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Written by Marijn Overvest | Reviewed by Sjoerd Goedhart | Fact Checked by Ruud Emonds | Our editorial policy

Multiple Sourcing — The Ultimate Guide of 2024

Key take-aways

  • Multiple sourcing involves engaging various suppliers, enhancing flexibility, quality, and cost-effectiveness. In contrast, single sourcing relies on one vendor, emphasizing trust and cooperation.
  • Companies adopting multiple sourcing should focus on aligning corporate cultures, establish robust internal governance, and engage in effective vendor management.
  • Cost reduction, quality assurance, risk mitigation, flexibility, and enhanced bargaining power are key benefits of multiple sourcing.

Multiple sourcing is the new approach in outsourcing that many companies adopt nowadays. This is the result of the doubts about the effectiveness of having one provider meet the demand of the company.

In this article, we will talk about multiple sourcing. We will discuss its effectiveness in companies and how it differs from single sourcing. We will also explore its pros and cons when being used by companies.

After this article, you will have a better understanding of multiple sourcing’s growing popularity. You will know why many companies adopt this approach in their processes. With this being said, let’s start to unravel the things about multiple sourcing.

DifferenceBetween Multiple-Sourcing and Single Sourcing

There are differences between Multiple-Sourcing and Single-Sourcing which we have listed down below for your convenience.

Multiple Sourcing
Multiple sourcing allows the company to have an alternative source of suppliers when an uncertain event occurs.
Multiple sourcing chooses numerous vendors to provide for its needs.
Competition among suppliers leads to enhanced quality, delivery, and lower prices.
Multiple sourcing has more flexibility to react to uncertain events that might endanger the productivity of the company.
Single Sourcing
Single sourcing has a reduced risk of opportunistic behaviors.
Single sourcing only chooses one vendor among the other candidates to provide for its needs.
The partnership between the buyers and suppliers allows cooperation and is based on high levels of trust.
Single sourcing needs the immense commitment of suppliers to invest in new technologies to meet its demands.

What is Multiple Sourcing?

In order to clear the confusion, let’s have a quick review of outsourcing. Outsourcing is the practice that companies use to acquire goods and services from third-party suppliers.

Outsourcing is usually used to reduce the costs of the company. Additionally, it adds specific expertise needed for a product or service without the requirement to invest more in in-house experts.

Now that we reviewed outsourcing, let’s now discuss what multiple sourcing is. Multiple sourcing or multi-sourcing is a type of outsourcing that is used by numerous companies.

Unlike traditional sourcing which deals with a single vendor, multi-sourcing makes use of numerous different vendors.

Typically, A company will handle some of the IT operations and outsource the rest of the other duties. The idea behind multi-sourcing is to make IT operations more effective in the process.

Through multiple-sourcing, a company can select the best possible vendor for a given IT task. By outsourcing other operations, the company can focus more on its most important duties internally.

When a company chooses the multiple sourcing approach, it must ensure that an in-house employee is monitoring the vendors. One of the best ways to find vendors is that you have a similar corporate culture.

What is Single Sourcing?

Single sourcing is a practice where you can select one supplier out of the numerous ones. The suppliers that you select provide the same products or services. Your requirements will determine who among the suppliers will suit your company best.

The company may also choose based on what it thinks it needs. It may choose the other as it has lower prices than the rest of the suppliers.

HowDoes Multi-Sourcing Work?

In many companies, the IT vendor management office takes charge of managing multiple sourcing arrangements with help from the legal team, IT staff, and other executives. To begin, it’s wise to choose service delivery providers that share similar corporate cultures.

Moreover, organizations adopting multiple sourcing should establish strong internal corporate governance strategies for IT vendor relationships and share these details with all service providers. This helps improve cooperation and ensures smoother service delivery throughout the organization.

Why You Should UseMulti-Sourcing

Multiple sourcing is a procurement strategy embraced by companies, which involves obtaining goods or services from multiple suppliers rather than depending solely on a single source. This strategic approach offers numerous advantages that contribute to the overall efficiency and success of a business.

One of the major benefits of multiple sourcing is cost reduction. Engaging with multiple suppliers enables companies to tap into a competitive environment where suppliers vie for the business by offering more favorable pricing and terms. As a result, the company can negotiate better deals, leading to significant cost savings and improved financial performance.

Enhanced quality assurance is another compelling advantage of multiple sourcing. Different suppliers may adhere to varying quality standards and production processes. By sourcing from multiple suppliers, companies can carefully assess and compare the quality of products or services, ensuring they opt for the best options available.

Furthermore, multiple sourcing provides a buffer against potential risks and disruptions. Relying solely on a single supplier can leave a company vulnerable to supply chain disruptions caused by various factors, such as natural disasters or economic downturns. However, by diversifying their sources, companies spread their risks, making them more resilient and capable of navigating unforeseen challenges effectively.

Using Multi-Sourcingin Procurement

Multiple sourcing in procurement involves acquiring goods or services from different suppliers, which can save costs and improve product quality.

To implement multiple sourcing effectively in procurement, consider your needs and what each supplier offers. Use clear contracts to specify suppliers’ roles and contributions to costs. Regularly assess suppliers’ performance to ensure they meet your expectations.

Maintaining strong communication and backup plans is essential. Building good relationships with suppliers and having alternative options ready can lead to better outcomes and smoother operations.

Advantagesof Multi-Sourcing

Multiple sourcing can benefit businesses that spread their demand across different suppliers. This is also necessary when a supplier cannot meet the total requirements of the organization. 

Common advantages of multi-sourcing include:

1. Reduced reliance on a single supplier

By engaging multiple suppliers, a company becomes less vulnerable to potential difficulties or disruptions that could arise from unforeseen events impacting a single supplier. This diversification ensures a continuous supply of goods or services even if one supplier faces challenges.

2. Improved flexibility

Multiple sourcing provides companies with the flexibility to adapt to uncertain events that may disrupt the capacity or supply of goods and services. Having alternative suppliers enables quick adjustments to changing market conditions, safeguarding against potential bottlenecks in the supply chain.

3. Reduced bottlenecks

Relying on a single supplier can lead to bottlenecks when the supplier’s capacity cannot meet the demand. Engaging more suppliers ensures a more efficient distribution of orders, preventing delays and ensuring a smooth flow of goods or services.

4. Enhanced supplier competition

With multiple suppliers vying for business, healthy competition emerges. This competition incentivizes suppliers to enhance their cost-effectiveness and service quality to attract and retain clients, benefiting the company with improved offerings.

5. Improved bargaining power

The competition among suppliers enables the company with greater bargaining power. With multiple options available, the company can negotiate better terms and prices, leading to cost savings and improved contractual conditions.

6. Easier access to higher product and service quality

A diverse pool of suppliers provides the company with a broader range of options, allowing them to choose suppliers renowned for high-quality products or services. This enhances the overall quality of the goods or services offered by the company to its customers.

Challenges in Multi-Sourcing

Here are some challenges in multi-sourcing that you should know about!

1. Difficulty in maintaining supplier relationships

Multiple sourcing spreads its business across different suppliers. Its nature makes it challenging to manage all the suppliers effectively.

Multiple sourcing makes it difficult for companies to maintain relationships with their different suppliers.

Having multiple suppliers that it all deals with simultaneously, companies must come up with a plan to manage them all.

2. More difficult to have control

The company may lose its control when many service providers manage its processes. An example would be companies cannot dictate the specific platform it uses to deliver products or services. It is important that companies monitor their processes when many service providers engage with them.

3. Can potentially increase overhead costs

Multi-sourcing allows the company to source from numerous vendors to provide for its needs. When companies add more vendors, they may find themselves unable to manage all the relationships or services provided.

Multiple sourcing potentially increases the overhead cost by hiring more staff or being engaged with more third-party companies.

Whatis Supplier Lifecycle Management? 

Managing multiple vendors in a multi-sourcing model can be complex. To handle this effectively, many businesses use supplier lifecycle management solutions. Here are the eight critical areas:

1. Qualification

In this stage, a company evaluates potential suppliers to ensure they meet specific requirements. This involves assessing factors such as their capabilities, product quality, financial stability, certifications, and adherence to relevant regulations. The goal is to filter and shortlist suppliers who align with the company’s needs and standards.

2. Evaluation

Once suppliers submit their applications, the company assesses them based on various criteria. These may include product quality, delivery capabilities, customer reviews, supplier performance history, diversity aspects, and other relevant factors. The evaluation process helps determine which suppliers are best suited to meet the company’s specific requirements.

3. Selection

After evaluating all the candidates, the company narrows down the list of qualified suppliers to make a final decision. This decision-making process is crucial, as it directly impacts the company’s operations.

4. Onboarding

Onboarding involves collecting all the necessary information and documents required to approve a supplier in the company’s system. This step ensures that suppliers provide accurate and up-to-date information. Once approved, the company can monitor updates on supplier information and track their performance.

5. Supplier Performance

Supplier performance management involves monitoring and evaluating suppliers on an ongoing basis. The company tracks key performance indicators (KPIs) to assess whether the suppliers are meeting agreed-upon terms and delivering products or services as expected.

6. Determining Risks

This critical step aims to reduce risk to the company’s operations. By identifying potential risks associated with suppliers, such as breaches of contract, late deliveries, quality issues, or financial instability, the company can implement risk mitigation strategies to avoid any unexpected disruptions.

7. Supplier Development

Strong collaboration with suppliers is essential for business growth. Providing regular feedback to suppliers helps them improve their processes and manufacturing capabilities, leading to a more productive and efficient partnership.

8. Supplier Management

Establishing a mutually beneficial relationship with your suppliers can result in numerous advantages for the company. This collaborative approach fosters innovation, gives the company a competitive advantage, and contributes to long-term success.

Conclusion

Understanding the dynamics of multiple sourcing is crucial for companies seeking efficient procurement strategies. This guide explores the differences between multiple and single sourcing, delves into the workings of multi-sourcing, and highlights its advantages and challenges.

Frequentlyasked questions

What is multiple sourcing?

Multiple sourcing is an approach where an organization sources materials or services from many different suppliers.

What is the difference between multiple sourcing and single sourcing?

The main difference between multiple sourcing and single sourcing is the number of suppliers or service providers. Multiple sourcing can hire multiple suppliers while single sourcing ought to only choose one supplier among its potential suppliers.

What is a better approach between the two?

The best approach comes down to your organization’s size, product, and industry.

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.

Marijn Overvest Procurement Tactics