Supply Market Analysis

A supply market analysis should be undertaken to enable the User information Groups (UIG) to develop a detailed understanding of key trends, major players, and overall market dynamics that could influence the development of the commodity strategy e.g. route to market, lotting strategy.

At least one of the market analysis templates provided should be used to assist in this exercise. You will probably wish to read the guidance below prior to completing the templates. At the end of the analysis you should provide a market summary of your findings. You may find the market summary example useful. 

You should give particular consideration to the potential for third sector involvement.

External sources for supply market data

The supply market sources document is a list of suggested external sources for supply market data which may provide useful information required to develop commodity strategies. Please note that you may require a licence or there may be a fee to use some of these sources. For future reference, make a note of the sources consulted in the external data sources template. The use of external data should be appropriately referenced throughout the process

Market sounding

Any discussions on costs at this stage should be indicative only, and this needs to be made clear to suppliers.

There is no formal process for market sounding, but activities typically include researching and analysing the market as a whole and meeting selected suppliers for discussion. Care should be taken to engage with a good cross section of suppliers to best inform your strategic options i.e. the views of a Small and Medium sized Enterprise (SME) compared with a large or multi-national supplier may be different. Supplier interest can be generated by publishing advance notice of likely requirements, for example through Prior Information Notices (PINs).

Market sounding brings learning into the public sector that is useful in a broader sense. UIGs may need to gain a better understanding of the relevant markets to develop the commodity strategy, both in terms of how they operate currently and how they may operate in the future (i.e. changing technology, market entrants etc.).

Early engagement with potential suppliers can be critical to success and it is vital to understand the key issues before starting, but it must be undertaken with care and in such a way as does not distort competition. It is vital that any discussions on costs at this stage should be indicative only and you must make this clear to suppliers.

The Procurement Officer should always be present at meetings with suppliers. From the supplier side, someone who understands your requirements and can offer innovative solutions and constructive advice should be present. The right attitudes must be adopted: respecting confidentiality, maintaining flexibility and openness.

The UIG should:

• Be open to new ways of shaping your requirement based on what the market may be able to provide
• Consider the options for shaping the market: encouraging the market to develop in such a way that it can meet your requirements in the future. Engaging the market provides an opportunity to ensure that services provided are at the forefront of those available

The overarching theme of early engagement is to identify the desired outcomes, risks and issues and permit suppliers to provide feedback on how the outcomes might be achieved, the risks and issues as they see them, along with feedback on timescale, feasibility and affordability. All discussions should flow from this theme.

Market sounding should also take into account the knowledge held by other buying organisations, trade bodies and business support organisations e.g. Federation of Small Businesses, Chambers of Commerce, etc.

You should consider the following questions:

• Is there doubt over the existence of a market for the identified business need?
• Are there doubts over its capacity, capability, maturity or competitiveness?
• Is first-hand in-house knowledge of the market superficial, incomplete or simply absent?
• Is there uncertainty about the level of suppliers' interest?
• Is the desired outcome likely to involve significant business change? Is it unprecedented?
• Is there a need to manage expectations of the project?
• Is the requirement very unusual?
• Is there an innovative solution?
• Is the solution required to provide the service to diverse groups across society?
• Are there carbon reduction targets?
• Is there uncertainty about the technological/e Commerce capabilities of the market?
• Has economic development been considered?
• Has accessibility and 'designed for all' been considered?
• Are more sustainable outcomes available?

Questions to consider

Enquiries at market sounding usually fall into particular areas. These are not questions to ask of suppliers, but rather questions that the UIG should seek to answer for themselves through dialogue with suppliers.

• Maturity: is the market ready to deliver what's required? Is it evolving or diversifying with suppliers entering or exiting the market?
• Feasibility: will the market be technically capable of meeting the requirement?
• Technical/product innovation: technological advancements or product/service developments expected and how can requirement be future proofed to take advantage of these?
• Competition: how many suppliers provide what is required? Will there be effective competition?
• Capacity: are there enough suppliers, with sufficient capacity, to meet the requirement?
• E Commerce: is the market ready to embrace the electronic suite of tools that are currently utilised within the sector?
• Working together: will the requirement bring suppliers from different subsectors together in a new way? How will this work?
• Geographical: do suppliers operate differently or provide different goods or services in different geographical areas e.g. in another country?
• Traditions and prevailing attitudes: why are they in this market? How will they affect the project?
• Sustainability: can suppliers provide solutions to sustainability issues?

Discussions with suppliers

Talking to suppliers is at the heart of market sounding. It is crucial to talk to the right suppliers - ideally, those who have achieved outcomes of a similar nature and scale.

Great care must be taken to ensure that those contacted are not given an advantage over other potential suppliers. It is equally important to ensure specifications are not written in such a way as to favour any particular supplier(s). If either of these approaches are not adhered to you could breach EU legislation and the procurement itself could be challenged.

Some possible questions to open productive discussions with suppliers include:

• Are you interested in this opportunity?
• If not, why not?
• Is the business model realistic?
• Are the business aims realistic? Is the business attractive?
• What do you see as the risks?
• Can you give an early indication of cost, what are the major cost drivers and how can these be minimised?
• Can you give a broad indication of the likely timescales?
• Are there other, better approaches?
• What added value in terms of sustainability could the supplier provide related to the subject matter of the contract?
• Discussions on how suppliers can provide added value on sustainability and other issues over and the requirements of the regulations
• Can you share examples of good or bad practice in terms of how others have tried to secure these products or services and what can we do to ensure clarity and improve the tendering process for suppliers?

You may also wish to discuss aspects of e Commerce with suppliers such as:

• Provision of content in the required format e.g. an ecatalogue or transactional punch-out site
• Ability to accept cXML purchase orders and / or invoices
• Use of online tendering

Further market analysis

The purpose of analysing the environment is to take into account in more detail the external and internal factors affecting the commodity and supply. The various tools below can help you in this activity. The results should lead to the identification of opportunities and risks which will inform strategic options to consider.

Every template here does not require completion.

Please consider the complexity of the commodity and procurement exercise. Once the analysis is complete you need to consider how you can use this information to inform strategic options.

Supplier profile analysis

The supplier profile analysis tool can be used to paint a picture of the main players in the market.

Competitive advantage - porter's 5 forces

Porters 5 forces constitutes a framework which demonstrates buyers/suppliers' relative power in the market place.

SWOT analysis

The SWOT Analysis examines environmental factors internal to the organisation (usually classified as Strengths or Weaknesses), and those external to the organisation (classified as Opportunities or Threats).

PESTLEE analysis

The PESTLEE analysis is a framework that assesses the external environment which may have an impact on your requirement.

Supplier market share

The supplier market share provides an insight into the positioning of the main players within the market, such as industry attractiveness, competitive pressure and degree of market concentration/fragmentation.

Understanding supplier cost drivers

The supplier cost drivers checklist provides guidance to complete a typical supplier cost driver example.

Supplier cost drivers example

Supplier cost driver example 2

Some tips on how to obtain supplier cost drivers:

Sources of information

There may also be opportunities for the buying organisation to make its own internal processes more efficient. Some of the key areas to consider during procurement process are:

• The use of Electronic tendering
• The transactional procurement process: requisitioning, authorising, raising and sending purchase orders, goods receipting and invoicing and payment

Total cost of ownership

Total Cost of Ownership (TCO) is the initial acquisition cost plus ownership/operation and disposal costs. Understanding this will help in identifying areas for improvement internally within the organisation and externally with suppliers. The following guidance slide will help you to consider the wider costs associated with the procurement of the requirement.

TCO considerations

A blank TCO slide is provided for you to populate with details specific to your requirement.

Any documents you need are available here 

Market Summary

Market Summary example

Supply Market Sources

External data sources template

Supplier Profile Analysis

Porters 5 Forces

The SWOT Analysis

The PESTLEE Analysis

The supplier market share

Supplier Cost Drivers Checklist

Supplier Cost Drivers Example

Supplier Cost Driver Example 2

Sources of information

Total Cost of Ownership Considerations

Total Cost of Ownership - Blank

Shaping the Requirement

You should ensure that all research conducted is collated and reviewed as a whole. A poorly scoped and researched requirement can present major risks to the project.

The following areas are key:

• Ensuring customer requirements are met and balanced with affordability
• Challenging the end users requirement to ensure that an optimum combination of whole life costing and quality is achieved
• Keeping your options open: avoiding the tendency to 'zero in' on particular options; allowing suppliers the freedom to suggest ways forward
• Considering business models: looking at all the options for how the arrangement between customer and supplier might work e.g. organisationally, financially and in relation to risk management
• Considering how the wider supply chain might affect the project
• Considering whether requirements should be grouped in a specific way to reflect market structure e.g. procuring computer hardware desktop/laptop separately from maintenance; breaking down a cleaning contract into geographical lots rather than procuring a single National contract. This should be reflected in your lotting strategy.
• Incorporate sustainability requirements from the outset, e.g. building sustainability into the specification and considering a whole life costing approach

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