The power of suppliers

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Suppliers are those who supply the organisation with what it needs to produce the product or service. As well as fuel, raw materials and equipment, this can include labour and sources of finance. The factors increasing suppliers power are the converse to those for buyer power. Thus, supplier power can be high in certain areas.

Concentrated suppliers

Where just a few pruducers dominate supply, suppliers have more power over buyers. The iron ore industry is now concedtrated in the hands of three main producers, leaving the steal companies, relatively fragmented, in a very weak negotiation position for this essential raw material.

High switching costs

If it is expensive or disruptive to move from one supplier to another, then the buyers become relatively dependant and correspondingly weak. Microsoft is a powerful supplier because of the high switching cost of moving from one operation system to another. Buyers are prepared to pay a premiun to avoid the trouble, and Microsoft knows it.

Suppliers competition threat

Suppliers have increased powers where they are able to cut out buyers who are acting as intermediaries. Thus airlines have been able to negotiato tough contracts with travel agencies as the rise of online booking has allowed them to create a direct route to customers

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september 25th, 2008 at 8:05 pm

Posted in economics

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