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​​Analysing the market

Understanding your suppliers and providers allows you to make informed decisions to get the best results.

The objective of market research and analysis is to develop a thorough understanding of the nature of the market or the provider community, how it works and how this will impact on your approach to the market and overall procurement strategy.

To do this, you'll analyse:

  • suppliers and their market shares (supply)
  • the number of buyers and their influence on the market (demand)
  • degree of competition
  • current prices and factors influencing price
  • market trends and regional differences
  • the availability of alternative or substitute goods and services
  • technological developments in the market
  • the nature and quality of the supply chain
  • current market behaviours and their implications
  • any future market behaviours that might better support successful delivery.

How much research you need to do will depend on:

  • the nature and scope of the services
  • the degree of difficulty in specifying the requirements
  • the total value of the whole-of-life costs
  • the level of risk to the agency
  • whether this is a one-off purchase or on-going procurement.

Getting information

To find information about the market, you can use:

  • your own knowledge
  • previous experience
  • information from your own or other organisations
  • conversations with potential suppliers or a Request for Information (RFI)
  • internet research
  • a market analysis consultant
  • professional and industry bodies
  • umbrella organisations.

Using a Request for Information

An RFI is a market research tool. Use it to seek information from potential suppliers about the type of services currently available.

An RFI is not a type of Request for Offer document and must not be used on its own to select a supplier. If you proceed with the procurement, the RFI must be followed by a tender.

Approaching the market

Early engagement with suppliers

Agencies are encouraged to engage early with suppliers to build improved knowledge and understanding of what's available. You're free to talk to suppliers at any time before advertising the opportunity – at that point there are rules about when and how you can talk to suppliers.

Answering supplier questions

If you've identified a need but aren't sure of the solution to meet it, you can seek supplier input through an RFI or organise a supplier briefing session. Make sure you consult a cross-section of businesses and are open to new suppliers and solutions.

What to analyse

You can analyse the market by looking at each of its key components.

Market structure

Relevant market

Define the market or market segment that's relevant to your procurement. This will help to focus your analysis and target the appropriate suppliers. Determine:

  • the key characteristics of the goods or services you need, eg whether you need a product, service or a combination
  • whether the market is divided into commercial, technical or geographic segments.

Market size

Determine the size of the total market in terms of:

  • sales ($ value)
  • volume/turnover
  • private sector/public sector split (if the data is available).

Key suppliers and their market shares

Determine the key suppliers and their respective market shares. The number, size, and distribution of competitors in a market affect your negotiating power.

Compare the overall market shares of suppliers with their respective market share of public sector sales – this may indicate whether a supplier is dominant across the market or just the public sector, and may also hint at potential dependency issues.

Market concentration

Market concentration analyses market dominance which is a measure of the strength of a brand, product, service, or firm, relative to other competitive offerings. It determines the extent to which a relatively small number of suppliers account for a relatively large percentage of the market.

Existing ownership structures

Understanding corporate governance and business ownership structures amongst suppliers can often explain supplier behaviour – eg one supplier turns out to be a subsidiary of another.

Find out if:

  • there are any existing ownership structures or new transfers on the horizon
  • a supplier is part of a large national or international organisation – this may indicate whether major decisions are made here or overseas.

Profitability of different suppliers

Profitability may indicate:

  • the viability of a supplier
  • whether a supplier will contribute to a continuing competitive market
  • whether a supplier could withdraw from the procurement or the market.

To determine why some suppliers are more profitable than others, it may be useful to investigate whether they have a competitive advantage based on:

  • low cost structures (lower costs and same price as other firms), or
  • product differentiation (better product and higher price than other firms).

Competition

Some markets consist of suppliers who compete heavily on price while offering the same basic goods or services and service levels. Other markets differentiate between suppliers by quality – suppliers within these markets may be less likely to negotiate on price.

Suppliers can compete on:

  • price
  • quality
  • level of service
  • product range
  • distribution
  • delivery time
  • brand image.

It is also worth investigating whether a supplier’s perceptions of quality or brand image are warranted.

Regional analysis

Find out to what extent a product, brand or supplier controls goods and services in a given geographic region – both nationally and internationally.

Barriers to entry and exit

Market competition is affected by the barriers for new suppliers to enter and exit the market.

High barriers to entry mean:

  • fewer competitors
  • suppliers are likely to compete on product type and brand image rather than price.

Markets with low barriers to entry result in:

  • more suppliers
  • competition based on price.

For a market to remain competitive there must be potential for new suppliers to enter. Even where one supplier has a near monopoly status, the potential for an alternative supplier to enter the market can sometimes achieve more competitive prices and improved service outcomes.

Changes to competition

Forecasting the future competitive environment can help you to:

  • plan around changes in the market, or
  • wait for circumstances to change if this will mean a better deal or outcome.

Product life cycle

Understanding the position of the goods/services in the product life cycle will help you identify suppliers’ likely marketing strategies and how suppliers will compete.

The product life cycle is:

  • introduction – suppliers may seek partnerships with buyers to help develop their product
  • growth and maturity – suppliers will be cost competitive and seeking efficiencies
  • decline – suppliers will seek to exit the market, often offer large discounts, find niche markets or attempt to revive interest.

Supply chain dynamics

Map the supply chain to determine value-add

The supply chain is the movement of materials or services from their source to the end customer. This can include:

  • sourcing raw materials
  • manufacturing parts for the product
  • assembling parts
  • assembling the product
  • selling the product to retailers / intermediaries
  • selling product to customers
  • delivering
  • servicing
  • disposing.

For everyone involved in the supply chain, map:

  • what they do
  • where they're located in the supply chain
  • their costs
  • their individual goals
  • whether they add value
  • whether their value-add is worth the related cost.

Supply chain dependencies

Any stage of the supply chain where one supplier is dominant can be a risk to the buyer. It's very hard to fully recoup losses that are due to supply chain failure as you don't have contracts with suppliers further up the supply chain.

Consider the impact a dominant supplier could have if they restrict supply, if their performance becomes unsatisfactory or they increase price.

Sustainability in the supply chain

Understanding the supply chain helps to identify sustainability risks and opportunities for improved sustainability outcomes.

Sustainability Guide 1: Identifying sustainable procurement priorities [PDF, 439KB]

Sustainability Guide 2: Identify need and assess risk [PDF, 433KB]

Sustainability Guide 3: Evaluate and select suppliers [PDF, 366KB]

Where to buy in the supply chain

Many goods and services are purchased directly from a retailer. Look at whether you could get better value for money by approaching the wholesale market or the manufacturer directly.

Availability of substitute goods/services

Analysing substitute goods or services may find an alternative way to meet the business requirements while providing better overall value for money.

Often substitutes are missed because the:

  • focus is too narrow
  • existing specification is too rigid
  • agency is attached to a particular brand.

Focusing on the outcome, and not on existing goods/services, often opens up a wider range of solutions and suppliers. You'll need:

  • a clear, unbiased specification of the business need
  • a ‘whole-of-market’ focus
  • to consult with the end users to ensure that an alternative solution will meet their needs.

Industry impact assessment

Consider the implications of your procurement resulting in:

  • a virtual monopoly being created – this could have an adverse impact on the market and a regional economy
  • opening up an opportunity through open competitive tendering – this could enable new suppliers to enter the market, improving competition
  • creating a skills requirement for local labour in the region, or outsourcing labour to another country.

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