Optimize the management of a unique supplier

Succeed in working well with a single supplier

In terms of supplier management, working situations with a supplier unique (mono-source situation with a single supplier to meet one of the company's needs) are undoubtedly the most difficult to understand for Purchasing professionals. For most of them, being faced with a single supplier is far from ideal. Indeed, while reducing the number of suppliers is one of the main objectives of procurement departments to rationalize management of supplier orders, one-size-fits-all sourcing is generally not desired. This situation effectively exposes the company to numerous risks and makes customer supplier relationship management relatively complex. In this article, find out how to successfully work with a single supplier. What are the risks associated with such a situation?

Management of single suppliers: by choice or monopoly?

Before analysing how best to deal with situations with a single supplier, it is important to distinguish between two types of sole supplier:

The single supplier by choice

Although the choices are multiple, it may happen that the Purchasing function decides to subcontract with a single supplier for a given category of products or services. This is often the case with long-term partnerships. There are many reasons for this. We will expand on these a bit below.

The sole supplier in a monopoly situation

In the customer-supplier relationship management, the Purchasing function may also be confronted with the situation of sole supplier in a monopoly situation. This means that it is the only source for the product or service requested for the business. La managing a supplier in a monopoly position is relatively complicated for buyers.

Supplier Management: What are the risks of working with a single supplier?

If there is one situation that buyers fear, it is negotiating with a single supplier. One of the major risks to which buyers are exposed in this type of situation is the inability to use a considerable lever: competitive tendering. Without this lever, it is difficult to push the supplier to review its prices, to accept performance guarantees or to find a way out of a deadlock situation. Seeing the balance of power tilting in their favor, unique suppliers are often not very flexible in the various negotiations: price, delivery, quality conditions, etc. The management of a customer-supplier relationship of this kind therefore requires the Purchasing Department to be sufficiently armed to carry out negotiations successfully.

In addition, a single supplier situation can also become critical for the Purchasing function, and therefore for the company, when it partially or completely hampers the supply chain or supply chain. If said supplier encounters a major concern, such as a strike, shortages or other emergency situation, it is not only its production that will be paused. The activity of the company that sources from him will also be impacted. A strategy of supplier management dual-sourcing would have prevented this. In the event of a problem with one of the suppliers, the company can always obtain supplies from the others.

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How do you deal with a single supplier situation?

Here are three ideas for dealing with single-vendor situations in the supplier relationship management :

1. Management should see single-source situations not only as a nuisance for them, but also as a serious organizational problem. Communicate the problems you are facing using clear presentations such as mapping or sharing cost tracking clues. If the Directorate has evidence that costs are increasing much more quickly than expected, they will help you complete points 2 and 3 below.
2. Eliminate the cause that leads to having a single supplier. A lot of single-source situations happen because the product was designed around the unique capabilities of the same vendor. A review of the specifications could be the solution to improve the supplier relationship management unique. Attention, this is an initiative that takes a lot of time and therefore money. So make sure that the potential savings generated (through a multiplication of suppliers and/or a change of supplier) cover the costs of change.
3. Involve Purchasing early in product design. Once management is on your side, insist that Purchasing be involved in product design before suppliers are selected to prevent future sole-source situations.

Managing the sole supplier relationship: other elements to consider

Recognizing hierarchy

Although the steps related to the purchasing process start from the Purchasing Department, it must be remembered that the latter is not the beneficiary of what it buys, but the company. It is therefore necessary to make management aware of the potential risks of a single supplier relationship. Indeed, this method of supply is never without risk. It can penalize the entire company, especially if the product to be purchased is critical to its business.

At the same time, employees must also be informed of the situation, i.e. the risks and consequences of mono-sourcing: price increase, late delivery, drop in service quality, shortage...

By doing so, the purchasing manager will be able to justify the impact of a supplier relationship unique on the performance of the company. By understanding that the problem is not strictly linked to the purchasing function, the hierarchy will also be more likely to intervene to propose solutions.

Review sourcing

It is a question of asking whether the supplier is really the only one who can provide the product or service requested on the market. Indeed, some companies, especially in the case of mono-sourcing imposed by a monopoly situation, may think that a supplier is the only one to offer a product or service, not because this is the reality, but because they did not do their initial sourcing correctly. They are therefore unaware that their demand can also be met by other suppliers. This is a common mistake that procurement departments make when it comes to management of relationships with suppliers.

It can also be obsolete sourcing. In the beginning, the supplier was really the only one offering the product/service. But that is no longer the case afterwards.

In any case, it is necessary to update the market sourcing in order to find all the companies likely to meet the needs of the company. The use of a solution for digitizing purchases, such as a supplier order management software such as Sourcing Force or procurement outsourcing, makes it possible to avoid this problem and to have sourcing updated on a regular basis.

Reviewing needs

While the exclusivity of the supplier is legitimate, there are still some possibilities to remedy it, such as reviewing product needs. This may involve changing aspects of the product so that they are no longer dependent on a single supplier. This step involves the revision of the specifications. The disadvantage of this operation is that it is expensive and time consuming. Nonetheless, the benefits can be significant, such as savings in product costs and supplier relationship management and the elimination of the risks associated with the mono-sourcing situation.

Instead of having to act downstream, by modifying aspects of the product, it is also possible to act upstream. It's about influencing the need. By doing so, the purchasing department will become an integral player in the very creation of the product. He can be involved early enough in defining needs. By knowing the risks associated with a supplier relationship mono-sourcing, he will be able to react in time and reorient needs.

Supplier relationship: how to negotiate with a single supplier?

Even if the supplier management Although unique may cause problems for procurement departments, there is still a way to take advantage of this situation:

Look for the underlying reasons

There are always underlying reasons for a supplier to sign a contract or not. For example, as the end of the fiscal year approaches, the non-achievement of objectives often encourages him to conclude contracts. To optimize your chances of being a part of it, you can find out about the conditions under which he must join. If you manage to discover them, you will have more leeway during the negotiations.

Finding the small benefits

When a seller understands that they are a sole supplier, they can become insensitive to negotiations, especially when it comes to pricing. On the other hand, it can grant small benefits that can add value to you. This is the case of training included in the pack or additional guarantees or services offered.

Suggest bonus/penalties

We are always curious and motivated when a reward is at stake. La management of customer supplier relationships is no exception to the rule. Setting up a bonus/penalty system can encourage a supplier, however powerful and unique, to review its conditions in order to benefit from a reward. The difficulty of this strategy of supplier management unique lies in finding a scenario that is motivating for the supplier and beneficial for the company.

Agree on a system for price reviews

One of the major drawbacks of working with a single supplier is having to negotiate constantly while experiencing regular price increases, which are usually irrational. This may distort the supplier management policy and the forecasts made. You can remedy this by jointly agreeing on a mechanism that will govern price increases. This will be based on indices or price data that are universally accepted.

Present a single front against the supplier

Nothing is more frustrating for a buyer than finding yourself in a position of weakness in the face of a single supplier. However, there are opportunities to negotiate better with him, such as presenting a single front before him. This requires close collaboration with internal customers as well as management to unite the voice in front of the single supplier.

Modifying or redesigning the product

Faced with a mono-sourcing situation, one of the ways to better manage the supplier relationship is to open the market to other candidates. This must involve the re-design of the product. A change in the characteristics of the final product may be sufficient to avoid a situation of monopolization by a supplier. Knowing that it is no longer unique and that you can turn to another supplier at any time, it will be more likely to accept or reconsider your requests.

Identify the interests of each party in the negotiation

To maximize your chances of winning your case with a single supplier, you should also identify the interests of each party involved (you and the sole supplier). Identify the different points that add value to each one and conduct the negotiation actions taking these elements into account.

This step also requires determining the consequences or impacts of a non-agreement for the supplier. You can use it to support your arguments.

What are the advantages of using a single supplier?

Even if it is risky for a company to manage a supplier relationship unique, it is clear that this situation is not always disadvantageous. It can also have its share of advantages:

• Reduced operating costs: by having only one supplier, the costs of supplier management are reduced. Purchase prices can also be reduced, because being privileged to have this status, some suppliers do not hesitate to grant discounts.
• Decrease in the time of supplier management : The customer supplier relationship management requires a lot of time from buyers. By having to manage only one service provider, the buyer will be able to save time. He can use it to focus on higher-value tasks.
• Assured business continuity: in a supplier management multiple, the period of interruption of the company's activity can be more or less long depending on the responsiveness of the supplier and its expertise. It can range from 2 days to 2 weeks. A suspension of the company's activity for such a long time will have serious consequences on its performance. In a relationship between customers and single suppliers, this risk is much reduced.

In conclusion, mono-sourcing is a problem that all procurement departments need to solve. Despite some advantages, this situation poses numerous risks to the company, especially if the products ordered from the sole supplier are critical to its business. However, we note that there are some possibilities to remedy it, in particular by revising the policy of supplier management, including the update of market sourcing.