What is opportunity analysis in procurement?

Opportunity analysis is the process of identifying means to capture value through sourcing. It facilitates sourcing process improvements and highlights possible savings opportunities. Opportunity analysis generally involves analysis of the enterprise’s requirements, suppliers, spend and existing sourcing methods.

Procurement opportunity analysis is an excellent tool for a business to help make decisions about purchasing contracts. Automated software and third-party services for procurement opportunity analysis are available, making the process much simpler for higher management officials to understand.

Opportunity analysis first begins when a business identifies a demand in the market. Then the next step is to identify what products can satisfy these demands. This has to be followed by an evaluation of what materials will be needed for these products and where to procure them. Suppliers providing those materials will have to be identified and bids requested.

Once the bids are in, the next task is to calculate the total cost of production of the new product, including supply and production costs. Then the company will have to run a risk analysis to see if this cost is feasible for the market and whether the product can be launched commercially.

Sometimes when costs of certain materials go down, businesses can enter a new market and gain market share. Or sometimes, when there is a massive demand for a certain product, opportunity analysis will show that procurement costs for that product are low, and the product will be launched.

The time needed to set up the supply chain, the seasonal/perennial nature of the supply, and the suppliers' reliability are the factors that procurement teams have to consider when they mention the total procurement cost of the product to higher management.