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                        Porters Five Forces – Competitive Analysis

                        And the Bargaining Power of Your Suppliers

                        Content rich web pages, including free porters five forces template available in PDF or MS Word. Plus handy hints and tips for leaders. Quick link to porters five forces template

                         

                         

                        Introduction to the Bargaining Power of Your Suppliers

                        An analysis of the bargaining power of suppliers will identify the extent to which your suppliers can choose to raise prices, reduce quality or reduce service without consequence.

                        You will find that as the bargaining power of suppliers increases the industry profitability tends to decrease. However supplier power can vary, so watch for changes in power due to seasonal or economic cycles.

                         

                         

                        Analyzing the Bargaining Power of your Suppliers

                        The good news it that the bargaining power of supplier’s is similar to the bargaining power of customer’s section of the Porter Model. You will complete essentially the same analysis, only this time your industry is the customer.

                        To analyze the bargaining power of suppliers to your industry, you will need to consider the following factors

                        Or Click here to view and download a free Porter Model Template

                         


                        Analysis Criteria

                        Description

                        Differentiation of Inputs

                        Refers to valued, unique and tangible product differences that exist only in your suppliers products.

                        A supplier whose product or service is unique or has special attributes that you desire restricts your ability to shop around.

                         

                        Switching Costs

                        Refers to any cost incurred by you to switch to another or a new supplier

                        Any cost associated with changing supplier reduces the frequency that businesses will change suppliers.

                        These costs can be anything from the legal costs associated with new contracts, your time, spare parts or unique tools required, setup costs or even the risk of the unknown.

                         

                        Substitute Products

                        Refers to an alternative product or service that is not in your supplier's industry.

                         

                        Supplier concentration relative to industry concentration

                        Refers to the ratio of suppliers to buyers in your industry

                        Quite often this is measured by looking at the market share of the top 4 suppliers to your industry, if the top 4 suppliers have 90% of the market then they can drive price if the top 4 have 30% of the market then you can drive price.

                         

                        Importance of volume to the supplier

                        Refers to the supplier’s capacity and the volume that you purchase.

                        If a supplier is a high volume of producer with limited ability to scale back production, then they need to sell everything that they produce.

                        If demand is less that supply then the higher volume buyers will have the bargaining power.

                        If your business is a low volume buyer then you are unlikely to have much bargaining power, whereas if you are the high volume buyer then you will have more market power.

                         

                        Cost relative to the total purchases of the industry

                        Refers to the value to be derived from entering into price negotiations

                        Most negotiation effort is directed towards the suppliers who represent the largest spend for your industry.

                        You are likely to just accept the price of low value items or for items that are trivial in comparison to your total spend.

                        Impact of inputs on cost or differentiation

                        Refers to the role your supplier’s product plays in differentiating your product or service.

                        If your business is successful because of a quality that is inherent in your supplier's product your supplier will have the negotiating power.

                         

                        Threat of forward integration

                        Refers to a supplier choosing to become a competitor of yours

                        Is it likely that your supplier could improve their profits by getting into your line of business?  

                         

                         

                         

                        Completing your Bargaining Power of Suppliers Assessment

                         

                        Analysis Criteria

                        Risk Rating

                        High

                        Medium

                        Low

                        Differentiation of Inputs

                         

                         

                         

                        Switching Costs

                         

                         

                         

                        Substitute Products

                         

                         

                         

                        Supplier concentration relative to industry concentration

                         

                         

                         

                        Importance of volume to the supplier

                         

                         

                         

                        Cost relative to the total purchases of the industry

                         

                         

                         

                        Impact of inputs on cost or differentiation

                         

                         

                         

                        Threat of forward integration

                         

                         

                         

                        Overall Risk Rating

                         

                        Scroll down for an alternative porter model template

                         

                        Alternative Template for the Bargaining Power of Suppliers

                        The following free strategic planning template can be used to determine if each of the factors that affect the Bargaining Power of Suppliers has a positive or negative risk.

                        You can then give an overall rating for this force.

                         

                        Analysis Criteria

                        Comments

                        Rating

                        Differentiation of Inputs    
                        Switching Costs    
                        Substitute Products    
                        Supplier concentration relative to industry concentration    
                        Importance of volume to the supplier    
                        Cost relative to the total purchases of the industry    
                        Impact of inputs on cost or differentiation    
                        Threat of forward integration    

                        The threat of new entrants overall rating

                         

                        Porter Model Templates from What Makes a Good Leader

                         

                        View and download our Porter Model Template Here

                         

                        After completing your Analysis

                        After completing your analysis you should transfer the key highlights to your SWOT analysis. Generally, you only need to add high level commentary to your SWOT.

                        Given that Porters five forces is an industry analysis technique you will only need to update the opportunities and threats in your SWOT analysis.

                        Why not take 5 minutes to learn how to use all five forces in the porter model to ensure you can analyze and understand the nature of competition in your industry.

                        Thank you for visiting our Porter Model section.

                         

                         

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