Category Archives: Market Intelligence

Forget Cost Reduction. It Ain’t Happenin’. Best you can hope for is Cost Avoidance!

Costs are going up. And since you spent decades, including a decade and a half where those of us who could carry the thought experiment to its logical conclusion told you not to, outsourcing everything you can to China and low-cost locales in Asia and Eastern Europe, there’s nothing you can do.

The sanctions on Russia, which are skyrocketing energy costs in parts of Europe, are raising prices.

The logistics challenges, as a result of lost capacity from perfectly good ships being scrapped during the Pandemic and a new requirement to sail around the capes again (Houthis in the Red Sea, droughts in Panama reducing canal capacity), is raising prices.

Just the threat of thumping tariffs from the incoming President in the US is already starting reciprocal threats and trade wars (because the billionaire the US elected doesn’t seem to understand it’s the working class people who pay the tariffs, not the countries being sourced from, and that tariffs are to prevent markets from being flooded with goods that citizens can buy at home … and shouldn’t be used to prevent citizens from getting goods they can’t get otherwise).

China is cutting off access to critical raw materials and rare earths, when it represents the majority of the global supply (and where Russia was second or third).

Year-over-year increases in natural disasters (which are only going to increase in frequency as the US abandons any efforts whatsoever to curb carbon and GHG emission and slow global warming) is destroying larger and larger portions of global crops annually while global population is still increasing.

We could go on, but you get the point. You’re not reducing cost anymore. The best you can do is control it, and that’s going to take all of the strategic sourcing strategies available to you, as well as the best sourcing platforms to make it happen.

Which means you need to focus on cost avoidance. More specifically, we mean reducing the amount you have to buy, not just mitigating expected cost increases through better buying practices. More specifically, we mean minimizing waste and eliminating the needs for a purchase in the first place. This means, among other things:

  • eliminating disposed/fire-sale inventory at end of life (and up-front buys)
    optimizing the production relative to the demand (and eliminating the bullwhip effect)
  • reducing defects AND returns
    defects cost money to process, even if the buyer gets credit; and returns cost a company many times what the product costs — the product needs to not only be defect free, but right for the customer
  • reducing MRO
    this involves not only buying only what you use, but only using what you really need;
    i.e. does the executive need to print out all the reports? probably not, and maybe it could be prevented with a one time buy of a second monitor or an iPad Pro
  • reducing services
    do you need your office cleaned every night? probably not! (and if your employees are that messy, tell them to grow up or get out); do you need PR services if you’re in enterprise to enterprise sales? most likely not! do you need an annual Big X operations review just because the former CEO always did it? definitely not! (you just need to identify your inefficiencies and get point-based help to remove them)
  • reducing long-term inventory
    long-term, not mid-term, and definitely not short term; we’re well aware that the move to JIT ultimately crippled manufacturers during the pandemic, and it was something we foresaw when we first advised you to stop offshoring everything, but that being said, if it typically takes 30 days to restock, given that there is often the option of airfreight in a worst case situation, more than 90 days inventory is likely excessive and costly; and if you’re holding inventory for 180 or 360 days, that’s too long, and too costly; optimizing inventory to sensible sizes reduces inventory cost as well as minimizing the chance of end-of-life/expired inventory that has to be trashed

In other words, you have to go beyond the buy to analyze if the buy is even needed in the first place, if the demand can be reduced (optimizing production to realistic projections, reducing demand for paper with tablets), if the quality/targeting can be improved to reduce returns, and so on. The only way you are going to save with certainty in the economy that is coming is to NOT SPEND IN THE FIRST PLACE!

But What About the Oompa Loompas?

A recent article over on SupplyChainDive on Unwrapping Hershey’s $250M Supply Chain Upgrade noted that Hershey is undertaking a huge supply chain and manufacturing project to enhance agility and efficiency throughout its operations.

The goal is to digitize and automate Hershey’s processes, optimize procurement and manufacturing, and accelerate R&D and planning to boost visibility and streamline operations. The goals are better integration of demand planning and more automation in the supply chain. by the end of the process, , the goal is visibility from supplier to retailer (and back again).

This is not Hershey’s first mega project, as it has recently invested over One Billion Dollars in its supply chain network, investments that included a new chocolate facility, additional production lines, and line upgrades. It also invested in SAP S/4 ERP integration to get cross unit business visibility, including visibility into its acquisitions of Amplify Snack Brands, Pirate Brands, Dot’s Pretzels, and Pretzels Inc. in an effort to identify redundancy and unnecessary complexity in the supply chain.

At the end of the upgrades, Hershey expects to have over 95% of transactions flowing through one system, which will provide unparalleled visibility, as well as increased procurement and inventory management efficiency. In addition to better alignment of production with demand with inventory, it also helps Hershey with predictive maintenance schedules and production scheduling, as they can modify production runs as needed with shorter changeover times (due to improved visibility).

When all is said and done, Hershey hopes to save 300 million annually, with 30% of savings due to supply chain productivity improvements alone. This is all fine and dandy, and will put Hershey in a position its peers will envy, but what about the Oompa Loompas? The additional production lines, provided they created more jobs, were a good start … but we know those Oompa Loompas would like to return to the glory days of Chocolateering.  (And we know how much they have suffered for the past 20 years.  Just check out some of our historical posts.)

Dumb and Dead Company: The Series

For your convenience, here are links to the complete series, classic and modern:

2008 Series

Dumb Company

How Dumb is Your Company
Dumb Company
Dumb Company (The Lyrics)
Dumb Moments in Business not Aerospace, Automotive, or Bailout Related
Why Some Companies are Being Dumb

Dead Company

Dead Company
Dead Company II: If You’re Hoarding Cash …
Dead Company III: Fear is the Enemy
Dead Company IV: Avoiding the GraveYard
Dead Company V: More Ways to Avoid the GraveYard
Dead Company VI: New SI Offerings
Dead Company VII: Even More Ways to Avoid the GraveYard

Your Marketing Really, Really Sucks

Marketing is NOT Optional
How to Build a Bat House
The Brain Gives Pinky a Marketing Lesson
Web Marketer, Don’t Be Misled!

The Market Dilemma

The Market Dilemma I: The Key to Getting Out of this Recession
The Market Dilemma II: Vendors Provide the Vision
The Market Dilemma III: Consultants Provide the Clarity
The Market Dilemma IV: Buyers Win the Battles

the doctor Can Help!

Vendor Void? the doctor Can Help!
Consulting Confusion? the doctor Can Help!
Buyer Bereft? the doctor Can Help

2024 Series

Prelude

Distant Early Warning: An “Avoiding the Graveyard” Prelude

Dumb Company

How Dumb Is Your Company?
You Admit You Might Be a Dumb Company. How do you avoid the fork in the road that leads to the Graveyard? Part 1
You Admit You Might Be a Dumb Company. How do you avoid the fork in the road that leads to the Graveyard? Part 2

Dead Company

Is Your Potential Vendor a Dead Company Walking? Part 1
Is Your Potential Vendor a Dead Company Walking? Part 2
So You Admit You Might Be A Dead Company Walking. How Do You Avoid The Graveyard? Part 1
So You Admit You Might Be A Dead Company Walking. How Do You Avoid The Graveyard? Part 2
So You Admit You Might Be A Dead Company Walking. How Do You Avoid The Graveyard? Part 3
So You Admit You Might Be A Dead Company Walking. How Do You Avoid The Graveyard? Part 4
So You Admit You Might Be A Dead Company Walking. How Do You Avoid The Graveyard? Part 5
So You Admit You Might Be A Dead Company Walking. How Do You Avoid The Graveyard? Part 6
So You Admit You Might Be A Dead Company Walking. How Do You Avoid The Graveyard? Part 7
So You Admit You Might Be A Dead Company Walking. How Do You Avoid The Graveyard? Part 8

Zombie Company

Zombie Companies Exist Too!

Smart Company

We Want To Be A Smart Company. What Else Can We Do Part 1
We Want To Be A Smart Company. What Else Can We Do Part 2
We Want To Be A Smart Company. Is That It? Part 1
We Want To Be A Smart Company. Is That It? Part 2

M&A Mania

Marketplace Madness
M&A Mania is Coming Again … but will it be the same as last time?

Software Success (or Lack thereof)

Don’t Fall for the Buzzwords!
Demystifying the Marketing Madness for you!
The Procurement Space is Filled with Hogwash! It’s Time We Start Calling It Out!
Want Procurement Technology Success? This is Your Anthem!
Why Do Successful Solution Providers Ruin Everything By Becoming Tech Companies?
Technology DOES NOT Solve Your Talent Problem!

Failures Are Starting. How Much do the “Great And Reputable Technological Network Engagement Review” Firms Have to Do With it?

As SI recently posted on LinkedIn, corporate failures are already starting! Two notable companies in the UK with great solutions and decent customer bases have filed for insolvency in a little over a month. We think they will both be rescued (this time), but if good companies with good solutions (where current / former leaders made just a few of the critical mistakes I chronicled in my dumb and dead series — which every company’s leadership SHOULD read, but none actually do as no one will admit they aren’t perfect anymore) are at risk of going out of business, what does this say for startups who raised too much money, created too little in terms of solution value, and have no significant customer revenue to get them through tough times?

(As you may recall, even though you were blinded by the hype, we tried to give you a distant early warning that there are too many tech failures and you need to do something about it before you end up the next casualty.)

Having talked to almost a hundred small companies over the past year, that group has included dozens which are struggling financially and over a half a dozen that spent large six figure amounts (which might be a small amount compared to the seven figures an enterprise client will spend, but which consists of the entire Marketing and Analyst Relations budget for sometimes two years for these companies), and most of those have admitted they have yet to see, or saw, ZERO return.

Imagine spending 100K to 200K, when that is your entire marketing budget, on a promises of leads over a one to two year period only to see ZERO when all is said and done, and, even worse, to have no reprint rights to the work you paid for when the contract ended, no access to the database of “registrants”, and no unique insights that your sales team can use. (Or, engage one of the Great And Reputable Technological Network Engagement Review firms and you won’t have to imagine!) Now imagine being almost out of money, struggling to make payroll, and not having enough in annual recurring revenues to maintain minimal staffing levels. Unfortunately, this is becoming too common (and we know one of the companies that filed for insolvency made a significant investment in one of these Great And Reputable Technological Network Engagement Review firms and saw little return).

Th reality is that unless you are a reasonably large vendor, offering an enterprise suite, with high six to seven figures available to spend with these firms to achieve preferred customer status, and guarantee a position in one of their maps, there is little value from just sponsoring some research, getting a write-up, and hoping for some leads from the very limited reprint rights you get. It’s typically not a good investment for a small company, especially one that doesn’t have the budget to lose.

Now, at the end of the day it is the company that chose to sign the contract, and the company that made the mistake, but if they entered the contract under false promises, should not some blame rest with these Great And Reputable Technological Network Engagement Review firms?

We Want to Be a Smart Company — Is That It? Part II

We’ve read the dumb company: avoiding the fork in the road articles, dead company walking: avoiding the graveyard articles, the two installments of “we want to be a smart company”, and we truly want to be a smart company, and we are taking the mistakes, and advice, to heart. Is there anything else we can do?

As per Part I, there’s always more you can do! However, there’s not much left to talk about that’s true across the board for all software companies. That being said, we are giving you ten final pieces of advice that just may help if money is tight, leads are few, and sales are hard. Yesterday, we gave you the first five. Today, give you the final five.

06. Stagger the Billing on Suites and Seats

If it will take 9 months for the multi-module suite, don’t charge the annual license fee for the whole suite until all of the modules are fully implemented and in use. Stagger the fee based on the functional modules the user will have each month. The same goes if you are selling on seats. If there is an additional fee per seat, or the pricing is based on blocks, don’t charge for all the users up front who will eventually use it when most won’t until month 7.

Remember that your solution is going to cost the company mid to high six or seven figures once all of the direct and indirect costs are factored in, a cost that won’t be returned right away, especially if you are selling a (mini)suite. This means that even though your price tag might be worth it, it’s a hard price tag to swallow for a customer who won’t get the full use out of it for almost a year, and, thus, a hard sell.

However, if they only pay for functionality as they get it, and will start to see value before the next fee hike, that bitter pill is a lot easier to swallow, and while it might mean less money up front for you, a happy customer always means more money on the back end, especially at renewal time — which will always happen as long as they remain happy.

07. Ditch the Office & WeWork … Get Creative

If you have an expensive office, can you ditch it? Covid proved that you don’t need to work 9-5 in the same space everyday to be productive. As long as people have a space they can come together to meet when they need to, or want to, that’s more than enough.

Also, if you have a dedicated WeWork-like space, that’s not getting used daily, do you need it? If you only have it so your employees can meet one day a week, and that’s all they use it, why do you need a high cost space? (And while these spaces are cheaper than dedicated offices, they are still pricey, especially if they are not used daily.)

Local hotels with empty meeting rooms during the week will give you a good deal if you buy food. If you’re bringing people in quarterly for a meeting, they’ll give you the meeting room for free if you fill a room block, and give you a good price on that block if you have breakfast and lunch at the hotel.

And if you’re small, get more creative. Some restaurants and pubs have private function rooms that sit empty most of the day, or all day if there are no private after work functions on a weekday. They are super cheap, especially if you eat there. Some will give you a contract for, say, every Thursday for a quarter or year! the doctor knows a company in London that has no dedicated space except for a room in a pub connected to a tube station that they use weekly. Costs them next to nothing (as they’d buy their employees food anyway when they are asked to come into London) and the location ensures that if the employees stay for a few drinks, they can safely tube home. (Now, this won’t work for every company if they are in “dry counties” or have a lot of employees that don’t drink, but you get the point that creativity can save a lot of money.)

08. Compete on Service

This is not said enough. Customers don’t want software. No one every wants software. Absolutely positively f6ck1ng no one wants software! They want solutions, and, more specifically, solutions that help them do their jobs more efficiently and effectively and come with the support they need to learn the solutions and learn them to the best of their ability.

And before you say “but everybody in business buys software”, let the doctor stop you right there. They buy it because they need it. They don’t buy it because they want it. Have you ever heard your buddy Joe say “hey, I can’t wait for the new version of AccAtack25 so I can get started on my taxes for next year“. Or hear Jesse say “I really need a new glitzy word processor to accompany the 6 others I don’t use for the screenplay that I’m thinking about but not actually writing“. Or Carl say “I want the new version of Excel so I can write even more convoluted, and pointless, macros for my financial analysis to appease my boss“. You haven’t. Because no one wants business software. They want tools to do their jobs, which is why you can’t sell software like consumer entertainment apps (video games). Business software is not fun, and, thus, no one wants it.

So once you’ve made the solution as usable as it is, compete on service. That will make a huge difference.

09. Think Sponsorships — Esp. Educational Ones

As per our last instalment, customers need education and want vendors who educate them. Those vendors always win in the end. If you don’t have the time, experience, or in-depth knowledge to do so, sponsor independent authorities (blogs that aren’t going anywhere*, educationally oriented consultancies, independent analysts and/or small firms) and associations that do and they will focus on educating your audience on what your audience needs to know to understand what your solution does and why your audience needs your solution when they talk to you.

Don’t underestimate the value that a potential customer places on education. The only thing that can come close to equalling that value is the right service level, which will be dependent on, and deliver, education.

10. Get Help Where You’re Lacking

We can’t say this enough. Stop pretending you can do it all, that you can figure it out once the mistake is pointed out to you, or that you can find a new full time resource (when you look at the cost of the part time consultant) that can wear six different hats and accomplish the same goals in a short amount of time. You can’t. Focus on the niche consultancies and the true experts and you will find that consultants are cheap relative to the value they bring.

11. Bonus: Fire the MBAs!

If the only degree they have is an MBA, show them the door as fast as possible. MBAs are Masters of Business Annihilation and have done more damage to modern corporations than even the most visionary of us could have predicted (with some of the utter ineptitude covered in Jason Premo’s LinkedIn article). Real companies, like real structures, have always been built by real engineers, not spreadsheet pushing financial analysts who don’t have a clue what the company actually does.

The point of an MBA should be to teach engineers the basics of good business and financial management, and how to operate in different regulatory and reporting contexts, so they can make the right trade-off decisions to grow their company and improve their offering in step-wise fashion, not to arm nitwits with spreadsheets to make ridiculously unsound decisions that could ruin the corporation in the pursuit of near-term profits!

* Specifically, look for blogs that have survived at least 3 years. In the mid 2000s, shortly after THE PROPHET, the doctor, and THE REVELATOR started, we went from less than two dozen in the mid 2000s to almost 160 across Source to Pay and Supply Chain around 2008/2009. By 2011, dozens disappeared. By 2016, dozens more. By/during COVID, the majority of those that remained left us. Of the 160 blogs SI once chronicled on the now defunct resource site, less than two dozen remain. You can count them on your fingers and toes even if you are missing a few digits.