solutions in their strategic sourcing process. All I can say is that … the technology’s finally here, let’s start to use it!

Veni, Vidi, Wiki

In case you missed it, the eSourcing Wiki [WayBackMachine] launched today. Sponsored and launched by Iasta (acquired by Selectica, merged with b-Pack, rebranded Determine, acquired by Corcentric), the goal of the site is to publish information of best practices on topics within supply management. The wiki is devoted to building a knowledge/resource center for both Iasta clients and global purchasing professionals.

In the words of the spend evangelist Jason Busch, Wikis like eSourcingWiki allow readers to actually contribute to a collective body of knowledge and research. Imagine, for example, if a whitepaper on sourcing decision support was not written by a single vendor or analyst firm, but a collective body of the best minds in the market. And think about how that whitepaper could become a living document that was continuously evolving based on reader input and criticism. That’s a Wiki. And that’s the framework that David has created which allows others to come in and modify and contribute content as they see fit (with a few restrictions, at least in some areas of the site).

Although only three mini-wikis are live now, the site is set to explode over the next few months. Not only have Wikis been drafted for each major stage of the strategic e-sourcing process (as the reader will see on the main Wiki Series page), but wiki drafts on a significant number of related topics are already under development. (Look for a wiki on Cost Reduction and Avoidance, inspired by the original weekend series (I, II, and III) on e-Sourcing Forum [WayBackMachine] last summer, next month.) Iasta’s goal is to pump them out as fast as the editor-in-chief can get to them (and once their User Conference is over in May, I’m sure a few more will hit the wire in rapid succession).

Finally, you can read the full launch announcements over on Spend Matters and eSourcing Forum.

Pros To Know (in the Supply and Demand Chain)

Supply & Demand Chain Executive recently published their annual Pros to Know for 2007, honoring supply chain leaders driving strategic transformation in the industry. In addition to Jason Busch, founder of Azul Partners and blogger extraordinaire of SpendMatters, whom I voted for in A Public Nomination, I’m happy to report that the two other bloggers I nominated were also named Pros to Know: Dave Stephens, founder of Coupa and author of Procurement Central [WayBackMachine], and David Bush, co-founder of Iasta and editor of eSourcing Forum [WayBackMachine]. In addition, two other prominent bloggers in the sourcing and procurement space also made the cut: Tim Minahan, marketing guru of Procuri (acquired by Ariba, acquired by SAP), and Charles Dominick, founder of Next Level Purchasing (now the Certitrek NLPA) and author of the Purchasing Certification Blog (now the Certitrek NLPA blog).

Furthermore, Supply & Demand Chain Executive also selected three other bloggers to their hall of fame: John F. Martin, author of the Building SaaS blog for his tireless promotion of On-Demand; Annrai O’Toole, CEO of Cape Clear Software (acquired by WorkDay) and author of the Clear Thinking blog for his efforts to cut through the clutter of the SOA (Service Oriented Architecture) space; and John Radko, strategist for B2B connectivity provider GXS and author of the On Demand B2B blog for his commitment to spreading the word about the power of connectivity On-Demand brings to B2B.

According to the article, “New media” are playing an important role in raising both the expertise of supply chain professionals and awareness of the increasingly strategic nature of Supply Chain in the enterprise. In the “blogosphere,” a network of Web logs, or “blogs,” authored by a growing number of industry veterans is playing its part by offering analysis of current events and trends, as well as a healthy dose of best practices. The blogs are sometimes serious, sometimes tongue-in-cheek, occasionally self-serving — the bloggers often are executives at solution providers, and other blogs are sponsored by solution providers — but almost always insightful and frequently entertaining. Supply & Demand Chain Executive recognizes the 2007 “Blogger” Pros to Know for their contribution to spreading the supply chain gospel.

It looks like Supply & Demand Chain Executive is finally catching on to the fact that it’s not the traditional media, but the new media that is driving the space. Maybe that’s why the publication has improved significantly over the past few months.

Sometimes it’s okay to get Rapt up in revenue

These days it seems like everyone is focussed on cost savings. This is not a bad thing, considering the vast majority of companies are not best-in-class, which means the vast majority of companies, on average, are probably spending too much on their purchases. But despite some vendor claims that revenue is, and will remain, flat, or that there’s nothing you can do about it since the market sets the price and constitutes the demand, this is not true.

We all understand that the fundamental goal of business is to make money, or profit, and we all learned the same calculation in our first business class: Profit = Revenue – Cost. This tells us that, as a business, there are two levers we can manipulate to increase profitability, Cost and Revenue. Now it’s true that we as sourcing and procurement professionals have a lot more control over cost then we do on revenue, but that does not mean our focus on cost should be myopic. We should also understand the revenue side of the equation and work with marketing on the pricing side of the equation, because neither the market price, the highest price marketing predicts they can get, nor the price at which demand (or consumption) is maximized is the optimal price.

If your goal is to maximize profit, the optimal price is the one where the profit equation is maximized, and this means this price is determined as much by cost as by revenue, and we all know that the cost for a product is not fixed – it depends upon the supplier we use (which determines a host of physical attributes such as quality, appeal, etc.) and, more importantly, the quantity we order. Generally speaking, the cost per unit will decline if we order more units, but this is usually only true to a certain point. Each supplier has a base capacity they can produce on their production lines during their regular hours of operation. To exceed this capacity they will have to add shifts, add lines, or both – which will increase the cost per unit. Or if your product requires a raw material in short supply, costs will increase as you try to divert supply away from your competitor, and there will be a point where you just will not be able to secure more material.

Is marketing, or if you’re big enough, product pricing, going to understand all of the factors that contribute to product cost – and, if so, are they going to understand the factors and inter-relationships as well as we do? Probably not. And that’s why sometimes we need to get Rapt up in revenue – to make sure that not only does the organization choose a price-point that theoretically achieves their profit, margin, or market-share goal (which, without our assistance will probably be based on cost-data that is only an approximation, and not necessarily a good one), but that the price-point is realistic and that the forecasted demand can be met in the intended time-window.

Furthermore, as the users of some of the most advanced analytic and business intelligence tools in the organization (spend analysis, cost modeling, and decision optimization, for example), we are much more likely to understand that our historical data alone is not necessarily sufficient or accurate enough to predict future demands, that different product features and price-points will have a considerable impact on actual sales, that costs can vary significantly by feature and demand level, and that the only way to analyze all of these variables and make the best pricing decision is to use a good decision support tool based on sophisticated analytics and optimization to model the different scenarios at different price points and obtain a true picture of feature – price point – demand level correlation.

And that’s why tomorrow I will introduce you to Rapt (acquired by Microsoft) a decision analytics and price optimization solution provider whose goal is to help companies maximize their revenue opportunities.

Procuri Spend Analysis

During my brief Chicago tour, I had a chance to sit down with Rod True of Procuri (acquired by Ariba, acquired by SAP), Senior Vice President and the former President and Founder of TrueSource, acquired by Procuri last year, and talk not only about Procuri’s TotalSpend solution, but about what Spend Analysis, Visibility, and Intelligence means to Procuri and where their solution is going.

Although I do believe that their tool is not yet a perfect “total” spend solution (but to be fair, I do not think any tool is – which is probably obvious from my recent posts on the spend visibility space), I also believe that with the acquisition of TrueSource, Procuri are just as close, if not closer, than any of the other big players in the space. The reason for this lies largely with Rod True and the team he built and the fact that they get that “spend intelligence” requires three major components to be successful: accurate visibility across all of the relevant data, analysis capabilities, and the ability to use the data for compliance initiatives.

To this end, TrueSource spent a great deal of time on ETL tools that could not only load data from a large number of data sources, but map such data into a plethora of out-of-the-box and custom categorization schemes and do so in such a way that duplicates are detected and dropped. (After all, if your data is no good, neither is your analysis.) Moreover, knowing that most companies still use old ERP or database systems where the best they can muster is a full database dump (for the last month / quarter / year), they have built their ETL tools in such a way that their spend warehouse can be incrementally updated from a full database dump at any time.

They have also built in a large number of reports (over 70) and standard reporting capabilities (through a custom report builder) to allow for role-based reporting and analysis, compliance & audit management, category management, and diversity management and built their warehousing capabilities to support just about any categorization you can desire. They also have role-based dashboards, category project management, and category intelligence built into the solution.

Furthermore, knowing that they could not possibly think of all of the things you might want to do with the data, they also support the fine-grained export of any set or subset of data or report that you might want to analyze in further detail.

And this is where I believe their one weakness lies. They have visibility down pat (and pride themselves on their ability to be able to quickly develop an automated cleansing, classification, and refresh for just about any data source you can imagine), they understand that the entire point of any spend effort is all about compliance – with diversity requirements, with reporting regulations, with business decisions, and with sourcing decisions (otherwise your “savings” might never be realized), but their analytics is limited to what you can do with their pre-defined reports and report builder. And although I have to admit that what they have is most likely more than enough for most of the users in an organization – executives, managers, and even average users – I am not convinced it will ultimately satisfy the emerging spend power users.

It is true that a power user can easily integrate into their cleansed data feed and extract just the data they want (and they told me that they are surprised at how fast their power users can get just the data they want for a custom report and build it in another tool), but I believe that the next generation of spend power users are going to want the ability to create their own custom views, reports, and analyses in the tool itself, versus on their desktop with a Microsoft Office or similar end-user tool.

However, you still need a centralized spend repository with complete, clean, categorized data for your analysis, reporting, and compliance management – and this solution is definitely a valid starting point from that perspective.