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Single-Sourcing Is Not Sole-Sourcing

By Kofi Asenso
Opinion Single-Sourcing Is Not Sole-Sourcing
MAY 14, 2018 LISTEN

Background
Having listened to numerous commentaries on radio and TV in Ghana on issues regarding procurement and much more specifically - Public procurement, I am compelled to write and clarify the misconception that has been created in the media either by interviewers or the men and women on the other side of the conversation who are deemed experts on the subject.

In my attempt to realign my thoughts to what is professionally correct on this issue as against what has been presented in the media - especially by the experts and politicians, I had sort to blame the framers of the Public Procurement Act, 2003 (Act 663). Surprisingly, a quick search in the document with “Sole” as a keyword revels that the Act 663 was silent on defining what Sole-sourcing is. On the contrary, the Act 663 is explicit on Single-source procurement. It is interesting to note that Section 40 (1) A-F and (2) in stating the conditions under which Single-source procurement is permitted, seems to be making a case for both Sole-sourcing and Single-sourcing.

Definition
Sole-sourcing is when only one vendor for the required service or product is available, whereas with single-sourcing a particular vendor is purposefully chosen by the buyer, although other suppliers are available (Van Weele, 2010). With sole sourcing, the buying company virtually has no option. Companies may search for multiple suppliers and distributors for a product or service through a competitive tender but may discover that only one vendor is capable of meeting the supply requirement. On the other hand, in Single-sourcing, a specific company is chosen, bypassing competitive tender despite the option to explore the service of many vendors or suppliers who have the capacity and capability to offer that service.

Sourcing Decision
Single-sourcing decisions are usually made at strategic management level where procurement or supply managers need to determine how much value a single source relationship adds to a business (Leenders et al., 2002). Single-source is often opted for as a material cost reduction strategy, as consolidating all purchasing requirements with only one supplier gives the buyer the power to negotiate better price and purchasing conditions. Most buyers will opt for Single-source procurement for many reasons such as, - prior commitments by the buyer and long-term buyer-supplier relationship. Single-sourcing can also be justified when the supplier can offer an exceptional quality of service or product complex designs and in instances where the order is not worth dividing among multiple suppliers due to its value and volume. One limitation of Single-sourcing is the overdependence of the buyer on the supplier. This can lead to compromised quality of product and service, constant price increases, lack of interest in continuous improvement, innovation and collaboration.

Single or sole source procurement in its entity is not bad. It can be necessary or justifiable under the following conditions;

 The supplier has a patent on the product.
 High-end bespoke engineering products.
 The supplier has a good deal of previous experience in the manufacturing of a particular device.

 In times of emergency.
 When there is a buyer-supplier shared cost in the product development.

 Supplier’s product quality is better than any of the competitors.

Pros and Cons
It is interesting to note that, both sole and single sourcing require buying from only one supplier. However, this is a precarious position for any buyer to be in - as it exposes the company to operational risk due to its dependence on a single vendor for a particular product or service.

Single-source procurement as explained above offers business owner alternatives. Despite the initial decision to select a vendor to provide a particular service, there is always the flexibility to change the vendor following any supplier disruptions. Additionally, vendors typically are open to negotiations as the product or service being purchased can be easily sourced from other vendors.

Sole-sourcing, on the other hand, does not present the buyer with many options in terms of suppliers to choose from. It, however, offers certain benefits if sole-sourcing contract is initiated under the right conditions and terms. The process of issuing Request for Information/Quotation (RFI/RFQ), evaluations of quotations and contract negotiations with multiple vendors is both time and financially consuming. The time spent on market research, issuing of RFQ/RFI and contract negotiations is significantly reduced under sole-sourcing.

Below are some of the advantages of Sole/and Single Sourcing:

 Reliable product or service quality.
 Supply manager only manages one supplier for a product or service.

 Offers opportunity for buyer/supplier collaboration for innovation and product improvement.

 Purchase quantities may be larger.
 May offer an efficient and lower cost freight service.

 Both may reduce accounting complexities.
The supply manager must be aware of some critical disadvantages of Sole-sourcing:

 Any supplier chain disruption (natural disaster or accident) could bring operations to a halt.

 High inventory cost as buying companies tend to hold high inventory to mitigate against the risk of a supply chain disruption.

 Lack of production capacity to meet demand
Below are some disadvantages relating to both Single and Sole Sourcing;

 Higher Minimum order quantities with a potential risk of obsolescence, high inventory, etc

 The supplier may become complacent and a bully.
 Risks of financial exposure to the supplier
 Frequent price increases
 A merger or acquisition can cause a change in strategy by management which might affect the contract delivery (or something to explain the change in strategy)

Conclusion
Single/and sole source procurement can be made effectively if the buyer has prior knowledge of supplier’s strengths and weaknesses. In addition to supplier knowledge, there is the need to strive for a collaborative buyer-supplier relationship to create a strong contract. A conscious effort must be made by both parties (buyer & supplier) to arrive at a “win-win” situation which will assure a more effective single/and sole source procurement.

Notwithstanding the above, it is instructive to note that contractual aspect of the procurement process is key to an effective single/and sole source procurement activity. The contract to underpin the procurement activity between the two parties offers some opportunities to assure a successful purchasing experience.

For instance, issues such as price increases can be addressed with clauses to manage maximum price increases linked to an index agreed by both parties. Additionally, the contract should be set to manage easy exit by either party’s, encourage suppliers to improve service, reduce the cost of production and product redesign.

Kofi Asenso (BEd, MSc)

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