Buyer and supplier power dynamics in company profitability

Policy and Strategy

Comparing Powerful Buyers vs. Powerful Suppliers

Factors that lead to the development of powerful buyers vs. powerful suppliers and the implications on each of these partners of a company can have significant impact on profitability and the potential to increase or decrease profits rapidly on any company. Buyers' ability to become a force in any company center on their ability to dominate distribution channels and the preferences of customers in terms of what they purchase, in addition to how it is purchased, at what price. Wal-Mart as a buyer for example has major influence on its suppliers, including those companies who have come to rely on the superstore chain for the majority of their revenues. Buyers also exert significant influence over a company in their continual changing of tastes and preferences, and the continual emergence of unmet needs as well.

Suppliers also have significant influence over the companies who source product from them. Unlike buyers however, suppliers continually have to compete with alternatives and the alternative of the company they are selling to exiting the business that requires them to source products from suppliers. Suppliers also exert significant influence in terms of their ability to demand higher prices in scarcity, and can use product quality as a differentiator. From the standpoint of a company relying on suppliers, the use of quality management audits (LaLonde, Raddatz, 2002) can be an equalizing force in the balance of power in a relationship with a supplier.