The Five Forces Model (Bargaining Power of Suppliers )

Bargaining Power of Suppliers
In general, industries are more attractive when the bargaining power of suppliers is low. In some cases, suppliers can suppress the profitability of the industries to which they sell by raising prices or reducing the quality of the components they provide. If a supplier reduces the quality of the components it supplies, the quality of the finished product will suffer, and the manufacturer will eventually have to lower its price. If the suppliers are powerful relative to the firms in the industry to which they sell, industry profitability can suffer.10 For example, Intel, with its Pentium chip, is a powerful supplier to the PC industry. Because most PCs feature Pentium chips, Intel can command a premium price from the PC manufacturers, thus directly affecting the overall profitability of the PC industry. Several factors have an impact on the ability of suppliers to exert
pressure on buyers and suppress the profitability of the industries they serve. These include the following:
Supplier concentration: 
When there are only a few suppliers to provide a critical product to a large number of buyers, the supplier has an advantage. This is the case in the pharmaceutical industry, where relatively few drug manufacturers are selling to thousands of doctors and their patients.
 Switching costs:
Switching costs are the fixed costs that buyers encounter when switching or changing from one supplier to another. If switching costs are high, a buyer will be less likely to switch suppliers. For example, suppliers often provide their largest buyers with specialized software that makes it easy to buy their products. After the buyer spends time and effort learning the supplier’s ordering and inventory management
systems, it will be less likely to want to spend time and effort learning another supplier’s system.
Attractiveness of substitutes:
 Supplier power is enhanced if there are no attractive substitutes for the products or services the supplier offers. For example, there is little the computer industry can do when Microsoft and Intel raise their prices, as there are relatively few if any practical substitutes for these firms’ products.
Threat of forward integration:  
The power of a supplier is enhanced if there is a credible possibility that the supplier might enter the buyer’s industry. For example, Microsoft’s power as a supplier of computer operating systems is enhanced by the threat that it might enter the PC industry if PC makers balk too much at the cost of its software or threaten to use an operating system from a different software provider.