In the Words of the One And Only Wil Wheaton

It’s time to mulch MySpace, frack Facebook, trash Twitter and spend more time back in the analog world, even if only for a few hours a day.

While this will likely be a tough thing to do (as you would probably want to give up coffee, alcohol, and every other addictive substance you can find first), you will be happier for it. As Wil says, It’s really nice and quite convenient to be plugged in all the time, but, for me at least, it comes at a price that I wasn’t even aware of until I wasn’t paying it. If you can handle going offline, even if it’s only for an afternoon, I highly recommend it; there’s a lot of people and world out there that you don’t even know you’re missing.

Wil’s right. If you can’t take my word, take Wil’s word before Twitter makes a twit out of you.

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.

Look to Niche for Innovation

In a recent post, I asked if now [is] the time of niche. Upon further reflection, I think it is for those companies looking for true innovation. I realize this may sound a little counterintuitive at first to those of you following the market and the M&A buying sprees going on where the big players like SAP, Oracle, JDA, and, now, Ariba, are doing their best to buy everything (and everyone) under our sun, but if you think through it, I believe it is quite logical.

First of all, if all of your time and effort was going to into buying and selling companies and divisions, how much is going into true innovation? In all likelihood, zero. And while the product or technologies being bought may be innovative to you, your customer base, and, if you’re lucky, the market at large, all products or technologies have an innovation shelf life that ends as soon as a more innovative product or technology hits the market. And while the more innovative product or technology could theoretically be the next version of your product, there is only a chance of this happening if R&D on the product or technology is continuing. Thus, if everything is put on hold for an M&A activity that could drag on for months (or years), there’s no way that the companies involved are going to maintain their innovation edge.

Furthermore, as highlighted in this recent Industry Week article that asked “what would Steve Jobs do”, to be innovative in today’s economy where time and resources are at a premium, you have to be focussed on a small number of products or solutions. You have a limited number of people with a limited amount of time and creativity and a fixed set of resources to support them. If you split your focus 1,010 ways and try to be everything to everyone, there’s essentially zero chance that you are going to stumble upon any truly groundbreaking innovation. But if you say no to 1,000 things and focus on the handful (5 to 10) of products or services you excel at where you have a chance to truly make a difference, the chances of real innovation increase exponentially.

So if you’re looking for truly innovative products and services to revolutionize your supply chain, look to the niche players that specialize in spend analysis, decision optimization, or predictive analytics. When you plug these into an end-to-end framework enabled by one of the big behemoths (that specialize in end-to-end platforms that can serve as a good foundation), or assemble your own from best-of-breed e-Sourcing, e-Procurement, and e-Logistics vendors (if you are tech savvy enough to do it, possibly with some third party expertise), that’s when you’ll start to see the truly innovative results that deliver double digit percentage returns year after year after year (and not just one-time reverse auction savings that disappear once you’ve sucked all the fat out of the supplier’s margin).

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Want to Get Ahead? Speak the Language of the CFO!

For those of you who have been following the thought leaders in the space, you know that Robert Rudzki has been advocating that the key to your success is to Speak Like a CFO (Part I and Part II) for quite some time now. The reason? It’s often the fastest way to gain respect in a C-Suite that runs on financial metrics.

However, thanks to the jobless recovery, it might also be the fastest way for you to get ahead. As per this recent article in CFO Magazine on “the incredible shrinking finance department”, a combination of increasing automation, new business models, and offshoring has pushed down the average size of a finance staff by 30% over the past six years (according to The Hackett Group). Furthermore, as CFO’s are more concerned about how can I save my company than how many jobs can I save, the jobs that went away, usually to offshore locations, aren’t likely to come back to the states — ever. As a result, the majority of CFOs (75%) plan to keep domestic finance head count steady in 2011 (while only 15% plan to hire).

This means that Finance departments are going to continue to be lean, mean, and as overworked as anyone else in the organization. So when you come to them with a great proposal that’s in your language and not theirs, it’s yet another report they have to analyze and do a cost-benefit analysis on before they can judge how good your proposal is relative to the dozens of other proposals on their desk that require the same sort of analysis on which to make a decision. A task that they just don’t have a lot of time for.

But if you come to them with a proposal in their language, with all of the ROX (ROI, ROIC, and ROE) metrics, the impact on cash-flow, the internalized rates of return, and the cost of delaying the decision on a daily, weekly, and monthly basis, all of sudden your proposal (assuming it does have a significant return) becomes many times more attractive than everyone else’s. They not only see the value immediately, but they see that you are trying to help them accomplish their goal of saving the company by insuring that it doesn’t spend more than it can afford to in this tough economic climate.

So learn the language of the CFO. It might just make you the organizational superstar you know you can be.

Should Companies Really Be Building Their Own Credit Scoring Capabilities?

As per a recent article in Market Watch on “supply chain risk companies must develop credit scoring capabilities to predict supplier defaults says oliver wyman report”, a new report issued by Oliver Wyman, in collaboration with the Association for Financial Professionals, suggests that companies must develop their own credit scoring capabilities to prevent supplier defaults from jeopardizing their supply chains. In “The New Weakest Link in Your Supply Chain: Supplier Credit”, they say that companies can no longer rely solely on credit ratings from credit rating agencies to evaluate their suppliers’ financial vulnerabilities.

While I agree that credit scores are not enough, because it can be a few months before a credit score reflects a supplier with failing financial health as it will typically take a few months of missed payments before the credit score accurately reflects the supplier’s financial health, I don’t think that developing sophisticated scoring is the answer. First of all, your average company is not going to have the expertise to even begin such an exercise. Secondly, the whole point is to detect when a supplier might be in financial distress, not score them.

Would not careful monitoring of shipments, payments, and quality be enough? Most suppliers who are in distress are going to either be late with payments, late with shipments, or cutting corners in production, leading to a drastic decline in quality. If you can catch this behaviour early, then you can tell when a supplier might be distressed and start to make back-up plans, all without sophisticated credit scoring. And that’s what’s important. Not how much complexity you can throw at the problem.