How can they get away with making such demands

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Reference no: EM133319482

Assignment:

Companies such as Boeing, Walmart, General Motors, Amazon continually demand price concessions from their suppliers. Is this a good strategy for these companies? Discuss. How can they get away with making such demands?

• Large companies can develop a bargaining advantage relative to their suppliers

o Such companies are dominant in their industries and continually creating new competitive advantages - creating new opportunities for their most nimble suppliers

o Account for a large proportion of a supplier's revenues

o Provide steady demand for suppliers

o Low credit risks for suppliers who do not get paid immediately upon delivery

• Good strategy because it reinforces their dominance

o Lower prices for key components, parts, sub-assemblies, services than their competitors receive - cost advantage

o Exclusive arrangements foreclose supply opportunities for competitors, forcing competitors to find more costly, less innovative suppliers and possibly more distant suppliers

• Bad strategy if suppliers have a monopoly or dominant position

o Suppliers may not be willing to enter into exclusive arrangements or offer price concessions

o Suppliers may enter into special arrangements with competitors of these companies

o Too costly for these companies to integrate upstream (internalize production and supply of certain components, parts, etc.).

Reference no: EM133319482

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