Route 3 - Develop Strategy - Profiling the Commodity/Service - Supply Market Analysis
A supply market analysis should be undertaken to enable 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 will probably wish 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. This Market Summary Template Example may assist you with developing your own Market Summary Template.
[Particularly for Care and Support Services, the outcome of the Supply Market Analysis should inform the organisations appraisal of the options for service delivery, including:
shared services; and
Further guidance can be found in the Options Appraisal for C&SS document.]
Once you have completed your Commodity Tree or Options Appraisal and Supply Market Analysis, the information will support grouping your requirements into suitable lots e.g. for the category of waste disposal equipment you may choose to procure plastic and metal bins through separate lots.
There is potential for public procurement projects to positively impact on various sectors of the business community, either as directors or as sub-contractors. In this context you should give particular consideration to the potential for third sector involvement and supported businesses and SMEs. Where you have decided not to use lotting in your Procurement Exercise, the main reasons for this must be provided in the procurement documents, or in the individual report and indicated in the procurement documents, or your procurement exercise written report.
An organisation should also consider whether Transfer of Undertakings (TUPE) applies and whether to allow potential service providers to set out options in relation to different TUPE scenarios within its tenders. If so, it must consider how to provide clear directions to tenderers to ensure that bids can be compared on a like-for-like basis.
The public sector equality duty set out in the Equality Act 2010 specifically requires organisations to assess new or revised policies and practices on people with different protected characteristics, taking into account the three needs of the public sector equality duty – 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: itshould help to identify and mitigate any negative impacts and identify any opportunities to promote equality 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 of working.
External sources for supply market data
The supply market sources document is a list of suggested external sources for supply market data which may provide useful information required to develop 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 the external data sources template. The use of external data should be appropriately referenced throughout the process. The inclusion of a link to an external website or publication does not constitute any kind of endorsement by the Scottish Government.
Any discussions on costs at this stage should be indicative only, and this needs to be made clear to potential bidders. Care should be taken to preserve transparency and equal treatment.
In many circumstances it may be more appropriate to ask the market what solutions are currently or potentially available prior to advertising a contract (as explained in the ‘Stakeholder Identification’ station). 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 that complies with the Principles of Procurement. As a minimum the consultation must be carried out in a transparent way that ensures there is no distortion of the market place, the outcome cannot be a procurement that unduly favours or disadvantages a particular potential supplier and it is the responsibility of the buying organisation to make sure that these requirements are met.
This can encourage potential suppliers to be creative in the potential solutions they develop, which will in turn inform the decisions of organisations as to when and how to procure the best available solutions for their particular needs. Market sounding can be beneficial as a long term strategy, even where the Procurement Officer does not intend to carry out a procurement exercise in the immediate future. As a matter of courtesy the Procurement Officer should be transparent in this.
[For Care and Support Services, a market facilitation plan should be incorporated when developing a Strategic Commissioning Plan. Further guidance can be found in the Developing Strategic Commissioning Plans document.]
There is no formal process for market sounding, but activities typically include researching and analysing the market as a whole 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.
[For Care and Support Services, a market facilitation plan should be incorporated when developing a Strategic Commissioning Plan. Further guidance can be found in the Developing Strategic Commissioning Plans document.]
Care should be taken to ensure transparency at all times in the process, with no distortion of competition and/or discrimination in favour of or against potential suppliers. Potential supplier interest can be generated by publishing advance notice of likely requirements, for example through Prior Information Notices (PINs).
Organisations should engage with a good cross section of potential suppliers to best 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 be different. Market sounding brings learning into the public sector that is useful in a broader sense. UIGs may need to gain a better understanding of the relevant markets to develop the commodity/service strategy; both in terms of how they operate currently 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 and it is vital to understand the key issues before starting the procurement process, however, it must be undertaken with care and in such a way as does not distort competition. It is vital that any discussions on costs at this stage should be indicative only and you must make this clear to potential suppliers. It is important to determine desired outcomes, risks and issues and to permit potential suppliers to provide feedback on how the outcomes might be achieved, along with feedback on timescales, feasibility and affordability.
The Procurement Officer should always be present at meetings with potential suppliers. From the supplier side, someone 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 services provided are at the forefront of those available
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.
Market sounding should also take into account the knowledge held by other buying organisations, trade bodies and business support organisations e.g. Federation of Small Businesses, Chambers of Commerce, etc.
You should consider the following questions:
- Is there doubt over the existence of a market for the identified business need?
- Are there doubts over its capacity, capability, maturity or competitiveness?
- Is first-hand in-house knowledge of the market superficial, incomplete or simply absent?
- Is there uncertainty about the level of potential suppliers' interest?
- Is the desired outcome likely to involve significant business change? Is it unprecedented?
- Is there a need to manage expectations of the project?
- Is the requirement very unusual?
- Is there an innovative solution?
- Is the solution required to provide the service to diverse groups across society?
- Are there carbon reduction targets?
- Is there uncertainty about the technological/eCommerce capabilities of the market?
- Has economic development been considered?
- Has accessibility and 'designed for all' been considered?
- Are more sustainable outcomes 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 take account of the policy and approach adopted by your organisation to the delivery of services in-house.
In respect of the above questions and the following areas of guidance, you should consider stakeholder engagement activity and management in line with these assessments – e.g. will consultation with an economic development team member be necessary? Can we identify at this point what guidance we will need from the climate change team in terms of supply chain carbon assessment? 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.
The measures taken to ensure that competition is not distorted during any prior involvement of candidates or tenderers must be documented by the Procurement Officer.
Questions to consider
Enquiries at market sounding usually fall into particular areas. These are not questions to ask of potential suppliers, but rather questions that the UIG should seek to answer for themselves through dialogue with suppliers.
- Maturity: is the market ready to deliver what's required? Is it evolving or diversifying with potential suppliers entering or exiting the market?
- Feasibility: will the market be technically capable of meeting the requirement?
- Technical/product innovation: technological advancements or product/service developments expected and how can requirement be future proofed to take advantage of these?
- Competition: how many potential suppliers provide what is required? Will there be effective competition?
- Capacity: are there enough potential suppliers, with sufficient capacity, to meet the requirement?
- eCommerce: is the market ready to embrace the electronic suite of tools that are currently utilised within the Scottish public sector?
- Size and status: is the contract likely to be delivered by a supply chain of sub-contractors, self emplyed workers, sole traders, small, medium or micro businesses? Are suppliers from other countires likely to bid?
- Working together: will the requirement bring potential suppliers from different subsectors together in a new way? How will this work?
- Geographical: do potential suppliers operate differently or provide different goods or services in different geographical areas e.g. in another country?
- Traditions and prevailing attitudes: what are they in this market? How will they affect the project?
Sustainability: can potential suppliers provide solutions to sustainability issues?
Contract suitability and market capacity to meet a specific requirement need to be addressed on a case-by-case basis. Preliminary market consultation is crucial to be able to determine whether the market is capable of delivering a specific community benefit or whether requiring such would place too large a burden on suppliers.
The UIG should always be open to new ways of shaping their requirement. They should look for opportunities to shape the market by encouraging the market to develop in such a way that is able to provide. There should be an assessment of future demand of any particular commodity/service or category, based upon the knowledge and expertise within the team and upon information obtained from non-team members. Engaging with potential suppliers provides an opportunity to ensure that 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.
Addressing Fair Work Practices - what dimensions of Fair Work could be targeted?
Engaging early with the market can help to gather information about the nature of Fair Work practices that are typical in the sector and can provide information on what opportunities there are to address Fair Work practices in a procurement exercise in a way that is relevant, proportionate and treats bidders equally.
It is also an opportunity to 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, consideration must be given as to whether this is appropriate or a form of bogus self-employment.
Furthermore, an organisation can seek input from other areas of its own organisation, stakeholders, industry bodies or trade unions to establish which dimensions of Fair Work could be addressed in a particular commodity/service area and to shape commodity/service strategies.
Community Benefits - can the market provide?
Organisations are required to consider including community benefit requirements for all regulated procurements where the estimated value of the contract is equal to or greater than £4 million. Community benefit requirements may not always be appropriate and 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 and it is regarded as best practice to consider inclusion for all contract values.
Factors to consider when deciding whether to include community benefit requirements include opportunities to:
- generate employment and training opportunities for priority groups;
- vocational training;
- up-skill the existing workforce;
- equality and diversity initiatives;
- make any proposed sub-contracting opportunities available to SMEs, the third sector and supported businesses;
- supply-chain development activity;
- build capacity in community organisations;
- educational support initiatives;
- work with schools, colleges and universities to offer work experience; and
- minimise negative environmental impacts, for example impacts associated with vehicle movements and/or associated emissions and impacts on protected areas, buildings or sites
This is not an exhaustive list.
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.
Discussions with potential suppliers
Talking to potential suppliers is at the heart of market sounding. It is crucial to talk to the right potential suppliers - ideally, those who have achieved outcomes of a similar nature and scale.
Great care must be taken to ensure that 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 that competition is not distorted must include communicating to all potential suppliers dates 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.
Some possible questions to open productive discussions with potential suppliers include:
- Are you interested in this opportunity?
- If not, why not?
- Is the business model realistic?
- Are the business aims realistic? Is the business attractive?
- What do you see as the risks?
- Can you give an early indication of cost, what are the major cost drivers and how can these be minimised?
- Can you give a broad indication of the likely timescales?
- Are there other, better approaches?
- What added value in terms of sustainability could the potential supplier provide related to the subject matter of the contract?
- Discussions on how potential suppliers can provide added value on sustainability and other issues over and the requirements of the regulations
- Can you share examples of good or bad practice in terms of how others have tried to secure these products or services and what can we do to ensure clarity and improve the tendering process for potential suppliers?
You may also wish to discuss aspects of eCommerce with potential suppliers such as:
- Provision of content in the required format e.g. an eCatalogue or transactional punch-out site
- Ability to accept cXML purchase orders and / or invoices
- Use of PCS-Tender for tendering and potential e-Auctions
- The market capability to support/work with a Dynamic Purchasing System (DPS) – this is particularly important where the market has a number of SME’s, Third Sector Potential suppliers or Supported Businesses who may be able to meet the need of the Contract since it offers an easier, more cost effective route for many of them to participate in the Procurement Exercise.
It is possible that the potential supplier for a contract may be another organisation. It should be noted that a contract between two or more organisations are exempt from the Public Contracts (Scotland) Regulations 2015 and the Procurement Reform (Scotland) Act 2014 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
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.
Please consider the complexity of the commodity/service and procurement exercise. Once the analysis is complete you need to consider how you can use this information to inform strategic options.
1. Supplier profile analysis
The supplier profile analysis 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 is a framework that 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, such as industry attractiveness, competitive pressure and degree of market concentration/fragmentation.
6. Understanding supplier cost drivers
The supplier cost drivers checklist provides guidance to complete a typical supplier cost driver example.
Some tips on how to obtain supplier 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.
A blank TCO slide is provided for you to populate with details specific to your requirement.