At the NLPA, we’ve said it before- a sole source situation can be a nightmare and create some serious problems. Several governmental procurement departments in California and South Carolina are unfortunately learning that lesson the hard way.
One of the major problems that exists with sole sourcing is “What happens when the supplier goes out of business?” That’s exactly what happened to these governmental agencies. They found out that their sole supplier of a highly specialized paper stock used for vital documents like birth and death certificates went out of business. Ut oh.
Now if you’re a modern procurement professional you are probably saying, “Well, that’s why we have contingency plans.” And, you’d be correct. Contingency plans are essential in sole source situations. But these organizations didn’t have any, heck they didn’t even know the supplier closed up shop until a month later when they went to reorder. (Another lesson learned: have regular communication with your suppliers!)
So, while contingency plans are important, they are more of a proactive defensive strategy. You only plan to use them in the event of a supplier failure.
Today’s procurement professionals also have to be on the offensive and that’s where supplier development comes into play. Supplier development is crucial for procurement, but even more so when dealing with sole sources. By working with other potential suppliers to provide the product you need, you’re able to create competition and where there’s competition there’s better pricing. Not to mention you are creating new sources for the item thereby ensuring better supply continuity.
So, even if your internal customers back you into a corner with their requirements and force you into a sole source situation, you can, and should, take steps to alleviate the risks and prepare for future supply needs through supplier development.
So, back to those governmental agencies, despite not having a contingency plan the South Carolina Department of Health and Environmental Control procurement team may end up looking like heroes when all is said and done. As it turns out they have identified and contracted with a new supplier and, get this, will be saving over $4,200 per 100,000 sheets of paper. A pretty significant cost savings that would have never been realized if the incumbent supplier was still operational. Just another example of how sole source situations can really cost your organization in the long run.