Which is more calculated? Purchasing from one supplier or multiple suppliers? This question is one of the most important in managing purchasing processes and optimizing the supply chain. Among companies, a very popular solution is the single sourcing strategy, i.e. ordering goods or services from a specific category from a single supplier. What are the benefits of ordering from a single supplier, and what are the potential risks of single sourcing? We will introduce the topic in this text.
Advantages of a single source of supply
Optimizing purchasing processes is not just about finding the lowest-priced suppliers. Several factors contribute to supply chain efficiency. There are many benefits to choosing a good supplier.
Cost reduction
Lower purchasing costs - by buying more products from one supplier, you gain a better negotiating position. Economies of scale are at work here. Lower purchase prices mean reduced costs for your company.
Lower administration costs - fewer invoices issued means fewer invoices to process and fewer documents signed. This reduces accounting costs. It also saves time that would have been spent searching and negotiating with other suppliers.
Better payment terms - with long-term cooperation you can count on better financial terms, longer payment terms. It also gives a kind of flexibility in matters of payment of receivables, due to trust in the customer. Some companies for regular customers even offer trade credits.
Optimization of delivery processes
Simpler supply chain management - working with a single manufacturer, brings consistency to operations. You can control the quality of goods more effectively. You can count on greater flexibility and efficiency in the supply chain. It's easier to coordinate deliveries when ordering from a single manufacturer. You can count on lower transportation costs, adjustment of convenient product delivery dates, better planned delivery times and possible elimination of delays.
Business development - a regular supplier with whom you have a great relationship can also help you grow your business by directing you to introduce new products, expand your product line. You have opportunities to negotiate a fully personalized product, sign an exclusive contract.
Building relationships with contractors
Uniform quality and trust - long-lasting relationships with suppliers build cooperation that enables better control of the quality of products and services and gives the opportunity to customize products. Good supplier relationship management results in a more complete understanding of mutual expectations. Better customer service is not the only benefit. After many years of cooperation with the same company, and often a person, we can usually count on better prices or more flexible terms.
Ease of communication - once a supplier becomes your regular business partner, you can count on better communication. Long-standing cooperation with the same people builds relationships that often go beyond just business. This will help you achieve your company's business goals, while making your work easier and more enjoyable.
Disadvantages of a single source of supply
The above advantages show that choosing a single supply is a hit. So, are there any disadvantages? Something will be found - everything has its strengths and weaknesses. The disadvantages of single sourcing can have a serious impact on the operation of your business. That's why some companies rely on a multiple sourcing strategy, i.e. working with multiple suppliers.
Dependence on a single supplier of services and goods
Having one supplier is great as long as everything goes smoothly and the economy is good. The stairs start when there are problems with the supplier: financial, technological, production, logistical. Supplier insolvency can block your order. Technological and production problems can reduce the quality of your products, and thus expose you to complaint losses. Through such difficulties, the entire delivery process can be disrupted, and as a result, at best you will be left without goods. You will then face the need to urgently find an alternative, and this may not be easy. If you have several sources of supply, a problem with one of your suppliers doesn't have as critical an impact on the operation of your supply chain. It's easier to replace the failing component.
Dependence on one supplier can also limit your company's flexibility to some extent. It's comfortable and stable, so why change anything? However, it may turn out that by leaving your comfort zone you will find similar quality products at better prices, discover some novelties, or simply get better terms of cooperation.
Single sourcing and multiple sourcing strategies. Advantages and disadvantages - which to choose?
There are definitely more advantages, that's clear. However, a disadvantage, quite serious, can, under unfavorable circumstances, cause a serious crisis in your company. So what should you choose? In our opinion, nevertheless, it is better to bet on the choice of a single, proven supplier. He will be able to fulfill all or most of your demand. This will save you time, money and often nerves.
However, never lose vigilance, monitor the condition of your supplier. By keeping your hand on the pulse, you will be able to react in time at the first signs of problems with your contractor.
