Supply analysis is used to gain and develop the necessary intelligence and knowledge to make the best procurement decisions in the workplace. Successful supply analysis establishes a competitive advantage in the marketplace by reducing supply costs and risks.
Supply analysis is an integral aspect of supply chain management and aids in procurement planning by researching and identifying the following factors: product and resource requirements, researching suppliers, comparing cost structures, understanding market characteristics, and ethical and environmental considerations.
Supply analysis increases an organization’s market intelligence by gathering and analyzing information about supply options to support accurate and fact-based procurement decision making. Supply analysis considers all aspects of the decision, not just cost and quality, and is a dynamic, ever-changing process that requires constant managerial efforts and revisions.
Identifying the product and resource requirements allows a company to better understand the product or service being offered, the scope of the analysis, factors critical to the success of the organization and the necessary procurement of resources. This internal research is the foundation for the remaining stages of the supply analysis process as well as the final procurement decisions.
Researching and understanding the supplier options available in the marketplace are fundamental and crucial to any supply analysis. Research into the supply base should look into all suppliers of necessary resources, both locally and internationally, focusing on characteristics of the supply industry such as quality, cost, reliability, supply channels and distribution options. Comparing cost structures of suppliers includes understanding raw material costs, warehousing and transportation costs, labor costs and possible overhead costs such as energy.
Understanding market characteristics revolves around researching market indicators for success; this is the most challenging and complicated task in supply analysis. Most organizations focus on the following market success indicators: economic environment indicators, pricing indicators and production indicators. Economic indicators look at aggregate rates of pricing, production and employment in the marketplace. Pricing indicators include the Consumer Pricing Index and the Producers Pricing Index. Production indicators focus on inventory, capacity utilization as well as Gross Domestic Product.
Environment and Ethics
Environmental and ethical considerations are becoming more and more important for business supply chains as organizations are now held accountable and responsible for any supplier misconduct or unfair business practices. Businesses must align their ethical and environmental standards with all members of their supply chain to avoid negative public perception.