Sole/Single Source Procurement:
Problems, Challenges & Potential Solutions

Before anything else, understand that despite the similarities, sole & single source procurement are 2 different terms. We define both terms below.

Single Source Procurement Definition

Single source purchasing refers to purchases from one selected supplier, even though there are other suppliers that provide similar products. If your company decides to buy only Dell computers then that is single source purchasing. However unlike sole source purchasing you and your company have a choice to switch suppliers, but for strategic and possibly cost reasons the company decides to use only a specific supplier.

Sole Source Procurement Definition

Sole source procurement however refers to those purchases where there's only one supplier that provides the product. Usually these are unique products that you cannot find anywhere but only thru one supplier/manufacturer.

So before you do anything else when dealing and negotiating with a sole or single source supplier is to understand exactly that i.e. whether you're dealing with a sole source or single source.

Sole & Single Source Procurement Main Difference

Both sole & single source purchasing require buying from only one vendor. This is a very precarious position for any company to be in, as they are so dependent upon the services of a single vendor.

The vendor is also in a difficult position as they may have only one customer. If vendor relationships become difficult, or either company experiences financial pressures, then both companies will have problems continuing to trade.

However, if you're dealing with a sole source options are much more limited since it is very difficult to change suppliers unless your radically change your requirements.

But if you are dealing with single source procurement, your options are much less restricted, since it is less difficult to change suppliers .

Possible Solutions to Sole & Single Source Procurement

1. Avoid Sole & Single Source Procurement

The top solution is not to enter into a sole or single source procurement situation in the first place. For example, in some cases, particularly with government contracts, great care has to be taken to ensure that no charge of corruption can be levied at either party. It is for this very reason that many governments insist on competitive tendering and the removal of any monopolistic tendencies.

Many countries rigorously review their purchasing strategies to ensure that this does not happen.

Defense contracts in particular are continually awarded to more than one company to remove the possibility of corruption and ensure that a country is not reliant on just one company for its nation’s defenses. Many governments publish quite stringent regulations that must be adhered to before a single source procurement can be authorized.

2. Buying Out the Vendor

Many large purchasers solve the problem of sole & single source procurement by buying out the vendor. This was the case with Sky when they bought out Amstrad who were the suppliers of the set top boxes.

3. Be Ready with an Alternative Source

This is much easier with single source procurement (but not sole source), since other similar suppliers should be able to supply similar products with more or less that same quality as the previous suppliers.

The suppliers would know this as well, and they would be more flexible when negotiating and more accommodating to terms. One word of caution: Ensure your contracts are tightly drafted to avoid any situation where you cannot change the single source supplier/vendor.

Single Source Contracts for Small Companies

With small companies, single source procurement is quite common and is an inherent weakness of running a small business. It is rarely cost effective to purchase the same small set of product requirements from more than one vendor.

Combined with the fact that small orders are not particularly important to a large vendor, this puts the small company at a disadvantage in any purchaser/vendor relationship.

In this situation, it is imperative that the small company has an excellent supplier relationship and takes on more vendors as soon as the company has expanded enough to make this a viable proposition.

Anyway you look at it however, being dependent upon one vendor for a core part of your business can never be a good idea. So, work to ensure you are not into such a position in the first place. If you are talk to your top management (and top management only, since no one else can change the single source), to actively and seriously look to remove sole & single source procurement situation

 

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Get Your Report Now




Purchasing & Procurement Video Presentations


Tender Management Process


Procurement Best Practices


Purchasing Managers Roles


Purchasing Savings


How to do spend analysis


Winning Supplier Negotiations: Who Really Wins & Why?


Purchase Price Index