By Susan Avery
ISM-Greater Boston began its 2015-16 year with a bang. Its first member meeting featured as presenter Bonnie J. Keith, President of The Forefront Group and one of the authors of the soon-to-be published book, Harnessing the Potential of Sourcing Business Models for Modern Procurement.
Keith, who is on the faculty at the University of Tennessee and has experience working as a leader in sourcing and procurement, introduced the concept of Sourcing Business Models to the procurement and supply management professionals attending the meeting, and then at supper led the group through a workshop that demonstrated how to put the idea into practice.
Sourcing Business Model theory suggests sourcing should be thought of as a business model between two parties with the goal to optimize the exchange. Sourcing Business Models are based on two factors: Relationship models and economic models.
Speaking to challenges facing procurement today, Keith first talked the group through an evolution of approaches to sourcing, from Michael Porter to the Kraljic Matrix to A.T. Kearney’s Purchasing Chessboard, pointing out that each of these models tends to focus on the economic, ignoring the relationship aspect of sourcing.
Then, in 2012, researchers at the University of Tennessee, collaborating with the Sourcing Industry Group, Center for Outsource Research and Education and the International Association for Contract and Commercial Management outlined seven Sourcing Business Models in a white paper, Unpacking Sourcing Business Models: 21st Century Solutions for Sourcing Services. The white paper, Keith said, provides the basis for the new book.
To describe the Sourcing Business Models, Keith began by looking at how companies traditionally source goods and services--with a decision on whether to make or buy--and showing how this process is flawed. In between make and buy, there is a hybrid approach pioneered by Dr. Oliver Williamson that suggests procurement use more flexible relational contracts for strategic supplier relationships, she said.
“This tool (Sourcing Business Models) will be the difference in your work with suppliers,” Keith said. “It has the missing element. It considers relational element of sourcing.”
Throughout the evening, Keith emphasized that she was describing concepts in simple terms to fit time she was allotted.
There are seven Sourcing Business Models that run along a continuum, from transactional (basic provider model, approved provider model) to relational (prefered provider model, performance based/managed services provider model, vested business model) to investment (shared services model, equity partnership model). Please click on image to enlarge for viewing.
“How do we know which is best? They all are correct,” Keith told ISMGB members. “The key is to use the right model for the situation. To do that, we must make two key decisions, on relational model and economic model.” The three relational models are: transactional, relational, investment. The three economic models are: transactional, output based and outcome based.
Then, using the Business Model Map Matrix, procurement professionals should be able to figure out which sourcing strategy best fits their category in a few hours.
After walking ISMGB members through the four steps of the mapping process—select a category, determine relational model, determine economic model, determine the best sourcing business model—the procurement pros gathered into small groups and got to work, applying what they learned.
One group selected managed print services as its category. Going through the exercise, with some guidance from Keith, they determined that the strategy they should take when sourcing managed print services would be to negotiate a performance-based agreement with a preferred supplier. Conferring with the group on the category, Keith said, “we want to be more integrated with this supplier.”
The next step for procurement pros is to architect the supplier agreement. “Architecting a supplier agreement using the Sourcing Business Model creates the most appropriate ‘system’ for your situation,” Keith said.
Harnessing the Potential of Sourcing Business Models for Modern Procurement by Bonnie Keith, Kate Vitasek, Karl Manrodt and Jeanne Kling, will be available in November 2105. The 480-page hardcover book may be purchased through publisher Pall MacMillan or at Barnes & Noble and Amazon. The cover price is $55.
Arrows in the Quiver
Eliot Madow, President, ISMGB Board of Directors, opened the meeting, welcomed “new and familiar faces,” described the workshop format for the group and introduced Keith. Of her talk, he said to members attending,“You will have a new arrow in your quiver when you return to work tomorrow."
Madow previewed upcoming ISMGB events, including, on October 21, a plant tour at Slade Gordon, workplace of Board Member Matt Simpson. Pointing out the group’s trying new meeting formats, Madow shared that the Board is open to new ideas from members “to grow and adapt to be the organization you want us to be.”
Also at the meeting, Ken Glasser, Chair of the New England Supply Chain Management Conference and Educational Exhibit (NESCON), described the event taking place on October 5 in Marlborough, Mass., and invited ISMGB members to attend. ISMGB Board Member Meghan Truchan, Chair of the Marketing and Membership Committee, explained the mission of her group and encouraged members to bring colleagues to future events.
For information on upcoming ISMGB events and educational programs, contact Managing Director David Kriz by phone at 978-371-2522 or email at firstname.lastname@example.org.
ISMGB sponsors are Ariba, W.B. Mason, DPV Transportation, Hiperos, Medtronic, Partners Healthcare and McInturff & Associates.
Also see the My Purchasing Center article, Understanding Procurement Value Transforms Career
Susan Avery is Editor-in-Chief at My Purchasing Center. She writes articles, blogs and white papers and manages and creates other content for the online procurement and supply management publication. She produces and moderates roundtable discussions, podcasts, webcasts and video interviews. Susan has 30 years experience covering procurement and supply management for Purchasing magazine and Purchasing.com.
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