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天马行空的Jussi

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How do we properly deal with single source of supply/ monopoly?  

2014-01-14 00:09:20|  分类: 管理 |  标签: |举报 |字号 订阅

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How do we properly deal with single source of supply/ monopoly? - jussi - 天马行空的Jussi

As a procurement specialist, I used to come across this phenomenon on many occasions, If the monopoly really impacts the security of your company operating the business, I think you need to decide if you want to negotiate with them for something or you want to take essential activities to get rid of the situation of single source. Most of companies prefer negotiating for a good result to change the situation. For negotiation, you need to develop a negotiation plan. 


1. Identify what the supplier want most from you besides dollars, stable business, strong relationship, shorter payment term or anything else?  What're your negotiation leverages? If you don't have any leverage, you need to create one, utilize Porter 5 forces model to analyze the industry in which the supplier is running business, and create one or two forces to the supplier, such as potential competitor list, new service models or products to meet current demand; or your company can influence the government changing business regulatory/policy that will impact the supplier negatively.  And, you always have negotiation power even when you do not think you do as they are in the business of selling and you are in the business of buying. We can also make an attempt to veer towards making the purchase a leverage one by enhancing the quantity(through PO concentration/consolidation if time permits), if feasible, to derive scaling up benefit or economies of scale, of course taking into consideration other variables such as, the capital cost. Be noted that, if these are components or spares of an assembly, it is better to negotiate before signing the contract for the assembly/ strategic critical equipment, a SLA(Service Level Agreement) where a mechanism for price adjustment clause for every period should be included so that the supplier can not exploit after locking in. 

2. Think twice what you want most from the supplier on earth, cost, service, quality, warranty or anything else?  When thinking about negotiation, one tends to think of it in terms of dollars only. Suppliers, especially those that we deem exclusive or sole source, are reluctant to turn loose of their asking price, especially since they have the leverage. What can be advantageous to a Buyer is in learning what a supplier can offer in terms of services or other soft costs. Things such as  shorter lead times, more practical stocking depots, payment terms or even VMI, additional warranty years, higher quality, on-time onsite service, special packaging, specific personnel assigned to your account or additional technical support are possibilities that a supplier can thrown in the deal for the same price, which provides you and your company some added value. That may not seem like a win for you, but one or two additional warranty years can pay off toward the end of an agreement. 

3. One should be able to establish supplier markets in order to create competition. Could it be possible to split these purchases into a smaller categories and to enable the monopoly subcontractors and their subcs. to be a part of a supplier markets? You are also encouraged to develop a fact- based cost breakdown analysis presenting detailed cost comparison (surely this appeals to most reasonable people)--even those in a "monopoly" environment. Use this in negotiations- it should gain you some leverages.

4.  If there are many single sources, you should focus only on high value consumption, i.e. in ABC(Activity Based Classification) analysis, A category items. You also have option of entering in long term MOU with suppliers with various slabs of discounts, depending on your consumption pattern. If there are very few single source items, your management may even think of investing in those companies and participate in pricing decisions. Consider being a shareholder to this single source is not a bad idea either. Under such a win-win situation, a strategic partnership relation will enable you always to take a lead over your competitors. If you have adequate facilities and suitable infrastructure, you may also evaluate buy vs make options.

 



 

 

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