Analyzing supply market conditions is an important activity within sourcing. As part of this activity organizations need to understand what does the supply market look like and what are the current conditions. Organizations should develop strategies regarding what they are going to do, given the supply market conditions, in order to avoid supply risk and make a good deal with a supplier.
Here are some of the important aspects to be considered:
- The number of capable suppliers in the market and where they are located.
- Is it primarily a domestic market, or are suppliers located all over the world?
- Are there certain regions where the suppliers tend to be clustered?
- The number of suppliers might be important because oftentimes, the more suppliers there are in the market, the more competitive the marketplace is
- The concentration of the supply market
- Understanding how concentrated the market is and the trends in concentration over time is extremely important. In many supply markets, buyers are finding that over time, there are mergers and acquisitions that are reducing the number of available suppliers and concentrating the market much more significantly
- Who the market leaders are?
- The levels of capacity utilization for the companies in that supply market
- Knowing this information is important because oftentimes, if suppliers are operating at or near full capacity, they are less interested in new business. On the other side of that coin, when companies have excess capacity, they probably compete a lot more strongly for new business
- Who the other major buyers are in the marketplace
- Organizations are going to compete for the attention and capacity of the suppliers in a supply marketplace. Hence, it is necessary to have some understanding of who the organization is competing against and whether or not the organization is going to be an important customer for these suppliers.