Professor Michael Porter of the Harvard Business School developed a framework that aids in the development of an organizations competitive advantage. Porter identified five basic forces that act on the organization; I. The bargaining power of suppliers; II. The bargaining power of buyers; III. The threat of potential new entrants; IV. The threat of substitutes; V. The extent of competitive rivalry. The bargaining power of suppliers. Suppliers can exert bargaining power over participants in an industry by threatening to raise prices or reduce the quality of purchased goods or services. In every industry there are suppliers; Porter put forward the idea that suppliers are more powerful under the following conditions; « If it is dominated by a few companies and is more concentrated than the industry it sells to. This means it is difficult to switch suppliers if they start exerting power. « It is not obliged to contend with other substitute products for sale to the industry. This is the case if the suppliers role is technical and no other suppliers can offer this product/service. « The industry is not an important customer of the supplier group. If the industry that the supplier is selling to, does not represent a large proportion of its sales then it can exert power. « The supplier¡¦s product is an important input to the buyers business. Supplier¡¦s product is essential to the buyer then they can charge whatever price they wish, and the buyer will pay because the product is essential. The bargaining power of buyers. Buyers compete with the industry by forcing down prices, bargaining for higher quality or more services, and playing competitors against each other. Porter put forw... ... middle of paper ... ... 1. It assumes that the organisation`s own interests come first; it doesn¡¦t take into account charities or government bodies, where the needs of other people come first. (Lynch 2006) 2. The model assumes relatively static market structures. The competitive environment of an industry is ever-changing. (Lynch 2006) 3. In economic terms, the model assumes a classic perfect market. The more an industry is regulated, the less meaningful insights the model can deliver. 4. It only looks at the macro-environment of an organisation and makes no attempt to investigate the micro-environment. 5. It is said to be dated; when the model was created in the 1980`s, the US economy was under-going cyclical growth primary objectives consisted of profitability and survival. Development in most industries had been fairly stable and predictable, compared with today¡¦s dynamics.
In addition, the bargaining power of the sources of inputs is high. The switching costs from one supplier to another are high because there are not many substitutes for the particular input for metal products. Besides, the number of suppliers who produce raw metals is small. The threat of substitute is high. There are many different kinds of substitutes for metal product company. These companies may also produce a large variety of product like Slade Company. Therefore, the substitute is low for this market. Only companies that produce high quality are able to not be substituted by the others.
This organization belongs to the oligopoly market structure. The oligopoly market structure involves a few sellers of a standardized or differentiated product, a homogenous oligopoly or a differentiated oligopoly (McConnell, 2004, p. 467). In an oligopolistic market each firm is affected by the decisions of the other firms in the industry in determining their price and output (McConnell, 2005, P.413). Another factor of an oligopolistic market is the conditions of entry. In an oligopoly, there are significant barriers to entry into the market. These barriers exist because in these industries, three or four firms may have sufficient sales to achieve economies of scale, making the smaller firms would not be able to survive against the larger companies that control the industry (McConnell, 2005, p.
Suppliers must maintain good relations with the companies in the industry. This is low because there are multiyear service contracts and the delivery industry uses items such as vehicles, employee benefits, general goods and airline contracts associated with overhead of running business, but all contracts are rewarded through an RFP process. There are enough players in the market and had high fixed cost and thus have substantial buying power.
Dominant power is very tempting for the buyer since it provides some kind of control of quality and specifically drives price down. But, from my perspective, supply chain management is mostly all about cooperation in order to achieve success in every part of the channel and by this means get quality improvement and reduce costs throughout the supply chain so everybody is satisfied. The key here is definitely to establish long-term trusting and supportive relationships in which all members cooperate rather than dominate. For me it seems that interdependence box is better for such kind of relationships, where buyer and supplier are...
Bargaining power of suppliers is low since there are alternative weight management platforms such as Jenny Craig, or Curves. The supplier is dominated by a few companies and is more concentrated than the industry it sells to. Also, with an industry as large as weight management, suppliers are more prone to exert power as a particular industry does not represent a significant fraction of its sales.
Bargaining power of suppliers analyzes how much power a business 's supplier has and how much control it has over the potential to raise its prices, which, in turn, would lower a business 's profitability. (Arline, 2015).
The suppliers bargaining power is generally strong because of the big monopolies and the high importance of purchasing components and operating system, therefore it decreases the profitability of the market players.
The Porter five forces model (see Appendix 1) as an external analysis tool was established by Michael E. Porter and firstly announced in his book “Competitive Strategy: Techniques for Analyzing Industries and Competitors” in 1980 . The main idea of the Porter five forces concept is that the attractiveness of a market depends on the characteristic of the five competitive forces that have an impact on a company (see Appendix 2).
A Review and Assessment of Its Critiques, Journal of Management, SAGE. Viewed on5th April 2011, at http://jom.sagepub.com/content/36/1/349.full.pdf+html
Porter, M. E., 1999. The Five Forces that Shape Competitive Strategy. Harvard business review, p. 80.
The other side of the matter is excessive adherence to preferred suppliers neglecting the advantages competitive pricing. Competitive pricing could pave the way for reducing the price of the end product. This is what the evaluation of the T5 agreement now suggests.
A perfectly competitive market is based on a model of perfect competition. For a market to fall under this model it must have a number of firms, homogeneous products, and easy exit and entry levels into the market (McTaggart, 1992).
In conclusion, market structure is important because it leads to strategic decision making. Having a working knowledge of market structure impacts decision making because organizations will learn the characteristics of their competition and how the market will response to changes. This report discussed the four different types of market structures: monopoly, oligopoly, monopolistic competition, and pure competition. It went into detail about what each market structure was and gave every day examples of them. Additionally, it will outlined the type of market structure AutoEdge fits into, how that market structure impacts the level of competition, elasticity of demand, price, and position in the industry.
The number of suppliers available for each input drives the bargaining power of suppliers. More the suppliers, lower would be their bargaining power.
A company’s relationship with key suppliers is a vital part of any company’s success. A good supplier relation means better price, meeting company standards and a better service level. That 's why when Honda started working with Modine, Honda made sure that its relationship with Modine was