Mitigating the risks of sole-source suppliers
Besides the challenges of finding the best-fitting suppliers that will solve issues around pricing, quality and delivery, procurement should also invest in alternate scenarios for sole-source suppliers in order to overcome any problems and mitigate the potential risks.
When working on a supply chain risk matrix, sole-source suppliers will almost always make a prominent appearance, with the potential that any single event may shut down the entire production or service, from financial issues to an accidental fire, the hunt for an alternative will be stressful and expensive.
The decision to rely on sole-source suppliers for the provision of services or goods should be taken with a lot of care. If getting the best deal with a supplier regarding costs and delivery time depends on giving them all your business, the risk analysis should be rigorous and all the key stakeholders and business leaders have to be aware. And if the sole source is in place because no other suppliers are available in the market at that time, an internal scope revision should be at the top of the priorities list in order to find alternatives.
There are a few ways to mitigate the risks involved in working with sole-source suppliers:
Carry out regular supply-chain health checks
An analysis of your supply chain is always a good idea, but even more so to understand any areas of risk you are subjected to by having sole suppliers. An analysis will quickly provide you with a number of data points to work from, such as the number of suppliers in a category, period of engagement, average pricing, contract terms and if they supply to more than one area of the business. A health check will highlight sole suppliers that may have previously been hidden in your supply chain, whether that be for a service or commodity that only attributes a small percentage to the overall running of the business or because the supplier exists in the tail and the relationship is managed by Finance and isn't on Procurement's radar.
Engage key stakeholders and business leaders
Sole-source suppliers and the policy behind them should be owned not only by procurement but also by the main leaders and key stakeholders in the business, as the risks and impacts that this can bring must be shared with all those affected.
Keeping these members of the business engaged will make it easier to share any probabilities of supply chain disruptions and financial impacts. This way, the amount of attention and effort allocated to each supplier can be decided by the group and the disruption can be minimised at the root.
Make a risk assessment
Keeping a risk assessment for each sole-source supplier and for each product or service they provide will help identify and mitigate the risks involved. Procurement can develop a simple traffic light risk assessment with the help of the group mentioned in the step above, so the level of threat can be seen clearly by everyone.
A green indicator acknowledges the sole source but recognises that no major risks could result from this supplier or process that would impact the supply chain. A yellow indicator keeps an eye on the supplier and its potential impacts on the operation, and a red indicator acknowledges the high-risk suppliers that would immediately impact the supply chain should something happen.
As part of Maistro's procurement solution, we provide regular supply-chain health checks to our customers through our intuitive and intelligent SRM and Analysis platform. Every day, we help our customers identify sole Supplier risks as well as opportunities to consolidate in categories and bring about high percentage cost-savings.
To find out how out we can help you, why not book a demo now?