Originally posted on on the e-Sourcing Forum [WayBackMachine] on Friday, 4 August 2006

Demand Driven Supply (DDS) is supply management with a heightened focus on customer demand. Unlike the traditional push-driven model where manufacturers plan their operations based on factory capacity and asset utilization, the demand driven supply model operates on a pull-based customer-centric approach and allows demand to drive supply chain planning and execution.

Demand Driven Supply is a model of supply chain planning that is an extension of the Demand-Driven Supply Network (DDSN) model pioneered by AMR Research over the last few years applied to a Total Value Management (e-)sourcing process (see “Purchasing Innovation VI: Crowdsourcing”). AMR Research defines a Demand-Driven Supply Network as a system of technologies and processes that sense and react to real-time demand across a network of customers, suppliers, and employees.

This is the first post in a three-part post on demand driven supply and the impact that it will have on your supply chain planning and sourcing cycle. Collectively, the three-parts will form a mini-white paper that you could use as your introduction to demand driven supply and its associated benefits. The three-part post is organized as follows:

1. Introduction
   • o Demand Driven Supply Focus
   o Why Demand Driven Supply?
2. Stages and Implications
   • o DDS Statistics
   • o DDS Stages
   o AMR’s DDS(N) Implications for 2007
3. Challenges and Implementation
   • o Challenges
   • o Best Practices
   o The New Sourcing Cycle

The ultimate goal of Demand Driven Supply is the management, selection, and shaping of the best mix of customers, products, channels, geographies, and prices for the dynamic marketplace. This requires the identification of emerging, as well as existing, customer and product winners for maximum market penetration.

Companies with a Demand Driven Supply focus often use advanced forecasting applications to improve forecast accuracy and reforecast frequently. They will run what-if scenarios on multiple demand forecast variations to identify market risks and opportunities and determine an overall “best” buy from a value-based perspective. They will continually re-asses the criteria they use for forecasting, product prioritization, and market segmentation to insure that they are using the best criteria possible.

The simultaneous convergence of a large number of market forces and supply pressures are increasing the stresses on a business across the board. The increasing globalization of the marketplace, the constant uncertainty of the global economic outlook, rampant inflation in energy and raw material costs, increased product customizations, SKU proliferation, and the ever-increasing rate of new product introductions are all driving a need to improve operations across the board. Add to this shorter product cycles, limited global transportation capacity, increased outsourcing, constrained market capacity, and a plethora of opportunities for supply disruption that include, but are not limited to terrorism, natural disasters, strikes, slowdowns, geopolitical events, and supplier financial failure, and the need for constant supply chain improvements becomes critical. Especially when today’s consumer expects that the prices of products and services should continue to decrease.

Traditional Supply Chain Management (SCM), tailored for steady state demand periods of a product life cycle, deals poorly with rapid change. In today’s market, supply chain variability is a major threat to profit margins. When you consider AMR Research’s finding that companies who fail to adequately focus on customer demand incur an average cost disadvantage of 5 percent of revenue due to poor forecast accuracy, which typically has a large double digit impact on profit margins, the importance of demand driven supply strategies is rising rapidly.

Simply put, traditional SCM, which relies heavily on up-front forecasts, does not incorporate regular forecast revisions or the demand signals necessary to determine when a shift in demand is needed. (This is why I promote Total Value Management and regular demand forecast updates.) A revised sourcing cycle that accounts for variable demand and incorporates demand oriented processes, technologies, and cross-functional teams is needed. As we hinted at in our purchasing innovation series, SCM is no longer a four-walls activity – it encompasses every area of the business, including suppliers, distributors, and/or retailers. Only your retailers can tell you how fast your product is, or is not, moving and how likely demand is to change as a result of promotions and only your suppliers can tell you how long they need to accommodate variances in demand. Demand Driven Supply can then be viewed as the balancing act of having enough inventory to meet demand spikes but not so much that you are eventually forced to mark-down a significant amount of inventory to move it.

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For more information on demand driven supply, see the “Demand Driven Supply: A pull-based customer-centric approach to supply chain planning and execution” wiki-paper over on the e-Sourcing Wiki [WayBackMachine].

Originally posted on on the e-Sourcing Forum [WayBackMachine] on Sunday, 25 June 2006

On Demand is here to stay. Oracle CEO Larry Ellison recently said that he expects the on-demand business model to be an increasingly influential one and he personally owns large stakes in a number of on-demand companies that have been making headlines. Even Microsoft CEO Steve Ballmer has called on-demand software the most important trend in the software market over the next two or three years.

On-Demand software allows Supply Chain Management (SCM) to spur creativity and business innovation by freeing them from mundane administrative tasks. After all, the future of software will not only be about how software is supported and delivered, but about how it can make critical information more accessible and usable for tomorrow’s knowledge workers.

On-demand is the natural evolution of software. Some people are calling it a revolution and saying the best is yet to come. For example, Jason Busch, founding partner of Azul Partners and blogger extraordinaire of Spend Matters recently stated that he predicted the next generation of on-demand software will:

• incorporate external content and insight as a fundamental part of its
  value proposition,
• leverage community and shared instances for the benefit of all participants, and
• transform internal spend management service delivery models.

To a large part, I believe this to be true, though in reality the implementation and usage will likely be slightly different then what Jason is predicting.

However, one of the things that the evangelists, and there are many, are overlooking is that one of the key benefits of future software-as-a-service offerings is the forthcoming transformation to software-with-a-service. With software-with-a-service, offerings will be inherently customizable and provide instant integration (or touch) points to related on-demand services and value added offerings.

Furthermore, there’s this new evolution of rule-based programming called business process management (BPM) which has led to the development of workflow and process-focused development languages such as java Business Process Management (jBPM) and Business Process Execution Language (BPEL) which allow for the development of a new generation of workflow driven applications. These new workflow applications can be customized on-the-fly to incorporate modified processes and workflows that not only allow for the construction of more versatile and configurable applications then before, but also allow trained business users to define their own workflows through a visual environment. Furthermore, since these technologies are being built hand-in-hand with web-services, it should be obvious that on-demand offerings are going to be the first to incorporate these new capabilities.

The future of on demand is coming, and it’s going to be awesome!

Originally posted on on the e-Sourcing Forum [WayBackMachine] on Saturday, 24 June 2006

Yesterday we discussed the considerable benefits of on-demand software which delivers functionality over the Internet from an application instance that may be shared across many clients, the increasing adoption rates, and the overwhelming benefits that were discovered by Aberdeen Research in a study released earlier this year. We also pointed out that there still remain some naysayers with a much darker view of the model who have done nothing but offer up a myriad of critiques. (I should note that many of these naysayers are also sellers of traditional enterprise software packages who get huge commissions with every sale and have every reason not to like a new model that slashes prices which used to fatten their bank accounts.)

However, since I would personally question any promoter of on-demand software who fails to address each and every potential concern brought forward, here is the long list of concerns that I have found and the associated truths that should set your mind at ease.

( 1) Your Data is Not Secure (especially in a multi-tenant model)

I think PepsiCo’s CTO said it best: “Our data is probably safer behind [the provider’s] firewall than behind our own”. IT is your provider’s business, and the security of their data and yours is their utmost concern. Not only will they have developers on staff with security expertise, but many work with leading security firms who will conduct regular audits and monitor your provider’s domain(s) for external assaults, stopping them before they even get to the firewall.

( 2) You cannot guarantee reliability

Aberdeen’s recent study found that even in areas such as system uptime and application response time, more enterprises reported that these solutions out-performed traditional enterprise applications run by their internal IT department or a third party ASP. Remember, your uptime is your on-demand provider’s business. Since you can leave if you’re not happy, they tend to be much more responsive then your IT department whose jobs are a lot less dependent on the up-time of any single application.

( 3) You cannot manage your own data

It is true that you have less control over how it is distributed across the database instances, but it is also true that you do not want this control. Unless you are a database expert, you will not know how best to partition your data for maximum performance. Furthermore, as we discussed yesterday, chances are your provider is much better at backing up your data for quick recovery than your internal IT department.

( 4) New on-demand offerings lack functionality

Opponents state that many on-demand offerings only have 70% to 80% of the functionality offered by their traditional behind-the-firewall installed applications. I will concede this point, but then remind you that most organizations use less then 50% of the functionality offered by most applications. Therefore, these offerings are still offering you an average of 33% to 50% more functionality then you will actually use, so this is a moot point.

( 5) You have no control in a disaster

True, but this is not something you want. When a disaster happens, you want someone to clean up the mess for you. And more importantly, you want someone who is prepared. For a software-as-a-service provider, application uptime is their core-business, downtime will kill them. If you are a manufacturer, this isn’t nearly as true and chances are your IT department is so swamped that they haven’t even thought about disaster recovery recently while most on-demand vendors will have detailed plans that they will run through and up-date on a regular basis.

( 6) A vendor can afford to be sloppy

Providers of traditional software argue that because on-demand software providers always have immediate access to their software, they can afford to be sloppy and roll out upgrades without a lot of quality testing, adopting the “if something happens, we’ll just fix it later” attitude. In fact, the opposite is true. Since most on-demand providers use a multi-tenant model where all customers are on the same instance, a single bug, no matter how minor, could bring down all of their instances, and customers, simultaneously! In contrast, even a bug in a commonly used feature will generally not affect more then a small number of customers in an enterprise software provider’s user base. Thus, on-demand providers are generally much more diligent and thorough when preparing to roll out upgrades or modifications. After all, if they go down, chances are every customer is going to be calling in within an hour wanting to know what’s going on – and no one wants to be around when that happens.

( 7) Upgrades are forced upon you

I’ll concede this as a truth as well, but would like to know why this is bad? On-demand providers understand that the last thing their customers want is the rug to be pulled out from underneath their feet and take great pains to minimize the impact on what’s already there when planning an upgrade. Often the net effect is that if you do not look for it or read the upgrade announcement, you might not even know a new feature is there. I like to compare the free upgrades to your cable company deciding to offer you more channels for free (even though I know this would never happen in reality, or at least not with my cable company). You wouldn’t be forced to watch them, but if you wanted to, you could. What would be wrong with that? Compare this to traditional enterprise software providers who think nothing of rearranging the entire interface between releases and forcing you to relearn the entire product, just because they thought the new interface was better. (Something even Microsoft is guilty of. Last time I upgraded Word, half of the few features I actually used weren’t where they used to be.)

( 8 ) Because they have your data, they lock you in

In these situations, I think the author is confusing old-school ASP with new-wave on-demand. Any true on-demand application is going to come with good data import and export utilities. Furthermore, you can verify up front that you can export your complete database at any time and most vendors will even allow you to build export support upon termination into the contract. (They might charge a small service fee for their representative’s time, but nothing compared to what your application integrator would probably charge.)

( 9) You lose the ability to customize the application any way you like

This is partially true, but again, this is not a bad thing. Name something you rely on everyday whose inner workings you do not fundamentally understand that you would honestly risk attempting a major customization on. If you were not a professional mechanic, would you risk rearranging the internals of your engine? If you were not a certified electrician, would you risk re-wiring your primary panel? Software is just as complicated, and extensive customization is best left to those that understand the inner workings.

Furthermore, nothing prevents a multi-tenant on-demand instance from being downgraded to a single-tenant instance on its own (set of) server(s), at which point, you or the on-demand provider can customize it to the nth degree. Most providers will happily give you a single-tenant instance if you do not mind covering the extra costs (which are probably still substantially less then traditional ASP rates), and many will do customized development if you are willing to cover the costs. Some will even sell you a license to customize and deploy the instance behind your own firewall if you so choose, but then you lose some of the on-demand advantages, and the advantage of having someone else administer and maintain the application in particular.

Finally, many on-demand solutions are built from the ground up to support a basic amount of customization capability on the UI and workflow so that the application can be configured to each customer.

(10) You risk losing everything if the provider goes belly up

This is probably the only real viable concern I’ve ever heard, but this risk is not unique to on-demand software. This inherent risk is always present when using a third party for any service, and you always deal with it in the same way – you have a back-up plan.

If your data is important, make sure you know how to do a full export and have someone do it on a regular basis. If your data base is very large, contract with the on-demand provider to do a full-export to tape on a regular basis for you and have that provider either send the tape to you or to a 3rd party storage facility.

If the software is important, look for a provider with an escrow agreement where their customer’s get a license to the source code and installation manuals should they ever go out of business. Then you could always have your IT department run the application internally until you found another provider. But if you choose a stable provider who is growing, chances are this is not a big risk.

(11) Where are the SLAs

I really do not know where this concern came from. Most serious on-demand software providers these days offer SLAs, and some to five nines reliability. What more do you want?

(12) Where are the value added services

Most traditional software providers argue that their offerings have more value because they often bundle a slew of value added services, such as consulting time, services, and free access to resource libraries as compared to on-demand offerings which often just offer the software. This is true, but it is also true that traditional offerings cost 5X to 10X as much. Let’s repeat that: 5X to 10X as much! With those profit margins, they can afford to throw in a consultant or two – they’re still making obscene amounts of money.
Therefore, this isn’t a fair question as the comparison is not fair. Traditional services build in a cost for every possible service you might use, even though they know most of their clients will not use most of the services. On-Demand providers charge you a minimal fee based on what you say you will use. Most providers will offer additional value added services that complement their counterparts for a small fee. Furthermore, when you add up the total cost from the on-demand provider for every possible service and compare that to the traditional enterprise price tag, you will still find that on-demand providers are still at least 3X cheaper when you consider what you actually will use.

(13) You don’t have control

As you’ve probably figured out by now, this isn’t true. They control the software, but you still own your data, and, more importantly, you have the leverage. If their service sucks, you can leave. If too many customers leave, they’ll go out of business. You have control, and don’t let anyone fool you into thinking otherwise.

And it’s only going to get better. Stay tuned!

Originally posted on on the e-Sourcing Forum [WayBackMachine] on Friday, 23 June 2006

On Demand or SaaS (Software-as-a-Service) is the delivery of software functionality over the Internet from an application instance that may be shared across many clients. It is not simply ASP (Application Server Provider) re-invented. With ASP, you bought a license to a traditional piece of software designed to be installed within an enterprise and paid someone else to host and manage it for you. With on-demand, you rent a license to a software module designed for the internet from the ground up and the provider hosts and manages it for you.

On Demand is becoming the new paradigm in software delivery and “the emergence of on-demand software is not an isolated trend; it is a fundamental, market-altering shift in how software is built, bought, delivered and used.” (Bill McBeath, Chief Research Officer @ ChainLink) It’s the frontrunner of the new “utility” computing movement in which technology is provided in the way power or water is delivered to your business, as a service.

A look at the sharp increase in on-demand adoption statistics verifies this trend. A study by IDC (recently summarized on Forbes) last year determined that almost 33% of respondents were using software on demand and another 48% were considering doing the same. This is a sharp turnaround from a study 18 months prior that determined 70% of companies were not willing to consider on-demand.

A study by Aberdeen Research earlier this year focusing on the use of on-demand applications in the supply chain, one of the business functions that was not an early adopter of on-demand, determined that half of the study participants said they now use or are considering using on-demand applications to manage select portions of their supply chains. Finally, Gartner claims that by 2010, 30 percent of new software will be delivered via SaaS as businesses continue to adopt this approach.

Furthermore, on-demand software-as-a-service comes bundled with a slew of benefits not found with traditional software models. Fifteen of these benefits are:

( 1) Pay As You Go

No more spending thousands, tens of thousands, hundreds of thousands, or even millions of dollars up front for a software license only to spend that much again on implementation and training costs. You pay a fixed, relatively small, monthly, quarterly, or yearly fee (often less then the maintenance costs associated with traditional licensed software).

( 2) Instant Deployment

You can start using the software the minute you pay for it and your provider activates your accounts. Most of these offerings come with easy-to-use streamlined data import utilities that allow you to fully set-up your instance in a matter of weeks, or even days, not the months or years associated with traditional enterprise software deployments!

( 3) Single Instance

All you see is a single instance of your software when you log in, regardless of how many instances and boxes are required to support your software behind the scene. No more one instance per unit, department, or division.

( 4) Economies of Scale

The fact that on-demand software is built from the ground up to be a multi-tenancy model allows a provider to share the hardware and software instances required to support your instance across clients and pass on the savings generated by economies of scale to you.

( 5) Provider handles administration, maintenance, and headaches

Software-as-a-service is the ultimate in computing from a utility perspective – and the only hassle-free computing model out there. All of us know how much of a hassle it can be just keeping our windows PCs working on a regular basis – enterprise software can be much more complicated. But neither you nor your IT department need to worry about that, the provider takes care of all the administration, regular maintenance, and associated headaches.

( 6) Free Upgrades

On-demand software is updated automatically by the provider when new features are available. With many providers, this often occurs frequently, and some providers offer significant free upgrades three to four times a year. Compare this to traditional enterprise software where you might get an upgrade once or twice a year if you are lucky, and willing to pay for it.

( 7) You, the customer, have the leverage

Many on-demand offerings are month-to-month (after an initial sign-up period, depending on the provider, which is typically never more than three to six months) and you can leave at any time if you are dissatisfied. A provider’s success is not measured on the income from the initial contract but by adoption, satisfaction, and, most importantly, your renewal. Unlike a traditional installed enterprise software provider who gets all the money up front and disappears, on-demand providers are in it for the long haul. SaaS providers continually strive to make their offering the best it can be.

( 8 ) Anywhere access

Because on-demand is internet-based, you can typically access the full-functionality anywhere you have an internet connection. This is different from traditional web-access to enterprise applications which requires a VPN connection and specialized client software.

( 9) Buy what you need, and only what you need

With the on-demand model, you can buy just what you need and not a bundled package where you may never use more than half the features. Recent studies have suggested that the vast majority of product features go unused by a customer. If you do not believe it, count how many features of Microsoft Word you use on a regular basis. Maybe 20 or 30 if you’re a real pro. Now compare this to the 300+ (or is it 400+?) features that Microsoft Word has. With on-demand, if you do not need it, you do not have to buy it.

(10) Single Accountable Entity

With traditional installed behind-the-firewall enterprise software, if something went wrong the software provider would blame the third party integrator who installed it and the third party integrator would blame your in-house administration team and so-on. With on-demand, there is a single entity involved with and responsible for the software and so a single point of accountability.

(11) Regular, Automated Data Backup

How often does your internal IT department back up your data? And, more importantly, how often do they test the backups in recovery drills? (Warning: If you are faint of heart, do not ask this question if you want a real answer!) As an ex full-time developer/architect, I found it quite shocking how little time most IT departments actually spent on data backup and disaster recovery planning. Moreover, very few stored critical data backups off-site in a secure facility and those who followed the practice generally did not do so nearly often enough. However, an on-demand provider, who knows that up-time is their business, usually has a much deeper understanding of IT-as-a-service then an internal IT department and generally has backup, recovery, and disaster avoidance as part of its daily operating procedures.

(12) Built for Change

Your business never stands still, so why should your software applications? However, that’s what happens when you buy traditional enterprise software – you’re locked into a single operating mode until you upgrade the software, which could be years when you consider the up-front costs you generally have to sink-in to buy the initial license. On-demand applications are built for change, since the providers know that if they do not keep up with the forward pace of the industry, you will have no reason to renew when your initial term is up.

(13) Unparalleled Collaborative Capabilities

Unlike most applications, on-demand applications are built as native web-based applications and, therefore, allow unparalleled collaborative capabilities as compared to traditional enterprise applications.

(14) Integration with office applications

The vast majority of on-demand applications recognize that Microsoft Office is the defacto standard for professionals everywhere and build-in integration capabilities for data import from and data export to these applications, making them easy to use and populate.

(15) Low Total Cost of Ownership (TCO)

On-demand dramatically restructures the economics of developing, delivering, and supporting business software. Triple Tree and the Software and Information Industry Association (SIAA) found that SaaS deployments are 50% to 90% faster with a total cost of ownership (TCO) five to ten times less expensive than traditional software!

On-Demand users report overwhelming benefits when they compare their software-as-a-service offerings to traditional enterprise installations. Aberdeen’s study from earlier this year found that:

• 66% of respondents said on-demand platforms were easier to upgrade
• 64% of respondents said on-demand platforms had better ROI and, furthermore,
  • 35% quoted time to ROI as under 6 months, and
  • 65% quoted time to ROI as under 1 year
• 57% of respondents said on-demand had a faster implementation time and
  furthermore,
  • 61% gave an implementation time of under 3 months, and
  • 84% gave an implementation time of under 6 months
• an even number of respondents said customer service was better,
  with the other half saying customer service was the same

The ultimate impact is that on-demand allows an organization to escape, or bypass, the IT backlog and get a solution, and results, faster while improving the alignment between vendor and customer goals, lowering risks, and decreasing capital expenses. Furthermore, the release from the mundane administrative and maintenance tasks frees you up to focus your efforts on higher-value strategic initiatives.

Of course, still not everybody has such a rosy view of on-demand, so tomorrow we’ll review the myriad of concerns that have been presented and see that not only are most of them unfounded, but that some of them actually reveal additional advantages of the on-demand model!