Single-Sourcing

Single-sourcing is an approach whereby a buying organization relies on a single supplier for a particular component, even when other suppliers are available. A company’s particular Bill of Materials (BOM) will dictate whether a single-source supplier is an appropriate procurement decision, as single sourcing can provide numerous benefits such as reduction in product variability, streamlined logistics, and cost-reduction. Single-sourcing is often opted for to reduce material costs, as higher volume purchasing requirements to a single supplier can make it possible to negotiate better purchasing conditions. Single-sourcing can allow for collaboration and innovation between enterprise and supplier, especially when the buying organization and supplier are mutually dependent on one another. However, single-sourcing has its own supply chain risks. It can increase the dependence of the buying organization on the supplier, potentially developing a lopsided trading partner relationship. Supplier capacity risks are another downside of single-sourcing, as failures at the supplier level can disrupt the supply chain and flow of inventory. Demand variability can greatly impact the performance of a single supplier: a spike in demand may prove untenable to the supplier, whilst a significant drop in demand can make it difficult for the supplier to remain financially viable. Overdependence on a supplier can make a buying organization vulnerable to price increases, supplier complacency, reduced level of quality, inventory shortages, and late deliveries.