Understanding Supply Market Dynamics

While many organizations focus the bulk of their Spend Management efforts looking inwards to improve internal purchasing and sourcing processes, it’s important to remember that supply markets are in a constant state of change and deserve equal – and in some cases more – attention than internal efforts. I’ll even go out on a limb and state for the record that the most advanced Spend Management organizations tend to focus as much externally as internally, not just developing suppliers, but understanding supply market dynamics and developing Spend Management strategies. In a recent brief on the subject, Lora Cecere of AMR argues that companies should consider developing Spend Management strategies in the context of supply market direction and that “sourcing processes and technologies are growing in importance as commodities become constrained and prices increase.” If you’re an AMR Subscriber, you can read her brief here. I was consulting a bit of private research that Ariba recently completed on the subject of recent supply market direction and it suggested that “although inflation continued to have an impact on nearly every major spend category [in 2004], the economy continued to show signs of improvement throughout the fourth quarter.” In addition, “raw material prices started to soften, including oil prices that eventually hit all-time highs in the fourth quarter of last year … there was [also] an increase in demand for temporary labor and marketing expenditures, both indicators of an improving economy.” Ariba and AMR Research are clearly thinking about supply market competitiveness and dynamics everyday. You should be too. To help, I’ll discuss more about where I go to learn about supply market direction and dynamics in the coming months. Also, next week we’ll start a series that interviews and asks the hard questions to Spend Management visionaries and luminaries. Stay tuned! -Jason Busch

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