Supply Chain Management Review

Robert A. Rudzki

Litmus Test for Market Knowledge
February 8, 2008

Market knowledge is a key success factor for any procurement and supply management organization. Without it, you’re driving blind; you’re at the mercy of others. With it, you can harness the power of information.

With excellent market knowledge you’re able to determine the full range of potential suppliers, gain insight into the cost model for the supplier’s business, identify all relevant sourcing strategies and select the right one, craft the optimum negotiations approach, and manage the ongoing supplier relationship more effectively.

It’s a lot of work - no question about it. But acquiring excellent, comprehensive market knowledge really pays off.

There are numerous methods to acquire market knowledge. Just a few of the classics:

·        buying research reports from analysts who have demonstrated that they truly are experts in the industries they write about

·        utilizing Requests for Information (RFI), followed by in-person interviews of the suppliers – a tool that I heartily recommend, as one part of a rigorous strategic sourcing process, or

·        finding and hiring someone who has the specific market knowledge you are lacking in your organization (either as a permanent hire, or on an advisory basis)

This posting is about creating a “litmus test” in the minds of your colleagues, so that they can informally gauge whether they have already achieved “market knowledge expert” status for the commodities they are responsible for. It can also help them to understand the level of market knowledge expertise you want them to achieve. At your next team or department meeting, challenge them with this scenario:

“You are invited to make a 10 minute presentation to an audience of business people. The topic of the presentation: describe the workings of one of the supply markets/industries that you are responsible for. Also invited to make a similar presentation is an executive from the industry you will be talking about. Neither one of you is identified to the audience. At the end of the two presentations, the audience is asked to identify which of the two speakers is the executive from the industry, and which is the procurement professional who works with that industry. If the audience finds it difficult to distinguish between the two of you, then you probably have achieved a deep understanding of that supply market and industry.”

Give it a try.

Posted by Robert A. Rudzki on February 8, 2008 | Comments (0)