10. Single versus Multiple Sourcing


Single versus Multiple Sourcing. Imagine you are a shoe manufacturer. How many suppliers of leather should you have?
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In many cases, it makes sense to have multiple suppliers for the same input. But in other situations, it may be wise to only have a single source.
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Often, companies wrestle with this very important decision. Should I have multiple sources, or does one supplier give me everything I’m looking for? Regardless, this is a very important decision that has to be made very deliberately. And you are weighing the risk of a disruption with the added complexity of managing multiple relationships. There are several reasons why you would want to only have one supplier for a given input, and that has to do with simplicity. It is much easier to manage just one relationship rather than having multiple suppliers that you have to manage. You also get their full attention. And that may be a benefit because, if a supplier has thousands of customers and you’re one of those thousands, they will not have the time or the resources to really work with you very closely. And finally, you may just be able to get everything you could possibly need from that one source. Why go elsewhere?
1:29
In addition to those, there are other good reasons. For example, lately in the United States, a lot of manufacturing companies have looked at diversity suppliers, women owned businesses or minority owned businesses, to source some of their inputs. In fact, companies that do business with the US government have to actively seek out diversity suppliers. And that is part of the ethical compliance part of procurement that I talked about earlier. And this not only helps the company be a good corporate citizen, but it also helps the communities in which these companies operate in. And as we know, small companies are the life blood of every economy. So we want to actively seek to work with them. There are some risks that we incur by using a single supplier. You don’t have a backup plan. If something fails with that supplier, everything fails.
2:31
You’re basically putting all of your eggs in one basket. The other risk is that you may not really know whether you’re getting a good deal because you don’t have a way to compare. If you had two suppliers, you could compare supplier A versus supplier B. But if you only have a single source, that’s all you know.
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And the third risk is that you control a lot of the business of a supplier that’s a single source and they control a fair share of your business.
3:07
And that may be a risky proposition, because you don’t know what happens by putting all of your eggs in one basket with a single supplier. So you have to weigh the benefits and the risks against each other. Now when we’re talking about multiple suppliers, there’s several benefits as well. For example, we can compare. And we know that we can give more business to a supplier that gives us the better deal and take away some business from a supplier that may not be performing up to our expectation.
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In addition, we also are able to hedge our risks. Because if one supplier goes down, there’s another one that we can bring up. And finally, the risk with multiple suppliers is that it becomes harder to manage them. That complexity eventually takes a toll, and we have to be very careful to send our resources to the right location. Because this can go out of hand, and we spend more resources managing these multiple suppliers than benefits that we get out of using those multiple suppliers. So the question of how many suppliers to use is a very important one. In most cases, the answer is multiple suppliers. But there also good reasons to use only a single source when appropriate.

Jim Rohn Sứ mệnh khởi nghiệp