Dual Sourcing — Everything a Procurement Professional Should Know
You always hear dual sourcing, single sourcing, sole sourcing, and multi-sourcing in the manufacturing supply chain and industry. These terms may be quite confusing, especially to professionals who are new in the field.
For this article, we will talk about what dual sourcing is. We will tackle how manufacturers benefit from this. Additionally, we will explore its advantages and disadvantages once you try this in your work or your business.
After reading this article, you will have an in-depth knowledge of dual sourcing. The knowledge that you gain will allow you to utilize it in your business efficiently. So without further ado, let’s go and see the world of dual sourcing.
What is Dual Sourcing?
Dual sourcing is the practice of using two different suppliers for a specific component, raw material, product, or service. To simplify, it means to operate with two different suppliers for the same product.
Some businesses use dual sourcing to limit or decrease the risk of relying on a single supplier or single sourcing. Dual sourcing is a crucial supply chain risk management strategy for many businesses.
Businesses consider dual sourcing due to climate change, shortages of materials, frequent natural disasters, and worsening political unrest. These factors greatly affect the supply chain that it is safer to lean on the side of dual sourcing.
What is Single Sourcing?
We have mentioned single sourcing earlier in defining dual sourcing. Now, let’s discuss single sourcing to understand dual sourcing fully.
Single sourcing is the practice of selecting a single supplier from the various bids providing the same products or services. The business may select the supplier that matches its requirements.
For a detailed discussion of single sourcing, click this link here. You will also know how it differs from sole sourcing which is another approach used in the supply chain.
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The Difference Between Dual Sourcing and Single Sourcing
The difference between dual sourcing and single sourcing is clearly the number of suppliers. In single sourcing, the business will choose one among other suppliers that provide the same goods or services.
On the other hand, Dual sourcing refers to an approach where it uses preferred suppliers to provide the same product or services.
Many purchasers are still undecided whether to use dual sourcing or single sourcing. With single sourcing, purchasers can lower the costs due to leveraging the volume of products.
However, dual sourcing lessens the risk of blockage in the production of a business. When one supplier cannot fulfill its obligations, then the other one will take responsibility. Dual sourcing allows the company to sustain production when an emergency occurs.
The Advantages of Dual Sourcing
1. Cost flexibility and savings
Dual sourcing requires you to work with multiple suppliers to check the best price and quality in the market.
When you deal with multiple suppliers, they will bid against each other to be your supplier. For them to achieve this, they will lower the prices of their goods or services which will save you money.
Dual sourcing also prevents the monopoly of supplies which makes the prices higher. When you have more than one supplier, no one can pressure you to pay more for the same products or quality. This is because no one can leverage it as you can always source the products or services from your other supplier.
2. Supports distinct regions
Dual sourcing is an effective approach for businesses that sell their products to multiple regions. Hiring two suppliers and then dividing them into your distinct area will allow you to minimize shipping costs.
Dual sourcing can also be useful for international companies who want to decrease tariff costs. Instead of importing materials, they can search for suppliers that produce them within the country.
3. Security in supplies
Dual sourcing involves working with more than one supplier. This allows the company to source materials even if the other supplier cannot commit due to the occurrence of emergencies.
When a supplier has difficulty in meeting your demands, you can ask your other supplier to fulfill it. This will give the company an opportunity to scale production.
4. Reduces lead time
Most manufacturing companies have a lead time of 1 month between shipments. This process is accepted by the industry standards but you can make it faster with dual sourcing.
You can adjust your calendar so your products can be shipped every two weeks. This approach increases the output and revenue of manufacturing companies.
The Disadvantages of Dual Sourcing
1. Less quality control
Quality control becomes complicated in dual sourcing. You will need to check if the materials that arrived are identical to one another in terms of quality. If it is not checked accurately, the customer may notice it which may affect customer satisfaction.
2. Requires thorough negotiations with suppliers
Dual sourcing requires you to negotiate contracts and maintain relations with your two distinct suppliers. This may increase your transaction costs that are due to the supply relationship.
3. Prices may be greater
Dual sourcing may have two suppliers but both of them will divide the needs of your business. This opens the possibility of higher prices due to buying lower quantities.
Frequently asked questions
1. What is dual sourcing?
Dual sourcing is the process of using two suppliers to provide the same goods or services for your company.
2. What is the difference between dual sourcing and single sourcing?
Dual sourcing has two distinct suppliers. On the other hand, single sourcing selects one supplier among the other bidders who provides the same goods or services.
3. Is it effective for small businesses?
Dual sourcing is not a suitable approach for small businesses as you cannot use volume buying to leverage for your advantage.
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