When is multi sourcing important?

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Long times to get a new supplier

One situation when multi-sourcing can be important is when it takes a long time to get a new supplier. If it takes many months or years to switch suppliers, then this can make you very dependent on any particular supplier. The long time to change suppliers makes you dependent on your current supplier, potentially putting them in a powerful position to increase prices. Establishing a multi-sourcing relationship in advance can reduce this likelihood of becoming locked-in and dependent on them. 

Difficulties in undertaking the activity internally

Another situation when multi-sourcing may be particularly important is when it is prohibitively difficult to undertake the activities internally. If you can bring the activity in-house if needed, then this reduces the danger of getting caught out by suppliers exerting their power. On the other hand, if the activity is not something that you would be able to do yourself, then having multiple options available can be important.

Historical unpredictability in supply

If the input has historical unpredictabilities in supply, then this may be another key reason to consider multiple suppliers. Having backups in place can ensure that you are not caught out by such issues again.

Limited numbers of possible suppliers

A final situation when having multiple suppliers can be beneficial when there are only a limited number of possible suppliers. If there are many possible companies that you can turn to, then moving company may not be that difficult and the specific companies may thus have limited opportunity to increase their prices or exert power. On the other hand, if there are only a small number of suppliers, then not only may they be more likely to exert their power, but it may be more difficult to switch to another firm. 

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