Porter’s Five Forces and Procurement:
Porter Five Forces analysis tool. Developed in 1980 by Harvard Business School’s, Michael Porter, in his book Competitive Strategy.
This tool is used to describe competitive forces in a market economy. The application of this tool involves evaluating the relative power position of buyers and suppliers in the market, as well as the other forces such as substitution, (industry) rivalry, and the potential of new entrants in the market. Porter’s approach is a useful format as it allows the category team to take a long view of the marketplace and evaluate what their company’s relative negotiating position is.
The data required to conduct a ‘Five Forces Analysis’ includes a spend analysis, supplier analysis, market intelligence, and third party industry reports. A typical approach is to provide an overview of these data to the team, and then workshop them with your key stakeholders.
During your stakeholder workshop, your goal should be to list relevant criteria for each of the five forces as a basis for stimulating critical thinking and debate. The end result will be a high-level overview of the market that can support predictions of supplier and buyer outcomes from a particular category strategy approach. It is also in a collaborative sense as it helps stakeholders better understand current supply market conditions and where the procurement perspective comes from.
Porter Five Forces are:
- Internal Market Rivalry
- The threat of substitute products and services
- Threat of New Entrants
- Supplier’s Power
- Buyer’s Power
Porter’s five forces can be used as a framework to support procurement strategies and help you to analyse the supply market. How can you evaluate and exploit supplier innovation, where there is no market how can new entrants be developed and how can you improve supplier innovation.
You might also like to check the category management blog or read the HRB Porters Five Forces article from 1979!
Category profiling is also a useful action
