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Market analysis for procurement planning

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Market dynamics of the supply side need to be understood as procurement plans are developed. It is important to understand the market rivalry to establish whether the supply side of different requirements of the company are from perfect competition, monopoly or oligopolistic suppliers.

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This process is very essential but is never easy and cheap. By definition, market analysis is a quantitative and qualitative assessment of the market.

The assessment is on various aspects of the market that includes its size in relation to the volumes and values; the size in relationship with customer segments including the customer spending patterns; the nature of competition and the economic environment associated with the prevailing regulations and factors in relation to barriers to entry or exit.

The value of market analysis includes the knowledge of the market for the purpose of understanding who your likely suppliers are. It encompasses to the knowledge of the size of the market to ascertain whether it is large enough to sustain the organisational needs.

The assessment of the size of the market includes a review of the demographics and segmentation of your supply side. There are requirements that can be satisfied competitively using small local suppliers promoting small and medium enterprises.

Such analysis need to be undertaken at a national level so that slicing and dicing of different procurement packages are sufficient to make business and economic sense whilst attracting the right level of participants.

Market analysis can be done in conjunction with trade associations in the construction, manufacturing, retails, and commerce sectors and will only be successful where the ministries responsible for particular sectors are involved.

This includes ministries responsible for women and gender issues; youth; indigenisation and economic empowerment; small and medium enterprises as well as trade and commerce.

This leads to the next step of targeting a specific market in a manner that satisfies transparency, equal and fair treatment of suppliers. In this case, specific contracts would be reserved for specific sectors that are carefully identified using a systematic approach.

During market analysis, one would want to understand the nature of competition prevailing. The nature of competition determines the procurement method that achieves results.

Where there is a monopoly in the supply side, the procurement would be through single sourcing. Where the market is oligopolistic, long term contracts or framework arrangements would be appropriate. Where there is a perfect market, short term adversarial relationships would suffice.

Engaging a competitive process where there is a single provider normally leads to two possible outcomes, the tender can close with no responses or the response from the single provider may be over-priced.

It also exposes the lack of skills in the procurement unit and in the case of public sector procurement, the procuring entity will lose value for money since it is not allowed to negotiate after a competitive process.

A buyer also needs to understand the market in relation to their side as consumers. There are situations where the procuring entity is one of the many customers, the largest consumer or the sole consumer of the product or service.

Such cases bring a case where the entity can assess the extent of its significance in the market. It affects the buyer-supplier relationship and the level of the relationship that would exist between the parties.

In addition to understanding your position in the market as a consumer, there are two important questions that also need to be answered as market analysis is conducted.

One needs to understand what prevents an investor to establish a business in competition with existing companies or if there are no barriers to entry, what are the factors that leads to that company succeeding.

Further to the questions, one needs to understand the legal requirements for establishing or exiting a business whether it is easy or complex. These questions help in defining the procurement methods, the nature of the contract on whether it is short-term or long term or collaborative or long arm relationship.

The market analysis data is essential for a meaningful procurement plan that helps propel the organisational competitiveness.

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