Category Archives: Blogologue

the doctor Thinks Your Brand Is A Terrible Thing To Waste

I know that some of you, especially those of you that only read the intro and / or first chapter to books like Your Marketing Sucks, don’t really believe in the value of the brand – instead believing that what really matters is sales, and marketing efforts that directly impact sales. And if you work in a company where marketing does suck, I can understand why you might think this way. But, as hard to measure and intangible as brand is, it does have value – and for some companies, a lot of value. Do you think Coca Cola is the largest beverage company in the world because it has the best cola? Do you think Microsoft is the largest software company because it has the best operating system? Do you think GM is the largest auto company because they produce the best cars? If so, then I’ll have what you’re having!

A lot of people might prefer coca cola, but if you didn’t know what coca cola was and did a blind taste test with half a dozen no name colas, I doubt you’d get a 9 out of 10 cola consumers agree – or anywhere close to that. Microsoft hasn’t been able to solve basic multi-threading problems in its OS that mainframe systems, such as the Compatible Time Sharing System, solved as far back as 1962. And in terms of quality, I’m not alone in thinking Toyota and Honda have surpassed GM in quality. Lots of industry rankings agree.

But these companies are still #1 in their game – and all Fortune 100 (GM = 3, Microsoft = 49, Coca Cola*1 = 94). In each of these cases, it’s because of their brand. In Coca Cola’s case, it’s because it continues to have the best brand in the world, as per BusinessWeek’s Interbrand rankings. In Microsoft’s case, it’s because it continues to have the second best brand in the world. And in GM’s case, it’s because it was the best car brand for an entire generation – a generation that will likely be loyal to that car manufacturer until they die! That’s brand power.

Furthermore, there are ways to calculate the effect of “brand” value. It’s true that they all have disputable elements, but I think that any method that starts by deducting operating costs (including sales and marketing), taxes, and capital charges from projections based on five years of earnings and then uses standard methodologies (such as those employed by VC firms) to assess and subtract intangibles such as patent portfolio (and associated license revenues), such as what Interbrand does, is on the right track. If after all these deductions from revenue you still have a positive amount, it’s an extremely good bet that a large percentage of this is attributed to brand. In Coca Cola’s case – that’s 67B. In Microsoft’s, that’s 57B. And in Toyota’s and Honda’s case, the brands for the new car buying generation, that’s 28B and 17B, respectively. I don’t know about you, but I think that’s an awful lot of value – value which will dissipate, and quickly dissolve your current Fortune 500 status, if the value of your brand goes away.

And that’s precisely what will happen if you don’t properly manage your supply chain, as pointed out by a recent article in Industry Week that tells you to “Strengthen Your Supply Chain”, Protect Your Brand. Every recall that you’re associated with decreases the value of your brand at least a little in the eyes of a consumer*2. Every time your product is not on the shelf when someone wants to buy it, the value of your brand diminishes a little more. And every time you produce a product that is of poor quality your brand diminishes a little more still. Each of these issues negatively impacts your brand, and not one of them has anything to do with marketing. The sad reality is that even though marketing and advertising may still get most of the credit when it comes to brand building, it’s really supply chain that ultimately determines the value of the brand. Because if supply chain doesn’t deliver, any perceived value created by marketing evaporates like the morning dew on a hot summer day.

So no matter how good you think your supply chain is running, take another long, hard, look. Statistics say you can expect at least one major disruption in the next two years. And if you don’t figure out what that is now, it’s going to happen. And I wouldn’t want to be in your shoes when it does!

Remember, if it’s your brand, I don’t care what contracts you have in place with your suppliers – it’s still ultimately your problem! Passing the buck won’t save your brand – or your ass when the CEO has to take drastic action in an attempt to satisfy shareholders. That’s why I also talk about the larger context of visibility and supply chain management on this blog – so that you know where strategic sourcing fits in the larger picture of supply chain management and have the knowledge you need to do it right. So next time you think you don’t need to read one of my longer essays on the subject, think twice. There might come a day where You might just find that you’re glad you did.

*1 I know Pepsi is 63, but it’s not just a soft-drink company anymore – it’s a snack food company. This move, and associated acquisitions, which started back in 2003-2004 may have moved it up the Fortune 500 list relative to Coca Cola, but Coca Cola is still the largest from a pure soft drink perspective, as well as having the best brand in the world, as per the Business Week Top 100 Brands.
*2If you happen to be a food producer or provider and people became very ill and / or died because of a supply chain failure, your brand value will be impacted very significantly.

the doctor’s Predictions on the Winner of the Talent War

I recently came across an article over on Global Services Beta that said “Talent War 2012: U.S.A. Set to Win”. Needless to say I was stunned – especially since the first paragraph ended on the U.S. labor market is set to become less open and flexible over the next five years amid fears of terrorism.

The U.S. has been winning the talent war not because it has been churning out the most skilled talent pool, but because it has been attracting the most skilled talent pool from around the world! Let’s face it, the US only has an estimated 301M people of the 6.602B people on the planet, or 4.56% of the world’s population. If we assume raw intelligence and capability is normally distributed throughout the world, which is a very reasonable assumption, that says that for every 100 of the best and brightest, the US can only expect to have 5. Now, it’s true that a great education system is often required to unlock a person’s raw potential, but that can be found in most of Europe, South America, India, South-East Asia, and South Africa. Furthermore, China has 1.322B to the US’s 301M and India has 1.130B. This says that China and India are likely to have four times as many people in any best and brightest list you care to come up with for every person the US has on that list. India already has a decent education system, especially in its richer provinces, and China has the cash to throw at the problem.

Of course, it takes more than bodies and education to build a great talent pool – it also takes the right culture – based in a free and open democracy where anyone with the talent, education, and the will to work hard and succeed (and make the country he or she is living in just a little bit better) is welcome. However, right now, the U.S. is more intent on building fences, preventing people from flying, and delaying permanent resident application processing until long after the original visas have run out – and this just doesn’t fit the bill. That’s not the culture that made the US one of the most admired countries in the world or the culture that attracted the best and brightest from all over the world to start new research programs and enterprises that put the US on the global map for everything from Astrophysics to Zoology, including the technology that launched the information age.

So, who will be the big winner? Although I’d like to say it will be a country like Canada and Australia, since they have the right education system and the right culture, I have to go with India. The fact of the matter is that with only 33M and 20M people respectively, countries like Canada and Australia do not comprise a significant percentage of world population.

What about the EU, you ask? Well, they’re too busy buckling under their own Euro-centric regulations that make it exceedingly difficult not to do business within the EU, or working 35 hour work weeks and complaining that even that is too much, to take a leap forward. It’s not just the US that is having problems being competitive (in “One Explanation for the Expanding US Deficit”).

Now I’m sure most of you disagree with this controversial opinion, and if you do, I’d love to hear yours. Just be sure to follow the comment rules and also indicate why you think I wrote this after drinking one too many Pan Galactic Gargle Blasters and getting Yakko‘s anvil dropped on my head.

the doctor Wonders Why The Elephants In The Room Are Often So Hard To See

This is sort of a continuation of last Monday’s blogologue where I wondered if the sourcing nation has a Prozac problem. While thinking about why the new solutions are being ignored when they should be the target of evaluations (and positive feedback, so that even if they don’t work for you today, they will tomorrow), it occurred to me that this is because there is a larger problem – the market is blind to what the true problems are, and most of the big vendors aren’t doing much on the user-education front. The reality is that if you don’t understand you have a problem, and in some cases a big problem, you won’t be looking for a new technology to solve it. Thus, the elephants in the room are often going unnoticed while the vendors focus your attention on the fuzzy bunnies.

In an attempt to make sure they don’t go unnoticed again, I’m going to pull down the blinds they’re hiding behind and expose you to three of the biggest elephants that your vendors might not want you to know about.

Optimization is not a set of reports that tell you the lowest cost supplier by unit cost or landed cost, the ability to calculate the cost of a random sample of award simulations and select the best one, or heuristically simplifying a model until you can run it in the framework provided to you by a third party provider that provides you with an engine – it’s the ability to allow an end-user to build a model that realistically models their situation, allows them to account for all of their costs and business constraints, and then solves that model using sound and complete optimization algorithms (such as those based on MILP) to come up with the optimal award across suppliers. Furthermore, it lets the user create multiple what-if scenarios to see what would happen if certain constraints were relaxed or new constraints were added and then lets the user compare those results side by side.

It’s not electronic invoice presentment and payment or supplier networks or e-Procurement that saves you time and money, it’s compliance – and that requires the ability to match invoices to items to contracts before an invoice is accepted and approved for payment. The fact that an invoice is from a vendor contracted to provide the items in question is not enough – office supplies distributors are notorious for overcharges and electronics vendors are notorious for not adjust pricing downward over time to insure their customers get the “best market price” that is in the contract.

Finally, when it comes to spend analysis, it’s the analysis! I don’t care how much cleansing, categorizing, and enrichment the latest product offers – it doesn’t mean diddly squat if you can’t do the analysis you need to do. Static top n vendors, top n categories, and top n commodity reports on one inflexible cube doesn’t cut it. You need to be able to build multiple cubes on the fly, on arbitrary dimensions of interest, and segment by range as well as rank. It’s not the top 10 suppliers with the greatest percent of spend, it’s the top 10 suppliers with the greatest variance in spend – chances are these are the ones overcharging you. It’s not the top 10 commodities with the greatest percentage of spend – it’s the top 10 commodities being bought off contract as this is where you need to curtail maverick spend first. It’s not the top 10 categories with the greatest percentage of spend, it’s the top 10 categories with the greatest variance in spend across departments or channels – as these are the ones that need better sourcing strategies.

So the next time someone tries to sell you a comparative reporting toolset on top of a simulation engine and pass it off as optimization, ask them these questions. The next time someone tries to sell you a supplier network or EIPP solution as the answer to all your procurement compliance problems, ask them how it automates three-way matching between invoices, goods receipts, and contracts and tags those invoices for human review that are questionable. And the next time someone tells you it’s all about the cleansing, say “no thanks, I’m looking for solutions, not religion“.

The Sourcing Nation Needs You!

As an astute sourcing professional, I’m sure you picked up on Jason’s Busch post last Thursday on “”Who Has Got the Eyeballs Online Spend Management Traffic” where he noted that blog traffic is rising while most of the online publications are flattening out, and in some cases, maybe even falling. This makes sense to me since real bloggers publish solid content and opinions every day while most of the publications only publish once a month, with more frequent updates often being nothing more than polished vendor press releases. However, what I noticed is that the site with the top 3-month average, Purchasing topped out at 319,397 in the Alexa rankings. Furthermore, upon doing my own research where I looked at CIPS, the CSCMP, e-Sourcing Forum, the IACCM, the ISM, Procure Insights, SIG, Supply Chain Brain, the Supply Chain Council, Supply Chain Daily, and Where Next in addition to CPO Agenda, the European Leaders Network, Purchasing, Spend Matters, Supply & Demand Chain Executive, Supply Chain Digest, Supply Chain Management Review, Supply Excellence, Supply Management . com, and Sourcing Innovation, the top site, belonging to ISM, topped out at 293,787. That says there are 293,786 sites out there more relevant than the top ranked sourcing site! And the results from Traffic Estimate aren’t much better. The top site, again the ISM, is credited with a mere 51,000 visits in the past 30 days. To put this in perspective, YouTube is credited with over 246,790,000 visits in the past 30 days. I don’t know about you, but I don’t think we should stand for this.

I’ve said it before, and I’ll say it again – Sourcing – regardless of the name you call it (purchasing, procurement, supply management, supply chain, etc.), is the future of business – not Marketing, not Research and Development, and not Engineering and Manufacturing. Once you reach a certain plateau, you’re not going to double sales. You can create the best product in world, but if you can’t produce it at a price point that makes it affordable and attractive to your target market, then you’ve just wasted time and money. And you can streamline operations all you want, but you still have to pay your people and pay your bills. The real impact comes from smart sourcing!

So what can you do? Download the Alexa Toolbar\ (preferably for FireFox, but you can also get it for IE if you haven’t kicked the MS habit yet*). Then, every time you visit a sourcing related website, you’ll add to the anonymous usage statistics of the #1 site used to estimate web traffic and rank web sites and show the world that the Sourcing Nation is strong and capable of producing, and consuming, some of the best content out there. Then we’ll get noticed and be one step closer to the recognition we deserve.

* Maybe this demonstration of Vista will change your mind!

the doctor Explains the Meaning of the Word Share

Thanks to the tireless efforts of Sesame Workshop (formerly known as the Children’s Television Workshop (CTW) to us old-schoolers), I thought everybody knew the meaning of the word share. However, a recent visit to the good old ISM – or should that be the curmudgeonly old ISM, proved me wrong.

I found out that they had an article titled “Spread the Word – Sharing the Value of Supply Management” and was intrigued. However, and I really shouldn’t be surprised by this, the article is for paying members only. That’s not “sharing”. That’s “hoarding”.

To explain the concept, I’ve asked Elmo and Zoe, from the Sesame Workshop, to help me out. Take it away, gang.

Zoe : Hi Elmo! What’s that?
Elmo: That’s Elmo’s shiny new red ball.
Zoe : Can I see it?
Elmo: I don’t know. Elmo really likes it.
Zoe : I’ll give it back.
Elmo: Okay. Here you go.
Elmo tosses the ball to Zoe.
Zoe : Thank you. It’s a very nice ball! Catch!
Zoe tosses the ball back to Elmo.
Elmo : Yes it is! Catch!
Elmo tosses the ball back to Zoe.
Zoe : We’re playing ball!
Zoe tosses the ball back to Elmo.
Elmo: And we’re sharing!

There you have it. Pretty easy concept, isn’t it? And it makes everyone happy.

As a bonus lesson, the doctor is also going to tell the ISM about the word irony. The Unabridged Dictionary.com defines irony as “the use of words to convey a meaning that is the opposite of its literal meaning”. Alanis Morissette had a really good explanation of the concept, which can now be found on Youtube.