The term ‘suppliers’ comprises all sources for inputs that are needed in order to provide goods or services.
Supplier bargaining power is likely to be high when:
- The market is dominated by а few large suppliers rather than а 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 forwards in order to obtain higher prices and margins. This threat is especially high when:
- The buying industry has а higher profitability than the supplying industry,
- Forward integration provides economies of scale for the supplier,
- The buying industry hinders the supplying industry in their development (e.g. reluctance to accept new releases of products),
- The buying industry has low barriers to entry.
In such situations, the buying industry often faces а high pressure on margins from their suppliers. The relationship to powerful suppliers can potentially reduce strategic options for the organization. When it comes to the issue of power between suppliers and supermarkets, Sainsbury’s have it all their own way. From the points above we can deduce that supplier’s power is low as there are numerous suppliers to the supermarkets and if they aren’t content with one of the suppliers products they can easily switch to another without incurring а great cost. Finally the supplier cannot integrate forwards as there are high barriers to entry in the supermarket industry. The suppliers to Sainsbury’s bank are limited in terms of range and importance. There are few fixed costs beyond software and associated products. As а ‘virtual’ business with considerable capital available through the parent company the Bank has very little reliance on suppliers. The same is true of Sainsbury’s property businesses.