Category Archives: rants

Get Malled in Bangalore

According to CNN (Money), Indians are no longer satisfied with buying Pantaloons from stand-alone retailers and want to buy all sorts of gadgets from western-style shopping malls. Which is understandable, after all, how likely is it that they will get to buy Pantaloons from Christopher Walken? (Don’t get it, Google it or get out more.)

Apparently all our outsourcing in IT and services has led to the rise of a new middle class in India’s Silicon Valley and they have an urge to spend this new found wealth. As a result, developers are going mall crazy and coughing up oodles of cash for mall development. For example, Sobha Developers is spending $250 M on the Sobha Global Mall, a new shopping paradise to be built around a skylighted atrium on 16 acres and include a 13-screen multiplex, food courts, a rooftop disco, a 300 room hotel, and enough parking for 3,400 cars – in a country where only 4.5% of households have a car (even though there are 12 vehicles per 100 people – highlighting the fact that only the super rich own cars and that those that do often own multiple). Furthermore, there are only 1.5M km of paved highways as opposed to 4.2M km of paved highways in the US, despite the fact that India has 1.1B people compared to the United States’ 300B.

Which, of course, leads me to wonder about the wisdom of investing $250M on a one-of-a-kind experience for the shopper. A shopping paradise sounds great, but how likely is it to be profitable when there is a cost of maintaining a huge parking lot in a country where your average citizen cannot afford a car and where those that can don’t have the roads to drive on? And how profitable is the food court going to be with brand names such as Burger King and Taco Bell in a country where most of the citizens do not eat beef? Maybe they’re planning for the future, like 2020 when the average Indian income will be four times what it is today. But that’s a long time to wait for a return. Makes you wonder.

The Real American Fat Farm

Why does America have an obesity problem?

Because junk food is cheaper than health food, and when your average American is on a budget, especially a tight one, the most rational economic strategy is to eat badly – and get fat.

Why are a pair of Twinkie’s cheaper than a bunch of carrots?

Because most junk food is a clever arrangement of carbohydrates and fats teased out of corn, soybeans, and wheat – crops that are typically overproduced relative to American needs. Thus, these foods can be produced more cheaply than other foods.

Why do farms grow so much corn, soy, and wheat?

Well, despite what you might think, it’s not another biofuel blunder – but a blunder of the most basic kind. Policy. The current farm bill supports five commodity crops: corn, soybeans, wheat, rice, and cotton and agricultural policy has been designed in such a way as to promote the overproduction of these commodities. Basically, the current farm bill cuts farmers a check based on how many bushels they grow rather than by supporting prices and limiting production. This results in a food system awash in added sugars (from corn) and fats (from soy) as well as cheap meat and milk (from soy and corn). In comparison, it does almost nothing to support farmers growing fresh produce. The proof, as they say, is in the pudding. Between 1985 and 2000, the real price of fruits and vegetables increased by nearly 40% while the price of soft drinks (liquid corn) dropped by 23%.

A public-health researcher from Mars might legitimately wonder why a nation faced with what its surgeon general has called “an epidemic” of obesity would at the same time be in the business of subsidizing the production of high-fructose corn syrup. But such is the perversity of the farm bill: the nation’s agricultural policies operate at cross-purposes with its public-health objectives.

But that’s only part of the problem! The farm bill also impacts what children get served at school. The state-of-affairs is such that a lunch program that tries to prepare a healthy meal with fresh food is likely to get dinged by U.S.D.A. inspectors for failing to serve enough calories, but if the same program dishes up a lunch of chicken nuggets and tator tots, the inspector smiles and cuts a check. In other words, American children are the human disposal unit for all the unhealthy calories the farm bill encourages American farmers to overproduce. So, as the New York Times points out in their article You Are What You Grow, America does have a Fat Farm – the public school system!

Fortunately, the public-health community has recognized this and, along with a number of other communities, is endeavoring to do something about it. Let’s hope they succeed, and that you give them your support, or they may have to rewrite the pledge of allegiance to “… one nation under God, indivisible, with twinkies and ho-hos for all!”.

P.S. Kudos to Aptium Global’s Tony Poshek for bringing this article to my attention.

My Responses to Emptoris

Since the blog software trashed my formatting, here are my responses to Emptoris’ “Setting the Record Straight”* on Spend Matters [WayBackMachine].

Response, Part I

(1) They should read the post again.

(a) I said MindFlow was in many ways far superior, that MindFlow had a better sourcing model, and that it contained many elements that should have been incorporated. In other words, it had, to the best of my knowledge at the time JB asked me to write my post on “The Optimization Doc’s Perspective on Emptoris”*, better features. It DID NOT have a better engine. I even acknowledged this during the great debate last summer in “Old News Keeps Flowing”. As you well know, there’s a difference between what the model supports and what the underlying engine can solve. The Emptoris engine, being based on a current version of ILog CPlex, with custom in-house extensions, is superior.

(b) I did not state there was a limit as to the number of constraint instances the Emptoris solution could handle – I simply quoted an article indicative of a representative large model the engine has solved.

(c) There is a difference between stating I did not see much progress in the product with respect to the information available and stating that a development team has been resting on its laurels. The reality in a software company is that

  • a team could be working its butt off, innovating like crazy, but have its work delayed or cut from a release, or three, because product management feels other enhancements are more important, schedules are tight, and there is not enough QA to cover everything and
  • considering the skills required to build an optimization solution, it’s often the case that these individuals are among the company’s best developers, and they could have been reassigned to the complex analytic algorithms of the spend analysis solution.

My observation was on the product, not the team!

(2) Their marketing person could be a little more honest in the fourth paragraph … although, in my opinion, they did retain the best product management talent a company could ever hope to acquire, by the time the acquisition completed, MindFlow management had let go of almost all of its engineers, including some of the best software developers I’ve ever worked with. That being said, Emptoris did acquire all the IP, code, design documents, research, notes, etc. … and their team is definitely competent enough to make use of any innovations Emptoris did not have at the time of acquisition.

(3) Emptoris is correct in that:

( a) MindFlow did not identify conflicting constraints … glad to hear their product does that now – this is something that should be advertised, as the only other solution I know that does this (or at least does it well) is CombineNet

( b) MindFlow did not do sensitivity analysis automatically (but this really isn’t too hard to automate, at least with respect to their definition)

(c) MindFlow did not support counts (it could have, the base functionality was there, but the architect chose not to build on it)

(4) Emptoris is mostly correct in that:

( a) MindFlow did not identify secondary suppliers;

it wasn’t automatic, but you could create a “what-if” scenario off of the original, exclude primary suppliers, and get secondary suppliers

(5) Emptoris is not correct with respect to:

(a) MindFlow did not support Step Volume Discounts;

the last version of the model did, but I seem to recall it was not obvious through the UI that it did

(b) MindFlow lacked supplier-specified capacity constraints:

it had them, but, as with the bundles, the buyer had to create them

(c) MindFlow did not have an ability to specify a limit on attributes other than price and quantity;
it did by way of the qualitative constraints, but it was not as straightforward as it could be

(6) I cannot comment on:

(a) “handling of delivery constraints”, as I do not know precisely what Emptoris means by that

(b) bid adjustments on any numeric value; this is easy enough to do, but it requires front-end as well as back-end support, and I do not know what was ever done on the front-end in that regards in the MindFlow solution; I’m guessing not much

(7) If Emptoris now has

( a) alternate support,

( b) ship-to support,

( c) automatic conflict constraint identification, and

( d) flexible attribute support then

(i) their solution is more powerful than any analysis of easily, and not-so-easily, locatable public information will lead one to believe and

(ii) they should be advertising this information, since it clearly sets the solution apart from the vast majority of other optimization(-based) solutions out there.

(8) As per my previous comment on Spend Matters in “The Optimization Doc’s Perspective on Emptoris”*, I was not evaluating the overall Advanced Sourcing Service. I was focused only on what JB asked me to focus on, the optimization component. I have also analyzed the entire offering, with respect to everything I know, and that was my last post.

(9) As for their final paragraph, I fully understand why they should not want to brief me, and more important than the points they list, is the missing, unwritten, point (3): as an optimization expert, if you simply provide me with an idea I did not have before (they did not in this post, but I have to admit a few things they mentioned I only started thinking about seriously within the last year or two), then there is a good chance I could figure out how to do it on my own.

With respect to their points (1) and (2), that is unfortunate, since it also implies they can no longer brief JB either, as he also consults with their competition from time to time, and his blog is the only blog in the space that is read more regularly than some of the big publications! (I’m getting more hits everyday, and I believe more than many of the blogs in the space, but SpendMatters has over a year on me and still holds the top spot.)

(10) I’d like to see more posts from Emptoris in the future! I know the Emptoris philosophy is more along the lines of “share as little as humanly possible”, but I’m of the opinion that if you have something good, you shouldn’t be afraid to show it! It certainly helps analysts and buyers figure out where you stand from a competitive perspective and reduces the FUD factor, and, I assume, would also help sales, since people would see where the application is better and better suited to their needs.

Response, Part II

Their Edelman paper – “Reinventing the supplier negotiation process at Motorola (Internet enabled supplier negotiations software platform)” – does not help a user as much as their post does. (As the post outlines a few capabilities that the MindFlow model did not have.) It only proves that as of 2004, although they had a better engine than MindFlow, they did not necessarily have a better model.

Emptoris MindFlow
Key dimensions: Suppliers, items Key dimensions: Suppliers, Products, Ship Tos
Item Substitutions Native Model Dimension
Tiered Bids Tiered Bids
Discounts / Rebates Discounts / Rebates
Penalties (Missed Terms) Usage Costs
Bundles Bundles
Min/Max Suppliers Supplier Risk Mitigation
Preferred Vendor / Minority Award /

Offset Proximity Award / Min-Max Award

 General Purpose Group-Based

Supplier Allocation by Volume
Budgetary Limit Award Group-Based Supplier Limit by Cost
Non-price Factors / Switching Costs General Purpose Fixed Costs
Supplier Qualification General Purpose Exclusions
Split Award Generic Meta-Allocation Constraints
Terms Support General Purpose Qualitative Constraints

For those readers who want to read the details for themselves, and if you are interested in an optimization solution, I would encourage you to do so, below are some links you can use, as the link Emptoris provides simply takes you to the INFORMS presentation abstract. The first link is free (after you sign up for an account if you don’t have one), but since it is a plain text link, it is missing the figures and a few of the more sophisticated equations. The second, Goliath, link is free if you are a member ($19.95/month), or $4.95 otherwise. (It looks like it may be text-based also, so I’d be wary of buying the article from this source, but I would check this link first if you are Goliath member.) The last link is Emerald, and I believe it will provide a true copy of the original article, but it is the most expensive, at a GBP of 14.50.

Access My Library (no longer available)

Goliath (no longer available)

Emerald

Although they likely cannot comment, with respect to the following paragraph from that paper, I’d be very interested in knowing how they overcame the over-aggressiveness of the implicated CPlex pruning algorithms to improve accuracy and increase the chance you truly are finding an optimal solution without sacrificing performance. Was it simply extensive trial and error and incremental parameter tweaking, or did they uncover a hidden secret of CPlex?

“Some of the rules had straightforwrd linear formulations, while others, such as complex discount structures, were nonlinear and also required very large coefficients that in most cases introduced numerical instability. We had to reformulate them to make them tractable and still accurate. The resulting MIP formulation was very complex and in many cases, especially for large auctions, was not readily solvable by commercial optimizers. We then introduced heuristics that reduced some of the problem coefficients, guided by the branch-and-cut strategy using knowledge of the specific problem structure, took advantage of the variable dependency, and iterated the solution to improve accuracy without increasing complexity. In addition, by using the appropriate settings of numerous CPLEX integer solve parameters, such as diving and probing, we further improved performance. Altogether these actions produced robust and scalable solutions, allowing the software to solve problems with hundreds of items and thousands of bids in a few minutes.”

My experience with CPlex is that it’s aggressive branch-and-bound pruning algorithms can be fooled even by small models. And it only gets worse in version 10. I have evaluated/constructed a number of small models that solve in less than a 10th of a second using default algorithms in CPlex (on a reasonably high end server), but whose accuracy is off by close to 1%. In comparison, other solvers solve these same models in less than a second (although three to seven times slower) and reach true optimality. Although users want fast solutions, depending on model size, and scenario value, I believe most will wait a few extra seconds or minutes for even half a percentage point, since this translates to 50K on a 10M scenario. In other words, I’m curious as to whether or not they have made any non-resource intensive significant advancements with regards to controlling trade-off in solution-time vs. optimality.

Addendum

I agree with Jason Busch when he says that regarding consulting to or advising different companies in the sector, I would strongly urge all bloggers, analysts, and journalists to disclose any and all past and current commercial affiliations just as Michael and I do on our blogs. For those who are interested, these links are here, as well as on the sidebars of our blogs.

Spend Matters Disclosures* (original may not be available, but Jason Busch maintains a page for his clients upon request)

Sourcing Innovation Client Disclosures and FAQ

The Talent Series XI: The War is Still Going Strong

Just in case you missed it, I wanted to point out the recent article declaring that there is “no end in sight for the ‘war for talent'” over on the European Leaders Network site.

According to the article, the ‘war for talent’ in procurement is being fought as fiercely as ever on battlefields as diverse as Mumbai, Shanghai and Singapore and that a recent survey from McKinsey suggested the logistics industry is facing an annual demand for 75,000 employees, not a huge number until you consider at present, the industry graduates just 5,000. In other words, the demand is fifteen times as great as the supply!

The article concludes by noting that the next 12 months do, however, promise to offer further challenges to an industry function that has come a long way but still has further to travel and whether it’s changing the mindset of existing procurement staff, to ensure that strategic thinking becomes second nature, or attracting the new breed of employee necessary to drive forward change at an exciting time, the ‘war for talent’ shows no sign of abating.

What I’m wondering is why all these articles that acknowledge the war is worsening fail to mention that good eSourcing and eProcurement systems can help these companies by allowing their current staff to do significantly more with less while they search and fight for new talent. (And, more importantly, when are companies north of the border going to realize this fact? I’ve been back in Canada for three and a half years, but have spent the last two and a half working exclusively with companies south of the border.)

The Biofuel Blunder

Normally biofuel is the right choice. I discuss it in almost all of my green posts and Tim Minahan has also blogged a post or two on Supply Excellence [WayBackMachine] extolling it’s virtues (e.g. “The ethanol debate: A supply management view”).

But there’s more than one type of biofuel. There’s the kind that powers your car – and there’s the kind that powers you! (After all, we’re biological organisms that need fuel too!) And you should never put your car ahead of yourself.

And more importantly, you should never put someone else’s car ahead of a German’s need to drink! I don’t know about you, but I wouldn’t want to be the reason Hans and Franz can’t have their suds after a long day at the gym! Might inspire a whole new meaning to pump you up.

But that’s just what farmers are doing in Germany. After an extremely poor barley harvest in 2006, many farmers are converting their fields to rapeseed, a common ingredient in biofuel. As a result, production is dropping and prices are going up in a country where the average daily consumption of beer is 111.6 litres per head, equivalent to every single man, woman, and child drinking a 0.31 litre glass everyday.

That’s a lot of beer … and a lot of angry Germans if prices spike and they can’t afford their beer anymore. I wouldn’t want to be standing across from that angry mob!