PurchTips edition #192

Negotiating with a sole source supplier is arguably the most difficult situation for a procurement professional. Therefore, it’s important to know how to prevent sole source situations from happening in the first place.

Sole source situations often occur when an engineer or end user writes a new specification that calls for the use of goods or services from a specific supplier. Once the specified item is launched, the specification and suppliers can be very difficult to change.

So, how do you prevent sole source situations? “The first step is actually just communication: letting the Engineering community understand that the more specific they become with a specification, the harder it is for Procurement to drive value for the overall end product and the end user,” according to Jim Nelles, partner with Roland Berger Strategy Consultants.

Nelles says that procurement professionals frequently concede to Engineering too easily when receiving a supplier-specific specification. But, instead of playing victim, he recommends reviewing specifications with engineers, identifying alternatives and their price differences, and stating what better profit margins mean for the company’s competitive advantage and the future of the engineering team.

If such collaboration isn’t welcomed in an organization with a politically strong engineering department, Nelles suggests getting the best possible quote for the product or service as specified, then running “a parallel process by which you get quotes for the exact or similar performing substitute that you then can go back and present to the group.” Though this approach can help on a one-off basis, the longer-term goal of Procurement should be to secure a permanent role on the design team ensuring early involvement in future designs.

“If you can have Procurement be a part of that process, they can influence the decision up-front and have things done the best way from the beginning as opposed to going back and trying to change things,” Nelles says. “It’s always easier to do it at the beginning than it is to go back and try to change something once decisions have been made by people.”

How can Procurement gain acceptance onto design teams? “At the end of the day, it’s really about being able to demonstrate the value that Procurement has delivered,” shares Nelles. “If Procurement can demonstrate that they have worked in other areas and found high-performing products that no one knew about that they were then able to spec into a bill of materials, that goes a long way with engineers.”

When engineers tell success stories about Procurement, it influences their peers to be less resistant, says Nelles. “But, once you are at the table, if you don’t bring the value, you’re never going to be asked back again.”

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