I hope that you have enjoyed the article “Single Source Situations Shouldn’t Stink.”
Too often, we in procurement think that competitive bidding is the only way to get suppliers to keep their prices in check. This isn’t the case. And, actually, competitive bidding in certain situations can actually increase your prices.
Well, consider this situation.
You do business with a certain supplier year after year. That supplier’s work is clearly ingrained in your organization’s operations for one reason or another: you have a product dependent on the design of the supplier’s product, it is too costly to switch to another supplier, the time that it would take a new supplier to learn how to interact with your organization feels like it would be too long, whatever.
You go out for bid every two or three years. At first, you were getting great price offers from competing suppliers, but still went with the incumbent, despite a higher price. The second and third times you went out to bid, you got fewer and fewer suppliers to participate. And, despite getting lower pricing from potentially new suppliers, you continued to stick by your old faithful supplier.
You’re faced with the expiration of the contract with the supplier yet again. You are considering doing another RFP because, well, that’s all you know how to do. Are you seriously going to award business to another supplier given the history and the fact that management would support your internal customer’s desire to keep the incumbent if it came down to a standoff with your relatively weak procurement department recommending a new supplier?
You know how the story will end. Do you think that the supply base is going to put much effort into trying to win your business? Probably not. And do you think that the incumbent is really trying to be competitive with its pricing? Unlikely.
Competitive bidding is essentially doing no favors for you. But it is costing you time, effort, and resources.
In these situations, it’s time to be more than a one-trick-three-bids-and-a-cloud-of-dust buyer. You need a new approach. One that actually contains costs, not creates the illusion of doing so.
The article gives you three things you can do to keep control in a single source situation. They are certainly not the only tactics that could help you. What others can you think of?