Category Archives: Technology

How Do You Value Cloud Services?

The clouds are here to stay. Whether they are dark nimbostratus storm clouds filled with hail or fluffy white cumulus clouds that dot the clear blue skies, they’re here. (That’s why the doctor recently co-authored a series over on Spend Matters Plus with the prophet on Supply Chains in the cloud.) Regardless of the doctor‘s opinion on whether your supply chain should be in the cloud, the clouds are sweeping supply chains up and the situation has to be addressed. (Thus, one has to do one’s best to insure that one’s supply chain is in the way of the right cloud.)

And while you should be well aware by now of how to cost a cloud-based platform, and compare it to a hosted ASP solution and an on-premise solution (as the referenced series and a number of posts here on SI have addressed this issue in detail in the past and even provided you with spreadsheet templates), you might not be aware of how to value a cloud-based solution.

When it comes to the cloud, valuation is a very difficult concept. There’s the hardware infrastructure and the reliability that comes from multiple locations that can store your data and run your applications. There’s the cloud-OS layer that handles real-time on-site and off-site data replication and back-up, automatic start-up of new processes and machines when a process or machine fails or becomes unavailable, automatic allocation of more processors and memory and storage when usage spikes, and so on. There’s the application layer that not only enables your processes but that is accessible anywhere with a data signal on any device your people happen to be carrying, that supports real-time data sharing and collaboration with your supply chain partners, and that supports innovative new capabilities not possible in on-premise apps.

There is a lot of value in each of these layers. Access to more hardware than you need, or can even afford, is valuable. Real-time off-site backup and failover is valuable too – compared to having to manually bring up an off-site location. And a better application with more capability and innovation is valuable too, but just how valuable?

In the traditional hardware world, the cost of filling a data centre is the cost of hardware plus the cost of a network engineer setting it up. Hardware is the cost of production plus a fair margin – there are enough essentially equivalent providers that costs are kept in check.

In the traditional software world, the cost of software is generally computed as the overhead cost of the company that produces it plus a margin that will produce an acceptable margin that the company can get away with based upon the perceived value differential between it and its competition that it can sell.

But the cloud is not set in the traditional world. In fact, the real-tine off-site backup and failover in a virtual OS layer didn’t even exist before the cloud. How much more valuable is having access to as many machines as is needed to power your application at full capacity at all times? While this power is known, failure — be it machine failure, power failure, or communication line failure — cannot be predicted and sometimes the entire application infrastructure must be ported in real time to a different part of the cloud.

And how much more valuable is having software that is maintained and regularly updated by the provider as compared to having software that must be manually updated and kept up by in-house development staff? Especially when that software might be capable of offering more real-time collaboration, real-time product tracking, market intelligence, and analytics than an on-premise platform. This is a much harder question to answer.

But one that should be asked. Just because a cloud solution is the cheapest alternative, that doesn’t mean that you are getting the full value you could be from your money. There are multiple providers, and they won’t all charge the same. Plus, if the technology is relatively simple, if its implemented as a true multi-tenant cloud based platform, and it doesn’t need to be updated very often to meet your needs, then the platform likely doesn’t cost the provider very much and may not have the value the provider claims if another provider offers essentially the same platform for three quarters of the cost.

There are no good answers here, but the questions should be asked and good answers should be expected before you commit to a solution, even if you are a non-profit that was donated a certain amount of cloud services — because you might not be getting what you think and may get hit with a big bill at the end of the year if your acceptance entails an agreement to pay for any usage above the donated amount of services.

Since there are no standards, providers are more or less free to “Value” services anyway they want, make extravagant claims as to support costs, and value a service at 5X its cost, or more. So be careful.

Contract Lifecycle Management 2015 (Consolidated Links)

Contract Lifecycle Management — Do You Have Your Platform and Process in Place?

By now you should, especially since 8 parts of the doctor‘s and the maverick‘s series on Contract Lifecycle Management (CLM) have been up for your reading pleasure over on Spend Matters Plus (registration required) since October, but if you don’t yet have it in place, now’s a good time to review the current series end-to-end and get a grip on what your platform should contain.

While contract management is not new, and many first generation platforms have been including contract management modules since the late noughts, many features of next generation contract management platforms are reasonably new, and some are much more valuable than others. That’s why the focus of this series was on must-haves, should-haves, and nice-to-haves for contract management platforms since it’s almost impossible to implement a good process without a good platform, and selecting one is becoming harder and harder as more and more e-Sourcing and C(L)M providers, including those who started in the Sales / Legal space, hit the market, and not all are created equal (or anything close to equal).

For example, while a clause library is only a should-have capability and multi-tier contract management and drafting a nice to have capability, especially for a Procurement Organization that does fairly standard direct materials and indirect services contracts, some CLM providers will push them as essential (which they may be for Legal organizations that handle commercial [building] development contracts with a lot of work being outsourced to specialist providers) for every organization, this is not the case and for some organizations these features will not be used at all. Similarly, some CLM providers without native MDM integration (which is a should-have) and, gasp, expiry and renewal management (a must-have) will try to down-sell their importance, which is critical in an organization with a lot of auto-renew evergreen contracts (which can cost the result in the organization overspending by 10% or more on multi-million category) and price data in third party systems.

Plus, with so many e-Sourcing technologies, and a plethora of acronyms which mean similar, but not the same, things (for instance, do you know the difference between S2S, S2P, and P2P — don’t fib!), it’s hard to tell where CLM even fits, why you need it, and the extent of capabilities your organization is missing out on with an outdated system. (This is critical as good CLM can result in significant year-over-year cost savings. While the percentages aren’t as high as supplier relationship management, spend analysis, or strategic sourcing decision optimization (which can tops out at an average year-over-year cost savings of 12% in the last case), annual savings from an effective end-to-end CLM process, backed up by the right platform, have been known to generate 4% to 6% savings that go straight to the bottom line (and get Procurement credibility with Legal and Sales, who can all be on the same system), and that’s nothing to scoff at!

CLM is critical as good contract management, coupled with good supplier management, is what ensures that the sourcing plan is realized, and this is key to capturing the savings that Supply Management works so hard to negotiate. It’s pointless to negotiate a 10% savings if only 6% of it gets captured due to bad contract management practices (which result in poor supplier management, maverick spend, inferior order management, expedited shipment, lost credits, etc.). And this is the case in many organizations without good contract management practices. (And has been for many years, as chronicled in AMR’s (now Gartner’s) classic series on “Reaching Sourcing Excellence”.)

In other words, if you haven’t, you really should read the Series to Date on Spend Matters (membership required):

  • Part    I: An Introduction
  • Part   II: The CLM Platform Model
  • Part  III: The Upstream and Downstream Phases
  • Part   IV: The Traditional Solutions
  • Part    V: The Core CLM Solution
  • Part   VI: The Standard CLM Platform
  • Part  VII: The Extended CLM Platform
  • Part VIII: The Importance of Being Earnest Integrated

Thirty Years Ago Today …

The first meeting of the IETF, the Internet Engineering Task Force, took place. While not many people know about the IETF anymore, this is a very important body as it not only develops and promotes voluntary Internet standards, but it developed and promoted the standards that effectively created the internet, including the internet protocol suite and the TCP/IP stack.

While it started out with support from the U.S. federal government, it has operated as a standards development organization under the guidance of the non-profit Internet Society. While development of new standards are slow, as it uses a rough consensus guidelines and has to interact with a number of other global organizations and standards bodies, it continues to make progress and is a leading force behind IPv6, which is desperately needed if organizations continue to insist we need an “internet of things” on the global “cloud”. (We don’t, but you can’t stop the marketing madmen.)

The internet that we depend upon daily didn’t just happen by magic, it took the hard work and dedication of a number of organizations. The IETF was one of these organizations, and the internet might not have happened without it.

RiverLogic: Bringing Optimization to the Enterprise

In our last two posts on Beyond Sourcing Optimization we noted that Strategic Sourcing Decision Optimization (SSDO) is just one area where optimization can be successfully applied in a progressive organization that is a leader in its industry. An average enterprise organization is ripe with opportunities for the application of optimization technology — optimization technology which can easily add up to 5% to the bottom line if properly applied.

RiverLogic, which is advertising prescriptive analytics technology and enterprise optimization, is one such company that is tackling enterprise optimization. Advertising holistic decision support that performs simultaneous optimization of the entire business model, the optimizer is capable of integrating demand, production, and inventory optimization into a single holistic optimization model that, when run, optimizes production and inventory against demand to maximize profit by optimizing revenue against production and inventory (carrying) costs.

As one may have gathered by our previous post, this is no easy feat. Production optimization requires one type of model that understands production line throughput, machine utilization overhead costs per hour or unit, associated workforce requirements, associated costs during regular and over time, raw material inventory costs, and logistics costs at different production levels. Inventory optimization is a different type of model that must take into account the myriad of costs that contribute to the amortized inventory carrying cost and that include, but are not limited to, warehouse overhead costs, labour costs, and depreciation costs and balance these against logistics costs from more or less frequent orders. Finally, demand optimization is its own beast as one has to have a relatively good understanding of the different types of marketing spend and how each will influence market demand, the costs of production at various volume levels and delivery commitments, the associated lifecycle costs including outbound distribution costs, warranty and service costs, and any end-of-life reclamation costs (if one or more locales in which the product is being sold have mandatory reclamation or recycle laws for the product or one or more of its components). Now, one can create a mega-model that encapsulates inventory and production costs into the demand optimization, but it’s not easy, and that’s why few companies have tackled this problem (just like few companies have tackled true SSDO). And most that have tackled this problem do so by building custom models for their clients that require individuals with advanced degrees in Mathematics or Operation Research to run.

However, the RiverLogic platform, like leading SSDO platforms, comes with this model “out-of-the-box” and all a user has to do to build a basic model is get the data. At this point you’re probably thinking this is a show-stopper as

  • the amount of data required to populate such a model is extremely extensive and
  • outside of the ERP, no one system has even a fraction of the data required.

RiverLogic understands this perceived dilemma as well and that’s why their platform integrates with over a dozen major ERP and Accounts Payable systems because when you get down to it, that’s where the majority of the cost data required for a holistic demand optimization model, that simultaneously balances inventory and production, resides. Once the proper integrations are done, the model can be run out of the box and the organization can instantly see relative to its demand forecast the optimal production and inventory levels (and, as a bonus, the optimal distribution plan and cost model as logistics are also accounted for in this holistic model). This will allow an average organization that has not simultaneously balanced these models before to shave at least an extra 5% to 15% off of overhead costs and, if one or more of these models haven’t been run before, even more. And these savings will trickle down straight to the bottom line the instant the plans are updated.

But the power of the platform doesn’t stop there, like the best SSDO solutions, it also supports powerful what-if optimization that allows the organization to see how production and inventory plans change if the demand projections were to change, if more money was allocated to marketing, or if the estimated impact of marketing campaigns were more or less successful than initial predictions. This model can be run any time and plans updated dynamically, taking effect with the next (automated) order upon publication to the demand / inventory / order management module of the ERP(s) that the platform integrates with.

Now that leaders like you are using decision optimization in your Sourcing and advanced spend analysis in your planning, you’re ready to apply that knowledge and capability across enterprise operations and, as such, are ready for the enterprise optimization (and prescriptive analytics) that innovators like RiverLogic are offering. RiverLogic is one of the handful of companies you’re going to be hearing a lot more about in the coming year
and one that should definitely be on your radar as you look to take cost control across the enterprise (because what good is saving 10% on a category if poor operations just eliminate that savings after the deal is signed?).