Category Archives: rants

(Strategic Sourcing Decision) Optimization: Can you afford NOT to do it?

Last week at reSouce 2008, Iasta (acquired by Selectica, merged with b-Pack, acquired by Determine, acquired by Corcentric) provided 5 optimization case studies of recent projects that they did for, or in conjunction with, their e-Sourcing clients (who have free access to basic Decision Optimization in a basic suite license as well as access to enhanced Smart Optimization, with extensive freight support that includes support for LTL and TL at buyer-defined freight brackets, for an additional fee). In one of the projects, they only saved a measly 5.5%! That’s only 55,000 of savings for every 1,000,000. Pocket-change to your CFO, right?

Well, in case you haven’t figured it out yet, I’m being sarcastic. Iasta not only proved the twice-discovered Aberdeen result that optimization saves 12%, on average, above and beyond e-Auctions, but that, for categories with untapped opportunities, this doesn’t capture the true savings that can be extracted from categories that can’t be efficiently analyzed without optimization. Although two of the projects were below 12%, at 7.0% and 5.5% in the worst case, three of the projects were not only above average, but two were considerably above average, clocking in at 35% and 40% savings, respectively. The first project was a new national roll-out for Dairy Queen, who would have spent 29% more had they gone with their pre-optimization strategy for award distribution, transportation, and inventory management. Instead, they walked away with approximately 1.8M in savings while reducing analysis time by over 2/3rds. The second project was a national award of temporary labor contracts for a large insurance company who would have spent 25% more had they used their traditional spreadsheet analysis methodology. Instead, they walked away with 20M in savings AND reduced the analysis phase by over 75% – completing a project that normally took over a month in less than a week. Furthermore, the project that only achieved 18.2% savings was also quite significant – as it was on a 110M hardware category for Conoco Phillips – who also walked away with over 20M in savings. I say “over” because the 75.6% cycle time reduction they achieved also allowed them to capture an additional 1.6M in savings because they were able to complete the project in 2 weeks, instead of the usual 6+ weeks.

Thus, I must ask you again – why aren’t 75% of you even considering optimization? Can you really afford to leave millions … if not tens of millions … on the table when prices are skyrocketing across the board, revenue is falling, and your job is on the line? Especially when a savings of even 5% on a 2M-3M category can be the difference between the company being able to afford your salary over the next year? (And, to be honest, the chances of you not racking up a cost avoidance of at least 5% with optimization on any category of even moderate complexity are quite low.)

Is it because you think it’s hard? Although I would have conceded this point to you even three years ago, and would still concede this point to you if you are using the wrong vendor who still believes that everyone can use a mathematical programming language interface, the fact of the matter is that some vendors, like Iasta who has put a lot of R&D into making optimization usable by the average buyer over the last few years, now offer solutions that you can be up and running on with only a day or two of training. Now, it’s true that you won’t master some of the more advanced features that quickly, but when even the basics will shave 5% to 10% off the total cost of the award, that’s one heck of a good start and your mastery will improve with each project you do. Furthermore, now that most vendors with UI-based optimization products, like Iasta, now offer you a multitude of options to get started, which include full service and guided support in addition to self-serve, you are free to start at your level of comfort. And when buyers with only a few months under their belts are creating scenarios beyond what people like myself could envision as model designers, and suggesting enhancements that experts like myself (who have been designing these types of solutions for eight years now) never even thought of, you begin to understand that it’s really pretty easy compared to the state of affairs of a few years back.

Of course, you do have to know what you are doing – and as I pointed out above, you do need a little bit of training. But it’s often a lot less training than you think, especially if you’re a self-starter (which you should be if you’re in sourcing these days) and willing to take steps to self-educate. In addition to readily available buyer-training (most vendors will give free demos, free support, and schedule training on short notice for their customers – and do it on your site if that’s what you want), there are also a number of resources out there that you can use to begin to understand what optimization is, what it can do, and how you can begin to use it. There’s the optimization archives on this blog, the optimization archives on e-Sourcing Forum [WayBackMachine], the optimization wiki-paper on the e-Sourcing wiki [WayBackMachine] (which also forms the basis for the chapter on strategic sourcing decision optimization in the e-Sourcing Handbook [e-Book available on request]), the Next Level Purchasing (now the Certitrek NLPA) podcasts (Parts I and II), and the extended transcript with commentary (as well as the introductory “purchasing tips” article). And your vendor, with extensive experience, will be able to help you identify relevant issues for any project you wish to undertake.

It might take a little bit of effort initially, but when your analysis time is reduced by 50%, 66%, and even 75%, it will be more than worth it … especially since successive projects will be faster still as you’ll already have the data templates ready for future projects as well as the basic scenarios you need to build and compare defined. Plus, you’ll have to do less projects to meet your savings / cost avoidance targets … which means that you’ll hit your bonus faster. And, if nothing else, isn’t that reason enough for you to take the leap?

As I have already fully disclosed, Iasta is a client and I am responsible for much of the model that their product (and Smart Optimization in particular) is based on, but the UI innovations are entirely Iasta’s, as are the results reported.

Twitter

To the tune of Strutter by KISS.

I know a thing or two about it
I know it’s only for the brief
It lets you send texts to the masses
As long as you can speak in tweets

Everybody says its looking good
But I know they’ve misunderstood
Twitter

It claims to be web 2 point zero
But I know its just web point one
You send a text and it says maybe, Nero
Then the next one causes Rome to burn

Everybody says its looking good
But I know they’ve misunderstood
Twitter

I know a thing or two about it
I know that it’s not for the wise
Spend your whole life speaking sound-bites
Like celebrities high as a kite

Everybody says its looking good
But I know they’ve misunderstood
Twitter
Twitter
Twitter

Supply & Demand Chain Executive: Mapping the Global Enabled Supply & Demand Chain with One Eye Closed

A month or so ago, Supply & Demand Chain Executive released version 12 of its “Global Enabled Supply & Demand Chain”, accompanied by it’s interactive version, which for some reason has an accompanying version number of 14.

Since they are proclaiming themselves as the go-to-source for complete knowledge and information on end-to-end supply and demand chain solutions, I thought I should check it out. And if you don’t mind missing out on 95% of the space, they sure are!

At first glance, the map looks just as impressive as always, breaking companies down into procurement, sourcing, order demand capture (which is really part of procurement), decision support circles (which scares me … do you really want to be using circular logic in your souring and procurement decisions?), PLM, fulfillment & logistics, supply chain integration & technology, payment, and CRM (huh?). Each group (except for CRM) appears to have at least 10 companies. But looks can be deceiving, and in this case, they are! If you take the intersection of each of the groups, you find there are only 28 unique solution providers – and most of them DON’T offer as many solutions as the map would lead you to believe (or at least not to the depth that I think is required to qualify as a solution provider in a given category). Furthermore, there appears to be a one-to-one match between the 28 unique solution providers and the index of advertisers on the back. Disturbing to some, no doubt — including yours truly.

Needless to say I’m even less impressed than I was with the fact that their Pros-To-Know candidate list is largely based on self nomination. I completely understand their need to give their advertisers their due – they’re a traditional publication with traditional costs and they need large amount of traditional dollars to pay those costs.

But you can’t eliminate at least 95% of the supply chain (let’s face it – there are at least 540 companies out there that can help you: I’m currently tracking over 450 on the resource site, and I can guarantee that the consulting, logistics, PLM, SCM, and inventory & warehousing categories are only a sampling of what’s out there) and still be the go-to-source for complete knowledge and information on end-to-end supply and demand chain solutions. Either you’re there for the readership, or you’re there for the advertisers. There’s nothing wrong with the latter, but you should be 100% clear if you are.

But maybe I’m expecting too much.

Web Marketer, Don’t Be Misled!

In the spirit of April Fools, I’m going to play a dirty trick on all of the web sites that play a dirty trick on you, by exposing the dirty little secrets they don’t want you to know about. (Why? Because I’m sick and tired of people believing the hype that only “hits” matter, or, more specifically, only the quantity thereof matters. I’d hoped that many of you would have heeded the wise words of The Brain, but it’s clear to me that many of you haven’t. So here it is in layman’s terms.)

A. Hit counts can be wildly inflated – with ease!

Don’t believe me? Here’s a list of ways you can increase your hit count, with very little effort on your part.

  1. Use a web analytics tool that counts every embedded link as a unique hit.
    Some analytics tools will (by default) count every unique request, which includes every image embedded with a page and every embedded page in a frame set, as a unique hit. If you go heavy on images and frames and use such a package, you’ll see your hits spike overnight!
  2. Use a third party e-mail digest service to publicize your RSS feeds.
    Most of these tools can be configured to include images and links directly from your websites, and most people use e-mail clients (like Outlook) that automatically load images in e-mails for preview, whether the emails are actually perused or not. So, lo-and-behold, multiple hits for every e-mail, even if it isn’t even read!
  3. Use paid-per-click advertising on community, link, and warez share sites.
    • Warez communities will support their favorite sites by clicking a paid-per-click link, and then ignoring whatever pops up.
    • There are link-share link-protector sites that people use to share links because they get paid for each page visit — each page includes nothing but an ad, and unless the ad is clicked on, the visitor will have to wait a minimum amount of time to get the link. However, experienced surfers will again click, close the pop-up, and continue to their link.
    • Warez sharing sites support their bandwidth costs by forcing users to click on ads — but, as above, users get very good at closing the pop-ups with hot-keys as fast as they click on the links.
  4. Include content on a popular topic, even if it’s unrelated to your site.
    Nobody wants to read about your love of teddy bears in leather jackets? No problem! Include a few pages about Britney’s love of teddy bears in leather jackets. (Of course, you risk a stern warning letter from her legal team, but you can always take the page down after your hit count skyrockets.)
  5. Allow people to comment on the ire of the day.
    Nobody is interested in a conversation about the foraging habits of lemmings? No problem. Add a post about how even lemmings won’t jump off a cliff for Vista (and be sure to include Vista in the post title), then watch your hit count, and comment count, skyrocket. (Of course, there likely won’t be a single useful comment as it will just be the gripers griping and the Microsoft plants extolling the virtues of Vista, but who cares, you got an exponential increase in hits!)
  6. Offer Free Stuff!
    Some people have nothing better to do than try to collect and win free stuff on the internet. Offering even a single free iPod to one lucky visitor during the month of May will attract a lot of hits if your offer is legit and people trust that it is.
  7. Include a web-cam feed that updates every few seconds.
    This will force part of the page to refresh every few seconds, and generate a new hit. Don’t have a web-cam? No problem. Borrow a feed from a random live public webcam somewhere on the net.
  8. Set-up a bot on your home network to automatically visit the site on a regular basis.
    And while you’re at it, if you’re like most subscribers on cable ADSL service, set up your router to drop and request a new IP address on a regular basis. Watch your hit count explode!
  9. Link-Share Mania!
    Find as many link-sharing sites as you can and trade links. Focus on those that have a “link of the day” and agree to cross-promote using your own “link of the day”. A single link-share won’t do much, but an aggressive campaign will keep a revolving door of visitors rotating in, and out, of your site.

I could go on, but this e-mail is getting long …

B. A hit from just any boor isn’t going to do you a damn bit of good.

If you’re a vendor perusing this blog, chances are you’re selling enterprise software and services – not selling CDs and DVDs to web surfers who make the occasional impulse buy. Although the same person who signs the enterprise software check might also buy the occasional CD and DVD online, 99.9997% of random web-surfers are not CFOs with check signing authority. And of the 0.0003% who are, they’re not going to click an “add to cart” and buy your product on-line. It’s not a numbers game. 100,000 clicks from boors aren’t going to result in a single lead for you, direct or indirect. Contrariwise, 10 clicks from people genuinely interested in the types of solutions you have to offer are.

Enterprise software buying decisions are made in boardrooms – where proposals from identified and subsequently qualified vendors are evaluated. Vendors aren’t even invited to submit a response to an initial RFI unless someone at the company indicates that their knowledge of the vendor leads them to believe that the vendor might be able to offer an appropriate solution.

Enterprise software buying decisions are made by busy people – many of whom don’t have a lot of time to do a lot of web surfing. These people visit a select few trusted sites every day, and only branch outside that domain when forwarded a link from a trusted colleague or subordinate – and only if they think the link will be of relevance.

C. You need consistency.

A site that employs many of the above tactics will get a lot of visitors every day, but how many of them will be repeat visitors? The age we live in should probably be called the advertising age because we’re now blasted with more ads per minute than advertisers of last century ever thought possible. A single impression of your ad is not going to be that memorable – especially when you’re selling a product that is only bought once every few years. You need to be sure that you’ll be remembered when the appropriate buying cycle comes up – which might not be for six, nine, or even eleven months if the buying window just passed. It’s going to take multiple impressions to get into a potential buyer’s long term memory – and that takes regular, repeat visits.

As you have probably figured out by now, Sourcing Innovation doesn’t play any of the hit-increasing games above. Here’s why:

  • SI is interested in not only how many visitors it gets a day, but how this number holds up over time.
    Although deploying the above tactics would get considerable short-term traffic bursts, not only would most of this traffic not come back, but it could also alienate some regular readers who constitute the very market you should care about.
  • SI wants visitors who care about sourcing and procurement and supply and spend management and want to do it better.
    Isn’t that the type of customer you want?

Should You Recession Proof Your Business … or Idiot Proof It?

Industry week recently ran an article on how to “recession proof your business” by three authors that had a rather interesting take on how you go about this. According to the article, you start by identifying the tribes that constitute your business and determining where they are in their sociological progression. If they are in the “life stinks” (stage 1), “my life stinks” (stage 2), or “I’m great” (stage 3) stage — where the latter is said to be the case for 48% of workplace tribes in the U.S., then the consensus (of the authors) is that your business won’t survive the recession.

It’s obvious that a “life stinks” and “my life stinks” mindset is a recipe for disaster. But why is a “I’m great” mentality mindset insufficient? As the author’s note, this is where the theme is “I’m great, and you’re not”, people at this stage have to win, and winning is personal … they’ll out-work, [out-]think and [out-]maneuver their competitors, and the mood that results is a collection of “lone warriors,” wanting help and support and being disappointed that others don’t have their ambition or skill. As I’ve mentioned before, the day of organization man is over … it’s the era of networked person, who’s a team player.

In comparison, a tribe that has reached the “stage 4” mindset, where they believe that “we’re great”, have evolved beyond a loose organization of lone-warrior organization men into a tightly knit organization of cooperative networked persons. As the authors note, they are nimble, innovative, stress-resistant, and adaptable — the qualities that help them do well no matter the circumstances. They align on core values, build strong relationships, and develop plans in real time — the key to the responsiveness needed to navigate the troubled waters of a downturn and the uncertain demand that it brings.

Thus, the authors contend that the best way to “recession proof” your business is to do what it takes to help your team reach “stage 4”. Now I’ll agree that this is a necessary factor for success, and one of the keys to surviving a downturn — but, I hate to say it, it’s not necessarily sufficient. It takes a good team — but this team needs good data, good technology, great support, and resources. If your team doesn’t have good data, how will they make good decisions? If they don’t have the technology they need to capture good data and analyze it in real-time, how will they be able to take action with any confidence? If they don’t have your support, how likely are they to be willing to put their neck on the line when it counts most? But most importantly, if they don’t have the resources, and more importantly, if you don’t have the resources, does it matter?

Innovation, enabled by an innovative team, is the best way to survive a downturn and come out as a market leader, but that team is going to need good systems, good management, and the resources to ride it out. That requires you to be running your company appropriately in the first place — to be making smart long-term decisions on a regular basis and spending the corporate coffers responsibly. If you’ve been following the market, throwing money away like the boom is never going to end, making bad decisions year after year, or acting like an Enron or Boo.com (remember them? — if not, look them up) — in short, running your business like an idiot, then chances are that a great team is not going to save you — because, at this point, there won’t be enough of your company left to save. And when it comes right down to it, if you’ve kept your team free of idiots, there’s a good chance that your teams quickly achieved “stage 4” on their own — which would mean that your business is already recession-proof. So isn’t the answer to idiot proof your company?