Can dual sourcing or multi sourcing beat supply chain uncertainty?

It’s fair to say that the Coronavirus pandemic has been a wake up call for many companies relying on Electronics Manufacturing Services (EMS) providers to supply their business. In the early stages of the crisis, as China was being locked down, it became clear to some that their supply of components could be compromised in many unexpected ways.

They were dependent not only on a single supplier whose work had stalled - but also on a vast hinterland of second and third-tier suppliers of which they had no previous knowledge, but who had also ground to a halt.

As Richard Wilding, Professor of Supply Chain Strategy at Cranfield University says in this article, Covid-19 ‘has been a test of risk management processes and resilience in supply chains’. And it’s a test that many organisations seem to have failed in the early throes of the Covid crisis.

It does seem like there had been complacency surrounding the security of the global supply chain that everyone from customers to corporate entities have been reliant on for so long. But who could really have foreseen or prevented the kind of shut down we experienced at the start of Covid and since?

Even the most extreme supply chain crises of the past 20 years could not prepare us for this. Not the disruption from the volcanic ash cloud in 2010, or the KFC logistics issues that led to a fried chicken shortage across the UK in 2018.

Dual sourcing or multi sourcing: what's the answer?

It’s easy to be flippant, of course, but as we’ve seen, the stakes for businesses when the international systems fail are incredibly high. So, what’s the answer? For some companies relying on EMS providers, the answer is to introduce policies of dual sourcing or even multiple sourcing of services to ensure greater protection from the failure of supplier services.

We’ve talked before about the pros and cons of single and dual sourcing, but investigating the prospect of dual or multiple sourcing seems a sensible move right now as global uncertainty continues to ramp up.

And luckily, with more agile digital tools available, maintaining and switching between multiple secure, supplier connections is no longer the costly, disruptive and time-consuming task it once was.

The flexibility to choose

Having the flexibility to switch at will between a number of supply options, then, might be seen as the ultimate insurance policy for companies dependent on complex international supply chains - and the ultimate bargaining chip to secure the services at the price you want to pay.

Here are just a few of the benefits companies can lever when they do so:

• Dual sourcing or multiple sourcing through different regions can insulate you from the potential shock of natural disasters or geo-political events disrupting your business. You can switch partners when required to protect supplies as events unfold insulating your customers against fluctuations in price and availability
• By introducing competition between suppliers you can continually shop for the best price between them
• You can scale up and speed production by splitting your business and accessing services from multiple suppliers on demand

Spread the risk to maximise value?

Spreading the risk and managing your partners to maximise value and innovation is obviously a sensible approach for some. But there are unique benefits that can be derived from single sourcing

• It might be simpler managing the digital switch between partners these days, but it’s still easier building and maintaining a strong, 'best value' relationship with one supplier rather than two or more.
• The idea you can get the best price on production by splitting your business between multiple suppliers is not always the case. Businesses can often maximise volume leverage to achieve the most attracting pricing with a single supplier
• No matter how agile you can be, streamlining and integrating systems with a single supplier is easier to achieve. Managing and optimising multiple systems for consistent quality can represent a significant challenge in time and resource.
• With a single supplier relationship, you may be able to negotiate to receive small, frequent deliveries and so improve inventory control.
  
  

What’s the best approach for you?

Richard Wilding’s advice is that

“Companies should map and continually monitor for vulnerabilities in their supply chains in order to anticipate risks and threats and look to widen sourcing locations even if they involve higher unit costs.”

Which is sound advice, but he also reminds us of a fundamental truth:

“The reality is [a supply chain] is a bunch of collaborations involving people, technologies and natural phenomena, any element of which can have problems. We have come to expect high quality, convenience and good value wherever we are, but that comes at the price of great supply chain complexity.”

Building a strong relationship with a single supplier can answer key concerns about the provision of consistent and quality services over time. The right supplier should be open and transparent with you about their downstream partnerships and give you visibility about their plans to manage the risk of future disruption.  This, in turn, will you help realistically judge the risk to your business.

High levels of trust, the strength of interpersonal relationships, and a proven track record of quality delivery can give you confidence that a supplier will always be working to protect you in an unpredictable international marketplace.

But in the end it’s up to each individual business to choose the approach that makes sense for them, given the risk to their business of the failure of their supply chain, the importance of consistent quality to their operations and their need to control costs.