I recently ran a Poll on this topic with the results reflecting that most participants voted that Dual or Multi Sourcing (or Supplier Tiering) policies is a necessary Procurement Risk Mitigation strategy. I experienced this for real, many times, but most prolifically during the geologistics aftermath of 911.
Beyond the obvious Procurement Gloden Staples of price, quality, quantity, improved technology etc, other prudent reasons exist for a dual sourcing strategy.
Simply put flexibility is the practical outcome of running multiple sourcing channels for a single commodity. Some unthought of benefits thereof include:
- Geoeconomic- You may find another source country that for a variety of reasons is financially better suited. This could include more favourable currency exchange rates.
- Geopolitical- This is self- explanatory but involves politics, wars, sanctions, and ethical concerns, or interruptions in Procurement and Logistics processes as a result. Always remember that wars and political policy can well effect neighbouring countries in an entire region and have an indirect knock-on effect.
- Supplier Performance- For several reasons dual sourcing can prove useful especially if it is a key commodity, and supplier is malperforming, supplier company is having organisational, marketplace or financial setbacks. Can be used in a benchmarking/comparison role.
- Critical Importance- How important to your own corporate is the commodity line?
- Capacity- Depending on individual circumstances, dual and multi sourcing strategies can be exceptionally useful.
The common disadvantage for most middle management Procurement executives attempting dual and multi- sourcing strategies, is securing senior management buy-in. Or so was always my experience, until some debacle occurs, then it becomes a very “different marching tune”!
Naturally, with such strategies, other operational disadvantages lie in the extra workload created in criteria such as superlative supplier and Procurement Order management and keep maintaining or growing supplier relationships between all involved.
However, regards overall strategic supply chain resilience, employing dual and multi-sourcing strategies is an invaluable tool for any strategically well managed Procurement function.
Karl Furrutter is a Strategic Procurement and Liquidity Consulting Practice. Karl has thirty years of cross industry experience within Strategic Procurement and is focused on developing bespoke strategical solutions tailored to each customer’s unique requirements.
Contact Karl on karlf@furrutterandassociates.co.za or visit Furrutter & Associates at www.Furrutterandassociates.co.za