Written by Marijn Overvest | Reviewed by Sjoed Goedhart | Fact Checked by Ruud Emonds | Our editorial policy
Dual Sourcing — Definition, Advantages, and Disadvantages
As taught in the Value Chain Analysis Course / ★★★★★ 4.9 rating
What is dual sourcing?
- Dual sourcing is the practice of using two different suppliers to provide a product or service.
- Dual sourcing helps companies source closer to specific regions which saves shipping costs and makes logistics more efficient.
- Dual sourcing allows companies to have a backup in place in cases where the other suppliers have delays or issues, which strengthens the overall supply chain resilience.
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.
Examples of Dual Sourcing
Below are some of the well-known companies that successfully implement dual sourcing and the reasons behind their approach:
1. Apple
Apple is one of the biggest technology companies in the world and is known for its innovative products, such as the iPhone, MacBook, iPad, and Apple Watch. Founded in 1976, Apple has grown into a global leader in consumer electronics and software, with a massive supply chain that spans multiple countries.
Apple uses dual sourcing for its semiconductor chips to maintain a steady supply of critical materials, relying on both TSMC (Taiwan Semiconductor Manufacturing Company) and Samsung.
This approach helps Apple avoid disruptions caused by chip shortages, factory shutdowns, or geopolitical tensions. Sourcing with two suppliers enables Apple to have a stable flow of chips, keep its production on schedule, and strengthen its negotiating power to secure better prices and improved technology. This strategy allows Apple to maintain product availability and innovation while minimizing supply chain risks.
2. Toyota
Founded in 1937, Toyota is one of the largest car manufacturers in the world, famous for its reliable and fuel-efficient vehicles such as the Camry, Corolla, and Prius. It revolutionized manufacturing with the Toyota Production System (TPS), which focuses on efficiency and waste production.
However, the 2011 earthquake and tsunami in Japan caused severe disruptions to Toyota’s supply chain, leading to major production delays. In response, Toyota adopted a dual sourcing strategy for critical materials such as semiconductors, steel, and aluminum.
By working with multiple suppliers, the company ensures that if one supplier faces production issues, another can step in to keep the manufacturing operations running smoothly. This approach helps Toyota minimize delays, manage costs more effectively, and build resilience against unexpected supply chain disruptions, ensuring continuous vehicle production.
3. Boeing
Boeing was founded in 1916 and has become one of the world’s leading aerospace companies, specializing in commercial airplanes, military aircraft, and space technology. The company is known for producing iconic aircraft such as the Boeing 747, 737, and 787 Dreamliner.
To maintain a stable supply of aircraft engines, Boeing follows a dual sourcing strategy by working with both General Electric (GE) and Rolls-Royce for models like the 787 Dreamliner. This strategy helps them mitigate risks, ensuring that if one supplier encounters production issues, the other can continue meeting their demands.
In addition, dual sourcing gives airlines flexibility in choosing engine options that best fit their needs for fuel efficiency and maintenance. By fostering competition between suppliers, Boeing also benefits from continuous innovation and cost-effective solutions, keeping its aircraft technologically advanced and market-competitive.
Dual Sourcing Strategy
A well-structured dual sourcing strategy helps businesses maintain a stable supply chain, avoid disruptions, and improve supplier relationships. Follow these essential steps to implement an effective dual sourcing strategy:
1. Identifying vulnerabilities
The first step in a successful dual sourcing strategy is analyzing the supply chain for potential risks. Your company should identify critical materials or components that rely too heavily on a single supplier.
This includes assessing risks like supplier bankruptcy, logistical delays, natural disasters, or geopolitical issues. Understanding these vulnerabilities will help you determine where dual sourcing is necessary.
2. Looking for suppliers in different locations
Once you have identified the vulnerabilities, the next step is to find alternative suppliers in different geographic regions. Sourcing from multiple locations reduces the risk of disruptions due to local events such as factory shutdowns or political instability.
When selecting supplier locations, you should consider factors like cost efficiency, trade policies, and supplier reliability.
3. Selecting your secondary suppliers wisely
Selecting the right secondary supplier is crucial for ensuring consistent quality and reliability. You should evaluate potential suppliers based on their production capacity, financial stability, quality control processes, and ability to scale when needed.
A strong secondary supplier should complement your primary suppliers to ensure seamless operations even during supply chain disruptions.
4. Optimizing supplier order distribution
Once you have your primary and secondary suppliers, it’s time for you to distribute your orders strategically. Some companies distribute their orders equally (50/50) to both suppliers, while others assign the majority of orders to the primary supplier (such as 60/40, 70/30, or 80/20).
This ensures that both suppliers stay active and capable of meeting demand if one experiences disruptions. Additionally, a well-balanced order distribution prevents over-reliance on a single supplier while keeping the backup supplier prepared for increased production if necessary.
5. Maintaining clear and open communication
Clear and open communication is crucial to ensure smooth operations. Your organization should align expectations on pricing, quality standards, lead times, and performance metrics from the start. Having open communication channels allows businesses to quickly address supply chain issues, reduce misunderstandings, and strengthen trust with suppliers.
The better the communication, the easier it is to maintain a steady flow of goods and materials.
6. Leveraging technology
Technology plays a key role in making dual sourcing efficient. You can use supply chain management software, a real-time tracking system, and data analytics to monitor supplier performance and optimize order distribution.
These tools help forecast demand, improve decision-making, and enhance overall supply chain visibility. Digital communication platforms also ensure smoother coordination between suppliers and internal teams, reducing delays and errors.
7. Tracking supplier performance
Regularly evaluating supplier performance is essential for ensuring that both suppliers meet quality and delivery expectations. It is important to track key metrics such as delivery times, defect rates, cost fluctuations, and responsiveness.
Using supplier scorecards, conducting periodic audits, and performing performance reviews can help identify and resolve issues before they affect production. Consistent monitoring allows you to maintain high standards and hold both suppliers accountable.
8. Collaborating and coordinating effectively
The final step to ensure a successful dual sourcing strategy is to maintain strong coordination between suppliers and internal teams. Establishing clear processes for managing emergencies, adjusting orders, and conducting quality control checks ensures that everyone stays aligned.
Regular meetings, shared forecasts, and proactive planning keep suppliers informed about production needs and market changes. Effective collaboration leads to a more flexible and resilient supply chain.
Pro Tip: When distributing orders between your primary and secondary suppliers, use real-time sales and inventory data to dynamically adjust the split as market conditions shift. ⭢ You’ll learn how to turn dual sourcing into a competitive advantage in our Value Chain Analysis Course, where flexibility meets strategic resilience.
The Advantages of Dual Sourcing
Dual sourcing can be beneficial when done right. Take a look at the advantages it can provide when implemented by your organization:
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 one 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 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 Disadvantages of Dual Sourcing
We’ve shown the advantages, but dual sourcing has its fair share of disadvantages. Take a look at the disadvantages of dual sourcing when not utilized properly:
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.
Conclusion
In conclusion, understanding dual sourcing is crucial for procurement professionals navigating the complexities of the supply chain. Dual sourcing, involving the use of two suppliers for a specific component or service, offers advantages such as cost flexibility, regional support, supply security, and reduced lead time.
However, it comes with disadvantages, including challenges in quality control, the need for thorough negotiations, and the potential for higher prices.
Procurement professionals, armed with knowledge from this article, can efficiently leverage dual sourcing in their business, balancing its benefits and drawbacks for strategic decision-making.
Frequentlyasked questions
What is dual sourcing?
Dual sourcing is the process of using two suppliers to provide the same goods or services for your company.
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.
Is dual sourcing effective for small businesses?
Dual sourcing is not a suitable approach for small businesses as you cannot use volume buying to leverage to your advantage.
About the author
My name is Marijn Overvest, I’m the founder of Procurement Tactics. I have a deep passion for procurement, and I’ve upskilled over 200 procurement teams from all over the world. When I’m not working, I love running and cycling.
