{"id":26922,"date":"2024-03-05T01:25:35","date_gmt":"2024-03-05T01:25:35","guid":{"rendered":"https:\/\/www.argonandco.com\/?post_type=article&p=26922"},"modified":"2024-03-05T01:25:35","modified_gmt":"2024-03-05T01:25:35","slug":"navigating-single-sourcing-understanding-power-pitfalls-risks-and-strategies-for-mitigation","status":"publish","type":"article","link":"https:\/\/www.argonandco.com\/en\/news-insights\/articles\/navigating-single-sourcing-understanding-power-pitfalls-risks-and-strategies-for-mitigation\/","title":{"rendered":"Navigating single sourcing: understanding power, pitfalls, risks and strategies for mitigation"},"content":{"rendered":"

If you work in procurement (sometimes reductively referred to as \u201cpurchasing\u201d), chances are you are familiar with the term \u201csingle sourcing\u201d and that you\u2019ve been instructed to fear it, recognise it and avoid it <\/span>at all costs<\/span><\/b>! Which, for a department in charge of cost savings, would already be a contradiction\u2026<\/span>\u00a0<\/span><\/p>\n

But what do we exactly mean by single sourcing and why are we not comfortable with such practice? Let\u2019s explore the definition of single sourcing, what the inherent benefits and risks are and the strategies to adopt in different scenarios.<\/span>\u00a0<\/span><\/p>\n

If you consider yourself an experienced procurement practitioner, feel free to skip Part I and jump directly to the juicier content of Parts II and III.<\/span>\u00a0<\/span><\/p>\n

Part I \u2013 Should we put all <\/span>our<\/span> eggs in one basket?<\/span><\/span>\u00a0<\/span><\/h2>\n

In simple terms, single sourcing is the custom of appointing only one supplier for the provision of a good or service when others are available in the market. Such decision <\/span>should<\/span><\/i> come from upper management and be linked to the category strategy but in reality \u2013 and this is something very common, particularly in Asia \u2013 it\u2019s simply common practice to take advantage of the cheapest price, quite often overlooking the risks.<\/span>\u00a0<\/span><\/p>\n

Wait, what risks? \u2013 you may righteously ask. If there are many suppliers, surely some of them will be able to deliver if we encounter an issue with the one we chose! In principle yes, and when there are abundant equivalent solutions (a situation as close as possible to the perfect competition), then it\u2019s generally safe to choose only one, while having a backup supplier ready, just in case.<\/span>\u00a0<\/span><\/p>\n

But there\u2019s a catch! Suppliers are smart. In most cases they will propose a \u201csticky\u201d agreement, something that will make it difficult, or costly, for your organisation to get out of and change to another provider. It may not even be obvious, but you can get the feeling of being caught into one of these deals when the general comments about a proposed change of supplier are \u201coh, but they know our business so well\u2026\u201d or \u201cwe\u2019ve being working with them for a long time\u2026\u201d or \u201cok, but no one else can provide the same service\/product\u201d or the likes. This could be defined \u201cself-inflicted single sourcing\u201d, and you can read about it in Part II.<\/span>\u00a0<\/span><\/p>\n

A different situation is when only one supplier is actually available in the market (a so-called monopoly), in which case your choices and your power are limited. This is what is more precisely defined as \u201csole sourcing\u201d, and that\u2019s what Part III is about.<\/span>\u00a0<\/span><\/p>\n

So, to respond to the title, should you put all your eggs in one basket? The usual consultant\u2019s answer comes in handy: <\/span>well, it depends!<\/span><\/b> Your approach should always consider multiple factors. To name a few:<\/span>\u00a0<\/span><\/p>\n