Procurement Market Research — Everything a Procurement Professional should know

How to ConductMarket Research?

In the area of procurement, there are a number of ways in which market research is carried out. Surveying, measuring market shares, and analyzing competitors’ pricing are some of the methods used. To collect information on customers’ needs, preferences, and purchasing behavior surveys may be used.

A percentage of a particular type of product or service that is bought by one company or organization can be used to determine market share. To identify how many competitors charge for similar services or products, a comparison pricing analysis can be carried out.

When to ConductMarket Research?

Generally, an organization will carry out market research where the product or service has a high level of expenditure, is exposed to fluctuations in availability or costs as a result of volatility in the markets, which would require large-scale procurements, involve unknown risks, and are crucial for the performance of the organization.

A sufficient resource should be made available and an appropriate level of market analysis, which corresponds with the risk, complexity, and cost of procurement, shall be carried out by the organization. 

For products or services which are more readily available but involve significant expenditure, less extensive analysis may be carried out. In the case of products and services that can be easily obtained and are relatively low in costs or risks, an organization usually does not need to carry out an analysis.

Goalsof Market Research

Finding potentially profitable supply sources that can satisfy an organization’s business needs is one of the objectives of market research. These resources enable a procurement professional to evaluate different products and services, in order to guide the design of competitive bids which are not biased against one source or that do not limit the number of possible participants who may be able to meet agency requirements.

A procurement professional should conduct market research with the goal of assessing market factors, cost, and risk that impacts procurement strategies and processes. These goals are important to know how to start and where to focus your market research.

Here are other goals of market research:

• Identify a variety of suitable suppliers to obtain a product or service.
• Analyze the organization’s spending patterns in order to assess current and future demands and expenditures.
• Mitigate risks
• Formulate an objective process for decision making
• Identify gaps in pre-existing contracts
• Gather information for the development of a procurement strategy.

Once these goals are understood, the Procurement Professional, either individually or in collaboration with a procurement team, shall start the process of market research with a focus aligned with the goals.

In starting the market research, a few factors should be considered such as:

• What is the budget?
• What is the target product or service?
• Who are the major suppliers of the product or service?
• How do competitors contract for the products or services?
• How do partners contract for the products or services?
• How much did other organizations spend in procuring such products and services similar to the scope of your target?

Typesof Market Research

1. Market Segmentation 

It means that factors such as needs, wants or preferences are used to divide the market into smaller sections. It is more convenient to target certain products and services in order to satisfy these needs once this has been done.

2. Market Sizing

This is used to determine the size and potential market for a particular product or service. To that end, it may be carried out by looking at similar products or services from the past and taking a valuation of how much sales they have made, and using this figure as their current share in the market.

3. Market Forecast

This indicates what is going to happen in a given industry or sector. It’s how they determine the demand for products or services, which ones are falling out of favor.

4. SWOT Analysis

The purpose is to analyze strengths, weaknesses, possibilities, and threats faced by a company or organization. It will allow the organization to plan for future growth and development more accurately when it understands these factors.

Importanceof Procurement Market Research

Market research can provide a number of benefits to your organization that makes it one of the most important phases in the procurement process. Here are a few key benefits that come along with market research:

1. Supplier Identification

Identifying potential suppliers in the market who can meet the organization’s specific requirements and standards.

2. Supplier Evaluation

This is where the evaluation of the potential suppliers on a range of criteria, including product quality, prices, reputation, past performance, financial stability, and capacity to meet demand takes place.

3. Cost Analysis

The purpose of Cost analysis is to determine which options are most cost-efficient. To conduct this, an analysis shall be carried out of the cost structure and prices of products and services provided by various suppliers.

4. Market Trends

Monitoring Market trends, supply and demand, and industry developments is beneficial as it impacts procurement decisions.

5. Product and Service

Allows to identify the best products and services in line with an organization’s needs as well as quality standards.

6. Risk assessments

Identifies potential risks associated with suppliers, such as disruptions in the supply chain, financial instability, or compliance issues, as well as ensuring that suppliers meet legal and regulatory requirements.