Category Archives: Technology

Is Your Supply Management Organization Ready for Convergence?

According to this recent web exclusive over on CPO Agenda on how “technology creates ever-changing leadership challenges”, 70% of top executives from multinational companies agree that there is a danger in being overwhelmed by the complexity of change as whole industries are transformed by a trend called ‘convergence’.

So what is this convergence? According to wikipedia, it could be technological convergence which is defined as the tendency for different technological systems to evolve towards performing similar tasks. Today’s smart phone is one example. We had a phone, we had a PDA, we had a gaming system, and we had a wifi laptop for browsing the web. Now we have one device that does it all (and, in the case of Apple, an iPhone that puts the one ring to shame).

And it’s happening across the board. Automotive has to build hybrid cars with integrated GPS and satellite internet connectivity. Fashion and Medicine both have to deal with personalization and custom-fit (in the former, the shoe has to be printed exactly to your foot and in the latter, the drug has to be optimized to your DNA). And technology has to adapt to the other systems you have in place. Gone is the time where you could be a master of one thing. Now you have to be a jack-of-all-trades and a master of one. It’s a daunting task, and one you’re probably not ready for as it’s a requirement most of your people probably are not ready for.

But one thing is for certain, the next few decades will prove whether or not we are the most adaptive species on the planet, because if we’re not, the impending global economic collapse could end all of civilization as we know it. Either way, we will live in interesting times and China, which once upon a time was the most powerful civilization in the world, will have its revenge.

How to Tell the CEO that Your Legacy ERP is a Disaster Waiting To Happen

This recent post over on the HBR blogs about “a system for speaking IT truths to CEOs” is a must read for every CIO and CPO alike. Both the CIO and CPO know that every IT purchase has a life-span and that every piece of legacy software is a ticking time-bomb waiting to detonate and cost the company millions of dollars in a matter of days (or hours, as Comair found out in 2004) if it is not safely disposed of before the clock runs out, but both often have problems conveying the message.

According to the author, who modified a methodology used by medical doctors who often have to deliver bad news on a regular basis, the following seven-step process will often make the process easier.

  1. Understand the CEO’s perceptions
    Does the CEO grasp what a legacy systems issue is?
  2. Hold the calls
    Deliver the bad news in one, uninterrupted, focussed session.
  3. Enlist a business ally
    Make it a business problem, not just a technical one.
  4. Stick to the Facts
    Focus on the risk and the associated loss. CEOs are generally NOT technical.
  5. Don’t Improvise
    Have a set of best-, typical-, and worst-case scenarios prepared in advance and do not deviate.
  6. Insist on Immediate Action
    Infuse a sense of urgency and a time line for corrective action.
  7. Have a Clear Next Step
    Have a specific plan for getting to the goal.

It’s certainly worth a try if you don’t have a better option (and, chances are, you don’t).

Will Printing Bring Production Back Home?

A recent article over on Supply Chain Digest that asks how soon will “printed” parts revolutionize supply chains — and the world brings up a great discussion point when it notes that consumer product areas could be revolutionized by the approach and some people [are] wondering if the dynamics will, in some cases, lead to domestic digital production of some items versus offshore manufacturing in low cost countries. When you consider that 3-D printing is getting better, faster, and cheaper everyday and is already used to produce

  • aircraft titanium landing brackets
  • industrial gloves made out of nylon, stainless steel, or titanium
  • mobile-phone cases where the shape and colour is personalized for each user
  • dental crowns custom shaped to a patients mouth
  • medical implants

and that these printers can currently handle a wide range of materials including

  • plastics
  • glass
  • metal
  • ceramics
  • nylon

and that

  • 20% of the outputs are now finished products (and not just prototypes) and
  • 50% of the outputs are expected to be finished products by 2020

it makes a great case for moving to digital printing to keep costs down since the only costs are the cost of the machine, the room to put it in, the power to run it, the materials to feed it, and the engineer to come and do preventative maintenance after every X products. No HR costs for assembly workers and, most importantly, no exorbitant shipping costs, which are rising every day as the price of oil is now climbing again.

Plus, the ability to give each and every user a “custom” product without a price increase and still do mass production is enticing. It’s a great way to corner a market if your organization can do it first. And the supply chain can spend more time focussing on improving, and lowering the price of, raw material supply instead of renegotiating logistics contracts and battling fuel surcharges every six months. Furthermore, if a product can be printed faster than it can be air freighted half-way around the world, even if volumes are too high to be met entirely with a printing operation, it’s a great risk — and cost — mitigation strategy.

Probabilistic Chips ARE NOT Going to Improve Your Supply Chain Software

It simultaneously humours and scares me every time non-technical folk decide to write about a new piece of technology and how it is going to revolutionize whatever domain they regularly write about. The latest example is this recent piece over on Supply Chain Brain that says one should look for breakthrough technologies this year.

The article, which correctly notes that adoption of ERP systems led to:

  • Stumbling
    as a lack of depth in planning functionality in ERP systems did not lead to integrated planning
  • Failed Promises
    as the ERP is not the de-facto data model for the enterprise or even the end-to-end supply chain
  • A Lack of Agility
    as it has failed to deliver any sensing capabilities that would drive supply chain agility

went on to say that 2011 would be the year when breakthrough technologies using probabilistic chip logic, parallel processing for near-real time response, and artificial intelligence would hit the market. WHAT THE FRACK? Are you kidding me? Did Supply Chain Brain really publish this? Was it written by the Scarecrow from the Wizard of Oz? Let’s examine these technologies in more detail.

  • Parallel Processing
    Your average solution is already taking advantage of this. It’s called a multi-core chip which has been standard in every server for years now. Sure most applications are not written to be multi-threaded or take advantage of multi-cores, but, in order to allow the developers to handle increasing complexity and code-sprawl, most applications are written as multiple modules that are assigned their own processes, and the OS will balance the processes among the cores to speed up overall performance.
  • Artificial Intelligence
    We have been promised (true) AI for 55 years and it has never materialized. What makes you think the next 55 are going to be any different? And how are supply management applications going to deliver a technology that does not even exist yet?
  • Probabilistic Chip Logic
         Obviously the author has no fracking clue what PCL is. Because if the author did, the author would know that PCL, by its very definition, CAN NOT improve computational results. In fact, what PCL actually does is WORSEN computational results. (It will make a decision optimization model worthless since optimization requires millions of calculations and the propagated error would soon be so bad that there will be no accuracy left.) In some applications, like video and audio compression and decompression, small losses in accuracy are not only acceptable but often unnoticeable. It turns out that if you are willing to accept small losses in accuracy, you can do the computations with significantly less energy.
         Most of the voltage required by a computer chip is used to overcome the electrical “noise” created by constantly moving electrons in the chip materials. If this noise is not drowned out by a high enough voltage, then a chip may not be able to accurately determine if an electron flowed through one of its transistors. (Chips produce their bits, 0s and 1s, by measuring the absence or presence of an electron in a transistor.) If the voltage is decreased, the signal-to-noise ratio decreases and the probability of registering an incorrect bit increases. It turns out that the nature of electricity means that voltage (and energy) requirements can be significantly decreased if one is willing to accept an increase in the probability of a bit being mis-read x% of the time, which for some applications (like video and audio signal processing) only results in a small loss of precision.
         Thus, the use of a probabilistic chip can decrease your energy requirements (and corresponding operational costs of computing machinery), but cannot improve the processing accuracy of any applications so using it (although it can speed the chips up slightly since lower voltage utilization means they can run faster without overheating). And, at least for now, one will get (considerably) more speed from parallel processing.

If a Deal Is Too Good To Be True, IT IS!

This is just as true in technology and services as it is in products. If you get four bids for a new technology platform and / or (integrated) services package and three are plus or minus 20% and one is 1/3 of the price, I guarantee that lowball bid is too good to be true. And if you did your homework, you’d instantly know it and disqualify it.

You buy a product or service because it’s cheaper to buy than to build or perform it in house. However, that product or service still has a cost to the vendor, in terms of manpower and resources — costs the vendor has to meet in order to deliver you a quality product or service. If the vendor doesn’t cover these costs, and make a fair profit, one of two things is going to happen — the vendor is going to go out of business trying to serve you at an unsustainable level or the vendor is going to deliver a significantly inferior product or service to stay afloat.

I’m reminding you of this because a number of companies have not only been looking for new solutions now that we’re into a slow recovery, but because a number of companies, desperate to reduce costs, have been rebidding everything under the organizational umbrella, including the supply management platform(s) and service contracts. And in doing so, many of them have been getting unbelievably low bids from a handful of vendors who are desperate to win (new) market share — and the companies are seriously considering these bids. These bids are unbelievable for a reason — they’re not real. They’re up front costs, and as soon as you sign on the dotted line, you’re going to be hit with “change fees”, “service costs”, “upgrade fees”, etc. if you want the same level of service being offered by the competition, who are all in the same ballpark at sustainable bids. Or, even worse, the vendor is just going to give you the platform or an initial spending report, and then disappear until renewal time because the cost only covers platform support, not project or customer support. Or, and this is the worst situation of all, the vendor is trying to build a new business (in a new vertical) and thinks it can use you as a marquis customer to attract new customers, who it will overcharge to make up for the loss on you. If it works, you’re in luck, but the vast majority of the time what happens is that either the vendor fails to deliver, because they didn’t understand the true success requirements or they didn’t understand how much it would cost and how long it would take to make you a success, and then shuts down the business. If you’re lucky, they just shut down the vertical and you get to keep using the platform until you can find a new vendor. If you’re, not, the whole vendor goes tits up and you’re left holding the empty bag.

The worst part is that every month, if not every week, I hear of yet another company who signs on the dotted line with one of these vendors offering “unbelievable” deals that “can’t be matched” — and, even worse, the company is one that should know better (because there are success stories that illustrate it understands many of the precepts of good supply management). Especially when it’s so easy-peasy to determine if a bid is reasonable or not.

It’s easy to determine a reasonable range for a (bundled) technology platform (and /) or service. All you have to do is build a should cost model. Let’s say you’re buying a SaaS e-Procurement platform and want regular project management support, best-practice training, and custom integration to your in-house technology platform. Then you know the vendor will have, at least, the following costs:

  • Platform Delivery & Maintenance
  • Account & Project Management Personnel
  • Development Personnel

If the SaaS license will require 1/50th of their data centre resources, then the base overhead to support you will be 1/50th of their data centre and support team costs. If you require about 20 hours a week of account and project management support and training, then you will require half of a senior resource who has expertise in your industry and categories. If the custom integration is expected to take two man years, than you will need the equivalent of two developers on the vendor’s staff dedicated to you.

Now, if the average cost to maintain a small data centre, or rent part of a data centre, that will support 50 similar-sized enterprise clients is 3M, then you can quickly estimate that it will cost the vendor 60K (+- 10K for a margin of error) just to have you on the books, before it lifts a finger. If the senior resource required to support you on your projects is a 120K to 150K resource, then it will cost the vendor 60K to 75K to dedicate this resource to you half of the time. And if the average developer with the necessary skills is going for 70K to 90K, that’s another 140K to 180K that the vendor needs to outlay to support you. Then, there’s the vendor’s cost of sale, which, depending on commissions structures and expenses, is probably in the 15% to 25% range, and the need for the vendor to make a fair profit, say 10% to 15%, to keep investors happy. If you add it all up, you get:

Cost $ Range
Platform Delivery & Maintenance 050K to 070K
Account & Project Management Personnel 060K to 075K
Development Personnel 140K to 180K
Subtotal 250K to 325K
Cost of Sale 040K to 070K
Profit 025K to 050K
Total 315K to 445K

This tells you that any bids you get in and around the 315K to 445K range are reasonable, that if you get any bids that are more than 600K, the vendor either doesn’t understand what you want or is trying to rip you off (up front), and that if you get any bids less than 250K, either the vendor is planning to not support you to the level you need to be supported, the vendor is planning to make it up later with “change fees” and “service fees” when you’re locked in to a long term contract and held captive, or the vendor is looking to make a poster child out of you and take unfair advantage of the relationship (and then leave you holding the empty bag if things go south).

Regardless of why the vendor gave you the unbelievable bid, one thing is clear. If you accept it, you will get screwed.