Procurement Glossary
Single sourcing: definition, strategies and risk management in Procurement
November 19, 2025
Single sourcing refers to a procurement strategy in which a company deliberately selects only one supplier for a specific product or service. This strategic decision can be made for both economic and technical reasons and has a significant impact on supplier relationships and security of supply. Find out below what exactly single sourcing means, which process steps are required and how risks can be successfully minimized.
Key Facts
- Deliberate concentration on a single supplier per product or service
- Enables lower partnerships and better conditions thanks to higher purchase volumes
- Increases dependency risks and requires intensive supplier evaluation
- Particularly suitable for specialized or technically complex procurement objects
- Reduces administrative effort and complexity in supplier management
Contents
What is single sourcing?
Single sourcing is a deliberate strategic decision in which companies concentrate their entire demand for a specific product or service with just one supplier.
Key features and delimitation
In contrast to multiple sourcing or dual sourcing, single sourcing focuses on an exclusive supplier relationship. The strategy differs from sole sourcing in that the decision is made voluntarily, although alternative suppliers would be available.
Single sourcing vs. other procurement strategies
While multiple sourcing spreads risks and dual sourcing represents a compromise between security and efficiency, single sourcing maximizes the benefits of a concentrated supplier relationship. However, the sourcing strategy requires a careful balance between efficiency gains and dependency risks.
Importance of single sourcing in Procurement
Single sourcing enables companies to achieve better conditions and build strategic partnerships by pooling demand. The strategy supports the standardization of products and processes and significantly reduces the administrative effort involved in supplier management.
Process steps and responsibilities
The successful implementation of single sourcing requires a structured approach with clear process steps and defined responsibilities.
Strategic analysis and supplier selection
The process begins with a comprehensive market analysis to identify suitable suppliers. A detailed suitability test evaluates the technical expertise, financial stability and strategic orientation of potential partners.
- Evaluation of supplier capabilities and capacities
- Analysis of the long-term market position
- Checking the cultural and strategic fit
Contract design and risk management
Contract negotiations must pay particular attention to security of supply and performance guarantees. Security of supply is ensured by appropriate contractual clauses and contingency plans.
- Definition of service level agreements (SLAs)
- Agreement on backup solutions and emergency plans
- Definition of escalation mechanisms
Continuous monitoring and optimization
Systematic monitoring of supplier performance is essential for success. Regular evaluations and benchmarking activities ensure that the partnership delivers the desired benefits.
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Important KPIs for single sourcing
Measuring the success of single sourcing requires specific key figures that reflect both efficiency and risk management.
Supplier performance indicators
Key performance indicators include delivery reliability, quality rate and response times. These metrics enable an objective assessment of supplier performance and form the basis for continuous improvement.
- On-time delivery rate (OTDR) as a delivery reliability indicator
- First-pass yield (FPY) for quality assessment
- Lead time variability for planning reliability
Cost efficiency and savings
The economic benefits of single sourcing are measured by cost avoidance and realized savings. Important key figures are price development, transaction costs and economies of scale through bundled demand.
Risk and compliance indicators
Risk indicators monitor the stability of the single sourcing strategy and identify potential problem areas at an early stage. These include the degree of supplier concentration, the partner's financial health and compliance status with regulatory requirements.
Process risks and countermeasures for single sourcing
Single sourcing involves specific risks that can be successfully minimized through suitable measures and strategies.
Dependency risks and supply bottlenecks
Concentrating on one supplier increases the risk of supply disruptions in the event of outages or capacity problems. Preventive measures include the development of alternative procurement strategies and the continuous monitoring of supplier stability.
- Building up strategic reserves and buffer stocks
- Development of emergency suppliers as a backup
- Regular financial and risk analyses of the supplier
Price risks and negotiating power
Single sourcing can lead to a weakening of your own negotiating position if the supplier exploits its market power. Long-term contracts with price escalation clauses and regular market monitoring help to ensure fair conditions.
Quality and innovation risks
The lack of competition between suppliers can lead to a deterioration in quality or a lack of innovation. Structured quality management systems and innovation agreements counteract these risks and promote continuous improvement.
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Practical example
An automotive manufacturer implements single sourcing for specialized electronic components in its electric vehicles. After a six-month market analysis, the company selects a technologically leading supplier that can meet both current and future requirements. By concentrating all demand, the manufacturer achieves 15% cost savings and reduces development times by 20%. At the same time, it establishes comprehensive risk management with backup production sites and regular audits.
- Establishment of a strategic partnership with joint product development
- Implementation of a digital monitoring system for real-time monitoring
- Development of emergency plans for critical supply scenarios
Current developments and effects
Single sourcing is constantly evolving and is influenced by technological innovations and changing market conditions.
Digitalization and AI integration
Modern technologies are revolutionizing single sourcing through improved transparency and automation. AI in Procurement enables more precise supplier assessments and risk forecasts, while digital platforms intensify collaboration.
- Predictive analytics for supplier performance
- Automated risk assessment and monitoring
- Digital collaboration platforms
Sustainability and ESG criteria
Sustainability aspects are becoming increasingly important in single sourcing decisions. Companies are integrating environmental, social and governance (ESG) criteria into their supplier selection and evaluation in order to ensure long-term value creation.
Supply Chain Resilience
The experiences of global crises have increased the importance of supply chain resilience management. Single sourcing strategies are increasingly being combined with robust backup scenarios and flexible contractual arrangements in order to increase resilience.
Conclusion
Single sourcing is a powerful procurement strategy that, when used correctly, can deliver significant efficiency gains and strategic advantages. Its success depends largely on careful supplier selection, professional risk management and continuous monitoring. Companies should consider single sourcing as part of a balanced procurement portfolio strategy and systematically assess both opportunities and risks.
FAQ
What is the difference between single sourcing and sole sourcing?
Single sourcing is a deliberate strategic decision, even though several suppliers would be available. Sole sourcing, on the other hand, describes situations in which only one supplier exists on the market or is technically capable of fulfilling the requirements.
When is single sourcing the right strategy?
Single sourcing is particularly suitable for specialized products where close partnerships bring innovation benefits or where economies of scale through volume bundling are critical. The strategy can also be advantageous for standardized products with stable market conditions.
How can dependency risks be minimized?
Risks are minimized through diversified backup strategies, continuous supplier evaluation and contractual hedging. Strategic inventories and the development of alternative procurement sources also help to reduce risk.
What cost savings are possible through single sourcing?
Typical savings are between 10-25% through volume discounts, reduced transaction costs and optimized processes. The actual savings depend on the product category, the market environment and the quality of the supplier relationship.
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