The Number That Funds the Fix, and Almost Nobody Has Ever Written It Down

Everybody in procurement knows the single-source supplier is expensive. Almost nobody can say how expensive, in pounds, on a page.

That gap is the reason most monopolies never get fixed. Not politics, not appetite, not skill. A C-suite will not fund a feeling. They will fund a number attached to a risk with a trajectory, and procurement has almost never produced one.

Why the number feels impossible, and is not

The objection is always the same. How can I say what a competitive price would have been when there is no competitive market to compare against?

You almost always have one, and it is usually sitting inside your own portfolio.

Route one, and by far the strongest: your own contested lines. If you have split the category, you now have captive lines and contested lines with the same supplier, out of the same plant, over the same period, exposed to the same input costs. The price trajectory of the contested lines is your benchmark, and it is very difficult to argue with, because every variable except your ability to leave is held constant.

Route two: the unqualified quote. Ask the alternative supplier to quote even though they cannot supply you. They will, because it costs them nothing and puts them in the frame. It is not a price you can transact at. It is a perfectly good benchmark.

Route three: the index. Where neither is available, compare your price trajectory against the relevant input index. It is the weakest route and considerably better than nothing.

And never benchmark against last year’s price or your own budget. That proves only that the price went up, which everybody already knows and nobody will fund. The excess cost argument needs a counterfactual: not what you paid, but what you would have paid with a choice.

The arithmetic

Two captive lines, £900,000 a year today, rising at nine percent. The contested lines rose at two and a half over the same four years.

Work backwards from today’s £900,000 at nine percent and the base four years ago was £637,584. Had those lines tracked the contested ones, they would today cost £703,773.

Year	Captive, actual	Had they tracked the market	Excess
Year 1	£694,967	£653,524	£41,443
Year 2	£757,514	£669,862	£87,652
Year 3	£825,690	£686,608	£139,082
Year 4 (today)	£900,002	£703,773	£196,228
Cumulative			£464,405

So the excess cost of captivity on two component lines is £196,228 this year, which is twenty-two percent of what you spend on them. And £464,405 has already gone.

Then project it forward, because this year’s number is interesting and the compounding is a decision.

Year ahead	If nothing changes	Excess that year	Cumulative
Year 1	£981,002	£259,634	£259,634
Year 3	£1,165,528	£407,641	£997,166
Year 5	£1,384,764	£588,509	£2,079,267

Two million and seventy-nine thousand pounds, on two lines worth £900,000 a year, over five years, for doing nothing. That is one line on one slide, and it is the most persuasive object a procurement function can produce.

Then price the fix, pessimistically

Qualification, tooling, the transition price premium, dual running, requalification by your own customers, management time, a first-quarter failure provision, retraining, and a provision for the cost of being wrong. On this category it comes to £915,000, and it takes twenty-four months.

Nine hundred and fifteen thousand pounds to escape nine hundred thousand of annual spend sounds absurd until you put it against the curve. From the point of switching you pay the market trajectory, so you save the full gap every year: £407,641, then £493,592, then £588,509.

Payback lands in month forty-nine. Say so, out loud, before anybody else works it out.

Because this is precisely why these programmes never get funded. The payback sits outside the horizon of every annual savings target in the organisation, so if you present it as a savings initiative it loses to something that pays back in nine months, every time, and it should.

Present it as risk mitigation with a return. And use the insurance argument, which is now a number: holding a warm second source on these lines costs around £35,000 a year, under four percent of the captive spend, against an excess of twenty-two percent for not having one. You are declining to pay four percent and paying twenty-two instead.

The sentence that ends the argument

If somebody says the switching cost is too high to justify the programme, the answer is already in your own model. The switching cost is a one-off £915,000. The excess cost is £588,509 in year five alone, and rising.

There is a year in which doing nothing costs more annually than fixing it costs once. On these numbers it is year eight.

Find that year, name it, and put it on the slide.