Tag Archives | supplier power

Supplier Power Analysis

See Also:
Supplier Power (one of Porter’s Five Forces)
Signs a Company is in Trouble
Problems When Experiencing Business Growth
Threat of New Entrants
Intensity of Rivalry

Supplier Power Analysis

When analyzing a given industry, all of the aforementioned factors regarding Porter a supplier power analysis may not apply. But some, if not many, certainly will. Of the factors that do apply, some may indicate high supplier bargaining power whereas some may indicate low supplier power. But the results will not always be straightforward. Therefore, consider the nuances of the analysis and the particular circumstances of the given firm and industry when using these data to evaluate the competitive structure and profit potential of a market.

Download the External Analysis whitepaper to gain an advantage by overcoming obstacles and preparing to react to external forces, For example, an external force is when it is a supplier’s market.

Bargain Power of Suppliers is High/Strong

Bargain power of suppliers is high/strong if any of the following applies:

Supplier Bargain Power is Low/Weak

Supplier bargain power is low/weak if any of the following applies:

  • Concentrated buyers
  • Buyer switching costs are low
  • Buyer is price sensitive
  • Threat of forward integration is low
  • Buyer purchases product in high volume
  • Product is undifferentiated
  • Buyer purchases comprise large portion of supplier sales
  • Substitutes are available
  • Buyer is well-educated regarding the product

Supplier Power Interpretation

When conducting Porter’s 5 forces supplier power analysis, low supplier power makes an industry more attractive and increases profit potential for the buyer. Conversely, high supplier power makes an industry less attractive and decreases profit potential for the buyer. Supplier power is one of the factors to consider when analyzing the structural environment of an industry using Porter’s 5 forces framework. Supplier power examples include both markets for new and rare products.

When you assess the supplier power, do not neglect other external forces. If you want to overcome obstacles and prepare to react to external forces, then download the free External Analysis whitepaper.

supplier power analysis

Strategic CFO Lab Member Extra

Access your SWOT Analysis Execution Plan in SCFO Lab. The step-by-step plan to identify your strengths, weaknesses, opportunities, and threats.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

supplier power analysis

Share this:
0

Supplier Power (one of Porter’s Five Forces)

See also:
Supplier Power Analysis
Porter’s Five Forces of Competition
Threat of New Entrants
Buyer Bargaining Power
Threat of Substitutes
Intensity of Rivalry

Supplier Power Definition

In Porter’s five forces, supplier power refers to the pressure suppliers can exert on businesses by raising prices, lowering quality, or reducing availability of their products. When analyzing supplier power, you conduct the industry analysis from the perspective of the industry firms, in this case referred to as the buyers. According to Porter’s 5 forces industry analysis framework, supplier power, or the bargaining power of suppliers, is one of the forces that shape the competitive structure of an industry.

The idea is that the bargaining power of the supplier in an industry affects the competitive environment for the buyer and influences the buyer’s ability to achieve profitability. Strong suppliers can pressure buyers by raising prices, lowering product quality, and reducing product availability. All of these things represent costs to the buyer. Furthermore, a strong supplier can make an industry more competitive and decrease profit potential for the buyer. On the other hand, a weak supplier, one who is at the mercy of the buyer in terms of quality and price, makes an industry less competitive and increases profit potential for the buyer.

Download the External Analysis whitepaper to gain an advantage over competitors by overcoming obstacles and preparing to react to external forces, such as it being a buyer’s market.

Supplier Power – Determining Factors

The supplier power Porter has studied includes several determining factors. If suppliers are concentrated compared to buyers – there are few suppliers and many buyers – supplier bargaining power is high. Conversely, if buyer switching costs – the cost of switching from one supplier’s product to another supplier’s product – are high, the bargaining power of suppliers is high. If suppliers can easily forward integrate or begin to produce the buyer’s product themselves, then supplier power is high. Supplier power is high if the buyer is not price sensitive and uneducated regarding the product. If the supplier’s product is highly differentiated, then supplier bargaining power is high. The bargaining power of suppliers is high if the buyer does not represent a large portion of the supplier’s sales. If substitute products are unavailable in the marketplace, then supplier power is high.

And of course, if the opposite is true for any of these factors, supplier power is low. For example, low supplier concentration, low switching costs, no threat of forward integration, more buyer price sensitivity, well-educated buyers, buyers that purchase large volumes of standardized products, and the availability of substitute products. Each of the four mentioned factors indicate that the supplier power Porter’s five forces emphasize is low. To help determine the level of supplier power in your industry, start by performing an external analysis. This tool will easily help you determine the level of all of Porter’s Five ForcesDownload the free External Analysis whitepaper by clicking here or the image below.

Intensity of rivalry

Strategic CFO Lab Member Extra

Access your Strategic Pricing Model Execution Plan in SCFO Lab. The step-by-step plan to set your prices to maximize profits.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs

supplier power

Share this:
24

Supplier Power

Supplier Power Definition

“In Porter’s five forces, supplier power refers to the pressure suppliers can exert on businesses by raising prices, lowering quality, or reducing availability of their products. When analyzing supplier power, the industry analysis is being conducted from the perspective of the industry firms. In this case, it is referred to as the buyers. According to Porter’s 5 forces industry analysis framework, supplier power, or the bargaining power of suppliers, is one of the forces that shape the competitive structure of an industry.

The idea is that the bargaining power of the supplier in an industry affects the competitive environment for the buyer. Furthermore, it influences the buyer’s ability to achieve profitability. Strong suppliers can pressure buyers by raising prices, lowering product quality, and reducing product availability. All of these things represent costs to the buyer. In addition, a strong supplier can make an industry more competitive and decrease profit potential for the buyer. On the other hand, a weak supplier, one who is at the mercy of the buyer in terms of quality and price, makes an industry less competitive and increases profit potential for the buyer….”

Download your free External Analysis whitepaper that guides you through overcoming obstacles and preparing how your company is going to react to external factors.

supplier power

Strategic CFO Lab Member Extra

Access your Projections Execution Plan in SCFO Lab. The step-by-step plan to get ahead of your cash flow.

Click here to access your Execution Plan. Not a Lab Member?

Click here to learn more about SCFO Labs


supplier power

Share this:
0

LEARN THE ART OF THE CFO