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Supply Analysis and Contract Negotiations
Stan Vitikas, Professor of Practice
Arizona State University, Tempe, AZ
Module 1 – Supply Market Analysis
Category Analysis Techniques
 Demand (and Supply Planning)
 Supply Market
 Price / Cost
 Scenario Planning / What Ifs
Supply Market Analysis Overview
 Why analyze the supply market?
 Information required
 Multiple ways to analyze
 Understand current / future position
 Define expectations & strategy to achieve
How does the Firm currently stand?
 You can get
value from your
position, but is it
a safe position?
Great view … but
alone and
precarious
Supply Market Analysis
 Analyzing the supply market helps –
 Understand key suppliers & their capabilities to meet internal user needs
 Threats and opportunities going forward
 Your current situation / position
 After analysis you should be able to –
 Define the future desired position relative to the supply market
 Recommend internal / external changes needed to get there
Supply Market Analysis
• Process: Hypotheses to be tested about
Key
suppliers
Available
capacity
Technical
requirements
Price data
and trends
Cost data
and trends
Technology
trends
Environmental
issues
Trade &
Regulatory
issues
Competitive
Issues
 Goal: Make claims with confidence
Utilize Information Sources
Triangulation – explore, compare, and contrast data
from multiple sources. Do your research!
Trade
journals
Annual
reports
Internet
Books
Snowball
sampling
Trade
consultants
Category
managers
Competitive
Analyses
Suppliers
Investment
reports
Industry
analysts
Other
sources
Useful Websites
 Listing of suppliers & buyers
 www.Panjiva.com
 www.thomasnet.com/
 www.Kellysearch.com
 Industry & Company


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
www.Outsourcing-center.com - news
www.Sourcingmag.com – services
www.Business.com – overviews
www.hoovers.com – company data
Industry Info / Benchmarks
 Business statistics:
 http://www.industryweek.com/benchmarking
 https://lib.asu.edu/
(go to LexisNexis – compare companies - industry)
 Government and non-profits:
 http://www.census.gov/econ/index.html
 http://www.oecd.org/statistics/
 World Bank Link to Trade Info
Supply Market Analysis Tools
 P.E.S.T. Analysis
 Political Trends


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Government stability & programs (e.g. infrastructure)
Pending laws / enforcement in future
Tariffs & Trade Policy
 Economic Trends


Stability of economic indicators (PPI, etc)
Currency stability, credit availability
 Social Trends


Changing norms and attitudes
Demographic trends (e.g. age, education, ex India)
 Technological Trends


Upcoming research or patent changes
Access to technology or Cyber risk
 What do these factors mean for the buying firm?
Supply Market Analysis Overview
New Entrants
Supplier’s
Suppliers
(Types/Power)
Supply Market
Competition
Your
Client
Buyers
(Types/Power)
Substitutes
Goals: Identify what influences supplier profits, what major
trends can be exploited, and what constraints exist to
maintaining or increasing your received value
SWOT Your Supply-Base
Position
• Broad supplier
base
• Established
relationships
• Accurate SRC
evaluation
system
• Market Share
gains
• Emergence of
other sources
• Overseas
infrastructure
improvements
Firm-related Factors
Strengths
Opportunities
Weaknesses
Threats
Market-related Factors
• Poor supplier
innovation or
process
• Small market
position relative to
others/low power
• Amazon!?
• Emerging
overseas buyers
• New product
development
costs are high
• Environmental
regulations/Trade
Example: Supply Market Financial Analysis
Industry Top 5 Mkt Share (2006 - 2011)
35%
30%
31%
31%
21%
15%
14%
8%
6%
21%
14%
14%
7%
7%
33%
32%
% MS
25%
20%
15%
10%
5%
32%
29%
11%
8%
7%
31%
28%
29%
28%
13%
14%
14%
9%
8%
9%
8%
10%
9%
0%
2006
NPM
Supp A -35.3%
Supp B 9.7%
Supp C -67.6%
Supp D 9.0%
Supp E 3.0%
Health Assessment Legend:
2007
2008
2009
2010
Int Coverage Ops Cash flow as
Ratio
% to revenue
Net PM Trend
Debt to Equity
NWC
Quick Ratio
-31.0%
1.64
-196.0%
0.70
0.27
2011
Stress Level
7.7%
1
9.6%
0.19
468.5%
3.18
281.27
13.8%
5
-40.9%
6.02
-67.6%
0.77
1.00
-10.7%
1
12.4%
0.38
104.5%
1.18
16.12
7.4%
5
6.8%
1.46
57.3%
1.28
8.63
10.3%
5
Good
Fair
Poor
Supplier Research
 Visit and gather information on key suppliers
 RFI’s (Request for Information) can also be very useful
Cost structure
Financial status
Customer satisfaction levels
Support capabilities
Relative strengths and
weaknesses
• Buyer’s fit with supplier
•
•
•
•
•
•
•
•
•
•
•
How company is viewed
Core capabilities
Technology/Innovation
R&D Investment
Strategy/future direction
Culture/Training
Goal: Achieve a better position for the Firm
Also a great view …
but now with a
partner and safe
Conclusion
 Suppliers & Supply market factors strongly influence
category capabilities (Firm’s success or failure)
 Analysis frameworks help characterize position and
possibilities
 Make analysis relevant to developing category strategy
 Preparing for the future is an essential strategic skill (and
continuous)