Supply Market Analysis for a Competitive Advantage Davi.docx

Supply Market Analysis for a Competitive Advantage
David A. Hargraves, C.P.M., Director Strategic Sourcing
University of Pittsburgh Medical Center
412/334-3713
[email protected]
93rd Annual International Supply Management Conference, May
2008
Abstract. Supply management professionals should use supply
market analysis in their
sourcing process to establish and maintain a competitive
advantage while also reducing supply
risk. Supply market analysis includes developing a commodity
profile, examining cost
structures, researching suppliers, and identifying key market
indicators.
Supply Market Analysis vs. Market Intelligence
Market Intelligence is a term currently experiencing rapid
growth and broader acceptance
within professional supply chain management organizations. In
a supply chain management
context, market intelligence can be defined as the process of
gathering and analyzing
information relevant to a company’s supply markets specifically

for the purpose of supporting
accurate and confident decision making in the procurement
process.
The concepts of “supply market analysis” and “market
intelligence” are closely related and
while each can be conducted independently, supply market
analysis should be understood to
be a key element and integral part of any robust market
intelligence program. Both concepts
involve the gathering, recording, and analyzing of data and
information about customers,
competitors, and the market at large in order to facilitate better
decisions.
The key distinction that should be drawn between these two
concepts is that a market
intelligence program, while drawing on secondary research like
a supply market analysis,
should itself be active, dynamic and constantly undergoing
revision. Supply market analysis
and “market research” are more static terms which may conjure
up images of dated
documents and not the vibrant living concept that supply chain
professionals should think of
when they think of a robust market intelligence program. Yet
being able to complete a supply
market analysis is a skill that is essential for every supply chain
professional to master,
irrespective of whether or not that individual or company can
afford to fully fund and charter a
market intelligence program. This article focuses on the
essential elements of supply market
analysis.

Supply Chain Professionals Need Intelligence, Not Information
Intelligence is a collection of information pieces that have been
filtered, distilled, and analyzed.
A properly executed and insightful supply market analysis
requires that significant and
disparate amounts of research materials be collected and
examined. Because of this
requirement, it is important to briefly explore the two different
types of research that should be
used to develop your analysis.
Primary research is information gathered through interactions
with other people typically
through meetings, one-on-one interviews, focus groups, and
surveys. Primary research is
often more valuable and insightful than secondary. Secondary
research is information
collected from existing literature, publications, broadcast
media, and other non-human
sources. Secondary research is in general easier to gather than
primary and often contains a
value proportionate to the effort and expense required to obtain
the information.
Much of the core information used to develop a supply market
analysis can be garnered
through secondary research and the advent of the internet has
removed many barriers to
collecting primary research. However, the deluge of
information available on the internet is
available equally to every one of the 1.3billion current users.
Primary research therefore is
absolutely essential for developing supply market analysis that

provides the intelligence
needed to create a competitive advantage.
Supply Market Analysis Essentials
The primary objective of conducting a supply market analysis is
to develop the intelligence
necessary to drive better procurement decisions. Creating an
overall analysis of the supply
market can be more easily understood and executed by first
understanding the key elements
of the supply market which need to be examined. Identifying
and organizing your intelligence
needs makes data collection easier and these subsequently
collected elements can then be
summarized into the final report as section headings.
Develop Commodity Profile. The Commodity Profile section of
the supply market analysis
gives the reader a clear understanding of what specific product
or service is being examined
and defines the scope of the analysis. Key information to be
collected and reported within this
section include: Product Classification (SIC, NAICS, UNSPSC),
Commodity Description,
Market Size and Growth Rate, Market History, and CTQ
(Critical To Quality) Factors. The
CTQ information should be specific to the organization’s needs
and is vitally important in both
determining cost structures and researching suppliers. Good
sources of information to be
used in developing the commodity profile include: supplier
interviews and site visits, internal
subject matter experts, trade journals and magazines,
presentations from industry trade
conferences and investment analysis reports from your broker.

The heavy reliance by
business on email, fax and internet has provided the supply
chain professional with an
excellent opportunity to create a competitive advantage in this
area. Talk to people. Conduct
interviews with published authors, suppliers and subject matter
experts. A rich and full rolodex
was the internet for research professionals 15 years ago and is
just as valuable today.
Determine Cost Structure. Much has been written about both
the importance and the
methods which can be utilized to evaluate supplier costs. The
core information needed to
understand supplier costs are mostly standard throughout the
world and include Material Cost,
Labor, Transportation, Energy, Overhead and so forth.
Economic Census Reports, which are
produced by the government and organized by six digit NAICS
code, provide some limited
information but true understanding requires deeper research. A
best practice in this area is the
use of published financial statements and in particular the notes
section of supplier annual
reports in developing cost profiles. Also, reviewing
presentations given by the supplier to the
investment community and attending scheduled conference calls
where financial performance
is discussed can reveal information that the supplier would be
less likely to provide in an
interview with a supply chain professional.
Research Suppliers. Understanding the structure and history of

the supply base is
fundamental to creating a supply market analysis for obvious
reasons. Well executed research
in this area should begin with a clear statement on the number
of suppliers and whether the
industry is fragmented or consolidated, but should also include
intelligence on the availability of
low cost country suppliers, possible supply channels,
geographic distribution of suppliers, and
recent M&A activity. Internal sources can be used to assist in
supplier research, but realize
that internal subject matter experts may provide inaccurate or
incomplete information regarding
the supply base. Over time, subject matter experts tend to
unconsciously narrow their views to
become increasingly knowledgeable about ever more specific
functions. Thus they are
frequently unaware about recent changes in the supply market
or specific supplier capabilities.
Trade associations are a good source of information about a
particular industry sector, but are
not a good source of information for a particular company.
However, phone calls to trade
association staff members can often be productive and may lead
to some interesting
interviews. Also, some low cost ways to get supplier
identification started are to scan the
Table of Contents from published market research reports which
are often available for
preview on the internet, and to review supplier annual reports
and investor reports for mention
of market share statistics and legal actions from competitors.
Identify Key Market Indicators. Identifying the optimal market
indicators for your particular
industry, commodity, or area of spend is vitally important and

one of the most challenging
tasks in the supply market analysis. The importance of these
market indicators is twofold.
First, when viewed at the time of the completion of the supply
market analysis they can provide
insights into the current state of the market and may help codify
early research findings.
Second, when tracked and viewed over time these indicators can
provide the data needed to
identify seasonality, cyclicality and other market trends that
repeat over time or under certain
conditions. It is this latter use that gives the analyst the ability
to create an early warning
system to provide indication of potential future shifts in the
marketplace that could affect pricing
or continuity of supply.
Most market indicators are free and readily available, although
some paid services include
specific commodity price information not available publicly.
To help guide the research
function, it may be useful to segment market indicators into
four primary categories as below:
• Economic Indicators – Highest level, they track pricing,
employment and production
rates in aggregate
• Pricing Indicators – Includes traditional pricing indices such
as CPI (Consumer Pricing
Index), PPI (Producers Pricing Index) and U.S. Import and
Export Price Indexes
• Employment Indicators – Includes the rate of new
unemployment claims and number of
people with jobs.

• Production Indicators – Includes gross domestic product
(GDP), industrial production,
capacity utilization, and inventories
Integrated into the final list of key market indicators for the
particular area of research there
should also be identified the additional information sources
which best track demand side
information such as demand drivers, largest consumers, and
emerging demand trends.
How Supply Market Analysis Provides a Competitive Advantage
Supply market analysis, when used within a world class
strategic sourcing process, can allow
an organization to establish and maintain a competitive edge
while also reducing supply risk.
Completing a supply market analysis can help reduce risk
through knowledge of the supply
market dynamics and supply base composition. By developing a
comprehensive
understanding of the number, type and structure of suppliers,
risk of supply interruption can be
minimized by analyzing supplier size and capabilities to an
organization’s CTQ needs.
Examples of this would include identifying heavily concentrated
supply markets with few
suppliers able to meet your organizations needs, or highly
fragmented supply markets where
suppliers are smaller and more likely to suffer supply
interruptions due to financial instability.
In addition to these supplier based risk reduction opportunities,
the identification and tracking

of key market indicators can allow the supply chain professional
to more accurately anticipate
market moves and develop improved alternative supply
strategies and risk mitigation plans.
The knowledge gained through completion of a supply market
analysis will provide the
intelligence needed to identify optimal sourcing strategy options
and can provide cost structure
insights to help determine if you’re acquiring at the best
possible price. Market indicators not
only provide clues as to the best time to make your buys, but
can also give advanced warning
of coming events which may affect supply continuity or change
the balance of buyer/supplier
power. Key indicators can also be incorporated into contracts
with specific allowances for
fluctuations in the market during the term of the agreement.
The development of supply
market analysis within a strategic sourcing framework, coupled
with strong primary research
skills and the tracking and trending of key market indicators,
can provide both the organization
and the supply chain professional with a competitive advantage.
REFERENCES
Kahaner, Larry. Competitive Intelligence - How to Gather,
Analyze, and Use Information to
Move Your Business to the Top, Simon & Schuster, New York,
NY, 1997
Vibert, Connor. Competitive Intelligence - A Framework for
Web-Based Analytics and
Decision Making, South-western, Mason, OH, 2004

Handfield, Robert. Supply Market Intelligence, Auerbach
Publications, Boca Raton, FL, 2006
Johnston, Judith Meister and Johnston, Rob “Testing the
Intelligence Cycle Through Systems
Modeling and Simulation”, https://www.cia.gov/library/center-
for-the-study-of-intelligence/csi-
publications/books-and-monographs/analytic-culture-in-the-u-s-
intelligence-
community/chapter_4_systems_model.htm , March 13, 2007
Miniwatts Marketing Group, Internet World Stats,
http://www.internetworldstats.com, 2008
Smith 1
Jane Smith
Professor Dustin
ENC 1102
15 September 2010
The Lost Art of a Simple Message
Leonard Pitts, columnist for The Miami Herald, argues that the
public is rude and manners no longer seem to matter in his
article, “JetBlue Case: The Lost Art of Simple Courtesy.” In
the article, Pitts claims that rude behavior is taking over our
society. He describes the dramatic exit of a JetBlue flight
attendant and a rude exchange he witnessed while waiting in
line at the cable company to illustrate his point of an
increasingly rude society. Throughout the article, he argues
that “the public is a bunch of rude, obnoxious jerks.” Pitts
distracts the audience from what should have been a valid
argument by his use of coarse language and name calling, a
general bias in his approach to the subject, and his own revenge
fantasies.
Although Pitts makes the valid point that manners may be lost

in our society, his own poor choice of words made it difficult to
focus on his message when the reader was tripping over his
words. He assumes that, at some point, everyone finds
themselves exhausted from dealing with obnoxious people.
This valid warrant is illustrated with the JetBlue case and his
story of the cable company. Unfortunately, in both instances he
affects the validity of his claim by choosing coarse language in
an attempt to defend his assumption. Pitts precedes his JetBlue
story by referring to the general public as a “cavalcade of boors,
boobs, bums, bozos, and troglodytes,” and wraps up his cable
company story with a message to the “boorish public.” This
blunt name calling is used frequently throughout the article,
leaving the reader wondering at Pitts’ own rudeness by using
such insulting terms. This type of name calling also risks
alienating a large portion of the general audience who would
like to see Pitts use a more neutral tone in his language.
In addition to Pitts’ name calling, a biased approach to his
message distracts the audience. This one-sided article shows
Pitts’ attempt at coercing his readers to agree with him. He
shortchanges his opposition by skimping on a valid
counterargument. In fact, he assigns a mere two sentences to the
possibility that the JetBlue case may have guilty parties on both
sides, and depicted the cable company employee as the clear
victim who, in his mind, was entitled to some revenge if she
chose to exact it. A better attempt at creating an unbiased
article would lend some authenticity to Pitts’ argument and
examples, instead of setting the stage for destroying his two
critical examples by concentrating on the revenge scenario.
Thus, relevant examples become lost in Leonard Pitts’ article
that highlights one man’s actual revenge and the imagined
revenge of another. Pitts wanted his assumption, that the public
is rude and uncaring, to carry his example of the JetBlue case.
He wanted to argue that the rude public deserves what is coming
to them; however, his revenge fantasy of the employee’s
retaliation distracts educated readers. Pitts transitions to his
story of an angry customer’s outburst, which leads him to the

thought of the verbally abused employee shoving a “cable box
where the sun don’t shine,” while a line of waiting customers
applaud. It almost seems as if he would rather entertain the
reader with thoughts of instant karma than allow the facts to be
convincing examples on their own. It was Pitts’ own shaky
arguments and daydreams that led what should have been
effective examples to unravel.
I happen to agree with Pitts that society is becoming ruder. I
also agree that both the JetBlue case and his cable company
story are examples of a decline in a polite community; however,
his own writing style utterly destroyed the credibility. He left
me distracted with his own immature name calling, frustrated
with his biased article, and confused by his own message, which
was a simple message lost in Pitts’ own extravagant writing
style.
Works Cited Comment by Edison: Please note: this is MLA 7-
you should use the most updated version of MLA. See Purdue
OWL and the Modules section for help.
Pitts, Leonard. "JetBlue Case: The Lost Art of Simple
Courtesy.” Miami Herald. Miami Herald,
22 Aug. 2010. Web. 12 Sept. 2010.
Rhetorical Analysis Rubric
Criteria
Ratings
Pts
This criterion is linked to a Learning OutcomeFOCUS
Is there a solid purpose for the essay? The thesis statement or
central idea of the essay should be narrowed and specific so that
the topic can be thoroughly developed in the essay.
Furthermore, the thesis should indicate whether you believe the
writer has effectively presented and supported his/her claim.
20.0 pts

Full Marks
0.0 pts
No Marks
20.0 pts
This criterion is linked to a Learning OutcomeUNITY
Is the focus maintained throughout the entire essay? The
examples and ideas developed in the essay should relate directly
to the thesis so that the essay does not stray from the central
idea.
20.0 pts
Full Marks
0.0 pts
No Marks
20.0 pts
This criterion is linked to a Learning OutcomeCOHERENCE
Overall, the essay exhibits a clear pattern of organization. The
essay should have a smooth flow of ideas ordered in a logical
sequence that effectively guides the reader (think topic
sentences and transitions). Finally, your tone and word choice
should be appropriate for your audience.
20.0 pts
Full Marks
0.0 pts
No Marks
20.0 pts
This criterion is linked to a Learning OutcomeDEVELOPMENT
The body of the essay should fully and completely develop the
thesis or central ideal of the essay and relate to the AUDIENCE
and PURPOSE. The controlling idea should be fully developed
throughout the essay with concrete and vivid detail. • A
creative, focused title should be provided. • Introduction
effectively forecasts paper. Text to be analyzed is introduced at
the beginning of the essay to orient reader. The first sentence of

the essay should contain the author’s name (if given), the title
of the editorial in quotation marks, the publication name in
italics, and the author’s thesis • Body of essay provides clear
analysis and doesn’t stray into lengthy summary. • You should
include a concrete conclusion; avoid pasting your thesis here.
20.0 pts
Full Marks
0.0 pts
No Marks
20.0 pts
This criterion is linked to a Learning OutcomeMECHANICS
AND PRESENTATION
Does the essay meet the assignment requirements? The essay
should display evidence of the writing/revision process, which
includes proofreading for grammatical/mechanical/spelling
mistakes. Also, the essay should be written in MLA format
(properly documented, so as to avoid plagiarism; you must
include a Works Cited page) and should meet the specified word
count, using appropriate font and margin sizes.
20.0 pts
Full Marks
0.0 pts
No Marks
20.0 pts
Total Points: 100.0
Criteria
Ratings

Pts
This
criterion
is
linked
to
a
Learning
Outcome
FOCUS
Is there a solid purpose for the essay? The thesis
statement or central idea of the essay should be narrowed
and specific so that the topic can be thoroughly developed
in the essay. Furthermore, the thesis should indicate
whether you believe the writer has
effectively presented
and supported his/her claim.
20.0
pts
Full
Marks

0.0
pts
No
Marks
20.0
pts
This
criterion
is
linked
to
a
Learning
Outcome
UNITY
examples and ideas developed in the essay should relate
directly to the thesis so that the essay does not stray from
the central idea.
20.0

pts
Full
Marks
0.0
pts
No
Marks
20.0
pts
This
criterion
is
linked
to
a
Learning
Outcome
COHERENCE
Overall, the essay exhibits a clear pattern of organization.
The essay should have a smooth flow of ideas ordered in

a logical sequence that effectively guides the reader (think
topic sentences and tr
ansitions). Finally, your tone and
word choice should be appropriate for your audience.
20.0
pts
Full
Marks
0.0
pts
No
Marks
20.0
pts
This
criterion
is
linked
to
a

Learning
Outcome
DEVELOPMENT
The body of the essay should fully and completely
develop the thesis or central ideal of the essay and relate
to the AUDIENCE and PURPOSE. The controlling idea
should be fully developed throughout the essay with
concrete and vivid detail. • A creative, foc
used title should
be provided. • Introduction effectively forecasts paper.
Text to be analyzed is introduced at the beginning of the
essay to orient reader. The first sentence of the essay
should contain the author’s name (if given), the title of the
edito
rial in quotation marks, the publication name in
italics, and the author’s thesis • Body of essay provides
clear analysis and doesn’t stray into lengthy summary. •
You should include a concrete conclusion; avoid pasting
your thesis here.
20.0
pts
Full
Marks
0.0
pts
No
Marks

20.0
pts
Criteria Ratings Pts
This criterion is linked to a Learning OutcomeFOCUS
Is there a solid purpose for the essay? The thesis
statement or central idea of the essay should be narrowed
and specific so that the topic can be thoroughly developed
in the essay. Furthermore, the thesis should indicate
whether you believe the writer has effectively presented
and supported his/her claim.
20.0 pts
Full
Marks
0.0 pts
No
Marks
20.0 pts
This criterion is linked to a Learning OutcomeUNITY
examples and ideas developed in the essay should relate
directly to the thesis so that the essay does not stray from
the central idea.
20.0 pts
Full
Marks
0.0 pts
No
Marks
20.0 pts

This criterion is linked to a Learning
OutcomeCOHERENCE
Overall, the essay exhibits a clear pattern of organization.
The essay should have a smooth flow of ideas ordered in
a logical sequence that effectively guides the reader (think
topic sentences and transitions). Finally, your tone and
word choice should be appropriate for your audience.
20.0 pts
Full
Marks
0.0 pts
No
Marks
20.0 pts
This criterion is linked to a Learning
OutcomeDEVELOPMENT
The body of the essay should fully and completely
develop the thesis or central ideal of the essay and relate
to the AUDIENCE and PURPOSE. The controlling idea
should be fully developed throughout the essay with
concrete and vivid detail. • A creative, focused title should
be provided. • Introduction effectively forecasts paper.
Text to be analyzed is introduced at the beginning of the
essay to orient reader. The first sentence of the essay
should contain the author’s name (if given), the title of the
editorial in quotation marks, the publication name in
italics, and the author’s thesis • Body of essay provides
clear analysis and doesn’t stray into lengthy summary. •
You should include a concrete conclusion; avoid pasting
your thesis here.
20.0 pts
Full
Marks
0.0 pts
No

Marks
20.0 pts
Lecture Presentation: Rhetorical Analysis
Rhetorical Situation
The rhetorical situation consists of the following 5 elements;
you should consider these 5 elements before you begin writing a
rhetorical analysis:
The writer
Consider the author's reputation as you read
Consider the ethos that the text expresses; what image do you
have of the author after reading his/her text?
The writer's purpose- what do you believe the author hopes to
accomplish?
The writer's audience
Perform an audience analysis- as your text notes, careful writers
such as Martin Luther King Jr. work to understand the
audience(s) they are writing to
What values does the author appeal to?
The question- what is the central question of the argument?
The context
The most complex element to analyze
Refers to the political/religious/social/cultural factors that
surround the work and influence the author/reader
Also consider the assumptions the author was making about
his/her audience
Writing the Rhetorical Analysis
Step 1: Analyze the rhetorical situation (writer, purpose,
audience, topic, context)
Step 2: Make some comparisons. How does this essay/editorial
compare to other writings on this topic?
Step 3: Make value judgments. What is
engaging/boring/repetitive?

Step 4: Begin your draft.
you should consider these 5 elements
before you begin writing a rhetorical analysis:
The writer
have of the author after reading his/her
text?
The writer's purpose
-
what do you believe the author hopes to accomplish?
Perfor
m an audience analysis
-
as your text notes, careful writers such as Martin Luther King
Jr. work to
understand the audience(s) they are writing to
The question

-
what is the central question of the argument?
The context
surround the work and influence the
author/reader
his/her audience
you should consider these 5 elements
before you begin writing a rhetorical analysis:
The writer

have of the author after reading his/her
text?
The writer's purpose- what do you believe the author hopes to
accomplish?
Perform an audience analysis- as your text notes, careful writers
such as Martin Luther King Jr. work to
understand the audience(s) they are writing to
The question- what is the central question of the argument?
The context
surround the work and influence the
author/reader
his/her audience
42 S u p p l y C h a i n M a n a g e m e n t R e v i e w · N o
v e m b e r 2 0 1 0 www.scmr.com
SUPPLY MARKET INTELLIGENCE:

Supply market intelligence
(SMI) is a proven approach
to reducing risk and gaining
a competitive advantage. It
begins with the collection
and analysis of market
data—but doesn’t stop
there. The leaders excel at
engaging key stakeholders
in the SMI process and then
disseminating the information
in a way that leads to better
business decisions. It’s a new
way of thinking that can pay
big benefits.
Thin
k
RECOVERY AGILITY PATHWAYS TRANSFORMATION
ANALYSIS

www.scmr.com S u p p l y C h a i n M a n a g e m e n t R e v i
e w · N o v e m b e r 2 0 1 0 43
F
acing increased uncertainty in economic
markets, organizations are increasingly
aware of the need to closely monitor
market conditions and respond appro-
priately through improved supply chain
strategies. As more organizations seek
to build sourcing strategies that cap-
ture cost savings opportunities, they are !nding major
shortfalls in the market intelligence and cost modeling
capabilities that form the basis for effective strategies
and negotiation. Further, they are discovering that the
needed integration of market intelligence into operation-
al decisions, including budgets, pro!t objectives, market
pricing, technology insights, and global expansion is gen-
erally not well executed.
The result is misalignment between demand and sup-
ply planning, and major gaps in operational performance
and risk mitigation. To address this situation, organiza-
tions need to develop deep market intelligence that will
provide insights into core elements of market trends, com-
modity pricing, global capacity, and government and regu-
latory changes that could have an impact on global sourc-
ing. They also need insight into economic trends that will
affect their organization’s supply chain. Unfortunately,
these capabilities seem to be lacking in most organiza-
tions, based on the results of a study we recently conduct-
ed among supply management executives. Our research

is based on interviews with subject matter experts in a
number of industries who have deployed or are in the
process of deploying Centers of Excellence for supply
market intelligence (SMI). In addition, we surveyed 89
global supply chain executives through the International
Association of Commercial and Contract Management
(IACCM). (See sidebar for more on the study sample.)
This article explores the concept of supply market
intelligence. We describe how companies are structur-
ing their supply management organizations to optimally
collect market data, identify best practices for synthe-
sizing and deploying this information, and establishing
metrics for measuring outcomes of SMI. Further, we
discuss how some leaders are now beginning to extend
the application of SMI to other strategic business deci-
sions that lie outside the realm of contracting and cat-
egory analysis—an activity that is positively affecting
decisions in annual budgeting, customer markets, tech-
nology integration, and !nancial budgeting. We believe
that the innovative application of SMI to these areas,
though still in a nascent stage, will enable many orga-
nizations to achieve superior market performance and
outcomes.
What Is Supply Market Intelligence?
One of the foundational themes underlying this research
is that an effective SMI organization does much more
than simply collect and analyze data. Truly success-
ful SMI organizations excel at engaging stakeholders in
de!ning knowledge requirements as well as disseminat-
ing information to ensure that it is effectively applied in
key impacted business sectors across the organization.
Supply market intelligence can be de!ned as a pro-

cess for creating competitive advantage and reducing
risk through increased knowledge of supply market
By Robert Handfield
Robert Handfield ([email protected]) is the Bank
of America University Distinguished Professor of Supply
Chain Management at North Carolina State University,
and Director of the Supply Chain Resource Cooperative
(scrc.ncsu.edu). He also serves as an Adjunct Professor with
the Supply Chain Management Research Group at the
Manchester Business School.
Thin
k Differently, Gain an Edge
Intelligence
dynamics and supply base composition. SMI includes:
-
ket intelligence to assist sourcing professionals in mak-
ing strategic decisions.
to assess sourcing performance.
strategic sourcing opportunities in global markets that
will lead to cost reduction.
and purchasing initiatives to support expanding activities
in emerging markets.

The process of creating intelligence involves the
application of individual and collective cognitive meth-
ods to weigh data and test hypotheses within a secret
socio-cultural context, according to Rob Johnston,
Director of the Center for the Study of Intelligence.
Johnston’s observation, noted in our review of govern-
ment intelligence services, recognizes that SMI is much
more than a set of analytical tools. Speci!cally, sourc-
ing executives need to realize that creating intelligence is
inherently an unstructured process in that it requires the
analyst to !rst interpret the user or stakeholder require-
ments before even beginning the process of data col-
lection. Johnston notes that the importance of making
explicit something that is not well described (which is
the very interactive, dynamic, and social nature of intel-
ligence analysis) is a fundamental component of creating
an intelligence analysis capability.
In his book, Analytic Culture in the U.S. Intelligence
Community, Johnston describes the typical intelligence
analytic process, in the words of an analyst:
“When a request comes in from a consumer to answer
some question, the !rst thing I do is to read up on the ana-
lytic line. I check the previous publications and the data.
Then I read through the question again and !nd where
there are links to previous products. When I think I have
an answer, I get together with my group and ask them what
they think. We talk about it for a while and come to some
consensus on its meaning and the best way to answer the
consumer’s question. I write it up, pass it around here, and
send it out for review.”
The fact that there is a signi!cant cognitive ele-

ment of this basic description (“when I think I have an
answer”) suggests that asking the right question is an
important component of the SMI process. In particular,
there is a need to generate a hypothesis to drive the anal-
ysis and to gain consensus and do a !nal check. These
are key elements that set the right direction and enable
the stakeholder to proceed.
Defining the Need for Market Intelligence
Organizations collect different types of data and intel-
ligence. So what is unique about supply market intelli-
gence? To answer this question, we !rst need to de!ne
exactly what kinds of information people require to ren-
der better sourcing decisions. Our analysis found that
they most often want information on product and service
market conditions for a particular sourcing requirement.
There are clearly a number of potential outputs
from an SMI analysis. These typically center
on commodity cost driver analyses and supplier
monitoring to prevent major disruptions in sup-
ply. The former could focus on identifying both
internal cost drivers (leverage, order volume,
proximity, contract management) and external
drivers (such as overall demand, raw material
costs, investment in R&D). Another output is
a PACE (Pressure Action Capability Enablers)
framework that evaluates pressure points in the
industry, actions taken by industry players, capa-
bilities required to support actions taken, and
business enablers to mitigate pressure points.
Regional analysis of market share, growth rate,
and projected revenue would fall in this output
category as well.
Supplier monitoring outputs would include

quantitative !nancial analysis—calculating !nan-
cial ratios from income statements and balance
sheets and comparing them with industry average
numbers for public companies and checking for
solvency of each supplier. It would also include
Our research involved detailed interviews with eight senior sup-
ply management executives in different industries who had
developed Centers of Excellence for market intelligence. The
indus-
tries represented spanned a wide variety of environments,
including
automotive, oil and gas, healthcare, manufacturing, retail,
technol-
ogy, and others. This diversity emphasizes the importance of
SMI
capability across a wide variety of contexts and environments.
Subsequent to the interview coding process, we developed a
survey to identify the extent to which a larger sample of
organiza-
tions were deploying best practices in establishing competitive
MI
processes. This survey was then administered to the
International
Association of Commercial and Contract Management (IACCM)
membership, an organization of approximately 1,000 members
who are either buy-side or sell-side contract managers. A
response
was obtained from 59 managers, a 5.9 percent response rate.
Respondents consisted mainly of buy-side contracting entities,
a
handful of supply side contractors, and some respondents that
man-
aged both. The majority of respondents were from North
America

and Europe, with some Asian representatives.
Details on the Study
Intelligence
qualitative analysis such as capacity utilization, economic
impact, job losses, and impacts of currency "uctuations.
A SWOT analysis based on these internal and external
risk factors are other important SMI outputs.
To a large extent, the need for market intelligence and
development of these outputs needs to be formally scoped
prior to actually executing the tasks. Our survey results
suggest that in most cases, the primary consumers for this
output are category managers, who are seeking to enter
into a new sourcing event for a speci!c category (main-
tenance, copper, steel, and so forth) as part of an overall
category strategy. In other cases, requests are for internal
business requirements that require analysis of spend data,
production levels, customer spending trends, market pric-
ing, competitive actions, and other miscellaneous forms
of data collection. As the !nancial risk in the supply base
has increased, there is a growing demand for risk informa-
tion and speci!c risk monitoring assessments.
Requests for SMI come in a variety of formats. Some
occur as part of an annual budgeting process. Others are
periodical, requiring some advance noti!cation—for
instance, a category team contacts an SMI group with a
request for a sourcing event that will be occurring some-

time in the future. Still others are short-term, ad hoc
requests for “quick-hit” information that can provide a
quick update on a speci!c issue or risk (“Is this supplier
about to go under?”) SMI organiza-
tions need to be prepared for all forms
of requests, and establish a process
and realistic expectations as to their
ability to turn around these requests.
“getting ahead” of these requests, by
establishing formal requirements for
stakeholders to engage the team.
This characteristic of establishing stakeholder require-
ments is clearly the most important of the SMI attributes
associated with the intelligence-gathering process. This is
made all the more important because of the investment
required to complete a full market intelligence report.
Our research shows that the typical lead-time required
practice companies we studied can provide an overview
(high level insights) in 10 days, or an in-depth analysis
(detailed information leading to strategic recommenda-
tions) in 45 days. These companies are relying heavily on
external sources for market intelligence data gathering
and reporting, and have structured their groups to primar-
ily facilitate and engage with stakeholders.
One common mistake we observed is organizations
creating a centralized SMI team without considering
what information will be gathered and how it will be
used. To cite one example, a senior commodity manager
at a large oil and gas company expressed her frustration
at information obtained from a team of MI analysts in
Asia who were disconnected from the day-to-day activi-

ties of category managers dealing with decisions that
required forward-looking perspectives. Essentially, the
analysts were providing information on what was already
known about a category.
The ROI OF SMI
The supply management executives we interviewed
repeatedly expressed their frustration with the process
of justifying the quanti!able bene!ts of funding an SMI
group. This has become especially challenging in the
current economic environment in which just about every
company in every industry is facing head count and bud-
get cuts. Many CFOs are quick to cut funding for an
SMI group, mainly because they don’t recognize the tan-
gible value that this function brings not just to sourcing
cost savings, but also to corporate strategy, budgeting,
companies have dedicated SMI groups that are commit-
ted to full-time research and reporting of market indices,
price in"ation, cost economics, market trends, and other
elements that feed into budget planning and marketing
initiatives across the enterprise.
The frustration expressed by these executives who
were seeing their teams reduced was, in fact, part of
the motivation for this study. To delve more fully into
the issue, we collected information on relative levels of
funding committed to by different organizations. One
spend supported by SMI per analyst. The majority of
companies we spoke with have a very small number of
fully dedicated individuals assigned to SMI data col-
lection and analysis. Instead, most organizations have
individuals who are held accountable for conducting
MI as part of their broader roles and responsibilities. In
theory, these individuals might be expected to devote

one-quarter or one-half of their time to SMI activities. In
practice, however, their time is being consumed by other
“!re !ghting” activities—so that expected time allocation
is misleading. In addition, many SMI team members are
required to provide other forms of analytic support in
There is a growing trend
toward the use of external resources
to conduct supply market intelligence.
e w · N o v e m b e r 2 0 1 0 47
addition to external SMI, such as spend analytics, com-
pliance information, and contract pricing and renewals.
In general, organizations interviewed said that they
required one FTE for each $1 billion to $2.5 billion in
spend. This estimate is somewhat misleading, however,
as this also includes part-time SMI resources who have
other duties as well. Again, one of our observations is
that if SMI is a “part-time” activity, it often falls to the
bottom of the priority list.
Organizational Structures
A fundamental tension exists regarding the role and
scope of an SMI organization. Strained !nancial bud-
gets have drained sourcing organizations of the resources
needed to conduct detailed external market research and
cost models. Yet it is these very resources that are best
able to develop critical insights into environmental shifts
that can enable teams to fully leverage their sourcing
capabilities and identify potential bottom-line savings.

Our best-in-class companies recognize that SMI is a dif-
ferentiated activity that requires a dedicated cadre of indi-
viduals with specialized skills, supplemented by external
MI resources that improve responsiveness to stakeholder
needs. However, the survey respondents for the most part
are equally split between those assigning MI to sourcing
managers as part of their category management responsibil-
ity and those that have a developed centralized MI team.
Others have assigned individuals to an SMI team but also
given them business intelligence and analytics responsibili-
ties with other parts of the organization. (See Exhibit 1.)
Category managers are at the center of the ten-
sion mentioned above. Many executives we spoke with
expressed frustration with the way in which category
manager roles are structured. They noted that these
individuals were often being pulled in so many direc-
tions that it impeded their true understanding of the
category. This, in turn, dictated the need for dedicated
internal and external market intelligence resources.
Our research showed that many category managers do
not have the experience or know-how to conduct the
detailed research required to build an intelligence pro!le
for a market. Re"ecting this, several organizations are
assigning analysts full time to category support. These
individuals are performing the analytics and market
research to support the category lead.
Some of our study participants asserted that MI
should be driven into these managers’ roles through for-
mal reviews, with the expectation being that they need
to become experts within their category. This has impor-
tant implications for how organizations need to structure
talent and training for individuals in these roles. Finally,
we observed that the leading companies with centralized

SMI teams are leveraging external resources to gather
external data, which we discuss below.
The Role of Outsourcing in SMI
Organizations utilize a variety of data sources as input
into MI reports for stakeholders. Suppliers are the most
obvious data source, mainly via Requests for Information
(RFI). RFIs can be structured in such a way to yield
detailed cost estimation, competitive information, and
other forms of data that can be triangulated across vari-
ous suppliers to provide insight into market conditions.
One caveat: RFIs are often biased and do not re"ect
true market conditions. To complement this informa-
tion, therefore, companies often subscribe to second-
ary research such as trade journals, website, and third
parties. The third major form of external information is
income statements and !nancial balance sheets, pro-
smaller set of companies are now relying on external
information provided through third party outsourced MI
Finally, a minority of companies undertake detailed
MI reports through focused interviews with subject
matter experts. We believe this approach often provides
the most in-depth contextual information and detailed
“street knowledge” that is often key to making strategic
sourcing decisions. The big challenge here is that few
people have the access and time to track down and inter-
view these valuable sources of information. (Exhibit 2
gives a breakdown of the various data sources used.)
There is a growing trend toward the use of exter-
nal resources to conduct supply market intelligence.
Research suggests that 65 percent of companies are
using some form of external resources for SMI, and an
increasing number of them are utilizing several parties.

This is not surprising as companies increasingly recog-
nize that triangulation of results from multiple parties
EXHIBIT 1
Where SMI Fits in the Organization
0% 10% 20% 30% 40%
Central MI Organization
Analytics Team with Other Duties
Other
Enterprise Risk Management
Part of Category
Manager Responsibility
Intelligence
is essential to building solid market intelligence. When
the same message comes from multiple parties, the
probability of its veracity increases.
Our survey found that most companies have between
one and four external full time equivalent (FTE) dedicat-
ed individuals as part of the MI team. In a few cases,
these external team members are co-located on-site. They
work closely with the internal team to better understand

requirements and to more closely integrate with the busi-
ness and its resources. This external presence still repre-
sents a relatively small portion of the overall MI budget;
three-fourths of the respondents spend less than 20 per-
cent of their MI budget on external resources. A hand-
ful of companies are heavily reliant on external sources of
information, which we de!ned as spending more than 50
percent of the budget on outsourced providers.
Risk Assessment
Almost all of the companies interviewed noted that
risk assessment was part of the output of the MI team,
with external providers doing the bulk of the transac-
tion risk assessment. In almost
all cases, !nancial risk was the
primary element tracked by
MI teams. As shown in Exhibit
3, however, fully two thirds of
the executives surveyed (the
top two bars in the exhibit)
said that their risk-based MI
constituted less than 20 per-
cent of the total market intel-
ligence effort. So while sup-
ply risk is important, there are
clearly other forms of MI that
are also viewed as critical in
this environment.
Measuring the Outcomes
The majority of respondents to our survey said that the
main methods of assessing the outcomes of SMI are the
traditional cost savings measures attributed to category
teams. Yet, we believe that this is an unreliable and often
short-term metric because it does not fully capture the
value of SMI to the business. In many cases, effective

SMI can be extended to better inform strategic decisions
in production levels, capacity, outsourcing, technology
initiatives, and growth and revenue-producing oppor-
tunities. Comparatively few companies, however, are
applying SMI to create these types of opportunities. In
many cases, the reason is that the SMI message is not
being heard in the appropriate forums where these stra-
tegic decisions are being made.
To capture the full bene!t of an SMI report, many
companies conduct internal customer surveys after the
report to evaluate how well the project served the client’s
needs. Internal customers could include lines of business
or functional groups such as marketing, production, IT, or
logistics. These surveys focus on internal customer feed-
back using scales as well as open-ended questions that
provide a mechanism for evaluating how well the informa-
tion met the internal customer’s requirements. The results
are evaluated to understand how well the SMI team per-
formed and how the process could be improved. In many
cases, internal customers’ most important criteria is the
speed of completing an SMI report. As such, the analyst
needs to set expectations at the outset in terms of what can
be delivered within the customer’s expected time frame.
It is also important to conduct a thorough post-
mortem of the process. As Rob Johnston of the Center
for Study of Intelligence emphasized to the author in
a 2009 interview, information distilled from the post-
mortems need to be made available as “lessons learned”
that can be !ltered back through the organization.
One related observation regarding the knowledge trans-
fer of SMI outcomes: The majority
of organizations we spoke with do
not effectively transfer SMI knowl-

edge and information to parts of
the organization that could strate-
gically bene!t from this informa-
tion. This is a major shortcoming
that was underscored by the frus-
tration expressed in multiple inter-
views we conducted with market
intelligence directors. Clearly, the
opportunity for leveraging SMI
into other parts of the business
represents a signi!cant and unex-
ploited opportunity to achieve a
EXHIBIT 2
Sources of MI Data
0% 10% 20% 30% 40%
RFIs from Suppliers
Secondary Research
Outsource Provider
Surveys
Interviews with SMEs
Income Statements
and Balance Sheets
EXHIBIT 3
Percent of SMI that Is Risk-Based

0% 10% 20% 30% 40%
<10%
10%-20%
30%-40%
>50%
40%-50%
e w · N o v e m b e r 2 0 1 0 49
major competitive advantage. There remains a major gap in
understanding how to transfer SMI into business decisions.
Seven Insights for Advancement
In the course of our research, seven insights emerged on
successful supply market intelligence. Companies that
want to develop this competency—and realize the asso-
ciated bene!ts—should carefully consider them.
1. Organizations with successful SMI programs
may not necessarily excel in data collection and analy-
sis. Rather, they succeed in developing a team of inter-
nal MI analysts who are pro!cient in de!ning knowledge
requirements and disseminating information in a way that
leads to better business decisions. Current research sug-
gests that successful organizations are creating Centers of
Excellence for MI, with analysts co-located in multiple
business units globally and coordinated through central-
ized processes.

2. The leaders increasingly recognize that category
managers are often not well equipped to conduct MI
analyses, mainly because of the demands on their time
to perform other activities. This justi!es the need for a
dedicated MI function. Further, the ROI on these indi-
viduals dictates that it does not make sense for them to be
conducting routine market analyses. The executives inter-
viewed believe that over time these individuals should
companies are all focused on having their category leaders
rely on an SMI Center of Excellence for coordinating data
collection, analysis, synthesis, and insight as a core foun-
dational component of sourcing strategy. Internal MI ana-
lysts are best equipped if they come from an engineering,
!nancial, supply chain, or cost accounting background.
3. There’s a growing trend towards outsourcing of MI
data collection, synthesis, analysis, and reporting. Third
parties are proving these services in such areas as global
market analysis, benchmarking, in"ation/de"ationary
pricing, value-chain mapping, global cost-reduction sourc-
ing opportunities, and emerging markets. Implicit in this
trend is that best-in-class companies recognize that MI
is fundamentally about the application of individual and
cognitive methods to weigh data and test hypotheses. As
such, the primary role of an MI function is not to collect
and process data. Rather, the goal is to fully understand
internal client requirements, context, and the process of
applying the information to business decisions.
4. Best-in-class companies establish expectations
to internal customers about what can and cannot be
delivered through an SMI Center of Excellence. The
breadth and depth of data will determine the lead time
required to create a speci!c report. Clear scope guidelines

must be communicated to and acknowledged by the cli-
ent in the early stages of proposal development. This gives
the internal customer an understanding of what can be
produced within a given time horizon vis-a-vis the outputs
required for that customer to make a business decision.
For example, if an internal customer wants an in-depth
analysis of a market in ten day’s time, this is not feasible.
However, a high-level overview of market characteristics
may be possible within this time frame.
5. The research points to the importance of conduct-
ing performance evaluations of SMI reports, and of tying
these back into lessons learned that can be communicat-
ed to the organization. Many companies seek to tie SMI
investments to cost savings. In our opinion, this is dif!cult
to do in a systematic way. While anecdotal data can point
to cost savings achieved by applying SMI to speci!c proj-
ects, these are highly contextual and speci!c in nature.
Instead, best-in-class companies are relying on a systematic
evaluation of client feedback, focused on a long-term and
strategic understanding of the importance of SMI to key
enterprise-wide procurement metrics and value.
6. Most organizations are not effectively linking SMI
reports and insights into operational decision making.
In mature organizations, for example, cost models need to
be aligned with savings projects and pro!t targets for cor-
porate and business unit level budgeting processes. Our
research identi!ed several examples of how successful
organizations are achieving this. The key is to have mul-
tiple communication channels—for example, through sim-
ple lunch-and-learn discussions that provide opportunities
for face-to-face dialogue, discussion, Q&A, and debate.
7. Finally, the majority of organizations do not have

a good process for meaningful, ongoing monitoring of
supply risk. While many track the !nancial health of sup-
pliers, they are not capturing other market-level informa-
tion. Thus, they remain susceptible to intelligence failure
because of the inherent nature of surprise associated with
supply market incidents. Surprise is not attributable to
omission or commission of information. Anticipating sur-
prise, then, requires analysts who can think broadly about
a problem expressed to them by an internal customer and
who understand the business context of the potential risk.
This may require “structured brainstorming”—thinking
about the unthinkable—around potential risks that are
not immediately apparent to the organization. !!!
Author’s Note: Thanks to all of the subject matter
experts who participated in the interviews as well as to
the survey respondents. Special thanks to Tim Cummins
of IACCM for his guidance and support in collecting the
survey data and to Vel Dhinagaravel of Beroe, Inc. for
facilitating interviews and providing additional insights
into the development of this article.

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