Sole-Source Supplier in Financial Distress Demands Exclusivity for Priority Allocation

Build a risk register with likelihood, impact, velocity, and detectability for each exposure:

• Supply continuity: 5 weeks of inventory against a 14-week qualification creates a potential 9-week gap if the supplier fails. Quantify revenue at risk per week and the cost of building buffer stock.
• Capacity: 92% utilization cannot absorb a 20% demand increase; the constraint may be press time, labor, or resin. Request a capacity study by work center and a constrained-capacity plan.
• Financial: a two-notch downgrade plus cash-on-delivery indicates a liquidity problem. Request recent financial statements, payment behavior, and a 13-week cash view if available; set up ongoing monitoring triggers.
• Single site and sub-tier: one plant, one resin distributor. Map the sub-tier, alternate resin approvals, and any single points of failure.
• Tooling and contractual: the purchase order is silent on tool ownership and right to move, which is a serious exposure. Obtain tooling records, title, and condition; clarify access rights.
• The offer itself: 'priority allocation' is unverifiable and an exclusive agreement increases lock-in. Treat it as a claim to be tested, not a benefit.

Rank by risk score and time to impact; the 9-week gap and tooling ambiguity are the top items.

Do not sign a three-year exclusive agreement. It converts a temporary dependency into a long-term lock-in and removes leverage just when the supplier is least stable. The 12% increase may be negotiable, but only against verified cost data and performance commitments.

Counterproposal:

• Short-term supply agreement (6 months) with capacity reservation at a specified volume, delivery performance commitments, and a right to audit capacity and financial status.
• Price: open-book review of resin and conversion costs; any increase tied to verified indices and offset by productivity or CoPQ recovery. Avoid a flat 12% with no floor or ceiling.
• Tooling amendment: confirm your ownership, right to access and move tooling, and obligation to return tooling and process documentation on request. This is non-negotiable.
• Allocation language: define allocation rules, notice periods, and penalties rather than accepting a vague promise.
• Dual-source commitment: begin qualifying a second molder now; do not make exclusivity a condition of support.

If the supplier refuses tooling rights, treat that as a red flag and escalate. The goal is continuity, not punishment, but the contract must protect the business if the supplier fails.

Days 1–30: build buffer inventory toward 8–10 weeks within cash constraints; secure tooling documentation and a written access agreement; request financial and capacity data; identify and RFQ two alternate molders; check alternate resin approvals; start weekly supply reviews with the supplier; brief your customer on the risk and mitigation plan.

Days 31–60: complete new-molder selection and tool-transfer plan; run trial molds and dimensional layout; begin PPAP for the new source; audit the supplier's resin sub-tier and cash-on-delivery impact; confirm allocation rules and delivery commitments; set financial monitoring triggers (credit score, payment behavior, days past due).

Days 61–90: complete PPAP and customer approval for the second source; ramp a 70/30 or 80/20 split to create redundancy without destabilizing the incumbent; validate buffer levels against the 20% demand increase; update the risk register and business continuity plan; review pricing with verified cost data.

Report progress to the VP monthly with a single risk dashboard. If the supplier's financial condition worsens, trigger the pre-agreed escalation: accelerate transfer, draw on buffer, and invoke tooling access rights.