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With supply chain complexity at an all-time high, choosing the best sourcing strategy is arguably more important than ever.
Current supply chain management thinking recommends minimizing the number of suppliers for a given item to reduce complexity and save overhead and transactional costs. Single sourcing is risky, however. If anything should happen to that one supplier, or to the supply chain that gets that item to your factory or warehouse, it could greatly impact your business.
A dual-sourcing strategy, therefore, might be considered the sweet spot, with minimal sources for simplicity, but with the safety of an alternative should there be a disruption in one of the supply chains.
Having two sources does have its costs, including the duplication of contracts, certification, transportation and so on. Purchase volume with each supplier will also be lower, which may affect the negotiated price per unit for the item purchased, as well as lead to higher costs for an increased number of smaller shipments.
A dual-sourcing strategy can also be a challenge for your planning and management systems. Most basic materials requirements planning systems are set up for a single supplier for a given item, and all purchases are directed to that primary source. Some more sophisticated systems allow a primary and one or more alternative suppliers to be set up in the system, but there is varying ability for splitting the requirements among the multiple sources.
Generally, it takes a so-called advanced planning system to apply the rules or logic to determine how much to order from each of a group of multiple suppliers. If your system allows for primary and alternate suppliers, but does not contain the logic to make the determination of which to use -- it automatically targets all purchase orders to the prime supplier -- the buyer or planner must manually redirect purchases to the alternate or alternates during the review and release process.
Dual sourcing is, generally speaking, a good idea to reduce supply chain risk. The extra costs involved in having two regular suppliers may be modest, and may also be a good strategic investment in ensuring a continuing supply of critical components and materials.
Administering a dual-sourcing strategy will likely require an extra bit of judgment and reasoning for buyers or planners, who may or may not find some assistance in their advanced planning system software.
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