Category Archives: Technology

Cost of NOT Using Modern Supply Chain Systems: 6.8 Billion

A recent article over on CNN Money that noted that the “store theft cost” (CNN Money Nov 10, 2009) to your family, largely due to a 9% jump in retail theft over the past year, is $435 — as shoplifting, employee theft, and supply chain fraud cost retailers $42.2 Billion between July 2008 and June 2009, had a surprising revelation.

Breaking this mega-loss down, we find that:

  • 18.7 Billion is due to employee theft
    which could be considerably reduced with better screening, security and processes
  • 15.0 Billion is due to shoplifting
    which could be somewhat reduced with better security, but will likely always be a problem
  • 6.8 Billion is due to processing, supply chain errors, and frauds
    which could be eliminated with good systems and processes
  • 1.7 Billion is due to other causes

There’s no excuse for any errors. Good end-to-end e-Procurement systems can match every invoice against the purchase order and contract and make sure you’re only paying for what you ordered at contracted rates. Good forecasting and inventory tracking systems will prevent costly errors. And good visibility systems will allow you to spot any exceptions as soon as they occur and stop frauds, and fraudsters, in the act.

So now that you know that not using this technology is personally costing you, and everyone else in your organization, about $70 a year, why aren’t you using these systems? The reduction in loss alone over their service life-time will more than pay for them. (Not to mention the savings that a good sourcing, e-procurement, or inventory system can help you identify!)

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Trade Extensions Trades Up Its UI and e-Negotiation Management Capabilities

About a year ago, I introduced you to Trade Extensions (TE) on the eleventh day of X-Mas. A provider of an extensive on-demand e-Negotiation platform, Trade Extensions is an emerging player in the global e-Sourcing marketplace — one that offers negotiation management, extensive RFX, and (reverse) auctions with embedded real-time decision optimization.

Since my initial coverage, Trade Extensions has made the following significant updates to their platform:

  • a brand new UI across their end-to-end system
    The new UI is crisp, clean, and click-minimal. It’s quick and easy to use and very self evident. Plus, their online help pages are very extensive and updated regularly by the entire TE development and consulting teams.
  • integrated data cleansing & classification capabilities
    Have to fix a lot of data? Just create a rule and map it, just like you’d do in a spend cleansing and classification system.
  • OLAP Reporting for Scenarios
    Users now have access to full OLAP capabilities when viewing scenario results and reports.

In addition, the following features, which I have not covered before, have been improved:

  • extensive modifications to their bid supplement functionality
    Data — pricing, discount(s), rebate(s), etc. — can be captured at any level (supplier, business unit, plant location, etc.) and used for mark-ups, discounts, qualitative scores, or as the basis for any formula(s) the user wishes to define.
  • flexible bid forms
    Not only does TE support full Excel integration, but bid forms can be designed by the user to fit their business needs. There’s no need to force your information into a single system format. A user can create additional worksheets, add columns and rows to existing worksheets as required and add macros and formulas without interfering with the platform’s ability to read completed bid forms.
  • outlier analysis and statistical reporting
    The platform can automatically detect bids that might be too high or too low and flag them for your review (after you define your outlier rules, such as specific bid field values x% away from average / historic / custom calculation). The platform also includes a number of statistics reports, including a parameter statistics report that contains a detailed analysis at the lot and bid level.
  • composed filters
    Filters, which allow you to define constraints on any set of suppliers, ship from locations, ship to locations, products, etc., can now be defined on other filters to allow for very easy, and very powerful, constraint creation.
  • selection sheets
    Excel spreadsheets can be used to define allocation constraints, discounts, penalties, and multipliers … greatly simplifying discount and constraint creation in many cases.
  • project management functionality
    100% integrated into the cohesive e-Negotiation platform, the project management functionality allows for the creation of phases and tasks, the allocation of resources to phases and tasks, and the creation of scopes (by supplier, geography, etc.) as appropriate.

They’ve also continued to increase its power. Consider a recent project run by a financial services firm that tendered all of the components of a direct mail project that would result in the mailing of 1.8 Billion documents. The project, which consisted of 65,000 items, 60,000 transport destinations, and 400,000 bids from over 100 suppliers was valued at $1 Billion with a “B”.

The project was to ultimately deliver documents to the firm’s customers, but to get to that stage each part of the supply chain needed to be tendered. This included design, paper supply, printing, assembly, and transport. The project was completed as a single tender with offers collected on-line and all components tendered concurrently. In addition, suppliers could make conditional offers that reflected their own efficiencies that could present the firm with further savings. This was a project that could not even be attempted by hand as it would take someone close to two weeks just to scan each bid. There’s no way someone could even fathom attempting to optimize this scenario if all they had was a spreadsheet solution that couldn’t handle more than 65,536 rows.

Finally, TE is one of the few players in the market to make their pricing scheme public.

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Target Costing Works and You Can Do It Too!

A recent article in Purchasing on how “purchasing learns cost modelling” noted that smart buyers are working with engineers, finance and suppliers to identify cost drivers in product development and eliminate them and that Whirlpool was able to close a gap of 30% between the target cost for an aesthetics module on one product and the initial design cost by way of a cross-functional team that included purchasing, marketing, sales, engineering, global design, production, and quality control. This greatly improved Whirlpool’s chances of hitting its profit target while saving it a bundle of money up front.

The concept, which dates back to the Toyota Production System and the beginning of Lean, is starting to take hold in a number of big companies like Boeing, Olympus, Komatsu, LG, and CAT and getting great results. But it’s not just limited to large companies, even though most of the articles I see, including this one, give you that feeling.

Thanks to not-so-new players in the market, like Akoya, which was founded in 2004 and offers an impressive industry-leading competitive banding solution, and Apriori, which was founded in 2003 and offers impressive industry-leading virtual production environments, mid-size companies can get in on the action at relatively low cost and save millions for literally pennies on the dollar.

With one (or both) of these partners on your team (as their solutions can be used complementarily, and I know of at least one big mutual customer that does so to great success), you can jump-start the process and see savings in a matter of weeks. Literally. But don’t just take my word for it. Take their customers’ words — and results. If you call them, I think you’ll find that they’ll happily give you relevant references. Their products help you get Lean fast, and it’s a shame they get so little press because it doesn’t take a massive Lean transformation to get started on your target-costing journey (even though that should be your ultimate goal).

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Can Good e-Discovery Tools Really Reduce Your Legal Fees?

Or will they just instill over-confidence and end up costing you millions when you lose the case and have to pay a huge award for damages?

It’s a good question, and the first one I asked after reading this article in Integrated Solutions Magazine on how “e-Discovery is not just for lawyers anymore”. The article, which points out that Gartner’s recent report on “E-Discovery: Project Planning and Budgeting 2008-2011” found that one gigabyte of data can result in $18,750 in legal review costs, makes a good point when it notes that outside e-Discovery can be very expensive. It also makes a good point when it notes that you’ll likely have to pay considerable legal fees regardless of the outcome of the case. But what it doesn’t ask is what happens if doing it yourself fails to turn up that one piece of evidence that could win the case for you? Even if you had to spend an extra 100K, that’s still a lot better than losing 1M, 5M, or even 10M!

While I loathe paying extravagant legal fees as much as the next guy for something I could do myself for much less than a big-name law firm will charge me, there’s a difference between writing your own contracts and trying to defend yourself in a trial where millions are on the line. And that’s usually where e-Discovery comes into play.

What I believe you should take away from this article is that modern e-Discovery tools are much more powerful, and much cheaper, than they were years ago and that it doesn’t cost your law-firm $200 an hour for legal review when these tools allow para-legals, who make less than $30 an hour, to do the initial culling which produces documents that are then reviewed by junior associates, who make less than $50 an hour. (And I’m being generous with both numbers, especially considering the number of hours new associates are expected to pitch in. There’s a reason some people think law firms keep the cot industry in business.)

Then, your procurement department should be using this knowledge to aggressively negotiating the amount you pay for each service performed by the law-firm. Force them to break down services on an itemized bill and insure that you don’t pay more than, say, a blended rate of $65 to $75 per hour for legal review (with the exact amount dependent upon your local market), just like you don’t pay 20c a page for copies or $500 an hour for basic services (like filings) that an associate can do for (significantly) less than $150. It might still cost a bit more than doing it yourself, but considering the cost of the risk that you will be mitigating, I think it’s worth it.

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SaaS Is Green … But It’s Greener If You Go Thin Client

This summer, MessageLabs (now part of Symantec) released a white-paper on “The Greening of SaaS” which I found very disappointing because one key point that many vendors overlook when selling SaaS is how it can considerably green your operations if implemented and utilized properly.

The paper indicates that with no hardware to purchase or software to run, the energy required to power that hardware and execute that software is eliminated or significantly reduced, depending on client-side consumption. While it is true that the client does not need to buy, maintain, and then dispose of (as much) energy consuming software if they go SaaS, as they won’t need a server farm in a data centre, this does not make SaaS green. If the “SaaS” vendor is actually an ASP-in-disguise vendor maintaining a separate instance of the application on separate hardware for each client, the same amount of energy will be utilized and the same amount of carbon produced. The only difference is that it shows up on the provider’s carbon footprint and not the client’s. That’s not green at all. It’s only green, on the server side, if the vendor is using a shared multi-tenant model and dynamically managing the modern high-density low-power virtualized server farm so that only the processors and storage devices currently being utilized are powered up and the utilization of active processors is at least 70% (to meet the EU PEU guidelines for green).

Furthermore, it then says that the three key local ingredients for best customer results are:

    • desktop and notebook PCs configured to spin down, suspend, or turn off when not in use,
    • utilization of usage-based power consumption devices (with idle ports suspended and inactive ports disabled) on the LAN, and
    • utilization of WAN optimization devices to minimize equipment needs, data transfer, and power consumption

.

And while all of this is a good start, it makes absolutely no mention of thin client. If all your applications are over the web, why can’t you use a SunRay II or a CP20 instead of an energy hogging desktop? Even a modern desktop will still consume an average of 100 watts of power to the 4 watts for a SunRay II or the 25 watts for the CP20 if you need to replace high-end developer workstations. Furthermore, there’s no mention that you should be replacing your old energy hog CRTs with low-energy LCD monitors if you really want to be power efficient. (Now, it is true that you’ll need one or more servers and SANS with your virtual machine instances to support your thin clients, but when you can easily run 128 virtual machine instances off of a modern, high-density, low-power 32-core diskless server, which can all be stored with terabytes of room to spare on your standard 4U 48 TB SAN, you’re still saving oodles of energy and fistfuls of dollars because the cost of 128 SunRays, 1 server, and 1 SAN is significantly less than 128 desktops which need to be replaced at least twice as often as the thin clients, which have twice the lifespan.)

So yes, SaaS is a very green solution … if it’s done right. It’s not just about aggregating traffic to minimize data transfer needs and, thus, equipment needs to support the data transfer, it’s about being smart with resource and energy utilization every step of the way, from the end user all the way back to the provider’s data centre.

For more on greening your data center and greening your desktops, see the linked posts.

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