There are times when a buyer is faced with a single source of supply for an item because it is produced by only one company. But, most often there is more than one source available, leaving the buyer with choices to make. Buyers then have to ponder the pros and cons of deciding to use a sole source.

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.
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.
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 buyer's company is relying on the supplier for material availability should be made clear.

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.
2. In periods of tight supply, the buyer may be at a disadvantage in being able to ask other suppliers to accept 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.
4. There is a real risk if the single source has a catastrophic event, gets bought by your competitor, has financial problems, etc.

You might be saying that all of the above is stating the obvious and you would be correct. So, what does the professional purchaser do to make an informed decision? He or she starts by developing a plan for each commodity. The plan includes:

• Recent history of pricing and availability for the commodity.
• How many potential suppliers exist on a global basis. Today a buyer should not limit the plan to only domestic sources if, in fact, this is an important commodity or item to his company.
• Who the incumbent supplier(s) are and how satisfactory their performance has been in the past 12 – 24 months.
• How critical or strategic this commodity is to the buyer's company.
• What is the demand likely to be in the future based on the company's marketing and sales plan.

Once this information has been gathered the likelihood of making a good decision regarding the number of sources for the commodity in question has greatly improved.

Herb Shields has over three decades of experience in the purchasing field. He is now the president of HCS Consulting, which helps companies in their purchasing and inventory management activities. His clients include manufacturers and distributors in industrial products, rail equipment maintenance, dyes and pigments, personal care and household products, pharmaceuticals, and food products.