Bargaining Power of Suppliers

Bargaining Power of Suppliers

It proves to be a threat when suppliers are able to
force up the prices and the company has to pay or settle for inferior quality. Weak suppliers on the other hand provide the company an opportunity to force down price or demand higher quality resulting in the profitability of the company going up. According to Porter suppliers are most powerful in the following situations.

(1) When the suppliers products have few substitutes and the company is dependent on the supplier for the product.

2.When the company’s industry is not as substantial and significant customer to the suppliers and consequently the suppliers have little incentive to reduce price or improve quality.

3.When the suppliers’ products are differentiated
widely and the company is dependent upon its suppliers. In such a situation, it is costlier for a company to switch from one supplier to another.