Lecture 5: Market Structure and Supply Market Research

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Questions and Answers

What is the primary goal of supply market research?

To reduce supply chain and transaction costs (correct)

To analyze the relationship with a specific supplier

To identify potential substitutes

To evaluate the company's market share in the supply market

What is a significant benefit of using electronic sources of supply market information?

It simplifies administrative procedures

It helps to identify potential substitutes

It provides information about suppliers' addresses and contact details

It allows for easier monitoring of procurement spending (correct)

What is a key factor driving the need for continuous research in supply markets?

Continuing technological development (correct)

Governmental budget deficits

High inflation in some countries

Changing exchange rates

What is a potential risk associated with suppliers?

All of the above Signup and view all the answers

What can companies use to attract new suppliers?

Websites Signup and view all the answers

What can IT help with in supply market research?

Monitoring procurement spending worldwide Signup and view all the answers

What is the primary objective of market structure and supply market research?

To identify and analyze the risks related to important procurement decisions Signup and view all the answers

What is the key distinction between procurement research and supply market research?

Procurement research focuses on internal efficiency, while supply market research focuses on external supplier markets Signup and view all the answers

What is the characteristic of a free competition market structure?

A large number of buyers and suppliers with a homogenous product Signup and view all the answers

What is the term for a market structure where there are few suppliers, but a differentiated or heterogeneous product?

Heterogeneous oligopoly Signup and view all the answers

What is the term for a market structure where there is only one buyer of the product versus a large number of suppliers?

Monopsony Signup and view all the answers

What is the primary factor that determines the degree of availability of a certain product in a market?

External factors Signup and view all the answers

What is the key consideration for procurement managers when developing a procurement policy?

The type of market structure Signup and view all the answers

What is the term for a market structure where there is a single supplier of the product in the market, and substitutes are absent?

Monopoly Signup and view all the answers

What is the primary benefit of supply market research?

It makes the risks associated with procurement decisions more visible and transparent Signup and view all the answers

What is the term for a market structure where there are a limited number of suppliers and limited product differentiation?

Oligopoly Signup and view all the answers

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.