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a competitive advantage
This theory is based on the concept that there are five forces — barriers to entry, threat of
substitutes, rivalry, supplier power, buyer power — that determine the competitive intensity and
attractiveness of a market
Did you know that efficient procurement practices can add to your organization’s competitive
advantage? Before I explain how, I want to start out by talking about Porter’s Five Forces of
Competitive Position Analysis. Harvard Business School’s Michael E. Porter developed them as
a framework for assessing and evaluating the competitive strength and position of an
organization.
This theory is based on the concept that there are five forces — barriers to entry, threat of
substitutes, rivalry, supplier power, buyer power — that determine the competitive intensity and
attractiveness of a market. Porter’s Five Forces help to identify where power lies in a business
situation. This concept is useful both in understanding the strength of an organization’s current
competitive position, and in determining if the organization should be open to entering new
markets.
Five Forces analysis helps organizations measure competition intensity, attractiveness and
profitability in a specific industry, and can help executives make informed decisions relating to:
It is not surprising that two of the Five Forces — bargaining power of suppliers and bargaining
power of buyers — are directly related to an organization’s procurement function
Here’s why:
Supplier power is an assessment of how easy it is for a supplier to increase prices. It is driven by:
• The number of suppliers available for each essential product or service the organization
needs
• The distinctiveness of their product or service
• The relative size and strength of the supplier
• The cost of switching from one supplier to another
Buyer power is an assessment of how easy it is for buyers to lower prices. It is driven by:
The fundamental purpose of all sourcing and procurement activity is to utilize the external market
and suppliers in an optimal manner in order to gain a competitive advantage. Every item or
service being sourced should contribute, directly or indirectly, towards competitive positioning.
The major point here, according to Reginald Peterson, Corcentric’s director of indirect supply
programs, is that in order to improve your organization’s competitive advantage through
procurement, every procurement department’s goals should be to simply buy everything the
organization needs better than their competitors.
According to Peterson, your procurement department should take the following steps to increase
your organization’s competitive advantage
Following these steps will turn your procurement processes into a competitive advantage for the
entire organization.
https://www.fleetowner.com/ideaxchange/how-your-procurement-process-can-give-you-competitive-
advantage