Single Source Suppliers
Recently I found myself sitting in the office of a small general contractor discussing foundation designs for a proposed building. The contractor had put together some fairly nice working drawings based on what he felt a customer wanted, and the contractor wanted to know if I wished to work with him and an architect to put together final plans. During the conversation I ask if the job was sold and/or would it be put out for bid. In the ensuing discussion he told me that, "No it won't be bid. We have the trust and a working relationship with the customer that makes that unnecessary."
Hearing that I was reminded of W. Edwards Deming's 4th point. End the practice of awarding business on the basis of price tag alone. Instead, minimize the total cost by working with a single supplier. Now, intellectually, I understand much of what Deming intended when he made this pronouncement.
First and foremost, you stand a better chance of reducing the variation in supplies or services if you only have one supplier. You cut down on the logistical costs of numerous invoices and payments, the variation in styles, cultures, shipping and delivery methods, and error resolution. You avoid the problem of having buyers making purchases based on lowest purchase price without regard to quality and delivery. And, of course, by having multiple suppliers for the same product or service you discourage any of the suppliers from investing in capacity and quality to really serve you better. How could they afford to take the risk if there were no assurance that you would continue to buy from them?
But how does this apply to my contractor friend and his customer? At best this is a once in a decade purchase, not a normal, on-going supply situation. As I talked to the contractor and began to think about it, several benefits became apparent. First of all the customer did have a very good previous experience with the contractor. So trust had been established. He knew he would be treated fairly. The customer didn't have to invest the time and energy to develop a new relationship with another contractor. With winter approaching, any day saved (by not going through a bidding process) means getting the foundations in the ground and the building enclosed one day sooner. That will allow the building to be used and thus the customer to make money sooner. The contractor also knew the owner and thus could be surer of the owner's expectations, and so he didn't have to include contingency fees in the cost.
So if you put costs on all of these items, it would appear that even in the case of infrequent purchases such as a building, it is worth considering going to a single source supplier.