Category Archives: Technology

CombineNet Communiqué II: Comparisons

Disclaimer: This blog, including this post, is not sponsored by CombineNet (acquired by Jaggaer). The author is not employed by, contractually engaged with, or affiliated with CombineNet. Any and all opinions expressed herein are solely those of the author. Furthermore, the opinions expressed herein should be contrasted with the opinions of other educated professionals before the reader forms his or her own opinion. Finally, the author is neither endorsing nor dissenting the use of CombineNet’s products or services – merely trying to spread awareness on the importance of optimization and the relative uniqueness of an offering like that of CombineNet. This disclaimer holds true for each post in this multi-part series and will be repeated.

Yesterday we recounted The Story To Date, and in response to the statements of CombineNet’s representatives that their product is designed for “everything in the bucket sourcing”, their optimization is easily accessible, their speed allows for more scenarios to be run in the same time frame – increasing the probability of a successful event -, they are now a hybrid of BoB (Best of Breed) and POE (Platform Optimization Engine), offering their clients the best of both worlds with their preconfigured templates, and even Jay Reddy, founder of MindFlow, openly acknowledged CombineNet’s optimization capabilities were without peer I noted that the reality was, more or less, (much?) better than it was (but easy is a relative term), definitely, more or less (but that’s not necessarily a bad thing), and pseudo revisionist history.

Today I’m going to indirectly address these issues by tackling CombineNet’s post The Make vs. Buy Dilemma, which was in response to my comments on their Analytics Support Negotiations posting.

In this post, Paul Martyn endeavors to offer a specific example of make versus buy to illustrate the saving potential an optimization-enabled sourcing process can unlock to demonstrate how Expressive Bidding unleashes savings and offers new insight into supply plans.

In this example, Paul uses the example of a seat assembly to illustrate that in addition to:

  • sourcing the individual components and assembling them (make)
  • sourcing the assembled components (buy)

one can take a hybrid approach where one considers

  • sourcing bundles of parts in combination with individual parts.

In his example, Paul illustrates a situation where sourcing individual parts (make) costs $129, sourcing the final product (buy) costs $120, but sourcing subassemblies, which may consist of the odd individual part, only costs $92.

Although this was a very good post, and one of the clearest posts out there on the power of optimization, it did not quite meet its goal because this is a problem that could be more than adequately solved by way of a leading platform optimization engine, such as Iasta’s, although it would take three scenarios instead of one (and possibly a few extra milliseconds of solve time), and a problem that could have been solved with a single scenario using an unreleased version of MindFlow’s optimizer, the former leader in the platform optimization engine category. In other words, it might take the right approach, a little creativity, or a little extra work, but some make vs. buy analysis can be done with platform optimization engines.

Does this mean that you don’t need best of breed? Not necessarily. There are problems that the platform optimization engines cannot solve. However, these tend to fall into two categories: deep and complex or highly specific. However, as it was defined, this was not one of them. But Paul was closing in on the right path, and tomorrow we will discuss a problem that you would be (very) hard pressed to solve using a platform optimization engine.

CombineNet Communiqué I: The Story to Date

Disclaimer: This blog, including this post, is not sponsored by CombineNet (which was acquired by Jaggaer). The author is not employed by, contractually engaged with, or affiliated with CombineNet. Any and all opinions expressed herein are solely those of the author. Furthermore, the opinions expressed herein should be contrasted with the opinions of other educated professionals before the reader forms his or her own opinion. Finally, the author is neither endorsing nor dissenting the use of CombineNet’s products or services – merely trying to spread awareness on the importance of optimization and the relative uniqueness of an offering like that of CombineNet. This disclaimer holds true for each post in this multi-part series and will be repeated.

For those of you following the sourcing blogsphere, you’ll know that I’ve been giving CombineNet a bit of a (good spirited) hard time lately on Spend Matters, e-Sourcing Forum (ESF) [WayBackMachine], and here on SI, but I’m just trying to poke and prod them into educating the sourcing community as a whole since I believe that decision optimization is still not well understood overall, and optimization is a much more involved topic than most people realize. After all, they have what should be the only real optimization blog out there, CombineNotes.

If you haven’t, I would highly recommend you read the spirited debates over on Spend Matters that resulted from the following posts:

Old News Keeps Flowing*
What Do Rubik’s Cube and Expressive Bidding Have in Common*
An Optimization Knock-Down!*

as well as the following CombineNet posts:

  • Project Zander and Comprehensive Network Design
  • CombineNet – The Allocation Company
  • Analytics Support Negotiations
  • Expressive Commerce and the Long Tail
  • Perspectives in Puzzling
  • The Make vs. Buy Dilemma
  • ‘Right Tool for the Job’ Sourcing

If you’re new to SI and missed my Optimization series over on ESF, you can still review part I, part II, part III, and part IV, and if you missed it, my first post on Decision Optimization is still available in the archives.

For those of you who’ve read the posts, and just want a quick recap, here it is.

I fear that optimization is not well understood and that much needs to be done to educate different users on the strengths and weaknesses of differing methodologies and solutions. There are upsides and downsides – the Rubik’s cube is simultaneously the best and worst analogy I’ve seen yet – the apparent complexity is that of a Rubik’s cube, but the actual complexity is much more so.

With respect to optimization, there is a sharp distinction between the problem, model, and solution (algorithm) and confusing them can be dangerous. If the model, and the modeling capabilities of the tool, are not appropriate to the problem, or not useable by the end user, it does not matter how good the solver (or solution algorithm) is. (MindFlow proved this point.)

There are embedded POE (Platform Optimization Engine) solutions, based on COTS (Commercial Off-The-Shelf) optimizers, BoB (Best of Breed) solutions with custom (proprietary) solution algorithms, and solutions that merge the two. The best solution all comes down to the problem at hand and its modeling capabilities – a better algorithm does not necessarily imply a better solution, although it will probably reach one faster. The model is key. Furthermore, there is a cost associated with pure speed – when it comes to optimization, you can only have any two of deep, fast, and accurate.

Depending on the problem, a better model may not save you more money – it depends on how fine grained the data you have available is and whether or not the model’s constraint representation abilities can support more advanced costing models. If your data is coarse grained, chances are the additional savings provided by a BoB solution will be negligible (less than 1%), if any. If your embedded solution limits the cost factors (i.e. forces you to combine unit, usage and/or transportation costs, for example), then a fine grained model may save you a couple of percentage points if you have detailed transportation and / or usage costs at multiple freight brackets. If your embedded solution does not support sophisticated discounts or bundle based costing, then a Best of Breed solution may save you significantly more, and the quoted range of 5% to 10% is very realistic. (However, if your embedded solution does support discounts and bundle-based costing, then a best of breed solution may not save you more than a few percentage points, if that much.)

CombineNet has some of the deepest models out there, they are one of the few companies with proprietary solution algorithms (which require a lot of brain power and development time), I thoroughly believe that their logistic models are best-in-class, but I’m not entirely sure that they are “without peer” when it comes to sourcing, primarily because of what I said in the last paragraph. It depends on the problem and, since this is business, the ROI.

Compared to many of its “peers”, CombineNet has a price tag that is directly correlated to its capability – quite high! (Based on quotes I have heard, one event could cost you as much as a year of unlimited events from an on-demand provider for a small team of sourcing professionals.) For some problems, I strongly believe that, in the words of the SpendFool a honda engine will do the job just as well as a lear engine, and if we are talking about a spend in the 10M range, then I would doubt the price tag is worth it. But if we are talking 100M+ spend on a very complicated category where you need to do an embedded make-vs-buy analysis (which I’ll elaborate on in a forthcoming post), I might actually advise you to spend money hand over fist on CombineNet because even an extra percentage point will generate a significant ROI for you. (For example, even if it only saved you two percent, on a 100M category, that’s two extra million to apply against your bottom line!)

My comments, as you might have guessed, did not go unanswered. According to CombineNet, their product is designed for “everything in the bucket sourcing”, their optimization is easily accessible, their speed allows for more scenarios to be run in the same time frame – increasing the probability of a successful event -, they are now a hybrid of BoB and POE, offering their clients the best of both worlds with their preconfigured templates, and even Jay Reddy, founder of MindFlow, openly acknowledged CombineNet’s optimization capabilities were without peer.

The reality, more or less, (much?) better than it was (but easy is a relative term), definitely, more or less (but that’s not necessarily a bad thing), and pseudo revisionist history. But these are topics for the forthcoming posts in this series, so I’ll leave you with a quote from the SpendFool:

This stuff (i.e. POE & BoB Optimization) isn’t mutually exclusive! Nothing wrong with using the consultants with big brains and tools to solve the really strategic problems AND also using mass deployed tools from ERP and/or SaaS vendors. Pick the right tool for the job. Anything else would be foolish.

Thanks SpendFool!

Looking forward to your comments on my (next) posts!

* All posts prior to 2012 were removed in the Spend Matters site refresh in June, 2023.

Sometimes Good Advice for IT is Good Advice for Sourcing

A while ago, ZDNet published a short article that described a “10-Step program to SOA Success”. What’s neat about this article is that it could have been titled 10-Step Program to Sourcing Success as it is a great primer if you are just entering the world of e-Sourcing.

Let’s examine the ten steps carefully.

  • Who’s Your Daddy?
    Without support, any project is doomed to failure. If your organization does not yet have a Chief Procurement Officer on the senior management team, you need to find someone in senior management who is responsible for a top business imperative and convince them the project will save money and let them champion your cause.
  • Have a Vision!
    You need to articulate your vision regularly and consistently to gain support from other teams, departments, and upper management. You’re implementing the foundations for sweeping business change that is going to affect the business for decades to come.
  • Identify Attainable Projects.
    Start with an initial project that has immediate value and that can be finished in a few months since nothing speaks louder than a successful project delivered on time with better-than-planned savings.
  • Support the Business.
    If you choose the projects with the greatest potential impact to the business, you will ensure that your sourcing projects get the attention they deserve.
  • Flexibility Matters.
    Create flexibility through loosely coupled on-demand services that can be formed to create composite applications that automate business functions across the sourcing and procurement cycles. This flexible infrastructure will form the basis of business processes that are capable of adapting quickly as markets change.
  • Networking is Not Just for Salespeople.
    A key to success is the establishment of corporate-wide support at all levels of the organization. Be visible, promote your success, and find a way to make your success their success.
  • Don’t Lose Control.
    Establish strict governance procedures from the outset. With stringent government regulations, organizations need to be acutely aware and be held accountable. In sourcing terms, this means documenting each step of the process and ensuring compliance with negotiated contracts.
  • Don’t Fear Change.
    Organizational changes are imminent and you should be prepared to not only adapt to them, but guide them. After all, procurement is a central business unit in a successful organization.
  • Learn as You Go.
    Even if the first projects go very well, which they can if you use good tools, best practices, and follow the advice of experienced category professionals (that you should consider hiring as consultants if you do not have the expertise internally), there is always room for improvement. The most successful aspects should be recognized, captured, and carried to the next project while the less successful aspects should be identified and improved.
  • The Best and the Brightest.
    Create a center of excellence and staff it with the best and brightest. This team will be responsible for identifying best practices and guiding your procurement teams in their implementation.

New Technology Strategies for Supply Chain Management

The first keynote at the Symposium on Supply Chain Management yesterday was Beth Enslow’s (of Aberdeen Group) presentation on New Technology Strategies for Supply Chain Management. Over the last 6 months, Aberdeen has produced a slew of reports on Supply Chain that have identified a number of common findings that point the way to a best in class supply chain.

The five key findings were as follows:

  • Compete on Agility
    Traditionally, technology has not had the required agility, but in today’s environment where product cycles are shortening, new product introductions are increasing, and transportation networks are taxed, agility is key if you want to be best in class.
  • Beyond 4-walls Control
    Today, there is more reliance on external partners and processes are often driven externally.
  • Collaboration is Popular Again
    Collaboration can drive more value than reverse auctions. Significantly more value.
  • Reinvigorated Focus on Inventory Management
    Inventory is costly – you have to store it, and many products are perishable with new products always just around the corner.
  • New Technology: SOA & SaaS
    These technologies are more agile and integratable and should be at the foundation of any new initiative you undertake. After all, when 86% of companies require more than 6 months, and 40% more than 18 months, to adapt IT systems to changing business requirements and many on-demand SOA / SaaS solutions can be implemented in 3 to 6 months, this just makes sense.

Amazingly enough, these key findings line up reasonably well with the top four investment priorities for SCM, considering there seems to be a systemic blindness out there to the importance of proper SCM processes and technologies, a topic I’ll discuss further in a later post.

The top four SCM investment priorities identified by Aberdeen were:

  • Inventory Management (63%)
  • Demand Management (S&OP) (63%)
  • Supplier Collaboration / Global Transportation Management (40%)
  • Supply Chain Execution (40%)

In other words, if a company implements these technologies using Business Process Management and Workflow driven on-demand SOA applications with the ability to be configured on a company-by-company basis, they will be multiple steps closer to being able to execute as a best in class company.

Other interesting statistics included the attributes of the best-in-class inventory management companies (which have customer service satisfaction levels over 95% and reduced inventory carrying costs):

  • 45% use multi-echelon optimization systems
    vs 14% for all others
  • 57% have existing supply chain visibility systems
    vs 22% for all others
  • 52% have a forecasting system supporting customer-level forecasting
    vs 23% for all others

… and the on-demand vs. traditional statistics …

Metric better same worse
ROI 64 32 3
Upgrade Ease 66 19 16
Implementation Time 57 34 9
Customer Service Level 46 47 7

… and fact that for certain managed services, up to 50% of companies are somewhat interested and up to 30% of companies are highly interested … which is promising considering that best-in-class PSPs (Procurement Service Providers) can often outperform your in-house staff on categories outside of your core strengths.

Beth concluded with five recommendations that I strongly suggest you keep in mind when selecting new supply chain technologies:

  • Choose SOA-based solution offerings to ease implementation and improve usability and agility.
  • Consider on-demand and managed services.
  • Demand quick implementation and payback. You should be fully implemented within 6 months and see a return within 1 year.
  • Exploit the value of improved supply chain management information internally.
  • Agility! Agility! Agility!

(Supply Chain Management Technology) Still Going …

A month or so ago, “AMR Research” (acquired by Gartner) released their “Supply Chain Management Applications Report 2005-2010”. Considered one of the cornerstone reports of the space (with a price tag to match), it’s always worth a read – if you can afford it.

If you can not afford it, you can settle for the highlights, which SupplyChainBrain was kind enough to post in an extended three page review in the September 6, 2006 edition of the e-Insider. I hope you were fortunate enough to catch the summary before it disappeared from their site. If you were not, here are seven highlights from the summary.

(1) The SCM market grew 3% in 2005, and is expected to grow 7% in 2006 and 5% in 2007.

(2) The most rapid innovation is being delivered by independent software providers that are focusing on industry-specific functionality and targeting under-serviced business problems.

(3) While 75% of firms have supply chain organizations, only 52% have experience with a supply chain organization for more than two years. As a result, domain expertise is a limiting factor for user adoption of supply chain management technologies.

(4) Analytics is merging with optimization to drive decision support for critical processes.

(5) The following environmental factors affecting the SCM market have triggered a shift in business priorities since the last report:

  1. Globalization and global sourcing
  2. Leaner supply networks
  3. Increased customer expectations
  4. More mass customization
  5. Increased demand variability
  6. Cost volatility, inflation, and competitive pressures

As a result, the development focus for vendors has shifted as follows:

  • movement from static demand planning to demand sensing and shaping
  • progression from enterprise planning to multi-tier decision support
  • recognition of materials and logistics as major manufacturing constraints
  • shortening of order execution cycles
  • focus on network flow analysis

(6) The top growth area for 2005 was in AMR’s inventory configuration and policy technology category as a result of the need for multi-echelon inventory optimization and inventory policy to buffer against supply risk, maximize in-stock positions, and ensure continuity of supply.

(7) Revenue from application hosting/subscription grew strongly at 16%. SCM software is increasingly purchased by buyers on a subscription basis to avoid capital budgeting, rapidly achieve ROI, and avoid large upfront license commitments. Furthermore, AMR expects subscription licensing to continue to grow as a share of SCM software revenue.

In other words, (1) the market is growing, (7) on-demand is capturing the market place, (5) execution cycles are shortening in a time when improved demand sensing and shaping is key, (6) technology that addresses this problem will continue to grow and improve, (4) the best technology will be built on analytically-based optimization, (2) it will be built by innovative fast-moving independent software providers, and (3) chances are good that you need to adopt this enabling technology since there is a 52% chance your supply chain organization is limited in expertise and experience and the right technology from the right partner will greatly enable your organization.

And all of the above is good news for you.

(1) In a growing market, your solution providers will be pumping more sales dollars back into R&D to make better products for you. This will be especially beneficial to those of you who use on-demand solutions with frequent upgrade cycles.

(2) As time goes on, there will be more and more solutions that address an ever-increasing number of business problems, making your job easier and easier.

(3) Knowing that your domain expertise is limited allows you to go out and seek precisely that. Many consulting firms have been springing up to help you with specific problems. Use them. After all, Aberdeen has found that companies that outsource well do better than their peers.

(4) Considering that Aberdeen has found the application of optimization tools to analyze total costs, and of flexible bidding functionality to uncover creative supplier solutions has enabled early adopters to identify an average incremental savings of 12% above those that basic, price-focused auctions alone have generated, the quality of your allocation award decisions can only improve.

(5) One of my summer series discussed how Demand Driven Supply was the future of supply chain demand planning, so the fact that vendors are already actively pursuing this direction is great news for you.

(6) Simply put, improved inventory management software decreases your costs and increases your profits.

(7) On-Demand is here to stay – which is good news considering all of the benefits it provides (as chronicled on the e-Sourcing Forum [WayBackMachine]).