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:
How much research you need to do will depend on:
To find information about the market, you can use:
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.
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.
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.
You can analyse the market by looking at each of its key components.
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:
Determine the size of the total market in terms of:
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 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.
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:
Profitability may indicate:
To determine why some suppliers are more profitable than others, it may be useful to investigate whether they have a competitive advantage based on:
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:
It is also worth investigating whether a supplier’s perceptions of quality or brand image are warranted.
Find out to what extent a product, brand or supplier controls goods and services in a given geographic region – both nationally and internationally.
Market competition is affected by the barriers for new suppliers to enter and exit the market.
High barriers to entry mean:
Markets with low barriers to entry result in:
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.
Forecasting the future competitive environment can help you to:
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:
The supply chain is the movement of materials or services from their source to the end customer. This can include:
For everyone involved in the supply chain, map:
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.
Understanding the supply chain helps to identify sustainability risks and opportunities for improved sustainability outcomes.
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.
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:
Focusing on the outcome, and not on existing goods/services, often opens up a wider range of solutions and suppliers. You'll need:
Consider the implications of your procurement resulting in: