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Sole supply has its virtues

Sole supply has its virtues

Wednesday, June 21, 2017

The literature on "best buying practices" is fairly consistent when it comes to discussing supplier management and tends towards the same rule: never put all your eggs in one basket! However, there are mainly two acquisition models used in long-term fleet leasing: "sole" and "multi-supply". We look at the pros and cons.

 

There are two main reasons for choosing supplier diversification:

  1. To maintain continuous pressure on competing suppliers while ensuring the best price;
  2. To secure the continuity of the business in the event that one of its partners goes bankrupt.

 

These arguments are completely valid. However, although this may seem counter-intuitive, we are seeing very mature purchasing structures that are increasingly evolving towards sole supply schemes... and there are excellent economic and operational reasons behind these choices.

 

Controlled prices

Constant pressure from suppliers may give the impression of a better market price at all times, but actually it hides some adverse effects. Bargain prices may in fact come at the detriment of an equivalent level of performance (and service). Suppliers also use customer segmentation techniques, and “price hunters” are quickly spotted.

Equally there are very effective mechanisms to ensure a high level of transparency and control of price competitiveness from appointing a single partner. This is very often the case in the pharmaceutical sector, where companies regard the single-renter relationship as having real added value in the long term - and as much more profitable than operations that target only the best price.

 

Improved operational management

From an operational point of view, the hidden costs of managing multiple flows from suppliers are largely underestimated. Appointing an integrator is often quite costly with regards to the differential between the cost of sole supply versus multi-supply. It covers all stages of the relationship: contracting, taking orders, invoice management (control and payment, processing of supplier reminders), following up disputes and processing various reports.

Having a single supplier simplifies the supply chain because there is a single supplier/interlocutor and a single invoicing process. This model of fleet management allows the lessor to have access to all the information related to the fleet. The result is favourable tariff programmes and adapted road safety programmes and/or environmental policies. “This is a vital way of operating for the person doing the hiring, a basis that would be more complex to implement if there were multiple suppliers due to the customer having a partial view,” said Alexandre Barbereau, Head of International Sales at Arval. In reality, the choice between sole or multi-supply is linked to the maturity of the e-procurement function and the purchasing services. “The more mature the purchasing function is and the better formatted it is to manage strategic suppliers, the easier it is to have a unique rental offer,” he added.

Finally, Business Continuity Plans are now fully integrated into partner relationships - and contribute to an overall improvement in operational performance with the implementation of Service Level Agreements (SLAs) and control plans particularly well-suited to customer needs.