The theme of this issue of Contract Management is new for the magazine, thus it deserves an explanation and an introduction, both provided here. As NCMA President Melissa Starinsky noted in her March Dear Readers note, “World-class procurement organizations are organized around category management” and our profession needs to champion it. Here we provide in-depth looks at how market intelligence differs from standard market research and how it is accomplished by expert practitioners.

Adopting market intelligence is more urgent than ever as threats to the federal supply chain accumulate and knowing the provenance of all products entering government use becomes vital. For more on this, see “Supply Chain Mapping for Contract Professionals” in our May 2021 issue. Equally important is equipping contracting professionals with deep and current information to equip them to negotiate with, select, and manage suppliers more effectively wherever they work.

Federal contract management professionals and those employed by government suppliers are familiar with market research (MR) because it is required in order to arrive “at the most suitable approach to acquiring, distributing, and supporting supplies and services,” according to Federal Acquisition Research (FAR) Part 10.1 Both buyers and sellers in the federal market understand that MR is used to determine whether a good or service sought can be purchased using commercial policies and procedures; whether small businesses can supply it; and customary practices for commercial sales, applicable laws and regulations, customization, etc. MR techniques comprise consulting other government buyers, sending Requests for Information (RFIs), reviewing literature, attending industry meetings and presolicitation conferences, etc., depending on the size and complexity of the purchase. As “XXX” (p.XX) notes, inadequate or misapplied market research can result in successful bid protests.

With the advent of category management, which begin in the 1980s as a retail practice and reached government in the early 21st century, organizations began to adopt a new, supercharged form of market analysis known as “market intelligence” (MI), designed to deliver deep, detailed, and ongoing data and information about practices, trends, business conditions, and suppliers in the markets for spending categories that organizations seek to manage for better value. “Value” can refer to greater capability return on spending, but also to mitigation of supply chain, reputational, and other forms of risk; lower total cost, including maintenance, sustainment, and disposal; evolving relationships with the most proficient and innovative suppliers in a market; access to state-of-art, emerging, or startup providers and cutting-edge methods or technology; and more.

Robert Handfield, a leading supply chain researcher, has defined market intelligence as “process for creating competitive advantage and reducing risk through increased knowledge of supply market dynamics and supply base composition.

“Organizations need to develop deep market intelligence that will provide insights into core elements of market trends, commodity pricing, global capacity, and government and regulatory changes that could have an impact on global sourcing,” he explained.2

Market intelligence helps buyers:

  • Ensure that the market has the capacity to meet their needs;
  • Manage financial risk;
  • Match sourcing strategies to commercial practice; and
  • Identify emerging and innovative suppliers to reshape agency purchases, practices, and even programs to take advantage of market-leading services and products.

Key to federal category management is reorienting the procurement focus away from government’s organization, procurement lifecycle, and practices, toward the behavior of markets and the suppliers within them. Firms with greater market orientation perform better, while agencies gain market insights and share and use the information more effectively. Categorizing spending by supplier base lets buyers leverage market characteristics such as the supplier hierarchy, supply chain, cost base for pricing, price inflators and deflators, mergers and acquisitions, purchasing practices, etc.

Category and procurement teams rely on MI insights to manage demand, standardize on fewer configurations of products and services, develop appropriate sourcing strategies, strategically identify suppliers, manage contract performance and outcomes, and collaborate effectively with providers to streamline procurement processes and share innovations.

Think of concentric circles that inform each other in a cycle over time. As a requirement becomes known at a location, the market research taps into the overall strategy for the category and most up-to-date intelligence to inform the way forward for that specific need.

Market research involves single, discrete observations for a specific need. The buying activity is generally interested in how the market can satisfy their need. What service or supplies are available, from whom, at what price, and when can they be obtained?

Market intelligence occurs persistently over time and considers the long-term health of a spending category and how the market views the buying agency. Is the agency a good partner for vendors/suppliers? What government practices or behaviors block or discourage nontraditional suppliers or hinder experienced sellers?

From a strategy perspective, market research serves a current plan for meeting a discrete need. Market research looks for sources. Market intelligence seeks to develop a long-term strategy for present and future needs; it determines the current sourcing options and looks for future solutions to known and forecasted needs.

Market research can be conducted by general acquisition professionals using the tools defined in FAR Part 10,  whereas intelligence collection, analysis, and reporting require specialized skills based on tools and methods—think robust forecast models, AI, machine learning—as well as personnel with deep expertise in a spending category.

MR practices include those listed at FAR Part 10. MI involves added practices such as Porter’s five forces analysis to assess industry profitability and competition, spend analysis and Kraljic portfolio analysis to understand agency and category spend and develop strategic sourcing plans, Cox power matrix analysis to understand the relative power of buyers and suppliers, SWOT analysis to define category environment risks and opportunities, and value chain analysis to determine how an item or service fits in the process for meeting organization goals.

As you will read in “Selling the Air Force” (Page XXX), MI market analysts can plumb a host of commercial and government sources, such as industry, analyst, regulator, labor, and economic reports; news, company websites, and earnings calls; proprietary databases; federal contracts; the Acquisition Gateway; advocacy group data; interviews with federal buyers; company and industry representatives and observers; company financial statements; and the like. 

The Air Force Installation Contracting Center (AFICC) has a specialized business intelligence competency cell (BICC) that performs robust MI, developing category intelligence reports (CIRs) for the Air Force and other federal agencies. The CIR process, detailed in “Selling the Air Force” is illustrated here.

Spending analysis illuminates key categories of procurement. Teams led by functional experts devise strategic plans to manage them. CIRs include specific recommendations for practices and policy to achieve category strategies by closing gaps between the Air Force’s approach and industry best practice. CIR teams gather data through interviews, analyzing industry and government data and research, and benchmarking similar users.

CIRs generally recommend one or more actions: change management of demand for and use of products or services in a category; issue new policies; adopt strategic acquisition measures, such as creating an enterprise-wide contract vehicle; or adopt industry best practices.

Market intelligence is more than sound contract management or even program management, it is about understanding an organization’s ability to affect its battlespace or operations. It builds capability for managing uncertainty. One way to manage uncertainty is to learn to react well to surprises and to recover quickly; the other is to limit the number of surprises. Market intelligence can aid in both.

Market intelligence is best managed by centers of expertise whose ongoing reports and surveillance bulletins are based on categories of spending and disseminated to category management teams and contract professionals within and related to them.

Recent experience with the pressing shortages of personal protective equipment during the COVID-19 pandemic suggests some further refinements in the market intelligence model:

  1. Agencies and firms should consider managing spending at the solution category level. For example, they might view a market category as one focused on multiple ways of solving personal protection concerns as opposed to a category consisting exclusively of items such as surgical masks.
  2. Agencies and firms should build market intelligence centers focused on  category markets as they operate. For example, if medical services markets in the United States and Indonesia differ widely in how they acquire and operate, then establish category management market intelligence centers focused on each key geographic market or embed experts in those markets in the enterprise center.

References

Michael E. Porter, “How Competitive Forces Shape Strategy,” Harvard Business Review (March 1979), https://hbr.org/1979/03/how-competitive-forces-shape-strategy 

“The Kraljic Portfolio Purchasing Model: Assessing Risk and Maximizing Profits,” www.mindtools.com/pages/article/newSTR_49.htm.

Andrew Cox, “Understanding Buyer and Supplier Power: A Framework for Procurement and Supply Competence,” Journal of Supply Chain Management (Spring 2001): 8–15.

Andrew Cox, Glyn Watson, and Joe Sanderson, Power Regimes: Mapping the DNA of Business and Supply Chain Relationships (Boston, United Kingdom: Earlsgate Press, 2000); and DODI 5200.44 (see note 4).