Category Archives: Technology

Another Bite Out of the Apple?

Recently, CNN ran an article (on June 28, 2006) indicating that the “Next generation of iPods could be delayed”, and the iPod nano and the video iPod in particular. The new iPod nano, originally expected this quarter, is likely going to be pushed back to December and the new video iPod may not appear until 2007.

The expected delay on the iPod nano is the result of Apple switching suppliers for an internal chip whereas the expected delay in the video iPod is due to the need to increase screen size and improve battery life. On the bright side, the capacity of the iPod nano is expected to double.

Could this result in yet another blow to Apple, which must be taking a bit of a beating since a recent newspaper article alleged that staff in some of its Chinese iPod factors work long hours for low pay and in “slave” conditions, as summarized in this article . After all, Apple sold one million iPod nano’s in the first 17 days of its release, leading an AMR (acquired by Gartner) analyst to determine it had a “predatory supply chain”*, so any delay beyond the start of the holiday shopping season could be a major hit to the bottom line.

You’d think Apple would be more cautious, considering their recent switch to Intel last year caused them some supply chain problems. (As per an article in IT Managers Journal.)  However, what surprises me is that despite the fact they seem to have their distribution down, using the global logistics powerhouse BAX Global which was recently acquired by Deutsche Bahn AG (and integrated with Schenker), they appear to continually have difficulties getting products out on time.

I’d be curious to know what sort of development methodologies they use, and more importantly, when they involve procurement in the process. According to a recent Aberdeen report#, when procurement is included in new product design (NPD) in the design stages, product development cost is typically decreased by 16 to 18%, overall product cost is typically decreased 15%, and revenue is typically increased by 19%. Furthermore, whereas the majority of companies are not able to consistently hit product development targets with respect to percentage of products meeting revenue targets, cost targets, launch date targets, quality targets, or product development cost targets, the majority of best-in-class companies that have incorporated procurement into the process at the design stages hit these targets over 80% of the time.

Moreover, as I indicate in my Purchasing Innovation series over at e-Sourcing Forum, I strongly believe that procurement needs to be involved in R&D and NPD from day one, as procurement should be the major source of innovation within an enterprise.

* Link no longer available.  AMR was acquired and ZDNet, which had a summary article, is no longer operating.

# Link no longer available.  Aberdeen acquired by Harte Hanks in 2006, then Halyard Capital in 2015.

On Demand IV: And the SaaS Story Continues

Shortly after I finished writing my three part post on On-Demand over at e-Sourcing Forum (The Good, The Not-So-Bad, And the Coming Pretty …), I stumbled across this great article by IQ Navigator’s (acquired by Adecco Group and merged into Beeline) John F. Martin (of Building SaaS fame) called How True Software-as-a-service Delivers More Value over at Supply & Demand Chain Executive.

In this article, he echoes many of the same points that I have attempted to make in my series of posts, and does so brilliantly. He also clearly emphasizes some of the significant disadvantages of legacy enterprise software in relation to True Software-as-a-Service and gives you some rules for identifying a legacy provider with an ASP model trying to disguise themselves as a software-as-a-service provider.

He emphasizes the following five significant advantages of true SaaS solutions as compared to legacy applications that I believe just cannot be stressed enough:

  • no significant technology investments
    with legacy enterprise application solutions, you have to shell out for significant technology infrastructures to support them; with on-demand, all you need is the PC already on your users’ desks
  • no assembly required
    legacy applications require customers to become technical experts in the software: installation, infrastructure configuration, integration, customization, issue diagnosis, and upgrades; this involves significant training, ramp up time, and paying for a large IT staff indefinitely
  • no lock downs
    once customized legacy software finally goes live, it becomes a “strait jacket” that prevents future innovation and improvements for 3-5 more years (as upgrades are deferred as long as possible due to significant costs to re-implement new versions)
  • speedy issue resolution
    with a legacy enterprise application, the software vendor must often replicate a customer’s unique environment (exact production versions of application, database, operating system, hardware drivers, etc.), which can take weeks, only to determine that the issue can not be diagnosed or fixed because (1) it’s due to a customization (2) it’s the responsibility of another software component provider or (3) the version of the software you are running is too old
  • true process expertise
    true SaaS software vendors are experts in the business processes they automate; they can provide ongoing assistance in using new software capabilities, process innovations, and best-practices

And when you consider that Gartner estimates that more then 70% of the total five year cost of ownership for enterprise software comes after implementation, when you consider on-demand is usually significantly cheaper then enterprise software to begin with, this is a powerful proposition.

He also indicates that you can often tell a legacy application on ASP in disguise by noting one or more of the following indicators:

  • a reluctance to pilot
    pilots represent a significant investment to a legacy application provider who will have to configure a new instance just for you; in contrast, a true SaaS solution provider can enter your name and flick a software switch and the pilot is immediately set to go
  • elephant hunting
    (where the salesperson tries to enlarge the deal as much as possible to maximize revenue before you discover the true benefit/cost ratio of owning the software); in contrast, a true SaaS provider will allow you to buy the bare minimum knowing that you’ll want to buy more when you discover how great the service really is
  • reluctance or refusal to discuss revenue
    or the question “what would happen to your profitability if you had no new customers over the coming 12 months?” this would cause a traditional provider serious grief and lead to significant downsizing; in contrast, an established SaaS provider would be able to maintain status quo
  • infrequent or new functionality in any given year
    in contrast, most true on-demand SaaS providers provide regular updates 3 or 4 times a year
  • hosted versions lag new releases
    in contrast, a true SaaS solution is always up to date
  • insistence on single tenant or multiple instances
    in contrast, a true SaaS provider will want to take advantage of the multi-tenant model to save you both $$$
  • delayed or long implementations
    a provider running a legacy application on ASP may require weeks or months before they can get you up and running; a true SaaS solution can literally turn you on the same day you cut a deal
  • simple customizations require single tenant instances
    in contrast, true SaaS implementations are usually built to contain a moderate amount of configurability from the ground up
  • end of contract unknowns
    with legacy in disguise, you never know if you’ll be able to renew, how much it will cost, if you can get your data out, etc.; in contrast, true on-demand SaaS providers will specify everything for you up front, usually in the contract

Remember, as John F. Martin says, “SaaS allows customers to focus on their core competencies and their business processes rather than becoming experts on software internals, technology infrastructure maintenance, or deployment methodologies.”

Yet another take on SaaS can be found in Robert Bois’ recent AMR (acquired by Gartner) article The Rush to SaaS: Making Sense of the New Wild Wild West, where he presents The SaaS buyer’s guide. In it he presents three questions that the buyer should answer before selecting a solution.

  • What’s in an architecture?
    Mr. Bois points out that from a buyer’s perspective, that single tenancy vs. multi-tenancy should not be as big a concern as the pricing model, SLA, and customer support. Although I will admit that the SLA and customer support issues should be tops, I do not entirely agree with the first point. If price is important, then a multi-tenancy model should save both parties money. Furthermore, as Sudy Bharadwaj of Aberdeen eludes in his take of On-Demand Supply Management at e-Sourcing Forum [WayBackMachine], accepting a single tenancy model may cause you to miss out on the community benefits of a multi-tenancy model.
  • What’s the real TCO?
    This is probably the most important question a buyer should ask. If the TCO of an on-demand solution is high, I’d be willing to wager that there is a good chance that what you are actually being offered is a legacy ASP application in disguise, at which point you should refer to Mr. Martin’s indicators to find out for sure. I like Mr. Bois’ cost table, but should point out it is only accurate for the lifetime of your initial hardware and software purchases. The table seems to indicate that there are no annual subscription/license, hardware, or middleware/db license costs after the first year. This is not necessarily the case. If you want upgrades, you will have to pay a maintenance fee. Middleware providers only support their releases for a fixed time frame, and if you do not upgrade on a reasonable cycle, you will find yourself running an unsupported product, which will cost you a fortune if something fails and you need it fixed. Finally, even the best hardware will not last you more then three years without an upgrade.
  • To customize or not to customize? Mr. Bois makes a really good point here: “many companies believe their business processes are more unique than they really are, and they should weigh the advantages to more custom coded logic against the lower maintenance and upgrade costs of using business process tools and configuration instead of customization“.

Finally, I’d like to again point out Sudy Bharadwaj’s “Six Step Framework for On Demand Supply Management”. (login required) Part of Aberdeen Group’s Enterprise Strategies: Insight and Advice for Enterprise Executives, it overviews the Aberdeen PROFIT Framework for Supply Management as a Service (SMaaS). The PROFIT Framework was designed “to aid supply management evaluators in understanding how to deploy an On Demand solution to drive value“. It provides a series of Process, Regulatory, Operational, Financial, Intelligence, and Technology questions whose answers are designed to help you make the right decision.

The On-Demand Supply Management Benchmark Report

Aberdeen Group recently released “The On-Demand Supply Management Benchmark Report: Enterprises Turn to the Web and Find Quicker and Better ROI to Help Achieve Supply Management Goals“. (A copy of this report was available for a limited time from Iasta, who licensed it for distribution and made it available on the e-Sourcing Forum [WayBackMachine].)

There are a number of significant findings in this report. Since you can download it for free, I will not attempt to cover the findings in depth here, but simply display the following teasers that should get your mouth watering for more!

  • 57% of survey respondents indicated that on-demand performs better than traditional installed behind-the-firewall legacy applications with a further 33% indicating that on-demand performs about the same; that’s 90% of respondents agreeing that on-demand performs as well or better than traditional legacy applications
  • 57% of survey respondents indicated that on-demand systems are easier to upgrade than traditional installed behind-the-firewall legacy applications with a further 34% indicating upgrades required about the same amount of effort; that’s 90% of respondents agreeing that on-demand systems are at least as easy to upgrade as traditional legacy applications
  • 52% of survey respondents indicated that on-demand systems require less implementation time and effort than traditional installed behind-the-firewall legacy applications with a further 39% indicating installs took about the same amount of time and effort; that’s 91% of respondents agreeing that on-demand is at least as fast to implement as legacy systems, if not faster
  • enterprises deploying on-demand solutions improve spend under management by 28% more than enterprises that deploy installed on-site solutions over the course of a year … 28% … considering that the savings potential for each dollar of spend under management is between 5% and 20%, even if the actual savings realized is only 30.3% of planned savings (industry average – best in class do much better), then you are looking at a savings of at least 1.2M for every 1B … 1.2M+ … and considering that decent on-demand suites can be obtained for 250K/year (not counting professional services), you could easily save 1M just by using on-demand! ( If you are best-in class and capture 70% of planned savings and efficient and get 15% on each dollar of spend under management, you save roughly 3M more on every 1B going with an on-demand solution! )

And that statistic sums up nicely everything I’ve always believed about the inherent value of on-demand. For more of my views, check out my 3-part series over on e-Sourcing Forum if you haven’t already (The Good, The Not-So-Bad, And the Coming Pretty …) and Sudy Bharadwaj’s thoughtful commentary, also on e-Sourcing Forum.

Have a great day and enjoy the study!

You might also enjoy “A Six Step Framework for On Demand Supply Management”, released on the same day as well (login required). Part of Aberdeen Group’s Enterprise Strategies: Insight and Advice for Enterprise Executives, it overviews the Aberdeen PROFIT Framework for Supply Management as a Service (SMaaS). The PROFIT Framework was designed “to aid supply management evaluators in understanding how to deploy an On Demand solution to drive value”. It provides a series of Process, Regulatory, Operational, Financial, Intelligence, and Technology questions whose answers are designed to help you make the right decision.

Procurement Independence at the Coupa Cabana Cafe

This month, Dave Stephens of Procurement Central (WayBackMachine) will formally launch Coupa eProcurement, an open source offering with the ambitious goal of becoming the first self-service buying tool that employees actually want to use. Besides eliminating manual processes (and you should know by now that I believe in purchasing automation with the eventual goal of completely eliminating purchase orders), Coupa eProcurement claims to enable better buying decisions, easily support special requests, create and manage content, and spread the word on “how to buy”.

Now I’m as skeptical as Jason Busch of SpendMatters and Doug Hudgeon  of Vendor Management (Renamed Contract Capital Management, archived on the WayBackMachine), but I have to admit that I’d like to “… Imagine a world where it’s easier to follow the rules than to break them. Imagine receiving accolades for providing users with an easy system for what should be an easy process: buying what they need, when they need it. Imaging deploying … a complete requisition to order system with best-in-class usability and collaboration features …“.

Now, I was lucky enough to get a webex preview of this system last Tuesday and would like to say that it is looking really good. A web-based solution, your buyers can open their browser and log in to a procurement portal customized to their needs.

On the main page, besides your usual main bar, news section, and intranet document access, you have an RSS-based news feed which is always automatically up-to-date, a one-stop google-style search-box that you can use to search for information and items in your approved purchase catalog, and an ask-an-expert question box that will submit questions to an in-house expert. Once answered, these best practices will be institutionalized in a dynamically evolving FAQ. In addition, instead of forcing a rigid organizational structure on your best practices and policies documents, news items, and catalog items, it offers the concept of a self-updating “tag cloud” that shows users what index terms are currently in common use and allows them to evolve the indexing methodology to what they feel comfortable, and productive, with as a team.

Furthermore, it also integrates one of the easiest-to-use shopping-cart based requisitioning systems that I’ve ever seen. (And I’ve designed a few slick offerings myself as a former e-commerce developer.) It’s easier then amazon’s “one-click”, since that’s only one-click after you’ve made multiple clicks through the site trying to fill your cart and only one click if you use all default buying options. Coupa’s offering lets you find an offering, add it to your requisition cart, and then add items to the cart in the cart screen based on integrated smart drop-downs and editable smart-search fields – it’s as easy as filling out a line on a purchase order. If you know what you need, you can go right to the cart, define what you want in the cart, have the line items appear, click “requisition” and off shoots an e-mail to your supervisor indicating an order is waiting for her approval.

Now you’re probably thinking … “If it’s that easy for a user, I bet it’s an administrative nightmare to keep it running”. Well, although Dave hasn’t released any details to me on the technology stack yet and I don’t know how hard it will be to install, I can say that keeping it up to date is pretty simple. Adding your catalog of approved items is as simple as sucking in a well formatted file or integrating with a PIM (Product Information Management) exchange on a push/pull model. Adding policy documents or news items is a snap. And approvals, nicely summarized on clear and crisp screens, are as easy as a mouse click.

The only thing that bothered me slightly was the fact that there is no separation between “catalog” and “contract”. However, from a procure-to-pay point of view, this is a brilliant idea (as long as you associate expiry dates with the catalog items). After all, you should not have items in your system that are not under contract or not approved for purchase, so the separation of these concepts would only add complexity to what would otherwise be a simple system (again, providing catalog items have an expiry date associated with your contracts and these catalog items disappear if those contracts do not get renewed).

Now, add all this to the fact that Coupa intends the total cost of system ownership to be 2x to 3x less then the cost of ownership of the typical e-procurement offerings from SAP and Oracle, and Coupa starts looking very attractive.

However, I have to agree with Doug and say that “ Dave’s chance of success depends entirely on the shape of his target market. If he goes after the most demanding customers in the spend management market with a version 1.0 system then he will have a long slog in front of him … ” but if he instead focuses on “ ‘overshot’ customers who do not require all of the features of the current suite of products or to non-customers who are excluded from the current suite of products for reasons of price or complexity … “, I think he has a great chance, especially if he focuses on the benefits a customer can receive by pairing his tactical e-Procurement offering up with affordable on-demand e-Sourcing suites like Iasta’s SmartSource suite (with release 7.0 slated for this summer) that covers the strategic aspects of the procurement function. After all, low cost on-demand sourcing software plus low cost procurement software (which can be hosted on-demand as well) equals a full Total Value Management e-Solution (on-demand) at a low cost, and this is a powerful proposition for small to mid-market firms that really need a world-class solution but can’t afford an IBM, Ariba, Emptoris, Oracle, or SAP to make it happen.

Purchase Automation

Today we are going to talk about purchase automation and review how it helped Fluor Hanford transform their sourcing organization, as described in the article “Empowering End Users” in the latest issue of Inside Supply Management.

Fluor Hanford developed a tool that, among other benefits,

  • provided visibility on existing material inventory levels throughout the company,
  • reduced transactional involvement,
  • took greater advantage of the cost and process savings offered by the purchase card system, and
  • drove additional price reduction through supplier integration.

This allowed the organization to reduce redundant buying by about $300,000 in a twelve month period, the average per transaction cost by 68% (to $34 from $106), and convert all sourcing areas to an Electronic Commerce Agreement.

As we discussed last Wednesday, the ultimate innovation in procurement evolution is the purchase order free supply chain, but just like you can’t go from zero to sixty in a sports car, you can’t go from no automation to no purchase orders in a single step, it’s a process, and the real innovation is in continuous process improvement, with streamlined automation the best practice first step.