Supplier power is the mirror image of buyer power. Run the same tests pointed upstream, and remember three suppliers analysts habitually forget:
- Labor comes first. A pilots' or dockworkers' union with strike leverage is a concentrated supplier of a non-substitutable input. Wage escalators negotiated in one contract round can permanently reset the industry's cost base. US pilot contracts of 2023 raised pay ~35 to 40% cumulatively over their terms (illustrative; check the DOT and company filings).
- Then landlords and infrastructure. Airports, ports, premium mall space, cell-tower sites. Each is a monopoly at the point of use, often with take-or-pay or revenue-share terms.
- And platform gatekeepers. If your industry reaches its customers through someone's app store, search page or marketplace, that platform is a supplier of distribution, and usually the most powerful supplier on the map. Its take rate is the visible price of the dependency. Remember the TAC discussion from the charging-machine work? That was this same force wearing different clothes.
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What makes suppliers powerful?
Here are the classic determinants, condensed. Suppliers are strong when they're more concentrated than the industry they sell to. Think of Boeing plus Airbus selling into dozens of airlines, or TSMC at the leading node selling into everyone. They're strong when the industry is a minor customer of theirs but the input is critical. They're strong when the input is differentiated or switching is expensive (re-certification, re-tooling), when no substitute inputs exist, and when the supplier can credibly integrate forward, like a component maker launching its own brand.
And here's the supplier-power evidence.
| Evidence | Source | What it tells you |
|---|---|---|
| "We depend on a single/limited source for…" | 10-K Item 1A, Indian AR risk section | Named dependency, in the issuer's own words |
| DPO trend | payables + M2.05 toolkit | Falling DPO = suppliers tightening terms on you |
| RM-cost % of sales volatility; pass-through lag | quarterly P&Ls across input cycles | Who eats the input spike, and for how long |
| Purchase commitments & take-or-pay note | contingencies/commitments note | Locked-in supplier terms |
| Union agreements, wage escalators | 10-K human-capital disclosure, news, DOT data | Labor as concentrated supplier |
| Supplier's own margins vs industry's margins | supplier filings | Where the chain's profit actually sits: the bridge to profit pools |
At the extremes, supplier power of 1 is fragmented commodity vendors selling into a large, careful buyer, like an FMCG giant buying packaging film. A 5 is duopoly airframes, oligopoly engines with aftermarket lock-in, unionized cockpit labor, monopoly airports, all at once. You can guess the industry.