Does single source supply give customers leverage?

| 0 Comments
Single Source Supply.jpgDuring the Apartheid era, organisations often grew by purchasing or amalgamating with their competitors. As a result, in the 1990s, when organisations had access to the world stage, South Africa had and still has many industries that are controlled by monopolies or duopolies.


Whilst most organisations believe that increased competition amongst their suppliers to be a ‘good thing’, few seem to take advantage of this in practice. Many organisations seem to be locked into believing that volume and price go hand-in-hand, and many actively work at having single source supply arrangements, often under the epithet ‘supplier partnerships’. “Whilst Purchasing Index (PI) has no doubt that successful supplier partnerships do exist, they remain, in our opinion, very few and far between. Living the reality of a supplier-customer partnership requires a lot of research, set-up, information, ongoing management and commitment to make it sustainable”, Alan Low, Managing Director of Purchasing Index, told SmartProcurement.

“PI has much empirical evidence to the effect that small customers often get lower prices and better service from suppliers than their much larger peers. Below is an example from 2005 which shows eleven organisations who were buying the same popular, branded HP inkjet cartridge. An organisation buying 130 cartridges per month was paying R20 less than another organisation buying 200 cartridges a month”, Low continued.
 

Ink Cartridge spreadsheet.jpg


In fact, PI also has evidence that where organisations move from a competitive supply environment to single source supply, they often find that the products they buy become relatively more expensive (and the service deteriorates).

The graph below shows what happened to a large organisation’s price for desktop personal computers after the organisation had abandoned regular competitive bidding for their supply and moved to a sole supplier:

 

Mainstream Desktop PC Prices – Client vs. IndexMainstream Desktop PC Prices.png

The above shows that the client’s price differential has worsened from just under R1,000 in October 2006 to more than R2,000 in February 2008.

Is it then not easier for Procurement to give their internal customers a choice? Might this not help to increase internal compliance? Would this not help to ensure that prices and services remained competitive? Of course, it is easier for Procurement to set up a single contract (much less admin, etc), but having ongoing competition should allow organisations greater price / service sustainability.

“Sustainability is one of the key issues for organisations. Procurement must thus ensure that the competitive deals that they put in place remain competitive. Suppliers price their products and services competitively and opportunistically. The less real competition they have in a particular customer the less they need to worry about pricing aggressively.

Suppliers will, in these situations, look to maximise the returns for their shareholders and therefore customers must beware!”, Low concluded.

 

If you are interested in participating in any (or all) of the above please contact Alan Low on 011 803 0005 or 084 890 0005. Alternatively email alan@pibenchmark.co.za

Leave a comment


SmartProcurement Newsletter
X

Please enter your details below to receive the SmartProcurement Newsletter for FREE on a regular basis.

As part of the SmartProcurement Newsletter you will be receiving World Class Procurement News, Tools, Tips, Tactics, Procurement Training updates, Upcoming Events, and the latest Procurement Career Openings.

* Email Address:
* Title:
* First Name:
* Surname:
* Company:
  Position:
* Country:
* Public / Private:

 

Career opportunites

Operations Manager

  • >500 000 Gauteng Operations, Planning & Inventory Permanent Supply Chain
Our client within the FMCG industry with a ...More

Warehouse and Distribution Manager

  • >500 000 Gauteng Logistics & Warehousing Operations, Planning & Inventory Permanent
An exciting opportunity awaits for a Warehouse and ...More

Demand Planner

  • <500 000 Permanent
Get an opportunity to be part of one ...More

Procurement Manager

  • >500 000 Gauteng Permanent Procurement Management Procurement Officer / Specialist
An opportunity for a seasoned Procurement Manager, who ...More

Industrial Engineer

  • >500 000 Gauteng Industrial Engineer Permanent Procurement Consultant
An exciting opportunity that offers extensive exposure on ...More

Deputy Director: Procurement

  • >500 000 Contract Procurement Management Procurement Officer / Specialist Western Cape
Department of Economic Development and Tourism:Procurement Specialist, Ref ...More

DEMAND PLANNING MANAGER

  • >500 000 Gauteng Operations, Planning & Inventory Projects / Category Management
(Total Cost to Company R750k – R900K) excluding ...More

GLOBAL SUPPLIER PERFORMANCE MANAGER

  • >500 000 Gauteng Operations, Planning & Inventory Permanent Projects / Category Management
(Salary: R 1.3M –R1.5M, dependent on level of ...More

GLOBAL CATEGORY MANAGER

  • >500 000 Contract Gauteng Procurement Consultant Projects / Category Management
Total Cost to Company R1mil – R1.2mil excluding ...More

Project Manager

  • >500 000 Contract Procurement Management Projects / Category Management Western Cape
 Description:A well-known retail organization is looking for an ...More

PROCUREMENT ANALYST

  • >500 000 Analyst Gauteng Permanent Procurement Management
Description:A leading infrastructure development group with strong presence ...More

Commodity Manager: Fuels and Lubes

  • Commodities Gauteng Permanent Projects / Category Management
 Ensuring continuity of supply in line with business ...More

Senior Facilities Manager

  • >500 000 Commodities Gauteng Operations, Planning & Inventory Permanent
(Total Cost to Company R800K – R900K) Johannesburg Our ...More

ENGINEERING STANDARDS MANAGER

  • <500 000 >500 000 Gauteng Industrial Engineer Permanent Procurement Management
(Total Cost to Company R350K – R550K) JOHANNESBURGYou ...More

Supply Chain Analyst

  • <500 000 >500 000 Permanent Procurement Officer / Specialist Supply Chain Western Cape
(Total Cost to Company R350K – R550K)  SOUTHERN ...More

Security Manager

  • <500 000 >500 000 Gauteng Permanent Projects / Category Management Strategic Sourcing
(Total Cost to Company R350K – R550K) JOHANNESBURG This ...More

Demand Planner

  • <500 000 >500 000 Operations, Planning & Inventory Permanent Projects / Category Management
(Total Cost to Company R450k – R550k, dependent ...More

Procurement Specialist-Randburg

  • >500 000 Gauteng Permanent Procurement Management Procurement Officer / Specialist
(Total Cost to Company R700k – R800k including ...More

Solutions Architect

  • >500 000 Gauteng Industrial Engineer Permanent Projects / Category Management
(Total Cost to Company R1.3Mil – R1.1Mil including ...More

MANUFACTURING MANAGER - OLIFANTSFONTEIN

  • >500 000 Gauteng Permanent Projects / Category Management
(Total Cost to Company R850k – R950K including ...More