Exercise 2: Supplier Power — Who Do You Depend On?

When you’re analyzing a business, the people who supply your inputs often matter more than you realize. You might not think about it daily, but suppliers shape your costs, reliability, and even your ability to innovate. This is especially true in industries like electronics, pharmaceuticals, or even food service, where raw materials or components come from a small number of providers. What if your supplier has no competition? How would that shift your business strategy?

Don’t jump to conclusions. Supplier power isn’t just about whether a supplier is large. It’s about control. It’s about dependency. It’s about who holds the real leverage. In this exercise, you’ll map out your supply relationships, identify where power lies, and test how changes—like a new supplier emerging or a raw material shortage—can alter the balance.

As someone with over two decades in market strategy, I’ve seen beginners focus only on visible competitors while overlooking the silent force of suppliers. That’s a mistake. A single supplier with exclusive technology, a rare raw material, or strong branding can dictate terms, delay deliveries, or raise prices—without warning. This exercise is designed to bring that invisible force into focus.

You’ll learn how to assess dependency, analyze supplier power, and anticipate shifts—using simple tools and real-world examples. By the end, you’ll not only know how to identify supplier influence but also how to respond to it.

Step 1: Map Your Key Inputs

Start by listing the main inputs your business or product relies on. These aren’t just materials—they include software, logistics, packaging, and even labor.

For example, if you’re analyzing a local coffee shop, your inputs might include beans, milk, cups, barista labor, and a point-of-sale system.

Now, ask: Who supplies each of these?

Use this checklist to guide your thinking:

• What’s the primary source for each input?
• Are there multiple suppliers available?
• Is the input standardized, or is it custom-made?
• Is there a significant cost or time involved to switch suppliers?

Write your findings in the table below.

Input	Primary Supplier	Number of Alternatives	Custom or Standard?	Switching Cost (Low/Med/High)
Coffee beans	Global Roast Co.	1	Standard	Medium
Milk	Local Dairy Farm	2	Standard	Low
Cups	GreenPack Inc.	1	Custom (printed logo)	High
POS System	QuickServe Tech	1	Standard	High

Be specific. Avoid vague terms like “a supplier.” Name the actual company, if possible. If not, describe the supplier’s role—e.g., “local organic bean distributor,” “regional courier service.” The more precise, the better your analysis.

Step 2: Evaluate Supplier Power

Now, ask: How much control does each supplier have over your business?

Use this decision tree to assess supplier power for each input:

1. Is the input unique or difficult to source?
2. Does the supplier have strong intellectual property, patents, or exclusive contracts?
3. Are there only one or two suppliers in the market?
4. Can you switch easily and quickly?
5. Does your business rely heavily on this input for operations or profitability?

If you answered “yes” to three or more of these, supplier power is high. If you answered “yes” to fewer than two, power is low.

Here’s how to interpret the results:

• High supplier power means the supplier can raise prices, reduce quality, delay deliveries, or impose unfavorable terms. You may have limited ability to push back.
• Low supplier power means you can negotiate better terms, switch suppliers, or even source in-house if needed.

For example: If your coffee shop uses a rare Arabica bean from a single farm with no alternative, and there’s no backup supply chain, supplier power is high—even if the supplier is small. The dependency is too great to ignore.

Quick Checklist: Factors That Increase Supplier Power

• Fewer suppliers in the market
• High switching costs (time, money, technical complexity)
• Input is unique or patented
• Supplier is larger or more profitable than your business
• Input affects product quality significantly
• Buyer is dependent on a single supplier (no alternatives)

Step 3: Stress Test the Relationship

Now, simulate a crisis. Ask: “What if?”

For each high-power supplier, imagine a disruption:

• What if the supplier raises prices by 20%?
• What if they’re hit by a natural disaster and stop deliveries for two weeks?
• What if a new supplier enters the market with a lower price and better quality?

How would your business respond?

Write down two realistic actions your business could take in each scenario. For example:

• If coffee beans become expensive: Negotiate long-term contracts, switch to a blended bean, or adjust pricing to maintain margins.
• If the POS system fails: Temporarily use a manual register, switch to a different tech provider, or delay upgrades.

This is where analyzing suppliers becomes strategic. It’s not just about listing who supplies what—it’s about preparing for the unexpected.

Step 4: Apply to Your Industry

Now take your analysis one step further. Look at your industry as a whole.

Ask: “Are there trends that could change supplier power?”

• Is automation reducing reliance on labor?
• Are new suppliers emerging due to innovation?
• Could raw material shortages due to climate change affect supply chains?

For example, in the smartphone industry, a few companies control most of the supply of rare earth minerals. That’s a high supplier power situation. But with new mining projects in development, that power may shift in the next five years.

Use this insight to think ahead. The goal of this supply chain exercise isn’t just to diagnose today’s situation—but to anticipate tomorrow’s risks.

Key Takeaways

• Supplier power isn’t about size—it’s about dependency. A small supplier can have high power if you’re reliant on them.
• High switching costs, few alternatives, or unique inputs increase supplier power.
• Always ask: “What if?” to stress test supplier relationships.
• Documenting your supply chain is the first step to resilience.

By completing this supplier power beginner exercise, you’ve taken a critical step toward understanding the hidden levers of business. You’re no longer just reacting to costs—you’re anticipating them.

Frequently Asked Questions

Why should I care about supplier power if I’m not in manufacturing?

Even in service-based industries, inputs matter. A café depends on coffee beans, a software company on cloud hosting, a restaurant on fresh produce. Supplier power affects every business, no matter the sector.

What if I don’t know who my supplier is?

Start by asking your manager, accountant, or procurement team. For academic or hypothetical cases, assign realistic suppliers based on industry knowledge. The goal is to analyze, not memorize.

How does supplier power relate to buyer power?

They’re opposite forces. High supplier power means suppliers can raise prices. High buyer power means customers can demand lower prices. Both affect profitability. You must consider both in your strategy.

Can a supplier have high power but low influence?

Yes. Power is the ability to affect outcomes. Influence is how much that power is actually used. A supplier may have power but remain cooperative. But if they abuse it—by raising prices, delaying deliveries—they’re applying that power.

What if I’m analyzing a startup with few inputs?

Focus on the inputs that matter most. Even small businesses depend on key suppliers—like domain hosting, software licenses, or delivery services. Identify the one or two that are critical to operations and assess their power carefully.

How often should I re-evaluate supplier power?

At minimum, review annually. But also re-evaluate after major events: a supply disruption, a new technology, a merger, or a regulatory change. The market is dynamic—your analysis should be too.