April 24, 2023 | Sourcing Strategy
Business owners and managers frequently disagree on the pros and cons of single versus sole sourcing. While many think the two terms are equivalent, they refer to two entirely different circumstances.
It is crucial to understand the differences between single and sole sourcing because they significantly impact a company’s bottom line.
This blog will explain single sourcing and sole sourcing briefly and how to choose the suitable sourcing approach.
Sole sourcing is an approach where businesses are using only one supplier to procure products or services. It helps cut risks and costs by limiting the number of suppliers to deal with.
However, it also means having less choices when the current supplier goes out of business or underperforms.
At times, businesses single source due to lack of other suppliers, so, one monopolist supplier can offer the goods and services needed. This could be because of the unique nature of the product or service, proprietary technology or expertise that cannot be easily replicated by other vendors.
However, there are also downsides to single sourcing. If the supplier experiences issues with production, quality control or financial difficulties, the company is vulnerable to supply chain disruptions. Sole sourcing can also limit competition, leading to less innovation and less competitive pricing.
Sole sourcing is when businesses deliberately choose a supplier to work with despite having other options available. This could be because of multiple reasons — the buyer might have a pre-existing relationship with the supplier or the supplier has a stellar reputation and track record of delivering high-quality products or services.
However, the con could be inability to form deeper supplier relationships. This approach may not be able to offer businesses the peace of mind that would otherwise come with known suppliers and their performance and quality.
Compared to sole sourcing, single sourcing has more benefits – mainly because the procurement teams are in control. Procurement teams can move to better alternatives when current suppliers underperform and effectively negotiate the terms and conditions.
Now that the definitions are clear, let’s understand the difference between the two sourcing strategies.
The main difference between the two sourcing strategies is the position of power.
In single sourcing, businesses have the power of choice. Procurement teams can decide as if they want to associate with a supplier based on their terms and conditions. This is favorable for companies as they can get the best suppliers at the best price, and they can easily go for alternative suppliers in cases of poor supplier performance.
On the other hand, the power to choose in sole sourcing lies within the supplier. Here, the supplier has the power to set the price, delivery times and/or frequency and other terms they deem appropriate. This monopoly of the supplier can result in thinner margins, low quality products and subpar operations for the business.
Both single sourcing and sole sourcing have their pros and cons, and the sourcing strategy that is best suited for a business will depend on their business needs and circumstances. While sole sourcing can provide access to specialized expertise, deep supplier relationships and peace of mind, it can also limit competition and leave companies vulnerable to disruptions and unfavorable terms and conditions. Similarly, single sourcing can cut costs and simplify supply chains, it can also leave businesses with uncertainty pertaining to moving to suppliers. In conclusion, it is up to businesses and their procurement teams to make the decision based on the situations they are in.