ENTREPRENEURSHIP

SUBMITTED TO: SIR SALEEM ZIA

SUBMITTED BY: ANAM SHEHZADI
ROLL NO: 01
DEPARTMENT: MANAGEMENT
ASSIGNMENT: 02
 Describe the four primary factors that play a role in determining the
nature and intensity of the bargaining power of suppliers. How does
the bargaining power of suppliers have potential to suppress an
industry's profitability?

When suppliers have bargaining power, they can apply pressure on a company by
charging higher prices, adjusting the quality of the product or controlling availability and
delivery timelines. Within the five forces framework, there is an understanding that when
suppliers have this bargaining power, they can affect the competitive environment and
directly influence profitability for the company.

Factors that Increase Supplier Power

Suppliers may have more power:

 If they are in concentrated numbers compared to buyers.

 If there are high switching costs associated with a move to another supplier.

 If they are able to integrate forward or begin producing the product themselves.

 If they have specific expertise or technology needed to manufacture goods.

 If their product is highly differentiated.

 If there are many buyers and none make up significant portions of sales.

 If there are no substitutes available.

 If there are strong end users who can exert power over the organization in favor
of a supplier (This can be the case in labor situations).
In all of these cases, the bargaining power of suppliers is high to demand premium
prices and set their own timelines.

When a company’s suppliers have significant power over the value chain, it can directly
impact how the company serves its own customers. Depending on what power the
supplier chooses to exert, a company may have to reflect this through
product prices, product quality and quantity available. Too much disruption in any of
these areas may even mean that a company is no longer able to stay in business. A
company may need to end operations or shift to another industry to avoid being dictated
by the whims of a supplier.
Pricing
The first issue a company usually has to face from a strong supplier is increased costs.
A supplier who knows that they cannot be removed may insist on raising prices for their
raw material too soon, or ahead of agreed upon timelines. If the buyer has to choice but
to pay these prices, the resultant increase in total production cost will either need to be
absorbed by the company itself or passed on to the consumer. If the profit margin does
not allow the company to absorb this pressure, it will mean higher prices in the market.
The target market may not be receptive to this change and sales may suffer. A loss of
customers to a competing product or substitute may be another undesirable outcome.

Supply/Product Availability
If a supplier is unwilling or unable to meet quantity targets, then the company may have
to deal with demand that outweighs supply. This can happen either in regular scenarios
if the company decides to try and increase sales or at peak sale times such as holidays
or special occasions where people tend to buy more of some types of products.

Quality Issues
There may be cases where the supplier decides to compromise on the quality of the
product in order to bring down costs. This will directly impact the company’s product
offering and may create a negative impact on the end consumer if the quality issues are
significant enough to impact user experience. There may be an increase in complaints,
returns and exchanges, and in worse cases, an entire switchover to another product.

Dictating Industry Dynamics

If a single large supplier chooses to supply to only certain companies, it may end up
with the power to push companies out of the industry. In these cases, a company will be
helpless and unable to save itself. If the product is a fully manufactured by a supplier,
they may also choose to deign selling it directly to the customer often at a lower price.

Mitigating Supplier Power

If supplier power becomes too strong in the market, companies will try to find ways to
reduce this power. If the demand for the product is high enough, there may be ways to
develop alternate ways to produce or sell a product that reduces the supplier power.
Product re-design, or product line diversification may be some of the ways that
companies can try to dislodge powerful suppliers.