Archive for February, 2008
February 29th, 2008
David Bush - Iasta
According to a story in Britain’s SupplyManagement.com, German CEOs feel that procurement is not worthy of attention.
A survey of 70 German CEOs, by European procurement consultancy BrainNet, found only one in 10 German firms has a CPO at board or senior management level.
Furthermore,
German bosses are “naïve” about the potential impact procurement can have on their firm because it is “not on their agenda”, according to an expert.
Wow, back to the era of Nena and “99 Luftballoons” we come. I guess SAP SRM is not quite doing the job over there. Maybe the North American team can share a few Powerpoints on value proposition and organizational synergies, so we can all get on the same page.
Entry Filed under: General
February 28th, 2008
David Bush - Iasta
There is a very good article on Supply & Demand Chain Exec regarding indirect strategic sourcing. Specifically, the company (Respironics), contracted a very good sourcing advisory firm, Greybeard, to manage some complex categories upfront but ween off the consultants with the lessons learned.
I found this to be an excellent story, because we do the exact same things for many clients.
“in late 2005 Respironics’ procurement team began to ramp up its focus on indirect materials with two goals in mind: putting in place a formal strategic sourcing process for indirects across the company’s U.S. locations and getting greater total value out of its indirect spend. Right away the team confronted two challenges: lack of internal resources and lack of expertise in specific indirect categories.”
Yes, on all fronts!
These are exactly the type of services you should be expecting from your eSourcing provider. We do them and so do many others. The beauty of leveraging the software vendor for this, is their knowledge of the application that will be left behind. Not only are you capturing savings and implementing process, you are also being trained on that process and the specific toolset.
Indirects (especially services) can be some of the more challenging sourcing projects, but also represent large areas of spend. They must be met with a comprehensive plan of action which can be executed and repeated.
Most importantly, think about where you ultimately want to go with an eSourcing app, not just the first 10 reverse auctions. Is there a target savings goal over X months? Is particular category expertise needed? The long standing benefits will come from process improvement and knowledge transfer, when combined with cost reduction.
Entry Filed under: General, Supply Management Best Practices, e-Sourcing Marketplace
February 27th, 2008
Michael Lamoureux
What is Corporate Social Irresponsibility? Simply put, it’s the practice of not being socially responsible as a corporation. What is social responsibility? Although heavily debated, it’s something that 71% of adults in the US believe corporations are not doing, or at least not doing well, according to a recent study by Harris Interactive. Why is it important? If it leads to even a one point change on Fortune Magazine’s “Americas Most Admired Companies”, it can translate into 107M of additional value for your corporation. Furthermore, the portfolios of the most admired companies show cumulative returns of 126% while those of the least admired show cumulative returns of only 80%. Furthermore, a good CSR program can make any company more competitive.
So what is it? Simply speaking, it’s the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of that of the local community and society at large. It’s responsible production, socially responsible labour relations, community involvement, environmental cognizance, and sustainability. It’s about a commitment to do things right.
What is right? That’s up for debate. The specifics will depend on local regulations, industry standards, your shareholders, and your corporate values, but at a high level, you can pretty much count on needing good labour, health and safety, environment, and community conduct codes.
But it’s not just as easy as raising wages, reducing greenhouse emissions, or opening a day care. For example: One company reduces its emissions of greenhouse gases. One increases its spending on recycling. Another provides free child-care facilities for its workers. Another raises the wages of its lowest-paid workers. All of these things cost money: suppose, for the sake of argument, that all four have reduced profit by the same amount. Which company has done most to protect the environment? Which has done most to advance social progress? Overall, how far has each company improved its triple bottom line? Bearing in mind the cost, can you even say that any of them have done so? (The World According to CSR, The Economist, January 2005)
It requires a strategy - and that requires a good process to develop one, a process that is described in the new wiki-paper over on the eSourcing wiki:
Corporate Social Responsibility: A Sustainable Solution. It’s complete with over a dozen in-depth references, so check it out!
Entry Filed under: General, Global Supply Issues/Risk
February 26th, 2008
Sean Delaney - Iasta UK
In a recent poll for supply management 77% of the respondents were planning to make cuts to their vendor list.
In soccer terms this is the equivalent of a route one i.e., kick the ball as far up the field in the hope that somebody inadvertently nudges it in the right direction and scores a goal. There is not much technique involved but it’s still a goal. However when you try a second time the likelihood of scoring is far less. Sourcing in my opinion is the same, let me explain…..
Global risk factors are no greater than ever before, raw material prices are rising, availability is falling and product life cycles are growing ever shorter.
Procurement should be wary of these factors and in my opinion decisions to reduce the number of suppliers should not be made by simply (as a respondent to this survey suggests) looking at the aggregate spend against the number of suppliers and then picking a number.
I strongly believe — more than ever before — now is the time for a much more measured approach to identifying the optimum number of suppliers. Other factors should be considered:
- Required lead times – do all items need to be delivered at the same time, or are suppliers dictating terms?
- Supplier Sourcing – it’s no longer enough to have two suppliers; we now need to understand the shape of their supply chain, i.e. from where are our suppliers sourcing? Do they have the same source? If so, supply risks are not reduced.
- KPI’s (key performance indicators) – should be constantly measured and automatically collated. These measures should be regularly factored into forward orders and commitment i.e. signs of low OTIF percentages should be tackled immediately and plans executed to reduce risk and maintain continuity.
- Goals of the business (i.e. product life cycles) - How long is a product due to run and what are the forecasts? What is likely to replace existing revenue? What is currently being trialed?
- Customer profiles and spend patterns - For example if customer expenditure patterns are likely to be more price sensitive, then there could be a shift in demand patterns. Therefore reducing commitments on high-value buys will reduce exposure and risks.
I’m sure there are plenty more factors which should be considered but these are the first ones that come to mind.
Basically I think this is no longer just a simple decision and the total cost of ownership is now key. However I can’t see how this can be done without up to date management information and therefore decent spend analysis software which tracks all these factors.
In summary route one i.e. reducing supplier numbers is too risky and is now less likely to reap the rewards of past rationalisation. To mitigate the risks and still deliver benefits buyers need to adopt a more measured approach in much the same way as the most successful Premiership Managers. Real time Spend Management information is the imperative.
Entry Filed under: Analysts/Research, General, Sourcing News, Supply Management Best Practices, Technology, e-Sourcing Marketplace
February 25th, 2008
David Bush - Iasta
Next Level Purchasing recently released their 2008 Purchasing & Supply Management Career & Skills Report which not only included a wealth of statistics on supply management today, but also included solid evidence that the profession is evolving into a more strategic one.
One of the questions that the survey asked was If you’ve been in purchasing for more than five years, what responsibilities do you have today that you didn’t have five years ago? The three most common answers were:
- Manage other purchasers
- Negotiate with suppliers
- Supplier / Vendor Development and Management
As Charles Dominick notes, this indicates that there has been a significant change in the way organizations view their suppliers. No longer are suppliers merely insignificant entities to fulfill needs - they are now strategic partners as supplier performance can greatly impact an organization’s operational efficiency, cost structure, and ability to serve its own customers. Having a good supply base provides an organization with a competitive advantage.
Furthermore, strategic organizations can reap great benefits from supplier relationships through the exchange of ideas, collaboration that improves product and service offerings, and the identification of common goals that lead to shared rewards. However, this requires that buyers work closely with the supplier to improve the supplier’s capabilities (development) and put systems and procedures in place to measure, communicate, and improve the supplier’s performance (measurement).
In addition, the fact that more professionals are now managing other professionals indicates that several trends have started to take hold in profession across the industry:
- purchasing is moving from de-centralized to centralized or center-led
- the value of purchasing and supply management is being recognized by senior management, who are creating strategic supply management departments where none existed before
- the number of jobs, especially on the strategic side, is increasing
This is all good news. Let’s just hope these professionals are given access to state of the art e-Sourcing tools to help them do their jobs efficiently and productively!
Entry Filed under: Analysts/Research, General, Supply Management Best Practices
February 22nd, 2008
David Bush - Iasta
Taking a breather today, after a number of brain crushing posts lately. So, I wanted to bring to attention a new feature that was recently put on this blog, which is the auto-email of daily ESF posts, delivered directly to your inbox. I put it out there a couple weeks ago and did not bring attention to it. However, 5 people signed up for the service on the first day, so I think it is useful.
Its in the right column, at the bottom, and your email is not used anywhere else. If there is one thing I have learned from supply management professionals over the years - its that they don’t have enough time for everything. This is a great way to get caught up and scan topics quickly to find things of interest.
Entry Filed under: General
February 21st, 2008
David Bush - Iasta
Industry Week recently ran an article on 7 strategies for implementing a successful corporate wiki which I found illuminating not for the strategies, as Iasta has already gone down the road of implementing wikis both internally and externally, but because it recognizes the importance of the wiki as a collaboration and knowledge sharing tool within an organization.
The article notes that businesses must enlist technologies that will help workers stay connected while they collaborate on internal projects. This is especially important if your workforce is geographically spread out. Furthermore, in today’s workplace, workers come and go, and it’s important to capture their knowledge before they retire, resign, or move on to another position in the company.
As the author notes, before you start off down the markup-tagged road, you need to assess for yourself what can be done to ensure employees use wikis productively and for the larger good, and design your wiki to meet the criteria you identify. To help you with this, the following strategies were presented:
- integrate the wiki as one of several tools in the collaboration architecture
- define, monitor, and enforce the wiki rules of conduct
- optimize the use of wikis for collaborative knowledge creation
- assign a champion to encourage adoption and use of each wiki
- realize that the largest barrier will be convincing your employees to edit the work of their peers
- incorporate small scripts that structure and automate repetitive behaviors
- constantly encourage collaboration in the work place
Entry Filed under: General, Technology
February 20th, 2008
Sean Delaney - Iasta UK
Well another eWorld (London 12th & 13th Feb) has come and gone but some significant shifts it the market yet again. As always the keynote session was well received and after a year’s absence Chris Sawchuck from Hackett delivered the presentation. Some of the key points were:
- Best in class procurement organisations are costing less to run. The total cost of running the procurement department is falling as a percentage of total revenue. Procurement is being asked to deliver more with the same resources.
- BIC are finding diminishing returns on their sourcing activities and they are starting to hit a wall.
- In order to maintain and improve returns BIC are starting to look at the Total Cost of Ownership – influencing spend decisions earlier.
- However only 33% of world class organisations are actually focusing on Total Cost of Ownership approach – so there is room for growth.
Chris went on to add that although in Procurement has been through 10 great years we are now heading into a perfect storm……
S - Supply Assurance – the need for the right goods in the right place at the right time is going to be an even greater challenge.
T – Talent and technology will continue to be top issues. The lack of talent continues to have detrimental affects on the adoption technology. This has become a worldwide issue.
O – Operational – procurement is still about purchase and payables.
R – Risk and regulation is a growing concern. Supply chain risk factors are multiplying and at the same time regulations are growing.
M – More growth, more innovation greater brand enhancement. CEO’s are tasking procurement to deliver and influence in all these areas.
As you can see from Chris’s analysis not only do we have some difficult economic conditions ahead but Procurement will have a far greater range of challenges to contend with.
There was also a Green tint to the show with exhibitors like Green2020 focusing on carbon footprint reduction and Action Sustainability focus on sustainable procurement.
From a personal perspective the delegates were far more focused on their organisational needs and what eSourcing had to offer them. Spend Analysis has yet some way to go to reach a similar level of understanding.
Overall another great conference and looking forward to September already!
Entry Filed under: Analysts/Research, e-Sourcing Marketplace
February 19th, 2008
David Bush - Iasta
Industry Week is on a roll as of late. In addition to their recent article on Best Practices in Freight Bidding, that Michael Lamoureux summarized in this post, they just published on article on 10 Strategies to Drive Down Your Transportation Spend that was rather good. In brief, the strategies were:
- Keep your network flexible to take advantage of cheaper and more economical freight lanes.
- Set budgets and measure spend against budget on a regular basis.
- Negotiate constraints for price, capacity, and capability over the long term.
- Implement postponement strategies that allow you to reduce lead time and improve cash flow.
- Monitor and enforce inbound compliance.
- Optimize your transportation planning.
- Consolidate all outbound shipments. If you pay for the truck, use it to its full capacity.
- Improve supply chain visibility. Know where your shipments are when, and why.
- Monitor and audit all invoices and shipments. Only pay what you have agreed to under contract.
- View transportation and trade as one integrated process.
Finally, and I can not stress this enough, use strategic sourcing decision optimization when making your award decision to insure that the award you select will enable you to keep your transportation costs down. Otherwise, you might think you save big on the unit cost only to find out that your transportation costs double.
Entry Filed under: General, Optimization, Supply Management Best Practices
February 18th, 2008
Michael Lamoureux
Industry week recently ran a good article by Chris Ferrell of Tompkins Associates on Best Practices in Freight Bidding that had a number of good suggesstions. The article offered up the following 12 best practices:
- Obtain commitment from executive management.
This is always a good idea, no matter what project you are undertaking.
- Benchmark current freight costs.
Also, separate out fuel surcharges from basic freight spend.
This is critical. After all, how can you do better if you don’t even know how well you’re doing now?
- Include new transportation providers in the bid process and allow carriers to bid on different markets.
This should be obvious, but I’m afraid it isn’t. If you always have the same carriers bidding on the same lanes, they’re going to figure this out eventually and keep their rates in sync to maximize their profit, which is akin to minimizing your savings.
- Standardize bid formats to ensure apples-to-apples comparisons.
This should be a no-brainer.
- Have a minimum of one year’s worth of clean historical data.
Not sure I understand this one. You should have good projections of what your freight requirements are going to be, by market and lane, for the next year and these should be based off of solid demand projections that use at least a year’s worth of good, clean, data and preferably two or three years!
- Look for opportunities to decrease cost by changing transportation modes.
Never assume your current transportation network and strategy is optimal. For instance, just because ocean looks cheaper, doesn’t mean it is. Consider laptops. Their value depreciates weekly. If you can make them light enough, and pack them tight enough, air freight will be more profitable.
- Use a multi-round bid process.
You should definitely use a multi-round RFX, to qualify potential award recipients, but not necessarily a multi-round bid. Depending on the market conditions, the number of potential carriers, your needs, and how clearly you can specify those needs up front, a well-defined auction that takes into account all costs and factors, appropriately weighted, might be your best bet.
- Encourage carriers to take a more holistic look at your freight.
Good carriers will know their networks and how to optimize them much better than you will know yours. It’s their job. They might be able to come up with alternative bundles, modes, or schedules that could save you a significant amount of money.
- Leverage volume through a relatively small group of core carriers.
This is a basic tenet of sourcing, period. Just make sure that you split demand through a small group, and not a single carrier - because this would introduce a significant risk into your supply chain.
- Bid freight on a regular, predetermined basis.
Like any other bid, it shouldn’t be done ad-hoc. It should be by major sourcing project or at regular intervals.
- Put as much effort into implementation plans as you do the bid.
Remember that negotiated savings are just that - negotiated savings. To realize them, you need to be ready to do what it takes.
- Track carrier performance against commitments and utilize feedback loops.
You should not only track performance, but verify invoices using m-way matching and analyze historical performance using spend analysis to find overpayments and secure the credits or refunds before the contract expires.
Although the doctor is an expert in transportation network modeling, and well versed in freight, there are other bloggers out there who are experts in freight bids and freight auctions, a few of whom run projects on a (very) regular basis. He knows at least a few of them check this blog from time to time. Maybe they’ll chime in with a few tips of their own.
Entry Filed under: Optimization, Reverse Auctions, Supply Management Best Practices
February 15th, 2008
David Bush - Iasta
I was actually starting to get used to my daily email from Reuters, which I was eventually able to set up with a better topic rule list. So, in the middle of December, I scratched my head a couple times trying to remember the last time I got my sourcing news. Finally, I took the time to email Maud Larpent about it, who graciously replied.
Hi Dave
Yes the daily emails have been stopped… Reuters has moved to the next stage of development of the Reuters Insight service and as a result has closed the pilot on Monday 17th December 2007. The team will use learnings, and your feedback, to drive the next stage of developing the business.
This approach will ensure we are able to concentrate on providing the best service possible. We appreciate your commitment to and support of the Reuters Insight service. We’ll continue to keep you up to date with our plans for the future and please continue to contact us, at go.global@reuters.com.
Kind Regards
Maud
I really liked that service, although I never understood what Reuters was getting out of it. Although, I thought the filters could be improved, it did a pretty good job of sending me about 1-2 articles of interest per day.
So, that’s the update, if any one else was getting those and wondered what happened, since I never got a notice of suspension. Maybe it will be back with more features and push traffic into more Reuters affiliated sites. If I could have drilled into more specific categories, it would have been a really slick way to automate my sourcing news.
Entry Filed under: General, Technology
February 14th, 2008
David Bush - Iasta
The Supply Chain Management Review recently ran an article on how to accelerate sourcing cycle times that had some good suggestions on how to keep your sourcing cycle lean and mean.
According to the article, obstacles that prevent the rapid execution of a quality sourcing process typically fall within one of the following four categories:
- insufficient and/or inaccurate data
good sourcing needs good data; be sure to clearly define and articulate what data you will need before the project begins
- poor process definition and knowledge
you should have standard methodologies and processes, and standard templates for each major category to insure that the team doesn’t have to “re-invent the wheel” every project
- insufficient resources
strategic sourcing requires dedicated resources; although one can automate tactical purchasing, the very nature of strategic sourcing is that it requires qualified, intelligent individuals concentrating on the problem
- lack of corporate culture for sourcing
sourcing affects multiple business units; they must be aligned to ensure success
The article then goes on to focus on two areas that can make a difference: spend data and talent.
Good strategic sourcing starts with a detailed spend analysis project that identifies the opportunities and illuminates the data you will need to conduct a successful sourcing project.
But in the end, it comes down to the talent assigned to the project. As the author points out, successful sourcing requires creativity and perseverance, drawing heavily upon:
- teamwork and collaboration
- leadership and communication
- analytics and problem solving
- broad expertise that encompasses project management, legal issues, and technical skills
Virtual teaming with collaborative processes and access to improving analytics and toolsets is creating the means for speed, the framework for results and the platform for sustaining category leadership despite the constant flow of talent … as long as the right e-Sourcing platform is in place to support it!
Entry Filed under: General, Spend Analysis, Supply Management Best Practices
February 13th, 2008
Michael Lamoureux
Free Trade Zones, Foreign Trade Zones, Special Economic Zones, and Sectoral Promotion Programs may all sound like the same entity, but, depending on the country, they can be vastly different. Where global trade is concerned, they can be a great advantage, if understood and used properly, or a relative disadvantage if not well understood.
In the US, a Foreign Trade Zone is an enclosed area, operated as a public utility under the control of US Customs, with facilities for handling, storing, manipulating, manufacturing, and exhibiting goods. Merchandise may be exported, destroyed, or sent into Customs Territory from the zone, in the original package or otherwise. The advantage of the zone is that, although items shipped from the zone are subject to Customs duties if sent into Customs Territory, they are not subject to customs duties if reshipped to foreign points! Furthermore, the usual formal CBP entry procedures and payments of duties are not required on the foreign merchandise until it enters CBP territory for domestic consumption, at which point the importer generally has the choice of paying duties at the rate of either the original foreign materials or the finished product. Foreign Trade Zones can have a huge impact on your working capital and supply chain financing requirements.
A Chinese Special Economic Zone is a different entity entirely. In the People’s Republic of China, a special economic zone is given special policies and flexibile measures by the central government to allow them to encourage foreign investment. The policies allow them to utilize a special economic management system that contains special tax incentives and greater independence for international trade activities. In a SEZ, there is no tax on foreign investor funded companies during start-up years before making a profit, no tax in tax in the first two profitable years, and only half of the normal tax in the third and fourth years.
In India, a Special Economic Zone, which was modeled after the China Special Economic Zones, is a foreign territory for the purposes of trade operations, duties, and tariffs. The specifics vary from zone to zone, as they do in China, but the zones also borrow some of the concepts that originated in the Foreign-Trade Zones Act of 1934 in the US, making them interesting entities.
Mexico has Sectoral Promotion Programs that establish lower tariffs on the importation of inputs for the use of various products, and the special economic zones of Brazil are different entities still. For more information on free trade agreements, foreign trade zones, and special economic zones, see the Free Trade Primer over on the e-Sourcing Wiki which can be used as a good starting point for your research.
Entry Filed under: General, Global Supply Issues/Risk
February 12th, 2008
David Bush - Iasta
Author’s note: This is a joint effort with Michael Lamoureux.
A lot of vendors these days are claiming to offer SaaS, because that’s the buzzword of the day and people are realizing that unless they are an IT company with their own high reliability, fault-tolerant, data center with redundant Internet connectivity and power providers, it’s usually better to have a technology company manage the software and data center. (And even if they are an IT company with a modern data center, sometimes it’s cheaper to have certain applications hosted and managed by a third party.)
However, just because a vendor offers you an application “on-demand”, this does not mean it’s true “Software as a Service”, or SaaS if you will. If you look beneath the covers, it’s often just a traditional hosted ASP model relabeled as “on-demand” or “SaaS” because either the provider doesn’t know the difference between ASP and true SaaS, or the provider is hoping that you
don’t know and will thus perceive their offering to be better than it really is.
True SaaS requires multi-tenant. To understand this, we’ll review three major advantages of SaaS in detail which you will NOT realize if you just go hosted ASP. (Many of these are described in the wiki paper).
- Instant Deployment
A hosted ASP vendor might be able to get you up fast, but not instantly. A hosted ASP vendor will have to build a new machine, install their software, and put it on their network. If they are really efficient, they will used standard configurations and have a ghost image that they can flash onto a new machine in an hour or two, but this is not instant. And if the network guy is sick that day, it might be a few days before they can get around to the flash and get the new machine tested and in their data center.
A true multi-tenant SaaS offering only requires the creation of a new customer account, and it’s good to go on the current platform with no installs, no customizations, and no new hardware. It should literally take the vendor longer to log the request and collect your information than to make you live.
- Instant Upgrades
A hosted ASP vendor needs to update every customer’s machine to upgrade their offering. If they have 200 customers, they have to do 200 upgrades. Could be a few weeks before you see your upgrade, depending on where you fall on their priority list.
With a true multi-tenant SaaS offering, only the main instance is updated and every customer is updated simultaneously. You see the update as soon as its ready.
- Economies of Scale
The real benefit of SaaS is the considerable cost savings it allows. An ASP provider has to maintain separate hardware for every customer, which, most of the time, won’t even come close to maximum utilization, and has to maintain a large team of network professionals to maintain all those
machines.
A true multi-tenant SaaS application can use heavy duty multi-core servers and support 10, 20, or 100 customers (using an IBM or Sun rack configuration) on a single hardware platform with built in virtualization and fail-over. With only one machine and one software instance to update,
only a small team of network people is required - this represents a considerable salary cost savings that can be passed on to their customers. Furthermore, because hardware only has to be added occasionally, and because virtualization allows processors to be powered down when utilization is low, the vendor that has a true multi-tenant SaaS application also saves on hardware and energy costs, and can pass this savings onto its customers as well.
Furthermore, the following advantages will not be realized to their full potential if you just go with a traditional hosted ASP solution:
- Pay as You Go
The provider will need a substantial set-up fee up front, or will have to jack up your price to cover the set-up costs.
- Single Instance
You’re a large organization that has more users than a large server can handle? Too bad. You’ll find your users split across multiple instances. This will be particularly problematic when one instance fails while another stays up.
- Free Upgrades
Since an ASP provider has to install each patch separately for each customer, you’ll be paying a large maintenance fee, whether you know it or not. (Some providers will hide it in the monthly fee, but you’re still paying it.)
- The customer has the leverage.
Due to the large set-up costs, these providers will insist that you sign long-term hosting contracts. A real SaaS provider will go for a contract as short as three to six months, although you won’t get a discount unless you sign up for at least a year or two.
- Regular Automated Data Backup
An ASP provider will claim to do this … and they will buy a separate backup drive for you machine … and all will seem well until your server fails and you realize that they haven’t tested your backup drive in over 2 months (since it takes them a long time to cycle through the testing
rotation) and the last good backup was a month ago.
- Built for Change
To an ASP provider, change is great … as long as you don’t do it more than once a year. Just trust us on this one.
Plus, as my post co-author pointed out over on his blog, Sourcing Innovation, ASP is just not as green as SaaS.
Entry Filed under: General, Technology, e-Sourcing Marketplace
February 11th, 2008
Todd Epple - Iasta
A recent article popped up in Network World about another vendor in the industry extolling the virtues of “utility computing”.
Perfect Commerce, much to the chagrin of its remaining internal IT staff, is outsourcing all of its datacenter operations to Savvis in a $5 million 3-year contract. When I first read this I was shocked at the price tag, which I am sure has been discounted considerably from Savvis’ list pricing considering the public press release and marketing help that Perfect has given them. Still how could this cost be justified in a company the size of Perfect (150 employees)?!?
Digging deeper into the press release, I have found the reason…
“A couple of years ago, we had between 500 and 600 servers at Perfect Commerce in about 29 different application groups.”
Bingo. Now it all makes sense. They had about four times as many servers as employees! And who knows how many other assets (desktops, laptops, printers, routers, switches, firewalls, etc) the overburdened IT staff was responsible for managing. And 29 “application groups” is an awful lot for a small software company to even have a hope of providing decent customer support.
I am sure the strain of supporting SO MANY legacy systems (40 servers per IT employee!!) that were cobbled together or acquired over the years was causing a lot of stress and strain on the understaffed IT department especially considering the skyrocketing demands (and costs) of compliance/security and higher availability levels. So instead of tackling these problems in-house the decision has been made to throw a lot of money at the problem.
Thankfully, Savvis has the right prescription for this problem: server consolidation and virtualization. This clearly should have been accomplished many years ago and, when completed, will increase the efficiency and manageability of these assets. With the sheer volume of virtualization they will need to do this, it may be a good time to load up on some more VMW or EMC stock while they are down. Another winner in all of this is the environment. 600 servers at 300 watts each consume about 180 kilowatts, or almost $500 per day in electricity not including the extra AC such a datacenter would require. Cutting the number of physical servers by more than half would be good for Perfect’s carbon footprint.
So, to recap, here are the winners and losers:
Winners:
Savvis
EMC and VMW
The Environment
The Economy in Atlanta and D.C.
Losers:
Perfect’s IT Staff
Kansas City Power and Light
The Kansas City Economy
IT Consultants (the article says they were paid $300/HOUR!!)
It is clearly very difficult to have to manage this many legacy systems and products for any company, both from an IT perspective and from a customer service perspective. I’m really not sure where this leaves Perfect’s customers–will the quality of their support improve or not? Will the money have been better spent improving the support or the products versus paying the infrastructure tax of legacy acquisitions? Stay tuned…100% acquisition retention is on the line!
Entry Filed under: General, Technology, e-Sourcing Marketplace
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