Procurement for Porter’s 5 Forces: Part 3: Bargaining Power of Suppliers

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April 29, 2014
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April 30, 2014
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Threat from suppliers

Bargaining with Suppliers

Let us discuss in this article whether it is still very relevant a philosophy, to look at suppliers as a potential threat. In a world that’s rushing toward complete cost transparency and a win-win school of thought, it is important for us to not take this threat at theoretical face value, but to dig deeper. I am assuming that new ways of thinking can change the way certain factors expose us to various kinds of threat from suppliers.

Threat from suppliers

Bargaining with Suppliers

  • Switching

Even with today’s high end supplier onboarding tools and technologies that cut the sourcing cycle time, there are many hassles that procurement would have to go through, if it really came to switching a supplier for a critical category.  The more entrenched one is with an existing supplier, the riskier it gets.  Even at a psychological level, if not just the monetarily, the overall cost of switching seems intimidating.  As a procurement exec, it might provide a different perspective if you can ask yourself, how to make it attractive for the supplier to stay on.  The answer could depend on whether you are in a position to make the supplier’s future brighter that what it is.  Give your supplier something more to look forward to than just the next day’s business.

  • Differentiation

We are all looking to differentiate.  Businesses and brands are built on ‘what else’ and ‘what’s special’.  Take a moment, and find out what can you give to a USP-enabler supplier to encourage loyalty.  Can you give him a market for one of his ‘not-much-in-demand’ products or services?  Making each other equals in some way can make your situation less weak.

  • Price Domination

Let’s say that for a given category your suppliers are driven by their dominant price leaders and you are at their mercy.  In this case, what can you do, to make the supplier go against the herd in their industry and break the rules?  If there is a possibility of making your suppliers you customers also, one can explore that!

  • Labor Unions

Marketing yourself to your supplier’s employees also is a good idea.  A thoughtful gesture in the form of mass goodies, tokens of gratitude, and a dash of personal touch is something we all like.  Make yourself a favorite among your supplier’s employees and they would love to work for you through thick and thin.

  • Forward Integration

Forward integration could also be an issue if the supplier is merely one step away from being able to woo your customer market.  Preventive ways would be to ensure non-conflicting business visions when engaging the first time ever with each supplier and then safeguarding yourself through official agreements.  Or may be, choose partnership over competitor-ship as the preferred evolution of your relationship with so ambitious a supplier.

To revisit Porters’ original work in detail and study its application for procurement, click the download button below to access the whitepaper- “Revisit Porter’s Five Forces to Unleash Procurement Innovation”

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