As a part-time CFO and entrepreneur, I understand the importance of developing good supplier relationships.  It can be profitable to be loyal to suppliers as it can lead to better pricing, terms, and profitability in the long run.  However, having only one supplier for a particular segment in your business is also risky.  It opens the door for one or more of the following:

• Drastic changes in price and terms: Although you have general market forces working in your favor, having one source of supply still subjects you to drastic changes in price or terms and you are not prepared to go anywhere else. 

• Changes in quality of product: If your sole source of supply does not keep up with technology or simply loses their quality due to reducing quality control to save money, you are subject to quality reduction that will hurt your business. 

• You will be taken advantage of by suppliers who do not recognize loyalty:  If a supplier always talks about "being your partner" without acting like it then you are subject to be taken advantage of and are not getting what you should from that supplier 

• Lack of Market Comparison: You do not know how competitive the one supplier’s price and terms are if you don’t have anything to compare them to.  Although you may be familiar with the general market pricing, when you are doing business with a supplier there are deals being made in the back room. If you are only using one back room you are for the most part in the dark as to what is really happening in the market. 

 

• Unreasonable terms: If your business hits a downturn and the supplier squeezes you with unreasonable terms (like Cash before delivery or requires Letters of Credit), you do not have another source of credible supply. If you do not have at least one alternative supplier where you have established credit terms and there is a downturn in your business, that sole supplier that said they were your business partner will be turning the tables on you as soon as you get behind in your payables and asking for unreasonable payment terms. 

As a CFO with business ownership experience, I have seen all of these things happen.  Be proactive and establish a business/credit relationship with more than one supplier in all segments of your business!