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Retail

White Paper

Driving Strategic Sourcing Effectively with


Supply Market Intelligence

About the Author

Devaraj Chithur
Devaraj is part of the Supply Chain group within Tata Consultancy Services (TCS) and a
business process services (BPS) solution architect in presales and solutions. Prior to this
role, he was Director, Global Procurement and held leadership positions in delivery
functions across global sourcing, procurement, and planning and across supply chain
processes in various capacities for over twenty nine years. He holds an MBA, a masters in
Biological Sciences, a diploma in Foreign Trade, and is a Certified Professional in Supply
Management (CPSM). He has guided several Six Sigma projects and is a cited author in
industry publications.

It is important for Chief Procurement Officers (CPOs) and category managers to focus on
developing a category strategy for optimized procurement results. Research that collates and
analyzes data, and provides targeted reports can support this strategy formulation.
One valuable area for such research is supply market intelligence (SMI). Supply market
intelligence is key to strategic sourcing. Clear and actionable reporting of supply market
analysis is essential for developing robust category strategies and achieving year on year
savings on high value spend categories. To enable this, companies require a significant
investment of resources with adequate domain expertise.
With access to high quality supply market intelligence (SMI), organizations can overcome
both the challenges of supply chain disruptions as well as achieving savings every year, with
up-to-date supply market visibility. Organizations can partner with supply market
intelligence service providers who offer IT tools to help gather SMI at an optimal cost.
Market analysts can leverage technology and tools to enable organizations to gather market
intelligence that can provide insights into core aspects of demand and supply trends,
commodity pricing structures, global capacity, and government and regulatory changes that
impact global sourcing. This understanding can help transform an organizations supply
chain for improved business results.

Contents

1. Introduction

2. What is Supply Market Intelligence?

Role of SMI in category management

What are the sources of SMI?

When do companies need SMI?

3. Challenges in collecting Supply Market Intelligence

4. Partnering with SMI providers to meet the challenges

Sourcing supply market intelligence from providers


Critical levers for effective SMI
5. Conclusion

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1. Introduction
Organizations are focusing on consolidating their vendor base while simultaneously negotiating cost reductions
with suppliers. While companies are increasingly facing the challenge of supply disruptions, Chief Procurement
Officers (CPOs) and procurement specialists are expected to achieve savings year on year. Large organizations
harmonize and consolidate procurement processes and technology across business units, and group companies to
overcome these challenges and achieve savings from category sourcing projects.
The information challenges faced by procurement specialists are enormous. Collection and analysis of superior
market data is difficult and time consuming. As a result, there is a lack of market-linked, updated benchmarks on
prices. Sourcing intelligence is typically people dependent, and therefore, organizations lack guidance on how and
where to source categories. As organizations increasingly seek to build sourcing strategies that target cost savings
and competitive advantage, they must overcome the major challenge of obtaining better quality data for supply
market intelligence.

2. What is Supply Market Intelligence?


Supply Market Intelligence (SMI) is the process of collecting and analyzing data on supplier markets for developing
category strategies in the procurement function. The process involves gathering, recording, and analysis of data
and information about various stakeholders in the value chain that includes customers, competitors, and the
market at large. This helps organizations take better procurement decisions. Thus, supply market analysis acts as an
integral part of any effective market intelligence program.

Role of SMI in category management


Effective category management elevates the procurement process from a tactical to a strategic level, where
procurement is aligned with the goals of an organization. For successful category management, it is important for
successful category management, it is important for businesses to understand the landscape of their supply
markets by identifying potential suppliers and assessing potential risks to the market or category.
With increasing globalization and emerging digital technologies, businesses are struggling to differentiate
themselves. Companies are able to collect all forms of market data on their own and conduct preliminary analytics.
However, despite significant investments in this area, they are unable to benefit from these efforts. Organizations
need the capability to derive actionable intelligence from all this information. Supply market intelligence is a wellestablished approach to reduce supply risk and gain competitive market advantage. It begins with the collection
and analysis of supply market data to make better business decisions.
Market and Industry
Analysis
of each category and
its raw materials

Category Analysis
including production
process of downstream
and upstream industries

Price Analysis
of each category and
price projections across
the value chain

Figure 1 A typical supply market intelligence roadmap


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What are the sources of SMI?


Market intelligence is generally inherent in the knowledge acquired by experienced category managers and strategic
procurement specialists. There is great value in sharing detailed knowledge of competitors, suppliers, customers,
products, supply market situations, mergers, acquisitions, research and the like across an organization. SMI has to be
mined from a number of sources such as:

Experience of business unit leaders and category managers

Consultants and research providers

Industry associations

Suppliers websites

Trade journals and periodicals

Company annual reports and 10-Ks

Online literature

A typical SMI report should include:

Market share for leading suppliers, including historical shares

Market forecasts (five-year and two-year projections)

Regional and country level breakdowns

Industry based rollups (vertical offering)

Price trends and benchmarks

Commodity cost driver analyses

Quantitative financial analysis of prospective suppliers

Qualitative analysis such as capacity utilization, economic impact, and impact of currency fluctuations

A SWOT analysis based on internal and external risk factors

When do companies need SMI?


Typically, category managers and procurement experts carry out supply market analysis for the purchase of goods and
services that are of high value, are difficult to procure, have limited suppliers, or are critical for business continuity. A
broad framework of supply market analysis in the form of a supply positioning model from an SMI perspective is
depicted in Figure 2.
Supply Market Intelligence (SMI)
High

Difficult to secure supply


Low Spend

Difficult to secure supply


High Spend

Easy to secure supply


Low Spend

Easy to secure supply


High Spend

Low

Low

Spend value of goods & services

High

Figure 2: Supply positioning model

This analysis may not be necessary for low value goods and services or those that can be procured from many sources
and are easy to secure. High quality SMI will have a significant impact with respect to purchase of goods and services
when the spend value is high, and these products are difficult to purchase due to complex technology, or limited
suppliers. There may also be goods and services which may not be of high spend value, but are critical to the ongoing
business. Any supply disruptions could lead to production disruption, and hence, loss result in to the company. In both
these situations, extensive supply market analysis is extremely important.
Requests for SMI may occur in the following situations:

During the annual budgeting process

When category managers seek a new source for a specific category or are required to source a new product or service

For internal business requirements that require analysis of spend data, production levels, customer spending
trends, market pricing, and competitor actions

To mitigate supplier financial risks and ensure continuity by assessing major suppliers, related risk information, and
their specific risk monitoring assessments

To mitigate the effects of price inflation and currency fluctuations


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The procurement challenge: CPOs of large organizations face the challenge of ensuring cost savings year on year.
This approach to strategic sourcing has a major limitation. In most companies, the sourcing process usually takes place
in a vacuum, with no detailed supply market assessment. Hence, the most important sub process is generating Supply
Market Intelligence. If this sub process is well executed, organizations can achieve sustainable cost savings every year.

3. Challenges in collecting Supply Market Intelligence


CPOs, procurement specialists and category managers will agree that it is a challenge to collect high quality,
valuable supply market information across a supply chain network, as it involves subscribing to costly industry
journals or pushing category managers to spend huge amounts of time on gathering knowledge from a large
number of sources. In short, it results in procurement personnel spending huge amounts of time on gathering
knowledge. Today, large volumes of information are available online. But it is not easy to find valuable and relevant
information for instance, competitor intelligence and cost trends for a particular category are difficult to acquire.
SMI is a specialized task that needs in-depth an understanding of the internal procurement processes and
requirements, cost modeling, cost analysis, the upstream and downstream supply chain in the industry, the nature
of supply constraints, as well as the suppliers for each product or service. All this needs to be accompanied by
secondary research that is both wide and deep. In addition to this, organizations need ongoing updates to their
data and information to keep a finger on the pulse of supply markets. As with most specialized tasks it is either
difficult or expensive to gather the information for this exercise.
Typical approaches used by companies to obtain market knowledge either involve big investments in document
management services, including subscriptions to expensive industry journals, or result in procurement personnel
spending huge amounts of time on gathering the knowledge.
It needs to be emphasized that it is not an easy task to keep track of information and derive pertinent intelligence
for the business. The major challenges for organizations in this area are:

Huge volumes of data are available for mining intelligence from various sources.

Online literature is the largest source of information, but the authenticity and validity of all online sources
cannot be guaranteed.

Scraping online sources might raise IP issues in certain cases.

While generic information may be acquired freely from the public domain, specific and validated information
often requires a specialist intelligence provider, and such services may not be affordable for all companies.

Professionals capable of carrying out the research and analysis necessary for SMI are not easy to train, hire or
retain.

4. Partnering with SMI providers to meet the challenges


In view of the above challenges, third party sourcing of supply market intelligence services is a viable option to
reduce costs and increase effectiveness. Organizations can look at partnering with outsourcing companies to
achieve scale, control costs, automate processes, and bring efficiencies to the supply market insights.
Service providers can also be engaged, service providers can be engaged to perform a deep dive analysis of a
targeted group of suppliers based on a geographic location or a country. Considering the amount of primary and
secondary research data, as well as the analysis that goes into it, category managers may not be able to spare
resources or may not find the expertise in-house to conduct such research. Given the importance of such an initiative
and the need to manage it in a cost effective and efficient manner, organizations can engage with partners or service
providers to support them.
Market intelligence service providers have comprehensive knowledge of the different geographic markets in which
they operate. They possess inherent knowledge due to their sustained market presence and monitoring, and their
category market specialists bring in the requisite expertise. By supplementing ground intelligence with formal
research, category experts proactively monitor markets, and look for cost drivers and demand variation indicators.
They also study important changes such as new market entrants, emerging technologies, innovations, geopolitical
risks, regulatory changes, as well as mergers and acquisition activity.
Partnering with specialized service providers can provide the following benefits for organizations:

Supplement internal bandwidth and capability of supply market knowledge

Help with right-shoring of sourcing and procurement activities

Deliver high impact knowledge processing at a competitive cost, and optimize the cost of collecting market data
while maintaining its quality

Leverage experience and expertise of service providers in multiple functional areas of SMI, like program
management, process documentation, review, design and operating effectiveness

Draw upon technology tools and techniques to achieve faster and better quality inputs, which enable
development of more efficient categories

Adopt global best practices to ensure quality and year on year savings

Focus on sourcing decisions, rather than spending effort on collecting supply market data

Sourcing supply market intelligence from providers


While sourcing SMI from service providers, we recommend a phased approach:

In the first phase, organizations can leverage their partnerships to gain better intelligence on high spend goods
and services (both direct and indirect materials). This helps to evaluate potential and existing suppliers or to look at
categories that are low value spends but are difficult to secure.

In the second phase, appropriate technological tools can be deployed to persistently monitor global suppliers
across multiple risk categories.
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In the third phase, advanced activities such as performing searches on an existing or new strategic supplier or
vendor can be taken up. This may involve searching across large volumes of data to get comprehensive and relevant
market information. The data may include business information from both paid and unpaid sources.

All of the above activities enable companies to forecast and manage supplier risks, reduce supply disruptions and
ensure supply continuity, help in preventing possible lawsuits, and safeguard the companys reputation, besides
achieving cost savings.

Critcal levers for effective SMI


An effective approach is to use selective market intelligence services that facilitate end-to-end procurement services.
This results in standardization across several business units, reduced cost of operations, and increased savings on
procurement of goods or services.
A) Market intelligence: Service providers can work with internal stakeholders to identify the scope and business
requirements of both direct and indirect categories. The internal buying pattern of the targeted categories and
subcategories are analyzed and compared to industry and internal benchmarks. The strategic sourcing buyers and
category managers have access to SMI, and actively monitor market trends across various categories by leveraging
Category Intelligence (CI) tools.
CI tools help firms centralize best practices and market intelligence pertaining to various categories in order to
formulate category strategies. The tools use a repository of category and sourcing data. Application of such tools
and techniques can help increase overall category management savings and improve productivity through fast,
accurate research. An illustrative representation of such a tools content and reports is shown in Figure 3.

Reports

Content
Category Market news, analysis & reports
Validated & researched supplier list
Commodity price indices
Centralized Sourcing best practices
RFX repository
TYPICAL COST BREAK DOWN

Raw Material Price Trend

Figure 3: Illustration of CI tools


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Service providers typically offer a wide range of strategies and solutions that are highly adjusted to different
types of categories, spend value, as well as regions. In addition to this, they can assist firms with decisions such
as determining the type of sourcing event. Such an arrangement can bring improved visibility through reporting
and predictable delivery through service level commitments on turnaround time and quality. As a result,
businesses can ensure seamless alignment between strategy goals and execution.
B) End-to-end sourcing and procurement services: A strong end-to-end, source-to-contract and procure-to-pay
methodology includes supply market analysis, category strategy development, global sourcing, requisition
management, RFX management, negotiations, contract and purchase order management, and supplier
performance management. This end-to-end service should be supported by software applications that make
the process flow seamless.
Supply market analysis is a critical sub process, which drives high savings as well as operational procurement
excellence.

5. Conclusion
High quality supply market information can help procurement professionals closely monitor their key suppliers and
utilize market intelligence to manage supply chain risks more effectively. It is essential for CPOs to gather insights
into industries, sectors, market niches, clusters and suppliers. Knowing what suppliers, competitors and customers
are expecting helps stakeholders devise appropriate strategies to achieve sustainable savings. The fastest and the
most cost effective route to enable this is to partner with service providers who can provide supply market
intelligence in an easily accessible manner using technology and tools along with customized reporting.
Information is the best weapon a CPO can wield, and whether the target is quality assurance or cost saving,
engaging specialized resources can procure the right information at the right time and the right cost.

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About TCS BPS


With over two decades of consulting and IT support experience with global retailers, TCS helps
retailers improve business processes and cash flows to drive top and bottom line growth. Seven of
the top 10 U.S. and six of the top 10 U.K. retailers partner with us on business transformation
programs aimed at re-imagining and growing the business.
Leading retailers leverage the TCS Point of Sale (POS) and mobile POS solutions as well as our
merchandizing solution suite, OptumeraTM, that amalgamate our strong business acumen, domain
knowledge, and technology competency.
Our Innovation Labs harness technology trends such as digital technologies to incubate and
develop innovative solutions for retailers. Backed by a strong asset base and an information hub
that offers daily insights on the industry, retailers, and their competitors, we deliver industry
relevant consulting, solutions, and IT services and support

Contact
For more information about TCS consulting services, contact bps.connect@tcs.com

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