Monthly Archives: August 2006

And the Software Patent Pirates will Plunder Away …

Recently on Procurement Central [WayBackMachine] Dave Stephens wrote an article about the Software Patent Pirates who plunder patents for storage in their corporate “holds” like hidden weapons. These firms troll the high seas of business in search of easy prey. But unlike real pirates, their actions are completely legal, even if they do leave a bad taste in everyone’s mouth.

And if a few senators have their way, it’s going to get a whole lot easier for the patent pirates to plunder corporate treasuries. As summarized in this CNet article, a new bill, sponsored by Orrin Hatch and Patrick Leahy, called the Patent Reform Act of 2006 has been introduced that proposes a number of changes to the way American patents are awarded and challenged.

Although it has some moderately good points, including a “post-grant opposition” system that would allow outsiders to dispute the validity of a patent before a board of administrative judges within the Patent Office, rather than in the traditional court system, potentially staving off excessive and needless time-consuming and costly litigation, it has some bad points. The worst part of the proposal is that it would shift to a “first to file” method of awarding patents. Whereas now you have to be the first to invent something to be eligible for a patent, if passed, this bill grants eligibility to anyone who is the first to file a patent. In other words, those who can afford to file quickly and often will reap the rewards while real inventors could get the shaft.

More importantly, it could allow patents even more absurd than the one referenced by the Technology Liberation Front in “Yet Another Ridiculous Software Patent”. For example, anyone could start submitting patent applications for minor variations on standard internet protocols that have been around for decades, and be eligible to receive the patent. If the minor variation was useful, it would then be unusable in the public domain, even if completely obvious to a high school computer science student.

As you might have guess, I am also against software patents. If you recall my post on TRIZ in the Purchasing Innovation Series over on e-Sourcing Forum [WayBackMachine], you’ll remember the statistics observed by the followers of Genrich Altshuller who found, like him, that only 4% of patents contained a new concept and only 1% a revolutionary discovery. Furthermore, when it comes to software, I would estimate that the situation is much, much worse. Not only have I never seen a software patent or application therefore that I believe is worth a patent, I have never heard of one either. I’m not saying that there might not be a valid software patent out there, or at least a valid basis for one, but the reality is that the basis of computing, and software, has not changed much in the last fifty years, being based on mathematical fundamentals that are abstract and unpatentable as laws-of-nature. Software patents have avoided this restriction by patenting implementations of “business processes” that are patentable, even if completely obvious.

I just wish politicians were as informed as their peers in the European Parliament in this regard who voted 648 to 14 to quash the Computer Implemented Inventions Directive when it was introduced, maintaining the status quo and preventing software from being patented in Europe.

After all, as Dave Stephens points out, software copyrights insure software isn’t copied, remain in effect for up to 90 years, and still allow you to sue for, and recover, damages in the event you are honest-to-goodness defrauded. It’s good enough for Europe and the publishing industries, why can’t it be good enough for us too?

Demand Driven Supply Networks IV: What SAP has to say

Hot off the SAP presses is a new white paper called “Demand-Driven Supply Networks: Advancing Supply Chain Management” (@ KnowledgeStorm, Registration Required) that notes that being “demand-driven” requires an instantaneous sensing of customer demand and an immediate supply chain response to get the product to the customer when the customer wants it and that the critical element is collaboration among partners in the supply chain. Furthermore, it notes that Demand Driven Supply is the next step in the advancement of supply chain philosophy and translates into real money on the bottom line. Specifically, according to customer studies, analyst comments, and industry polling, SAP determined that consumer products companies can

  • increase fill rates by 3% to 10%
  • increase production efficiencies 1% to 5%
  • decrease freight costs 5% to 15%
  • improve personnel productivity 7% to 12%
  • reduce obsolescence and waste 35% to 50%
  • reduce inventory levels 7% to 15%
  • improve asset utilization 10% to 15%
  • decrease cash-to-cash cycle 10% to 30%
  • reduce deductions by increasing perfect order fill
  • make better use of promotional funds based on more accurate information
  • increase the effectiveness of product introductions (and phase outs)

No surprises, since this is more or less what AMR and Aberdeen have been preaching for years, but what is surprising is that SAP is not only embracing DDSN, but already has solutions that enable DDSN by combining existing technology, such as advanced planning and optimization, with the following capabilities:

  • Dynamic Sales and Operations Planning (DS&OP)
  • Global Data Synchronization
  • Radio Frequency Identification (RFID)-enabled processes
  • Point of sale-based analytics
  • Integrated Trade Promotions Management
  • Responsive Replenishment
  • Multi-tiered collaboration and shared scorecards
  • Adaptive Manufacturing
  • Event Management
  • Innovation and Design Collaboration

… and doing it while DDSN is still relatively early in its lifecycle. Considering SAP usually plays it safe and introduces new technology later on the innovation curve, this is a bit of bold move for SAP.

Although the paper does not cover anything that hasn’t been covered before, it does a good job of covering many of the key points. For instance, it notes that managers can respond proactively to deviations caused by internal and external events instead of spending their time gathering information, responding to problems, or preoccupied by ancillary tasks under demand driven supply. And more importantly, it notes that while manufacturers have always believed that long production runs lead to higher profitability, this is no longer the case since production runs that are theoretically less efficient may actually post a better ROI with DDSN because of the ability to shift manufacturing quickly to the most profitable products. Finally, DDS spans the entire consumer products supply chain and seamlessly connects all facets o the network. The future demand driven organization integrates all supply and demand elements to provide a seamless flow of real-time information to support valid decision making.

In addition to rehashing the definition of what DDS is, the SAP whitepaper also provides four steps that an organization can use to begin its journey.

  1. Harmonization
    standardize processes, data, and technology
  2. Advanced Planning
    integrate key supply and demand elements including logistics, production, new-product introduction, and trade management, refine forecasting techniques, and implement advanced planning and scheduling based on optimization
  3. Increased Responsiveness
    focus on the network by driving forecasting and visibility past the distribution center to the source of demand
  4. Adaptability
    refines the integrated network capabilities to adapt effectively and quickly to changes

These steps mesh will with our previous recommendations for each stage of the supply chain, which can each be classified as harmonization, advanced planning, increased responsiveness, or adaptability.

All in all, it’s a good introduction to demand driven supply and worth a quick read.

(Note: Parts I (An Introduction), II (Stages and Implications), and III (Challenges and Implementation) were posted on e-Sourcing Forum [WayBackMachine] this past weekend.)

It Pays to be World Class (in Cost Reduction)

The Hackett Group recently held their 2006 Best Practices conference where participants were able to hear speakers from a number of leading global companies, including Alcoa, Citigroup, Constellation Energy, HP, Greif, Nissan and U. S. Steel. I was not fortunate enough to attend this conference, so I’ve been searching for press and review articles on it since The Hackett Group is known for its top notch research.

My searches have not been in vain, and I have been lucky enough to stumble onto a few articles, including “World-Class Companies Move Beyond Cost in G&A in Response to Globalization” by the Editorial Staff of Supply & Demand Chain Executive. This article in particular, which starts off by noting that Globalization is creating new challenges and opportunities for today’s companies, and one way world-class executives are responding is by demanding that their general and administrative (G&A) operations deliver more than just the lowest cost, received my full attention because it revealed some research statistics from Hackett’s upcoming 2006 Book of Numbers.

In particular, the article echoes Hackett’s finding that world-class companies are now spending 40 percent less than typical companies overall on SG&A (9 percent of revenue versus 15 percent) and as a result generate $60 million in savings/billion of revenue. By function, they spend 45 percent less on finance, 13 percent less on HR, 25 percent less on procurement and 7 percent more on IT. That’s six million of savings for every hundred million of spend – and that’s significant! Some companies are saving more than this. For example, U.S. Steel, which Hackett has determined to have a world-class finance operation, has achieved a reduction of 30 percent in its administrative workforce and annual acquisition synergies in excess of $400 million over the last 3 years. Moreover, that could be a 30% redeployment of resources to strategic sourcing to allow for more advanced negotiation strategies and analyses in more high dollar buys. When you consider that last year Aberdeen Group found that the application of optimization tools to analyze total costs, and of flexible bidding functionality to uncover creative supplier solutions has enabled early adopters to identify an average incremental savings of 12% above those that basic, price-focused auctions alone have generated in its “Success Strategies in Advanced Sourcing and Negotiations: Optimizing Total Costs and Total Value for the Next Wave of e-Sourcing Savings” report, the potential for significant savings in world-class procurement and sourcing organizations becomes phenomenal.

Moreover, despite what you may hear, the road to riches, or in this case, to being a world class company isn’t paved with rocket science equations that need to be solved at each step. I think the quote from Rob Zimmerman, Vice President of Corporate Business Development of Greif, Inc, says it best. When the transformation [to improve our operating efficiencies, cost structure, procurement activities, and working capital] began, we had little visibility into our customer profitability, were far from being the lowest cost producer and dead last in working capital compared to our peer group … but by standardizing processes, gaining visibility into our data, creating the right analytical tools and building the capabilities of our employees, we’ve been able to surpass some of our original financial targets“. In other words, even though the road to success entails a lot of hard work, it’s within the grasp of every company willing to put in the effort (and bring in the right people at the right time to help them get there).

Avoiding The Talent Shortage

Regular readers of Supply Excellence [WayBackMachine] will recall Tim Minahan’s recent post “New Supply Risk: Losing Your Top Talent” where he noted that talent poaching has reached new heights in the supply management arena and pointed out a new study from Denali Consulting and SupplyStaff that examined the labour challenge of how to retain your best people.

The Denali study reported that the typical company experiences a nearly 40% voluntary turnover rate by employees. It also reported that a good salary is often the top indicator of employee retention. Neither of these results should be startling when you consider the recent articles on the European Leaders Network and SupplyManagement.com that highlighted the Increased Competition for Procurement Professionals and that Interims Cash in on Demand Boost, with top-skilled individuals easily able to command $1000/day, or more.

Fortunately, management approach and work environment also affect employee retention, with top performers preferring a work environment that continually challenges them, provides a clear career path, and autonomy. The study, as Tim Minahan pointed out, highlights the following secrets:

  • Keep the work challenging
  • Nurture highly skilled candidates
  • Encourage and support a work-life balance
  • Deploy Mentoring programs to encourage advancement

An article in the summer issue of CPO Agenda also took up the issue of how to retain your best people. The article, by Sharon Jordan-Evans of the Jordan Evans Group, offers three additional suggestions.

  • Conduct a ‘stay’ interview
    Instead of guessing, find out what your staff really want. Ask meaningful questions such as: Are you challenged in your day-to-day work? What would provide more interest? What could I do more/less of? What will keep you here? What might entice you away? What do you want to learn this year?
  • Give them some space
    Provide the freedom that allows people to get the job done in ways that work best for them. Telecommuting, flexible work schedules, casual dress, etc.
  • Mine for Opportunities Link arms with your best people to mine for the next opportunity. They might enjoy heading a new project or spend category (marketing or legal services, for instance). Let them touch the end customer or build relations with a key internal stakeholder. Rotate assignments to deepen or broaden their skills. Support their investigation of new supply markets.

And, finally, even though you might not always be able to compete on salary, remember that there’s nothing to stop you from competing on performance-based incentives. After all, when every dollar of bonus they get is the result of tens of dollars of captured savings to you, it’s a win-win situation. (If you’re having trouble measuring savings, I would suggest you start with my Cost-Reduction and Avoidance write-ups {Introduction, Metrics, and Incentivize for Success!} over on e-Sourcing Forum [WayBackMachine].

Customer Data Management

About the same time Aberdeen released “The Spend Intelligence Benchmark Report: Turning Data into Action”, which we discussed last Sunday in There’s No Such Thing as Spend Intelligence, Aberdeen also released “Customer Data Management: How Leaders Attain Tangible ROI” that found more than 85% of survey respondents plan to invest in Customer Data Management solutions within the next 24 months.

Why? Maybe it’s because Aberdeen research reveals use of timely, complete, and accurate information leads to improved customer service levels, reduced operational costs, increased revenues, and higher customer satisfaction and retention rates. In addition above average performers attained >20% annual improvements in these key metrics:

  • Customer retention rates (84%)
  • Data accuracy / match rates (76%)
  • Partner/customer satisfaction rates (68%)
  • Revenues (56%)

Or maybe it’s because good customer data leads to good metrics and good forecasts, and creating the right product at the right time in the right quantity is one of the keys to overall supply chain success. After all, the wrong product results in lost opportunity, an insufficient quantity results in lost sales, and the wrong time results in stale inventories. Moreover, this hurts your customer as well as you, who might leave you for another provider.

Regardless, customer data management is important, and it has a lot in common with the development of a spend intelligence solution, to use Aberdeen’s terminology. Consider the top three challenges identified by the Aberdeen report:

  • Extracting & Normalizing Customer Data Captured from Multiple Sources
  • Verification of Data Accuracy or Completeness
  • Extracting & Normalizing Customer Data Stored in Legacy Data Marts

These are essentially the biggest challenges in implementing a good spend visibility solution

  • Extracting & Normalizing Spend Data Stored in Multiple Systems
  • Verification of Accuracy and Completeness
  • Extracting and Normalizing Legacy Spend Data for Historical and Trend Analysis

Therefore, if you are considering an enhanced spend visibility solution and an improved customer data management solution, you might want to take advantage of the synergies and tackle both projects simultaneously. Chances are, you’ll need to integrating a lot of the same feeds and systems, so you might as well tackle all of your data needs at the same time.