1. Supplier power refers to the pressure suppliers can exert on businesses by raising prices, lowering
quality, or reducing availability of their products.
When analyzing supplier power, the industry analysis is being conducted from the perspective of the
industry firms, in this case referred to as the buyers.
According to Porter’s 5 forces industry analysis framework, supplier power, or the bargaining power of
suppliers, is one of the forces that shape the competitive structure of an industry.
The bargaining power of the supplier in an industry affects the competitive environment for the buyer
and influences the buyer’s ability to achieve profitability.
Strong suppliers can pressure buyers by raising prices, lowering product quality, and reducing product
availability. All of these things represent costs to the buyer.
A strong supplier can make an industry more competitive and decrease profit potential for the buyer.
On the other hand, a weak supplier, one who is at the mercy of the buyer in terms of quality and
price, makes an industry less competitive and increases profit potential for the buyer.
The factors that determines the supply power
If suppliers are concentrated compared to buyers – if there are few suppliers and many buyers –
supplier bargaining power is high.
If buyer switching costs – the cost of switching from one supplier’s product to another supplier’s
product – are high, the bargaining power of suppliers is high.
If suppliers can easily forward integrate – or begin to produce the buyer’s product themselves –
supplier power is high. If the buyer is not price sensitive and uneducated regarding the product,
supplier power is high. If the supplier’s product is highly differentiated, supplier bargaining power is
high. If the buyer does not represent a large portion of the supplier’s sales, the bargaining power of
suppliers is high. If substitute products are unavailable in the marketplace, supplier power is high.
And of course, if the opposite is true for any of these factors, supplier power is low. For example, low
supplier concentration, low switching costs, no threat of forward integration, more buyer price
sensitivity, well-educated buyers, buyers that purchase large volumes of standardized products, and
the availability of substitute products. Each of the fore mentioned factors indicate that the supplier
power Porter's five forces emphasize is low

2. 1. Differentiation of Inputs Refers to valued, unique and tangible product differences
that exist only in your suppliers products. A supplier whose product or service is
unique or has special attributes
2. Switching Costs Refers to any cost incurred by you to switch to another or a new
supplier. Any cost associated with changing supplier reduces the frequency that
businesses will change suppliers. These costs can be anything from the legal costs
associated with new contracts, your time, spare parts or unique tools required, setup
costs or even the risk of the unknown.
For eg : CO. A and CO. B charges 20/- and 19/- respectively, however the co. A reduces the
price to 19.50 because long term relation with the buyer and don’t want to lose the customer.
3. Substitute Products Refers to an alternative product or service that is not in
supplier's industry.
4. Supplier concentration relative to industry concentration Refers to the ratio of
suppliers to buyers in your industry. Quite often this is measured by looking at the
market share of the top 4 suppliers to your industry, if the top 4 suppliers have 90%
of the market then they can drive price if the top 4 have 30% of the market then you
can drive price.
5. Cost relative to the total purchases of the industry Refers to the value to be
derived from entering into price negotiations
Most negotiation effort is directed towards the suppliers who represent the largest spend for
your industry.
You are likely to just accept the price of low value items or for items that are trivial in
comparison to your total spend.
6. Impact of inputs on cost or differentiation Refers to the role your supplier’s
product plays in differentiating your product or service.
If your business is successful because of a quality that is inherent in your supplier's product
your supplier will have the negotiating power.

3. For eg : when two products are compared, quality and features are considered with price.
7. Threat of forward integration Refers to a supplier choosing to become a
competitor of yours
Arvind mills which is involved in producing cotton textile opened its own retain outlets like
mega mart, arrows, flying machine.
There should be a win-win situation..