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What is Market Intelligence, and is it Relevant to Procurement?

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As procurement takes on increased strategic importance within companies, purchasing professionals are being asked to do even more with their limited time. This is especially true when sourcing direct materials, which requires keen attention to many changing economic factors outside of the organization.

To make the best decisions possible without falling behind, procurement must ensure it has access to and effectively uses supply market intelligence. To help practitioners understand why, this three-part series first outlines the key pillars of market intelligence, explaining why companies seek out this capability. It then explores why market intelligence matters to procurement, and concludes with an analysis of why businesses should seek help from a third-party provider to build out a market intelligence program.

Introduction to Market Intelligence — What Is It?

Market intelligence consists of three pillars. The first is market research, which principally involves data — how to get it, provide access to it, store and analyze it, and the many methods and applications for doing so. Then comes competitive intelligence, which consists of obtaining information such as competitive dynamics, disruptors and other value levers at play for strategic purposes.

Elements of these two pillars play significant roles in developing market intelligence, but the key final pillar is the process of gathering and analyzing information relevant to a company’s supply markets. All three ultimately support the goal of enabling accurate and confident decision-making in the procurement process. This is why, from a procurement perspective, market intelligence is often referred to as supply market intelligence (SMI).

This type of information, which makes up the basis of the broader body of intelligence, can come from something as simple as searching Google, reading trade publications or following social media feeds on one’s own — a collection of which could comprise a robust “homegrown” market intelligence approach. The most advanced approaches involve using third-party market intelligence sources to triangulate multiple data inputs and streams, ultimately resulting in a holistic organizational strategy.

Why Organizations Seek Market Intelligence to Begin With

Collecting the massive amounts of data — price, cost, additional benchmarks, KPIs, best-fit suppliers, and negotiation levers, among others — to inform a sourcing process is hard enough. It is harder still with a constantly proliferating number of sources and limited amount of time and resources (shrinking teams, shared services approaches) for practitioners to deal with. This is the reason most organizations are pushed into seeking out market intelligence.

For example, let’s take a look at the challenges faced by firms in the aerospace composites sector. Due to the complex, global nature of that industry, major pain points include assessing the organization’s overall procurement competence; determining the barriers to the supply market; evaluating their suppliers’ pricing and cost structure; conducting a price model analysis; and developing a better contract negotiation strategy with current suppliers.

Market intelligence is necessary to help tackle any aspect of most of these challenges. A procurement organization will be able to alleviate a good amount of its business pain by gathering data on supply market capabilities, getting a good read on how the competition is developing and managing their supply base and supply chain, and understanding key trends driving or otherwise affecting the market — ultimately synthesizing it all for strategic purposes.

By using market intelligence to these ends, organizations will find that the potential benefits are twofold. The first is gathering the previously mentioned basket of data — building up a keen sense of trends and how the competition is developing itself and its supply base — to bolster holistic external market awareness. Without that, a company may as well be toiling in a vacuum.

The second is using the first for internal organizational planning. By properly using the external signals and data to refine product plans internally, pinpoint competitive opportunities and map the execution of better sourcing strategies to support overall business requirements, the procurement organization will be able to leverage buying power and compete more effectively.

How Relevant is Supply Market Intelligence, Exactly?

In the abstract sense, it seems to be a given that companies should consider better utilizing market intelligence to achieve their business goals. But in the real world, we are indeed seeing that procurement practitioners and their organizations are making conscious investment efforts in supply market intelligence planning and capabilities — especially with help from third parties.

According to a 2014 study published in Supply Chain Management Review, at least 65% of companies are using some form of external resources for SMI, and an increasing number are using multiple parties. Internally, most companies dedicate between and one and four employees as part of a market intelligence team, with three-fourths of those surveyed spending 20% of their total MI budget on external resources.

In more recent research, from Hackett’s 2017 Key Issues Study, 42% of procurement executives deemed investing in supply market intelligence capabilities as having a high/very high degree of importance. Tellingly, SMI is viewed as a top strategic activity in a procurement CoE. Executives place SMI as the number one activity currently being evaluated or piloted within their organization, with 31% in the planning/evaluation stage and 10% in the piloting stage.

Will this type of organizational investment continue in 2018? Signs point to yes. While no detailed forecast is yet available for the 2020s and beyond, enterprise adoption of market intelligence initiatives is an area procurement organizations say they are focusing today.

For example, close to half of the 2017 Key Issues Study respondents stated that the top use case for applying big data in procurement is to help collect new forms of category market intelligence. And from an organizational strategy perspective, 56% said improving procurement analytical, modeling and reporting capabilities, such as those needed to support market intelligence initiatives, had become a higher priority than capabilities they had previously emphasized.

Ultimately, the degree to which market intelligence is built upon data and analysis, enabled by various parts of the organization, and deployed for different purpose-driven ends (e.g. driving value vs. managing supply risk) ultimately speaks to how relevant it is, and will continue to be, for procurement teams.

A Foundational Understanding of Market Intelligence

To fully take advantage of market intelligence sources and strategies, procurement teams are best served by understanding what that intelligence is composed of, how it can help solve specific industry challenges and what it is meant to achieve — not only for their organization but for the broader goals of the business.

This article was written on behalf of Beroe by the Spend Matters Brand Studio team and not by the Spend Matters editorial or analyst teams.

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