Supply Market Analysis

You should undertake supply market analysis to allow the User Intelligence Groups (UIG) to develop a detailed understanding of:

  • key trends,
  • major players, and
  • overall market dynamics

that could influence the development of the commodity/service strategy e.g. route to market, lotting strategy.  At least one of the market analysis templates provided should be used to assist in this exercise. You should to read the guidance below prior to completing the templates.

At the end of the analysis you should provide a market summary of your findings. The Market summary Template may assist you with developing your own Market Summary Template.

Public procurement projects can positively impact on various sectors of the business community, either as directors or as sub-contractors.

Care and Support Services

Lotting

Once you have completed your Commodity Tree or Options Appraisal and Supply Market Analysis, this information will support grouping your requirements into suitable lots.  For example for a waste equipment disposal  category you may choose to procure plastic and metal bins through separate lots.

You should give consideration to using potential for third sector involvement and supported businesses and SMEs.

If you are not using lotting in your procurement exercise you must provide the main reasons for this in:

  • the procurement documents, or
  • in your individual report and indicated in the procurement documents, or
  •  your procurement exercise written report.

TUPE

You should consider:

  • whether Transfer of Undertakings (TUPE) applies and
  • whether to allow potential service providers to set out different TUPE scenarios within its bid. If so, you must provide clear directions to tenderers to ensure bids can be compared on a like-for-like basis.

Equality

The public sector equality duty is set out in the Equality Act 2010.  It requires organisations to assess new or revised policies and practices on people with different protected characteristics.  To do so you need to consider the three needs of the public sector equality duty i.e.:

  • to eliminate discrimination;
  • advance equality of opportunity; and
  • foster good relations between people with different protected characteristics.

The protected characteristics are:

age

disability

gender reassignment

marriage and civil partnership

pregnancy and maternity

race

religion or belief

sex and sexual orientation

 An organisation must also consider the need to undertake and publish an Equality impact Assessment (EQIA). Depending on your particular procurement, an EQIA may be an integral part of the procurement process.  It should help identify and mitigate negative impacts and identify opportunities to promote equality.  This can be done by looking at how your procurement might impact on people with a protected characteristic. For example for the service industry, which relies heavily on its labour force, an EQIA may help to identify new or improved ways or working.

External sources for supply market data

The supply market sources document is a list of suggested external sources for supply market data.  This  may provide you with  useful information required to develop your commodity/service strategies.

Please note that you may require a licence or there may be a fee to use some of these sources.

For future reference, make a note of the sources consulted in a external data sources template. Your use of external data should be appropriately referenced throughout the process – just including an external website or publication is not a  Scottish Government endorsement.

Market sounding

The overarching theme of early engagement is to identify the desired outcomes, risks and issues and permit potential suppliers to provide feedback on how the outcomes might be achieved, the risks and issues as they see them, along with feedback on timescale, feasibility and affordability. All discussions should flow from this theme.

Any cost discussions you have at this stage should be indicative only.  You should make this clear to potential bidders. 

Care should be taken to preserve transparency and equal treatment.

Frequently it is more appropriate to ask the market what solutions are currently or potentially available prior to advertising a contract.  This is as explained further in the ‘Stakeholder Identificationstation). The Public Contracts (Scotland) Regulations 2015 (Regulation 41) now include provision for Organisations to engage in market consultation. 

Any such market consultation must be carried out in a carefully managed manner.  This must comply with the Principles of Procurement.  As a minimum, the consultation must be transparent way causing no  market distortion..  The procurement outcome cannot  unduly favour or disadvantage a  potential supplier.  It is your organisation’s responsibility  ensure these requirements are met.

This can encourage tenderers creativity in their potential solutions.  This can inform your decisions  on when and how to procure the best available solution(s).

Market sounding can be beneficial as a long term strategy, even when you do not intend to carry out your procurement exercise soon. As a matter of courtesy you should be  transparent with suppliers about  this.

There is no formal process for market sounding.  Activities typically include researching and analysing the whole market  and meeting selected potential suppliers for discussion. Your Organisation must ensure that it takes appropriate measures to ensure that competition is not distorted by the participation of potential suppliers.

You can generate supplier interest by publishing advance notice of your likely requirements.  For example through a Prior Information Notice (PINs) in Public Contracts Scotland (PCS).

Organisations should engage with a cross-section of potential suppliers.  This will  inform your strategic options i.e. the views of a Small and Medium sized Enterprise (SME) compared with a large or multi-national supplier may differ.

Market sounding improves public sector knowledge that is useful in a broader sense. For example UIGs greater understanding of relevant markets helps to develop their commodity/service strategy.  This could be in terms of how they currently operate  and how they may operate in the future i.e. changing technology, market entrants etc..

Early engagement with potential suppliers can be critical to success. It is vital to understand  key issues before starting the procurement process.   You should determine your desired outcomes, risks and issues and allow potential bidders to provide feedback.  For example on how the outcomes might be achieved, along with feedback on timescales, feasibility and affordability.

You should always be present at meetings with potential bidders. A bidder who understands your requirements and can offer innovative solutions and constructive advice should be present. The right attitudes must be adopted: respecting confidentiality, maintaining flexibility and openness.

The UIG should:

  • Be open to new ways of shaping your requirement based on what the market may be able to provide
  • Consider the options for shaping the market: encouraging the market to develop in such a way that it can meet your requirements in the future.
  • Engaging the market provides an opportunity to ensure that the services provided are at the forefront of those available

EU law is concerned with the EU single market.  Analysis of the market should therefore have regard to possible interest from providers in other Member States and may assist an organisation to identify whether there is a cross-border interest.

When procuring a service, you should also consider your organisation’s policy and approach to  delivering services in-house.

In respect of the above questions and the following areas of guidance, you should consider stakeholder engagement activity and management.  For example:

  • will consultation with an economic development team member be necessary? 
  • Can we identify what guidance we will need from the climate change team in terms of supply chain carbon assessments?

It is important to tie this into your stakeholder mapping exercises. 

As regards the procurement of innovative goods and services, the UIG can facilitate improvements in the quality and delivery of public services and contribute to growth in the economy by encouraging potential suppliers to invest in and deliver pioneering solutions to support current and future public service needs.  Throughout this process, are should be taken to avoid distorting the market.

You must document the measures taken to ensure competition is not distorted during any prior involvement of candidates or tenderers..

Discussions with potential suppliers

Talking to potential suppliers is at the core of market sounding. It is crucial to talk to the relevant potential suppliers - ideally, those who have achieved outcomes of a similar nature and scale.

Care must be taken to ensure those contacted are not given an advantage over other potential suppliers. It is equally important to ensure specifications are not written in such a way as to favour any particular potential supplier(s). If either of these approaches is not adhered to you could breach the Public Contracts (Scotland) Regulations 2015 and the procurement itself could be challenged. 

Measures to ensure competition is not distorted must include:

  • communicating to all potential suppliers the dates of any relevant information exchanged between parties in the market sounding and,
  • when tendering, giving adequate time limits for the receipt of tenders from interested parties.

Quickfire Guide

Quickfire Guide

Supply Market Analysis - Example Questions

There are a number of questions you can ask to support you market analysis.  This Quickfire Guide list some examples.

Community Benefits - What Can the Market Provide?

Organisations are required to consider including community benefit requirements for all regulated procurements.  This is procurements where the estimated value of the contract is equal to or greater than £4 million (excluding VAT). 

Community benefit requirements may not always be appropriate to your contract. You must consider their use by taking into account the nature of the contract, its duration and other local factors. 

While the threshold for considering community benefits is £4M, research has shown that community benefits can be achieved in procurements under £4 million threshold.  It is regarded as best practice to consider its inclusion for all contract values. 

Care should be taken to ensure the requirements would not place a disproportionate burden on potential suppliers or have a wider, unintended effect.   This could be the case, for example, where training and recruitment requirements are included.  Here, care needs to be taken to avoid displacement of existing trainees and employees in order to meet community benefit commitment.  It should also be noted that training and employment opportunities require adequate contract length for these activities to be undertaken.

Fair Work Practices

What Dimensions of Fair Work Practices can be Targeted?

  • Engaging early with the market can help you gather information about the nature of Fair Work practices in the sector.  It  can provide information on what opportunities there are to address in your procurement exercise.  These should be relevant, proportionate and treat bidders equally.
  • It can help you establish whether the supply chain is susceptible to exploitative practices.  For example, in contracts where the workforce can typically be made up of sole traders or self-employed workers, you should consider is appropriate or a form of bogus self-employment?
  • You can seek input from other areas of your own organisation.  For example stakeholders, industry bodies or trade unions.  This can establish which dimensions of Fair Work could be addressed in a particular commodity / service area and to shape commodity / service strategies.

Sustainability

Sustainability: can potential suppliers provide solutions to sustainability issues?

  • The UIG should always be open to new ways of shaping their requirement. They should look for opportunities to shape the market. There should be an assessment of future demand of any particular commodity/service or category.  This should be based upon the knowledge and expertise within the team and on information obtained from non-team members. Engaging with potential suppliers provides an opportunity to ensure the services provided are at the forefront of those available. This should also take account of the knowledge held by other buying organisations, trade bodies and business support organisations e.g. Federation of Small Businesses and Chambers of Commerce, etc.  Care should be taken to maintain competition, transparency and equal treatment of potential suppliers.

Further Market Analysis

The purpose of analysing the environment is to take into account in more detail the external and internal factors affecting the commodity/service and supply. The various tools below can help you in this activity. The results should lead to the identification of opportunities and risks which will inform strategic options to consider.

Not every template listed in 1-7 below requires completion. You should consider the complexity of your commodity/service and procurement exercise to help you decide which template(s) to use.  Once your analysis is complete, consider how to use this information to inform strategic options.

All templates listed can be found under "Any documents you need are listed below" at the bottom of this page.

1. Supplier profile analysis

The supplier profile analyisis tool can be used to paint a picture of the main players in the market.

2. Competitive advantage - porter's 5 forces

Porter's 5 forces constitutes a framework which demonstrates buyers/suppliers' relative power in the market place. 

3. SWOT analysis

The SWOT Analysis examines environmental factors internal to the organisation (usually classified as Strengths or Weaknesses), and those external to the organisation (classified as Opportunities or Threats). 

4. PESTLEE analysis

The PESTLEE analysis assesses the external environment which may have an impact on your requirement.  

5. Supplier market share

The supplier market share provides an insight into the positioning of the main players within the market.  Factors such as  industry attractiveness, competitive pressure and degree of market concentration/fragmentation.

6. Understanding supplier cost drivers

The supplier cost drivers document provides:

  • a checklist containing cost driver
  • guidance to complete a typical supplier cost driver example
  • sources of information includes tips on how to obtain cost drivers

7. Total cost of ownership

Total Cost of Ownership (TCO) is the initial acquisition cost plus ownership/operation and disposal costs. Understanding this will help in identifying areas for improvement internally within the organisation and externally with potential suppliers. The following guidance slide will help you to consider the wider costs associated with the procurement of the requirement.

TCO considerations

A blank Total Cost Considerations template, with examples, are provided for you to populate with details specific to your requirement.

Procurement Between Public Sector Organisations

It is possible that the potential supplier for a contract may be another  public sector organisation.  A contract between two or more such organisations are exempt from the Public Contracts (Scotland) Regulations 2015 and the Procurement Reform (Scotland) Act 2014.  This exemption is in place if the “buying organisation” and the “supplying organisation” are jointly controlled or if all of the following conditions are met:

  • The “buying organisation” exerts control over the “supplying organisation ” similar to that which it has over its own departments.
  • Where 80% of the activities of the “supplying organisation ” are undertaken for the “buying organisation” or other bodies controlled by it.
  • Where no other organisation or person has invested direct capital in the “supplying organisation” subject to limited exceptions

Any documents you need are listed below

Options Appraisal

(file type: docx)

Segmentation Tool

(file type: docx)

Supplier Cost Drivers

(file type: docx)

Supply Market Sources

(file type: doc)

Total Cost Considerations

(file type: docx)