Understanding Supply Markets and Competition

Supply market analysis assists procurement planning and on-going management of supply arrangements by identifying structure of the market, behaviours, supply chain, barriers to market entry, environmental factors, ethical considerations, the buyer’s value in the market (Queensland Government)

Information about Understanding Supply Markets and Competition

Effective procurement requires that P&SM; professionals approach their roles with a high-level view of supply markets and the competitive factors that affect these markets (Monczka et al., 2009).

Porter’s (1985) five forces analysis can provide a useful framework for understanding these issues:

  1. degree of competition: a high degree can create more options for buyers and suppliers, with factors including speed of industry growth, capacity utilisation, exit barriers, product differences, switching costs and diversity of competitors;
  2. threat of new entrants: for example, low-cost-country manufacturers such as China are eroding the competitiveness of traditional industries in the west;
  3. threat of substitute products and services: as an example, new sets of growing composites, thermosets and carbon fibres are replacing traditional elements such as steel;
  4. the power of buyers: increasing power is leveraged over suppliers in the market when buyers consolidate specifications and industry standards emerge
  5. the power of suppliers: fewer suppliers in a market increase the power levels among these individual suppliers.

 

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Related concepts

Commercial Awareness

Commercial awareness means understanding the market, identifying opportunities and working with limited resources to create a profit (Wilkinson and Aspinall, 2007).

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