In supply chain management, how you choose your suppliers can make or break your operation. One sourcing strategy that has sparked plenty of debate is single sourcing—relying on just one supplier for a particular product or service. Implementing a single sourcing strategy can provide many benefits but can also come with a fair amount of risk. It is critical to evaluate the advantages and risks, determine which are most applicable to your specific situation, and decide on the right strategy for your supply chain.
Single sourcing occurs when a company intentionally selects one supplier to fulfill a specific need, even if other options exist. This isn’t the same as being stuck with a sole supplier due to a lack of alternatives—as is the case with sole sourcing. In sole sourcing, the supplier is the only game in town that can supply the product. In contrast, single sourcing is a choice. Sometimes this choice is made as a deliberate & strategic decision, while other times, it may simply be the path of least resistance. The supplier may provide great pricing with exceptional quality and on-time delivery – in other words, they are just easy to work with. However, this situation can inadvertently lead to dependencies and unintentional consequences down the road if not managed strategically. When done strategically, single sourcing can provide several advantages. However, like any strategy, it’s not a one-size-fits-all solution. Let’s break down the pros and cons.
1. Stronger Supplier Relationships
Working with a single supplier fosters trust and collaboration. Over time, you’re not just a customer—you’re a partner. This can lead to better communication, tailored solutions, and even priority treatment during shortages. For example, a manufacturer relying on one steel supplier might get custom cuts or expedited delivery that a multi-supplier setup couldn’t guarantee.
2. Economies of Scale
Consolidating purchases with one vendor often unlocks economies of scale. Bulk orders can mean lower per-unit costs, and you’ll likely spend less on administrative overhead—no need to juggle multiple contracts or negotiate with a dozen suppliers. You’re dealing with one point of contact, one set of terms, and one delivery schedule. This streamlines inventory management, reduces paperwork, and cuts down on the time spent coordinating logistics. For small businesses with lean teams, this simplicity can be a game-changer. Similarly, for large businesses with a lot of spend, allocating high volumes to a single source can have the supplier gain their own economies of scale with their internal resources, overhead, and procurement operations. For example, a retailer sourcing all its packaging from one provider might see significant savings over time.
3. Consistent Quality
With a single supplier, you’re more likely to get uniform products or services. There’s no variation from multiple vendors using different processes or materials. For example, in the food and beverage industry, a restaurant chain sourcing beef from one farm can ensure every burger tastes the same across all locations—crucial for brand consistency.
4. Enhanced Innovation Opportunities
Deep supplier relationships can foster collaborative innovation. When suppliers understand a buyer’s business intimately, they may develop customized solutions or proactively suggest improvements that create competitive advantages. This is critical because the supplier is going to have the most intimate knowledge of the process nuances that go into making the components. Hence, they are going to be in the best position to spot inefficiencies and suggest improvements.
1. Supply Chain Vulnerability
The biggest drawback? If your supplier fails, you’re in trouble. A natural disaster, financial collapse, or production hiccup can halt your supply chain entirely. Remember the 2011 Japan earthquake? Companies relying solely on local chip manufacturers faced massive disruptions while multi-sourced competitors pivoted faster. It is always important to have a supply chain continuity plan in place and when you are using a single source strategy, it becomes even more important to continually assess and review these plans.
2. Limited Bargaining Power
With only one supplier, there is a possibility of losing leverage. The supplier knows you are committed and if they get a sense that the switching costs are great, they may try to take advantage. This is why it is important to continually assess potential alternatives, have a plan in place to switch, and do not take actions that could lock yourself in and make it harder to switch. Unknowingly getting locked in with a single vendor can turn what was once an advantageous strategy into a sole source situation with an unbalanced relationship – the supplier could end up with all the leverage. Over time, costs might creep up, or service quality might slip without the pressure of competition.
3. Lack of Flexibility
Single sourcing locks you into one vendor’s capabilities. If your needs evolve—say, you need faster delivery or a new product variation—they might not adapt as quickly as a diverse supplier network with multiple sources could. A tech company tied to one component maker might miss out on cutting-edge innovations available elsewhere.
4. Dependency Risk
Over-reliance on a single supplier can create a power imbalance. If they raise prices, change terms, or go out of business, you’re at their mercy. This dependency can also make it harder to switch suppliers later, as you’ve built processes around their specific offerings. This is why it important to continually ensure that you always have the ability to switch at a relatively low cost and not take any actions that could lock yourself in too deep and end up in a bad position.
5. Risk of Complacency
Without competitive pressure, suppliers might become complacent. This can manifest as slower response times, reduced innovation, or diminished service quality as the urgency to retain business decreases.
6. Limited Access to Market Intelligence
Working with multiple suppliers provides broader market insights into pricing trends, technological developments, and competitive innovations. Single sourcing can restrict this valuable intelligence.
So, is single sourcing right for you? It depends on your priorities, risk tolerance, and the nature of the goods you are buying. If they are a commodity item that is very easily replaceable, then it may be very advantageous to single source with relatively few downsides. In contrast, if allocating all your volume to a supplier enables that supplier to grow their capabilities and influence to the point that they have all the leverage in the value chain, then this could be disadvantageous.
One famous example of this was during the 1980s when IBM was using Intel as their microprocessor supplier. IBM was the dominant force in computing with Intel being a small semiconductor company. However, over time, as the PC market grew and competitor PC manufacturers like Dell, Compaq, HP, Apple, and many others all started using Intel’s chips. Eventually, IBM’s product became a commodity and Intel grew into the dominant force that was able to exert greater control over the industry.
It is important to keep in mind that it will be necessary for your suppliers to grow, especially when allocating large volumes to them. However, when they start becoming the linchpin of the suppy chain, that may suggest that it is time to consider diversifying sources. Despite these risks, operational simplicity, cost efficiency, and a tight-knit supplier relationship can provide considerable benefits. If you can find a dependable supplier that is highly reliable, then single sourcing can certainly be a winning strategy. Many businesses in stable industries with predictable demand, like food service or retail for instance, often thrive with single sourcing.
On the flip side, if flexibility, risk mitigation, and competitive pricing matter more, diversifying your supplier base might be smarter. High-tech or manufacturing firms, where innovation and uptime are critical, often lean toward multiple sourcing to hedge against disruptions.
If you go the single-source route, mitigate the downsides with these strategies:
Single sourcing is a gamble with risks and rewards, but in the end, it is all about strategy and having strong connections with your supply chain, your business, and your industry. Procurement software can help streamline this supplier management effort by seamlessly organizing orders, suppliers, incoming parts, pricing, and analytics. Efficiently managing your procurement processes with solid oversight is key to using single sourcing as a winning strategy.
support@lassoprocurement.com
© 2025 Lasso Supply Chain Software LLC
This website uses cookies to ensure you get the best experience on our website.
