When a business needs specific materials and goods, it may use the single-sourcing method to select one company to serve as its only supplier. Single sourcing can reduce cost and offer product exclusivity, which may differentiate the company from competitors. Becoming more knowledgeable about single sourcing can help you make a more informed decision about whether to implement it at the company for which you work. In this article, we review what single sourcing is, explore its benefits and offer seven helpful examples.
What is single sourcing?
Single sourcing occurs when a company chooses one supplier to provide all of its products, materials, parts and components, even when there are other suppliers that can provide the same goods. Businesses commonly use single sourcing because it can reduce costs. Single sourcing can also be the result of a bidding or quotation process. Under these circumstances, a company may review several suppliers as candidates and then decide on one. Common criteria for a single sourcing decision include:
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Unit pricing
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Quality
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Delivery benefits
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Operating terms and conditions
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Contractual discounts
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Reputation
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Brand partnership benefits
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Business commitments
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Existing relationship between the company and supplier
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Expertise
Upper management often decides whether to use single sourcing based on whether it offers the company a strategic advantage. To make an effective decision, these professionals may seek advice from the internal purchasing, sourcing, budget and supply managers. Single sourcing is also a strategy that a business can use if it hires one company to perform specific services. For example, a technology company with an expansive office building might use single sourcing to employ one commercial cleaning agency to sterilize the entire building every week.
Benefits of single sourcing
There are several benefits you can gain from using single sourcing, such as:
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Improved negotiations and payment terms: When a company only has one supplier, it may have greater flexibility during negotiations. For example, a single supplier may offer a company specialty deals and payment terms.
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Higher-quality services and goods: To maintain a contract with a company, a single source supplier may provide higher-quality goods and services. This can appeal to potential customers, which may increase profits.
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Reduced costs: Many companies choose single sourcing because it can reduce the cost of materials and products. This strategy can also help to lower their operational costs, allowing them to use their budget for other important business matters.
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Enhanced product consistency: When a company uses single sourcing, its supplier may become knowledgeable about its preferences. This can improve product consistency, ensuring each product appears and functions in the same way and at the same level of quality.
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Competitive advantage in the market: If a supplier produces high-quality materials, goods or services consistently, this may provide a company with a competitive advantage over competitors. This can influence the customers of competitors to consider the products of the company you work for instead.
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Increased brand partnership opportunities: When a company and a supplier have a positive single-sourcing contract, they may consider brand partnership initiatives. This means that each organization may promote the other, which may increase both their profits and customer bases.
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Minimized administrative work: Having one supplier provide all of a company's products and services simplifies its purchasing process. Less administrative work can save the company time and professional resources, allowing it to allocate resources toward completing other critical business operations.
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Personalized supplier relationship: When a company works with only one supplier, the supplier may provide it with specialized or personalized treatment. This can mean the supplier is more flexible and available, which can help a company produce goods and services faster.
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Improved supplier-related problem-solving: Since a company using single sourcing only has one supplier, it may be easier to monitor the supplier's performance and identify ongoing problems. This can help the company resolve issues in a timely manner.
Single sourcing vs. sole sourcing
Single sourcing occurs when a business chooses a single supplier to provide all of its goods and services, often after considering several suppliers. Regardless of the reasons a business decided to use single sourcing, the partnership is intentional. With sole sourcing, a company chooses one supplier because it's the only available option for materials, parts, goods or services that the company needs. A sole source supplier often provides has unique materials that other suppliers can't provide. This may be due to factors like intellectual property, expertise or design specifications.