Whether there are many baskets to choose from and your company decides to concentrate on just one basket to fulfill a purchasing need, or there is only one basket out there due to patents or raw material availability, you'd better make sure you've got one heck of a supplier, says Elaine Whittington, a certified purchasing manager, purchasing educator and owner of Sunland, Calif.-based G&E Enterprises.
Whittington, who presented a session on single/sole source purchasing at the 2007 Institute for Supply Management conference in Las Vegas, knows a thing or two about single/sole source goods. Indeed, she spent 25 years of her career purchasing for Lockheed Martin. According to Whittington, aerospace and defense companies use single/sole source procurements twice as often as all other industries.
What are the advantages of using a single/sole source supplier?
- Consistency of quality and delivery;
- The supplier understands your needs and requirements;
- The supplier can be involved early in the design process;
- A cooperative rather than competitive relationship.
What are the disadvantages?
- A catastrophic event stops production;
- Less negotiation leverage;
- The supplier may fear dependency on your business;
- The supplier may become complacent;
- Greater exposure to risk (what happens when a supplier is working at capacity?).
To ensure that you don't get burned, Whittington suggests that you check within your company to see if the "sole" supplier is actually supplying another department with something else. This will give you more negotiating power since the supplier won't want to risk losing both businesses.
Another tip: Pre-qualify a backup source. While this might require additional costs, it will be worth it if something happens to the No. 1 supplier.
The best scenario is to work with two suppliers when possible. This will help your company avoid stockouts, encourage competition and create a hedge, according to Whittington.