Category Archives: Technology

General Dynamics, Why Aren’t We On Mars Yet?

We’ve already conquered extra-planetary supply management with our ability to supply the International Space Station on a regular basis and keep our astronauts fed, which means the next challenge is for us to supply inter-planetary supply chains between Earth and Mars.

Fifty years ago today, Andrew Kalitinsky a spokesman for General Dyanmics told scientists at a two day symposium called “The Exploration of Mars”, hosted by the American Astronautical Society that a manned mission to the planet Mars could be launched in 1975 and would likely consist of a convoy of four multi-ton spaceships. (Fifty years and one day ago, one day before this announcement, NASA announced plans to send two satellites to Mars in November 1964 as the first step toward a mission.)

Since then, we’ve only successfully sent:

  • Mars 2, a Soviet probe that crashed into Mars in 1971
  • Mars 3, a Soviet probe that landed on Mars but stopped transmitting after 14.5 seconds
  • Mars 4, a Soviet orbiter that flew by the planet and sent back images and radio occultation data
  • Mars 5, a Soviet orbiter that transmitted 60 images
  • Mars 6, a Soviet fly-by / lander that failed on impact
  • Mariner 4, an American spacecraft that few past Mars on July 14, 1965
  • Mariner 6 and 7 American fly-by probes that reached Mars in 1969
  • Mariner 9, an American orbiter that was the first probe to successfully enter Martian orbit
  • Viking 1, an American orbiter/lander module that was the first spacecraft to successfully land on Mars
  • Viking 2, an American orbiter/lander module that was the second spacecraft to successfully land on Mars
  • Mars Pathfinder, an American spacecraft that landed a base station with a roving probe on Mars on July 4, 1997
  • Mars Global Surveyor, an American orbiter that entered Martian orbit on Sep 12, 1997
  • 2001 Mars Odyssey, an orbiter that reached Martian orbit in 2001
  • Mars Express, the European Space Agency’s (ESA) orbiter that reached Martian orbit on Dec 25, 2003 (giving the ESA a Merry Christmas 10 years ago)
  • Mars Reconnaissance Orbiter, an American spacecraft designed to conduct reconnaissance and exploration of Mars from orbit that attained orbit on Mar 10, 2006
  • Rosetta, an ESA probe that flew within 250 km of Mars on Feb 25, 2007
  • Curiosity, the American rover that landed on Mars on August 6, 2012 (and may have spotted a Martian Lizard)

Not a single manned mission in the lot of them! And not a single planned manned mission in the next 10 years! the doctor wants to optimize those inter-planetary supply chains. GD, you’re 38 years late. Get a move on!

The Cloud is Not a Crystal Ball Either!

Despite the fact that I’ve told you that The Cloud is NOT a Fluffy Magic Box, given you More Reasons the Cloud is Not a Fluffy Magic Box, reminded you Yet Again, the Cloud is NOT a Fluffy Magic Box, told you that The Cloud is Filled with Hail, and pointed out that The Cloud is Not a Magic Mirror Nor is it Omniscient, it seems that there is a new brand of silicon snake oil salesmen who want you to believe that that the cloud is a crystal ball that you can use to talk to people everywhere in the world.

Just yesterday someone informed me that a new company is going around trying to sell a cloud business phone system.* What the heck is that? And how does it work? Do I walk outside and shout up to the sky? What if it’s a clear sunny day and there are no clouds in site? Or the middle of the night and I can’t see the clouds through the fog? And how does it handle inclement weather?

And no, the doctor is not being silly. Given that we don’t know what cloud really is**, and that, with (tele)communications, you HAVE to know the origin point AND the destination point, how the heck do you send a phone signal into the cloud and ensure it reaches the right person. Presumably it is built on dynamic, replicated, peer-to-peer IP routing, which sounds great in theory, but may not even be legal in practice considering your business might be in a locale where your phone system has to be 911 compliant. Since no one would know where the signal is coming from, this type of system would never be 911 compliant!

Basically, as I pointed out in Dogbert Translates Cloud-Consultanese, they’re pulling a Dogbert hoping to find a Pointy Haired Boss who will believe their mumbo-jumbo and buy their silicon snake oil solution at a ridiculous mark-up before anyone else in the company realizes that significant money has been wasted on betaware that’s not even as good as products you can get for free (like Skype and Google Voice, for example).

You’ve been warned!


* They didn’t tell me the name of the company, presumably to protect the guilty and give them a chance to smarten up knowing that this absurdity really grinds the doctor‘s gears and typically results in a rant.
** If Larry Ellison has to ask What the Hell is Cloud Computing, that’s telling!

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)