Procurement Market Research — Everything A Procurement Professional Should Know

One of your crucial responsibilities as a procurement professional is to ensure that the organization makes informed purchasing decisions. It’s about the collection and analysis of market research, trends, benchmark prices as well as negotiations with suppliers. However, it can be hard to understand where to begin when so much information is available.

In this article, we will dive into the concept of market research. Specifically, what it does for the organization and the factors to look up for.

After reading this article, you should have a better understanding of how market research is a crucial part of the procurement process and how it impacts the decisions in it.

I have created a free-to-download editable procurement strategy template. It’s a PowerPoint file that can help you when conducting market research in procurement. I even created a video where I’ll explain how you can use this template.

What is Market Research?

Market research is the process by which information about an individual market or sector is gathered, analyzed, and interpreted for the purpose of understanding its characteristics, trends, and dynamics.

In order to gain a useful understanding of consumer needs, preferences, and behavior as well as the identification of possible opportunities and challenges for businesses, market research is a key objective.

By understanding how your target market behaves, you can set up a procurement strategy that will meet these needs. Additionally, the degree of complexity and the financial value of a requirement or goal determines the extent to which market research can be carried out.

The market research phase is arguably the most important stage of the procurement cycle, for the reason that it is where the research is performed and the majority of major decisions on procurement are taken, and where key components needed to run and manage contracts after an award has been incorporated before tendering takes place.

Market Research in Procurement

Market Research in the field of procurement is a little different compared to the usual market research being conducted by businesses and organizations. Procurement market research is a specific type of market research that focuses on gathering and analyzing information related to the procurement of goods and services by organizations or businesses.

The main objective of procurement market research is to gain insights into suppliers, products, services, and market conditions to support informed decision-making in the procurement process.

That is why data from a variety of sources, such as supplier databases, industrial reports, trade periodicals, and online and in-person communication with suppliers, are collected within the framework of procurement market research.

Subsequently, the information obtained is analyzed and applied in order to develop a procurement strategy and selection process for suppliers.

Market research on procurement is a critical element of the organization’s decision-making process. It provides them with opportunities to optimize their buying behavior, reduce costs, manage risks, and make sure that they have access to quality goods and services.

How to Conduct Market 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 Conduct Market 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 that 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?

Types of Market Research

1. Market Segmentation

Importance of Procurement Market Research

Market research can provide a number of benefits to your organization that make 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

Supplier identification is about 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

This allows procurement managers 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.

Conclusion

Market research plays a pivotal role in shaping the procurement process. Procurement professionals must understand the nuances of procurement market research, focusing on specific goals to optimize decision-making.

The process involves various types of research methods, including segmentation, sizing, forecasting, and SWOT analysis.

The importance of market research is highlighted through its ability to identify suppliers, evaluate costs, monitor trends, and assess risks, contributing significantly to the success of procurement strategies.