"X" marks the spot for buried treasure, and I’ve been trying to find "X" since I was a youngster. No, I haven’t been walking around in a pirate hat with a map in one hand and a metal detector in the other. But I have had a piece of paper in one hand and a pen in the other – or since the mid-90s, a mouse and keyboard.

When I say, I’m trying to find "X," I’m really looking for the contingency factors in budgets and schedules that account for the unknown. And, of course, "X’ is always present in the IT world. From concept design thru detailed specifications, it is a way dealing with what we don’t know in our plans.

For example, early in my career many eons ago, my job was to provide initial estimate modification costs to support sales interactions for a CMMS vendor. Generally, the information I received to create the estimate came from a sales guy who provided a high-level description of a potential client’s need, usually based on a 10-minute conversation with the prospect.

At the time, my contingency approach was to estimate the development hours based on the stated need. I then doubled this estimate and applied a 20% bump on top of this total. While I was occasionally on target, some of my estimates eventually turned out too low – understandable since I really didn’t have detailed requirements.

My approach may seem quaint in retrospect, but luckily, I wasn’t responsible for the economic impact of my estimates on making the sale. Someone else would decide on the price quoted to the prospect.

Since those times so long ago, I have had to account for contingency on a wide variety of projects. I’ve also seen how numerous IT departments deal with the issue. Some employ a very structured approach concerning contingency, starting with a 50% plus or minus factor during initial concept design and driving down to 10% plus or minus, with detailed technical specifications. However, many still end up overrunning their budget plus contingency on supply chain projects.

This isn’t too surprising on supply chain execution system projects in which considerable process re-engineering occurs. The complexity inherent in these projects is fertile ground for unknowns. But there are other factors that present challenges when accounting for contingencies in these types of projects.

First, we have a vested interest in the resulting number, as approval of a project or modification is dependent on costs. Most folks believe they approach the process honestly. But the process tends to make optimists out of us.

Next, whenever a contingency number is placed on the table, there is an inevitable drive to reduce it. As we do our necessary homework, it is hard not to say that we have significantly reduced the unknowns. Contingencies can end up in the crosshairs when trying to make a business case work.

Finally, many approach contingency as accounting only for unknown requirements and hidden development complexity. But people aren’t perfect, and they tend to make mistakes. These mistakes can go beyond programming bugs touching all aspects of a project.

So how much contingency is enough? I’m not suggesting a double-the-number-plus-20% approach. But we need to step back and look at how honest we are with our processes. We need to evaluate the contingency factors that we use and resist the pressures to eviscerate them as we finalize our budgets and specifications. We need to learn to appreciate that we don’t know what we don’t know.

Do you have a better approach? How do you find "X"?

-- Tom

Photo credit: ShadBolling

If you listen to some financial talking heads and political pundits, things in the economic world are much better, and the path ahead is clear (if you believe Vice-President Joe Biden). If you listen to some folks on the other side of the spectrum, we’re all doomed and you’d better stock up on ammunition and vegetable seeds for the post-apocalyptic world we are about to enter into. (Speaking of which, have you tuned in to radio and television personality Glenn Beck lately and heard some of the callers?)

The truth is somewhere in between those poles. And to a large degree, it depends upon which vertical you’re in and which markets you serve.

Regardless, it is never a bad idea to take advantage of lean times to fine tune your operations and business processes, assess your supply chain systems, and plan for the future – in this case, some level of financial recovery – by optimizing your supply chain and the information technology required to support it.

Many companies are in a budgetary "freeze" and have either set their 2010 budgets at 2009 actual spend levels or cut them back to some degree.

I saw a few projects delayed and/or scaled back last year, which unfortunately, puts those organizations at a competitive disadvantage – either because their competition is continuing to move forward with their improvement initiatives, or those companies are failing to gain momentum for an economic comeback, which is certain to happen.

So with all of that said, how are you freeing up capital to invest in operations consulting and improvement, as well as advancement of your technology capabilities?

Or have you found yourself in a dilemma where you can’t fund an improvement project, because your operation is performing sub-optimally, and/or you can’t perform optimally until you improve your supply chain operation?

In future posts, we’ll discuss how to free up capital. In the meantime, let me know what you are doing to get out of this catch-22.

-- David Meyers

By Kevin Hume 

Recently, I had the opportunity to interview a wide range of supply chain professionals engaged in the design, deployment and end use of Supply Chain Execution software (WMS/TMS/LMS).

I spoke with "in the trenches" practitioners who manage day-to-day operational challenges and execute the strategic mandates passed down from executive leadership.

I also spoke with industry analysts, third-party integrators and supply chain software executives. All this was done in an effort to compile a broad perspective of opinions relating to the emerging trends in Supply Chain Execution (SCE) software. My mission was to identify key emerging trends in the SCE software market over the next 3-5 years.

Considering the broad range of feature-function requirements in the SCE market, I received opinions across multiple perspectives (supplier, integrator and end user) and insight within different industries.

Despite the diverse group and backgrounds, a few issues consistently floated to the top of the list, irrespective of perspective or industry.

The most prevalent themes across all the discussions included:

Software as a Service (SaaS) offerings – This was easily the most common refrain from discussions with SCE software end users.

SCE practitioners’ view SaaS offerings as an emerging opportunity to provide the quickest speed to market at the lowest possible price point. Practitioners are clamoring to meet executives demand for cost effective solutions that can be quickly deployed with minimal investment in software applications and supporting hardware stacks.

Considering that a typical Best of Breed (BoB) WMS deployment runs 4-6 months at best from contract signing to go-live, there is an expectation that SaaS offerings will steadily grow feature-function capabilities and become catalysts to meet practitioners’ demands for quicker deployment timelines, flexible hosting options and lower Total Cost of Ownership (TCO).

From the SCE supplier side, a number of emerging SaaS applications have brought some innovative products into the market. As the next few years unfold, expect to see an increasingly robust SaaS feature-function set coming into the market.

Look for more details on the existing and emerging state of SaaS feature-functions in our upcoming blog posts.

Planning & Execution Integration – The rapid changes in the global economic climate over the last 18 months have highlighted the need for end-to-end visibility and the need for adaptability within the supply chain planning and execution processes.

The ability to provide planning capabilities that reach from the point of supply to the point of distribution have been a primary driver in the growing acceptance of SCM-ERP suites over the past few years.

The BoB players have also recognized this need and have been working hard through the integration of acquired products and core feature-function improvements matching the visibility and functionality of the SCM-ERP offerings.

It’s taken the BoB suppliers significant investment-development effort over the last several years to reach this point.

In the next few years, it should be revealed if the investment in end-to-end integration will pay off and which market’s organizational complexities will generate traction within the BoB view of Planning and Execution integration.

Look for further discussions related to the SCM-ERP versus the BoB model in upcoming blog posts. In fact, if you have a particular idea or question related to this topic, drop me a note and let’s discuss it.

Model Driven Functionality – Similar to SaaS offerings, Model Driven Functionality meets the dual requirements of "speed to market" at the lowest possible TCO.

The ability for SCE software to quickly adapt to emerging fulfillment demands within a zero modification environment continues to be a key desire for both current and future customers, as well as a critical path to capture increased market share for both BoB and ERP suppliers alike.

The Model Driven Configuration capabilities of the leading BoB and SCM-ERP offerings vary widely by supplier today.

The offerings that successfully ‘close the gap’ between robust functional configuration options within an intuitive, graphical tool set will become the industry leaders in the near future.

Now, take a step back and look at the three topics we just discussed – what are some of the external factors that really enhance the value of these emerging trends? My own thought process works something like this:

a) Current-emerging economic climate is driving a need for

b) robust, quick-to-market business requirement support; and

c) the limited access to capitol dictates lowest possible investment and TCO needed to support supply chain execution.

In a nutshell, I think these external factors are driving SaaS offerings, Planning-Execution Integration and Model Driven Capability to the top of the 3-5 year wish list.

Are these the topics that resonate with you and within your industry? Drop me a line! What do you think the emerging trends will be over the next 3-5 years within the supply chain execution market?

Kevin Hume

On my way into the office this morning, I stopped at my local convenience store for a cup of coffee. During the past year, I stopped going to the "premium" coffee shops as a way to save money. Charging more than $2 for coffee should be a crime anyway. And I’m not talking about buying the sissy coffee type either; I’m talking just plain old coffee – black.

I’ve heard people say, "You could save a lot more money by making it yourself at home." It’s probably true, but that is beside the point. Buying it at the store is convenient (hence the term convenience store) and fast, and they actually have pretty darn good coffee.

Anyway, I know how much a 16 oz. cup costs at this place since I buy it there almost every day. So, this morning I grabbed the exact amount – 65 cents – from my change jar on the way out the door. I made the pit stop, went in and poured the coffee, and while I was standing in line, I reached into my pocket – two quarters, one nickel, and no dime – no dime in any pocket. So I put the change back in my pocket and pulled out a buck.

On the drive in, as I sipped my coffee, I thought that my premium coffee "boycott" and needing 10 cents more was very analogous to what has happened in most businesses and distribution operations over the past year or so.

Organizations have been forced to look at their budgets, cut out the premium stuff (as I did with my coffee), reduce waste, and trim costs wherever they can. And even now, they are still trying to find that last "10 cents."

So, how does that relate to Supply Chain Information Technology?

When supply chain systems are not configured or technologies are not used to their full potential, supply chain costs may remain inflated and service levels can be more difficult and costly to achieve.

You need to do an analysis of your organization's supply chain technologies to uncover cost reduction opportunities – both in terms of the overall supply chain performance as well as in technologies’ administrative costs.

Here are some questions you can ask of your own organization:

- How can existing systems’ functionality be better used to streamline operations?

- What performance metrics and tools best support the overall corporate objectives at the appropriate management levels for them to make better decisions?

- Are there practical opportunities to improve trading partner integration for timeliness and accuracy, thereby decreasing costs?

- Do the technologies effectively support corporate objectives for inventory levels?

- Are there opportunities to reduce technology administrative costs and overhead costs?

Today's business environment demands that companies optimize their technology investments and examine every opportunity to improve operating expenses while sustaining customer service.

You need to dig to find the hidden costs often buried in current systems’ configuration and processes.

Where is your dime coming from?

David Meyers