Information from the markets can be used for a variety of business decisions that include strategic procurement management. Supply markets information can only be meaningful if it is collected with a specific intention.
It is not possible to collect information about every item that the organisation uses, the exercise is very costly and would not justify the benefits. The principle of separating the wood from trees and trees from forests applies. There is no business sense to concentrate on wood when trees exist and to concentrate on trees where forests exist. In that regard, categorisation of spent is necessary to assist the organisation to focus.
The internal process of understanding organisational requirements becomes very critical. This then shapes the market that data should be collected to review the organisational position. Market intelligence is part of the wide global organisational learning and can only be achieved in supply chain management when procurement professionals develop a market focussed attitude and awareness. Experience becomes paramount in addition to extensive training. The employers would then be required to develop and implement policies and practices that support these attitudes and behaviours.
So many tools are at the disposal of procurement professionals to assess the market. The tools include Porter’s Five Forces analysis, SWOT analysis or supplier analysis. Porter’s Five Forces is effective to understand supply markets and competition and provides solid information essential for informed strategic sourcing. It is only effective if information about organisational spend, information from stakeholders about projected requirements and market information about key suppliers and their capacity is available.
The first category of information of total annual purchase volume or total annual spent is derived from spend analysis. Spend analysis is the integrated internal spend data that is assessed in relation to the external suppliers and market data. It, therefore, applies an analytical and benchmarking technique capable to identify risks and opportunities for improvements of performance as well as possible savings.
Historical information alone is not adequate, forecasted requirements need to be considered. Interviews with stakeholders are necessary to adequately determine the forecasted requirements. In the absence of forecasted data, extrapolation of historical information may assist in the estimation of future requirements.
Success is only guaranteed if there is a good judgment about the future in order to effectively manage positive or otherwise fluctuations.
After collecting information on organisational spend and the forecasted requirements, information on external markets become pertinent. External markets data can reveal information about key suppliers. In addition to the knowledge about key suppliers, the capacity of the key suppliers is important for decision making. It extends further to the assessment of technology trends, price and costs data trends as well as environmental and regulatory issues.
Data can be collected from multiple sources and triangulation, the combination of different types of data to obtain a more rounded and holistic picture maybe necessary to understand what is happening in the market place. It is necessary to ascertain true spend using spend analysis. Spend analysis reveals opportunities when it is used as part of the market research process on suppliers. The opportunities could be the adaptation of purchasing practices that can significantly enhance performance and generate savings.
When conducting market research on suppliers and as part of strategic sourcing, procurement teams should conduct detailed analysis of the marketplace to identify how best to meet forecasted demand against market conditions predicted for the planned year. The major aim is to identify specific capabilities and financial health of key suppliers for existing and potential suppliers.
●Nyasha Chizu is a fellow of the Chartered Institute of Procurement and Supply writing in his personal capacity. Feedback: firstname.lastname@example.org; Skype: nyasha.chizu