Category Archives: Technology

What Costs Your Supplier More? Their Warehouse or Your SIM Practices?

I know this question is a little out of left field, but it’s an interesting question in that both are costing your supplier money and, therefore, both are costing you money (as all costs get passed up the supply chain in the end).

According to an article in DC Velocity last fall on how distribution centers lose thousands of hours a year on unproductive workflows (Nov 29, 2012), each worker loses an average of 15 minutes of productivity in an eight-hour shift due to process inefficiencies. Assuming these are union workers who get an hour for lunch and thirty minutes for breaks, that says that almost 4% of the work-day is being wasted. In a warehouse with 50 workers, it adds up to about 500 days of lost productivity, which is significant as this equals the salary of 2 workers, which costs the average company about $60,000 annually in the US.

Gartner estimates a typical company spends an average of $1,000 in supplier management costs annually per supplier. Part of this cost is Supplier Information Management, and, specifically, the (initial) creation and maintenance of supplier profiles consisting of contact information, insurance certificates, compliance tracking, and product catalogs, just to scratch the surface. While the amount of time to create and maintain this profile, and thus the associated costs, vary, on average it can be estimated to be about $700 as all of the major vendors and analysts seem to agree that a good SIM solution reduces supplier management costs, on average, by 70%.

Now, at this point, you’re probably asking what’s the point of this article as 60,000 is clearly much greater than 700 and there seems to be no comparison — but hold on! You have to remember one very important point — you’re not the supplier’s only customer. The supplier has other customers who, if they are implementing SIM, will also be delegating this work to the supplier who will have to create another, almost identical, profile, and upload all of the relevant information, etc. And today, you can assume that any major customer of the supplier is implementing at least some basic level of SIM given that they will be sued and/or fined seven ways from Sunday by the U.S. Government if they don’t insure the organization is not on a watch list, that payments are properly reported, etc.

If the supplier is a small contract manufacturer who only has 50 customers, then the supplier would be spending $35,000 just creating and maintaining SIM profiles. That’s one person’s salary. But if the supplier is a large office supplies vendor with 500 customers, that could theoretically be $350,000 worth of man hours to properly maintain all of the requested profiles. Ouch! (Needless to say, not all profiles are going to be accurately maintained in this instance!)

In other words, a sudden surge in the popularity of SIM combined with the slew of systems (not all of which are created equal) that are now available and being implemented by various companies will add a costly burden to your suppliers, as you don’t all use the same SIM solution and, even when there is overlap, not all SIM solutions allow a vendor to create one master profile and share the relevant information with each supplier who wants access to the profile. Done right, SIM is a great technology, but the problem with a lot of the (second tier) solutions is it’s not done right. Many of the solutions are built for the buyer and the supplier is a bit of an afterthought, resulting in a solution where a supplier needs to create and maintain an instance of their profile for each buyer. As a buyer, it’s imperative that you don’t buy, and encourage, such a solution because all this does is shift the burden to your already stretched supplier and doesn’t help anyone.

It’s important to make sure that any SIM solution you buy allows a supplier to define a master profile and share the relevant data with all relevant buyers on the platform with just a click of the mouse and allows the supplier to reuse pre-existing information whenever relevant. A supplier should never have to enter the same piece of information more than once. Otherwise, you’re wasting his time and your money. (A really good SIM solution would allow a supplier to import a profile he already created in a competitive product, but SI hasn’t seen that ability in the SIM solutions of any of the major players yet.)

Why A True Supply Management Professional will Never be Replaced by Technology

As succinctly stated in this recent HBR headline, Algorithms Don’t Feel, People Do.

Also, algorithms don’t sense, read non-verbal cues, detect patterns in seemingly unrelated data, take risks, or form common bonds. They don’t feel, and they aren’t intelligent. And while their predictive capabilities are scary given enough data, they are not infallible, and when they do fail, they will fail in a big way. Let’s address these points one by one.

First of all, as noted by the author of the HBR article, algorithms don’t feel, and can’t predict how a person will respond to a message. Marshall McLuhan may have stated that the medium is the message, implying that the form of a medium embeds itself in the message and influences how a person will receive the message, but the reality is that, in today’s individualistic society, the message is what is interpreted by the recipient, and only someone with a shared understanding will be able to comprehend what that is and react accordingly. As a result, an algorithm can not negotiate.

Successful negotiation depends on a first party transmitting a message, agreeable to that first party, that the second party can accept, and, moreover, figuring out, of all of the possible messages that the second party might accept, which subset represent message that the second party are most likely to accept and which messages of the subset are the least distant from the desired message. An algorithm can compute which options are likely given certain assumptions, and which of these options are the least distance according to some metric, but cannot determine what assumptions to make. Only a person who can feel, and feel what the other party is feeling, can be the judge of what good assumptions are. And, secondly, algorithms cannot sense. They don’t feel, and they don’t have instinct — which requires real intelligence.

Thirdly, they can’t read non-verbal cues. Even if someone is stating that they may be agreeable to an offer, the reality is that they may have no intention of ever accepting the offer, and are only indicating the contrary to stall for more time. It’s often the case that such a person is not as good at masking their demeanor as they are at masking their words. It might be the case that their non-verbal cues give more away than they would like. Only a trained negotiator with years of experience and instinct can be the judge of this.

But even more importantly, they can’t detect patterns in unrelated data, as it’s typically the case they can only process specified data in specified ways. And a fixed data pool never tells the whole story. A fixed algorithm might not know that a fire today will impact resource availability in six months, that your main competitor is likely to go out of business do a massive loss in a patent infringement lawsuit, or that a new technology is going to make the current technology obsolete in 18 months, with prices and demand starting to plummet in six months. As a result, in each of these instances, the algorithm would buy (today) (at a much) higher (price) than it needs to.

Furthermore, algorithms don’t understand when to “trust your gut” and take a calculated risk such as betting the farm on a new technology or riding the spot-buy market when all signs point to locking in a price for three years. The reality is that real success often requires risk, and only a true pro will know when such a risk should be taken.

Finally, as algorithms are not intelligent, they don’t form common bonds with like-minded algorithms that would help them advance their company and their profession. Algorithms have their place, and properly used can take a great deal of tactical and low-value workload off of a Supply Management professional’s plate, but algorithms will never be smart enough to handle the strategic and high-value workloads without intelligent — human — supervision. Optimal is only optimal if all of the assumptions are valid and modelled. An expert will always be needed to define the assumptions, check the assumptions, verify the results, and tweak them according to an ever-changing Supply Management world.

In short, good technology can make you two, ten, and maybe even one hundred times more productive (depending on the metric), but it cannot replace you. So don’t be scared of new technology for your supply chain — embrace it. Given the ever-increasing demands being placed upon you, you will be glad that you did!

Why You Need SIM-Powered Recovery

Two weeks ago, we explained how SIM Powered Recovery Will Take You to the Next Level by noting that it can improve your recovery results by a factor of 3, 5, or even 9 over time and asked you to download the latest Sourcing Innovation Illumination, sponsored by Lavante, on Taking Capital Recovery to the Next Level.

Today, we’re going to make it clear how that will happen. Traditionally, a recovery audit will be done by a recovery audit firm that will send in a team that will spend weeks manually reviewing invoices, payments, and transactions looking for discrepancies and revenue recovery opportunities. Depending on the deal you strike, this will cost you manpower plus a not-so-small percentage of the recovery above the manpower cost (that will be in the 10% to 20% range, we’ll assume 15%) in a time plus results deal, or a large percentage of the total recovery, typically 30% to 35% (and we’ll assume 30% after strong negotiations), in a results-only deal.

In addition, it will typically be three (3) to six (6) months before the recovery firm even attempts to recover the first dollar because it will take them that long to get through enough paperwork to find enough opportunities to make a recovery effort worthwhile. During this time, up to 20% of potential credits will disappear permanently as dispute timeframes and contracts will expire.

In comparison, it’s likely the case that you can acquire a perpetual license to a good SIM-based recovery platform for approximately 100K with 20% (or 20K) annual maintenance. And you won’t need to hire any extra manpower as all you’ll need to do is feed it your sourcing, procurement, and accounts payable data, set up some matching rules, and the platform will automatically identify duplicate, non-compliant, or suspicious payments. We’ll assume it costs 25K to integrate the data feeds and work with the provider to set up the initial rules set, and 5K to maintain the feeds on an annual basis. In addition, we’ll assume a firm that does a time plus recovery deal will bill you 150K in manpower. Given these costs, we can now compare manual-vs-SIM-based recovery efforts noting that an average company, due to cost, will only undertake a recovery effort every 2 years. (Mainly because a recovery audit firm will only want to do an audit every two years because it typically takes 18-24 months after a recovery effort before a company has the same recovery effort.)

After a recovery effort, a company will temporarily scrutinize invoices and payments more closely. During this time, the vendors will also be careful not to over-bill or duplicate bill until the buyers have stopped watching so closely and have gained confidence that the over-billings have stopped. As a result, available recovery will be less the following year. However, as the buyer gains confidence that overspending is under control, the buyer will stop watching as diligently and the vendor, if it has a history of over-billing or duplicate billing, will revert to its former ways and the overspending and recovery opportunity will creep back up to where it was.

Noting that you can expect to identify 90%+ of recovery opportunities with a SIM platform, that can process all of the data you throw at it, compared to the 60% of recovery opportunities that you can expect to find with a manual effort that stops when 80% of the spend has been identified and analyzed and when almost 20% of opportunities for recovery have been lost, we get the following.

 

Year 1 Year 2 Year 3 Year 4 Total
Overspend 1,000,000 500,000 1,000,000 500,000 3,000,000
Recovery
Year 1 Year 2 Year 3 Year 4 Total
SIM 900,000 450,000 900,000 450,000 2,700,000
Manual T&R 600,000 300,000 600,000 0 1,500,000
Manual R 600,000 300,000 600,000 0 1,500,000
Cost
Year 1 Year 2 Year 3 Year 4 Total
SIM 125,000 25,000 25,000 25,000 200,000
Manual T&R 240,000 0 240,000 0 480,000
Manual R 300,000 0 300,000 0 600,000
Recovery over Cost
Year 1 Year 2 Year 3 Year 4 Total
SIM 7.20 18.00 7.20 18.00 13.50
Manual T&R 2.50 N/A 3.75 N/A 3.13
Manual R 2.00 N/A 3.00 N/A 2.50

 

Which says that a SIM-effort is expected to return 4.3 times as many dollars into your organization as a manual time + results audit over four years and 5.4 times as many dollars into your organization as a manual results-only audit over four years!

You can argue the numbers a little bit each way, but it won’t affect the fact that a SIM Powered Recovery solution will deliver results that is orders of magnitude above what a manual audit will deliver. So download your copy of SIM Powered Recovery Will Take You to the Next Level today! (registration required)

Intesource – A Strong Sourcing Solution for Mid-Market Supply Management

When we last covered Intesource almost three years ago in 2010 in this post about intelligent sourcing through Intesource, we noted that this full-service offering eSourcing provider had a fully-featured e-Negotiation platform with SIM, document/contract management, and a relatively unique integration with Microsoft Sharepoint for those clients that ran on a Microsoft back-office and wanted to use these solutions to collaborative author documents and track changes.

Besides integration with the Microsoft platform, which is very common in the mid-market that can’t always afford, and often doesn’t need, the massive ERP solutions found in the Fortune 1000/Global 3000, other unique differentiators at the time were their massive template library for e-Negotiation events, integrated feeds from over 160 market exchanges for up-to-date raw material and commodity price information, and hands-on experience running tens of thousands of events. This put them in a restricted group of providers.

Since then, they have continued development work on the platform and added additional functionality that not only enhances the end-to-end strength of the platform, but narrows the group of competitors that can say the same. Three particular enhancements stand out — award analysis, market price centre, and mobile interfaces. We will describe each in turn.

Intesource has added an award optimization component that, while not true strategic sourcing decision optimization, is a very useful analytic component that will allow a buyer to determine a near-optimal, if not optimal, award for non-complex sourcing events. In the new component, buyers can create multiple award scenarios based on pre-defined rules, such as low-quote (which selects, for each item, the supplier with the lowest bid), low-group (which selects, for each group, the supplier with the total lowest cost for a group, or bucket, of item), or low program (which selects the supplier(s) with the lowest cost based upon a program specification, which could be to select suppliers with the highest quality, shortest-lead time, or MWBE specification where possible); or by hand-picking suppliers for each item and/or group. Then, the buyers can compare each scenario side-by-side to see how the different scenarios compare and what is gained for each price sacrifice.

Intesource’s award optimization module is not true optimization in that there is no underlying model, it doesn’t support cross-item / group rebate / discount bids, specification of capacity is currently limited to the event level and the specification of macro-qualitative constraints is limited, and you can’t yet re-run a scenario to see what would change if a supplier increased/decreased prices/quality/etc across the board by 5%, but as SI pointed out five years ago in it’s post on (Spend) Analytics vs. (Decision) Optimization, if your organization had a spend analysis product that allowed you to build a spend cube any time you wanted – on any data you wanted – on any dimensions you wanted – and then throw it away when you’re done then there would be nothing to stop you from building a cube on your RFP or Auction data, building cross tabs and tree maps, and then changing the cube to look at the data a different way. You’d find that you wouldn’t need optimization or a plethora of deterministic reports to find out who the lowest cost supplier was, who the highest quality supplier was, who the lowest cost supplier was relative to your quality metric, or any other query that can easily be answered by rank and cross-tab queries. And, as a result, you’d be able to solve many simple scenarios without optimization — and this is what this tool is attempting to do. Intesource realizes that many supply management organizations, especially in the mid-market, don’t have the advanced sourcing and modelling skills required to build complex optimization models and is endeavoring to build a tool appropriate to its user base. And while it’s not perfect, the reality is that, for an average (smaller) mid-size organization, continued development will allow Intesource to approach an 80% solution as many sourcing events and models of a (smaller) mid-size organization aren’t that complex and this type of solution will get such an organization much further than just e-Negotiation alone.  And on those 80% of events, the results will be near-optimal, if not optimal.

Intesource has centralized all of its raw material and commodity price feeds into a market price centre that integrates the feeds with additional graphing and reporting functionality, monitoring and alerts, and statistical modelling capabilities. In the market price center, users can view historical trends and price fluctuations, focus in on any particular period of time, extend trend projections into the future, monitor prices, cash, and futures contract specifications, set watch lists to monitor key categories, set alerts to immediately inform the user if a price threshold is reached or a price fluctuation exceeds a certain threshold, and even pull up all of the information associated with the exchange(s) a commodity or raw material is associated with.

Finally, like a few other providers, it is tackling mobile, but it is doing it in a smart way. The reality is that, while you might want mobile access because it sounds really cool, in practice it’s typically not very cool because you can’t do really do anything useful on a 3″ to 4″ screen, and what you can do is limited on even a 9″ to 10″ screen. Realizing that all you can really do is retrieve critical pricing and status information, Intesource is building a customized read-only interface that will allow you to determine current event status, bid information, and whether or not there is anything you need to to do or respond to when on the go.  And it’s working with its customer base to develop an appropriate interface that they can use effectively.

Other improvements since 2010 include an improved contract centre with more (user-defined) meta-data, search, and alert functionality; an improved vendor management (SIM) capability with embedded Q&A, enhanced search, attachment management, compliance, and watch-list capabilities; more milestone and scorecard management capabilities; an RFI question library with thousands of questions indexed by category, commodity, and other attributes (built on an analysis of 12 years worth of RFI data) to allow for quick definition of templates and RFIs; and a roles-based public event calendar. Intesource is constantly developing new modules, functions, and features with a roadmap largely driven by its user community as all requests are reviewed quarterly by an advisory committee and prioritized based upon overall demand and usefulness.

Intesource is a solid player in the eSourcing mid-market that should be included in the candidate pool by any company that does most of its business in North America.

DropShip Commerce Brings Drop-Shipping and e-Commerce Enablement to the Distributor and Retailer Masses

On Monday, we announced that BizSlate Just Released its ERP for Mid-Sized Distributors and Retailers that gave the masses a useable, and affordable, ERP solution with exceptional supply chain support — especially where inventory and order management were concerned. With the BizSlate ERP, it’s a breeze for a retailer to order hundreds of variants of dozens of SKUs with a few mouse-clicks and keystrokes and to see inventory requirements at any point in time in the future. And this is great for inventory and storefront management, but what about the e-Store?

As more and more retailers need to turn to online sales to compete in the new marketplace where a consumer can get almost anything she wants online — and do so within two days, as the bigger retailers, following Amazon’s lead, are now packing and shipping same-day if an order is received by the cut-off time — the mid-sized and small retailers have to offer the same convenience or get pushed out of the market. Also, sometimes the only way to survive is to create a unique shopping experience for a niche market and offer all of the products, and only the products, related to that niche through a single, customized storefront. (For example, maybe the way to survive is to cater to the fantasy gaming enthusiast and provide a unified storefront for all of the relevant card games, board games, video games, RPGs, and spin-off/related novels and/or movies when the shopper might normally have to go to a local comic/game shop, book store, and online DVD store to find the items of interest.)

However, this need to both integrate (live) inventory (feeds) from dozens, and sometimes hundreds of suppliers (like Amazon) does, and then parse a customer order into separate orders for each vendor that is supplying an item to you and sending it direct to the consumer through its drop-shipping capabilities poses an integration nightmare for the average e-tailer. The reality is that every supplier will have a different database format / taxonomy and every other supplier will have a different access method. One (group of) suppliers will provide access through an FTP site that will contain inventory exports (in a multitude of raw or compressed file formats), another (group) will provide database access through a secure tunnel, the more technical will provide a web API, and the non-technical will e-mail spreadsheets. Some will use (a variation of) CSV format, some will be on an (old) version of EDI, the more techie will have an XML format, etc. Nightmare!

But this is only a quarter of the challenge. The inventory files need to be processed and the relevant data pushed to the live site, after a human has selected or verified what items need to be pushed. Then, the orders need to be pulled from the live site, parsed, and the proper data pushed back to the suppliers for (drop) shipping in the required time-frame — in the format required by the suppliers.

In other words, today’s small-and-mid-sized e-tailers need a solution that makes it trivial to get inventory manifests (if you will), process those manifest, select (groups of) product(s) for the online store, (create a schedule to) push those products to the store, define rules for parsing orders and pushing them back to the appropriate suppliers (on a schedule), create the requisite e-documention, and push the documents to the vendors and the order management systems.

This is the system that DropShip Commerce provides, and it’s the first solution that the doctor has seen that solves the round-trip mid-market problem in a manner uniquely tailored to the specific needs of retailers and their drop-shipping suppliers. And like the other modern SaaS solutions on the market, it’s slick, quick, and very easy to use. By targeting a specific, relatively unaddressed, problem for a specific vertical (consumer-oriented retail), like BizSlate, they were able to create a unique solution that is just what the average mid-sized e-Tailer needs. The DropShip Commerce solution is definitely something the average mid-size e-Tailer that sources from multiple suppliers needs to check out if they haven’t already.