You have an idea for a business: how should you choose suppliers?

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If you’re going to analyze your company’s position in the market, it must already have at least a little bit of clarification of the tools it will use to fight in this market, i.e. the marketing-mix. He has probably also already formulated the mission of the venture and considered which customers are most important to him. It’s time to learn about the competitiveness of his idea against existing and future competitors, find substitutes and suitable suppliers.

A tool our hero can use is Porter’s analysis, well-known in management. After conducting it and including it in his business plan, you will receive many important conclusions affecting the future of the newly established company. Porter’s analysis covers 5 characteristics of a company’s immediate environment:

  • suppliers and their bargaining power in dealing with your company,
  • buyers, i.e. the key customer groups listed earlier, although this time you should consider the extent to which his company is dependent on them,
  • existing competitors, offering similar products and, above all, satisfying similar needs of the same customers,
  • future competitors who decide to open a similar business,
  • non-identical products, but fulfilling similar functions and roles in the lives of buyers.

Suppliers play an important role in the operation of any company, whether it is a manufacturer of its products, a trading company or strictly a service company. Suppliers to apparel companies are manufacturers of sewing materials and machinery, wholesalers of computer components will supply goods to a store in that industry, and an architectural firm will do the design of a building for a developer. Whatever company you set up, you need to determine who its suppliers are. Even if on the surface it appears to operate completely independently, they certainly exist.

When researching your company’s suppliers, you must consider their bargaining power in your day-to-day business dealings. First, he should assess their number relative to the number of customers, i.e. companies like his own. If Nowak is thinking of a men’s clothing store, the larger the jacket manufacturer and the fewer similar companies, the worse for you.

The second important thing is the effect of the quality of the coats supplied on the quality of the clothing sold in his store. Since this relationship is undeniable in a clothing store, Nowak will be very dependent on his source of supply. The next element is delivery costs and switching costs. The former have a direct impact on the store’s operating costs and therefore on its profit from sales. Switching costs will occur if our entrepreneur wants to cooperate with another clothing manufacturer. In this case, they should not be large and may involve only the time spent searching for a factory and negotiating prices. Provided, of course, that the same customers want to buy the jackets of another company.