Porter's 5 Forces, My Personal Experience

Hello! First of all, Happy New Year everyone! Today's post is about Porter's Five forces, and specifically the "Bargaining power of suppliers" which is very important factor for businesses and especially nowadays with the current Crisis.

Porter's Five forces is a framework analysis tool for new or existing firms that analyse the industry and business strategy development.  As you can see from the picture, the five forces are: Bargaining power of customers, bargaining power of suppliers, threat of new entrants, threat of substitute products and the Competitive rivalry within the industry. The second, "Bargaining Power of Suppliers" is the one that my personal experience is about.  But first some quick notes on that.  The supplier on a specific product have power over the firm when the product it sells doesn't have a competition or a substitute product.  Furthermore, when a supplier's customer is a small firm or unimportant, the supplier once again have the power over the customer, but on the other hand, when the customer is a big firm, it doesn't have much power because he needs the customer as the firm most probably gives a big income (example, Orphanides for those who know, just think of it, why did suppliers continue supplying the firm even when they didn't get paid?)

My personal experience.  My Father owns a printing company for almost ten years, and two years ago he decided to buy a new printer to print digital on rolled sticker paper.(avoiding the "traditional" procedure of the "RotoGravure".. Not writing to explain how printing works, the only thing I can say here is that it is more complicated, slower and more expensive! Digital made life easier!!!)  The printer that he bought is basically a good home laser printer modified to print, cut and roll at the same time.  So he made his calculations of whether he can print with competitive prices or not, and all calculations showed that the printer will give more profit and better prices to the customers.

So far so good.. What he didn't count on, is the alternative supplier for toner and paper. (the bargaining power of the supplier!) Because of the economical crisis or for any other reason, the supplier made a price rise several times, causing the rise of the expenses too.  If the supplier forces up the prices the firm will have to pay that difference causing less profit.

On the other hand, prices for supplies on the old rotogravure machines do rise but because of the competition, they are in a much better situation. (lots of ink suppliers, lots paper suppliers, lots of gravure cylinders suppliers and so on)

If it was a wine product, the company could have a vineyard and the supplier would not be necessary, but in this case, it is impossible to have an ink producer in Cyprus (the company have chip on the printer anyway), and the suppliers have some power over the company; they can change the price over time and the company will not have many options but to buy.  On the other hand, if there are many suppliers for the products that the company needs, (paper and toners) the company can change suppliers to force the competition among them to reduce the prices.  

Of course this is nothing new, we always knew that the more competitors the better prices we could have, but Porter's framework draws the five most important factors influencing the firm into one framework and this is my personal experience of how important this factor is.  In this case, all factors seem good and the decision to buy the printer seemed the best option but the inability to have power over the supplier can affect your firm.