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Friday
Jun192015

Collecting bids using ‘native’ air freight pricing models turns complexity into practical value

Trade Extensions, Sales Director - UK & Ireland, Mike Coburn


Allowing carriers to quote using their ‘native’ price models means Procurement Teams can provide shipping administrators with an optimised tariff sheet from which to select the optimum carriers for each consignment.


Summary

Developments in eSourcing and optimisation technology make it possible for carriers taking part in Air/Parcel Freight tenders to quote using their ‘native’ price models and for the procurement teams to compare these offers ‘like for like’ and identify the best rates for each consignment. 

Air freight and parcel carriers work with their own price models that have been refined and costed in detail to provide their most competitive prices for each of a huge variation of consignment sizes, weights and destination location.  Allowing carriers to make offers using their own models has pricing advantages for buyers since carriers are not forced to base offers on approximations, assumptions and interpolation by making their bids fit a standardised price structure imposed by the shipper.

carriers are not forced to base offers on approximations, assumptions and interpolation

Comparing bids from different carriers is complex but the latest sourcing and optimisation technology makes it possible to take historical data and apply each bid to every shipment a carrier is likely to make and give the shipper an accurate reflection of what it can expect to pay using the best available rates. Once bids from carriers are compared in this way and the optimum award scenario is decided, the buying organisation’s shipping administrators can be informed which consignment sizes, weight and locations each carrier should expect to receive during the year for the best overall result. 

Going native

To illustrate how allowing carriers to ‘go native’ works in practice let’s imagine a typical component manufacturer.  Every year, the administrators at this manufacturer’s shipping dock use a selection of Air or Parcel freight carriers to send over 50,000 express shipments that vary widely in weight, cubic volume and destination.  The shipping administrators know that some carriers have specialisms for delivering certain weights of package to certain countries at the best rates, and other suppliers offer best value for their own “sweet spot” of cubic volume package sizes, perhaps to some countries more than others.  Some suppliers even have great tariffs delivering to parts of a country but not the rest of the country, and in the past some suppliers have missed certain deliveries to customers in areas that shouldn’t be allowed to risk happening again. 

The traditional method of collecting quotes in this situation is for the buying organisation to impose a structure on its requirements and invite offers using an RFP.  However, an unforeseen consequence of organising a tender in this way is that it forces carriers to estimate and build in insurance if they are being asked to provide prices that don’t match their pricing models.

However, recent developments in eSourcing and optimisation technology mean it is now possible for shippers to allow carriers the freedom to ‘go native’ and make offers that match their own pricing models.  It makes it much easier for carriers to be competitive and make the best offers and means shippers are getting the best rates for each consignment. 

The first stage is to create a sophisticated yet simple-to-use bid sheet that is modelled to match the air/parcel carrier’s native pricing structure and takes into account pricing, volumetric weight, post code ranges and any other relevant bid parameters.

Pricing

Designing the bid form to mirror this native pricing structure means the carrier workload is significantly simplified and time spent on cumbersome administration is reduced.  For example, if a carrier has a price model that has a fixed price for packages between 20 and 25kg, and another fixed price for packages weighing from 25-30kg, then it is easy for the carrier to provide prices according to these weight ranges.  If the carrier is instead asked for one price for a consignment falling anywhere in the entire range 20-30kg, a new average price has to be calculated by the carrier, who has to first make assumptions about the likely weight profiles of future consignments.

Designing the bid form to mirror this native pricing structure means the carrier workload is significantly simplified

More importantly for the manufacturer, when the native prices can be quoted, there is no need for the carrier to make assumptions and provide biased prices that contain a margin of risk premium in case too many shipments fall into the less profitable extreme of the weight range. 

Volumetric weight

Carriers can only quote using their native pricing model when they are allowed to specify their own “volumetric weight”, that is the density of the consignment at which the cubic volume of the consignment becomes the cost driver rather than its pure weight.  This makes evaluating and comparing bids harder to achieve, but the difficulty is justified by the cost benefit of modelling native pricing.

Post code ranges

The final native component of the bids is the delivery area for which each price range applies.  Again, carriers know their own cost structures best, and so the most accurate quotes can be made if the carriers themselves define the relevant geographic post code delivery coverage.  This can be allowed by asking the carriers to specify a start post code number (e.g. at 2 digit level) and end post code number for which a quoted price model applies, or choose the entire country if appropriate.  For example, Austria post code range 10 through to 17 might attract one quotation, whereas post code range 18 through to 25 might attract a different quotation.  Irregular post codes such as the UK’s alphabetic system can be handled by accepting a separated list of post codes where the bid applies, e.g. “PE, CB, LE”.  A country with compact geography like Luxembourg may well be conveniently quoted by some carriers using one quotation for all possible destinations.

Other bid parameters

Finally, factors which are relevant per quoted lane such as a minimum charge per shipment and transit time need to be captured in a way that is consistent (e.g. all in days or all in hours) and without omissions.

Minimum total volume commitments and Volume discounts may also be captured in the bid sheet or may be negotiated offline where the agreed threshold levels or volume commitments become inputs in the allocation scenarios. 

Bidding process

It is critical that the bids received are fully complete in order to ensure all bids can be properly compared.  This means bid collection has to be efficient, and ideally an automated process should check that all relevant bid fields are completed and contain sensible values.  Since the number of countries and post code ranges can result in a very large bid sheet, the process of identifying any errors and guiding carriers to make corrections needs to be quick and efficient in order to complete the tender in a reasonable timescale. 

Evaluating bids for comparison and feedback

Comparing different carriers’ bids that were provided in different native formats can be complex.  By cross-referencing bids against historical scenarios, bids can be evaluated for shipments with the corresponding parameters, e.g. where there is a matching weight, cubic volume, delivery post code and required transit time.

Using this method, each bid can be evaluated for price and competitiveness for the consignment’s weight, cubic volume, delivery post code and required transit time.  The evaluation ultimately provides the Procurement Team with a set of comparable bids from which an award scenario can be determined. 

Using optimisation for scenario evaluation

For every designated delivery point post code and shipment size there will be one or more a clear lowest price (the ‘cherry pick’ award solution).  However, it is likely that to award all delivery points and sizes to the lowest price carrier would result in most or all carriers winning at least some business, with a potentially unmanageable supplier base where some carriers receive negligible volume. 

In practice there are likely to be business constraints, such as: 

  • Maximum number of total carriers to work with
  • Minimum volume commitments per carrier to ensure the business remains sustainable and attractive to carriers
  • Limitations on the number of suppliers per destination country and/or weight range and/or transit time
  • Limitations on transit time, such as ensuring that transit times are not allowed to increase by more than x%
  • possible specific exceptions based on past experience e.g. Carrier A must not deliver to country X when Transit Time 1 is required.

Using a scenario optimisation tool, these constraints can be simultaneously applied and the resulting awards explored, along with any sensitivity analysis and fine tuning to determine workable outcomes. 

Reporting the allocated scenario to stakeholders

Depending on the balance between realising best value, and maintaining a practical supplier base of carriers, the Procurement Team may opt for a simple tariff matrix, e.g. with one supplier per country regardless of shipment size, or else a more sophisticated decision tree which allows a selection of carriers per country, dependent upon shipment weight, cubic volume, post code and transit time. 

Reports for awarded carriers are produced to formalise their allocated shipment categories and accepted rates, whilst reports indicating the reason for non-awarding to carriers are produced at global, country or more detailed levels.

Benefits realised

Pricing on a full-tender and country level is readily compared to the historic baseline equivalent price, to determine overall savings and on-costs.  In addition, the average transit times can be calculated and compared to historic averages in order to establish an average lead time benefit.  A by-product of this process is that any mis-pricing in historic shipments is highlighted, for example when a carrier didn’t correctly apply a historic tariff price, meaning that quality checks can be built in to future operations to verify pricing is consistent with the accepted rates.

provides shippers with an optimised price matrix from which to identify the most appropriate carrier whatever the consignment. 

Conclusion

Developments in sourcing and optimisation technology mean, for the first time, it is possible to allow carriers to make offers using their own pricing models and for shippers to compare offers on a like-for-like basis. Allowing carriers to make offers in this way reduces their administrative burden and provides shippers with an optimised price matrix from which to identify the most appropriate carrier whatever the consignment. 

 

For more information about using ‘native’ price models in Air/ Parcel Freight Tenders contact Mike Coburn – mike.coburn@tradeext.com

 

 

Tuesday
Apr212015

Risk management and Supply Chain Sensitivity Analysis using TESS™ from Trade Extensions

Trade Extensions, CEO, Garry Mansell


Every buyer has to be aware of the risk that exists within the supply chain and a significant part of the role is to ensure contingency plans are in place should supply chains be disrupted. However, it is one thing having contingency plans in place and another thing understanding fully the consequences of implementing the plan. Considering implementing any contingency plan is likely to involve increased costs or supply disruptions (or both) it seems counter intuitive to suggest organisations don’t understand fully the implications of following these plans but unfortunately this is the case.

This is largely a result of traditional contingency planning which relies heavily on an individual’s experience and intuition meaning it is hard to have a truly accurate picture of where potential risk exists in the supply chain and the impact of implementing any contingency plan.   Accurate contingency planning needs accurate data and up until recently it has been impossible to collect and analyse meaningfully the data required.  TESS™ changes this.

Traditional contingency planning relies heavily on an individual’s experience and intuition meaning it is hard to have a truly accurate picture of where potential risk exists in the supply chain.

The TESS eSourcing and optimisation platform has been designed to make it easy to model numerous scenarios when choosing suppliers in major sourcing events so it is adept at handling large amounts of data.  Applying the same technology to risk management provides a platform for collecting and analysing data and when used in conjunction with Google Earth makes it possible to visualise the current supply chain, analyse supply risks and where necessary evaluate alternative supply chains.

Modelling the supply chain with TESS

To create a model of the supply chain an organisation extracts data from the General Ledger systems of its business or uses data acquired through online tenders using the TESS platform.  Either way, the data input is automated and doesn’t require extensive effort from the buyers to produce valuable, accurate supply chain visualisations. The benefit of using data collected during a TESS tender is that it is possible to see the financial consequences when testing the sensitivities of each component of the supply chain.

The models created in this manner can then be used to run multiple scenarios where the supply chain is challenged and the consequences of risk events displayed in easily understandable formats.

In order to achieve this a few simple steps must be followed using the TESS platform: 

  1. Each of your production sites, when entered into the TESS platform will be auto matched with a central database to produce a longitude and latitude that will be used in the interface to Google Earth. If these are known and available they can of course be entered directly.
  2. Each Supplier location is similarly entered into the platform and longitude and latitude are discovered automatically by the platform in a similar manner as before.  If this supplier data is being captured during a tender on the platform, suppliers are simply asked to provide the production location of any materials they are producing. 

By carrying out these simple steps you will have defined the essential components of your supply chain. 

Buyers and risk managers are then able to ask questions and use the TESS optimiser to analyse their supply chains and build alternate scenarios.  Typical questions could include: 

  • What are my alternate sources of materials if a supplier location becomes unavailable through a physical event e.g. earthquake or business event? How much will it cost to put this in place? And how long will it take?
  • If a political intervention is made and I am no longer able to source from a supplier what are my alternatives, costs and timescales?
  • What is the cost implication of switching to an alternate supply location, or a new supplier to reduce my sensitivity or exposure to natural disasters? 

In addition to the standard reporting tools within TESS, the platform interfaces seamlessly to Google Earth to allow scenarios to be viewed on maps.  This approach enables the buyer to understand example scenarios and quickly identify risk that may not be apparent using text data e.g. over- reliance on suppliers in earthquake zones.  It’s also very easy to answer specific questions for example: 

  • My supplier’s plant in Chicago has been destroyed by fire, what are my alternate sources of supply and how much will it cost?
  • One of my Global suppliers has ceased trading, what are my alternate sources and how much will it cost? 

Using TESS for supply chain risk analysis. The thickness of supply lines displayed are directly in proportion to the volumes of materials sourced from and delivered to your manufacturing plants making it easy to identify potential risk.

Using TESS for supply chain risk analysis. The thickness of supply lines displayed are directly in proportion to the volumes of materials sourced from and delivered to your manufacturing plants making it easy to identify potential risk.

The use of the TESS optimiser to evaluate and investigate multiple potential supply scenarios when coupled with tender data, or that data you can extract from your own General Ledger systems and examine via the Trade Extensions Spend Analysis module provides an incredibly powerful tool to evaluate and mitigate risk. It allows buyers to manage that risk and seek alternate sources of supply, often as part of a tender process. Risk managers are thus in a position where they can work with buyers looking at the total cost of ownership of any material, whilst at the same time evaluating the impact on insurance premiums and the cost or risks associated with business interruptions. 

If you would like to know more about using TESS for Supply Chain Sensitivity Analysis contact Trade Extensions – info@tradeext.com

Friday
Feb062015

MISing INACTION: Market Informed Sourcing (MIS) adoption is growing but it is still low.  Why?

Trade Extensions, CEO, Garry Mansell


 

As one of the leading suppliers in the area of eSourcing and optimization, or Market Informed Sourcing (MIS) as it is often referred to now, I was asked by our friends at Spend Matters to share with you some of my observations as to why adoption is relatively low and the technology is not used by everybody to source everything they buy if it is so revolutionary and produces incredible results.

projects run today using MIS would have been impossible a few years ago because the technology did not exist

Well, let me start by dissecting the question.  Firstly, is MIS revolutionary?  The answer has to be a resounding ‘yes’ simply because projects run today using MIS would have been impossible a few years ago because the technology did not exist.  And secondly, does MIS produce incredible results?  Once again the answer is ‘yes’ and companies really do save millions of dollars and improve service levels.  

So, if we are broadly happy with the way the question is framed it does seem counterintuitive that adoption rates are relatively low.  So why is this?  As ever, it is multi-factorial but first let’s discuss a potentially limiting factor that is close to all buyers' hearts - price. 

In many areas the price to use new technology is the first barrier to overcome but I'm pleased to say this is not as much of a barrier as it has been in the past. Back in 1999, when I was involved in running eSourcing events for some of the world's largest corporations, the 'going rate' for a major tender would be in the order of €250,000 – €300,000 per tender.  Nowadays, clients who hold licenses to our software, and run project themselves, are in effect often paying less than a tenth of that price per tender.  Considering these tenders are often for annual spends way in excess of €40,000,000 and the savings and additional benefits are in the orders of millions of euros the return on investment is clear to see.  So, if price is no longer a barrier for these types of sourcing events why is penetration still low in relative terms. 

price is no longer a barrier for these types of sourcing events 

Well, I think the question contains the answer itself i.e.  'for these types of sourcing events'.  It's worth recognising that MIS is a tool and although it can be used to source anything, I am not of the school of thought that says is should be used for everything.  It is simply not needed in many categories, some of which are perhaps better sourced using traditional negotiations or maybe a buyer may decide a basic reverse auction is the most appropriate. 

The simple fact is the customer will decide when it is used and for what.  They are ultimately responsible for the spend and the consequences of the decisions they make.  As software providers and consultants it is our job to show what is possible and where MIS can be used most effectively.  In our experience this tends to be complex purchasing for large corporations with the most common categories being logistics, MRO, packaging and labour. 

The fact MIS is well suited to complex large scale sourcing events with multiple data sources brings us quite nicely to the next barrier to entry we see regularly – namely a lack of quality data.  This is not a new challenge for buyers but the availability of sound and accurate data concerning what their organisation buys, who from and  how much they pay can be a real stumbling block when it comes to implementing MIS. The MIS software can’t create data where it doesn't exist but through the judicious use of easy to use spend analysis modules it can 'clean' the data and make it useable.  The best MIS providers include this type of data examination and data cleansing functionality in a way that the outputs can seamlessly be used in any sourcing event so hopefully this barrier is also being eroded.

The best MIS providers include data examination and data cleansing functionality

Another barrier that we are eroding all the time (even at this precise moment as you read this article) is that of a general lack of awareness.  eSourcing and optimization has only been around for, at most, 15 years and in reality what we consider MIS has only really been available for the last six years so this is not that surprising.  Awareness is growing and will continue to do so as usage increases but there is already a generation of buyers who have been using MIS techniques all their careers and new recruits into the industry will be using MIS platforms as a matter of course. 

It is true the speed at which awareness levels increase can be greatly assisted by the adopters of the tools publicizing their projects but the fact is this technology and its application really do give the early adopters a true competitive edge that they are reluctant to share.  For companies like us it's a classic 'Catch 22' –we've made the technology so good and we want our customers to talk about it but, because it is so good, they'd be foolish to do so!  From a perverse point of view I am happy with this since it proves the software is adding real value i.e. dollars, euros and pounds to our customers businesses.  I also don’t envisage ourselves or our competitors raising awareness by spending small fortunes on promotions and advertising  - especially when I look at the financial performance of some of our competitors and see them still making losses every year, sometimes ten and fifteen years into their company lives.  Rather, I think our job is to continue to educate potential users via our industry, which in truth, as it is a niche industry is perfectly manageable.

Buyers are empowered and informed by their use of this technology.

Education has also been key in overcoming another area of resistance, thankfully less common now than it has been over the years, which is the fear that MIS software would in some way threaten the jobs of buyers.  In fact, a good adoption of this technology has the opposite effect.  Buyers are empowered and informed by their use of this technology.  They gain greater market insight and spend more time seeking and understanding their suppliers and less time running buying processes involving spreadsheets and email trails.  The buying process is seen as being more professional, more transparent and it runs at a faster pace.  Decisions are much better informed and alternative solutions are rapidly and easily considered.  Stakeholders are more heavily involved and the awards made are much more robust and sustainable.  In our experience, the best buyers want to use the best tools and MIS is currently the best tool available. 

MIS maybe the best solution available but who is the best provider?  That clearly depends on the buyers’ needs but when choosing an eSourcing and optimization platform for MIS, the tasks it needs to perform cannot be over emphasized.  Optimizing decisions considering millions, or sometimes in the case of the tenders run on our software, billions of data elements is complex. This complexity has to be respected and software providers appear to have taken two distinct approaches to this.  Some have decided to make their offering as user friendly and intuitive as they possibly can, others have decided to offer consulting support in the use of the software to such a degree that the buyer may not even have to touch the software at all.  It is important when choosing MIS software that the buying companies decide which of these two different approaches most closely fit their staff capabilities and availability. 

So, in conclusion and to answer the question originally posed – it’s unrealistic and unnecessary for MIS to be used to buy ‘everything’ but it is here to stay and adoption is increasing all the time.  The most significant adoptions and successes have been captured by the largest corporations and these organisations continue to develop their uses of the techniques.  Adoption of the techniques will continue to grow in these organisations with many of our customers establishing their own centres of excellence, with a number of professionals trained to use our technology and maximize its capabilities.  Supplying our software to these organisations has been the strategic direction that Trade Extensions has followed, and we will continue to do so.  Many other clients have opted to use our technology via our trained and trusted partners from the business consulting world.  These two routes to market will see the continued development of our own platform and in doing so will grow the market as a whole. 

...it’s unrealistic and unnecessary for MIS to be used to buy ‘everything’ but it is here to stay and adoption is increasing all the time.  

Smaller software providers entering the market are also growing the sector by offering more rudimentary optimization technology to smaller users.  This is undoubtedly a good thing and I am sure this sector will continue growing, as will the adoption and increased use of MIS by major corporations. 

MIS is now approaching or has reached its ‘tipping point’

The fact is adoption will progress at the pace dictated by the user, not the software supplier, and that is how it should be.  We have seen our business double in size in less than three years, after a number of years of steady profitable growth.  This indicates to me that MIS is now approaching or has reached its ‘tipping point’ and the next few years are going to be very exciting for all concerned.

 

This article first appeared on Spend Matters on 28 January 2015. 

 

 

Friday
Jan092015

Trends in Dynamic Sourcing and Supply Chain Businesses

 

Trade Extensions, Director of Support - Americas, Ayush Sharma


Over the past few years, it has been interesting to observe industry and market trends as businesses emerged from the darkest economic period in the past decade. The market has come a long way. Initially, businesses were unsure of whether positive signs could indeed be trusted. Over the past two years, small but consistent improvements were noticed in several key indicators (manufacturing indices and job growth are good examples). These changes have encouraged category managers and market makers alike, to try out new ideas and focus on growth and operational flexibility as opposed  to focusing on cost alone.

So, should market trends be a point of focus in today’s environment? I believe trends play an important role in informing market decisions in any business environment. However, this article does not aim to discuss broader market trends or the economy in general. The aim is to make observations on trends we are seeing in the Sourcing/Supply Chain Optimization space from both softdollar (business trends) and hard-dollar (analytics) standpoint.

Soft-Dollar Trends

One of the key areas sourcing teams are focusing on is leveraging (the seemingly never-ending) market uncertainty, while coupling this with the utilization of all available information to drive sensible business decisions. Forecasting is still important but there are a lot of operational decisions that could be driven by collecting better data from the supply base. Here are some soft -dollar trends seen in cutting-edge businesses.

 Forecasting is still important but there are a lot of operational decisions that could be driven by collecting better data from the supply base.

Information is Power

Today’s tools have developed significantly in terms of the amount of data that can be collected, aggregated and analyzed. Billions of data points can be numerically evaluated in a few minutes. Companies have started leveraging this technological leap and  today, ask for more detailed information in RFPs than ever before. With the power of optimization, making sense of this data is easier than ever. For example, more businesses are today asking suppliers to disclose exact details of their operation and using it to accurately drive business decisions. In the case of a road logistics company, this could entail finding the exact number of trailers per  trailer size operationally available in the carrier base. Another example could be to take several hundred thousand rows of transactional data and then aggregate this data to calculate a realistic baseline. Companies continue to enjoy the impact of technological leaps and find newer ways to leverage them.

With the power of optimization, making sense of this data is easier than ever

Dynamic Feedback

Another impact of collecting all this information, for example, on a bid sheet, is the ability to analyze this data in real-time and provide suppliers with feedback that can be used to drive better market behavior. Complex feedback mechanisms, such as feedback based on multiple parameters and in different time frames, are becoming more widely used. An example could be that of a category, where product cost, fabrication cost and freight all need to be factored into a total cost which forms the basis of a supplier grade. This grade constitutes feedback because suppliers can upload new pricing and watch their grades change.

Beyond Sourcing

A few years back, using optimization to solve sourcing problems was cutting-edge. Today, these problems have become commonplace and sourcing teams are looking for solutions that can offer something beyond sourcing and optimization. The ability to use the dynamics of scale-bidding allow companies to tender different arms of their business in a single project and utilize massive amounts of data to model complex supply chains. An example of this in action would entail a business tendering the raw materials sourcing, fabrication and distribution legs of the business in the same RFP (inviting different suppliers to bid on each leg). The project team can then look beyond the best overall cost and focus on modeling product flows to optimize different factors such as availability, contingency plans, etc.

Hard-Dollar Trends

Any data that is collected, still needs to be analyzed. To this end, bid evaluation and optimization are key components of a modern, functioning supply chain. There are several hard-dollar trends that are indicative of a shift in the way data is analyzed. This is especially evident in multi-billion dollar tenders where collaboration and robust analytics are key decision drivers.

Bundle Everywhere

One of the premises of collaborative optimization is the ability to model supplier constraints and efficiencies. For example, a freight carrier could take advantage of existing routes and provide better pricing if awarded a specific bundle of lanes that fit the carrier’s network. This has been fairly common in freight tenders. However, bundles are  now being used in most direct and indirectmaterial sourcing tenders. The ability for suppliers to provide multiple price points for specific SKUs and substitute specs, while simultaneously bundling them from a manufacturing/availability standpoint was an unrealized horizon until recent times.

The ability for suppliers to provide multiple price points for specific SKUs and substitute specs, while simultaneously bundling them from a manufacturing/availability standpoint was an unrealized horizon until recent times.

Another off-shoot of this trend is the ability to allow suppliers to quote discounts at any level. Most RFPs  used to model tiered discounts based on spend/volume. This is now being extended to allow suppliers to quote discount s based on geographic locations, payment terms, contract terms, and several other criteria. The ability of a tool to accurately calculate the impact of these discounts is critical in achieving efficiencies of scale.

Manage Product Flow, Not Cost

Another trend in recent times has been to look at product flows rather than just a cost-volume breakdown. In a growth environment, product availability is just as critical as product cost. The ability to have a tool dynamically model the supply-demand relationship (separate from traditional network optimization) in a live tender environment is considered a killer competitive advantage. For example, a transportation manager might want to consider the impact of filling backhaul lanes in a dynamic manner (i.e. optimized backhaul loads) when making an award decision.

Optimization tools have long allowed category managers to make smart award decisions by acting as a decision-support engine. These tools have now morphed into a dynamic, living entity where optimization is done at regular intervals and can be used to model production plans, dynamic availability and several other criteria. The combination of hard - and soft-dollar approaches is sure to yield positive results, especially in a market where modeling hundreds of real-world scenarios is increasingly becoming a norm. Today’s tools are enablers that allow businesses to plan for contingencies and make best use of market conditions, for we all know that tomorrow, the market could go anywhere. 

Optimization tools have now morphed into a dynamic, living entity where optimization is done at regular intervals and can be used to model production plans, dynamic availability and several other criteria.

 


 About the Author

Ayush Sharma is the Director of Support and leads Solutions Delivery with Trade Extensions in the Americas. He has worked with several Fortune 500 companies including some of the world’s top retailers. He has a specialized background leading companies to make better decisions using optimization in areas such as Retail Sourcing, Dedicated Transportation, 3PL Logistics Sourcing, Direct and Indirect Materials Sourcing. Ayush has a Masters’ Degree in Supply Chain Management from the University of Texas at Dallas and certifications in Lean Six Sigma and Supply Chain Management. He has also been Technical Director for a local branch of the Institute for Supply Management (ISM), the premier organization for Sourcing professionals in the U.S.

 

Friday
Oct312014

When staging a bold retreat is good for business

 

Trade Extensions, CEO, Garry Mansell


  
The last two years have seen an unprecedented level of growth in the Trade Extensions business, and like all CEOs I would love to put it all down to the vision and guidance I have bought to the organization. 

However, like the best CEOs I know, first and foremost I am a realist.  Yes, collectively we have made a number of right decisions.  We have focused on continuously improving our offering to the extent clients and industry observers tell us we are now functionally beyond all of our competitors.   

our growth cannot be explained just by having the ‘best’ product and there is something more fundamental going on in our sector 

However, our growth cannot be explained just by having the ‘best’ product and there is something more fundamental going on in our sector creating the environment that is allowing us to grow so dramatically.  It isn’t new, it goes on everywhere and has been happening for years – and after conversations with a few of our clients and prospects our VP of business development has confirmed to me it’s happening now.  The fact is industry as a whole, and managers as a species have been staging a series of ‘bold retreats’.

Now, what do I mean by this? 

In industry the, ‘bold retreat’ is a well understood alternative to either adopting or defeating a new technology/ competitor.   It is best described by companies that recognize they have ageing technology that is being eclipsed by game changing new inventions, and they do something about it. So whether it is sailing ships or computer tape drives, every industry at some point develops to the extent that companies within the market have to make decisions as to either get out of the market or become a niche player, unless of course they become world dominating.  Today, despite faster and more reliable engine powered boats being available, sailing boats still sell very profitably and while cloud storage is suitable for a lot of data, there are still markets that need physical tape drives for their archives.  Often becoming a niche player is the smart decision and companies may change from being market leaders to profit leaders.

'Bold retreat’ is coming from users and providers of enterprise wide solutions.

The ‘bold retreat’ we are seeing in the sourcing and optimization sector is slightly different because it is coming from users and providers of enterprise wide solutions.  In the traditional ‘bold retreat’ scenario the existing dominant technology retreats to a niche position but what we are seeing now is less of a ‘bold retreat’ for the dominant technology and more of a ‘bold entrenchment’ in that it is a planned decision to allow niche players to complement its technology rather than compete in non-core areas. 

This change in attitude could well be driven by the end users who are having a bold retreat of their own.  Despite having implemented enterprise wide systems, end users are realizing the large software providers don’t always have the best tools for every function and, where this is the case, they want to use best in class niche specialists.  Companies are no longer afraid of selecting best of breed solutions and tying them together.  And we see this when responding to RFPs ourselves and the entry criteria “you must provide end to end procurement solutions” is far less common than it once was. 

The fact the often promised mantra of enterprise wide software that “it will do everything you need” is proving not as accurate as it once may have been, is also evidenced in the three most common reasons why clients choose to use our software. 

  • They find that they can run large and complex sourcing/optimization projects in much less time and with much less effort than they can when using their existing toolset
  • They find that they can run sourcing/optimization projects of a size and complexity that simply cannot be run on their existing tool
  • They find that they can run sourcing/optimization projects in innovative ways that bring significant additional benefits, well beyond the capability of their exiting tool 

So how do these bold retreats from end users and large software providers affect a business like Trade Extensions, and many others in this industry of sourcing, procurement and optimization? 

Well, we have been looking at our own client base and the reasons they choose us and if we set aside what I consider to be the ‘givens’ in terms of running a good business such as delivering excellent products and services at the right price there is something else. 

They like the fact that we are specialists and can be considered a ‘niche player’ in a world of vast software providers. They also like the fact that we don’t mind or even care that they have huge enterprise systems in place. We are not trying to remove the hold these companies have on our clients, we want to add to the current offerings they get from these behemoths of our industry and fill the gaps that their other providers have either chosen not to fill or have failed to fill. 

I am sure we are not alone in observing this and many of our competitors are also installed with clients running IBM, Oracle, SAP or similar types of applications. It is clear there is room for a number of niche players in this market and you simply don’t have to be all things to all people, or a “suite” in order to succeed.

...being a niche player in a huge market place is no bad thing to be

I’m not forecasting the demise of the huge software companies but we are seeing them recognize that they cannot do everything and they are being far more open to their clients. They are responding well when their clients ask them to help them integrate a few of the niche players into the overall schema and this bodes well for the future innovation and development of our industry.  The adoption of optimization in sourcing is still low in the procurement sector but it continues to grow.  We are seeing rapid growth and adoption now and being a niche player in a huge market place is no bad thing to be.