Every single business needs to rely on suppliers, it could be the case that you are the one in charge of manufacturing your products, but still need to work with some vendors to get the basic materials essential to the production. Usually, you would search for more than one supplier, diversity after all is key to a resilient supply chain. But what happens when after days or even weeks of research you and your team are only able to find just one?
Well, that’s a case of sole-source
What is Sole Source?
Imagine that a company based in a remote location must acquire some materials to carry on with their new operations. Given the difficulty to access their site, the search for available suppliers is quite limited.
When they find one, how much thought will you take to make a decision?
That's pretty much how sole sourcing works.
The reasons might change from one company to another but the idea is the same. Instead of working with multiple suppliers businesses are relatively forced to work with only one. This due to not having any other options.
It's the same as single-sourcing?
Yes and no
Yes in the sense that businesses also work with one supplier but not in the same context as with sole sourcing. In this case, businesses willingly choose to work with a single supplier even when there are other options. It could happen because this specific vendor offers better costs or maybe because it comes highly recommended by people the manager knows. It might appear as if it’s basically the same thing as sole sourcing, but the difference lies in the position of power.
For sole sourcing, the power is held by the supplier, and it makes sense, after all there’s no other vendor available.
On the other hand, single sourcing implies that’s the company the one deciding if it works with one supplier or not. After all, there are many alternatives behind it.
Advantages vs disadvantages of sole source
Advantages
- Direct levels of communication with the supplier, hence the relationship is simpler to manage.
- Time is not wasted searching and tracking multiple suppliers, improving efficiency for operations.
- In most cases, the supplier will bring to your business a high amount of expertise and quality.
Disadvantages
- There’s the risk of supply chain problems if something happens with the supplier, as it’s the only one that businesses use. High dependency.
- Procurement costs might be increasingly higher, given that there’s no possibility of finding better prices with other suppliers.
- Delays in production could happen
Key Takeaways
Definition: Sole source procurement occurs when a contract is awarded to a single supplier without a competitive bidding process. This usually happens because the supplier is the only one capable of delivering the required goods or services.
Reasons for Sole Source
Unique Capability: The supplier offers unique products or services that are not available from other vendors.
Urgency: The situation demands immediate delivery or response that other suppliers cannot meet.
Advantages
Simplified Process: Reduces the time and administrative burden associated with competitive bidding.
Enhanced Relationships: Fosters stronger, potentially more collaborative relationships with a single supplier.
Risks
Lack of Competition: There may be higher costs or less innovation.
Dependence on One Supplier: Risk of disruption if the sole source supplier encounters issues.
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