Understanding single sourcing
Single sourcing is when companies source their inputs from just one supplier – each component, raw materials, and other parts are bought exclusively from only one firm.
Understanding multi sourcing
In comparison, multi-sourcing is when companies source from multiple different companies. For inputs, there are two or more different companies that supply the inputs.
The differences between single and multi-sourcing
Soe of the key differences between single and muli sourcing include:
Reduced power of supplier
One of the key advantages of multi-sourcing is that the power of the suppliers is reduced. If you are dependent on one supplier and unable to easily switch to another, then this can make you dependent upon them. By having multiple suppliers, the firm can more easily switch to a different one should it decide that there is a need to.
Greater supply chain reliability
Another advantage of having multiple suppliers is that it can increase the reliability of your supply chain. If there is a disruption in your supply chain, for example, natural disaster or shipment delays, then having multiple suppliers can potentially reduce the impact on your opportations.
Situations when each approach makes sense
There are situations where both single and multi-sourcing can have benefits:
Situations for multi-sourcing
- Critical inputs: Any supply chain disruption would significantly impact your operations
- High-value inputs: If a single supplier were to raise its prices, it would have a significant impact on your margins
- Long time to change supplier: If may take many months to move to a different supplier, this can raise the power of your suppliers.
Situations for single-sourcing
- Only one potential supplier: For some inputs, there may be no other option than to use one supplier
- Inputs are low value: The input may be so low value that there is little benefit to be gained from having multiple options.
- There are many other options that can be easily moved to: Should there be issues with your supply chain, you have some flexibility to go with another company.