Dual Sourcing: A Safety Net During Supply Chain Disruptions

Dual sourcing is a supply chain management strategy that involves engaging two suppliers to provide a specific component, material, product or service. While "dual sourcing" strictly means using two suppliers, it's often used interchangeably with "multi sourcing," which can involve more than two sources.

The idea behind this approach is to reduce the risk associated with depending solely on one supplier. Unexpected factors like adverse weather, material shortages, recalls, natural disasters and geopolitical issues can disrupt supply chains and spur businesses to adopt dual sourcing.

The Mechanics of Dual Sourcing

At its core, dual sourcing entails building relationships with multiple suppliers for a critical product or component. When a primary supplier faces challenges, businesses can swiftly pivot to an alternative source, ensuring uninterrupted operations and safeguarding against potential disruptions.

Benefits of Dual Sourcing

Fostering Competition and Innovation:

Introducing a secondary supplier stimulates healthy competition among suppliers. This encourages suppliers to provide competitive prices, enhanced quality, and innovative solutions, ultimately benefiting businesses by improving supplier value.

Addressing Geopolitical Challenges:

Global business landscapes are vulnerable to geopolitical complexities that disrupt supply chains. Trade tensions and political disputes can impact a primary supplier's reliability. Dual sourcing enables companies to pivot to different sources, reducing vulnerability to geopolitical disruptions and ensuring business continuity.

Building Resilience:

Dual sourcing's strength lies in enhancing supply chain resilience . By embracing this strategy, companies create adaptable networks capable of overcoming different challenges. This resilience extends across the entire business ecosystem, safeguarding operations, customer satisfaction and market standing.

More Capacity:

Depending on the product and selected supplier, businesses may find dual sourcing necessary to accommodate increased capacity. When faced with a substantial demand for their product that a single supplier cannot meet, dual sourcing becomes a viable solution. In some cases, fulfilling this demand might even require more than two sources.

Shorter Lead Times:

Manufacturers traditionally adhere to a four-week lead time between shipments, an industry standard accepted by businesses. However, the adoption of dual sourcing provides an alternative approach. By utilizing multiple sources, companies can stagger their shipping calendar, resulting in products being shipped every two weeks instead of the standard four weeks.

Support for Different Regions:

For businesses targeting multiple regions, dual sourcing emerges as an invaluable tool. By engaging two manufacturers situated in distinct regions and segmenting the areas served, companies can optimize shipping costs related to inter-region product movement. This strategy is particularly valuable for international companies, potentially providing tariff benefits by minimizing product imports and promoting local production.

Potential Challenges with Dual Sourcing

More Negotiations:

When a business considers engaging with two suppliers instead of one, the workload significantly increases. This involves conducting thorough research and negotiations with both suppliers, effectively doubling the effort expended for each supplier. The decision to opt for two suppliers should be justified by the potential increase in profits, considering the additional work required to establish relationships with both.

Discrepancies Among Suppliers:

Despite the intensified efforts involved in collaborating with two suppliers, it's important to acknowledge that the experience with each supplier may not be uniform. Each supplier operates with slight variations in their processes. Consequently, businesses need to ensure that the chosen suppliers run their operations effectively, ensuring seamless collaboration.

Also Read: Supplier Collaboration Software Platform

Inventory Management:

Managing products sourced from two different suppliers necessitates effective inventory management systems. Implementing these systems enables accurate tracking of product locations within the warehouse, facilitating easy retrieval.

Quality Control Challenges:

Discrepancies among suppliers can potentially impact the quality control of products offered. Quality control is a paramount consideration in product manufacturing and sales. Differences in production approaches and quality control standards among suppliers can lead to varying product quality.

Strategies for Dual Sourcing Success

1. Choosing Secondary Suppliers Wisely:

Prudent supplier selection is the foundation of dual sourcing. Consider reliability, quality consistency, production capacity, financial stability, and geographic diversity.

2. Identifying Vulnerabilities:

Thorough risk assessments help identify supply chain vulnerabilities. This informs critical components requiring dual sourcing and guides resource allocation.

3. Transparent Communication:

Openly sharing the dual sourcing plan with suppliers fosters understanding and collaboration, ensuring smooth transitions when the backup supplier is activated.

4. Leveraging Technology:

Technology enhances dual sourcing execution. Utilize digital platforms and analytics tools for real-time supply chain visibility, empowering informed decision-making.

Conclusion

Dual sourcing isn't just a supply chain strategy; it's a commitment to building a resilient business ecosystem. The benefits of risk reduction, supplier competition, geopolitical agility, and overall resilience underscore its relevance. By following a well-defined implementation blueprint, businesses can harness the full potential of dual sourcing, positioning themselves for growth and success amidst challenges.

Know how GEP can help your company diversify its sourcing.