Why do we bother collecting market intelligence on the strategic commodities we are buying? The answer is that if we don’t, we may be exposing ourselves to unnecessary vendor risk and any competitive advantage we thought we had may be lost. Supplier risk can be present anywhere, at any time, and with any supplier.
Analysis of the supply market vs. Market intelligence
Supply market intelligence is a current buzz phrase that is gaining rapid exposure. It is essentially an update to supply market analysis and can be defined as the process of collecting, filtering, distilling, and presenting information relevant to a company’s supply markets. The specific purpose is to support accurate and secure decision-making in the procurement process. A well-executed and insightful supply market study requires significant and disparate amounts of research materials to be collected through primary and secondary research.
Traditionally, supply market analysis has included development of a commodity profile, examination of cost structures, vendor research, and identification of key market indicators. Being able to put together a supply market analysis for a given product is a skill that is essential for every supply chain professional to master.
Primary and secondary research
Primary research is information collected through interactions with other people, typically through meetings, structured one-on-one interviews, focus groups, and surveys. Primary research with current and potential vendors is often more valuable and insightful than secondary research. Billions of users can equally access the flood of information available on the Internet, both reliable and suspicious. Primary research is an essential element in creating a competitive advantage.
This is the fun part. Secondary research is information collected from existing literature, publications, the media, and other non-human sources. This is usually easier to collect than the primary, and is often valuable relative to the effort put in. Whether you’re studying the outlook for the men’s grooming market in southern Africa over the next five years or an in-depth analysis of future capital flows and investment trends in hospital construction, it’s all here.” out there.” A recent report on the South African economic environment predicts that the pharmaceutical industry will grow much faster than other sectors due to continued strong demand for primary care medicines such as generics, antibiotics and over-the-counter remedies.
Smart Steps to Take to Really Know Your Merchandise
- Develop raw material profile
Find out international product classifications and document the product definition. Consult widely and gain a clear understanding of important quality and technical aspects.
- Determine the cost structure.
Beyond the usual sum of costs for raw materials, labor, transportation, energy, overhead, etc., it can be more innovative. Publicly traded companies are required to publish financial statements and make presentations on the results of their businesses. Check this information for clues about your cost profiles.
- Search all providers
This requires focus and effort and is an ongoing process. Establish if the global market is fragmented or consolidated, where the low-cost suppliers are, possible new supply channels and pending mergers or acquisitions. This is an area where you may need help from specialized organizations that provide news and intelligence services, especially when targeting unlisted companies. There are custom dashboards available that are specially designed to track activity within your product. But at a price!
- Identify key market indicators.
The good news is that most global and regional market indicators are common, reliable, and free. Economic indicators track commodity prices, production rates, inventories, GDP, and high-level employment statistics. You can even set up alerts so you don’t miss any key events or developments.
If your organization is kind enough to provide analyst support or if you have too much time on your hands, you can delve into detailed technical analysis for important products using SWOT analysis, Porter’s Five Forces, and PEST. PEST stands for “Political, Economic, Social and Technological Analysis” and you can even upgrade to PESTLE if you add legal and environmental impacts.
Whether you are based in Luanda, Lesotho or Lilongwe, you can have access to the same market information as the rest of the world. The difference is that you may not have the opportunity or financial resources to search outside of Africa, limiting your options. South Africa and Nigeria are the most developed markets and the main sources of supply for buyers in southern Africa.
Supply market information challenges will always be with us
Identifying high-risk suppliers is one of the main reasons we carry out painstaking research into our supply markets. Risks can be mitigated to some degree by tracking and managing supplier performance issues and monitoring the changing financial status of key suppliers, but this is not foolproof. It is necessary to have a Plan B ready where you have already identified alternative providers to replace or complement existing providers. Avoiding supply chain disruptions due to supplier failure is vital to business continuity.
Information overload is a trap that is easy to fall into, as is analysis-paralysis. Managing key providers by exception allows you to use your limited resources wisely. Continuous monitoring of high-impact vendors through the use of dashboards, graphs, and tables helps ensure that you can store and share current information and provides an early warning system for senior management.
Sourcing managers, especially in South Africa, face a double challenge as they must have a diverse supplier base. This can involve a time-consuming vendor qualification and record-keeping process. Government regulations and economic development initiatives that are designed to offer supply opportunities to micro, small, and women-owned businesses must be followed. In most African countries, a percentage of local content is an important requirement. All of these issues add complexity to maintaining a good vendor intelligence database.
Competitive advantage through insight and analysis
One’s analysis efforts should focus on highly concentrated markets where there are a few large providers and also on highly fragmented markets where smaller providers may cause supply disruptions due to financial instability. Tracking key market indicators can provide insight into vendor cost structures, helping you determine if you’re getting the best possible deal.
A thorough understanding of the dynamics of the supply market for a commodity can reduce risk. By developing a comprehensive understanding of the number, type, and structure of suppliers, you can keep your options open and reduce the risk of supply disruption.
Used within a strategic sourcing framework, a procurement person’s strong primary research skills and ability to track down a commodity can provide a competitive advantage. If you’re naturally curious and like to follow trends, none of this will feel like work.