Single Source Supplier: A Buyer Nightmare

Negotiating with Single Source Supplier is always a difficult situation for any Buyer. Often these cases are common when you are buying spare parts and specialized tooling or services. Also when you are managing legacy plants there are often cases where your choice of buying from different supplier is limited. How to negotiate in these cases is difficult and finding a win-win solution are limited.

Recently there was an article at Supply Excellence by Justin Fogarty titled “Negotiating with a Sole Source Vendor”. The article refers a similar debate happen on LinkedIn where there was many solution offered and Justin summarize these solutions into 6 point summary.

1. Play to Each Other’s Goals: Find the balance of power. Establish clarity about your and suppliers goals. That is what would make you more attractive to them and can be used in exchange for cost reductions.
2. Analyze the Cost-Drivers: Best negotiation strategy in any scenario. Understand each cost drivers and suppliers logic of pricing and negotiate based on that.
3. Squeeze out More Value: In specific cases where it is forced by law to deal with service provider. Offer them more freebies.
4. Maintain Competitive Spirit: Always check the competitive level of pricing. Supplier must get the feeling they may not be the single source on the next project if they are cheating you.
5. Stay Alert: Keep on checking the pricing of whole Commodity. There might be instances where initial purchase price is high because of new technology ( Ex : Servers) and in few months down the line as newer technology comes the actual price of the same server has gone down. Suppliers generally don’t forward the price reduction. Other point is if you are buying the same item again and again from single source you can leverage and ask for discount.
6. Bring in the Heavies: Involve Higher ups in negotiation which generally helps during negotiations.

You can read more about these points in detail from Justin’s Article. Also post any new points you think could help in negotiation better while dealing with single source supplier.