Companies want to minimize as much risk as possible. They look at ways around how they can ensure maximum profits and minimum risks. Supply chain management is one of the most important elements of business success. It is also the most precarious.

Ensuring that your customers get the products at the right time is not an easy job. The supply chain system incorporates different departments, each one of them forming a chain or a network of activities that ultimately leads to products being delivered to customer within the promised time frame. Supply chain success is only possible if every department or system is aligned, well connected and collaborates without any glitches. It is a high dependency system; one that depends on several stakeholders.

Strategic sourcing isn’t just hype

Successful sourcing strategies need knowledge about the business, its strategies, customers, products, and resources

Sourcing is an important activity that defines supply chain. To put it simply, sourcing and procurement solutions involve what an organization buys, from whom it buys, at what price and at what volume. Strategic sourcing is a much talked about phenomenon where businesses delve deep into analysing the entire life cycle of the product and not just initial cost.
With strategic sourcing in place, business is able to formalize the entire information gathering process. Businesses can leverage data and analytics, and can make use of its consolidated purchasing power to find the best possible values in the marketplace. To create successful sourcing strategies, you need to have complete knowledge about your business, its strategies, customers, products, and resources. You need to have a thorough understanding of the risks associated with implementing specific approaches. Thus, how effectively you are able to carry out your sourcing and procurement activities lay the ground for a robust supply chain system.

Single sourcing vs. dual sourcing

Keeping all eggs in one basket is a risky proposition

Now, there are two common types of sourcing strategies that companies adopt. The first one is the more popular single sourcing strategy where a purchased part is supplied by only one supplier. A JIT manufacturer will frequently have only one supplier for a purchased part so that close relationships can be established with a smaller number of suppliers. These close relationships (and mutual interdependence) foster high quality, reliability, short lead times, and cooperative action. The second one is dual sourcing where companies depend on procurement from more than one independent supplier.

Let’s go a bit deep into dual sourcing strategy. Just as keeping all eggs in one basket may sound like a risky proposition, similarly for many companies out there, depending on one sole supplier for all their sourcing or procurement needs can be a bit risky. To distribute and minimize the risk, businesses turn to dual sourcing strategies. They choose two or more suppliers to provide them identical raw material, other products, or services. This is done to mitigate supply chain issues, maintain high quality at all times and induce a healthy competition among the suppliers, thus again reinforcing quality, speed, compliance, and competitive prices.

Dual sourcing has many advantages

Dual sourcing is scalable; it surpasses supplier monopoly, and saves on freight charges

Dual sourcing strategy can help the supply chain with significant advantages. The first one is scalability of business. As business expands, one supplier may not have the capacity to fulfil your sourcing needs. You may need additional hands to take care of the increased volume of business. Thus, the business may choose to increase their sourcing and procurement base so that they don’t encounter out of stock situations and other inventory hold-ups, which can adversely affect your supply chain operations and therefore important customer accounts.

Cost is an important factor for businesses. If the business deals with one supplier only, chances are that it may end up paying a lot of money. But on the other hand, a number of suppliers mean that there is an end to the supplier monopoly. You are able to choose from a number of suppliers and ultimately pay less, which becomes a huge advantage. Similarly, quality is also maintained if there a number of suppliers on board. Each supplier would vie to get the deal across so in that case, they in turn would ensure that high quality, speed, help, and support are aptly available.

Dual sourcing can be advantageous if customer demand or your production facilities are dispersed and spread across regions or even countries. In this situation, dual sourcing means that you can choose the most suitable suppliers save on freight charges and other costs. These suppliers will be locals, hence ensuring that the products are best suited for the particular region’s customers.

Sourcing and procurement are integral functions of the supply chain system. Ensure you incorporate the best strategies to ensure a successful and high tech supply chain management solution.