Supply chains relying on a sole provider have a single point of failure. You can do everything right on your end and still be left holding the bag if your vendor runs into issues or there are problems shipping supplies. You can’t quickly contact other suppliers looking for an alternative; when a sole provider misses a delivery, you no longer have a product to offer your customers.

Working with a sole provider means that your company is in the hands of someone else. Their problems are now yours.

Supply chain woes

Sole Proprietors

Developing a supply chain, tracking down everything your business needs, hunting for competitive pricing, and uncovering fantastic resources to make your product stand out, are all critical parts of starting a business. Entrepreneurs will scour the globe looking for the perfect supplies in order to create a truly unique product that their competitors can only dream of offering.

While searching for something irreplaceable can yield a unique selling point, it can also create a supply chain headache. Shipping, arranging payments, and potentially finding the best way to pay international vendors, are just some of the headaches you’ll need to deal with. You also have to be aware of the possible problems down the line if you end up working with a sole provider.

Whether you’re looking for the perfect resource for your business or something more mundane such as proprietary products, including a sole provider in your business model requires special considerations.

If at all possible, it’s always better to design a product that does not require a sole provider. If it can’t be avoided and your business does rely on a single supplier, you need to understand the additional risks involved and take steps to limit them as much as possible.

Before we discuss the steps you can take to limit your risk of using a sole provider, let’s first clearly define what a sole provider is and how they differ from single-source providers.

Sole provider vs. single-source provider

A sole provider is the only supplier for a particular product to the best of your knowledge, i.e., after researching vendors, you only found one capable of providing the components you need. This could be for several reasons:

  • They offer significantly higher quality products or services that cannot be replaced using other suppliers.
  • They have a monopoly over a particular market.
  • They are the only provider for a given product in your region, and long-distance shipping is not a viable option.
  • They are the only company capable of producing the volume you need.

Sole providers are sometimes confused with single-source providers, where you have options but choose to utilize a single provider as part of your procurement strategy. Often this comes down to price and the savings that occur through negotiating certain details for a number of supplies. But it can also come down to quality or continuity within the business. For example, all employees utilize Apple products to simplify staff collaboration.

sole provider

The critical difference between sole providers and single-source providers is choice. Single-source suppliers mean you can investigate various vendors and choose the one that works best for your situation. If problems arise, you can find alternatives and move on to a different provider.

In contrast, sole providers limit your options to just one. This means the supplier has all the power in the relationship. They can set the price and delivery schedule, knowing you have nowhere else to go. The only way out of the relationship would be to overhaul your product design.

Here are a few tips to help you mitigate your risk if you need to rely on sole providers:

1. Understand the scale of the issue

The first step to solving an issue is understanding it. Carefully go through your purchases and build a database of any sole provider resources you use. Make sure they are genuinely a sole source and not single-source suppliers.

If possible, it can also be helpful to identify whether any of your critical suppliers rely on sole providers. These vendors are more susceptible to their own short-notice supply problems, and making a list of quick alternatives can help mitigate the risk of working with them.

2. Risk analysis

While any supply chain with sole providers has risks involved, it’s important to assess them on a case-by-case basis:

  • Is the resource a fundamental component of your product or a critical part of business operations?
  • How often do you use the sole provider’s resources?
  • Can you adapt your procurement strategy to mitigate the risk?
  • Would a minor product redesign offer access to multiple providers?

Asking these types of questions helps assign the level of each sole provider in your supply chain.

3. Mitigation

It would be great if you could design a product and run a business without utilizing sole providers. But there’s a good chance you’ll be stuck with supply chain risks due to only having a single option for certain items. If that’s the case, you need to plan for the worst and develop potential mitigation strategies:

  • What happens if a delivery issue occurs? Can you live without the component for a short period of time?
  • Can you reduce deliveries to minimize the risk? For example, buying in bulk and making reorders early.
  • Can you make a small change to remove a sole provider without sacrificing product quality?
  • Do you have time to comprehensively check for alternatives?
  • Do you have a good relationship with your sole provider, to help ensure smooth operations?

work with a sole provider

The best method to reduce risk is to maintain a healthy relationship with your sole provider. That means clear communication, swift payments, and not changing orders last minute.

Make sure the relationship is worth it

Ultimately, if you work with a sole provider, ensure the relationship is worth it. Only go through the stress of relying on a single vendor if they offer something irreplaceable to your business. If not, consider redesigning your product or adapting your operations to reduce supply chain risks. Given the widespread supply chain disruptions since the pandemic, now might not be the best time to hitch your company to a single supplier.

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