Supply Market Analysis is of utmost importance in Strategic Procurement because understanding our supply market is the key in making right procurement decisions, not only for procurement function but also for all functions across the organisation that deal with suppliers.
Supply Market Analysis
We all have been practicing strategic procurement in our organisation to get best value in procurement. We use many tools like supply market analysis, forward commitment, supply risk management, whole-life costing etc.
Among various tools and methods of Strategic Procurement, Supply market analysis is the foundation of successful strategic procurement projects.
Supply Market Survey boosts our Knowledge of Supply Market, which is referred as Supply Market Intelligence (SMI). And it so important that according to a 2014 study published in Supply Chain Management Review, at least 65% of companies are using some form of external resources for SMI, and an increasing number are using multiple parties.
How to do a successful Supply Market Analysis?
Different products and services, that our organisation need to source has different markets. Thus the nature of Supplier is also different and the market conditions are also different.
Right sourcing decision is one that eliminates unnecessary risk. We can take right sourcing decision only when we have in-depth knowledge of both the industry and the suppliers.
It is necessary to evaluate the major players in that market. Our negotiation strategies are also influenced by supply market analysis.
Supply market analysis is a systematic approach to collection of facts, data, observations and trends about the marketplace in which our suppliers conduct business. It’s is a four step process and need some hard work to do.
First step involves developing a commodity profile by finding the relative spend of the goods/services to procure and identifying the current contracts status.
The scope of the analysis should be defined clearly. Talking to internal users and subject matter experts do help in creating a perfect commodity profile.
Second Step is to prepare supply market overview. Efforts are needed to understand the size and structure of the market for the goods/services to procure.
Obtain industry data and try to evaluate the cost structure used in the industry. We identify the key players by size and market dominance for further evaluation in next step.
Data published in various Government and private Journals are of very useful in supply market analysis and helps in strategic procurement process.
Some of the sources to obtain industry data are published government and non-government records, trade magazines and journals etc. Some of the helpful links are given below:
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Third Step is the evaluation of major players. We get to know the market leaders in depth, like evaluating the financial health of the main players including studying their financial statements and their profitability. Conducting a SWOT analysis on each of the major suppliers helps us to find the most competitive supplier suitable for our organisation.
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Final step is to Study industry trends and forces in a broader and longer view. We need to closely understand the price drivers of the market and the historical prices for reliable sources. What is the supply and demand scenario and what are the market forces that could impact the supply demand fluctuations.
Now to conclude the supply-market-analysis exercise we need to make a comparative analysis of the major players and prepare an industry analysis report on which sourcing decisions are to be based. This will provide the intelligence needed to identify the best sourcing strategy options.