Supply and buyer power & value chain work

Introduction

Buying power of a customer is an ability that can force prices down or demand more services. When customers have relatively more power than sellers, they can force prices down or demand more services. Similarly when the supplier industry is concentrated and sells to a variety of customers in diverse markets, it will have relative power that can be used to influence prices. Supply power will further enhance if the costs to customers of switching suppliers is high. Buying power will be greater when its purchase size is a large proportion of the seller's business, when alternative suppliers are available and when the customer can integrate backward and make all or just a part of a product.

A value chain is a number of activities for a firm operating in any industry. It describes the complete activities that help in bringing a product or service from conception, through the different phases of production, delivery to customers, and final disposal after the usage. The number of activities in a value chain provides more added value to the products as compared to the total independent activity's value. In order to show the difference between cost and the value chain, a diamond cutter can be used as a profession.

The cutting activity may have a low cost, but the activity adds much of the value to the final product, as a rough diamond is significantly less valuable than a cut diamond.

When there is a buying power in an industry the value added strategies are used to grab customers. In this scenario, the focus of a firm can be towards a question that what can be the significant added values components to grab customers or help a firm competing in an industry. Cost cutting strategies can also be used in these types of scenarios.

Body

Value Chain

Concept of value chain was developed by Micheal Porter in 1985. The purpose of a value chain is to gain a competitive edge. Implementing the competitive strategy to get an extra ordinary business performance is an idea behind it. The value can be defined here as price which the customers are ready to pay and the “value chain” can be defined as bunch of nine generic value added activities that are functioning in a firm or we can say that the nine generic value added activities that are working to give value to customers. The value chains are connected to the firms to constitute a Value System. Today where outsourcing and collaboration has become very common, there processes of adding values are also becoming common rapidly. The main targets while planning the value chains is the benefits that are provided to the customers, the interdependent processes that generates value, the demand which is created and the fund flows.

A perfect value chain will result in providing profits to the organization. In order to understand the concept of a value chain, there is an example of a thirsty person in a desert. A thirsty person ...