Salespeople love winning ‘sole source’ business because they don’t have to compete. For their company, and even their customer, it may not be the best thing.
Here’s an outtake from a buyer’s perspective at ThomasNet’s Industrial Market Trends blog/newsletter (bold highlights are mine, as well as the collective ‘vendor’ reaction):
Single Sourcing: Pros & Cons:
Buyer’s Pros:
1. Having a single source means less work to qualify the source and probably less administrative effort in dealing with only one supplier. This is a real advantage in a highly technical product where significant engineering effort is required to qualify or use a product.
Vendor: Yay, less work for the salesperson, but with a risk of complacency.
2. Since all of your volume is given to one source, the buyer has maximized his leverage based on total quantity. The buyer should make sure that this point is emphasized during the negotiations concerning price, delivery, etc.
Vendor: Be prepared for repeated requests for discounts because the buyer has no alternative way to save money.
3. The supplier should feel a special obligation to help the buyer in terms of availability, etc. Again, in the process of awarding this business to the supplier, the fact that the buyerÂ?s company is relying on the supplier for material availability should be made clear.
Vendor: Are you willing to accept this special obligation? In sickness and in health?
Cons:
1. It is more difficult for the buyer to be sure that he is keeping his company competitive if there is only one source.
Vendor: We once had a long-distance salesperson who kept our business by repeatedly visiting to see how she could save us money. You should plan to do something similar.
2. In periods of tight supply, the buyer may be at a disadvantage in being able to ask other suppliers to accept orders.
Vendor: Can you prove your company’s flexibility, so the buyer is confident you can handle their orders?
3. Other suppliers may lose interest in trying to compete for the business if they see that a sole source situation is likely to persist.
Vendor: Yay for us.
4. There is a real risk if the single source has a catastrophic event, gets bought by your competitor, has financial problems, etc.
Vendor: What if something happens to the buyer’s company? Can we afford to lose the business?