What Are Disadvantages of Single Sourcing?
Primary disadvantages of single sourcing include supplier control in bargaining, limited opportunities for the lowest price and limited product diversity. Additionally, if the single source goes out of business, it can leave the company in a bind, especially if there are delays in lining up new suppliers.
One of the main reasons companies use multiple suppliers is to cause those suppliers to compete with each other for business. With a single-source approach, the single supplier knows that it is the sole source and may have limited incentive to offer the best value. Thus, the buyer may experience relatively high costs of goods sold. The single source also doesn't provide the same variation in products that multiple suppliers could offer. This reality means it is difficult for a reseller to offer product variations to its customers.
While a trusted relationship with a single supplier has some advantages, a buyer is in serious jeopardy if the supplier unexpectedly has delays or falters. The buyer is at the mercy of the single source and may have to push delays on its own customers, which could lead to the loss of consumers and revenue. Competing suppliers may not have the capacity immediately to take over the volume of supplies previously provided by the single source.