Analysing supply markets can be time-consuming and costly. Clearly, an organisation cannot and need not undertake a comprehensive supply market appraisal for every item that it buys. It will have to be selective about the amount of effort that it puts into each item to be bought.
For this, it will have to decide which are the priority products and/or services, for which a supply market analysis needs to be undertaken. Some factors to consider when establishing such priorities are as follow:
1. Is it a new procurement item? If the buyer is buying a product or service for the first time, he/she will clearly have to give some thought to its supply market situation. If the buyer does not know much about the product or service, or if it is likely to come from an unfamiliar source, he/she will have to invest more time and effort than would otherwise be the case.
2. Time elapsed since the last analysis. If the organisation did so relatively recently, the analysis may not need to be reviewed immediately subject to the next factor on speed of change.
3. The speed of market and technological change. For some products, the market situation may not change much over the years. In such cases, supply market analysis can be carried out only infrequently and without going into much depth. On the other extreme, the markets for some products may be quite volatile (e.g., commodities) or technology may be changing quickly (e.g., information technology equipment). In such cases, the process of supply market analysis will have to be constant.
4. Level of expenditure. Items for which the organisation spends a lot of money will require higher priority. This is because more continuous and in-depth supply market analysis will likely reap the organisation higher dividends through savings in the cost of procurements, e.g., identifying the lowest cost sources of supply.
5. Level of impact on the organisation. Some procurement items — whether or not they involve a substantial expenditure — will be more important to the organisation because they have a higher impact on meeting the organisation’s supply objectives and thus on its profit and its competitiveness.
Here, a range of issues such as quality, availability, lead-times and supplier support as well as cost may be important to the buyer. Examples may include items such as critical components and materials, essential spare parts, etc.