Bargaining Power of Suppliers | |
1. Supplier concentration | According to Tim Roache of the DPI Agribusiness Group, over 50% of the country’s land mass is classified as agricultural land. Agricultural production is undertaken by small landholders who either lease or own their lands or companies with vast agricultural estates. Due to rapid population growth and escalating commodity prices, increasing food self-sufficiency is a major concern. Similarly, food produced from large agricultural estates results in the Philippines being a major producer of sugar, rice, corn, tropical fruits, poultry, and pork. Manufacturing and agriculture comprise more than half (65%) of the country’s economy, ...view middle of the document...
Jollibee has started procuring its agricultural needs from rural producers through its Farmer Entrepreneurship Program. We all have a part to play as a producer, provider, and consumer of goods. For our part, we will focus on our core competencies by building a ready market for local agricultural products," Caktiong said. Last year, four of Jollibee’s nine fast food chains ordered 20,000 tons of rice from the provinces of Nueva Ecija, Isabela, and Pangasinan. This volume of production requires about 2,800 hectares of farm land, or about the size of Metro Manila, Caktiong said. Flagship chain Jollibee alone accounts for sixty percent of the rice demand which consists of long-grained, premium, and grain-milled varieties, he added. (Lamentillo, GMA News Online, 2011) |
4. Suppliers’ product differentiation | Value-added is used to characterize food products that gain incremental value in the marketplace through differentiation from similar products based on attributes such as geographical location, environmental stewardship, food safety, or functionality. Examples of this type of higher value product include locally grown produce, organic or IPM-grown fruits, antibiotic- and/or hormone-free meat, or functionally specified hops and baking flours.(Stevenson, 2013) |
5. Importance of industry to suppliers | Fast food companies can request anything they want from suppliers. Because fast food chains are extremely large, they can bargain for lower prices. To meet their contracts with fast food chains. Suppliers have reduced wages, and critics say suppliers have reduced safety and health standards as well. (Smith, Encyclopedia of Junk Food and Fast Food) Farmers, ranchers, and fishers are treated as interchangeable and exploitable input suppliers, often operating in restricted markets on under short-term contracts where they usually bear the risks. (Stevenson. 2013) |
6. Buyers’ switching cost to other input | The BSE crisis meant that McDonald’s had to stop using British beef, so they had to import beef, resulting in a rise in the price of supply. However, finding another supplier was not a problem. McDonald’s faces few switching costs, and is the major buyer for its existing suppliers as it buys in considerable bulk. McDonald’s is therefore in a position of considerable power, and uses this to bargain for preferential treatment. (Allen, Analyzing the Organizational Environment)For Jollibee, purchases are readily available from many suppliers; there is a surge in the availability of supplies. (slideshare.net) |
7. Suppliers’ threat of forward integration | Ten years ago, there was an estimated 50,000 restaurants in the country. The number of restaurants, bars, canteens, and other eating and drinking places has since grown to almost 92,000, based on the 2005 Annual Survey of Philippine Business and Industry. Fast food chains have been a large part of this growth not only in terms of the number of stores but also in the continuous development of...