Friday 16 May 2014

Procurement Strategy For Single & Sole Source Supplier

Authored by Usama Shahid

Most of the times Procurement professional faces hard time especially when they are in a process of negotiation with single source supplier and that even get worse when commodity is highly consumable. So here is the strategy which can help procurement specialist to negotiate with single source supplier.

There are two types of supplier’s single source supplier and sole source. Both of these are different from each other and require different strategy for negotiation,

·         Single Source Supplier: Multiple vendors are available but buying organization chooses to contract with one supplier because of his services, Quality or PR.

In Single source case there are multiple choices available and different organizations have the capability to provide the desired product or service, the buying organization has the opportunity to use the principles of strategic sourcing process, bid competitively, negotiate, and select the different supplier that offers best overall Total Cost for the organization.

·    Sole Source Supplier: There are no alternatives vendor of specific brand product is available a sole source supplier is the only source for the product, material, or service that buying organization needs to purchase.

In Sole source case the process become very difficult to deal with and negotiate. In this circumstances you increase your negotiation power . But how ? when dealing with Sole source suppliers? To build a more powerful negotiation position, buyers need to:

·     Value your Brand name.
·      Identify how important / costly is for the supplier to lose you as a customer.
·    Estimate both parties’ needs in the negotiation and trade on interests that both parties value differently.
·    Estimate supplier consequence of No Agreement. Determine the short- and long-term impact and costs to the supplier for not reaching an agreement.
·         Use leverage of a long term contract.
·         Leverage company-wide spend. Most monopoly suppliers sell (or have the potential to sell) other products to your organization for which alternate suppliers exist.
·    Explore segmentation approach. Present the idea of competitively bidding part of your requirements.
·         Access the importance of contract from supplier site.

Often, Sole source situations become very difficult for the procurement department, It become more easy if end user specify special or new requirements (specifications) for a product or service from a specific supplier. Once this occurs, which was excluded from the process of developing specifications, to make the change. As a result, preventing sole source situations from happening in the first place, require raising awareness, coordination, and cooperation among various functions within an organization. 

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