As a buyer, what should you do in Stage 2 of CIPS Procurement Cycle – Market Analysis & Make or Buy Decision?
Once the need is justified, buyers begin seeking the best means to satisfy it. They must assess whether their company can fulfill the requirement internally. Even if they are capable of doing so, it’s still essential to look outward to the market to compare the efficiency of available options. Conducting market analysis is not easy, it demands considerable time and effort. Skilled buyers with profound market knowledge and strong communication skills can obtain valuable insights, leading to informed decisions.
If you are a junior buyer, how can you contribute value to your company during this stage? According to the CIPS study guide, buyers are encouraged to use tools such as SWOT analysis, STEEPLED analysis, and Porter’s Five Forces model to gain market insights. However, you shouldn’t limit yourself to these tools, you’re free to use any approach that supports your objectives.
SWOT analysis
This analysis is conducted to define the competitive position of the buying organization in the market. To assess their capability to fulfill the need, buyers should not overlook it. In fact, they must implement additional analyses to identify the most effective solutions. Among these, SWOT analysis is indispensable at this stage. CIPS and other institutions have already provided detailed definitions of this tool, so I won’t dig deeply into that. Instead, I’d like to share other aspects that help buyers utilize it effectively. As you know, SWOT analysis examines four facets: Strengths, Weaknesses, Opportunities, and Threats. Many buyers simply describe each quadrant using a few shallow words, which leads to less insightful recommendations. Some even misinterpret what qualifies as a strength, weakness, opportunity, or threat.
For instance, price can appear in more than one quadrant. If a company offers a lower price than its competitors, buyers might categorize price as a strength. However, when new entrants enter the market and provoke a price war, this same price factor may threaten profitability, making it a threat. Skilled buyers must ask exploratory questions to gather accurate information in each quadrant. This ensures the analysis is thorough, meaningful, and strategically valuable.
- Strength: This refers to what the company excels at. You can explore it by asking questions such as:
What makes the company stand out?
What can your company do that others can’t?
What are the sources of your company’s strengths? Do they come from outstanding individuals, a strong company culture, or something else?
How long can your company maintain these strengths?
- Weakness: This refers to internal factors that hinder the company from optimizing its performance. To identify these weaknesses, buyers can ask questions such as:
What does the company do below standard?
What are the root causes of this underperformance?
What internal factors are causing the company to lose its competitive position in the market?
What actions is the company taking to address these weaknesses?
What are the sources of these weaknesses, and are they difficult to fix?
- Opportunity: This refers to external factors that can accelerate the company’s development. Buyers can explore these by asking questions such as:
What external trends are emerging? → To answer this, you can use STEEPLED analysis or Porter Five Forces model to uncover potential changes in the external environment. (I’ll analyze STEEPLED and Porter Five Forces in the next post.)
How might these changes affect the company?
How could these changes help the company gain competitive advantages?
How long are these changes expected to last?
- Threat: : This refers to external factors that may harm the company in both the short and long term. Once again, buyers should use STEEPLED analysis and Porter Five Forces to detect potential threats to the organization. Some insightful questions include:
Which potential changes could be detrimental to the company?
How might these changes negatively impact the company?
Are these changes temporary or permanent?
Could the changes lead to a loss of competitive advantage?
After conducting the SWOT analysis, the company can gain a clear understanding of its true capabilities and the question “Can the company fulfill the need on its own?” can be answered.
STEEPLED analysis
This analysis provides buyers with potential external factors that may affect the organization. Since some key factors might be overlooked, buyers are encouraged to use the STEEPLED analysis to assess external changes comprehensively. STEEPLED analysis stands for SOCIAL, TECHNOLOGY, ECONOMIC, ENVIRONMENTAL, POLITICAL, LEGAL, ETHICAL and DEMOGRAPHIC.
Social
To assess social factors, buyers should consider cultural norms (standard behaviors, social beliefs), lifestyle trends (such as health consciousness, eco-friendly habits, or digital dependence), and cultural dynamics. For example, imagine you’re sourcing vegetables and fruits for your supermarket. Your analysis reveals an emerging trend: increased consumption of organically grown fruits and vegetables. Buyers should take this shift into account when seeking sustainable farming partners.
Technology
It refers to technological advancement and innovation that enhance workplace productivity at work. Through analysis, the buyers may discover new technologies, helping the company fulfil their needs or allowing them to choose suppliers with advanced technologies. For example, your company is experiencing some late-delivery issues with existing suppliers. To improve the situation, your company can switch to suppliers who have real-time tracking system. The system may provide you with accurate delivery timeline, cargo condition and reduce delays.
Economic
Buyers can use economic indicators to predict potential changes such as inflation rates, interest rates, currency fluctuations (especially when working with international suppliers), Gross Domestic Products or unemployment rate. Depending on business scope, the buyers are flexible to use appropriate economic indicators to uncover potential shifts in the market. For example, when the inflation rate increases, the value of domestic currency declines, resulting in higher exchange rate. The buyers should consider this potential risk when sourcing from international suppliers.
Environmental
When analysing this factor, the buyers should consider climate changes, sustainability concerns, resource scarcity. Climate changes may disrupt supply chain, leading to production delays for the buying organization. For example, the buying organization seeks to purchase some commodities that are vulnerable to climate change. Hence, they are more likely to encounter price fluctuation and supply shortage in purchasing these commodities. The buyers need to set up mitigation measures or consider other alternatives to reduce the risks.
Political
It is very important to investigate the political stability and regime type in the country where the buying organization or its suppliers operate. Political stability and government policies impact significantly on the development and performance of companies. For example, a supplier’s premises are located in an area experiencing political unstability and public unrest, their production may be easily disrupted, leading to failure to fulfill contractual obligations. Besides, regime type is a key factor to shape the business environment. A democratic country tends to have transparent legal systems and greater policy consistency, which create a stable business environment. Conversely, in an authoritarian regime where the authority is concentrated on hands of a few, the business may encounter the risk of sudden regulatory changes.
Legal
This refers to legal framework of a country. When conduct market analysis, it is essential to understand the laws, regulations, law enforcement system which control the business operation of both buyers and suppliers. For example, if your country imposes a higher import tax rate on US-based goods, your company may incur additional costs when sourcing from US-based suppliers.
Ethical
It refers to ethical principles and values that influence decisions, behaviors and strategies of companies. Principles are core rules that guide corporate conduct, such as fair, honesty or respect for human rights. Values refers to social belief which can influence on the perspective of companies such as social & environment responsibility, diversity and inclusion. When developing partnership with suppliers, shared values and principles can create a foundation for a long-term, collaborate relationship.
Demographic
It refers to population structure including gender ratio, age distribution and population compositions and population shift of the country. If a country has a high proportion of young people, companies may benefit from a readily available source of youthful and skilled labor.
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