Power of market intelligence

By: Deepa M.K.

Power of market intelligence: taking guesswork out of category strategies

Market intelligence enables category and sourcing managers to make credible, data-driven strategic decisions, by leveraging knowledge of the supply market, industry and competition.

Why market intelligence?

Market intelligence has become more essential than ever, owing to the challenges faced in today's sourcing and procurement world. A few reasons for this are:

  • Category strategies can no longer be built on a one-size-fits-all principle

  • Cost pressures and criticality of specialised materials and services have increased over time

  • The requirement for newer supply models in line with the growth and innovation taking place, has made it essential for category managers to be up to date on happenings in the global supply market

  • Growing volatility, currency fluctuations, political upheavals and natural disasters have led to a higher need for proactive supply risk mitigation strategies

Procurement teams can no longer rely only on low-cost suppliers to be competitive; they must also develop high-impact sourcing strategies, optimise supplier relationships and proactively plan risk mitigation. While addressing the current challenges faced by the procurement function, market intelligence serves as a key tool to assist category managers to understand the market, and make informed decisions.

The ability to supplement the external intelligence of supply market trends, industry standards and benchmarks with internal business intelligence, allows an organisation to effectively leverage purchasing power. As a direct positive consequence, it provides a competitive edge by creating and implementing effective strategies aligned to the category goals.

Sound market intelligence supports category and sourcing managers to answer questions, and make informed decisions in areas such as:

Category strategy creation

Category intelligence in the form of insights on market forecasting, industry trends and news alerts, technology updates, regulatory landscape, supply- and demand analysis, supplier intelligence and supplier portfolio analysis, help develop sound and actionable category strategies.

Right sourcing strategies

Sourcing managers can be empowered to develop the right sourcing strategy by receiving insights on best practices in areas such as sourcing, engagement, pricing models, terms and conditions, competitive intelligence, sourcing and/or negotiation levers, total cost of ownership, make versus buy and sustainable sourcing.

Supplier relationship management

Insights on supplier profiles, price, market scenarios, substitutes, competitive benchmarking, customer base and capacity utilisation - coupled with internal intelligence on supplier performance and positioning - facilitates the creation of a structured approach for managing supplier relations.

Supply risk mitigation

External intelligence such as supplier risk profiling, industry and pricing forecasts, economic and political scenarios in key market segments - combined with internal information on supplier performance - assists sourcing managers to proactively develop supply risk mitigation strategies.

To move the procurement function from being reactive to proactive, it is essential that technologies such as e-sourcing - and similar variants used for procurement - are enabled with market intelligence services.

What constitutes market intelligence?

The key objective when conducting a supply market analysis is to develop the intelligence necessary to drive better procurement decisions. It is essential to first understand the key elements of the supply market, which require scrutiny and examination to identify, followed by a structured organisation of intelligence needs, as it aids easier information collection for the market intelligence team. This process is founded on the following elements:

Profile category or commodity

This section provides a clear understanding of the specific product or service, and defines the scope of the analysis.

It includes item or service classification (based on UNSPSC, NAICS), market size, dynamics and trends, demand versus supply scenario, key performance indicators, risk factors and best practices. Sources of information for developing this profile could include: supplier websites and interviews, internal subject matter experts, trade journals and magazines, industry trade conferences and supply analysis reports.

Determine total cost of ownership components

The core information needed to understand material or service costs mostly include material, labour, manufacturing, logistics, acquisitions, operating and end-of-life costs and pricing models. Sources of information could include: economic census reports, published financial statements, supplier annual reports, industry specific conferences and seminars, supplier webinars and discussions.

Research supply market

This section would include elements such as the number of suppliers, market leaders and followers, type of market segmentation, low-cost country suppliers, supply channels, geographic segmentation, key customer segments, supplier profiling and risk analysis. Sources of information may include internal subject matter experts, published market research reports, commercial and financial data providers, supplier annual reports, investor reports, category newsletters and import/export databases.

Identify key market indicators

Identifying the optimal market indicators for your category is vitally important, and one of the most challenging tasks in market intelligence. The indicators would typically include:

  • Economic Indicators: inflation, currency fluctuations, gross domestic product (GDP), stock prices and inventories

  • Pricing Indicators: pricing indices such as CPI, commodity pricing trends, factors affecting price fluctuations, import and export price indices

  • Buyer Indicators: purchasing power, availability of substitutes, demand versus supply scenarios, industry usages and seasonal fluctuations in buying patterns

  • Production Indicators: total production capability, capacity utilisation and inventories, technology advancements and product enhancements

Maturity levels of market intelligence

Indicating how advanced their market Intelligence function is, sourcing and procurement organisations can be classified into four levels of maturity, namely:

Ad-hoc

The process is undefined and reactive, serving once-off needs as and when they arise. The resources conducting the activity are generally unaware of business potential of the information being sought. There is no structured mechanism for information storage, which usually resides in the systems of the people who are part of the process. The insights are drawn from secondary sources of data only.

Formalised

Basic process and metrics are put in place, but the data is inconsistent and the form of reporting is not standardised. The need arises from a limited number of category or sourcing managers, and the team caters to the needs on a reactive basis. The team has limited awareness on the objective, or the need for the information sought by the requestor, and there is no strategy in place.

Focused

The process is proactive in nature, where the team is focused on category-specific needs. The team works on delivering diagnostic and predictive analytics and best practices, along with actionable insights based on market information. The insights are drawn from primary, as well as secondary sources of information.

Holistic

This well-defined process is integrated into the category playbook and strategy creation process, where the external market insights are combined with internal spend-data analytics, leading to a higher degree of category intelligence. The team is considered as a strategic and trusted advisor for the category management and sourcing enterprise. Knowledge-management levers are set in place, so that the information does not erode in the event a resource leaves the procurement organisation.

Principles to augment the power of market intelligence

Begin early

Initiating market intelligence early in the category strategy process gives the team adequate time for additional research to be performed, to later obtain specific details based on the category-, item- or supplier-specific category manager's needs.

Involve end-user

End-users of the particular category have access to new updates, enhancements and product information, which can act as a starting point for the market intelligence team. Users also play a major role in identifying problems with the current material, service or supplier.

Connect

The effect of linking each key stakeholder's prior experience and area of expertise with the external and internal intelligence gathered, will guarantee more efficient category management and sourcing decisions.

Iterative process

Successful market intelligence is an iterative process, as market dynamics keep changing with time and category managers need to be kept up to date about the same.

Tailor-made investigation

The scope, extent, amount of time and money spent on a category's market intelligence should be related to factors such as spend value, complexity and the business impact that the category delivers. Robust intelligence capabilities should be built for strategic categories and basic intelligence could suffice for the tactical categories.

Refine

The research methodology should always proceed from the 'general' to the 'specific'. The market insights should be directed towards attaining the objective that the category or sourcing manager is planning to fulfil.

The power of market intelligence within a strategic category management framework can provide both the sourcing and procurement organisation - and the category management professional -with a competitive advantage. How empowered is market intelligence in your organisation?

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