NewswireToday - /newswire/ -
Dorchester, Dorset, United Kingdom, 2011/08/05 - Do you have suppliers that are critical to your business? If they went into administration or suddenly increased their pricing could your business survive? Should you have a back-up? YourProcurement.co.uk look into whether companies should dual source?.
Investigation into Dual-Sourcing Products
A very common that gets asked when companies are sourcing an important service or product is whether or not they should 'dual source' the product or service in question. Dual sourcing effectively means buying the same product from two different suppliers to ensure that a back-up is available if either one of the suppliers has any problems.
Dual sourcing can be done in a variety of different ways. There are two options that I have seen used the most - One is to have one primary supplier that supplies 80-90% of the product required, with a seconday supplier as a back-up who can increase supply if needed. The other option is to dual source the product/service on a 50/50 basis, with each supplier sending half of the product required.
The benefit of dual sourcing is clear to see - It provides a more robust service to the customer, with either one of the suppliers ready to up production if the other one falters. It also keeps suppliers constantly improving their services as they try to gain a larger section of the business from their competitor.
However there are two key issues that are often not considered when purchasing teams choose to dual source:
- How long would it take either supplier to increase their production/throughput to meet the potential shortfall of the other supplier? Very few businesses have available resources just waiting to work, so the supplier would have to recruit more staff, train them, buy more materials, etc to increase the output. With these delays, would your company be able to cope with the shortfall of products or services?
- When you move to dual sourcing a product or service, you are effectively reducing the amount of resource that gets dedicated from the supplier to produce the service you a buying. This will not just be direct resource to build the product/carry out the service, but also indirect resource such as account management or product improvement research. For example if supplier A was providing your company with £1m worth of product per year, and then your company dual sources this product on a 50/50 basis, company A will now only have a £500k relationship with your company. Supplier A may then have to modify the amount of time invested in you as a customer. This may have a detrimental effect on the relationship between supplier/customer.
Of course dual-sourcing can have the opposite impact on a supplier - It may be that they have become complacent in the reltionship and moving to a dual-source structure may provide the 'wake-up' call that is needed and get them to invest more time in you as a customer to try and re-kindle the relationship.
Does your company dual-source any products or services? If so, have all of the above questions been considered? If not, are you covered if one of your suppliers fails to provide the products you need?