What it means
A business needs packaging and chooses one vendor for all orders, even though others can make it; this is single sourcing. The choice can improve volume pricing and simplify specifications, but it also makes the buyer more exposed if that vendor misses deliveries or changes terms.
CIPS distinguishes single from sole sourcing and discusses sourcing strategy, though markets and contracts may use the labels differently. A buyer should define whether alternatives actually exist and whether it has intentionally concentrated spend, because a supplier's claim of uniqueness should be tested.
Single sourcing can build a closer partnership, since a supplier with predictable volume may invest in tooling, process improvement or dedicated capacity, and the buyer can give clearer forecasts and resolve quality issues with one team. These benefits require measured performance, not simply loyalty to a familiar contact, and a supplier cannot plan capacity if orders swing wildly without warning.
Concentrated volume can improve bargaining power at the start but reduce leverage later, because if switching becomes expensive the supplier may have more power at renewal. Price benchmarks and alternative capacity should be recorded before committing, and a long-term contract should include service levels and a workable exit route.
The main risk is interruption: a fire, financial failure, labour problem or quality hold at one supplier can stop production. Even if the supplier has several factories, they may share the same critical input, so the buyer should map the chain beyond the first company name, including geographic and upstream concentration.
An alternative supplier is useful only if it can meet specifications and deliver in time, so a buyer may qualify a backup, test samples and keep documents current. Switching in the middle of a crisis is slower than an ordinary procurement cycle, so the cost of readiness should be compared with the cost of a shutdown.
Sole sourcing is different, because a patented component or unique certification may leave only one practical provider. The buyer may still challenge the specification or redesign the product over time, and calling a chosen favourite "sole source" can conceal that competitors exist and avoid competitive review.
Some items are critical but inexpensive, as a low-cost gasket can halt a production line, so suppliers should be segmented by operational consequence as well as annual spend. A contract can include buffer stock, business-continuity commitments and visibility into production capacity, but those protections are only useful if tested and monitored, and stock that exists only in a slide deck should not be counted.
For a simple concentration indicator, divide spend with the largest supplier by total spend in a category; if $8 million of $10 million goes to one firm, concentration is 80%, though the number does not reveal whether alternatives are qualified. Dual sourcing can reduce reliance but split volume may weaken discounts and both suppliers could share the same upstream plant, so the decision should be revisited whenever a redesign, new entrant or closure changes the facts, and a credible path to recover or switch should be kept for any critical category.
In practice
Real-world examples.
Example
A bakery buys all its flour from one mill for a better price. The mill supplies a consistent grade and delivers twice a week, which keeps the recipes stable and the paperwork light. The owner still keeps contact details for a second mill in case of a delivery problem.
Example
A factory stops when its single supplier has a fire. With no qualified alternative, the production line is idle for weeks while the buyer tests samples from new suppliers. The lost output costs far more than the volume discount ever saved.
Example
A company keeps a backup supplier qualified but unused. It places a small trial order each year to keep the specifications and documents current. The cost is modest and the switch becomes a planned step rather than an emergency.
Formula
Calculation
Supplier concentration = Spend with top supplier / Total category spend x 100
Worked example. A fictional company spends $900,000 of a $1,000,000 category budget with one supplier.
- Concentration: $900,000 / $1,000,000 x 100 = 90%
If a second supplier is qualified and given $300,000 of the volume, the top supplier's share falls to $600,000 / $1,000,000 x 100 = 60%. The concentration number improves, but the buyer should also check whether the second supplier is truly independent upstream and whether the split volume costs any discount.Case study
Seen in the real world.
This illustrative and entirely fictional case follows Solstice Foods, an invented producer that buys all labels from one printer. The supplier offers reliable colour control and volume pricing, but a machine outage threatens deliveries. Solstice qualifies a second printer for its top label and agrees a tested backup process. The case does not assume splitting every order is the best answer. The finance team prices the choice.
Moving 20% of label spend to the second printer costs a small premium on those orders, but protects the production schedule for its best-selling line. Solstice treats the premium as an insurance cost and reviews it each year against the risk it removes. The company also asks the main printer to share its capacity plan and to name a contact for urgent orders. Solstice is invented for illustration, and the figures and steps are examples rather than a record of any real business.
Watch out
Common mistakes.
- No backup plan.
- Confusing single sourcing with sole sourcing.
- Ignoring the supplier's financial health.
Questions
People also ask.
What is single sourcing?
Buying from one supplier by choice.
What is the main risk?
Dependence on that supplier.
How is it different from sole sourcing?
In sole sourcing, only one supplier exists.
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