Asset Management Management

Why Single-Sourcing is Bad

Heinz Bloch | January 13, 2015

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Responding to feedback from the field, our “Contrarian View” columnist explains why narrowing your supply-chain choices is a surefire way to choke off innovation.

By Heinz Bloch, P.E.

When a large, West-Coast refinery decided to purchase from a single provider of mechanical seals, it experienced problems because the supplier did not have technical parity in all applications. This resulted in the maintenance department eventually having to deal with second and third suppliers of the mechanical seals they needed before acceptable performance and reliability was achieved in all pumping services.

In a similar example, a facility that began purchasing 100% of its mechanical seals from vendor “A” saw the error of its ways when a machinery engineer explained to management why single-sourcing was not in the facility’s best interest. The company listened. Now vendor “A” has an 86% slice of the seal population, vendor “B” has 10%, and vendor “C” accounts for the remaining 4%. The three vendors compete on the basis of long-term reliability and performance—to everyone’s advantage. Why? Because it’s common business sense that ideas thrive on competition.

Consider an often-cited example of an oil refinery with thousands of process pumps. Supplying mechanical seals for just a small fraction of these units, say 4% or 160 pumps in an operation with 4000 pumps, even company “C” would see an incentive for staying in the game. Chances are that Vendor “C” would probably assign its most talented people to be the technology resource for this customer, maybe becoming mentors to its future reliability professionals.

Innovators reap the reward

In a single-source world, one might wonder how suppliers could gain essential operating experience if leading companies would not purchase first-of-a-kind offerings with advanced performance and features. Leading end-users, in fact, have a responsibility in this regard, even if it means assuming a certain level of risk. If they have the technical savvy to evaluate an offer, for example, they should help develop and proof-test new or properly extrapolated designs. If they don’t fulfill this role, the job could fall to companies without sufficient technical expertise to test prototypes—a losing proposition in many instances and expensive for all parties involved.

Real leaders must try new things from their suppliers, even though they may be doing business with the competition at the same time. There need not be any deception in this practice. But there is also none of the “we deal only with our alliance partners” approach, which discourages the competition from trying for any of your business. The truth is that the competition is very likely to have a better idea, so it’s unwise to shut yourself off from what could be a valuable opportunity for improvement.

A good example—one this author has referenced many times—is the eventual switch to the use of plant-wide oil mist. In the late 1960s, this practice was not common. It has since been understood to be the best long-term lubrication method for process pumps and electric motor bearings. Today, more than 27,000 electric motors (and 130,000 pumps) are connected to oil-mist systems. Some of these motors have operated without bearing replacement from 1978 until today.

Again, oil mist is but one of many “new” technologies that, over time, became fully accepted and integrated into industrial practice. Which technologies will be next?

Recent information about diffusion-conversion technology, for example, long used to impart high hardness and wear resistance in diesel-engine truck turbochargers, suggests this technology may be able to solve wear issues in hot-service process pumps at oil refineries, in tar sand processing facilities and in pipeline service. Innovators faced with this type of option should have little reluctance evaluating the potential advantage of diffusion-conversion treatments on the steel impellers of pumps. There would also be virtually no downside to trying diffusion-conversion in the sleeve bearing or journal surfaces of many positive displacement pumps or on oil rings in typical pump bearing housings and on many other wear surfaces.

We can be sure that leading end-user companies have reached (and continue to maintain) best-of-class status because they allow such “controlled innovation,” and have consistently used the best available technology long before others caught on. Limiting discourse to a single supplier is rarely—if ever—the most effective approach to lowering maintenance cost and improving equipment reliability.

The same is true for service

The single-source approach has drawbacks with regard to service providers, too. For example, when a world-renowned U.S. chemical company de-
cided to single-source many of its services, including machine shop work and control-valve testing, small local businesses which had grown and thrived by being responsive to the chemical giant’s needs found themselves locked out. The results were predictable: Instead of using a local machine shop, repairs were entrusted to vendors in major out-of-state cities.

This resulted in trucking delays, the need to make shipping crates, the need to factor in extra transit time when planning, and the need to arrange for appropriate quality-control inspection, among other issues. Vendors in reasonable proximity to the corporation’s main facility who had demonstrated outstanding responsiveness were now even deprived of the opportunity to submit bids. Repair and replacement work was handed over to a national center that was supposed to be responsive but, in fact, did not measure up to the challenge.

These results could have been predicted. The survival of smaller local suppliers, seemingly more expensive at first glance, was now in question. Those local suppliers were at risk, and the chemical company realized little to no gain. Management had not accounted for delays, added administration costs and the need for expediting. They also had not factored in the negative impact their decision would have on members of their own business community.

Informed choices are key

More than ever, the decision to single-source is often made by uninformed people. Those who defend this approach typically miss the point about how closely reliability and profitability are related. It’s true that whatever a principled professional or leading corporation does should be driven and motivated by the desire to make profits while providing value and quality. But profitability is best achieved with reliable equipment, which is best served by using multiple sources of supply. This approach promotes competition, innovation and the ethical treatment of others—which is another way of saying, “Let’s work together.” MT

Heinz Bloch currently resides in Westminster, CO. His professional career includes long-term assignments as Exxon Chemical’s Regional Machinery Specialist for the United States. Bloch holds B.S. and M.S. degrees in Mechanical Engineering and has authored more than 600 publications. He is an ASME Life Fellow. Contact him at heinzpbloch@gmail.com.

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