4 Reasons to consider the Power of Supplier
Bargaining power of Suppliers is one of the powerful factors in controlling and affecting your business. The management of suppliers needs a high focus and clear strategy. In this article I am explaining the 4 reasons to consider the Power of Supplier.
What are the factors affecting Bargaining Power of Suppliers in Porter’s Five Forces Model?
1. Concentration of Suppliers:
Concentration of suppliers means that you have restricted no. of suppliers (may be one supplier), so they become a powerful in their position and they can raise up the price of their services as they want, also their business requests (services, products, bonuses) increases if they (suppliers) are serving one or two of your competitors as you.
2. Availability of Substitutes:
If your substitute is available at that supplier, you should know that they want to make that supplier loyal to them and preventing it from dealing with you.
3. Switching Costs:
The supplier could deal with another company (which may be one of your competitors) because they give them higher price for their services. Even the suppliers need a high relationship marketing and key accounts management because they are capable of controlling your push strategy to wholesalers and other channel of distributions which is going to affect your business.
4. Forward Integration:
Are your suppliers capable to manufacture similar products as your products?
If your suppliers know the know-how of manufacturing your products and services, and if they were interested to manufacture similar products as you do, then this will prevent you from the getting raw materials from those suppliers. And this results in decreasing your business growth. Also as results of the forward integration of the suppliers, they may want to manufacture products for you and integrating with your company business at the same time. That’s why it’s called forward integration, which means they are integrating their business with you to share you the profit much more than they supposed to share.