Design For Sourcing
The majority of supplier monopolies are brought about by customers themselves. According to investigations by AT Kearney, two out of every three situations in which only one supplier is able to fulfill a customer's requirements arise not because of the supplier's proprietary technologies, but due to the customer's own actions.
The main reasons for such customer-caused supplier monopolies stem from departmental goals that deviate from the company's corporate strategy. The R & D department, for example, will often exclusively pursue the goal of creating a product as near to perfection as possible. Production, on the other hand, will be primarily interested in a lean-assembly process, while the aim of procurement will be to buy from as few suppliers as possible at the lowest prices. In themselves, all these departmental goals are perfectly valid, but taken together they can drive a company to ruin.
A clever supplier takes advantage of this mix of departmental goals by tailoring a special solution for the company in question, thus drawing as much development and production know-how as possible into its own hands. After a few years, the customer is completely dependent on the supplier.
In order to remedy this situation, a cross-functional effort is required. First, it needs to be determined whether the item provided by the supplier is a differentiating factor for the end product or not. If not, it can be replaced by a standard industrial article. If the product is a differentiating factor, however, the solution is often more complicated, and requires the needed development competence to be created internally to regain control of the process. Further, the solution needs to do at least as good a job of meeting the expectations of end customers as the current solution does. And, of course, the new solution needs to offer greater freedom to maneuver in the supplier market.