Assessing Business Models

Image of Business Models

SIG University  Certified Sourcing Professional  (CSP) program graduate Andy Perkins  highlights the key foundation for driving excellence between supplier and client in the new market we live in.

Procurement is an integral part of the process of acquiring goods and services from external parties that help drive the goals of an organization. This essential function is a part of every business, and a company must develop sound business models that ensure the process is efficient and effective.

Assessing business models is a crucial step in determining the strengths and weaknesses of the overall Procurement strategy. Several factors determine whether a business model is efficient and effective. This essay will explore aspects such as supplier collaboration, transparency, risk, technological adoption, and sustainability.

The first step to assess the business model for Procurement is to explore the core components. Typically, this involves identifying the needs of the organization or team, selecting the suppliers, negotiating the contracts, and managing the relationships. An efficient and effective business model should address each component and provide a clear path forward.

One key factor to explore when assessing a business model for Procurement is the level of collaboration between suppliers and the organization. Collaboration is a critical aspect of supplier relations. Additionally, this can be a tremendous value-add considering that resources can be leveraged and used when identifying a proposed solution. As an organization, we see this as the most significant benefit to supplier collaboration, as this allows for a solution-agnostic approach and ensures organizational alignment throughout the process. This collaboration can be done through regular meetings or project-specific initiatives.

Another critical factor to elucidate is the level of transparency a supplier and procurement organization have. Transparency surrounding the supplier is imperative to ensure activities are conducted ethically and that the organization receives the best possible result. Transparency surrounding the procurement organization is also an integral part of ensuring that there are clear guidelines for supplier management and negotiation of contracts. This model should include reporting and monitoring mechanisms for both the supplier and procurement organization. This will ensure that all activities are conducted transparently.

The third factor to consider when assessing business models is to look at the level of risk associated with the organization, specific purchase, or relationship. Activities surrounding Procurement are inherently associated with risk. Suppliers can go bankrupt, see supply chain disruptions, quality issues, and data breaches. In order to ensure that the business model is sound, Procurement should include:

  • Risk management strategies for ensuring contract resiliency.
  • Contingency plans for supply chain disruption.
  • Mitigation plans for potential data breaches.

This should also include regular monitoring throughout the term of the contract.

The fourth factor to consider when assessing business models for Procurement is to look at the level of technological adoption. Efficiency and effectiveness are impacted significantly by technology. This occurs by automating processes, whitelisting suppliers, improving data analytics for pricing verification, etc. A mature Procurement business model incorporates several of these solutions to align the organizational goals with tangible results.

The final factor to consider is the organization’s sustainability level, specifically regarding its Procurement activities. Procurement can play an integral role in sustainability efforts across an organization. This can be realized through simple efficiencies to complex TCO reports. An effective business model should incorporate sustainability considerations when selecting suppliers. This can be evaluated through their environmental and social performance, promotion of ethical practices, and reduced waste in the supply chain.

An efficient and effective business model is essential to a well-functioning Procurement organization. This ensures alignment between the company’s needs, stakeholders, suppliers, and Procurement. The core components of an efficient and effective business model are supplier collaboration, transparency, risk, technological adoption, and sustainability. When all these factors are considered, procurement activities result in a clear and structured approach aligning with the organizational goals. These lessons will be applied in future engagements throughout the majority of interactions. Supplier engagement will see the most significant benefit through leveraging their resources in order to find sustainable and less risky solutions.

The  Certified Sourcing Professional (CSP) Program  is a 10-week course that focuses on the hard and soft skills of sourcing, including strategic sourcing and outsourcing methodologies, as well as best practices in negotiations.

Andy Perkins

Andy Perkins

Senior Category Specialist, Maxar Technologies

I am the Sr. Category Specialist with Maxar Technologies for all things IT. I have been working with Maxar since January of '22. I have experience driving business development efforts in support of organizational goals and initiatives.