Why do we bother to collect market intelligence on the strategic commodities we are buying? The answer is that if we don’t, we may be exposed to unnecessary supplier risk and any competitive advantage we thought we had could be lost. Supplier risk can be present anywhere, at any time, and with any supplier.
Market analysis of supply vs. Market intelligence
Supply market intelligence is a current buzz phrase that is rapidly gaining 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 confident 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 developing a commodity profile, examining cost structures, researching vendors, and identifying 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 gathered through interactions with other people, usually 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 alike can access the avalanche of information available on the Internet, both trustworthy and suspicious. Primary research is an essential element in creating a competitive advantage.
This is the fun part. Secondary research is information gathered 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 expended. Whether you are studying the outlook for the male personal hygiene products market in southern Africa for the next five years or an in-depth analysis of future capital flows and investment trends in hospital construction, everything is ” out there.” A recent report on the economic environment in South Africa 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 extensively and gain a clear understanding of important technical and quality aspects.
- Determine the cost structure.
Beyond the usual sum of costs for raw materials, labor, transportation, energy, overhead, etc., you can be more innovative. Listed companies are required to publish financial statements and make presentations about the results of their business. Check out this information for clues about your cost profiles.
- Find all providers
This requires focus and effort and is an ongoing process. Establish whether the global market is fragmented or consolidated, where the low-cost providers are, potential new supply channels, and pending mergers or acquisitions. This is an area where you may need the help of specialized organizations that provide news and intelligence services, especially when targeting unlisted companies. Custom dashboards are 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 prevalent, 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 you with analyst support or if you have too much time on your hands, you can delve into technical and detailed 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 it to PESTLE if you add legal and environmental impacts.
Whether you are based in Luanda, Lesotho or Lilongwe, you can access 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, which limits your options. South Africa and Nigeria are the most developed markets and the main sources of supply for buyers in southern Africa.
The challenges of supply market information will always be with us
Identifying high-risk suppliers is one of the main reasons we carry out the painstaking investigation of our supply markets. Risks can be mitigated to some extent by tracking and managing vendor performance issues and monitoring the changing financial status of key vendors, 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 an easy trap 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 charts helps ensure you can store and share current information and provides an early warning system for senior management.
Sourcing managers, especially in southern Africa, face a double challenge as they must have a diverse supplier base. This can involve a time-consuming process of record-keeping and supplier qualification. Government regulations and economic development initiatives that are designed to offer sourcing 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 supplier intelligence database.
Competitive advantage through knowledge and analysis
One’s research efforts should focus on highly concentrated markets where there are a few large providers and also on highly fragmented markets where smaller providers can 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 the ability to trace a commodity can provide a competitive advantage. If you’re naturally curious and like to follow trends, none of this will feel like work.