Archive for June, 2009
Everything as a Service
June 28, 2009 1:30 am | by Adam D'Augelli
Yesterday, I attended GigaOM’s Structure ‘09 conference where HP’s CTO of Cloud Services Strategy, Russ Daniels, made a bold prediction.
“Everything as a Service.”
To clarify, Daniels’ believes that the current trends in technology will lead to a world where “information, opportunities and experiences — from computing power to business processes to personal interactions” will be “delivered wherever, however and whenever you need it.”
In practical terms? New cloud technology will revolutionize how businesses operate and interact with each other. Because of how new technology is designed, the cost savings associated with scale will allow more businesses to save money by outsourcing their non-core tasks. Not only will this increase revenue, but it will also allow businesses more time to focus on their core business.
This technology’s impact on the supply chain industry has already started. Many companies today – Oracle, Invensys, SAP – already offer supply chain services. This model is viable because it helps small businesses take advantage of the economies of scale associated with supply chain systems. If your business isn’t large enough to scale, it is ususally more cost effective for you to pay someone who has scale to run your that aspect of your business.
The same trend is already starting to happen in the reverse logistics business. Many companies are beginning to outsource the management of inventory liquidation into the secondary market to companies like B-Stock Solutions because they realize the cost savings associated with our solution can be substantial.
The old protocol of liquidation, where one or two liquidators get everything from a retailer or manufacturer under a fixed price contract, is dying. Technology-enabled services like B-Stock’s are revolutionizing how businesses operate and the reverse supply-chain is no exception.
Dealing with Forecast Inaccuracies
June 20, 2009 10:52 am | by Adam D'Augelli
In my inbox this morning, I found a press release announcing a massive one-day $5 million inventory reduction auction by boating company North Point Water Sports. Events such as this are not uncommon in the manufacturing industry as excess inventory is a major problem for many companies operating in a make-to-stock environment.
Unfortunately, a fundamental fact about auctions is that if you overwhelm limited demand with too much supply over too short a period you depress pricing. When a seller needs to liquidate a very large volume of product all at once, they are doomed to suboptimal recoveries as they are forced to trade recovery for velocity of sale.
This weeks Industry Week’s Manufacturing Business Challenge tackled a similar problem. The case entitled “Unreliable sales projections ripple through company”, deals with a hypothetical ceramics manufacturing company whose incorrect inventory supply forecasts had led to massive excess inventory in most quarters.
The solution for problems such as the ones faced by North Point Water Sports and the hypothetical ceramics company in the Industry Week case is not to just improve forecast accuracy, but to more importantly, to build a business process that minimizes the financial impact of imperfections in the forecast. This can be accomplished by improving demand management and putting tools in place now to deal with potential future problems.
In the cases above, B-Stock Solutions’ services are one such tool that would have helped avoid the current “worst case” scenario they are facing by creating a process to manage the ongoing liquidation of smaller quantities on a regular basis throughout the quarter or year. By continuing to liquidate throughout the year, businesses can avoid the inventory buildups that otherwise occur and drive desperation selling resulting in low recovery rates. By throttling the availability of their excess inventory over a longer period of time, businesses can realize greater recovery on excess inventory and drive operational efficiencies in their business at the same time.
Forecast accuracy is truly one of the great challenges companies in volatile, dynamic industries face. No matter how much you invest in forecasting, a forecast is based on historical data or imprecise estimates. Especially in times of economic uncertainty, the past is not always an accurate indicator of the present or future. However, by investing in tools today to deal with excess inventory problems down the road, your business will see increased efficiencies and increased returns in the future.
Preparing for Disruptive Events
June 11, 2009 11:02 pm | by Adam D'Augelli
Great article by Steve Banker over at Logistics Viewpoint titled Integrating Strategic and Supply Chain Planning at Emerson. In the article, Steve gives a case study of Emerson Process Management, a company that has prepared itself for turbulent times by implementing a robust strategic management planning process.
A major part of Emerson’s risk analysis accounts for disruptive events. These “What if” scenarios ensure that the company is well positioned in case of high impact events such as the recent outbreak of swine flu or the political turmoil in Thailand.
However, it seems that many retail businesses have not prepared for such disruptions to the supply chain, nor the sudden change in consumer spending. According to the Wall Street Journal, even today, months after the initial slowdown in consumer spending, the inventory-to-sales ratio, a measure of the number of months it would take businesses to deplete their current inventory, still flies high at 1.31 much higher than a year earlier, when the ratio was 1.12. Given the uncertainty around the economic outlook and the effect of additional job losses on consumer spending – there are still significant excess inventories that will need to be worked off.
With more scrutiny from stakeholders pressuring companies to perform at higher levels of efficiency through the downturn, businesses will have to work harder in all aspects of their business to increase returns and lower costs. Companies will need to put more inventory controls in place, creating efficiencies through reverse logistics – turning the excess inventory into cash and maximizing those recovery rates. Moving forward, however, with so much excess inventory on the market, businesses are going to have to look for new and creative to offload inventory – as well as develop contingency plans for disruptive events.
How did we get here?
June 2, 2009 10:42 pm | by Howard Rosenberg
When I launched the eBay Private Marketplace business in 2004, I spent most of my time that first year talking to retailers and manufacturers learning how they manage bulk liquidation (ie. truckloads and pallets) of excess inventory. After the first 20-30 of these conversations, I was amazed by the consistency of what I learned.
The key learnings, at a high level were that most companies:
- Don’t want to invest in a money losing operation like liquidation
- Don’t like to even admit they have a liquidation problem, let alone invest in it
- Believe they are more dependent on their liquidator than the liquidator is on them
- Manage liquidation the way they do because that is how it has always been done at the company
- Don’t realize the true value of their excess is far higher than they have become accustomed to receiving.
Calling these companies as eBay, we had little trouble getting just about any Fortune 2000 company to pick up the phone over the years (of course we would then have to spend 20 minutes explaining that we were not calling to convince them to sell to consumers via eBay.com, but that’s another story). What was really amazing was that big companies who had invested a tremendous amount of money, time and energy in bringing efficiency and automation to their supply chain operations had not evolved their approach to liquidation beyond the same process they had used for decades.
The answer to the question: “How do you handle liquidation?” was almost always: “Well, we have 2 or 3 guys we call when we have a need to liquidate anything.” In some cases it got as advanced as, “We send out an email to our 4 or 5 buyers and ask them to get us back an offer by Friday.” As you would expect, the use of such a manual process necessitated limiting the buyer base to whom the inventory was shopped. After all, how could you manage this sort of process with 50 buyers, 100 buyers, 1,000 buyers? In no case was there any meaningful negotiation process or other discovery of the buyers’ true maximum willingness to pay.
As we built out the business, added customers and increased our annual “GMV” (gross merchandise volume, or the dollar value of everything our customers transacted on our platform), it became crystal clear that what we were doing was extremely powerful and could really impact a company’s bottom line. Generally speaking, we found that we increased recovery rates for our customers by anywhere from 20% to 100%, depending on the type of inventory. Take a look at what this means…if a company has $1 billion of revenue and generates 2% of revenue from liquidation, and we improved the recovery rate by 30%, we’d drop nearly $6 million straight to pre-tax profit. If that company operated at an 8% operating margin, we just boosted operating earnings by 7.5%. Not bad when you consider how easily accessible these dollars are.
So we continued to grow the business at eBay with great success. We never had a quarter with less than 50% year/year growth in the last 10 quarters I was there. Unfortunately, eBay’s core business started to really suffer and “all blood was being drawn back to the heart”. That is to say, there were no resources available to fund interesting, but small, businesses like ours. Finally, in late 2008, I decided that I had to leave and gather the resources needed to build this business as an independent entity.
So in January, my co-founder and I launched B-Stock Solutions. We closed our Series A financing in February and shifted into high gear. We built our platform in about 3 months and just recently signed a deal with eBay to take over the management of our old business from them. With that agreement and the associated customers moving over to B-Stock, we have again become the leaders in this market.
It is funny how things happen.
