How do you deal with mono-sourcing?

What is mono sourcing?

Mono-sourcing is a situation in which a company obtains its supplies from a single source. a single supplier to cover your needs .

This situation may have been caused by a deliberate choice on the part of the Purchasing Department . The mono source situation is thus the result of a long partnership with a particular supplier.

Mono-sourcing may also be the result of a monopoly situation . In other words, the supplier is the only one who can provide the product/service to the market. This situation is more complex to manage.

Generally speaking, single-sourcing situations should be avoided, as they present serious risks of dependence on a single supplier. Instead, multi-sourcing or working with multiple suppliers should be favored.

The advantages of single sourcing

Single sourcing offers a number of advantages:

Cost reduction through economies of scale

When you use a single supplier, you have the opportunity to negotiate advantageous supply conditions or preferential tariffs. In exchange for this exclusivity, the supplier may be more inclined to grant you preferential terms.

Simplified supplier management

Working with a single supplier can also be an opportunity to simplify various aspects of supply management:

• Logistics . A single supplier means a single supply route.

• Negotiations can be made easier provided you maintain a good relationship with your supplier

• Communications . You have a single supplier. So you have a single point of contact, facilitating the exchange of information.

Developing a relationship of trust and partnership

Working with a single supplier creates habits on both sides. This can lead to a climate of trust and understanding, but also a true partnership . The supplier is more inclined to grant payment facilities or other benefits, for example, because he feels he can trust the customer.

The risks of single sourcing

Single sourcing situations are risky in many respects:

Excessive dependence on a single supplier

Having only one supplier for a specific product/service exposes you to a number of dangers. It means depending on a single source. Also, if this single supplier encounters production problems, goes bankrupt or if disagreements arise your production is also at risk.

Whereas if you had other alternatives, you'd simply have to turn to them in the event of a blockage.

Vulnerability to price fluctuations and supply chain disruptions

This risk is all the more obvious in a monopoly situation. A supplier in a monopoly situation may feel free to raise its prices, which would inevitably have far-reaching consequences on your operation and your margin.

Working with a single supplier means lose the power to compete for competitive rates. It will be difficult to get the supplier to lower its prices because it is alone in the race.

Similarly, when a supplier's supply chain is disrupted, the consequences will also be felt by your company. So in the event of shortages or strikes for example, the company will also have to suffer the effects.

You may even be out of stock, with all the negative consequences that entails.

Best practices for managing single sourcing

Given the potential risks involved, single sourcing situations need to be managed tactfully to bring out the opportunities. Here's our advice:

Negotiating robust, flexible contracts

We have seen that mono sourcing leaves your company vulnerable to fluctuations. You can, however, protect yourself from this as soon as you sign the contract, by defining clauses designed to anticipate such situations. These should anticipate situations such as service disruptions and/or changes in commercial conditions.

Implement contingency plans

Emergency plans can also be a way of preventing negative consequences in the event of single-supplier failure. This means, for example, having a list of alternative suppliers on hand to call on just in case.

Evaluate supplier performance on a regular basis

Having a single supplier doesn't mean blind trust. In view of the risks involved, you must stay alert .

Evaluate it continuously and detect any failure to meet the quality and delivery standards agreed in the contract.

It's a way of avoiding the full impact of potential failures and anticipating solutions.

Alternatives to single sourcing

As you can see, single sourcing creates a number of opportunities. However, it can also be a source of concern. That's why we offer you the following alternatives:

The multi sourcing

As opposed to single sourcing, multi sourcing consists of the possibility of use multiple suppliers for a specific product/service . The company must therefore ask itself whether its supplier is really the only one on the market. Mono-sourcing can be the result of poor sourcing from the outset.

Review your sourcing strategy can be a way of identifying alternative suppliers. In this case, the company will be able to reduce its dependence on its suppliers, and can take advantage of the competition on every order.

It can therefore choose the supplier offering the best value for money. Furthermore, it does not risk suffering the repercussions of any default on the part of a supplier. This means security of supply, synonymous with peace of mind for the Purchasing Department.

Le double sourcing

As you will have guessed, double sourcing refers to the situation where the company has two suppliers. This situation is halfway between single sourcing and multi sourcing. The company divides its orders between two suppliers.

This enables them to take advantage of the opportunities offered by offering a certain degree of exclusivity to their suppliers. This, it should be remembered, establishes a trusting and lasting relationship that can lead to greater negotiating leeway.

On the other hand, dual sourcing provides a greater guarantee of security of supply than single sourcing.

In short, not recommended, le mono sourcing can, however, offer a number of opportunities. Working with a single supplier allows you to establish a relationship of trust, with exclusive advantages and greater negotiating power. However, you can also take steps to mitigate the risks to your business.