Wednesday, June 02, 2010
Where do forecasts come from?
Ok, so maybe this question doesn’t elicit the same type of dread a parent may feel when asked by a child. As a parent at least you can buy some time with wild tales of storks. Unfortunately, Telecom executives can’t pull such a response out of their back pocket when it comes to getting their arms around the origin of their network equipment forecasts.
The problem – of course – is that Operations and Finance usually behave like politicians representing different sides of the isle. Both working for the common good but maintaining contrasting priorities and agendas. As one can imagine, bi-partisanship can be just as rare as it is in Washington.
Among the victims of this organizational schism is inventory/stock forecasting. Procurement wants to know when stock levels and spare capacity is running low. But, too often, they only learn of the shortage when it’s critical and they have to expedite the replacement – paying top dollar because they’re desperate.
Operations, on the other hand, is overworked and understaffed in their race to roll out new services and maintain existing infrastructure. After the initial product rollout, they are not accountable to Procurement. Consequently, they aren’t exactly rushing to provide finance with stock levels.
At most carriers, the standard reporting structure has Operations reporting up through the VP Ops/COO, while Procurement reports to the VP Finance/CFO. So the Operations and Procurement staff support each other, but don’t necessarily have accountability to one another. And therein lies the disconnect.
Can the gap by bridged? Call me an optimist if you like but I believe it can. Solving the situation doesn’t require shaking up the organizational chart, just a better lens into inventory levels. Better visibility will empower operations and procurement professionals to make more strategic business decisions regarding the acquisition and disposition of assets. Decisions that at the end of the day will generate significant value for the organization in the form of reduced CapEx, new revenue streams and networks running at optimal efficiency.
Posted by Ed Mitchell •
Category:
Spares Management •
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Thursday, April 29, 2010
Have You Been Too Slow to Change?
I had the opportunity recently to experience first-hand just how counter-productive some carrier strategies are when it comes to repairing network equipment. Given the size ($10B+) and history of the company we were speaking with, I had expected to find a state of the art, forward-thinking internal service organization with fully optimized processes. What I found was something completely unexpected – the polar opposite.
I’m paraphrasing here but this is what we heard from the head of materials management, “we sell everything we de-install at $1 per pound to our repair vendor regardless of what it is.” I then asked about how they handle spares and repairs to which the replay was basically “we buy the equipment back at full repair or replacement cost.” As you can imagine, there was a short period of uncomfortable silence as my team absorbed what we had just heard.
This example underscores just how easy it is to find managers in critical support roles making major financial and operational decisions without understanding the overall impact or what best-in-class methodologies exist in the marketplace. The idea that a public company, keenly focused on EPS and customer retention on the front-end, could maintain such an arcane process on the back-end is indicative of a lack of ecosystem visibility and the fundamental disconnect that exists between operations and finance.
The Telecom market is too competitive and cut-throat to spend time living in the past. In order to keep up, and succeed, carriers and OEMs need to be more agile and respond quicker to change. A well-executed reuse strategy can help bridge the gap between finance and operations, and help gain an invaluable window into what’s taking place within their ecosystems. Through that visibility, you can begin to devise unified goals and establish new processes around surplus and decommissioned assets that yield significant financial operating margins.
Posted by Todd Adelman •
Category:
Spares Management •
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Friday, April 09, 2010
Those Stranded Assets Sure Do Look Nice
This would be better if I was in a classroom but bear with me. Let’s see a show of hands if you’ve ever over-provisioned when new technology’s been introduced into your network. Now, don’t be embarrassed because your colleague just noticed that you raised your hand for seemingly no reason. This scenario is inevitable really.
Market projections are bound to be off to some degree. Surpluses and shortages throughout the network are a fact of life. Shortages are easy to spot. There’s usually a service delivery issue on the other end. But surpluses, those are a little trickier.
Surplus capacity typically gets mounted in a rack, wired to a distribution frame, and waits to be activated. It’s the job of Operations personnel to get it installed and running. But, without a network interrogation system in place, or a remarkably accurate provisioning system, it’s rare that anyone will ever go back to see whether the equipment has been deployed optimally, thereby exposing excess capacity.
Equipment that is deployed but never carries revenue-generating traffic is what we refer to as a ‘stranded asset.’ Even equipment that is carrying a partial load can be classified as a stranded asset. For example, if there are 4 DS1 cards in an Ethernet Switch, and each is only using 6 DS1 ports, they could be combined into a single card, making the other 3 DS1 cards available for reuse elsewhere in the network.
In its own way, over-provisioning can appear to be a perfectly rational exercise. After all, what network deployment team wants to be caught unprepared? But as I mentioned earlier, when customer take-rates don’t meet projections, those assets can become forgotten pretty quickly.
Not only are stranded assets incapable of generating revenue, they are often still covered by a maintenance contract, which means a carrier is paying a vendor to ensure SLAs are met – even though there may be no traffic on the device. Now, that’s a double whammy!
The obvious culprit here is a lack of visibility. You can’t put to better use what you can’t see. That’s why visibility is the core tenant of reuse optimization.
A reuse strategy built around establishing comprehensive visibility into a carrier’s entire ecosystem creates opportunities to get more use – and therefore more revenue – out of each network asset. Surpluses are inevitable but in a difficult economic environment, you’ve got to get the maximum return on the capital you’re putting forth to ensure service delivery levels.
