Series · Tool #2 of 6 · Phase 1 — Strategic Analysis

Porter's Five Forces : Understanding your negotiating power before you negotiate

Most buyers enter negotiations without knowing if they're in a position of strength or weakness. Result: misaligned strategy, poorly used levers, disappointing outcomes.

● 14 min read● Tool #2 — Porter's Five Forces● Level : Beginner → Intermediate

Michael Porter's framework — originally designed to analyze the attractiveness of an industry — is one of the most powerful tools for buyers when adapted to procurement. Not like a consultant coming to propose a vague strategy. But like a real tactical lever: understand the balance of power on your supplier market and know exactly what room for maneuver you have in negotiations.

Most buyers think negotiating is about knowing how to talk. In reality, it's about knowing where you stand in the balance of power before you even walk in the room.— Market dynamics vs personal conviction

Porter's Five Forces gives you exactly that: a navigation map of the supplier market. Where are the risks. Where are the levers. And above all — where can you really push, and where you need to collaborate because you have no choice.

01

Origin and adaptation to procurement

The framework comes from Michael Porter, Harvard, 1979. Founding article: "How Competitive Forces Shape Strategy" (Harvard Business Review). Originally designed to analyze the attractiveness of a market that a company might want to enter. The question: "Can we make money in this sector?"

For procurement, we flip the question. We're already customers in the supplier market. And we ask ourselves: "What is my negotiating power on this market? Who sets the conditions — me or the suppliers?"

What was a barrier to entry for an entrepreneur becomes a lever (or an obstacle) for a buyer. You analyze the same 5 forces, but you're trying to understand your position in the ecosystem — not that of a new entrant.

📚 The original framework (Porter, 1979)

The 5 forces define the attractiveness of an industry: rivalry among actors, supplier power, customer power, threat of substitutes, threat of new entrants. For a given industry, if these 5 forces are strong, nobody makes money. If they're weak, it's a huge opportunity. For us in procurement, it's the same logic but applied to the supplier market from the buyer's point of view.

02

The 5 forces explained for procurement

Each force impacts your negotiating power directly. Some advantage you, others disadvantage you. The work is to score each force, then combine the 5 to get an overall position. Here's how to decode each one.

1 ⚔️

Rivalry among existing suppliers

How many suppliers can serve this need? Are they similar in size or is one dominant player? Is the market growing or declining?

Key questions

• Number of credible actors on the market
• Differentiation or commoditization
• Growth dynamics vs market saturation

Impact: Strong rivalry = you have leverage. Weak rivalry = you accept conditions.

Favorable if: Many actors

2 🤝

Supplier bargaining power

What percentage of their revenue do you represent? Patented or differentiated products? Switching costs for you? Can they integrate vertically?

Key questions

• % of their revenue you represent
• Technological or supplier alternatives
• Migration cost for you

Impact: Strong supplier power = conditions imposed. Weak power = room for maneuver.

Unfavorable if: Single critical supplier

3 💼

Your buyer power

Volume purchased relative to the market? Ease of switching? Expertise to internalize? Are you a reference client for them?

Key questions

• Concentrated or fragmented volume
• Capacity for substitution or internalization
• Client value for the supplier

Impact: You are a key client = leverage. You are a small client = little grip.

Favorable if: Concentrated volume, viable alternatives

4 🔄

Threat of substitutes

Technological alternatives? Quality-to-price ratio of substitutes? Ease of migration?

Key questions

• Existing technological substitutes
• Performance difference
• Cost of switching

Impact: Credible substitutes = negotiating leverage. No alternatives = you depend on them.

Generally neutral — context-dependent

5 🚀

Threat of new entrants

Weak or strong barriers to entry? Do new players emerge regularly? Does technology ease new business models?

Key questions

• Capital or technological barriers
• Emergence of innovative actors
• Supply chain evolution

Impact: Frequent new entrants = price pressure. Frozen market = stagnation and price increases.

Favorable if: Low barriers, active disruption

03

Scoring and synthesizing the 5 forces

The Porter analysis only works if you convert it into an actionable score. Here's the simple method.

Step 1: Scoring each force

For each force, give a score from 1 (very unfavorable for you) to 5 (very favorable for you). Some benchmarks:

1

Supplier rivalry

5 = 10+ equivalent actors, market growth. 1 = quasi-monopoly, declining market.

2

Supplier power

5 = you are a small client, unique product, huge switching costs. 1 = you are crucial to them, pure commodity.

3

Your buyer power

5 = large volume, viable alternatives, you are a reference client. 1 = small volume, captive, little grip.

4

Substitutes

5 = credible and accessible substitutes. 1 = no alternative, unique product or very expensive to change.

5

New entrants

5 = low barriers, active disruption. 1 = very high barriers, incumbent protected.

Step 2: Decision matrix

⚡ Practical advice

Don't look for absolute precision. A score within ±1 point is acceptable. The goal is to determine if you're in a strong, balanced, or weak position — not to obsess over positioning at 12 vs 13.

04

Complete practical case: Cloud Computing (IaaS)

Let's take a concrete and current example: you're assessing your power situation on the Cloud IaaS market (AWS, Azure, Google Cloud). You're an SME with 200 people. You spend ~2M€/year on cloud compute.

Force-by-force analysis:

Porter Scoring — Cloud IaaS (example)

1. Supplier rivalry

4/5

1. Supplier power

2/5

1. Your buyer power

3/5

1. Threat of substitutes

3/5

1. New entrants

2/5

Scoring breakdown:

📊 Breakdown

Force 1 — Rivalry (4/5): AWS, Azure, GCP fight aggressively. Permanent price wars. Growing market. You have tons of choices.

Force 2 — Supplier power (2/5): GCP needs growth. AWS wants new customers. Azure is aggressive on price. None of them can ignore you. But data lock-in is real — once at AWS, migration is costly.

Force 3 — Your power (3/5): 2M€ is visible to them but not massive (large account would be 50M+). You have credible alternatives but no monopoly apparent on your side.

Force 4 — Substitutes (3/5): On-premise possible (costly, outdated). Private cloud (Kubernetes, OpenStack) technically credible but complex to maintain. Hybrid feasible.

Force 5 — New entrants (2/5): Huge capital barriers. A few niche players (OVH, Scaleway in Europe) but no major disruptor in 5 years.

Total score: 14/25 → Balanced position

Recommended strategy: Long-term partnership with partial multi-cloud. Negotiate on total TCO (not just compute). Use Azure or GCP as price leverage with AWS, but don't push too hard — you need all of them.— Logic of balanced positioning

05

The 3 classic mistakes — and how to avoid them

06

Porter in the context of your tool series

Porter isn't a standalone tool. It's the second link in a logical chain:

🔗 Your complete analytical toolkit

Article #1 — Spend Analysis: Where is the money going? (identifies priority categories)

Article #2 — Porter's Five Forces ← You are here → What is your market position on these categories?

Article #3 — Kraljic Matrix: Where to prioritize effort? (combines spend + Porter position)

Article #4 — Supplier Segmentation: Who to work with? (completes the previous ones)

Article #5 — Cost Breakdown / Should-Cost: How to negotiate factually? (arguments for execution)

Article #6 — Category Strategy Canvas: What is your synthesized plan? (2–3 year roadmap)

Key connection: Porter tells you "you have leverage" or "you don't." But Kraljic (article #3) will then tell you "so on this category, what should you do?" It's the combination that creates value — not the tool alone.

Porter gives you your terrain map. Kraljic tells you where to build your fortifications. And Cost Breakdown gives you the arguments to fight with.— Logic of a complete category strategy

Summary

Porter's Five Forces, adapted to procurement, answers a single crucial question: "Am I in a position of strength or weakness on this supplier market?"

• 5 forces analyzed: rivalry, supplier power, your buyer power, substitutes, new entrants
• Simple score: 1–5 per force, sum to get your overall position (0–25)
• Position determines strategy: aggressive if strong, collaborative if weak, balanced in between
• Update regularly: redo before each major renegotiation (24 months max)
• Category by category: not one group-wide score, but scores per procurement category

The next time a supplier comes with their conditions, you'll know whether you have the legitimacy to challenge them, or whether you need to collaborate without pulling too hard on the rope.

Next article in the series

Article #3: Kraljic Matrix — How to combine spend & Porter position to really prioritize your efforts.

Read article #3 →