What Is Porter’s 5 Forces?
What is Porter’s 5 Forces?
Porter’s fives forces model is a strategic analysis model that can help analyse a particular environment of a market/sector. It considers the impact and influence of 5 main forces:
1) Competitive Rivalry
2) Power of suppliers
3) Power of buyers
4) Threats of substitutes
5) Threat of new entrants.
The above five main factors are key factors that influence industry/market performance; hence it is common sense and practical to find out about these factors when working within the industry.
Where does it fit in with Category Management? Gather Internal and External Data Analyse Data and Generate Options Plan and Implement Strategy
What is included in this guide? Porter’s 5 Forces Use of the information from Porter’s 5 Forces Example Tactics - Reducing Competitive Forces
Which processes does the tool apply to? SRM and Strategic Sourcing
Which other tools link to this guide? SWOT Analysis PEST Analysis Supply Market Analysis Supply Market Research
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Porter’s 5 Forces Analysis
Porter’s 5 Forces
The most commonly used technique in Supply Market Analysis is Porter’s “Five Forces” tool, which looks at the pressures the supplier is facing in their marketplace and how these can be used to the buyer’s advantage.
For example, if the supplier is under cost pressure from its other buyers, its patent is about to expire (letting substitutes in), and a new competitor can provide the goods at lower cost, the supplier will not want to lose the contract with us, and we are in a strong negotiating position.
Bargaining Power of Suppliers
Supplier bargaining power is likely to be high when: The market is dominated by a few large suppliers rather than a fragmented source of supply There are no substitutes for the particular input The suppliers customers are fragmented, so their bargaining power is low The switching costs from one supplier to another are high There is the possibility of the supplier integrating
Porter’s fives forces model is a strategic analysis model that can help analyse a particular environment of a market/sector. It considers the impact and influence of 5 main forces:
1) Competitive Rivalry
2) Power of suppliers
3) Power of buyers
4) Threats of substitutes
5) Threat of new entrants.
The above five main factors are key factors that influence industry/market performance; hence it is common sense and practical to find out about these factors when working within the industry.
Where does it fit in with Category Management? Gather Internal and External Data Analyse Data and Generate Options Plan and Implement Strategy
What is included in this guide? Porter’s 5 Forces Use of the information from Porter’s 5 Forces Example Tactics - Reducing Competitive Forces
Which processes does the tool apply to? SRM and Strategic Sourcing
Which other tools link to this guide? SWOT Analysis PEST Analysis Supply Market Analysis Supply Market Research
3
Porter’s 5 Forces Analysis
Porter’s 5 Forces
The most commonly used technique in Supply Market Analysis is Porter’s “Five Forces” tool, which looks at the pressures the supplier is facing in their marketplace and how these can be used to the buyer’s advantage.
For example, if the supplier is under cost pressure from its other buyers, its patent is about to expire (letting substitutes in), and a new competitor can provide the goods at lower cost, the supplier will not want to lose the contract with us, and we are in a strong negotiating position.
Bargaining Power of Suppliers
Supplier bargaining power is likely to be high when: The market is dominated by a few large suppliers rather than a fragmented source of supply There are no substitutes for the particular input The suppliers customers are fragmented, so their bargaining power is low The switching costs from one supplier to another are high There is the possibility of the supplier integrating