MARKET INTELLIGENCE APPLIED TO THE PURCHASE AND SUPPLIES FUNCTION

Market research, aimed at its use in purchases and supplies, has received significant attention from industries, due to a set of factors that brought complexity to the acquisition process and risk in the supply of items considered strategic for these purchasing organizations. Search for technological innovations, dynamism of the supplier market, demand for suppliers from Asian countries and macroeconomic oscillations are some of these factors.

The search for technological innovations, for example, is related to the constant concern of companies with the innovation of their products and quality improvement in order to remain competitive. New technologies can be obtained through internal development or with suppliers that invest in research and development of new technology. Therefore, support for the make-or-buy decision, as well as the selection of the supplier if the second option is favored, depends on a lot of research. For example, the automobile industry in Brazil and in the rest of the world depends significantly on the technological innovations brought by its suppliers.

The dynamism of the supplier market concerns the constant movements of this market, due, for example, to political changes between countries, which influence the availability of suppliers. It is also a reflection of changes due to acquisitions and mergers between suppliers and, also, as a result of financial instability, leading to bankruptcy and disappearance of some of them.

Low production costs, notably labor, have promoted the prominence of Asian suppliers as an alternative for reducing the costs of some industrialized products. Chinese suppliers are classic examples of this situation, which leads western manufacturers to consider them as main sources.

Finally, macroeconomic oscillations are associated, among other reasons, with currency volatility, inflation, public account deficit, exchange rate fluctuations and interest rates, causing impacts on the availability of products. The national textile and footwear industry, for example, has been suffering the effects of the appreciation of the real and competition from Asian producers, which entail significant changes in the geography of suppliers of these products.

The following sections of this article will address the influence of the complexity factors mentioned so far on the planning of the purchasing process, trying to divide them into two sets, one focused on a macroeconomic perspective and the other on the supplier market.

INFORMATION ON THE MACROECONOMIC ENVIRONMENT

The joint analysis of macroeconomic indicators is of great importance for the purchasing and supply area of ​​companies, as it tries to bring changes in the economic environment into the negotiation process with suppliers, allowing for more appropriate acquisitions, impacting results and increasing competitiveness of buyer organizations.

Companies must respond quickly to economic transformations and know how to identify opportunities for gain that can be obtained from the analysis of macroeconomic indicators. More likely future scenarios can be projected with more advantageous estimates of the costs of acquisitions to be made, reflected, for example, in long-term contracts, provided that the indicators provide evidence of future earnings.

Long-term survival, allied to the success of the competitive strategy, is closely linked to accompanying changes in these economic scenarios. Thus, it is recommended that the establishment of the company's goals, objectives and new projects consider the simulation of the influence of different economic indicators. These simulations help decision-making on investment analysis and negotiation with suppliers, in addition to serving as a reference in the investigation of gains and losses experienced in the development of the purchasing process.

The indicators below are the most commonly used by companies in economic analysis:

• Industrial production;
• Extended National Consumer Price Index (IPCA);
• Interest rate;
• Trade balance;
• Exchange rate. Evolution of specific indices related to the raw material of the buyer's sector
• World stage indicators.

A survey of Brazilian industrial production, for example, could observe that it showed growth concentrated in a few sectors, such as computer equipment, extractive industry and electrical machines, appliances and materials, which explain half of the growth rate of industrial production in 2006 Other sectors such as wood and footwear are facing export difficulties, with significant production declines. Figure 1 presents the annual accumulated variation of Brazilian industrial production, as an example of one of the several pieces of information that can be obtained on this indicator.

Accumulated values ​​for 12 months, with December 1992 as the base hundred of reference

The analysis of industrial production can be of great importance for buyers of the mentioned sectors due to the implications of product availability and, consequently, obtaining price, as it shows the sectors that are heated or in decline. The analysis of the production performance in the country by the different sectors can lead to projections about the demand and use of the productive capacity of the different productive segments. An example of forecasting high prices can be seen in sectors with full use of productive resources and with strong demand for the products of these sectors. On the other hand, segments with idle capacity and a profile of reduced demand may indicate a drop in the prices of the products offered.

Another important indicator is the IPCA, which is the government's official index for setting inflation targets. Calculated on a monthly basis by the Brazilian Institute of Geography and Statistics (IBGE) since 1981, this indicator shows the variations in costs with expenses of people earning from one to forty minimum wages in the main metropolitan regions of Brazil. This index is also used to correct the financial statements of publicly-held companies and contractual updates. Figure 2 illustrates an example of the inflation curve measured by the IPCA for goods and services.

The purchasing department can use the information resulting from the analysis of the behavior of this indicator to prepare its budgets, forecast expenses and project gains and losses incurred in cost reduction programs in the acquisition of products to be used in production.

The interest rate (Selic), in turn, is due to the amount of currency existing in the economy, which is controlled by the government through the mechanism of purchase and sale of public securities. Thus, when the government sells these bonds, it withdraws money from the economy and the interest rate rises, because the system has less resources to borrow. On the other hand, when the government buys existing public securities on the market, it injects currency into the economy and the interest rate drops, due to the increased supply of these resources.

The reduction in the interest rate reduces the cost of purchased products and services, particularly those that are financed. This reduction also makes it possible to increase business investments in business expansion or even the creation of new ventures.

The high interest rate policy in the macro environment encourages the inflow of foreign funds, which, combined with the good performance of domestic exports, contributes to the appreciation of the real against the dollar. On the other hand, this policy inhibits taking out loans from government banks, stunting business and industrial development. See the recent behavior of this indicator in Figure 3.

Purchasing companies, therefore, use the analysis of the behavior of this rate to help in the decision on investments, purchase of capital goods, search or development of new suppliers. Another analysis that can be done is the impact caused by interest rates on the financial health of suppliers who use bank credit to support their operations. The concern with the financial stability of the supplier is intended to avoid discontinuity of supply due to its failure and disappearance.

Another indicator that helps in market research is the behavior of the trade balance, which has shown increasing surpluses, despite the nominal and real appreciation of the exchange rate, with a trade balance of approximately 46 billion dollars in 2006.

The result of Brazilian exports has been quite positive in recent years, safely surpassing imports, as shown in Figure 4. However, it is necessary to assess whether this situation of positive trade balance is sustainable. Brazilian exports slowed down faster than the external demand index, which could negatively affect the trade balance.

Domestic demand, measured by industrial production calculated by the IBGE, has been registering lower variations than those experienced by the growth rate of imports. The drop in the exchange rate may be contributing to this scenario. All of this indicates to buyers that Brazilian commodity prices are very high and have been rising at a greater rate than manufactured products.

Next comes the exchange rate, strongly influenced by other macroeconomic factors, such as the Selic rate, country risk and the trade balance. Decreases in country risk, controlled reductions in the Selic rate and a positive trade balance can make the exchange rate appreciate (appreciation of the real against the dollar). This rate determines export and import scenarios, with repercussions on the country's balance of payments.

The exchange rate has direct implications for purchasing budget forecasts, cost forecasts and other planning and control instruments. It also influences transactions with international suppliers, which may result in an increase or decrease in the original price offered by the seller. Its influence in reducing the prices of imported products leads to a trend towards the increase of global sourcing practices in material acquisition strategies.

EVOLUTION OF SPECIFIC INDEX RELATED TO RAW MATERIAL

Monitoring and evaluating the behavior of indices related to the raw materials used in production prove to be of great help in planning, budgeting and analyzing the profitability and performance of the purchasing area of ​​companies.

The evolution of indices such as the price of oil, for example, can alert to the possibility of a risk of price increases for raw materials that have oil as their main input. Figure 5 shows the high volatility of oil prices from 1999 until the projection for the end of 2007.

The international quotations of raw materials must be followed through the movements that occur in the main specialized centers in the commercialization of each product. For example, the price of zinc and platinum must be accompanied by their performance on the London Stock Exchange. Palladium, on the other hand, must be analyzed by the price variations that occurred on the New York Stock Exchange. Natural rubber, on the other hand, has its movement on the Singapore stock exchange considered as a planning reference.

WORLD SCENARIO INDICATORS

Market research should also consider fluctuations that occur in external indicators and infer the effects of variations in these indices in purchasing planning. For Brazilian companies, for example, the monitoring and analysis of economic indicators of Mercosur countries are of great relevance in their negotiations. Research on interest rates in the countries of this economic bloc, for example, may indicate that real interest rates in Argentina are well below the Brazilian level, with reflections on the prices of products originating in the neighboring country.

Another important indicator is the US interest rate, capable of influencing interest rates around the world. The low inflationary pressure experienced by some developed countries, such as the US, does not stimulate interest rate increases. This increase would only be justified if the US economy was heated, as the high demand could trigger an inflationary process.

Due to low interest rates, international investors prefer to invest in riskier markets, with higher rates, which indicates a greater possibility of return on investments. Developing countries such as Brazil are target markets for foreign investment. This behavior leads to a greater volume of external resources in the national economy, with downward pressure on the exchange rate and reflections on commercial transactions between Brazil and the rest of the world.

Economic activities in countries such as China can change price dynamics in the world market. This country's share of world exports is approaching the US share. If this trend persists, the terms of trade in world trade will tend to further favor commodities over manufactured goods.

The analysis of the actions of countries of economic importance, such as China, could be relevant for the purchasing area, with a direct consequence on the acquisitions promoted by the sector. The price of steel, by way of illustration, was greatly influenced by Chinese consumption. In 2004, for example, it reached variations of 75% in relation to the previous year, as there was a strong preference for steel companies to sell to the Chinese market.

ILLUSTRATIVE EXAMPLE OF THE USE OF SOME OF THE INDICATORS REVIEWED

The hypothetical situation described below helps the reader to understand the effects of macroeconomic indicators on the cost of products, reference price for negotiation and preparation of real gains and losses in the purchasing process. The effects on possible trends in supply and prices practiced by supply markets have already been pointed out throughout the article.

Thus, consider that a certain item produced by a manufacturer of durable consumer products during the year 2006 had a production cost of R$ 100,00 and presented the cost structure described below and summarized in Table 1:

a) Thirty percent of the cost of the item is represented by a high technology component, which is imported from an industrialized country.

b) Fifty percent of its cost refers to the use of raw materials acquired in the domestic market, with prices influenced by the international market for these commodities.

c) The remaining 20% ​​are related to the use of services that are added to manufacture the product.

The percentages of the two raw materials that made up the product are shown in Figure 6.

Let's assume that 2007 saw certain macroeconomic oscillations that caused changes in the price of raw materials, resulting from inflation measured by the IPCA at the 3% level, the increase in these commodities on the commodity exchange and the appreciation of the real against the dollar. The summary of changes is recorded in Table 2 and text below.

The rise in steel prices on the stock exchange was 20%; plastic, on the other hand, had a variation of 10%. Considering a negative exchange rate variation only for plastic, we can obtain the total variation for the acquisition of the raw material as shown below.

The total change in the price of steel will be equal to 0,8 (participation in the piece) x 0,20 (high price) + 0,80 x 0,00% (exchange rate change). So we have the result of 16%. Likewise, plastic will have a total variation of 1%, as a result of 0,2 (share in the piece) x 0,10 (high price) + 0,2 x -0,05 (negative exchange rate variation). It can be observed that, in the case of plastic, the increase in the price of the raw material was partially offset by the favorable exchange variation.

Applying the data calculated above to the prices practiced in 2006, it is possible to obtain the final cost of the part produced in 2007 after all the additions/reductions made. Table 3 illustrates the differences between the part cost composition in 2006 and 2007.

The devalued exchange rate reduced the cost of imports by 5%, with the buyer paying R$ 28,50 for the imported component. The price of raw materials increased by 17%, as shown in Table 2. Added services, such as, for example, the supplier's labor to process inputs, electricity and others, were subject to internal inflation of 3%, resulting in R$ 20,60 in 2007.

The new value of the cost of inputs for our hypothetical part is now R$ 107,60. In this way, the true gains in the process of acquiring inputs for this final product will only occur if, after negotiations with buyers, the final cost is less than R$ 107,60. The difference between the final cost and R$ 107,60 is known as a performance indicator in purchases called avoided cost.

SUPPLIER MARKET INFORMATION

Knowledge of the supplier market, in addition to analyzing economic indicators, provides additional opportunities to increase the efficiency of the purchasing process. This knowledge is used mainly in cost modeling, negotiation, guaranteeing the supply flow, searching for alternative sources, strategic planning, evaluating the supplier's capacity for innovation, improving the purchasing process, reducing costs and adding value.

Buyers are increasingly looking to build models to better understand the rationale behind a supplier's pricing policy, especially with regard to the cost of materials used in production, direct labor and overhead costs. This requires extensive market research into prices paid by suppliers, wages and benefits paid to employees, age and efficiency of equipment used, methods of depreciation, cost of running the plant and the impact of indirect workers. Typically, cost modeling is used to support contract negotiations, provide quantitative models for price adjustments, and provide a better understanding of the process that culminates in the make-or-buy decision.

Negotiation can ultimately be considered the main reason for establishing a structure for understanding the supplier market, because a well-prepared negotiator knows the situation of the seller at the macroeconomic level, at the level of the segment where he is inserted and also looking at within the supplier's own company.

Knowledge of the dynamics of the supplier market can be critical in the process of guaranteeing the supply flow. Many buyers fail to anticipate or recognize situations where the supplier may be vulnerable due to capacity constraints or because of problems in their relationship with their own supplier. They also fail to perceive mergers and acquisitions that lead to changes in the availability and costs of the products offered.

The anticipation of a shortage situation can be predicted by changes in the base of suppliers qualified to supply a certain material, but for that it is necessary that the buyer is picking up all the signs of oscillations in its set of suppliers. The more knowledge the buyer has about the participants in a given market, the greater his ability to identify alternative sources of supply.

Another benefit that can be gained from market research is knowledge of suppliers' technologies and processes that can be used in buyers' products, services and processes. Knowing who owns the innovation is the first challenge. The second is convincing the innovative supplier that the buyer is a logical path for him to introduce his innovation.

And, finally, it is necessary to have a vision of the supply chain, trying to understand who are the suppliers of its suppliers, making an analysis of the relative capacities. An outage at the supplier's supplier can turn into a future outage for the buyer. Who are the supplier's competitors? How can they interfere with your survival? Finally, there is a whole set of information that makes it possible to mitigate supply risk.

CONCLUSION

Market intelligence applied to purchases or supplies can be considered a systematic collection, analysis and interpretation of information about relevant economic, environmental and political factors that influence the procurement of products and services. Additionally, the intelligence sector must investigate changes in the supplier market environment that may represent opportunities or threats in meeting the current and future needs of the purchasing company.

This information, when used in a planned way in the negotiation processes, can influence the result of the agreements made, with reflections in the reduction of costs of the purchased products or even in the guarantee of the supply.

The research activity mentioned in this article can demand a significant amount of resources from the purchasing company. Thus, it is natural that strategic materials are privileged as objects of analysis in market research. Practice has been pointing in the direction of investments in gathering and analyzing information for items that are likely to offer a greater return in negotiations.

Finally, the structuring of an intelligence sector in the purchasing companies to carry out market research activities will depend on the development of the purchasing function and the intensity of use of the information and analyzes produced in this sector.

For example, the survey on Supply Management in Brazilian Industrial Companies, carried out by the Center for Studies in Logistics this year, pointed out that the automotive and pharmaceutical sectors are those that showed the greatest concern in structuring an internal sector of market intelligence applied to shopping and supplies.

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