2008 Software Re”solutions”

A new year is upon us and with that, the word “resolution” comes to mind…

res-o-l-u-tion – [rez-uh-loo-shun n] - noun

1. a resolve or determination: to make a firm resolution to do something.

2. the act of resolving or determining upon an action or course of action, method, procedure, etc.

3. the mental state or quality of being resolved or resolute; firmness of purpose.

4. the act or process of resolving or separating into constituent or elementary parts.

5. the resulting state.

6. a solution, accommodation, or settling of a problem, controversy, etc.

7. reduction to a simpler form; conversion.

Taken from: Dictionary.com Unabridged (v 1.1)
Based on the Random House Unabridged Dictionary, © Random House, Inc. 2006.

“Well, there’s always next year…”

Some people call this time of year the “holiday season.” Others just call it winter. And then there are those of us who call it the “end-of-the-year-crunch”—that special time when it seems there are far too many things to do, and way too little time to get any of them done. Some things just can’t wait, like putting the snow tires on your car before the first big blizzard (too late now, for people in most parts of Canada). Other things can get put off indefinitely, even when you know they have to be done—whether for deadline or not.

One of those things that can get put off indefinitely just might be your enterprise’s software selection project.

You’ve already obtained executive approval for the acquisition of a new XYZ software solution. Maybe a projected deadline has even been set for its implementation. And you’ve recently found out that you’re the lucky chump delegated to take charge of what can often be a rather complex and time-consuming task.

But you have your usual responsibilities, so this software selection thing… well, there’s always next year to get a start on it…

Well it shouldn’t come as a surprise to you, but next year is mere days away. Before you know it, you’ll be standing at a party, counting down the minutes to midnight, champagne in hand trying to mumble your way through “Auld Lang Syne.”

So maybe you’d better start making your Software Selection Resolution list now (and maybe even check it twice) so that you’ll be ready to set the process in motion the minute you sit back down at your desk on January 2nd, hangover remedy in hand, to start your software selection process.

Software Selection Resolution # 1

I promise to gather and prioritize my requirements, and to create a working document that defines all of my requirements.

Imagine it: sitting down to create an extensive spreadsheet that you send around to every department, imploring the employees to define exactly what they need from a software solution. And imagine waiting for all of them to send those lists back to you, so you can cross-check and collate those requirements to avoid any duplication.

Or, you could save yourself some time and use a request for proposal (RFP) template. An RFP template lists hundreds of criteria for each type of software solution; RFPs are often sent to vendors later on in the software selection process, in order to elicit from the vendors which features and functionality their solutions support. But you can use an RFP like a checklist, making quick note of the functionalities you require, and even rating how important each is to your business activities.

Software Selection Resolution # 2

I promise to research all possible solutions, identify those that are relevant to my enterprise and industry, and eliminate those that are unsuitable, in order to create my long list of possible solutions.

The Internet is a great research resource. But there’s so much information out there, it’s sometimes hard to know where to begin—and how to sort out the reputable from the not-so sound. And when it comes to making a decision that involves a major financial investment, you need to ensure your information is irrefutable, up-to-date, and unbiased.

To start your research, browse through some white papers and case studies published by the software vendors themselves. This can be a great way to compile information about different solutions, and can form the basis of an effective comparison.

But, you probably won’t have tons of time to read a legion of white papers. So, how can you cut to the chase? Are there any resources available with ready-made comparisons of software solutions?

As a matter of fact, Software Evaluation Reports are a good way to get comparative reviews of several vendors’ software products. Software Evaluation Reports consist of two or more vendors compared side by side to demonstrate whether or not they support each criterion in a list of available functionalities. (Sample evaluation reports, with two vendors and up to 50 criteria, are available as free downloads.)

Once you have done these things, you will have a long list of potential vendors.

Software Selection Resolution # 3

I swear that I will, in timely fashion, send a request for information (RFI) to all the vendors on my long list (and I swear that I will be patient in waiting for their responses).

What more needs to be said, really? Unless, of course, you don’t know why you’re sending RFIs to your long-listed vendors… (Here’s a hint: this gives them the opportunity to confirm that they do indeed support your prioritized criteria, and how well they do so. All of which is the first part in the process of creating your short list of vendors and solutions. (But more on that shortly.)

Software Selection Resolution # 4

I hereby vow to build a decision matrix…and to dutifully rate each solution against the requirements of my organization.

A decision matrix is a decision support tool that uses algorithms to examine a set of metrics, in order to create a quantified comparison. A decision matrix provides a score based on an evaluative comparison of each prioritized criterion. Doing this will help you to more quickly determine your list of potential solutions.

(Imagine if Santa used a decision matrix to decide who’d been naughty or nice. Or if your boss used one to determine your performance on such tasks as, oh, choosing a new software solution.)

Software Selection Resolution # 5

I pledge to analyze the strengths and weaknesses of each solution, so that I will be able to rank them and create my short list.

This step is essentially an extension of Software Resolution # 4. Once you determine that the selected vendors’ products do support your criteria, you need to know to how well each one meets your requirements, according to your established priorities.

Doing all of the above steps can take a lot of time and effort. You could spend the entire week between the 24th and the 31st going through spreadsheets. Or, you could set aside twenty minutes of the last day of the year to perform the same effective comparison. Find out how easy it can be to create your shortlist with TEC’s eBestMatch decision support system.

Software Selection Resolution # 6

Furthermore, I promise to let all rejected vendors down easy, so as not to upset their sensitive little hearts.

And even if their hearts are lumps of coal that even the Grinch wouldn’t touch with a ten-foot chimney brush, it’s still good business sense to be diplomatic and professional. You never know when you might require a vendor’s services in the future (or meet them in an awkward social setting). So don’t assume they’ll be pleased as spiked punch if you figure that not sending them any response is adequate rejection. If you don’t call—or, better yet, send an official letter—to tell them why they didn’t make the cut, they’ll probably call you. And it won’t be to chat about what a nice holiday you had.

In spite of your diplomatic and professional approach, it is possible that disputes will arise. The vendors’ sales representatives may try to give you a slew of reasons why you should reconsider their products. In order to make it clear that your decision is final, you should specify why their solutions were rejected (without actually using that word), while not coming across as overly critical of their products.

Software Selection Resolution # 7

I agree to undertake the responsibility to issue a request for proposal (RFP) to all short-listed vendors.

On your company’s formal business letterhead, write a cover letter inviting the vendor to submit a proposal. Your RFP should define the entire project’s requirements, and allow the vendor to propose a number of things: contractual terms, technical specifications, delivery terms, time frame and strategy for implementation, training services, support, and of course… the price quote.

Preparing a proposal can be a lengthy process. So, you should give your short-listed vendors some time to complete and return the RFPs (two to three weeks is generally enough—about the same amount of time it takes most people to start smoking again, or let the stationary bike start collecting dust). And you should probably wait until you have received all the vendor proposals before going ahead with the next step of the process.

Software Selection Resolution # 8

I declare that I will create a comprehensive demo script according to my specifications, and then invite my short-listed vendors onsite to show them my enterprise’s current system, as well as provide them with the opportunity to do a demonstration of their solutions.

A scripted demonstration is an essential part of the software selection process. (A software selection without a scripted demo is like a New Year’s Eve party without the stupid hats, noise-makers, and cheap champagne). By providing vendors with your own demo script, you can more clearly see how the vendors’ solutions address the factors that are important to you. Your scripted demo should cover: supplier introduction, system overview, menus and features, system navigation, customization capabilities, security features, and more.

Software Selection Resolution #9

And I attest that I will rate the vendor’s demos, assemble their RFP proposals for consideration, and revisit the analysis steps, in order to select the one and only solution that best fits my enterprise’s needs.

Not knowing how to assess vendor demos is kind of like Santa not knowing why a child is naughty versus nice—which makes the whole idea of rewarding good behavior—good demos—moot.

Each member of your project team attending the demo should participate in scoring the scripted vendor performances. Break down the demos into different sections in order to facilitate the scoring process. You might consider the solution’s functionality or performance, ease of use, process and flow, flexibility, and adherence to your script. Score each section using a rating scale (you can decide how precise you want the scale to be, but “0” to indicate that the factor was not presented in the demo, and “3” to indicate an excellent performance or capability—with according values for “1” and “2”—should suffice).

And then, you also need to know how to rate the RFPs responses. Keep in mind that although these responses can tell you a lot about the vendors, the RFPs are essential sales pitches, designed to persuade you to buy the vendors’ products. Ask your self the following questions:

* Did the vendor respond to your RFP on time?
* Did the vendor answer every question?
* Are any of the responses unclear?
* Did each vendor include a price quote?

Vendors should also provide you with the contact information for a few references, from organizations that previously installed the software and can answer questions about the quality of the vendor’s implementation services, ongoing maintenance support, and the quality of the training provided. Compile a list of these questions and send each referee a copy. When these questionnaires are returned, you can use them to help you further weed out the unsuitable candidates.

And now you’re ready to go back to the analysis steps discussed above, in order to take your short list of vendors down to the one single vendor that best fits your needs. (Just a reminder of the things you should revisit in order to determine your best match:

* create or use a decision matrix

* rate how well vendors’ solutions support your criteria

* analyze the solutions’ strengths and weaknesses, in order to rank the vendors, based on all the new information you have received, including the demos, the RFPs, and the client references…

Software Selection Resolution #10

And finally, I swear to prepare for the full implementation process, so that the new software solution I have so carefully selected does exactly what my enterprise needs it to do.

How extensive your implementation is may depend on whether or not you specified in your selection criteria that the solution should fit with your existing hardware. If so, then you can move straight into the installation phase of implementation. To begin with, the vendor should test and refine the application.

You have now arrived at one of the most important parts of the implementation: educating users and administrators. This involves not only the usual training; the training team must also provide a complete explanation of how the solution will affect business processes, what people’s new roles will be, and all other aspects of the new system that may cause users to resist acceptance. Training is the crucial ice-breaker that can make the difference between reticent and enthusiastic software users.

After further tests, to ensure that users are “on board” with the new system, the system is ready to “go live.” But the implementation doesn’t stop there. In order to make the most of the new software application, you must manage and measure how it is benefiting your enterprise, and keep in mind that continuous business alignments are necessary in order for you to make the most of the solution’s potential.

If you want to ensure the vendor adheres to the stipulations for implementation as agreed to in the contract, you can hire a consulting firm, such as Technology Evaluation Centers (TEC), to conduct an implementation overview. Learn more about TEC’s evaluation and selection solutions.

And there you have it! You’ve just resolved to do the most effective software selection process ever! Now, you can sit back and breathe a little bit easier over the holidays (so long as you clean out your chimney, and remember to open the flue before lighting a fire, and don’t catch a cold).

But before you get all weepy-eyed that all the fun of learning about software selection is over, here are a few more resources to help you, just to make sure nothing is overlooked:

* A checklist to help you plan your software selection, step by step
* A wide selection of free sample software evaluation reports
* Request for proposal (RFP) templates to help you define your criteria
* Hundreds of articles written by industry experts, covering a variety of categories
* White papers and case studies from software vendors all around the world
* Podcasts and webinars on a number of topics to give you further insight into software tricks of the trade
* A vendor showcase, providing lists of certified vendors and descriptions of their products

“Act Vertical” vs. “Go Extinct” Retailers – Part 3

Part 1 of this blog series set the historical background for supply chain management (SCM) evolution and presented the advantages and shortcomings of vertical vs. horizontal integration. The analysis then moved onto the generally embattled retail sector, where a select group of innovative retailers has found a “happy medium” approach to stay well above the fray.

Kurt Salmon Associated (KSA), the leading global management consulting firm specializing in the retail and consumer goods industries, dubbed this strategy “Act Vertical” in its seminal research study. The firm presented the highlights of the study at the National Retail Federation (NRF) Annual Convention & EXPO 2009 (also known as the Retail Big Show) in January in New York City. The accompanying slide deck can be downloaded here.

Part 2 of this blog series then outlined the five drivers for retailers to act vertical, and the three key tenets of the approach. The post explained in depth the following first two requirements for acting vertical:

1. Effectively bring unique and compelling products and services to consumers; and
2. Offer differentiating customer experiences through multiple, integrated channels.

This final part will focus on the need for retailers to collaborate and synchronize internally and externally with customers and suppliers, often via customized agile supply chains, as necessary.

This supply network agility and flexibility is critical to creating products based on the attributes of smaller consumer segments and “fast tracking” greater numbers of products to respond to ever-shorter selling time windows. Different products have different supply chain requirements, given that many products’ variables may combine in different ways, each variable suggesting its own type of supply chain strategy.

Different (Supply Chain) Strokes for Different Folks

In his Harvard Business Review 1997 article entitled “What Is the Right Supply Chain for Your Product?” Marshall L. Fisher distinguished two types of products that call for different supply chain strategies: functional and innovative. They differ as follows:

* Functional products, like canned soup and blue jeans, have longer life cycles (perhaps more than two years), relatively low contribution margins, and little variety. Because demand for them is stable, they are fairly easy to forecast, with a margin of error in the 10 percent range, very few out-of-stock situations, and no end-of-season markdowns.
* Innovative products differ from functional products in every aspect. They have unpredictable demand, relatively short life cycles (e.g., three months for seasonal clothing), and high contribution margins of 20 to 60 percent. They may have millions of variants in each category, an average stock-out rate from 10 to 40 percent, and end-of-season markdowns in the range of 10 to 25 percent of the regular price. The margin of error on forecasts for innovative products is as high as 40 to 100 percent, but the lead time to make them to order may be as low as one day and is generally no more than two weeks.

The idea that the same type of product can be either functional or innovative implies that one company might have more than one supply chain. And that’s the contention of Jonathan Byrnes, a professor at MIT. Writing in the Harvard Business School’s Working Knowledge 2005 article entitled “You Only Have One Supply Chain?”, Byrnes also asserts that one supply chain is not enough: two, three, or more would be preferable.

“One size fits all” supply chains may have been sufficient in the past, he believes, when that was the competitive norm, but modern IT makes it possible to have multiple, dynamic chains that can accommodate different product and information flows. Byrnes breaks apparel products into the following three categories: staples, seasonal products, and fashion. These products have very distinct design and replenishment characteristics.

Much like Fisher’s functional products, staples (e.g., white underwear) have steady, year-round demand and low margins. He advises stocking them only in retail outlets in small quantities and transporting them in truckload quantities (a full truck is more cost-effective for the shipper than a partially loaded vehicle, i.e. less-than-truckload [LTL] shipping.) Fashion products are like Fisher’s innovative items with unpredictable demand.

Consequently, Zara, the famous Spanish clothing manufacturer, has two supply chains, one for staples and the other for fashion clothing. To get the fastest response time, Zara uses pricey Western European suppliers for the fashion items. But for the more predictable demand items, it uses Eastern European suppliers, which have poorer response time (not a major concern here) but at much lower cost.

In addition to varying the supply chain by product type, Fisher recommends several other variables to consider, such as store type and time in the season or product cycle. Demand varies considerably over the life cycle of many products, whereby the same item might have infrequent demand at first, more stable demand in its maturity phase, and falling demand at the end of its life cycle.

With more than one supply chain, a master retailer can move its products from one chain to the other in response to changing variables, such as type of channel or life-cycle stage. Yet most retailers still move all three types of items to their stores through the same supply chain. Conversely, leading vertical retailers have multiple supply chains, based on a combination of factors such as service levels required, type of demand (e.g., basic products should never be out of stock), and display.

By having a variety of tailored supply chains, retailers that Act Vertical can actually reduce supply chain costs by streamlining the flow of goods. KSA points out one unnamed multibillion-dollar retailer that expects to boost earnings by US$40 million annually and generate more than US$100 million in cash next year by replacing one inefficient supply chain with three streamlined ones.

You Can Control Only What You Measure

Moreover, to Act Vertical, retailers must also change the way they measure supply chain performance, which should be in a holistic, balanced scorecard manner. Namely, many retailers today manage with the goal of achieving the lowest transportation and logistics costs. However, that can increase inventory levels at the store, in the truck, at the distribution center (DC), on the boat, or in the factory.

Excess inventory often then needs to be marked down, and lower margins from markdown sale items can greatly reduce profits and wipe out the cost reductions achieved in transportation. Instead, retailers that Act Vertical track their supply chain performance according to “net-realized-margin,” which takes into account the total profitability and total landed costs of getting products from the factory to the store, including their selling price.

These retailers also use different measures to track the performance of products in the stores, based on different in-stock goals and service strategies by product category. According to Module One of the APICS CSCP Learning System, the appropriate supply chain for functional products should emphasize predictability and low cost with key performance indicators (KPIs) such as the following:

* High average utilization rate in manufacturing;
* Minimal necessary inventory with high inventory turns;
* Short lead times (consistent with low cost);
* Suppliers chosen for cost and quality; and
* Product design that strives for maximum performance and minimal cost.

Conversely, the supply chain for innovative products should emphasize market responsiveness rather than physical efficiency, with KPIs such as the following:

* excess buffer capacity and significant safety stock (buffer stock) of parts or finished items;
* aggressive reduction of lead times;
* suppliers chosen for speed, flexibility, and quality (rather than cost); and
* modular design that postpones the customer order decoupling point (CODP) decision (and differentiation) as long as possible.

The KPIs for each supply chain differ because the products’ characteristics differ too. Aggressively reducing lead times, for example, is appropriate for innovative products but would be irrelevant for functional products that can be manufactured and delivered on predictable schedules in high volumes.

On the other hand, inventory reduction makes good sense as a KPI for supply chains if the product is functional but not if it’s innovative. Because profit margins are low on functional products (those markets tend to be very competitive), cost reduction in the functional supply chain is essential.

Innovative products, however, with their high margins and unpredictable demand, justify extra expense for holding costs. In addition, manufacturers of innovative products can look for other solutions to the problem of unpredictable demand, such as to aggressively reduce lead times and build products to order rather than in a made-to-stock (MTS) manner.

The same class of product, the author argues, can be either innovative or functional. For instance, coffee can be functional (e.g., for business meetings, at gas stations, or on airplanes), in which case it should be available quickly at a low price with perhaps cream and sugar as options. At an upscale coffee shop, on the other hand, patrons are willing to endure longer lead times and pay more money for their coffee, but they want variety in return. As a Starbucks addict, I can vouch for the latter case.

All of the above practices increase the likelihood of delivering the right product to the right place at the right time, and at the right cost (and price). Basically every retailer will have to act vertical over the next few years to react quickly to more-demanding consumers whose tastes are changing faster than ever.

The Seven Magic Core Competencies

So how were the abovementioned act-vertical retailers able to create and execute distinctive and compelling offerings and customer experiences, and what exactly did they do to achieve superior financial performance? First, KSA points out that they have a clear retail-brand strategy: a sharp articulation of their target customers and the kind of offering and experience they would deliver to them.

Second, these retailers have developed the following seven core capabilities that enabled them to deliver unique and compelling offerings and customer experiences:

1. Market research that identifies emerging customer needs and product opportunities. Research that PetSmart Inc. conducted in the late 1990s opened its eyes about how critical pet services were to pet owners. Aeropostale Inc., the mall-based specialty retailer of casual apparel for young people, empowers its employees to travel extensively to see what its core young teen segment is wearing.
2. Product design and development that balances creativity and commercial appeal. Both Coach Inc., a leading American designer and maker of luxury lifestyle handbags and accessories, and Aeropostale, make sure that the quantitative analyses don’t dominate the design creativity.
3. Extensive consumer testing that shapes the offerings and customer experiences and reduces the risk of product innovation. For example, Coach spends US$5 million annually on such consumer research, including 70,000 in-depth interviews.
4. Tight relationships with sourcing vendors, which enables manufacturing capacity to scale up quickly and quality to be maintained. This accelerated manufacturing cycle also allows the delay of key product decisions to accommodate consumer and fashion changes in the nick of time. In addition to Zara’s abovementioned example of two supply chains, Coach works directly with leather suppliers to ensure its handbags meet its exacting standards.
5. Inventory management (assortment, allocation and replenishment) capabilities that can rapidly move products to places of greatest demand and maximized pricing.
6. Design and execution of an engaging and consistent brand experience across all shopping channels stores, catalogs, and the Web. Apple organized its stores (which have the highest per square foot sales in retailing) not by technology categories but rather by how customers use them. Its about 250 stores group hardware, software, and accessories in sections such as music, movies, photos, and children.
7. Marketing that communicates the brand promise across all channels and showcases how the retailer’s offering and experiences enhance their customers’ lifestyle.

More details and examples can be found on KSA’s website.

The Act Vertical Imperative as the Conclusion

Part 2 outlined the reasons that are driving retailers to Act Vertical, i.e., control over most decisions about the products that flow through their stores. These drivers are not abating; if anything, they are increasing.

Indeed, consumers have a fast-expanding variety of shopping choices, and Internet-based retailing continues to take a bigger slice of the pie. And in a global world, the number of product brands consumers can choose from continues to grow in categories from high-tech gadgets to apparel.

Therefore, all retailers must radically change their business models to keep once-loyal consumers from defecting. Retailers that can adopt and embrace an Act Vertical business model will increase their influence on the design, development, manufacture, and distribution of the goods they bring to market. They will be then able to put a differentiating and recognizable stamp on those products, as well as on how consumers experience them, thereby distinguishing their stores (and online storefronts) from the pack.

It is interesting to note, thought, that most retailers have put just a few Act Vertical elements in place. Only a few have created the three-part foundation (outlined in Part 2) that is essential to creating a successful act vertical business model.

But despite their rapid and profitable growth, none of the retailers that KSA has studied had mastered all seven components of acting vertical. This might present considerable opportunities both for laggard retailers that have yet to pursue an act vertical model and for retailers that are already operating this way.