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Questions and Answers
What is the primary goal of supply market research?
What is a significant benefit of using electronic sources of supply market information?
What is a key factor driving the need for continuous research in supply markets?
What is a potential risk associated with suppliers?
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What can companies use to attract new suppliers?
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What can IT help with in supply market research?
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What is the primary objective of market structure and supply market research?
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What is the key distinction between procurement research and supply market research?
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What is the characteristic of a free competition market structure?
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What is the term for a market structure where there are few suppliers, but a differentiated or heterogeneous product?
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What is the term for a market structure where there is only one buyer of the product versus a large number of suppliers?
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What is the primary factor that determines the degree of availability of a certain product in a market?
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What is the key consideration for procurement managers when developing a procurement policy?
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What is the term for a market structure where there is a single supplier of the product in the market, and substitutes are absent?
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What is the primary benefit of supply market research?
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What is the term for a market structure where there are a limited number of suppliers and limited product differentiation?
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Study Notes
Market Structure and Supply Market Research
- A major objective of market structure and supply market research is to support sound decision-making by identifying and analyzing risks related to important procurement decisions.
- Supply market research makes risks more visible and transparent, but it does not necessarily reduce the risk.
Distinction between Purchasing/Procurement and Supply Market Research
- Procurement research refers to subjects concerning the internal organization, such as analyzing purchasing spending, transaction costs, individual buyer productivity, and internal efficiency.
- Supply market research, on the other hand, refers to the external supplier's market, analyzing supply and demand of important raw materials and components, and the financial assessment of individual suppliers.
Market Structure
- Market structure is defined as the total set of conditions in which a company sells its products, with special attention to the number of parties in the market and the nature of the product being traded.
- The following factors characterize the market structure:
- Number of suppliers
- Number of buyers
- Degree of product differentiation
- External factors (e.g. number of customers, number of suppliers, pricing method, stock situation, speed of tech innovation)
Types of Market Structure
Supply Side
- Free competition (pure competition):
- Large number of buyers
- Large number of suppliers
- Homogenous product
- Complete information is available
- Free entry and exit
- Examples: wheat, coffee, soybeans
- Monopolistic competition:
- High degree of product differentiation
- No direct pressure on the price of one product from competitors' offers
- Examples: cigarettes, detergents
- Oligopoly:
- Limited number of suppliers
- Limited product differentiation
- Difficult to enter the market
- Suppliers know each other's market behavior
- Heterogeneous Oligopoly: few suppliers, but differentiated products (e.g. forklift trucks, chemicals, semi-manufactured goods)
- Monopoly:
- Only one supplier of the product in the market
- Substitutes are absent
- Monopolists can charge the price they'd like
- Natural monopoly: single producer owns the entire supply (e.g. oil concessions, diamonds, government monopolies)
Demand Side
- Free competition (pure competition)
- Oligopsony: few buyers, large number of suppliers, buyers are aware of one another's behavior
- Monopsony: only one buyer of the product, versus a large number of suppliers
Procurement Policy and Market Structure
- When developing a procurement policy, consider the following questions:
- Types of market?
- How many suppliers?
- Reaction of suppliers (that are not selected)?
- Product differentiation?
- Substitutes?
- Company's market share in the supply market?
- Competitors?
- Short-run and long-run development in the supply market
Supply Market Research
- Three main areas of investigation:
- Materials, goods, and services
- Suppliers
- Systems and procedures
- Importance of supply market research:
- Continuing technological development
- Make or buy decisions demand a lot of research
- Supply market dynamics (e.g. price changes, demand changes, monetary development, changes in tax regimes)
Electronic Sources of Supply Market Information
- Internet is an efficient method of market research
- Examples: Yellow Pages, ABC, Kompass, company websites to attract new suppliers
- Benefits: fast supplier contact, tracking deliveries, electronic commerce and payment
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Description
Learn about the different supply market structures and how they affect procurement strategies. Understand the importance of market research and how to conduct it effectively. Discover how to use the Internet for supply market research and support sound decision-making.
