Category Archives: Market Intelligence

Societal Damnation 49: Gamification

Gamification, a noun defined as the application of typical elements of game playing to other areas of activity, typically as an online marketing technique to encourage engagement with a product or service, as per the Oxford Dictionaries, is also a damnation that you need to contend with on a daily basis in Procurement.

Why is gamification a damnation? Especially since, as per Merriam Webster, it’s supposed to encourage participation as it is supposed to be, according to Wikipedia, enjoyable and motivating. There are a plethora of reasons, including:

Definitions Vary

There is really no standard definition of gamification. To see this, all one has to do is go to their favourite e-book store, download the five cheapest e-books on the subject (which may even be free), and read the first few pages. Some are focussed on the incorporation of traditional game elements, whether they make sense or not; others on team building, regardless if it is game-like or not; and others on getting marketing success or social media penetration at any cost.

Gamification is often rooted in RPGs or Video Games

Yes, RPGs are the classic team-building cooperation games and video games are all the rage, but not everyone likes RPGs (because they think of D&D and basement dwellers*) or video games (because they think of computer geeks and basement dwellers*), and not all RPGs and video games are the right fit for the task at hand.

Most of it is marketing or social media focussed

Which means that most of it is used by marketing and social media and directed at you by marketers to try and daze and confuse you, and does not help you do your job in any way.

Anything not marketing focussed is team building focussed

There are a number of methodologies out there for team building. Gamification provides little additional value in this regard unless you’re playing games that everyone likes that builds camaraderie.

As Procurement professionals, there’s nothing for us

When it comes to gamification, nothing has been developed for us. Nothing to help us. Nothing to teach us. And the beer game doesn’t count. It hasn’t been updated in fifty years, doesn’t capture the complexity of modern supply chains, and has over a dozen failings that need to be addressed in order to be useful. It’s primarily a logistics and inventory model that just doesn’t cut it in today’s just-in-time supply chain world.

In short you don’t know what it is, it hasn’t been used to help you, and suppliers’ marketers will be hitting you with their perverted version of it through broken social media channels on a regular basis. It’s a continual annoyance that serves as the background music of your eternal Procurement damnation.

* Stereotypes die hard.

Procurement 2020, Are we on Track?

Long time readers, including those who worked through last year’s mega series on The Future of Procurement and The “Future” Trend Expose already know the answer to this, but with only 5 years left to go, it’s worth exploring this topic that was all the rage 5 years ago but now no longer a whisper, even from the voices that were once the loudest in their great proclamations.

Why the silence? Because, to be frank, we’re not even close to their predictions, predictions which, to be honest, should have already been met by now.

While there is a lot of cannon fodder to go back to, let’s take Sourcing Innovation’s post from four summers past, which was penned at the height of the 2020 blathering, and which took us back to a report released by Hackett in 2008! In the first of the grand prophecies, which laid out the hierarchy of supply, rather than make grand projections, Hackett simply laid out a set of seven core competencies that businesses would need to acquire. And even though leading providers have offered next generation solutions for each of these since the end of the last decade, progress along these paths is still few and far between.

Business Process Sourcing

Many companies are still taking a scattered approach to process sourcing and outsourcing and indirect spend in general. Some are using BPOs, some are using GPOs, some are using both, and some are simply hiring contingent labour to handle the processes the business does not want to do, or does not have the skills to do, in house.

Supply Performance Management & Supplier Management

Formal Supplier Management is still weak, or non-existent at many companies, and fewer companies still have, or use, modern platforms to manage the performance of their supply base, even though there are a number of second generation platforms out there that have quite extensive capabilities. (The capabilities that are out there will be described in detail in the next platform-based Spend Matters Pro series on Supplier Relationship Management, starting after the CLM series concludes, which will be co-authored by the doctor, the maverick, the prophet, and the anarchist!)

Knowledge Management

According to Hackett, Sourcing will need to master content-driven analytics which integrate external data into internal data models …. We’re not there yet. Less than 1 in 2 Procurement departments are even doing basic spend analysis, yet alone more advanced content-driven analytics using multiple internal and external data sources! Knowledge is still quite poor. (Maybe that’s because only the leading sorcerors in the leading Procurement departments read Sourcing Innovation and Spend Matters CPO?)

Talent Management

After years of reducing the training budget to almost zero following the last big recession in the late 2000’s, there’s still been no sign of restoration and talent is still not getting the training they need to do the best job they could do. Until this happens, there’s no way that Supply Management will be the career path of choice for new talent.

Next Level Strategic Sourcing

Most companies still aren’t doing true TCO modelling or using strategic sourcing decision optimization, which is the only other supply management technology (in addition to true spend analysis) that has been demonstrated to find year-over-year savings. And a true next level company should be at TVM modelling and decision optimization, multi-tier analysis, trending and predictive analytics, long-term strategic supply chain redesign, and other advanced initiatives that will save money now and for years to come.

New Product Development & Introduction

As Hackett said long ago, Supply Management will have to include advanced design-for-supply support that incorporates multi-tier cost modelling, scenario planning and optimization, but seeing as how the majority of Supply Management departments are still struggling with TCO and weighted RFXs and e-Auctions, even though companies like Arena Solutions and DirectWorks (formerly Co-exprise) have been promoting this for close to a decade, this is still a ways off from being main-stream.

In other words, even though 2020 is approaching fast, we’re still a long way from 2020 Vision in Supply Management, despite the doctor‘s best efforts.

Societal Damnation 42: Pandemics

A pandemic, as defined by Wikipedia, is an epidemic of infectious disease that has spread through human populations across a large region. When people think of pandemics, they traditionally think of the big nine historical pandemics of cholera, influenza, typhus, smallpox, measles, tuberculosis, leprosy, malaria, and yellow fever, which have, at one time or another, wiped out thousands, hundreds of thousands, and sometimes even millions of people.

However, many of the diseases that cause pandemics are still alive and well, and new ones are cropping up all the time. Cholera, easily spread by contaminated water, is caused by bacteria, and still causes 100,000 deaths a year world wide. Influenza is constantly mutating and new strains of bird flu and swine flu which, without proper treatment and prevention, could easily cause millions of deaths are alive and well. And while typhus (typhoid fever) has mostly been eradicated, cases are still being reported in poorer African and South American countries and the bacteria still exists.

As far as we know the smallpox virus has been eliminated in the wild, with no reported cases in 38 years, but never say never, as typhus, which should also have been eradicated by now, is still cropping up. There are still almost 500,000 reported cases of measles a year, even though immunization against measles is easy. Tuberculosis is caused by bacteria and infects about 1% of the global population each year, with 9 Million new cases in 2013 and almost 1.5M deaths.

Leprosy still affects almost 200,000 people globally a year. Malaria, caused by parasitic protozoans transmitted by malicious mosquitos, is still rampant with over 200 Million infections a year, which resulted in 660,000 deaths in 2010. Yellow fever is another infection, caused by a virus, transmitted by murderous mosquito, that infects about 200,000 people a year and annually kills 30,000. And while these pandemics are primarily restricted to the equatorial climates, as temperatures warm and climate changes, those pesky mosquitos could start to migrate northwards.

But this isn’t the only list of highly contagious infectious diseases we have to watch out for. In addition to the ongoing HIV/AIDS pandemic, now we have SARS (Severe Acute Respiratory Syndrome), a viral disease that cannot be cured or prevented that has an average fatality rate of 10% and that spreads easily by close person-to-person contact though respiratory droplets and which could spread like the great fire of 1666 through a dense metropolis. We also have the five strains of the Ebola virus, which spreads easily through contact with bodily fluids (including respiratory droplets or sweat) or infected bats or primates, and Ebola has an average mortality rate of 50%. We have the Marburg virus that causes Marburg Hemorrhagic fever which is a rare, but severe, fever caused by a filovirus (like Ebola) that has a mortality rate of up to 80%. We have hantavirus pulmonary syndrome with a 36% mortality rate in the US that is spread by contact with exposure to droppings of infected mice. (Which means an uncontrolled mice population could bring a new black death that, with unprecedented levels of population density, puts the first round to shame. Remember, just because mice commissioned the earth, that doesn’t mean they won’t kill us all when they are done with their little experiment.)

We could go on, but you get the picture. Not all countries have centres for disease control as advanced as the CDC or the ability to rapidly contain epidemics which could, in today’s hyper-connected and ultra-densely populated world, easily transform into global pandemics overnight. Hollywood might worry about us all contracting a hyper-infectious disease that turns us into zombies, but the reality is that the next plague will probably skip that step and make corpses of us all instead.

So why is SI being so grim? Because, despite the focus of most sites that focus in on the physical, financial, and information supply chains, the reality is that supply chains still run on people. People (control the machines that) make the goods. People control the money (even if it is just the people in banks sometimes). And people input the data that our information systems run on. Without people, supply chains will come to a halt from both an inbound (with no one to supply) and an outbound (with no one left alive to buy) perspective. Not only must we be ever vigilant in keeping our employees safe, but we must be even more vigilant in keeping them well. We need them alive.

And for those dreamers among you, you can forget about replacing your workers with robots or computer algorithms. Remember that we have been promised replacement robot workers since Elektro was debuted at the 1939 New York World’s Fair, but engineers still have not delivered. Not just because we have no true AI (and that’s a good thing*), but because we are still unable to construct systems as flexible and adaptable as the organic systems created by nature.

* what use would intelligent robots have for ugly sacs of water besides to harvest our bioelectric energy?**

** bonus points if you get the two references contained within

When Debating Where To Open Your Procurement Centre of Excellence

May we recommend getting way ahead of the curve and selecting Merv, Turkmenistan, which is the oldest and most completely preserved of the oasis cities along the Silk Roads in Central Asia and which was likely (briefly) the largest city in the world in the 12th century. It’s a World Heritage Site which has likely been continuously inhabited for over 5,000 years, centrally situated between Asia and Europe, and not that far from the Arabian Sea (which leads into the Indian Ocean which is, as we know, situated between the South Atlantic and Pacific Oceans).

We all know that nations and societies rise and fall and that what once was great can be great again, with China being one of the best examples. Over the last few thousand years it went from the global powerhouse to a closed society back to the global powerhouse which is projected to soon be the largest economy in the world in terms of GDP. Russia is in the same rise and fall cycle and when it rises again, its rise will likely bolster the surrounding former Soviet Union countries as well.

But most importantly, it’s about as close as you’re going to get to the Door to Hell, and given that Procurement is Hell, as we have been painfully illuminating in our 101 Damnations Series (with links to the first 50 posts indexed), it just seems to make sense.

 

photo by Tormod Sandtorv

Economies of Anti-Scale

Late last month, Mr. Smith reposted a couple of great posts on why Bigger Procurement is Not Always Better Procurement (Part I and Part II) over on SpendMatters UK. While sometimes bigger spend equals bigger discount, this is typically only true for the acquisition of consumables where there is a predictable economy of scale that kicks in at higher volumes — such as the production of identical goods on a production line or the sale of multiple software licenses.

In some markets, as Peter points out, increasing volume decreases costs. Let’s review his examples to understand why.

Short-Term Contingent Labour

Let’s say you want 100 additional workers for 20 days to help you stuff boxes for the Christmas rush. You might think that you should get a much better rate than the 10 workers you hired for your annual 4th of July promotion, but this is not likely to be the case. First of all, lots of organizations in your position will want extra workers for the Christmas rush, and the contingent labour organization will only have so many. Secondly, even if there is demand, why would an organization want to hire resources that will then be on the bench until at least February (for the mini-Valentine’s day rush)?

Bulk Pre-Paid Hotel Room Rates for a Year

Hotels, like airlines, make their money during peak travel and peak conference / festival seasons, and during these times, when they can charge the full amount allowed under law, the last thing they want to do is give you a room for 30% off of the normal rate, which is typically less than 35% of what they could be charging. As a result, the best deal you’re going to get is the average price they got for a room last year, as they will be hedging their bets.

Energy

Most energy plants still rely on oil, coal, and natural gas and, as a result, energy costs are dependent on the somewhat unpredictable prices for these limited resources. Plus, these energy companies can always get the maximum allowable price from consumers and small to midsize businesses with no negotiation power, so if they are selling most of the energy they are producing, and giving a big contract might require them to occasionally buy energy from the spot market during peak (heating/air conditioning) season, your big contract, that requires a big discount, is not attractive to them.

These are all economies of anti-scale. An economy where volume increases uncertainty (such as the short term contract for contingent labour who could be benched for long periods of time if hired by the contingent labour provider or the energy example), decreases profitability (such as the hotel example where having to give you a room during peak seasons cuts profit by 60% or more), or increases overhead cost per unit beyond a baseline is anti-scale. This last case includes any situation where customization is required or limited edition runs are required, as is common in jewelry or toys and games. Customization requires labour, and beyond a certain number of customized units, the provider would have to hire more labour who could not be fully utilized at the time of contract signing. This adds risk, and cost. Similarly, it does not matter how many limited edition collector cowbell* orders of 1,000 you put in if each requires a specialized mould to be produced. Each mould and line set up requires a fixed amount of time and that fixed overhead does not scale with more custom orders.

Thus, when sizing a spend opportunity, it’s important to first identify if you are dealing with a scale or anti-scale economy. There will typically be a much larger savings potential with an economy of scale than with an economy of anti-scale. Thus, if your organization is being measured primarily on savings, it’s important to identify those economies of scale categories as soon as possible.

* Even if you will always need more cowbell!