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For example, while multiple … Stewart Buchanan. The lack of competition gives rise to many risks. We’re talking about supply chain management here. The benefits of these types of relationships, when managed correctly, are obvious. Announces .NET Core Support for the Adobe PDF Library, Smart MailHub Addresses Work From Home Challenges in Large Organizations, Toppan Announces Business Action Targeting the Sustainable Development Goals, Evolution St. Louis Co-Founder Speaks at Fashion Product Development, Supply Chain Event. To purchase this document, you will need to register or sign in above. Your email address will not be published. A draft of these Regulations has been laid before Parliament and approved by a resolution of each House of Parliament. It should also define delivery time and packaging, including labeling. Manufacturers prefer long lead times to optimize production processes. I’ve also been told that by customers that they could never put all their eggs in MY basket, because what happens if I close down? While others may compete to serve, there is one provider that clearly stands out from the pack. Do you? No. There are several frameworks for delineating sourcing risks, although I prefer the Transaction Cost Economics approach. In the middle of the continuum multi-sourcing is essential in limiting risk, without a substantial increase in cost. In these sourcing opportunities multiple vendors are competing for business, constantly. Technology procurement leaders need to address the risk of dependency on a sole source through vendor management best practices. • Shirking – once the relationship is forged the vendor may not deliver everything that’s promised, while requiring full payment. Specifically, shirking and hold-up opportunities arise, and over time the client may perceive that the vendor is earning more than his fair share of the pie. Single source supply also increases the risk due to a single point of failure such as inability to meet increased demand, or product quality issues. When procuring goods and services for your business, you must consider the risks attached at every stage. With this preface I have a surprising recommendation: sole-sourcing is most appropriate at both ends of the continuum, but not in the middle. The decision to sole source an item, particularly for manufacturing has many benefits and risks to be considered. First, it provides the client with an exit strategy. In the context of manufacturing these claims may involve production capacity, delivery flexibility, minimum batch sizes, quality, or numerous other factors usually not specified in contracts. The advantages to single source procurement out weigh the disadvantages I feel, and in theory you’d think more customers would want / desire the less hassle of multiple vendors. While benchmarking against a second provider isn’t possible, the client has the responsibility to benchmark against current industry trends and current opportunities from the market. A subtle but important difference exists between single source and sole source purchasing. The client also has to monitor switching costs to assure that the option of changing vendors is viable, keeping the vendor on his toes. Collaboration opportunities abound. Although Gartner research may address legal and financial issues, Gartner does not provide legal or investment advice and its research should not be construed or used as such. Usually these are unique products that you cannot find anywhere but only thru one supplier/manufacturer. The two main risks are: the value for the purchaser may not be optimized, and increased risk of corruption. }. Each company or entity focuses on a single component or subassembly, providing world-class quality in its domain of expertise. Whether sole source or single source, there are steps that should be taken to minimize the risks: Sole source evaluation is limited to the compliance of the acquired goods or services to the requirements documented in the purchasing agreement. A technology that was offered by only a single vendor is now widely available; the low-cost provider saw costs rising; superior quality may be offered by other vendors; patents expire. For example, flexibility in delivery schedules or in batch sizes may be inconsequential for the customer, but offer substantial cost savings for the vendor. A single source purchase is one where there are multiple sources of supply, but for specific reasons the item or service must be purchased from a specified vendor. Through deep knowledge, trust, and multiple points of contact across companies they monetize the value of collaboration. Learn how to access this content as a Gartner client. Organizations should track and review what they are buying that is sole or single sourced. Required fields are marked *. What about the benefits of benchmarking found in multi-sourcing relationships? A vendor’s reaction to their customer’s changing business environment defines the trust between parties. Establish clear expectations and maintain overall performance with a supplier score card process (see previous post. The requirements must address form, fit, and function. Usually shirking is limited to dimensions of the relationship that are not explicitly mentioned in the contract, or that do not have incentives tied to them. The Single Source Contract Regulations 2014.
This foundational research explains how to identify and assess risks so that sole-source providers can be managed without competitive leverage. The buyer and supplier may develop a relationship that is too close to the potential detriment of the purchasing entity. If at any point a vendor fails to deliver on his promise, the client can shift away from that vendor. There is an assumption that the purchased item or service will have consistent quality and on-time delivery with every transaction over time. Cost increases that in the past were absorbed by the vendor are now easily passed on to the customer. Periodically inspect and test the product or service to assure continuous compliance with the requirements. In the banking industry it’s referred to as “share of wallet” – banks want to increase this wallet share but also find it more difficult than it should be. The multi-source approach appears to have several key advantages. A sole source purchase is one where there is only one vendor capable of providing an item or service, and therefore it is not possible to obtain competitive bids. It is not hard to understand why. Assure that detailed and complete product or service requirements are defined and included in any purchase agreement. ©2020 Gartner, Inc. and/or its affiliates. Its research is produced independently by its research organization without input or influence from any third party. Collaboration also allows for optimizing lead times throughout the supply chain. Public Procurement. The two main risks are: the value for the purchaser may not be optimized, and increased risk of corruption.
xx. It may take some time to change vendors, but the customer holds the option to rebid the business as is fit. That’s especially true when the magnitude of the relationship is large, perhaps encompassing multiple years. Performance of one vendor can easily be compared to others, as several vendors are providing comparable services. The client and supplier grew together, and this supplier has intimate knowledge of the client’s needs. display: none !important;
This post was written by Eli Snir, lecturer in management. There will always be an alternative vendor to the incumbent, and the cost difference will be reasonable. You trust me enough to give me some of your work, I’ve never let you down. For starters, mistakes and delays in the procurement process can lead to wasted hours chasing documentation or remedying errors. This publication may not be reproduced or distributed in any form without Gartner’s prior written permission. A sole-source relationship facilitates revealing cost structures, enabling finding the balance between competing desires and paying a fair price for that service.