Make Vs. Buy For Procurement Market Research

Spend Matters welcomes this guest article by Anup Shetty from GEP.

With growth rates plateauing in both the developed and developing worlds, companies are turning their attention to managing costs and keeping their demanding stakeholders just about satisfied. This trend has brought a spotlight on procurement organizations that are frantically searching for the next big wave of savings opportunities. Most companies agree supply market intelligence is a key enabler in this pursuit.

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However, many are struggling with the classic “make vs. buy” conundrum as they plan to institutionalize market intelligence into their workings. Having an in-house team that is available at your command is definitely a tempting option. Additionally, you need not worry about security and IP concerns when sharing sensitive information that might land in the wrong hands. But is an internal team always enough? My experience says no!

“Good” market research involves investing in industry leading (and expensive) research repositories and speaking to suppliers and experts. It requires you to constantly keep track of your industry to make sense of the noise out there; thus entailing a largish market intelligence outfit if you are planning to house it within your premises. Also, depending on your spend and sourcing pipeline, you might end up not utilizing this team to its fullest. All this points to lower ROI that can never get past your hawkish CFO.

Partnering with a world-class service provider will definitely help. Such providers work across a number of clients, which helps in apportioning costs involved in paid subscriptions, expert fees and other market research tools. Also, you shouldn’t ignore benefits of anonymous market surveys that are not as easy with an in-house team. With professional firms entering this space, companies can now form and rely on watertight MSAs to prevent IP issues and other risks.

Having said this, the choice is not so obvious. The outsourced partner can help in providing timely insights on your entire spend, well, at least most of it. But your major spend categories needs a research engine with which you can work so intricately that an outsourced option seems a bit impracticable. For example, Unilever wouldn’t – and shouldn’t – need a deep dive on palm oil from a service provider. The impact of any fluctuations in palm oil will be huge for the company, enough to warrant dedicated resource(s) to track its position. A supplier can still support, but you need to lead bulk of the research.

As we can see, categorizing your overall spend in 2 buckets will lead to an optimal strategy for sourcing market intelligence. Research for top 5-10 spend categories needs to be managed in-house, while others can be taken by a market intelligence provider.

For more interesting thinking on procurement, visit the GEP Knowledge Portal.

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First Voice

  1. Omar Khan:

    When considering “make Vs buy” option for a component or product, it is a must to have a very capable internal team of manufacturing, marketing and procurement experts. Basically, the decision boils down to evaluating two critical factors; (1) “internal core competency / capability” Vs “external capability” and (2) strategic nature of the component / product. The team must understand the cost & benefits of making the part / product in house vs forming it out to a contract manufacturer / supplier. Second and equally important factor is to understand the company’s long term marketing strategy for this particular part / product and impact of transferring the technology to an outside supplier or keeping it in house in order to protect IP,core technology and end user / customer’s interests.

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