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Sole Source Events: How to Keep them ‘Competitive’

August 15th, 2008 · by Erez Azaria · 2 Comments · best practices, events, sourcing, supply management

Occasionally, a sourcing team finds itself in a sole source situation with minimum leverage. Despite hard work, good intentions and an initial list with several potential suppliers, the team filters the non-qualified sources…and winds up with only one supplier left. In that scenario, you still want to find competitive cost reduction, but you’ll have no reference for comparison.

For example, a sourcing process might begin with ten potential suppliers. After the technical review and the first commercial pass, six technically qualified suppliers are left in the process. This creates confidence among the team before the commercial negotiation. However, if the team begins the process with four suppliers and then filters out three of them due to technical issues, they’re left in a challenging situation. Ideally, the team should try to qualify another supplier.

But, if lining up an additional supplier(s) is not an option, they still need to keep a competitive atmosphere hovering above the negotiation table. This is a very crucial and sensitive time in the process, but there are steps you can take to increase your chances for success:

  • Keep ‘Competitive’ - The sourcing team needs to always create the impression that competition does exist to keeps all participants on their toes. Obviously, in a sole source situation this task is more challenging. But never forget you have options, even in a sole source event. After all, if that sole supplier fails to meet/beat your expectations, you could stop short of awarding business and revisit your supplier options or requirements. It is tough to play the competition game for a long time.
  • Discretion - In many companies, especially in the automotive world, engineers from both parties tend to spend a lot of time together. Naturally, discussions regarding challenges come up. A sole source situation discussion can easily come up. Suppliers tend to probe and ask questions and if the buyer’s side gives even a minor hint, this could spoil the final negotiation. We want to keep our integrity in place and maintain confidentiality. This will help the buyers with the current negotiation and future ones.
  • Work Fast - In order to avoid awkward or damaging discussions, the best way to finalize the sourcing process is to efficiently and timely conduct the final discussion while the competition cloud is still there. The more we wait the less leverage we gain.

If the buying organization executes fast and does a good job keeping the details confidential, they will probably enjoy additional reduction as a result.

Erez Azaria is a Senior Consultant in Ariba’s Spend Management Services group. Erez specializes in working with automotive manufacturers on strategic sourcing events.

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2 responses so far ↓

  • 1 Andy Moorhouse // Aug 15, 2008 at 3:35 pm

    I’m no procurement guru or Doctor, but surely the basic tenant of supplier relationship segmentation is to vary the approach to suit the category being sourced. Even a basic model like the Kraljic Matrix (or Purchasing Portfolio Matrix) suggests that partnering with a supplier is more appropriate when it is not possible to substitute their offering.

    With full respect to Erez, I think the above suggestions are admirable and may work for the automotive industry, but how about getting real?

    As you have no leverage, you might as well be transparent with the supplier. Understand that the cost of the entire bidding process can represent up to 8% of the cost of contract for both the buying and selling organisation.

    Looking at this situation from through a supplier’s telescope, their goal is to convince the customer to remove the bidding process entirely – in return they will pass on the savings to you.

    If you strip out the costs of running a fictitious ’strategic’ sourcing event, surely both sides will be better off… right?

  • 2 Erez Azaria // Aug 15, 2008 at 8:30 pm

    Thanks for the feedback. I agree with what you wrote. It seems that we are talking about two different situations.
    In your situation, it seems that you know in advance that you are dealing with one supplier. Your solution is appropriate. Total collaboration is the way to go.

    In many instances, a buyer starts the process with several potential suppliers. He or she goes through Request for Information process, Request for Quotation, and face to face negotiation only to find out that all suppliers except one are not qualified. At this point, before the buyer eliminates all non qualified sources, and given that the buyer is comfortable with the qualified supplier, my recommendation is to close the deal quickly before loosing all leverage.

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