One important activity in the strategic sourcing work is the market analysis. The market analysis helps you to select the right sourcing strategy and tactics for your commodity or area. It’s also important to understand the different cost drivers, how they are changing with the market, if there are any new suppliers or suppliers closing or merging and if there are any changes to the capacity situation in the market. One additional important aspect is information from internal stakeholder.

The Market Analysis

The market analysis can be performed in the following steps:

  1. Analyse present stage: how are we currently spending our money, what is working, what can be improved?
  2. How does the value chain look like and what are the key cost drivers?
  3. How does the industry look like from the suppliers’ point of view? Use Porters 5 forces as a tool to perform the industry analysis http://en.wikipedia.org/wiki/Porter_five_forces_analysis
  4. Which suppliers are there on the market and understand what services and products they can deliver
  5. What products and services are there on the market and how can they add value to your company?
  6. What risks do you see?
  7. Decide sourcing strategy or make/buy strategy


Common pitfalls

  1. Buyers only focus on the price of the product or service and don’t understand the cost drivers and how they are changing. Very often you could save more by changing buying behaviours than only negotiate price
  2. Buyers are afraid of looking into new suppliers since it could mean additional risk and workload. You might miss new innovation and healthy competition if you don’t look into new potential suppliers
  3. Buyers don’t understand the suppliers’ market. As a buyer you must aim for a win-win situation to be a good customer and interesting partner. If you don’t understand your suppliers’ challenges and opportunities it will be difficult to establish such win-win agreements