Determining Factors: Bargaining Power of Suppliers

There are five major factors when determining the bargaining

power of suppliers:

1. Number of suppliers relative to buyers

2. Dependence of a supplier’s sale on a particular buyer

3. Switching cost (switching costs of supplier)

4. Availability of suppliers for immediate purchase

5. Possibility of forward integration by suppliers

When is Bargaining Power of Suppliers High/Strong?

 Switching costs of buyers are high

 Threat of forward integration is high

 Small number of suppliers relative to buyers

 Low dependence of a supplier’s sale on a particular buyer

 Switching costs of suppliers are low

 Substitutes are unavailable

 Buyer relies heavily on sales from suppliers

When is Bargaining Power of Suppliers is Low/Weak?

 Switching costs of buyers are low

 Threat of forward integration is low

  Large number of suppliers relative to buyers

 High dependence of a supplier’s sale on a particular buyer

 Switching costs of suppliers are high

 Substitutes are available

 Buyer does not rely heavily on sales from suppliers

Purpose of Bargaining Power of Suppliers Analysis

Pesticides

When doing an analysis of supplier power in an industry, low

supplier power creates a more attractive industry and increases
profit potential as buyers are not constrained by suppliers. High
supplier power creates a less attractive industry and decreases
profit potential as buyers rely more heavily on suppliers.