One of your primary responsibilities as a procurement professional should be helping ensure the company makes well-informed purchasing decisions, which involves gathering market research, spotting trends, setting benchmark prices, and negotiating deals with suppliers. Knowing where to start when making such vital decisions may be challenging with so much available.
This article explores market research from its benefits to businesses and potential pitfalls for consideration. After reading this article, the significance of market research for procurement decisions and its influence on them should become more apparent.
Market Research
Market research refers to gathering, analyzing, and interpreting information regarding individual markets or sectors to understand their characteristics, trends, and dynamics. Market research can help businesses gain valuable insight into consumer needs, preferences, and behaviors while simultaneously uncovering possible opportunities and threats facing their business operations.
Understanding how your target market behaves allows you to craft an acquisition strategy tailored to their needs. Furthermore, market research may depend on its degree of complexity or financial value as this determines its scope of operation. Market research is the most crucial stage of any procurement cycle since this stage serves to conduct necessary research and make significant procurement decisions; critical components required to manage contracts after award have also been added. Tendering takes place only afterward.
Market Research In Procurement
What is Market Research in Procurement? Market Research in Procurement differs significantly from typical business and organization market analyses. Its purpose primarily centers around gathering and analyzing information related to procurement activities conducted by organizations or businesses. Procurement Market research refers to an area of market research focused on collecting and analyzing information regarding firms or organizations' acquisition of goods or services.
The primary purpose of procurement market research is to gain insights into suppliers, products, services, and market conditions to enable informed decision-making during procurement processes. Data collected includes supplier databases, industrial reports, trade periodicals, and online and in-person communication with suppliers. This data is analyzed to create an appropriate supplier procurement strategy and selection process.
Market research for procurement decisions is an integral component of organizational decision-making processes, providing opportunities to optimize buying behavior, reduce costs, and manage risks responsibly while assuring access to quality goods and services.
How Can Market Research Be Done?
Procurement market research takes many forms, such as surveying, measuring market shares, and examining competitors' pricing are just a few methods used. Furthermore, surveys may be administered to collect customer needs, preferences, and purchasing behaviors.
Market share can be determined by considering how often one company or organization purchases one type of service or product over time, compared with competitors offering similar offerings at similar costs, and then performing a comparison pricing analysis on those offerings from each competitor.
When Should You Conduct Market Research?
Organizations often engage in market research when their product or service requires significant expenditure, is susceptible to fluctuations in availability or cost due to market instability, requires large-scale procurements with unknown risks involved, and is essential to their performance as an enterprise.
Organizations should allocate sufficient resources and conduct market research considering procurement activities' risk, complexity, and costs. Products or services with greater accessibility but higher costs or risks often warrant less extensive analysis, while more easily obtained services with relatively lower risks or expenses usually do not necessitate one.
Importance Of Market Research For Procurement
Market research can bring many advantages to an organization. It should be seen as one of the cornerstones of the procurement process. Here are just a few benefits associated with conducting market research:
- Identify Suppliers: It is locating suppliers on the market that meet an organization's specifications.
- Supplier Evaluation: This step involves the evaluation of prospective suppliers on various criteria, such as product quality, prices, reputation, past performance, financial security, and capacity to meet demand.
- Cost Analysis: Cost analysis helps assess which options are the most cost-efficient by reviewing various suppliers' product and service cost structures and prices and any related taxes that might apply.
- Market Trends: Monitoring market trends, supply and demand fluctuations, and industry developments are integral in making informed procurement decisions.
- Product And Service: This process helps identify products and services that meet an organization's requirements while adhering to quality standards.
- Risk Analysis: This function helps businesses assess potential supplier risks such as supply disruptions, financial instability, or compliance concerns and ensure their suppliers meet legal and regulatory obligations.
Read More: Unlocking Success: Comprehensive Guide to Market Research for Your Business
Types Of Market Research
Here are various types of market research:
Market Segmentation
Market segmentation uses needs, wants, and preferences as criteria to divide up a market into subsets that make satisfying these specific demands simpler and faster. Once this step has been taken, targeting particular products or services to fulfill those demands more efficiently becomes much more straightforward.
Market Sizing
Market sizing allows organizations and businesses to assess their products or services' size and potential market. One method may involve studying similar offerings that have sold well in the past and noting how many sales were achieved before using that figure to represent the current share in the market.
Market Forecast
This shows what's to come within an industry or sector and measures demand for specific products or services that are losing popularity over time.
SWOT Analysis
A SWOT Analysis allows organizations to assess strengths, weaknesses, opportunities, and threats facing their organization or company more accurately as part of its planning strategy for growth and development in the future. In doing this, they gain more accurate predictability when planning growth strategies based on understanding these factors more thoroughly.
Goals Of Market Research
Market research can assist organizations in discovering potentially profitable supply sources that meet their business requirements, providing procurement professionals with tools for evaluating various products and services so they may design competitive bids that do not discriminate against one source, thereby expanding participation opportunities suited to meeting agency specifications.
Procurement professionals should conduct market research to assess market factors, costs, and risks that affect procurement strategies and processes. Understanding your goals when initiating or conducting your market research is paramount to its success. Here are other goals of market research:
- Locate several appropriate suppliers when seeking to procure goods or services.
- Ascertain your organization's current and projected spending patterns to assess current and foreseeable needs.
- Manage Risks By Establishing An Objective Process Of Decision-Making.
- Unify all existing contracts to identify gaps that need to be filled.
Following comprehension of these objectives, the procurement professional will begin the market research process with a goal-aligned focus, working alone or in conjunction with a procurement team. A few things should be taken into account before beginning the market research, including:
- What is the spending limit?
- Which product or service is the target?
- Which companies are the leading providers of the good or service?
- How do rival businesses get the goods or services under contract?
- How do partners make agreements about the goods or services?
- How much did other companies have to pay for comparable goods and services that fit your target's scope?
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Conclusion
Market research services are essential in shaping the procurement process, so procurement professionals should understand its nuances to maximize decision-making efficiency and reach optimal decision-making outcomes.
Process analysis encompasses various research techniques such as segmentation, sizing, and forecasting to conduct SWOT analyses and other forms of evaluations. Market research can play an instrumental role in procuring strategies by helping identify suppliers, evaluate costs, track trends, and assess risks - thus contributing to their successful implementation.
