Category Archives: Services

eSourcing Communications

Avotus recently released a whitepaper on “eSourcing for Communications” and Why You Need More than Ariba (acquired by SAP), Procuri (acquired by Ariba), and SAP‘s Frictionless Commerce.

According to the white-paper, sourcing and procuring business-critical products and services such as voice and data communications requires a solution specifically designed for the complexities of that environment. This is because the communications market is changing and creating new and unique challenges, modern communications system configurations are becoming more complex, and market pricing is difficult to determine without the proper infrastructure and expertise.

Some of the difficulties that the paper points out are:

  • long procurement cycles for new communications contracts
  • incorrect or incomplete implementation of new contracts
  • limited or no visibility into corporate communications infrastructure and usage
  • lack of an automated system to verify, reconcile, and pay communications invoices
  • negotiations with carriers may elicit a rock-bottom price but this price may not necessarily encompass high quality service levels or accurate implementation and billing

Furthermore, it points out that an organization must specify the scope of the project, the exact network connections, technologies, and locations, including demand volume, and terms and conditions, including required performance levels for the services, in order to obtain a worthwhile bid.

The report then claims that general purpose systems, built around a commodity and single-purchase structure, do not have the ability to handle the kind of complex relationships that are typically involved in communications environments.

And although this paper provides a lot of good advice on communications procurement, this is one point where I can’t agree. (Although I understand why they would argue it – since they provide a communication analytics solution.) Here are six reasons why I disagree:

  1. If you break down your needs into the network connections required by technology and by location, then, assuming you specify the required service and performance levels and capture the associated performance levels specified, you can ask suppliers to bid by technology and location and allow an apples-to-apples comparison on bid components.
  2. Most leading RFP technologies allow for the specification of bids on a line by line basis, and the leading ones will allow qualitative factors (such as service or performance levels) and tiered bid structures or discounts to be captured.
  3. A true sourcing decision optimization tool will allow for the construction of a scenario that takes into account all component costs, discounts, and relevant service levels and produce a hypothetical optimal solution by technology and location. This will allow the buyer to determine which provider is the most cost-effective in each location and each technology and evaluate the strengths and weaknesses of each bid.
  4. The best way to get a great deal in communications is to understand where the best deals are to be had, not in network design or vendor selection – since a well-designed network is a cost-effective one and most vendors will be cost-competitive when they want your business. This requires a spend analysis 2.0 tool, not a customized RFX, usage tracking, and invoice management platform.
    Take cell phone usage for example, the utilization across your user-base will lie on some variant of a bell curve – with most of the users being near the middle. The best way to get a great deal is to use a great spend analysis 2.0 tool like BIQ, find out what the median user base is, ignore the low and high utilization users, and cut a great deal on a plan for the majority. For the minority, if they are low utilization users, just don’t give them a phone (and keep shared phones on hand for when they travel and actually need a phone), and if they are high utilization users, figure out if they actually need the phone that much. If they do, get them individual plans on a case-by-case basis, and if there are enough of them, negotiate a different deal with a different carrier.
    For regular phone lines, analyze your historical usage data to better qualify your needs by technology and location, identify your best performing suppliers, and compare the bid results of your top suppliers (as identified by your decision optimization tool) to determine who to negotiate with.
  5. Usage management and invoice reconciliation is important, but it too can be done with a spend analysis 2.0 tool that allows you to build cubes on the fly from all relevant data.
  6. A good spend analysis tool connected to an appropriate marketplace with a database of all standard vendor pricing can be used to gage the true market price.

Nevertheless, they do have a decent recommendation for a telecom procurement cycle:

  1. Design the specific network required
  2. Decide which vendor(s) is (are) capable of providing the required services (at the required performance levels)
  3. Source the network and negotiate the contract(s)
  4. Begin the many coordinated provisioning projects to implement the designed network
  5. Order the services from one or more vendors depending on network scope
  6. Indicate acceptance (or not) of the individual service components
  7. Receive and validate the invoice(s) during the entire life of the network … from the first circuit installation to the last circuit disconnect.
  8. Change network scope through service additions, changes, and disconnects as the business dictates.
  9. Before the contract expires, determine latest scope of inventory, usage, and costs.
  10. Begin the sourcing process again sufficiently before the end of the current contract to ensure adequate time for proper vendor evaluation and selection, should a change of vendors be required.

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

An Optimization-Free Emptoris Advanced Sourcing Service Analysis

My analysis of Emptoris’ (acquired by IBM, sunset in 2017) optimization capabilities based upon publicly available information have already been posted over on Spend Matters [WayBackMachine] (in “The Optimization Docs Perspective on Emptoris”*) as well as Emptoris’ Response* on Spend Matters  and my follow-up comment, so I’m not going to repeat it here. What I am going to do is attempt to analyze their new Advanced Sourcing Service offering based upon publicly available information (as I am not among the lucky few who have had the opportunity to see and discuss the offering).

The offering is described on their website. The information provided is the following:

  • It combines Infrastructure, Event Management, Strategy, and Expertise with Advanced Analytics
    • Infrastructure is defined as data collection and management
    • Expertise is defined as best practices, technology, sourcing cycle, and category expertise
    • Strategy is defined as a custom consultative approach for strategy development, event design, & build out
    • Event Management is defined as supplier training, executive reporting, and post event analysis
  • Buyers can define specifications, business needs, and preferred options
  • Suppliers can respond with their unique advantages, competencies, and alternatives
  • The solution can reduce sourcing cycle times by up to 75%
  • The solution can handle a project with over 130 suppliers, 275K bids, 77K lanes, and hundreds of business constraints and preferences
  • It targets transportation, packaging, print, fleet management, and related categories where the savings potential is in the 14% to 23% range
  • The offering includes opportunity identification through spend analysis and drill-down micro-analysis

An external web search turns up a number of articles that summarize the press release, but none of them add anything new. (For the links, run this google search.)

About the only original analysis I can find to-date on their new offering is over on Spend Matters:

  • “Emptoris Makes Some Noise Ahead of Sapphire”*
  • “Should Emptoris Be Wary of SAP ESourcing”*

where Jason points out:

  • While not automated to the same degree as Zycus’ new analytical and bubble chart visualization tools, the solution does make Emptoris spend visibility solutions that much more pragmatic and results driven.
  • Emptoris appears to be headed on a direct collision course to SAP
  • Emptoris’ sourcing and contract management capability remains significantly ahead of SAP
  • Emptoris has latched on to supplier performance management and development

From this, I would infer that Emptoris has integrated their Spend Analysis, RFX, Supplier Portal, Decision Optimization, Reporting, and Contracting Management solutions with best-practice templates into one work-flow driven stream-lined end-to-end solution offering that can be driven by a buyer or on of their services professionals.

Furthermore, given that:

  • Their recent update to their spend analysis platform (late last year) produced an application that is competitive with those offered by Ketera (acquired by Deem), Procuri (acquired by Ariba, acquired by SAP), and Zycus.
  • Their new contract management offering, based on a globalized integrated version of the platform they acquired from Dicarta, is competitive with those offered by iMany (acquired by LLR Partners), Nextance (acquired by Versata Enterprises), and Upside (acquired by SciQuest, rebranded Jaggaer).
  • Their RFX capabilities have always been on par with other traditional providers, such as Ariba, Oracle, and SAP and I have it on good authority that they’ve been working hard on ease-of-use and that usability is now close to or on-par with the on-demand providers such as Iasta (acquired by Selectica, merged with b-Pack, rebranded Determine, acquired by Corcentric) and Procuri (acquired by Ariba, acquired by SAP). Plus, not many providers have taken the time to build up a large library of ready-to-go best-practice templates.
  • They have a strong services arm, with their on-shore organization backed up by off-shore organizations with multi-lingual capabilities.
  • They have a decent supplier portal and are working hard on improving their supplier management and development capabilities
  • Although I still do not know if I would classify their optimization capability as advanced, they are still one of the (very) few providers to actually have a good, sound, and true decision optimization solution as per my recent No Advanced Sourcing at Oracle post and they do have a few capabilities that very few competitors have.
  • They have a lot of experience working with large companies (which is the majority of their customer base), and their infrastructure management capabilities are solid.

It is likely that their solution offering is quite good overall – and definitely better than what Oracle or SAP are going to be offering in the near future. Furthermore, their claims of up to 14% to 23% savings and up to 75% reduction in cycle times are not inflated, and are backed up by independent Aberdeen and CAPS studies, among others.

Thus, if you are comfortable with an installed or hosted single-tenant ASP model and the price-tag (whatever it may be), it’s certainly worth considering, especially if you do not have an e-Sourcing solution in place.

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.

JVKG … Who?

SpendMatters unveiled its new sponsor today, the JV Kelly Group, a professional services firm headquartered in New York that specializes in developing and implementing innovative spend management solutions and effective, measurable procurement results that Jason Busch has called a best-kept Spend Management secret.

All I can say is that thanks to their innovative investment in the supply and spend management blogsphere, the cat’s out of the bag now. Within a week, I’m sure everyone, or at least everyone who matters , will know who they are – especially with five or so webinars lined up covering best practices in the sourcing and spend management space over the next three months.

If your organization is looking for a way to boost name recognition in the supply and spend management space, and to play a part in the community as well, I’d like to remind you that Sourcing Innovation sponsorships are now available and that there is a slight advantage to being the first to commit (as your logo will be the only logo until subsequent sponsors sign up).

As far as I can tell, this is the only daily blog left in the space that is independent – most of the other independent bloggers got scooped up last year by leading, forward thinking organizations and most of the other daily blogs are now not only vendor sponsored, but vendor operated. This is an opportunity to think different.

Procurement Outsourcing V.V: Provade, Take II

During my most recent Silicon Valley foray, I had a chance to catch up with Provade (acquired by Smart ERP Solutions) again and talk about how they seamlessly enable services procurement for companies with and without a PeopleSoft stack. If you remember, one of the three points I covered in my last post was how they built their solution on a PeopleTools foundation on the Oracle Stack. This is a tremendous advantage for customers with existing Oracle or PeopleSoft implementations since they can tie their solution in directly to your systems with almost no effort and set-up the bi-directional data flows in record time.

However, their solution is also a tremendous advantage for customers without (extensive) Oracle or PeopleSoft implementations – espcially those with large, involved services spend, especially in the legal, financial, contract labour, and marketing categories. They have done a significant amount of work extending their Java/J2EE technology stack to be SOA (Service Oriented Architecture) compatible. This allows them to easily integrate with other systems and enabled them to support rapidly configurable punchouts so that you can tie into your suppliers existing systems. Furthermore, it also allows them to develop Web 2.0 interfaces that are significantly easier to use than traditional PeopleSoft or Oracle (forms-based) interfaces – so current users can expect usability of the platform to only increase as time goes on.

I had a great conversation with these guys because my experience has been that:

  • there is not a lot of recognition for the importance of services spend management, which can consume up to 70% of spend in some verticals (financial, healthcare, etc.)
  • most solution providers are not offering specific solutions (with the notable exception of Servigistics (acquired by PTC) whose service parts, service price, and workforce management solutions I recently discussed, but they have a different spin)
  • most solution providers are not offering an on-demand solution with a low initial implementation cost

Furthermore, they understand that certain types of services are very complex and your offering, especially on the supplier side, needs to be customized if you want suppliers to rapidly adopt the system. One example, and one of their current strengths, is legal services. Law firms don’t bill for “services” or “tasks”, but “matters”. Most services are not fixed quote, but line item services where every line item is at a different rate (para-legal, associate, partner, fixed expense, variable expense, etc.). And they’re not always the most technical of people. (Even the majority of firms that are LEDES capable would rather log into a simple user-friendly web-based system to create a bill.)

In summary, I think they are on the ball with respect to some of the major services procurement challenges in some under-serviced verticals and that their current solution is a good solution for many firms with the challenges they are tackling. I look forward to talking with them again and diving into their process model and technology architecture in a later post.