How To Do A Supply Market Analysis?
Supply market analysis involves the gathering of facts, data, observations and trends about the marketplace in which suppliers conduct business.
An effective supply market analysis for a product or service starts with an overview of the global market. It is necessary to evaluate the major players in that market. In depth knowledge of both the industry and the suppliers in it is critical to making the right sourcing decisions and to eliminate unnecessary risk.
The additional value of a supply market analysis is that it helps with defining the negotiation strategy, demonstrates procurement’s added value to the enterprise and it builds credibility and respect with suppliers. This is one task that requires human effort as business intelligence cannot easily be automated.
Develop a commodity profile
A pre-requisite to analyzing the supply market is having a clear understanding of what specific product or service is being examined and defines the scope of the analysis.
- define the commodity and establish the classification code, if any
- do supplier interviews and site visits
- talk to internal users and subject matter experts
Supply market overview
The first step is to understand the size and structure of the global market for the commodity or service.
- Obtain industry data from published government and non-government information
- Identify industry classifications, if any
- Understand the most common cost structure used in the industry
- Identify the key players by size and importance
- Obtain company intelligence on the key players
Evaluation of major players
Secondly, get to know the market leaders in depth.
- Evaluate the financial health of the main players including studying their financial statements and their profitability
- Study their geographical locations, their main markets and their customer base
- Conduct a SWOT analysis (strengths, weaknesses, opportunities and threats) on each of the major suppliers.
Study industry trends and forces
A successful supply market analysis includes a broader and longer view.
- Understand historical prices and the price drivers
- Study the supply and demand fluctuations and market forces
- Follow the price indices such as Producer Price Index (PPI)
The final steps are to do 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.
Supply market analysis is hard work. It includes developing a commodity profile, examining cost structures, researching suppliers, and identifying key market indicators. Supply management professionals should use this as a first step in their sourcing process to establish and maintain a competitive advantage.