Single Source vs. Sole Source: What Is the Difference?

Single source vs sole source procurement analyzes specific approaches used to purchase goods and services from only one supplier. This limitation is generally due to factors such as product uniqueness, specialized expertise, or contractual obligations.

Single source procurement

Definition

Single sourcing is where an organization chooses to work with one specific supplier when other options are available.

Reasons to use

The decision to source from a single vendor is made at the executive level. This practice is aimed at reducing costs as the client can negotiate more favorable terms. Before choosing to source from one particular vendor, it’s important to consider their expertise and success rates with past clients.

Examples

A company wishes to streamline its ordering processes, so it decides to procure all office stationery supplies from a single supplier. This way, the company can maintain consistent quality across all departments.

A large corporation decides to partner with one cleaning agency to manage the cleaning and sanitization needs of the entire building. The agency has a large workforce on hand and a good reputation in the market, so it can complete the task effectively.

Sole source procurement

Definition

Sole sourcing is when there is only one supplier in the market to meet the client’s precise needs. This is often due to the supplier’s unique expertise, proprietary technology, or legal rights that other suppliers lack. These vendors are referred to as monopolistic suppliers.

Reasons to use

Sole sourcing is necessary when your business requires specialized expertise or equipment that only one vendor can provide. Doing so often gives the client a competitive edge, allowing them to put out a unique product or service that their competitors cannot match.

Examples

An aerospace manufacturing company decides to source avionics equipment. Due to its highly specialized nature, there is only one supplier in the market that can meet the client’s needs. That supplier would be the company’s sole source.

A hospital requires a regular supply of a certain medication. A pharmaceutical company has patented the formula, holding exclusive manufacturing and distribution rights. The pharmaceutical company will be the hospital’s sole supplier.

Key differences

Here are the primary differences between the two procurement approaches:

Availability of alternatives

Single sourcing is the act of choosing one supplier out of multiple options in the market. Alternatives are available but the organization chooses to work with one.

Sole sourcing is done due to the specific nature and exclusivity of the project requirements.  This means that alternative options are not available due to one supplier having unique capabilities or technology that others lack.

Decision factors

When deciding to single source, companies often consider cost-effectiveness, quality, reliability, and relationship management. They may opt for a single source to streamline business operations and secure favorable pricing terms.

The decision to sole source is heavily influenced by a supplier’s unique expertise, proprietary technology, and exclusive rights. These factors make them the only viable option to move forward with. Companies often choose this route to achieve product or service exclusivity.

Flexibility

Single sourcing leaves room for flexibility as companies can choose to switch suppliers if necessary. However, significant effort and change management might be required.

Sole sourcing leaves clients with no flexibility as they depend on a single supplier. Any changes in the supplier’s operations or conditions can pose significant risks for the client.

Advantages and disadvantages

Single source

Advantages

• Cost-savings through economies of scale and bulk discounts

• Greater flexibility to negotiate procurement terms

• Stronger supplier relationships and improved service levels

• Simplified management of procurement operations

• Reduced administrative workload, saving time

• Consistency in quality control and assurance

Disadvantages

• Increased dependency on one supplier, potentially lowering their incentive to innovate

• Limited exposure to creativity and advancements from other suppliers

• Potential financial loss in case of faulty supply

• Vulnerability to disruptions, such as production delays or quality issues

Sole source

Advantages

• Easy access to unique expertise and specialized capabilities

• High supplier familiarity with business needs, leading to consistent quality and compatibility with existing systems

• Streamlined procurement and logistics processes, reducing administrative overhead

• Possibility for joint innovations

• Improved communication, reducing lead and delivery times

Disadvantages

• Complete dependency on one supplier, potentially resulting in higher costs

• Requires a backup plan in case the supplier suspends operations

• Less motivation to innovate or improve standards due to no competition

• Reduced negotiation leverage in case of disputes or price adjustment

• Higher vulnerability to disruptions, possibly compromising supply chain resilience