Category Archives: Technology

Risk 2011: Technology

In our last post, we indicated that the World Economic Forum had recently released its 6th annual Global Risks report, it’s 2011 edition. This report was filled with risk, thirty-seven types of risk divided into five categories to be precise. Today, we are going to discuss what Sourcing Innovation thinks are the top three technology risks from a Supply Management perspective.

03: Threats from New Technology

Your business depends on its profit margins. Its profit margins depend on keeping revenues up and costs down. Revenue often depends on having the best product for your target customers at the best price point. Keeping costs down usually depends on a lean, streamlined process which, in turn, often depends on leading-edge technology to keep it running as efficiently as possible.

If your competitor identifies, latches onto, and implements a new technology before you do, then your competitor may be able to lower its production and operating costs well below your production and operating costs. If this happens, it will be able to lower its price point, and increase its revenue at the expense of yours. Then your organization will face declining revenues with higher costs. Profits will quickly disappear. Given the rapid pace of progress in many technology verticals, this could happen overnight if your organization doesn’t at least keep up, if not stay ahead of, the curve.

02: Online Data and Information Security

Every week we hear about another data breach at another retailer. What we don’t often hear about, because consumers aren’t directly affected, is yet another network intrusion at a Global 3000. While the average hacker might want your credit card, the average hacker employed by organizations that resort to corporate espionage wants your data – and your Supply Management related data in particular. What are you making? What are the specifications? Where? With who? When are you shipping? From Where? With what carrier? If any of this data finds its way to your competition before you’re ready to release a new product, the losses could be crippling. What if your competitor is able to use your plans to jump-start their development of a better version and beat you to market? What if thieves intercept your critical shipments and sell your product on the black market? While a consumer’s financial solvency depends on her credit card information being kept secure, your organization’s financial solvency often depends on your Supply Management data being kept secure.

01: Critical Information Infrastructure Breakdown

Let’s face it, it’s impossible to manage a global supply chain without modern supply management systems and the information infrastructure that supports them. What happens if your primary data centre gets taken out? What happens if your headquarters loses power for 48 hours? What happens if the land lines fail and the one satellite that carries cellular signals for your (remote) location stops responding? The minute your internet goes down, your business stops. Literally. And since your information infrastructure could breakdown as the result of a (power) grid overload, a data centre failure, an environmental disaster, or a terrorist action, all of which can not be predicted (or prevented in many situations), this is a significant risk that requires risk mitigation plans be in place and ready to go at a moment’s notice.

Logistics Managers Need Scraps Too!

A recent white-paper by Management Dynamics Inc. on “Current Trends and the Potential for Automation in Transportation Management” noted that better informed decision-making on freight route planning, carrier selection, shipping scheduling and costing, load planning, guidelines compliance and auditing, invoicing, and reporting results in greater logistics operational efficiencies yields significant cost savings. No surprises here. We’ve known that for a while.

The research further shows that many shippers have yet to automate these critical freight management and transportation procedures. No surprises here either. That’s why we have leaders and laggards. Leaders have automated many of these procedures, or are at least working on automating these procedures, and laggards are, sometimes, still using phone and fax, like they did BC*.

The research also found that one fourth of survey participants claims their company spends more than 15% of their overall revenues on freight transportation shipping efforts and the percent paid out on international freight services is also considerable. This is to be expected considering how many companies decided to outsource half a world a way and the recent spike in oil prices (as well as piracy off the Somali coast). Similarly, only one fourth of respondents automates mission critical applications for calculating rates and selecting routes and carriers. The leaders do it, the laggards still do three-bids-and-a-buy. Finally those [shippers] that do [use a contract management solution] are lowering their transportation spend through improved carrier selection, fewer errors and risks, and greater compliance with approved shippers.

So what’s the problem? Especially when solutions have existed for most of the functions for almost a decade? Simply put, the logistics managers are overwhelmed. In order to manage a shipment, as alluded to in the first paragraph, a logistics manager needs to be aware of the contract (in the Contract Management System, CMS), the spirit of the bid (included in the bid package contained in the Request for Proposal, RFX), the rationale behind the selection of new lanes (which stems from the optimal model, stored in the Strategic Sourcing Decision Optimization solution, SSDO); get the current rates (from the Transportation Management System, TMS), calculate the number of LTL or FTL loads needed (based on product weight and volume, contained in the Product Life-cycle Management solution, PLM), gather the necessary data for the manifests, import, and export documentation (contained in the Global Trade Management solution, GTM); generate the shipping order and goods (in a customized e-Procurement solution, eProc), receive status updates (through a Logistics Management solution, LM), accept the invoice and make a payment (through a Procure-to-Pay solution, P2P), and insure the goods are recorded as current inventory (through the Inventory Management System or Warehouse Management System). Let’s recap, they need to be fluent with CMS, RFX, SSDO, TMS, PLM, GTM, eProc, LM, and P2P solutions, at a minimum, plus any systems that their 3PL and freight providers use to provide data, any enterprise resource planning (ERP) or manufacturing resource planning (MRP) solutions that contain data they need or capture data their internal customers want, and any visibility and risk management solutions used by the Supply Management group as a whole. For an average logistics manager with an Associate’s Degree, at best, who started his career where it was just a matter of getting a truck to the loading bay on time, this is overwhelming. Instead of making his life easier, modern supply management technology has overwhelmed him.

He needs a solution that not only tells him what he needs to focus on today, but that identifies where the data, and only the data, he needs is in these various systems — with wizards or workflows that take him through what he needs to do. And until he gets it, he’s going to defend that fax machine with his dying breath.

So if you really want your TMS, WMS, LMS, or 3PL system to gain widespread adoption, remember to throw the old-school logistics manager a few SCRAPS. If you do, you might find that the state of the industry changes seemingly overnight.

Rampant M&A Does Not Indicate the Demise of Best-of-Breed

On the contrary, it symbolizes the emergence.

But let’s back up. A few months ago, Supply Chain Digest, with a piece on the Consumer Goods Supply Chain Landscape asked if Best of Breed [is] a Dying Breed. Noting an increasingly accelerated accelerated spate of mergers and acquisitions among leading supply chain best-of-breed solution providers, they called into question the long-term efficacy of some of these solutions, as well as the viability of these software companies themselves on the premise that there would soon be no best-of-breed vendors left for a consumer goods manufacturer to choose from.

If there were only N vendors, and the rate of M&A kept increasing, then, yes, we would reach an end-state where there were no best-of-breed vendors left. But this reasoning ignores one very important reality — most startups chase the biggest opportunity, which is typically where they perceive the most action to be. If the most action is in the M&A of best-of-breed, then new companies will see the most value in being best-of-breed and, as a result, we will soon see the emergence of a whole new slate of best-of-breed vendors. And while it’s true some won’t be sufficiently capitalized while others won’t hit upon the right technology, leading to their untimely demise, the reality is that a fair number will make it and that some of these, by the law of large numbers, will be even stronger than the remaining best-of-breed players today.

So, while the choices may be limited for the next year or two, the reality is that the number of options available to your average CPG manufacturer will soon explode. As for the other concerns, they’re not too worrisome either. Let’s take ’em one-by-one:

  • vendor future uncertainty
    Manugistics and i2 were considered market leaders and potential acquirers, not acquirees but were still acquired. The reality is that even a billion dollar enterprise can be swallowed up by a larger company, or, as a few spectacular acquisitions have evidenced, go from market leader to an almost forgotten business unit (like Netscape and Lucent) so this is not a concern restricted to best-of-breed.
  • ongoing support
    As most best-of-breed players have moved to (multi-tenant) SaaS or update subscriptions, which keep a customer on the current version, support is not the issue it once was. Plus, most will agree to code escrow, so, even if the vendor went away, the product could still be supported. Plus, once a best-of-breed vendor reaches a certain size, a number of consultancies acquire a competency and while resources might be expensive, support resources are not unattainable.
  • risks
    No solution is without risk. And a small best-of-breed vendor can be more financially stable than a large aggregator leveraged to the max and highly dependent on aggressive sales targets to meet payroll.

So don’t lament the recent M&A binge of best-of-breed players. It only means that new ones will arise and that more innovation is, eventually, on the way.

Supply Chain Realtime Adaptive Priority Solutions — Where Are They?

In these uncertain times, what the supply chain really needs is Supply Chain Realtime Adaptive Priority Solutions, SCRAPS. Reading article after article that reiterates the age-old need to reduce risk, conserve cash, and target the most-fruitful opportunities first while simultaneously reading article after article about the same-old technology, with no innovation in sight, I am starting to look for the SCRAPS.

After asking who is going to upset the market in 2011, and seeing nothing but solution renovation from a few vendors in 2011, I’m not only wondering where the innovation is, but why for the most part (outside of a few vendors who have been improving their existing platform offerings greatly), there have been no (fundamentally) new technologies for a couple of years now. (Even though I know the answer in a lot of cases, and it’s NDA.)

We need something, even if it is only SCRAPS. And, to be honest, SCRAPS might be just what we need. Given the growing plethora of technology platforms, suppliers, geographies, internal customers, and market segments that we need to manage with very limited resources, we need a better way to stay on top of what is most important — TODAY, tomorrow, and the day after. And it’s no longer as simple as simply tracking promised award dates, contract expiry dates, order dates, shipment dates, delivery dates, promotion dates, and other dates of interest.

If a print media campaign has been delayed because a product has been delayed, how important is it to make an award today? If the contract expiring is for plant watering, is it really urgent? Especially when you could just hire a high school kid to come in once a week. But if you need seven days lead time to get those all-beef patties and you’re supporting restaurant operations where all-beef patties are 40% of orders, unless your cube is on fire, you better get that order in. Similarly, if you’re in the apparel industry and a ship date has been missed, given the lifetime of fashion, you better be ready to jump on a plane if necessary to find out what happened. And if a shipment you need tomorrow gets held in customs, you need to know about that right now, not in two days when the product doesn’t show up as expected. And you better be cognizant of when marketing decides to hold its promotions and be prepared to shift your priorities appropriately. If demand doubles, the last thing you want to do is stock out.

Thus, we need technology solutions that can re-organize and re-prioritize tasks and issues that need your attention based upon what’s the most important today, taking into account risk and opportunity (with immediate risks and short-term opportunities getting the highest priority), and not based upon traditional project timelines. And, more importantly, we need solutions that can take the different tasks and risks being captured by your sourcing (spend analysis, RFX, eAuction, optimization, contract management), procurement (requisition management, invoice management, P2P, etc.), transportation and trade (document management, 3PL & transportation management, regulatory compliance management), and risk management solutions and integrate them into a cohesive picture of what is important now, short term, and long term and that can “calendar” them into daily, weekly, and monthly priorities so that you can focus on what’s important, ignore what’s not, and find time for long term strategic planning (by only focussing on real fires and not prank smoke bombs).

Thoughts? Do we need a few SCRAPS?

The Basics of Information Technology Cost Management

It’s a simple five-step process:

  1. Get a handle on the TCO of IT to the business
    How many units have IT support staff? How much are you paying in maintenance and software licenses each year? How much are you paying in hardware leases and upgrades? What about consultants and outsourced support? The data center(s)? Hosting? And don’t forget the “device propagation” that results every time a new application is added to the data center or a CXO gets a new toy (like an iPad).
  2. Focus on the Cost Drivers
    Energy? Hardware? Software? Projects? Where’s the money going, and why? Treat the IT organization like it is a business and balance the supply and demand.
  3. Be relentless in Valuing IT services
    Examine the cost structure through the eyes of your customers and segregate functions and services into value-add and commodity categories and drive the associated costs accordingly.
  4. Be creative in meeting demand and sourcing work
    Examine the people, process, and technology infrastructure carefully to determine if there is a more cost effective way to deliver the necessary services.
  5. Bring in an expert to re-source the hardware, software, and support you need
    Don’t negotiate multi-million dollar deals on your own if you’re not an expert in IT systems and the current state of the market. If you try, chances are that you’ll overpay by a lot more than 10%!