Category Archives: rants

The Logistics Industry Talent Shortage Is Its Own Fault

For years we’ve been hearing about the logistics industry worker shortage which, over the years, has had the worker shortage projection increase from a little over 100K when the shortage was first reported as bad in the mid 2000s to 1.4M jobs in 2018 according to a 2014 Fortune article. Now, not all of this is a driver shortage — some of this is a shortage of talent in high tech, analytics, robotics, engineering, seasoned managers, marketers, data analysis, and even human resources — but a significant portion of this shortage *is* a driver shortage.

But why is there a driver shortage, especially when the “un”official U-6 unemployment rate in the US, which includes all unemployed persons as well as persons marginally attached to the labor force plus persons employed part time who would like to be employed full time, is still 9.9%? (If you do the math, that’s over 31M people looking for at least some work … should be easy enough to fill a few hundred thousand driver jobs, right?)

Wrong. The shortage keeps getting worse. But why?

The answer is multi-faceted but one of the big problems is the double-edged sword of perception. How the general populace outside of the logistics industry views logistics and how the workforce inside logistics views the general populace. We will discuss both of these.

The first problem is that, in the US in particular, truck driving is seen as an unglamorous blue-collar job for those who are average, lack drive, and live in a trailer park. It’s not a job for the middle class or those who are part of the respectable community. It’s hard to get truckers if you can’t even get applicants.

But this is only half the problem. The other half is that truckers believe that their brethren should be like them — middle-aged men who like to share crude jokes in old-school truck stops and who fit the stereotype of the trucking industry. If a young women were to apply for the job, she’d have to put up with funny looks and crude, disrespectful jokes, on a daily basis. This is a shame, because now that the job no longer requires brute strength, it can be done by anyone, including a woman — who probably has better time management skills, a calmer head during traffic jams, and less tarnishes on her record (which is a statistical fact).

But, as per this great article over on the BBC on why don’t women become truckers, no matter where you go in the world, it’s the same. A woman driving a lorry gets funny looks and has to listen to unfunny jokes and has to listen to things like wow, I didn’t know women could drive trucks. But a woman can like driving a truck just as much as a man. And a woman who needs a job can be just as willing to drive one as a man. Especially if it was to be again seen as a respectable profession (which first requires people in the industry to treat others with respect).

If the perception improves, the industry can attract more truckers. There might still be a worker shortage, but it would not be nearly as bad if the industry was attracting applicants of both sexes on a regular basis.

Mass Adoption of Optimization via Modern Sourcing Platforms

In a previous post, we addressed three common misconceptions about sourcing. In this post we expand upon those corrections we provided to give you six pillars of a properly designed optimization-based sourcing platform.

The three pillars of a properly designed optimization-based sourcing platform that we addressed in our last post were:

  • Useable by everyone, including the most junior of buyers
  • Affordable as any other sourcing platform
  • Efficient, decreasing event set-up time by at least a factor of 2 to 3

In addition, an optimization-based sourcing platform is also:

Powerful

Optimization is powerful. A modern optimization engine can solve sourcing problems to 99.9%+ optimality in a matter of minutes, even if they require tens of thousands of variables and hundreds of thousands of equations to describe. The platform is effectively evaluating hundreds of thousands, or millions, of different award splits in a matter of minutes.

Valuable, more so than any other sourcing platform

Simply put, optimization gets amazing results. Even if the category has been negotiated repeatedly over the last ten years, and it looks like the savings opportunities are razor thin, with the ability to analyze more suppliers, more bids, more transportation options, more value-add options, more constraints, and more supplier-specified opportunities, optimization can often identify an additional savings of 10% or more. In fact, the year-over-year average savings from optimization alone on the categories it has been applied to has been clocked at 12%, more than any other sourcing platform.

Insightful

With optimization, you can create different scenarios, with different suppliers, constraints, and goals and see how the optimal awards differ as the problem definition changes. This inspires a sourcing analyst to look at the problem in different ways.

However, the first three statements in particular are only true if the platform used by default is an optimization-backed sourcing platform . Classically, optimization solutions have been implemented as stand-alone platforms. These were powerful, and when used by the right senior resources who set up the right sourcing events, these platforms generated amazing results, but they were very difficult and time-intensive to use compared to an e-RFX or e-Auction platform. The model had to be set up. RFX data had to be imported. The data had to be validated and cleaned. The model was then run, altered, and re-run until an acceptable baseline was found. Then multiple what-if scenarios were run until a final award scenario was identified. Then the award scenario had to be exported to the sourcing platform so the suppliers could be notified and the contract(s) drafted. All of this was very time consuming. As a result, the platform was not useable across the sourcing organization, was not very affordable as it had to be supplemented by other sourcing platforms, and this process was definitely not efficient.

For mass adoption of optimization, it needs to be supported by an RFX and/or an e-Auction platform for data collection, by analysis and reporting for result presentation and exploration, and needs to be integrated with contract management and the supplier portal for negotiations and communication. In other words, optimization is the engine that powers the modern sourcing platform, it is not a stand-alone solution.

That’s why a modern optimization-based Sourcing platform, and not a standalone optimization module, is the silver lining that Procurement has been waiting for. What does this platform look like? Stay tuned!

Optimization: What’s changed since 2009?

If you’ve done your research you have likely figured out that it requires a PhD to use optimization. That it is so expensive it should only be used by experts for high value categories. And that the time required to set up optimization for a sourcing event prevents you from using it for more than a handful of events.

All of the above statements were true in 2009. But these statements are completely false today, and have been false for a while now.

Let’s take them one by one.

Optimization requires a PhD.

Modern tools do not require a PhD, a Masters or even a Bachelor’s Degree. A properly designed optimization solution should be usable by junior buyers as it should hide the complexity and simply provide one-click evaluation. With built-in rules, workflows, wizards, templates, and other modern usability features, optimization can be as simple to use as an e-Auction on an average category for a junior buyer.

Optimization is very expensive.

While it used to be the case that optimization solutions were expensive, sometimes costing six (or even seven) figures for a single event, this was pre 2010. Today, mid-sized organizations can receive 40 events with unlimited users for that or unlimited events for a small number of users. Take your pick.

Optimization makes a sourcing event very time intensive.

Modern tools have intuitive web-based workflows to make event creation a task conducted in minutes. While it might take a long time to set up a complex event with dozens of suppliers, hundreds of line items, thousands of lanes, and hundreds of constraints, not all events are that complicated. Many categories are only bid to a few suppliers, need to be shipped using the two or three existing contract options, and don’t have a lot of constraints. This allows the model to be set up, the data imported, and a baseline solve completed in a matter of hours, not days. Moreover, if the model is set up as a template, it can be copied and reused over and over again, and setup is a matter of minutes. Done right, optimization decreases the amount of time it takes to set up a sourcing event by a factor of two or even three or four.

In other words, optimization has become mainstream and should be considered a default strategy for all sourcing events. And what does a modern solution look like? That’s the subject of our next post.

Should All Service Spend Be Subject to Procurement

Last week, Spend Matters UK ran a great post that asked “why do executives employ their friends as consultants”, which noted that one of the most problematical spend categories is professional services, and in some organizations, this is even more problematic than contingent labour spend, marketing spend, and legal spend. Why? Not only do some executives in some firms often engage senior experts and big 5 consulting firms on six, seven, and eight figure (plus) deals without any notice or without any respect for the process, but they often do so without any background checks or references whatsoever.

Sometimes, as pointed out by the public defender, the consulting firm or expert is being hired because the consulting firm or expert was hired in the past and did a great job, and, more importantly, there is a need for speed.

Sometimes, as also pointed out by the public defender, the budget holder is simply lazy. He knows the consulting firm or expert will do an okay job, and that’s good enough for him.

But sometimes, as documented by the public defender, there is an emotional dependence on the supplier, and that’s a good enough reason for the budget holder not to rock the boat, and other times there is a personal relationship, which is a great reason for the budget holder but not so great for the organization.

And sometimes, as clarified by the public defender, the reason is not a good one, or even a legit one. The budget holder might be making the award on the future expectations of a favour or because of a bribe and/or kickbacks that have been, or will be, received.

But if bribes and kickbacks was the worst situation that could happen, that wouldn’t be so bad. It would just mean that the award was costing the organization more than it should (and maybe significantly more than market average). If the work is quality, and identifies an ROI, that’s not too bad.

You see, if proper process, and due diligence is not taken, the organization could:

  • guarantee a large minimum payment regardless of work quality, completion, or dismissal (such as a 1M payment for early termination)
  • hire someone with a known criminal record for fraud
  • hire someone with known terrorist associations who will try to steal trade secret technology protected under a defence act

And if you think overpaying an average consultant who will take twice as long to produce an inferior result is bad, imagine how much worse each of these situations would be.

So, while maybe it is the case that not all spend should be under the control of Procurement, it is the case that all spend should follow the proper Procurement process under the guidance of Procurement so that all the facts, and options, are available to the budget holder. And since the CFO and CEO can be held criminally liable for certain oversights in the business, they should support this as following a good Procurement process and policy is the best CYA defense there is.

How Do You Value Cloud Services?

The clouds are here to stay. Whether they are dark nimbostratus storm clouds filled with hail or fluffy white cumulus clouds that dot the clear blue skies, they’re here. (That’s why the doctor recently co-authored a series over on Spend Matters Plus with the prophet on Supply Chains in the cloud.) Regardless of the doctor‘s opinion on whether your supply chain should be in the cloud, the clouds are sweeping supply chains up and the situation has to be addressed. (Thus, one has to do one’s best to insure that one’s supply chain is in the way of the right cloud.)

And while you should be well aware by now of how to cost a cloud-based platform, and compare it to a hosted ASP solution and an on-premise solution (as the referenced series and a number of posts here on SI have addressed this issue in detail in the past and even provided you with spreadsheet templates), you might not be aware of how to value a cloud-based solution.

When it comes to the cloud, valuation is a very difficult concept. There’s the hardware infrastructure and the reliability that comes from multiple locations that can store your data and run your applications. There’s the cloud-OS layer that handles real-time on-site and off-site data replication and back-up, automatic start-up of new processes and machines when a process or machine fails or becomes unavailable, automatic allocation of more processors and memory and storage when usage spikes, and so on. There’s the application layer that not only enables your processes but that is accessible anywhere with a data signal on any device your people happen to be carrying, that supports real-time data sharing and collaboration with your supply chain partners, and that supports innovative new capabilities not possible in on-premise apps.

There is a lot of value in each of these layers. Access to more hardware than you need, or can even afford, is valuable. Real-time off-site backup and failover is valuable too – compared to having to manually bring up an off-site location. And a better application with more capability and innovation is valuable too, but just how valuable?

In the traditional hardware world, the cost of filling a data centre is the cost of hardware plus the cost of a network engineer setting it up. Hardware is the cost of production plus a fair margin – there are enough essentially equivalent providers that costs are kept in check.

In the traditional software world, the cost of software is generally computed as the overhead cost of the company that produces it plus a margin that will produce an acceptable margin that the company can get away with based upon the perceived value differential between it and its competition that it can sell.

But the cloud is not set in the traditional world. In fact, the real-tine off-site backup and failover in a virtual OS layer didn’t even exist before the cloud. How much more valuable is having access to as many machines as is needed to power your application at full capacity at all times? While this power is known, failure — be it machine failure, power failure, or communication line failure — cannot be predicted and sometimes the entire application infrastructure must be ported in real time to a different part of the cloud.

And how much more valuable is having software that is maintained and regularly updated by the provider as compared to having software that must be manually updated and kept up by in-house development staff? Especially when that software might be capable of offering more real-time collaboration, real-time product tracking, market intelligence, and analytics than an on-premise platform. This is a much harder question to answer.

But one that should be asked. Just because a cloud solution is the cheapest alternative, that doesn’t mean that you are getting the full value you could be from your money. There are multiple providers, and they won’t all charge the same. Plus, if the technology is relatively simple, if its implemented as a true multi-tenant cloud based platform, and it doesn’t need to be updated very often to meet your needs, then the platform likely doesn’t cost the provider very much and may not have the value the provider claims if another provider offers essentially the same platform for three quarters of the cost.

There are no good answers here, but the questions should be asked and good answers should be expected before you commit to a solution, even if you are a non-profit that was donated a certain amount of cloud services — because you might not be getting what you think and may get hit with a big bill at the end of the year if your acceptance entails an agreement to pay for any usage above the donated amount of services.

Since there are no standards, providers are more or less free to “Value” services anyway they want, make extravagant claims as to support costs, and value a service at 5X its cost, or more. So be careful.