category plan

supply market analysis

How to do supply market analysis well

Procureman 1 Comment

The aim of supply market analysis is to feed into category planning and sourcing strategy development. There are a number of tools that you can use to do the analysis but at the end of the day you should be looking to show at a minimum:

The position of the suppliers in the market relative to each other

  • The potential for change in the supply market (and causes)
  • The balance of power between suppliers and customers

An in depth supply market analysis may make use of the following models which are useful to structure the information:

  • Porter’s 5 forces
  • PESTEL analysis
  • SWOT Analysis
  • Kraljic Portfolio Purchasing Model

Porter’s 5 forces are:

1. Competition / rivalry within the industry

2. Barriers to entry into the industry

3. Impact / power of suppliers in the industry

4. Impact / power of customers in the industry

5. Threat of substitute products

 

PESTEL analyses the following six factors:

P – Political

E – Economic

S – Social

T – Technological

E – Environmental

L – Legal

 

SWOT analyses the following four factors (from a business perspective):

S – Strengths

W – Weaknesses

O – Opportunities

T – Threats

 

Kraljic Portfolio Purchasing model involves positioning (potentially using inputs from above models) a commodity / service based on:

 

Supplier risk & complexity

Category business impact

 

We are developing a template which will include examples of each of the above types of analysis to help you. Stay tuned!

procurement

Sourcing strategy options

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Sourcing strategies determine how your company will ensure supply of a particular product or service. Typically development of a sourcing strategy includes consideration for where to purchase, considering demand and supply situations, while minimising risk and costs.

Potential sourcing strategies include:

  • Direct negotiations,
  • Insourcing,
  • Outsourcing,
  • Competitive bidding (RFx, Reverse Auction),
  • Panel contracts (having a restricted number of suppliers signed up to your terms for one procurement category),
  • Volume aggregation (using fewer suppliers), and
  • Global sourcing (also low cost country sourcing).

Several factors go into selecting a sourcing strategy such as:

  • What the supply market looks like,
  • Volatility of supply/prices, and
  • How important the product/service is to our company. (Often there are four groups in which products are divided; critical, routine, leverage and bottleneck products).

Got feedback? Please send it through!

category plan

How to build a good procurement category plan

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The purpose of a category plan is to define the category and the planned strategies to maximise value and reduce risk for your company.

A category plan should include:

  • A profile of the category as it stands, and
  • The strategy to effectively ensure and manage the ongoing supply of goods and/or services.

Development of the category plan should be led by the procurement category manager and should involve the key business stakeholders to ensure its relevance. Once developed it should be reviewed (and refreshed if necessary) on a regular basis ,annually in most cases.

The plan should extend past the length of a typical contract in that category (for example, many indirect categories have a 3 year average contract length in which case the plan should extend to at least 5 years in the future).

Category Profile

  • Definition of what the category includes
    (e.g. Travel category plan could include Hotels, Air Travel, Car Hire and Travel Booking Companies)
  • Name of category manager
  • Name of contract manager
  • Historical spend and current contracts
    (if possible spend mapped to contracts, for example spend in Hotels was $50M of which only $30M was with contracted hotel providers)
  • Future demand and requirements
    (in particular the potential changes in future demand and the rationale for them)
  • Supply market analysis
    (who are the major suppliers, what are the changes happening in the industry, substitute products etc)

Category Strategy

  • Opportunity areas (demand & supply)
  • Sourcing strategies
    (e.g. “tender for hotel accommodation”, “renegotiate air travel contracts”, “implement panel for car hire providers”)
  • Implementation timeline

A few notes about category plans

A category plan should have a page at the front with a space for the physical signature of the head of procurement / senior finance stakeholders to ensure accountability.

Category plans can be used to measure the performance of category managers at the end of each year.

A well designed category plan should be used in daily / weekly planning by a category manager to ensure relevance of tactical activities.

Here is a category plan template for you to use as well as an example for you to see what one looks like once populated. Your feedback is very welcome and will help us to continue to refine these!

Category Plan Template