Gary Caswell, director of consultancy PPCL, writes: The term "preferred supplier" can be a problematic one for those working within the public sector. However, in essence these are suppliers that are preferred in terms of businesses that your organisation may wish to work with.
The suppliers can become "preferred" in a number of ways. For example, your organisation may have used them before, they may have approached you or your technical colleagues with background on their proposition, they may have been a previously unsuccessful tenderer, or they may have been recommended by a similar organisation. The term preferred supplier does not in itself guarantee a level of business, but instead should be thought of as a guide to your thinking when considering a sourcing strategy.
To help with context, the strategic sourcing of suppliers can progress from "arm's length" at its most distant, through to "vertical integration" at the most interlocking. Within this spectrum, preferred supplier is really just the next step along from arm's length and therefore relatively non-strategic.
Preferred supplier arrangements should be beneficial to the organisation. They should not materially increase the costs or reduce the benefits to internal stakeholders. - See more at: http://www.supplymanagement.com/resources/qa/2003/defining-preferred-supplier#sthash.9XK8mKOW.dpuf