4 Reasons why Single Sourcing is Still Good Strategy!

There are a number of current trends and approaches that managers and practitioner of a supply chain may consider to achieve a competitive edge and Single Sourcing is one of them!

There are always for and against arguments to have single source vs multiple source suppliers for a commodity. The current trend is towards adopting single sourcing which leads to mutual dependence.  Single sourcing has changed the character of the traditional supplier manufacturer relationship. Manufacturers are aware that they will be depending more and more on one single supplier. Any failure in maintaining the relationship will create a negative impact on the supply chain performance. Therefore feedback of any problems from either a supplier’s or manufacturer’s perception is important. Most OEM practice single sourcing where a supplier is able to provide the entire volume of demand for strategic commodities to achieve desired cost, quality, delivery and lead time information.

Single Sourcing

Over the years I have seen some companies practiced an adversarial relationship and multi-sourcing approach for their supplies. Multi-sourcing in the Western industrial environment secures supplies for industry in times of any unforeseen disruptions or force majeure situation. Therefore, sometimes, manufacturers do not wish to lose the advantages of multi-sourcing, namely the ability to select the cheapest supplier and to receive innovative ideas from a group of suppliers, rather than just one. However the automotive OEMs have proved that sole sourcing will increase the bargaining power of the supplier.  On the other hand companies choses for Single Sourcing enjoys a  good relationships and mutual trust with their single suppliers, use flexible legal contracts that are very general ‘constitutions’ and can be constantly adjusted and re-negotiated depends on economics. This encourages long term investment from the suppliers as it is important that they continue to perform to stay in the relationship.

The Just in time ( JIT) philosophy has encouraged a lot of Western industries to adopt single source practice. May be they have not been altogether successful, due partly to the different culture, historical issues and industrial practices. However, A long -term relationship with a single supplier of a specific product or group of products results in benefits to both the supplier and the manufacturer.

Here are some benefits for both manufacturers and suppliers in single sourcing

Manufacturers Benefits of Single Sourcing

Administrative efficiency

– There is no need to solicit and review bids from a variety of suppliers.

– There are fewer contracts to negotiate, and these contracts must be re-negotiated less often.

– Blanket purchase orders reduce paperwork.

– There are fewer telephone calls to make and suppliers to visit.

– It is easier to streamline accounting and identification systems.

Lower Inventory cost

– Since the supplier makes frequent deliveries of small lots, the average inventory level is much lower.

– Need for incoming quality inspection can be minimized.

Improved product quality

– The short time span between the delivery of items and their use within the firm means that defective items are discovered quickly.

– The firm can work with the supplier to improve the quality of the supplier’s products.

Access to new technology

– The supplier may be willing to share its technology and contribute to the design of new products.

Supplier Benefits of Single Sourcing

Administrative efficiency

– Large volumes are sold to relatively few customers.

– Paperwork is reduced.

– Lower production costs

– Production planning is easier when customer provides insights into its production plans.

– Production capacity can be better utilised.

– Finished goods inventories can be reduced.

Improved product quality

– Working closely with the customer makes it easier to produce items that meet the customer need.

Access to new technology

– Manufacturer may be willing to share new technology.

Are you using Single Sourcing in your business?  Please do tell me why or why not?

Source: Single sourcing: Manufacturers and suppliers benefit (Noori and Radford, 1995)

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