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Going with one vendor? The risks can outweigh the savings

Scott Ball
by Scott Ball
December 16, 2014
1 minute read
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“Single sourcing” with vendors can save companies a lot of money. 

But it can be a risky move when it comes to critical supplies and services that your business can’t do without.

For example: Imagine if your primary vendor is flooded or burns to the ground.

Could you secondary or frequently used vendors fill the void? Or would you be scrambling to find a vendor that helps keep operations humming?

If things go wrong, you’re covered

It makes total sense. Vendors give businesses a break on price when customers expand the goods and services they want provided.

Maybe you’ve gotten a great deal by going with a single vendor for specific areas.

Many CFOs love single-sourcing for bottom-line savings. But if the vendor hits a snag, it’s the CFO and other company leaders who have to scramble and pick up the pieces.

The safer approach: Divide your critical needs between two (or more) vendors.

Both vendors should fall between your price target range. But it’s a “divide and conquer” approach.

Example: You designate vendors as “primary” suppliers for certain services and materials, and “secondary” for other areas.

The perfect scenario is the secondary vendor “fills in” some gaps at times for the primary vendor. That way you know if you can depend on one to jump in if you lose the services of the other vendor temporarily.

It’s a two-step transition

Moving from single-sourcing requires two key steps:

  • Identify your “mission critical” supplies, services, etc. that you need vendor support on.
  • Get department heads from IT, Production, Operations, et al., on board.

Department heads may offer useful advice on vendor selection. If one of your chiefs thinks a particular contractor is a bad fit, you’re better off staying away.

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