Streamlined Solutions: A roadmap to negotiating a strategic sole-source agreement

Sometimes a company’s needs are so specific that only one supplier can deliver the required product or service. In procurement, we usually diversify suppliers to reduce risk, but in these cases, fostering competition for the best value isn’t feasible.¹

Sole-source negotiations don’t have to feel daunting. By leveraging your expertise, you can secure a deal that is efficient, economical, and fair. Assemble the right team, conduct thorough category research, and define your value proposition before engaging the supplier. Be bold, innovative, and open to new ideas. Creativity is key to building successful partnerships.

Build Your Team

Adopt a partnership mindset to become a trusted business advisor and strengthen relationships. Create a cross-functional team with all key decision-makers and stakeholders to drive negotiation success.

1. Engage your stakeholders early. Early involvement reduces roadblocks and ensures buy-in during planning.
2. Show genuine interest in your stakeholders. Ask about their area of business to foster cooperation and smooth negotiations.
3. Demonstrate your commitment to your stakeholders. Visit stakeholder sites or tour their areas to understand challenges, priorities, and why they value the supplier. Review the current specification or scope of work.

Conduct Research

Before negotiations, conduct thorough research. Involve your stakeholder team actively to fully understand the sole-source situation. Ask:

1. Has the specification or scope of work changed since the last sourcing?
2. Are new suppliers in the market?
3. Can we insource this?
4. Do current suppliers offer similar products or services?

Use these conversations to uncover alternatives. If options exist, explore them with your team to determine the best sourcing strategy.

Develop Your Value Proposition

Once research confirms a sole-source situation, start building your value proposition.² Remember: even with only one supplier, you remain a customer—they need your business too. Here are some questions to consider, to create a negotiation strategy:

1. What growth are you expecting? Prepare current and projected spending with the supplier.
2. What does your company provide, and why should this supplier be a part of it? Share your vision and build a compelling story. For example: “We provide the utilities necessary for our customers to enjoy the quality of life they deserve. You get to be a part of enhancing people’s lives.”
3. How can you make it easier to do business with you? Adjust policies or processes to support the supplier. Something as simple as different payment terms could help your supplier manage their cashflow better and in turn lower their price to you.
4. Are your terms one-sided? Be open to compromise and ensure fairness.
5. What do you need? Define your goals, success metrics, and BATNA (Best Alternative to a Negotiated Agreement).

Align with Stakeholders

Before presenting to the supplier, confirm all decision-makers have reviewed your plan and agree. Understand their limits and flexibility, and assign who will present and handle questions. Being prepared with compelling reasons why your supplier should partner with you sets the stage for a meaningful negotiation. Knowing your boundaries helps you recognize when you’ve succeeded.

Being prepared with strong reasons for the supplier to work with you sets the stage for a productive conversation, while knowing your limits helps you recognize success.

Present Your Case

Now that you have prepared your case, it is time to meet with your supplier. Go in with the confidence that you are prepared, flexible, and know what you need. Express gratitude to the supplier, acknowledging their value and the value of the partnership. Once you’ve presented your desired outcome and value proposition, listen. Allow time for the supplier to absorb and respond. This should be a conversation, not an argument, to foster a collaborative environment.

Bringing It All Together

Sole-source negotiations are a common challenge that many procurement professionals face during their careers. These situations often bring a sense of urgency and doubt, with thoughts like, “We need this supplier,” and “Getting a good deal seems unlikely.” But in today’s environment, this mindset can be overcome. By designing a thorough negotiation plan that includes a value proposition and a strategic roadmap, you can secure a win-win outcome for all parties involved.

Sources:

¹ Sole Sourcing and Single Sourcing: What’s the Difference

² How do you negotiate with single/sole source suppliers?

³ 5 steps to mitigate the risks of sole-source suppliers