Executive Briefings

The Perils of Sole Sourcing

Why is sole-supplier sourcing a potential problem for supply chains, and what should companies do to mitigate the risk? Jillian Alexander, managing director of Conduit Consulting LLC, provides some answers.

One of Alexander's clients, who was developing a new line of electronic components, asked her to listen in on a phone conversation with a new vendor. The client had signed away to the vendor the rights to its intellectual property – an action she terms one of the worst mistakes she's seen in 20 years of practice. "At the end of the day, the value of the new product line would have been negative – not even zero," she says.

The company had sole-sourced production because its chief engineer mistakenly believed the vendor in question was the only one that could help it to finish a final prototype. An internet search by Alexander uncovered the contrary, yielding a list of some 60 potential manufacturers. Two dozen of them were confirmed by the company’s chief technology officer as viable alternatives. Subsequently, the company issued a request for proposal and narrowed the field to five strong candidates. The move was vigorously opposed by the chief engineer, who sought to have Alexander removed from the project.

“This honestly is not uncommon,” Alexander says. Her firm was able to overcome the objections of the chief engineer by going to the CTO first, and getting him to buy into the new approach. In the end, the company attempted to renegotiate its contract with the original vendor, using the competing bids as leverage. But it was unable to wrest control of its IP from that entity. “We ended up contracting with another vendor who was able to produce the final work,” she says.

The moral of the story: avoid, to the greatest extent possible, being sole-sourced for key products and components. Even if a given vendor is found to be the only candidate at the outset of a contract, the situation might change a year or two down the line. In any case, Alexander says, companies should look to multiple vendors in order to avoid tying up too much money in inventory.

She also counsels against revealing too many details up front. An initial request for information shouldn’t disclose to prospective vendors exactly what the work entails. “Once you’re down to a short list,” Alexander says, “you can share information about what they need to know.”

To view the video in its entirety, click here

One of Alexander's clients, who was developing a new line of electronic components, asked her to listen in on a phone conversation with a new vendor. The client had signed away to the vendor the rights to its intellectual property – an action she terms one of the worst mistakes she's seen in 20 years of practice. "At the end of the day, the value of the new product line would have been negative – not even zero," she says.

The company had sole-sourced production because its chief engineer mistakenly believed the vendor in question was the only one that could help it to finish a final prototype. An internet search by Alexander uncovered the contrary, yielding a list of some 60 potential manufacturers. Two dozen of them were confirmed by the company’s chief technology officer as viable alternatives. Subsequently, the company issued a request for proposal and narrowed the field to five strong candidates. The move was vigorously opposed by the chief engineer, who sought to have Alexander removed from the project.

“This honestly is not uncommon,” Alexander says. Her firm was able to overcome the objections of the chief engineer by going to the CTO first, and getting him to buy into the new approach. In the end, the company attempted to renegotiate its contract with the original vendor, using the competing bids as leverage. But it was unable to wrest control of its IP from that entity. “We ended up contracting with another vendor who was able to produce the final work,” she says.

The moral of the story: avoid, to the greatest extent possible, being sole-sourced for key products and components. Even if a given vendor is found to be the only candidate at the outset of a contract, the situation might change a year or two down the line. In any case, Alexander says, companies should look to multiple vendors in order to avoid tying up too much money in inventory.

She also counsels against revealing too many details up front. An initial request for information shouldn’t disclose to prospective vendors exactly what the work entails. “Once you’re down to a short list,” Alexander says, “you can share information about what they need to know.”

To view the video in its entirety, click here