A PEST/PESTLE/STEEPLE analysis is a construct that helps analyze the external environment and influences that impact the supply base. It provides a concise way of market investigation and analysis to support procurement, supplier and category strategies.
The PEST/PESTLE/STEEPLE approaches allow the review of the macro factors potentially impacting the supply base. This can then be used by procurement professionals to take advantage of opportunities or mitigate potential risks. They might choose to re-align elements or activities so that the macro factors do not impact the organization’s ability to meet its business objectives.
Political
Changes in government, policy, or international politics affect how and with whom purchasers do business. Domestically, government and policy changes lead to regulatory reform and business support packages and representation modifications. This, in turn, can influence the structuring of the supply base in an organization. It can also impact contractual requirements in areas such as employment, safety, health, tax, quality, environment, and ethics regulations.
Internationally, there is an enormous impact on trade dynamics in case relations with supplier nations cease. Conversely, when a country opens itself up to the free markets, it invites both abundant opportunities and challenges.
Likewise, changes in an overseas country’s, region’s, or territory’s government or policy can pose financial, supplier management, and compliance challenges. Further, political collapse, revolt, or disjoint can lead to disruption in an organization’s supply base. Procurement professionals need to keep a close watch on global political events to be able to respond to any impacts that arise.
Economic
Economic elements have a major effect on how purchasers conduct their procurement operations. They must thoroughly evaluate the supply base from the economic viewpoint, and that goes for both domestic and international suppliers.
Currency fluctuation impacts business with international suppliers. In such scenarios, buying at the right time would result in a significant return on investment. However, doing the same thing at the wrong time could lead to huge losses.
Inflation in the suppliers’ regions can lead to an unexpected increase in procurement expenditure. This increases the buying organization’s risk significantly if the supplier’s criticality to the business is high. At the same time, inflation in buying organization’s region might motivate procurement professionals to build relations with suppliers from regions where prices have not increased.
Procurement decisions are also impacted by interest rates, cost of living and labor rates in a country. Both these elements directly affect suppliers’ costs and consequently the final price of goods or services.
Another critical element is transportation. If unfavorable, the shipping costs can quickly eat up the benefit derived from procuring low-cost material from distant markets.
Social
The social factor highlights various socio-cultural influences that can affect an organizations supply base. It is key to understand how changes in customer behavior and expectations can affect the supply base, the services they offer and any potential growth or decline of the market that supply base operates within.
The supply base is significantly impacted by consumers’ buying habits and preferred price points. The specifics of any customer groups requirements will affect what is needed to be bought to satisfy that need, be it sustainable material or the fastest micro-processor.
Further, population demographics too can potentially point to a future change in a market either through change in customer views as above, but also changes in the market operating landscape through political changes influenced by the new demographics.
Technological
Technological advancement is by far the most difficult to document in today’s world. At any moment new service innovations and product advancements made through technology can have the effect of completely changing the operating market of that product or service. It is crucial to gain a view and understanding of the new innovations and solutions coming to the market that could have a significant impact on the particular market.
By the very nature of technology and its rapid advancement of processing power, it can be very difficult to be clear what may be just around the corner that an organization could take advantage of. Conducting a regular review of the technological section of a PEST can provide a great way of staying up-to-date with technological advances.
Legal
Laws and regulation are an important aspect of any market. It is very important to have a clear view of laws and regulations an organization must operate within, be it as a supplier or buyer.
Environmental
The ethical standards of a particular industry are important to understand and can influence the dynamics of an industry. Ethics in certain industries, such as finance, have far reaching consequences on the market and its supply base. Other ethical principles can have a major affect on the supply base such as a fair trade policy. Equally, consumers are increasingly demanding ethically produced goods and services.
Methods of using a PEST analysis in the Supply Chain
A PEST/PESTLE/STEEPLE analysis are strategic planning methods that help identify, assess, organize, and monitor external market activities. They can be used in the following ways by procurement professionals:
- As part of a procurement category plan or strategy, the regularity of the review should be aligned to the priority of the category. This can then be used to develop the future category strategy.
- As part of a sourcing activity. This will create a better understanding of the key market dynamics which can be incorporated into the sourcing requirements but also the contractual obligations.
- As a review of departmental or corporate strategy. Analyzing the macro factors that influence the organization and the challenges they pose can help shape the procurement strategy accordingly.
- Running a PEST/PESTLE/STEEPLE analysis alongside a SWOT analysis can help identify the most important factors for both the organization and the supplier.
Conclusion
A PEST/PESTLE/STEEPLE analysis is one of the most effective methods of analyzing the external factors impacting a market. These factors can influence or disrupt all aspects of procurement, from price negotiation to the management of trade and suppliers. Compiling a concise view of a market supports a number of key steps of the procurement process.
A PEST/PESTLE/STEEPLE analysis are essentially broad fact-finding activities. They help in strategic decision-making through the consolidating of market dynamics that allow procurement professionals the potential to capitalize on opportunities and eliminate risks simultaneously.
Key Takeaways
- Conduct a PEST/PESTLE/STEEPLE as part of any market or category review.
- Conduct and analysis each 12 months to ensure relevancy and to help inform procurement activities.
- Use the analysis as part of a full suite of tools that provide a full view of the market or category of interest so that a complete picture of the relevant forces is produced.
