lec 4-analyzing-supply-market

Analyzing Supply Market

A generic procurement cycle

A market exists where:There are two or more partiesEach party has something of value

to the otherEach party can communicate &

deliver

Each party is free to accept or reject an offer

1. …what & how much to buy?

2. …where to buy?

3. …when & how to buy?

The supply market influences decisions on:

Supply Market Analysis

Review of the structure, characteristics & trends of a market for a particular product or service

SupplyMarket Analysis =

Assess the ability of different markets to meet requirements Identify the markets which represent the best opportunity &

lowest risk for a purchase Identify new products & technologies Understand conditions & constraints related to particular

purchases

Reduce costs & risksIdentify opportunities

Factors to consider : Is it a new purchase item? When did you last review the market situation? How quickly are the market & technology changing? How much is being spent on the item (annual

expenditure)? What is the potential impact on the company if the item’s

supply targets are not met?

The supply positioning model

80% of items = 20% of value 20% of items = 80% of value

M

H

N

Expenditure

ImpactL

Max.Min.

Routine

Critical

Leverage

Bottleneck

The degree of difficulty or uncertainty that you face in achieving your supply targets because of market conditions is called supply risk.

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I. Prepare for a supply market analysis

III. Forecast market developments

IV. Understanding what drives the market

V. Assess price

VI. Segment the supply market

VII. Screen out less relevant segments

II. Assess the degree and effects of competition

• What are your objectives?

• How much time do you have?

• What happens if you don’t do it?

• What information do you have?

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• Factors influencing the DEGREE of competition

• Risks & opportunities in markets with different degrees of competition

• Projection

• Expert opinion

• Supply market testing

• Product-market life cycle

• Differentiate products & services

• Develop new products• Take advantage of niche

markets• Secure manufacturing

flexibility• Control of distribution

channels

Market drivers are factors which generate a competitive advantage and include abilities to:

Cost of Production

Value to the Customer

Competition &Market Factors

PRICE

Segment when the market is sufficiently competitive to make it worthwhile

Segmenting means grouping together all suppliers for whom risks and opportunities are similar

Supply Market Segment

• Geographic location

• Technology

• Supply channel Different segments represent DIFFERENT risks & opportunities!!

Analysing each segment takes time! Don’t waste time on segments which are unlikely to be useful! Don’t segment:

• When there is only one supplier or one segment is not any different from another (in terms of risk & opportunity)

• Where certain countries, technologies or supply channels are not accessible to you(e.g., costs of transport is too high, you can’t use a certain technology, the quantities you require are not big enough to buy directly from manufacturers.)

I. Identify the types of supply risks & opportunities of

different segments

III. Further research the risks &

opportunities related to these events

IV. Build scenarios to assess the extent

of the risks & opportunitiesV. Identify which

supply targets are affected by these

risks & opportunities

VI. Determine how much the risks &

opportunities may affect your targets

VIII. Continue to monitor supply market risks & opportunities

VII. Select the segment(s) with the best balance of risks

& opportunities

II. Identify and screen the relevant

events in the segments

I. Identify the types of supply risks & opportunities of

different segments

M3:U4:4.2-2

OP

T

CEK

Political, legal and socio-cultural factors

Outbound logistics

Competition levels

Key inputs to the supply market

Economic & infra- structure factors

Technology factors

Political, legal and socio-cultural factorsP Factors to consider

Political stability Labour relations

The state of the relationships between governments

Threat of war

Legal framework for business

Environment, ethics and corruption

Culture, religion, andLanguage

Time zones

Outbound logistics

Factors to consider How they can impact upon supply¨

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ITC

OFactors to consider

Logistics Insurance services

Transportation infrastructure

Risk of pilferage

Documentation requirements

Availability of inspection and Testing Service

Competition levels

ITC

CFactors to consider

Number of Suppliers Bargaining power of Buyer

Overall Supply Vs. Demand

Key inputs to the supply market

Factors to consider

¨ Raw materials andcomponents

¨ Labour

Ksteel

Economic & infra- structure factors EFactors to consider

The Government's Business Development Policies

Finance and Banking

Foreign Trade Policy and Regulations

Basic Infrastructures

Level of Globalization and export trends

Technology factors

Factors to consider

TLevel of Technological InnovationsChoice of TechnologyProduct Life CycleMaturity of TechnologyComplexity of TechnologyEase of ManufacturabilityCost of Technology and its useOrganization’s experience with the technologyTechnical Suitability and Adaptability

Start with your own knowledge & common sense...

RiskII. Identify and

screen the relevant events in the

segments

Oppor-tunity

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Review information sources available to you

Analyse the information you collect

Select the events that represent significant risks or opportunities

III. Further research the risks &

opportunities related to these events

Quality performance

Availability & lead-time

Supplier responsiveness

Cost reduction

V. Identify which supply targets are affected by these

risks & opportunities

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Quality performance

Availability & lead-time

Supplier responsiveness

Cost reduction

V. Identify which supply targets are affected by these

risks & opportunities

123

69

VI. Determine how much the risks & opportunities may affect

targets

VII. Select the segment(s) with the best balance of risks

& opportunities

Monitoring of supply risks & opportunities - when to do it?You are waiting to take a supply

decision

You have taken a decision, but wish to keep backup options under consideration

You are buying from a supply market that is relatively risky

M3:U3:5.2-1

WWWINTERNET

NET

• Specialised publishing houses

• Specialised newspapers & journals

• Chambers of commerce & trade support bodies

• Specialised trade & industry associations

• National purchasing & supply management associations

• Official foreign trade representatives

• Various international organisations• Your current suppliers (watch out for biased information)• Other buyers• Service organisations (e.g., freight forwarders & banks)• Fairs and exhibitions

• Consultancy firms

• Universities & local research organisations

• Your own company, purchasing department/staff, marketing department, production/engineers…

Check the reliability

Analyse & interpret

Organise what you have collected

ITC

Classify the information so that it can be easily found

Set up a small reference ”library” (a couple of bookshelves can be enough)

Subscribe to key sources

Get an Internet connection….

ITC

Thank you