Porter’s Five Forces
Porter’s Five Forces
A competitive strategy must meet the opportunities and threats inherent in the external environment; it should be based on an understanding of industry and economic change.
Porter identifies five forces that shape every industry and which determine the intensity and direction of competition and therefore the profitability of an industry. The objective of strategic planning is to modify these competitive forces such that the organization’s position is improved. Management can then decide, based on the information given by the Five Forces model, how to influence or to exploit industry characteristics.
Bargaining Power of Suppliers
The term “suppliers” comprises all sources for inputs necessary to provide products. And “supplier power” refers to their relative bargaining power, which, when high, allows significant influence on the industry and expropriation of profits.
Home Depot’s expense controls and cost initiatives – its core competencies – derive in part from efficient supply chain management. The company also plans to centralize purchasing operations and to decrease merchandise inventories, both of which will further reduce the power of its suppliers. That the primary source of both planned and actual efficiencies in this area, however, derive largely from cost initiatives and financial policy, points to the firm’s emphasis on cost leadership.
But Lowe’s has already established centralized logistics systems based not so much on economies of scale or rigid accounting an on logistical flexibility. To determine the most efficient way to purchase inventory, Lowe’s looks at every product of every vendor individually. This method should decrease cost per product via four methods of distribution: flowing goods through regional centers, shipping by commodity focused consolidation, reloading distribution centers, and direct shipment to stores. “Our goal,” says Bob Tillman, chairman and CEO, is to be sending more trucks
A competitive strategy must meet the opportunities and threats inherent in the external environment; it should be based on an understanding of industry and economic change.
Porter identifies five forces that shape every industry and which determine the intensity and direction of competition and therefore the profitability of an industry. The objective of strategic planning is to modify these competitive forces such that the organization’s position is improved. Management can then decide, based on the information given by the Five Forces model, how to influence or to exploit industry characteristics.
Bargaining Power of Suppliers
The term “suppliers” comprises all sources for inputs necessary to provide products. And “supplier power” refers to their relative bargaining power, which, when high, allows significant influence on the industry and expropriation of profits.
Home Depot’s expense controls and cost initiatives – its core competencies – derive in part from efficient supply chain management. The company also plans to centralize purchasing operations and to decrease merchandise inventories, both of which will further reduce the power of its suppliers. That the primary source of both planned and actual efficiencies in this area, however, derive largely from cost initiatives and financial policy, points to the firm’s emphasis on cost leadership.
But Lowe’s has already established centralized logistics systems based not so much on economies of scale or rigid accounting an on logistical flexibility. To determine the most efficient way to purchase inventory, Lowe’s looks at every product of every vendor individually. This method should decrease cost per product via four methods of distribution: flowing goods through regional centers, shipping by commodity focused consolidation, reloading distribution centers, and direct shipment to stores. “Our goal,” says Bob Tillman, chairman and CEO, is to be sending more trucks