Karl Waldman's blog

Gauss vs Pareto

2009-04-30T07:57:00.005-04:00

Lately we have heard a great deal about "Black Swans" and how the markets are acting "differently". Perhaps this is because we have been ignoring data and stuck with an incorrect simplifying assumption that markets are "normally distributed"

Here is a quick analysis of the Dow over the last 70 years. Take 5 minutes to read the article, it is amazing -- but here is the bottom line

If the markets are based on "normal" aka "Gaussian" distributions;

"A five standard deviation event should only occur once every 7000 years in a world of normal distributions. "

However

"It happened 73 times over an 80-year period. " (Emphasis mine, the article is from Oct 2008)

I've not done the data analysis but I would suspect we are looking at some sort of power law. Thus Pareto, not Gauss should be driving our actions in investments.

The market is perhaps a great deal risker then we thought and conversely there are potentially greater opportunities to be found.

In the past week, I've had to rethink my password strategy and my investment strategy....

"New Shopping, New LIfe" Trojan

2009-04-25T16:45:00.001-04:00

Wow - my google account was just cracked and sent out over hundred emails in my name -- and I had a 9 character password! Moving on to 15+ character passwords across all websites...

http://www.thecbranch.com/2009/02/08/how-to-fix-the-new-shopping-new-life-virus/

Be warned - this was not on the PC but web only!

Rethinking the problem - Cars

2009-04-14T08:59:00.005-04:00

Image by Suzie Katz via Flickr

Shai Agassi left SAP awhile back and started BetterPlace to change the economics of the car industry -actually personal transportation.

The company is a great example of rethinking the issue from the ground up. In the video, he uses some examples of countries leveraging their "features" to get to a "betterplace" . He did miss the US's key feature/attribute for powering cars electrically -- using available "Negawatts" .

Many years ago Amory Lovins (Rocky Mountain Institute, MIT) estimated that the US "wastes" about 50% of electricity, he coined the "term" Negawatts and showed that at the margin, saving a Negawatt was far cheaper then creating a "watt". -- more then enough savings available to power all the cars in the US with no additional electrical plants, no additional carbon emissions.

Even with that omission, it is still a great talk - well worth 18 minutes of your day both for the content and watching a great presenter.

Enjoy

"Info-Vis" and Tyranny of Averages - Part III

2009-03-11T13:00:00.007-04:00

Continuing the "infovis" and Tyranny of Averages themes --
NY Times has a great graphic showing Unemployment by County.

Called "Geography of a Recession" it is an example where the knowing the average , 7.1% (Dec 2008) doesn't tell you the full story. Look at the different counties, some areas of the country are approaching 20% and some are at 2 or 3%. They also show 1 year change -- again some areas unemployment has increased 7 or 8% in the last year.

If you were trying to solve the unemployment problem -- digging into the details and understanding where/who/what/why are critical to coming up with a valid solution(s)

Information Visualization "Info Vis"

2009-02-23T13:29:00.003-05:00

Image by bwc via Flickr

As some of you know - I've been interested in opportunities to improve productivity thru better information visualization. Most of the enterprise applications I have seen and used either no graphics or very basic charts even Business Intelligence solutions -- yet there has been an explosion in creativity in the area of scientific visualization. I believe there is an opportunity to help business users understand the interactions in the business and react better by using techniques of "info vis". Some examples are 'google maps mashups' , market treemaps, heatmaps and other techniques to combine multiple dimensions into a single view of the business.

I've setup a poll on LinkedIn - please let me know your thoughts.

http://polls.linkedin.com/p/23882/fcqgx

Amazon Web Services Part II - Impact on the Enterprise

2009-02-20T17:35:00.003-05:00

Image via CrunchBase

This week, I also tried out SmartSheet -- a new service for collaboration and project management. Looks like a good service with a number of useful features -- what really impressed me was the SmartSource feature that integrated with Amazon's Mechanical Turk.

A colleague asked for some helping doing some supply chain and financial analysis but only provided the supply chain data. The client wanted 10 years of financial data used and while I could have used my spare time to poke thru various SEC filings, I instead "Smartsourced" the request thru Smartsheet. That is, I built a spreadsheet of what information I wanted with the attributes (COGS, Sales, etc -- 1998, 1999,....) and went to lunch. I specified I wanted 2 answers for each variable (to check). About 3 pm I checked my account and all the answers were there.

Not bad for a few dollars and avoiding an hour or two of tedious work that could have stretched over 1 day or more due to interruptions..

Will definitely look for more opportunities to use this service.

Amazon Web Services Part 1 - Impact on the Enterprise

2009-02-20T16:41:00.007-05:00

With my wife and kids traveling this week, I had some extra time so I tried out Amazon EC2 and Mechanical Turk (next post).

EC2 is an incredibly "geeky" name for an amazing set of services that allow you to configure your own Unix or Windows computer in "the cloud" with some standard software like app servers and database for Linux/Windows.

I was able to setup a configuration with a login in just a few minutes. This is amazing to me -- as I have been on projects where this could take anywhere from 1 to 5 weeks! Granted some of the time was not actually work time but time to schedule for hardware procurement, ordering, delivery, setup, new electrical drops, personnel constraints etc. The difference is stunning - one person getting an instance up and running in minutes vs a month of realtime. And think about not having to explain why your project is more important than any other...

An "extra large" instance is 15 GB of memory, 8 EC2 Compute Units (4 virtual cores with 2 EC2 Compute Units each), 1690 GB of instance storage, 64-bit platform and would cost you between $0.8 and $1.2 per hour to run. And you only pay for what you use. Granted if you had to go to a large "instance" you would have a bit more work todo but it looks like the services Amazon provides handles this as well.

There seems to be decent security* that probably is equivalent if not better than average enterprise.

Faster, Cheaper and perhaps equivalent security will definitely change the enterprise implementation business for the better. Allowing shorter implementations, more prototypes and better results at a lower cost.

Let me know what you think....

*Note that some people feel that "behind" their firewall is safer and perhaps in some cases that is actually true. However in many cases the perception of security is greater than the actual security. If you don't superglue your USB ports shut, remove CD drives from your laptop and don't require a token. (Aka the "something you have and something you know" rule) Then it would take someone about 10 minutes to change the root password of that laptop and another 5 to find all the passwords you have stored on your machine, in the browser cache or written on the case ....

Makes you think

2009-01-07T23:43:00.003-05:00

Click on thru to Umair's latest posting regarding his interpretation of the worldwide economic crisis.

Extra credit - if he is right, what are the implications for your organization, job, career etc.

Let me know what you think.

Tyranny of Averages Part II -- Banks at Risk

2009-01-02T10:54:00.007-05:00

One of my favorite bloggers posted a link to table of banks and their "Texas Ratio". I've used Click2Map to map those with Ratio's higher then 50.

Makes an interesting mashup of where the economic crisis is happening most intensely. Tyranny of Averages strikes again. On a related note - Wall Street Journal just had an article on banks in Alpharetta Georgia and yes, that is one of the clusters on the map.

Enjoy - Banks with a Texas Ratio of 50 or more.

Note -- most of the 8000+ banks on the list are just fine. Here is the original data set.

Tyranny of Averages

2008-12-27T19:31:00.002-05:00

Playing with one of my new toys, I rediscovered the "tyranny of averages". My wife's Toyota Sienna with AWD currently gets 16.4 mpg for the past few years (per a gauge on her dashboard), yet looking at the mileage in realtime with the scan gauge indicates much different information. It sucks gas at the lower speeds/higher rpm getting all that mass moving, but at constant speeds or going down hill gets very high mileage (+64 mpg or higher)

With one tank of gas for a set of measurements - I was able to get to 20.1 mpg. The experience is a bit like a video game. Managing the "low" mpg periods can dramatically increase the average by 25% (20/16). Not bad for a fairly simply device.

This leads to me to wonder where else are we assuming averages are true and missing a huge opportunity to improve business.

I once built a smart shelf for a retailer in Cambridge UK using RFID. As an aside to the project, I started tracking the inventory turns and how it related to day of week, stock levels, assortments (#of different products). Amazingly, you could radically improve turns (and hence) margins by just ensuring that the stock clerk fully stocked the shelf on Thursday afternoons. Fully stock meaning that they put all 3 versions of the product on the shelf and did it before the peak sales happened (Friday and Saturday). Simply monitoring that product on a Thursday afternoon would have more than paid for that stock clerk's salary by delivering additional margins.

Given sales results for this Christmas, I imagine many retailers (and CPG) companies will be searching their portfolios to avoid the "Tyranny of averages"

Great Case study on Consumer Goods Supply Chain

2008-12-22T15:38:00.001-05:00

Wow -- nothing like winding down the year to get time to catch up on my reading and get time to post.

Here is a good article by my friend Amit describing the Consumer Goods Supplychain

http://punetech.com/supply-chain-management-in-consumer-goods-an-in-depth-look/

Downside of Visibility

2008-12-19T08:18:00.004-05:00

I had the privilege of working at a couple of accounts outside the US this year. And while each was in a different industry, I noticed that same thing in their forecasts -- a declining downward trend.

In both cases, the statistical forecast was trending downwards, yet when I asked if team had spoken to the VP's about it, they said "no because sales team is not in agreement". Sales teams by nature tend to have a "positive bias" which is a good thing. However, running a company that way will lead you straight off the cliff. Never a good idea not to use all your data in executive decision making. Hopefully these companies will react soon enough.

Jason Busch over at Spend Matters, looks at the impact of having visibility in your supply chain.

Now that we are using all the data -- the next question is how to react to ensure survival AND prosperity.....

Forecasting --Continuous Improvement

2008-12-15T19:14:00.002-05:00

Forecasting is key for companies who want to improve customer service AND margins, yet many companies don't spend the necessary time to do the analysis as it can seem overwhelming.

In even a 100 Million business there can be thousands of "intersections" (customer - product -location) that need improvement, where do you begin.

A simple way to start is to measure "MAD" --- "mean absolute deviation" (Forecast - Sales*)/Sales for every intersection. Most enterprise demand management tools allow you to do this -- in i2's Demand Manager users can set this up quite easily and run it every month.

You should get something that looks like after 3 months
Product Location M1 M2 M3
"Bat wings" "Portland" 50000 45000 30000

Assuming you sell Batwings in Portland and missed the forecast by 50000 in M1 and 30000 in M3.

Once you have this record, simply focus your efforts (or your teams) on the largest 3-4 intersections each month and do everything possible to improve your forecast accuracy

1. Clean up your data -
you have tagged all your promotions in the past 3 years and identified the lift?
if using shipments, make adjustments for stockouts in the history

2. Tune your algorithms and make sure the parameters "cover" your data set . (A topic for another post)

3. If part of a S&OP (Sales and Operations planning process), make sure to capture and listen to the sales folks on the promotions in those intersections for the next few months as well as any marketing promotions.

In fairly short order - 2 to 4 months you should see some dramatic improvements in these top intersections and you can start the process on the next 3 or 4 "top" intersections

This small amount of effort will dramatically improve your business results, make supply chain and sales life easier and even make your CFO happy if you explain to her the impact on the Cash Conversion Cycle.

*I'm assuming you have access to actual sales, you can also substitute shipments.

Forecasting vs Lean vs Theory of Constraints in Supply Chain Management

2008-09-12T19:22:00.007-04:00

I've been thinking about different philosophies for managing supply chains. If you do a search on the web, you will see different "schools of thought" including

-- Planning
-- Lean
-- TOC (Goldratt's Work )

And many people seem to believe that each "school" has the best approach. I'm not so sure - I believe that there are a critical few pieces of each philosophy that can be combined to improve the supply chain.

Forecasting Principles does a great job laying out the options for forecasting in general and for demand forecasting in particular. From my experience, forecasting can make a very large difference in a clients business, particular when combined with an S&OP process.

Lean and to a lesser extent TOC debate the need for forecasting - some lean components declare it is not necessary if you remove all sources of variation.

Unfortunately, in the CPG industry and for folks in working in supply chain or manufacturing the sources of variation are outside of their control
--- End customer desires for holiday shopping for example
--- promotional behavior of retail customers (holiday promotions)
--- and their own marketing departments desires to push more into the channel

In all 3 of these cases, I believe a better solution is to take key elements of each philosophy and work the problem to the "pareto-optimal" solution.

First, segment your business into two different areas --
1. from your DC's back into your suppliers business
2. From your DC's into your (retail) customers business

In segment 1
Implement a robust analytic process that includes both Expert Input (sales teams, etc) and Statistical Analysis. Include customers in the scope of your forecasting but aggregate them to the DC rather than to individual customers -- forecasting is always better when you allow the statistics to work for you than against (average out random fluctuations rather than try to predict them)

In segment 2 -- Implement a pull replenishment process using POS data if possible (e.g., use Lean Principles). P&G appears to be getting the results doing so according to the FT. But I'm willing to bet they forecast as well -- suppling retailers is a tricky business and the sell one pull one won't work if it suddenly jumps to 500....

Combining them together with a robust Sales and Operations Planning (S&OP) process will allow improve the organization and see where the constraints are that are blocking you from growth. The key to the process is having a common language and tool set where differing groups (Demand Planning, Supply Planning, Marketing, Finance and Sales) can work together on a problem rather than arguing about the data from a spreadsheet.

Once that happens, Goldratt's work in Theory of Constraints provides a useful framework for thinking about the problem -- what is the constraint in growing revenues by 2 or 6x? What is your "mafia" offer? And what is stopping you from achieving it? Many times a management teams perception is that the constraint is "the market" but in reality, they have many internal constraints that are blocking them from success. Besides, Eli would suggest to them that even the market is not a legitimate excuse - but rather how you serve the market.

Climate Change

2008-03-23T21:02:00.002-04:00

Lots of comments from Plaxo and friends. Many of whom are far more certain then I am or so they think. In fact, I don't think I took a point of view other than to pick out an interesting video.

Here is another video that takes a different slant. From someone who is a Environmental Scientist, and is sure climate change is happening and knows how to solve it relatively cheaply. However he raises a very interesting question -- imagine you had a black box, that you could dial back carbon levels to anytime -say 1776 or 1865 or 1929 or whatever. Would you and more importantly could you? The important "Cui bono" question is now placed front and center. Who gets to decide - US, UN, EU, China, India? He (and I ) suspect each would pick different answers. Thought provoking....

Forecasting applied to Climate Change

2008-02-09T10:51:00.001-05:00

Climate Change tends to get a lot of press lately and we tend to notice the weird weather events; however, just because there is more press and we've noticed more weird weather doesn't say much about our ability to predict temperature 5, 10 or 50 years in the future.

This is similar to me buying a new blue Honda a few years ago -- suddenly I noticed blue honda's everywhere. Did that mean that because I purchased a blue honda that everyone now had to buy one? Unfortunately not, just an example of confirmation bias in my thinking.

As Dr. Scott Armstrong (Prof. of Wharton) points out

"there are many scientists forecasting global climate change but he can't find any scientific forecasts of global climate change." Anyone have a scientific forecast of global climate change?

Dr. Armstrong is the owner of the excellent website http://www.forecastingprincipals.com and his new blog The Climate Bet . I'd also recommend his Forecasting Principals book.

Phase Transition -- time to rethink that business model

2008-02-01T18:04:00.000-05:00

In physics there is a concept of a phase transition -- from the Wikipedia definition: "The distinguishing characteristic of a phase transition is an abrupt change in one or more physical properties. "

In the late 80's and 90's one of the dominate drivers of the global economy and geo-political events like the fall of the Soviet Union was falling and low oil prices. Oil price was underlying many decisions that were made in that time frame -- "extend my supply chain to China so I can save a bit of labor costs, no problem I'll build a plant and get enough volume to make good profits." Over the last two decades this has served companies pretty well.

Now the world is transitioning to another state -- Consumers are no longer satisfied with high volume of similar products that change slowly. The country is undergoing some radical "ag-flation" is driving up the cost of food. Long supply chains built to serve those old demands are becoming less viable.

I think companies will have to rethink their business models rather quickly. Take a look at the article and let me know what you think.

Trapped in JFK

2008-01-24T21:34:00.000-05:00

Happy New Year - it has been a while.

Currently I'm sitting in JFK waiting for the flight to Boston using Jet Blue's Free WiFi.

Looking at some interesting links, eating sushi and feeling very tired.

I just finished a great book by David Maister -- this guy is brilliant and anyone in Professional Services or who deals with clients needs to at least follow his blog.

http://davidmaister.com/books.strategyFatSmoker/

More later

Self referential googling

2007-10-14T21:20:00.000-04:00

I read an article in today's Boston Globe about googling your neighbors mortgage, which lead me finding out what google knows about me.

Here is a link from 1991! Even has my "kwaldman@wash-vax.bbn.com" email. I started using the net back in 1987 so I'm sure google will find all my emails someday. Hopefully not the embarrassing emails.

Note the email address -- we were using a VAX. It has been almost 20 years since Robert Morris released the first worm (1988) - Morris' worm only impacted Unix machines (fingerd and sendmail flaws) so we were protected from the full impact. Though I do remember colleagues in Cambridge and clients (DARPA) getting impacted.

Skeptical Optimist

2006-12-30T11:40:00.000-05:00

Just ran across a fantastic blog linked here. Spend time to read his 7 entries on Energy.

Great analysis that gets to the heart of the problem.

Experiment with Peer to Peer Lending

2006-11-19T16:43:00.000-05:00

A couple of months ago I found a new web site that claims to be the eBay of lending.

Prosper is a intriguing startup by a founder of Paypal that allows you to lend money to others by bidding on loans. Loans are ranked by credit risk and there is even a 3rd party who ranks lenders with risk adjusted profiles. As you can see from the link I'm doing better then my mutual funds -- too bad this wasn't an offer in my 401k.

Updated: As an experiment - I've added a group function where I help people to get loans.
See the site I setup UpgradeYourCredit

Business Forecasting -- missing an opportunity

2006-11-19T15:07:00.000-05:00

I'm amazed at the number of companies that miss a key way to serve their customers better and make more money. Better forecasting is a key "lever" in the process of improving business performance with both top line and bottom line impact. Top line revenue grows the better you match what you have to what the customer wants, and where they want it. A good forecasting process will do just that -- and it will give you an early warning when business starts to trend down. Bottom line also benefits by giving your manufacturing team a more stable plan and producing less waste.

Companies continue to treat this group as a "clerk" position and perhaps they throw some tools at the group. The best companies will seed the team with key business experts and people who understand the forecasting process from a mathematical perspective.

For companies that are "average" in tracking forecast error, the opportunity is large - about 2% of revenues - so a $100M USD company could drop $2M to their profits. I talked to one $1B+ company that didn't even track forecast error - a great opportunity for their new CIO to save the company a great deal of money.

Another data collection opportunity.

2006-11-19T13:38:00.000-05:00

Technology Review had a great article on the Car Chip. I surfed over to the Davis site and discovered it allows you to monitor a number of engine performance indicators and the high end version allows you to have a GPS installed as well.

Neat technology - though still a bit pricey -- not sure if my kids would appreciate my tracking them every where they went but perhaps my insurance company would.

What we need now is a "HRP System" (Home Resource Planner) - that would link into the data via 802.11g and schedule tuneups and oilchanges on my Calendar system.

Opportunity in your existing data

2006-05-03T10:39:00.000-04:00

Many companies miss a huge opportunity by ignoring their current enterprise data. Many times when preparing for a software implementation my clients and I find "artifacts" that management did not know about.

One client found that due to a number of acquisitions in their customer base, 90% of the orders came from 30% of the customers based on volume. When you consider ordering costs, returns, overhead, custom skus, and logistics they found that the other 70% of the clients were not adding value to the business! Looking at the same data from a Revenue viewpoint it was clear that they had to find a different way to serve those customers immediately.

The scary thing was that snr management did not know this was happening. They were fixated on making "better product" when their product was already very good.

This one discovery will help them push margins back where they should be.

Is there an opportunity for you to look at your business differently?

Shameless plug(s)

2006-05-02T19:35:00.000-04:00

i2 has kicked off a new supply chain magazine -- here is the first issue

http://www.i2.com/supplychainleader/

Good article by my friend and excolleague at OAT - Marc Osofsky on page 30.

Enjoy - check out the interview with Panasonic -- a great example of Planning as a Service

Karl

(Yep - I own stock in OAT and a wee bit in i2)

JDA acquires MANU....

2006-04-26T21:44:00.000-04:00

or what were they thinking....

The fastest way to kill sales is to demoralize your field team - for JDA to acquire MANU and then announce they were cutting jobs once the acquistion goes thru is probably not the best way to improve customer service or increase sales.

Management teams that don't understand the business will cut sales and consulting to "save money" -- but in my experience this is not a good idea unless you are shifting your business model to a channel partner model. I'm all for efficiency, having resources match demand and keeping costs low but that should be a regular management process. Thinking you can ignore that for months (years?) and then "catchup" in one swoop is poor management.

To be successful, you must constantly identify the market you are going after, keep overhead as low as possible and keep your employees engaged with customers.

Question to JDA management -- who is going to take care of your customers while your field team is demoralized?

Answer -- Don't worry - all the Oracle, SAP, IBM, ITWO, etc. field teams will happily pick up the slack

Inventory Management - Part II

2006-04-19T13:22:00.000-04:00

In my previous post on this topic we talked about using POS data to align inventory with sales.

This project combined a few innovative techniques

1. POS data -- while available many companies don't use it for some reason (old concerns about data quality seem to be the biggest issue) -- they are missing a huge opportunity to shift their companies mindset from "sell-to" to "sell-thru" - it is only the purchases by the ultimate customer that matter, the rest of the PO is just a markdown or return waiting to happen.

2. VMI - Vendor managed inventory - again this has been around for awhile but not used much in the CE/CPG space with retailers. However VMI is a better method as it aligns incentives better for both the retailer and manufacturer. Topic for another post but if you examine the financials on both retailer and manufacturer and understand their problems, you will see that VMI will produce superior returns for both parties. It does however require a higher trust level.

3. Planning as a Service "PaaS" -- Something software companies and their customers should start to consider. Similar to the more common Software as a Service (SaaS), PaaS removes the need to have Supply Chain (or even technical) experts in a CE/CPG product company. (SaaS removes the requirement to have technical experts supporting it, at least for that application)

Many companies are focused on making superior product rather than on building superior technical or supply chain expertise. These companies argue that technology or supply chain is not strategic and is a candidate for outsourcing to experts.

PaaS also aligns incentives better between the software tool vendor and the manufacturer. If the software vendors tools are so great (deliver so much value) then show me! PaaS allows the best software vendors to deliver just results every week -- then the client can decide
1. if they want just have the results or
2. bring the business process in house, and still have technolgy outsourced - a SaaS model
3. or everything in house - traditional software deployment.

Again like the VMI between the retailer and manufacturer this requires a high level of trust. So far for our clients that are using PaaS, it seems to work well.

15 minutes of fame

2006-04-19T10:57:00.000-04:00

Vinnie invited me to blog over on deal architect. For those of you who haven't read his blog, you will find a real treat -- he always has something interesting to say. His blog and a few others remind me of the "good old days" of USENET with the level of conversation.

Hopefully I've kept up his usual standards...

http://dealarchitect.typepad.com/deal_architect/2006/04/the_real_deal_k.html

Seth's Blog

2006-03-02T13:53:00.000-05:00

Seth's Blog

My wife's car (Toyota Sienna) actually has a realtime MPG dashboard - I find that glancing at it changes my driving behaviour enough to increase my average mileage by 5-7%. Sounds like market opp. for someone to come up with a $50 device that attachs to all cars....

Sadagopan's weblog on Emerging Technologies,Thoughts, Ideas,Trends and Cyberworld

2006-02-21T22:22:00.000-05:00

Sadagopan's weblog on Emerging Technologies,Thoughts, Ideas,Trends and Cyberworld: "Innovation, Innovation Everywhere"

Sadagopan has nailed it again -- we are hearing these same thoughts around management innovation from our customers. The key to differentiating your company is to change how you deliver to your customers, regardless of the type of company. Brands, products and features are all becoming irrelevant when compared to how you are servicing your customers. You need to deliver value quickly and regularly and get better at it.

As the CEO of one large Korean Consumer Electronics company told us -- "Supply Chain Management is the only effective weapon to differentiate us from our competitors; we must shorten the time to market in a cost effective way". They are in a business where their goods depreciate in price 30% per year so speed is essential. Plus if they develop a new feature, it takes almost no time, < 1 product lifecyle, for another manufacturer in China to get a similar, cheaper priced good to market.

Supply Chain Management is again becoming a key area off differentiation for a few companies -- but I see far to many companies who are satisfied with poor customer service and inventory turns below the industry average. If your companies inventory turns are below average and the average is below 12 -- I think it you have an opportunity to get that promotion, increase that stock price, increase your customer service and make your CFO happy. Ok, so I made up the last bit about the CFO.....

Inventory Management: A Way to Give It a Grade - Knowledge@Wharton

2006-02-09T10:13:00.000-05:00

Inventory Management: A Way to Give It a Grade - Knowledge@Wharton: "'The most sophisticated companies in supply chain management realize that responsiveness in inventory management is important.'"

Interesting article on Inventory management in today's Knowledge@Wharton -- the sentence above pretty much sums up the findings. The article's main focus in how an operational issue like inventory management impacts the stock price. However it suggests that because increasing inventory turns doesn't seem to impact stock price it is not important.

Actually my experience tells me something slightly different - you need both Responsiveness AND efficiency. Our company has helped clients increase customer service levels and increase inventory turns. We have done this enough times so that I believe most companies do not operate anywhere near their potential. That is they under-serve their customers carry too much inventory in the wrong places. For those of you with a financial background - they are not operating at the efficient frontier of their business.

For example
Examine the 2 graphics at the top of the column. We helped a manufacturer selling to a large well known retailer. The retailer did the forecasting at a category level and sent purchase orders to the manufacturer every week. In the first picture - you can see the misalignment between sales and inventory. In some places sales where very high but there was not enough inventory, in other place the opposite was true. In their standard process this happened EVERY week. The weeks of supply of inventory was anywhere between 17 and 80 weeks for this category.

In the second graphic shows the measurements AFTER our process was executed. The process includes examining the promotions, Point of Sale (POS) , competitive sales, current inventory positions and manufacturing process. We have been doing this weekly now for 20 weeks and have been able to keep the inventory to 3 weeks +/- 1 week - note this is been steady thru the holiday and more importantly post holiday.

Even the high end of this range - 4 weeks, we are turning inventory 13 times AND the retailers measurement of instock went from 60% to 90+ %! What if you took your highest revenue category and used this type of process - how much capital could you free up AND how much more revenue are you missing. (Our client found that with better instock postions their revenue and their retailers revenue went UP)

Next time I will tell you how we did it and no it was not with RFID

Scary Smart Christmas Gifts

2005-12-27T10:42:00.000-05:00

Check out 20q.net -- my kids each received one of the handhelds from their aunt. The thing is amazingly smart -- even when I thought of relatively abstract things it came close. The web site is even smarter....

Successforce Blog: How to Improve your Professional Services Organization

2005-12-26T17:24:00.000-05:00

A self referential link to some of the tools I've discussed in the past.

OpenAirand Salesforce works quite well independently - but combined you get the added benefit of a master data management, MDM infrastructure - at least for a small company. A larger company (>$50 M) would probably need a separate system to manage those data.

A good MDM process ensures you consistently use the same names for customers, shipping addresses, products, etc. Sounds silly but simply cleaning up your data sets and keeping them that way can help you serve your customers much better (and cheaper). A inordinate amount of time can be wasted trying to to get everyone communicating the same message across the company (engineering, support, professional services, executives, sales). In a small company this can be a matter of life and death.

Fundamentally a good MDM process supports communication across the organization silos that exist in many (most) companies for a certain size (over 10 or so).

Never underestimate the effectiveness of simple clear communication to improve your business.

Best ecard I've seen! www. jacquielawson.com

2005-12-23T11:32:00.000-05:00

The last few days I have done Christmas cards "with" my wife. That is she wrote out the messages on a few and I updated the mail lists, did the mail merged, stamped and addressed all the cards.

All the while thinking of how this could be done better -- I'd like a web based SaaS site where I could upload my addresses, have the addresses checked and updated, design new cards and then mail them. I know the last part is an anarchronism - but until now it was always more a pain in the butt to read an ecard plus there are many of my relatives that never look at their email.

A day after I slogged thru that task, I received a card from this site. This is almost exactly what I'm looking for -- maybe next year.

RFID status

2005-12-11T20:17:00.000-05:00

Well after 3 years of doing RFID worldwide and seeing valuable and wasteful RFID projects in 13 countries -- here's a couple of quick lessons for finding value.

1. Mandates - they are negotiable! Comply with the standard GTIN/SSCC but limit number of SKUs and limit geography. Also Go to your favorite tag vendor and get them preprogrammed and slap them on! (Or better yet push your cardboard supplier to embed them - a few years out most likely)
(For this phase - do not buy software/readers! and minimize tags)

2. Experiment in a small area (requires readers and software)

Characteristics of a valuable RFID deployment
- usually has high value items
- might include correlation to other data (temperature, humidity, vibration, etc)
- changes behaviour at the edges of your supply chains. I've seen multiple world class retailers deploy RFID and the best area of value is in store ops! (aka change your process)
- Re-use the tags!
- Measure value prop for the new business processes.
If it doesn't make sense -- see Item 1 above -- then minimize costs

Readers
-- Check your vendors roadmaps, there is much innovation out there (like temp. tags at 915 MHz) that you should take advantage of if it makes sense.

Software
-- start with middleware independent of WMS/ERP. Work the process (experient, understand, bring in other parts of your org to strategize). Then later buy what you need.

RFID is a game changing technology for those that use it right - unfortunately most people I've seen just comply with the mandates EXPENSIVELY instead of exploring how to leverage the technology into business value.

Value II -- Use less RFID tags!

2005-04-25T08:18:00.000-04:00

OK - so you've "checked" your customers compliance box but you think you can't expand because tags are so expensive - now what?

First realize that you've gained some knowledge (regarding RFID) and now have another tool to address your standard supply chain issues. Combining your new expertise with mathematical techniques like statistical sampling will allow you to quickly identify key problem areas in your supply chain.

For example - is your CFO wondering why there is so much working capital invested in inventory in your business? If you can quantify your desired (or required) customer service level and then using RFID start to measure where your products go and how long they stay there, you can start to identify areas for improvement.

For example - one customer of mine discovered that while the "touch" time to create and ship a pallet was a mere four hours; the average time was ten days and the longest time was over sixty days! We collected thousands of data points and plotted a histogram with the x axis being "days" and the y-axis being number of cases. (For those of you familiar with a bell curve - imagine a bell curve with a large lump far to the right). Given that a pallet of goods represented a large amount of money, having an extra 30 or 40 pallets hanging around and NOT knowing it is not a good thing. In this instance the customer was tagging every case and every pallet to meet a mandate. HOWEVER, the same thing could be learned for non mandate SKUS for much less investment.

By tagging a fraction of the cases/pallets , the company could have characterized that same "bell curve with a lump". Instead of tagging thousands of cases, they could have tagged hundreds with only 1/10th the cost. By identifying (and removing) that "lump" the company can now save a few hundred thousand dollars in working capital AND had more room in the warehouse . In addition - now the company can monitor the SKU in real-time and drive that average time frame closer to the "4 hour touch time" from the 10 day average time, saving many more dollars of working capital in the process. Your CFO may even buy you lunch.

I've obviously skipped over the details - but by combining some relatively simple things

1. RFID tags, readers + middleware
2. statistical sampling
3. A bit of process work

you can build yourselve a continuous improvement engine that will more than pay for your RFID tags and might even get you a bonus.

How to get value from RFID

2005-04-24T17:57:00.000-04:00

Your company may have already complied with the Walmart, Target and other mandates. Now the question is - how does YOUR company get an ROI from RFID?

There is obviously value in doing business with those retailers and in being a "good" partner. However, you still have to make your boss, your CFO and shareholders a return on investment, you can not add costs to the business.

First, consider that like other technology RFID is just a tool. Tools are neither good nor bad by themselves (or expensive or cheap), they only get that way based on how they are used.

For example, many companies are just doing "slap and ship" to comply with a mandate or two. No data collection, no analysis, no thought process on how to improve just PURE COST. In this case RFID would be very expensive, particularly for low margin items.

However, for a company that is committed to delivering continuous improvement quarter after quarter there are ways to get value from RFID. Ignore the hype and start by thinking creatively about YOUR business. Look for areas where you are having trouble (late deliveries, missed shipments, poor supply, too much inventory, etc.) I'm sure there are "unresolved opportunities" in your supply chain --- especially around the boundaries between organizations.
If you can't find any -- ask your boss. She will be glad to tell you exactly where to look.

Boundaries are the best place to look since handoffs occur between two parties, either you and your customer or internal to your organization. Once a handoff occurs and if your cases/pallets are "fungible" (no unique id's) then it is very difficult to determine the source of the problems.

For example, one company had experienced significant growth in the past year and had trouble delivering the "perfect order" to their customer (A large demanding UK retailer). The necessary infrastructure growth (an additional plant), supply chain changes (new 3PLs) and unique challenges (meet a ferry) made it difficult to determine the root cause of the problem. Worse yet, because each plant was fairly well run as was the 3PL, the source of the problem would vary between various constraints; plant 1; plant 2; logistics provider; ferry etc.

By using RFID to track the orders (pallet and truck level) to that one retailer -- they are able to
1. Determine the root cause of the issue for latter improvement
2. Resolve the issue BEFORE the customer ever gets the order.

This client does not have a mandate yet, but they will probably be notified regarding a mandate soon so they get the additional benefit of being one of the leading suppliers for their customer. If a low margin food company can be successful using RFID - what problems can you solve?

RFID Value

2005-04-11T19:49:00.000-04:00

You need to be a subscriber - but the key take away is that Hampton Products International got value from RFID by just tagging items. Hampton is not an OAT customer but they describe having NO DEDUCTIONS on RFID tagged products. This is the holy grail of Retail and CPG vendors - the "perfect order". Note 3 OAT customers have also documented the same result. RFID is delivering value to both CPG and Retail customers. This is key for the industry!

Tools I use -- putting in systems at a startup

2005-04-08T16:12:00.000-04:00

Part of setting up a company is to work on the hiring (people), processes and systems. One of the biggest challenges I have is staffing projects in a nacent industry like RFID. To address this challenge - I've taken the typical consultant approach and worked on the people, process and systems issues. I'll post on the people and processes later, but here are a few of the systems I've deployed as OAT as grown. I'm currently running the Services and Support functions at OATSystems. We use a couple of tools that are fantastic in my opinion. As an implementer, developer and manager of software tools for the past two decades, I enjoy seeing good products that deliver value. ( I own no stock in these companies.)

First is a tool for Professional Services Automation (PSA) that I can manage the schedules/expenses/timesheets of people in 4 countries (US, India, UK and China ).
This hosted tool allows me to keep a rolling 6 month forecast on a daily basis. I've been in many different companies over the years and very few companies are able to achieve this level of accuracy, consistently in their forecasts. We do have our issues now and again, but at least now we know when they are coming. Maintaining the data is about 3 hrs per week and except quarterly reporting there's little else to do but run the weekly reports for our CFO. This model allows us to run services pretty tight with a very good Sales & Operations planning process (S&OP)with the sales team. The company is OpenAir , they also have a great services and support team. I would strongly recommend this to anyone running a large (more then 20) team of professionals and are trying to make money while improving customer service.

We use RightNow for our customer support tool. Support is also great there -- and there CEO has been known to call in to check how things are going. (Disclosure: they are another Greylock funded company). We've started measuring ourselves based on these data and the customer surveys -- an excellent data set for improving customer service.

We also use salesforce which I just use as a feed to OpenAir but the sales folks are starting to embrace it pretty well. There seems to be quite a community growing around salesforce and expect them to become a "platform" vendor of choice for sales management. I know we can get more from this product but a lack of bandwidth and our current understanding limits us.

(All examples of a good Software As a Service SaaS model)

RFID - The last few years

2005-04-08T15:42:00.000-04:00

For almost 3 years, I've been working in various roles for OATSystems in Massachusetts, USA on RFID software projects. See www.oatsystems.com.

We started as a small consultancy helping Gillette, MIT and others deploying the first EPC/RFID systems and have envolved into a midsize (100 person) company with worldwide deployments.

I've watched the industry mature from hardware/software that didn't work and took an extraordinary amount of effort to deploy, to something that is fairly straightforward (at least for us)and is starting to provide useful results to businesses.

It is quite exciting to see customers eyes light up when they start to understand what can be done with the data. Being able to watch in real-time what your supply chain is doing is going to allow re-architecting of many businesses. The next steps are going to be even more fun - imagine adding "rules" on top of your business that you can monitor and -- gasp -- optimize in real-time. This goes far beyond what we dreamed possible while I was at i2.

Obviously the industry has quite a few challenges to overcome first -- such as gen2 compliant architectures and lower tag costs. plus the education of a few hundred companies. The burning question in my mind -- Can you remove significant costs/radically change your offering with new processes, RFID + other sensors? If not , can your competitors? My bet is that someone is going to do this soon....

Software as a Service - Part 1

2005-04-08T13:39:00.000-04:00

Software as a Service - Part 1: "

I can’t tell you how many board meetings I’ve been in lately where the agenda included a discussion of the merits of software-as-a-service as a potential business for the company. The one thing that is constant about these discussions...

"

Jeff nails it again -- after 20 years of building decision support systems, it is clearly evident to me that SaaS is something "whose time has come". I've seen a recurring pattern in my career, where once the software is implemented and the team leaves -- interest in the project starts to wane and it become part of the normal day to day business. That means all the care and feeding necessary to keep a application delivering value goes away and with it, the value disappears. SaaS fixes the incentives for everyone -- so that

1. The customer continues to get value
- let's face it, lock in from having proprietary systems is going away -- lockin is only achievable by continually delivering value

2. The software company aligns cash flow to execution rather than large upfront payments and then a smaller revenue stream. Thus behaviour across the company is aligned to maintain and grow that revenue stream. Last company I worked - the biggest deals actually were bad for the company, since once they were sold, the company had higher expectations to meet and everyone ran off for the next deal, rather than execute the deal we had just sold.

There are obviously many concerns with SaaS that Jeff touches upon but I think this will be good for the industry as the current model is busted in my opinion.

2004-12-24T21:56:00.000-05:00

Backyard view on a Dec morning

Merry Christmas

2004-12-24T21:47:00.000-05:00

The children (3) have just gone to bed (waiting for Santa). Of course, they are too old to believe in Santa -- but then again they are waiting up for him. Perhaps they are just good scientists; I hope they figure out it is a wee bit hard to prove a negative.

My wife is stuffing their stockings with gifts from Santa, one they figure out how to google their dad - then the gig is up. I suspect it will take them a couple of years to find this blog. But then again - there is stuff out there I wrote in 1990 so I suspect this will be cached on some server in 2014.

Historical note - my grandfather John Chadwick kept a journal from 1928 or so thru 1980's -- I'm working thru his early college years currently. He was very poor, had little to eat but seemed to enjoy himself considering everything. Hard to compare to my current situation (blogging!) on wireless networks and traveling like crazy. My biggest problem (like most American's it seems) is eating too much -- compare that to a college student in the late 1920's or even to a soldier in Iraq.
BTW - there is no mention of a "depression" in his journals - I guess once you are poor, you don't notice that suddenly many others have also become poor.

2004-12-21T21:31:00.000-05:00

Been awhile -- (14 months!) Nothing like a startup to keep you busy. Team is now built, no longer about just consulting but we have product, positioning and the competition is heating up.

RFID is a wild space, when we started it was just us picking up the phone and doing good work for clients - now any software company who can spell "RFID" has a solution. We are still ahead given the size of our deployments -- everyone else will have to climb this curve and it is very steep. A few will fall (a couple of companies have been acquired / merged ) and you can actually see them fail to execute due to the internal focus. Even the big guys are having trouble, they may have 10k people but only a very very few can make RFID work and the "market-tectures" are flying fast and furious.

While watching our startup grow in people and revenue I'm also comparing to the other VC companies -- a couple of good blogs are www.feld.com and www.jeffnolan.com

2003-10-19T22:09:00.000-04:00

Ok - the world it changing again and I've not figured it out. However there's a feeling things are getting crazy again.

Examples:
1) Tivo - I like TV (very strange but now I never surf nor watch live TV or commercials)

2) Vonage - been using it a few weeks - works great and very cheap. www.vonage.com

3) Work is getting busy and its hard to hire people with the correct skill set in Boston (supply chain, XML, Java, OOD)