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Porter's Five Forces Analysis: Power of Suppliers

Strategies and resources for creating a Five Forces Analysis

What is Supplier Power?

Suppliers have the power to influence price, as well as the availability of resources/inputs. Suppliers are most powerful when companies are dependent on them and cannot switch to other suppliers because of higher costs or lack of alternative sources.

Questions to ask include:

  • Can suppliers affect the company's bottom line?
  • Who are the major suppliers to the industry?
  • Are the suppliers concentrated? Must buyers depend on a few key suppliers?
  • Are the suppliers highly differentiated? Can buyers find alternative products/suppliers?
  • What are the costs of switching suppliers? Does it cost too much to switch?
  • Are suppliers a threat? Can they forward integrate and produce the buyer's product themselves?

 

Research the Supply Chain

Finding a company's actual suppliers is often difficult. Many companies do not want to reveal the information to their competitors. Bloomberg lists suppliers as part of its coverage of company relationships.

In addition, searching SEC filings, the 10-K, 10-Q and 8-K reports will often result in information about a company's suppliers and partners.

Use Databases to Identify Suppliers

Search newspapers and trade journals for mentions of a company's suppliers. Sometimes suppliers are happy to report their relationship or contracts with a major company. Go beyond searching with the keywords - "suppliers" or "supply chain." Look for mentions of "new contracts," 'joint ventures," "partnerships," or "distributors." Other keywords to use when searching are "procurement," "purchasing," "inventory management," "outsourcing," "suppliers," "warehousing," "logistics" and "operations management." Use the following databases:

Use Bloomberg to Research the Supply Chain

Bloomberg offers a function for supply chain analysis, SPLC <GO>, that tracks a company's key customers, suppliers and competitors. To find Amazon's suppliers, search by the company ticker and function (e.g., AMZN <Equity> SPLC <GO>).

The relationship list can be viewed in a chart or table. Suppliers can be grouped by country to assess geographic concentration in the supply chain. The supplier list can be filtered by industry subgroup or economic sector.

Find Supplier News by typing: NI SUPPLY <GO> or NI SPLC <GO>.

Bloomberg terminals are available on the lower-level of the Library on the LIU Trading Floor, LB 132.