Avoid the pitfalls of single sourcing and learn strategies to build a more resilient supply chain.
In the intricate web of modern supply chain management, efficiency often guides decision-making. Streamlining processes, optimizing costs, and ensuring timely delivery are the top priority. Yet, within the pursuit of efficiency lies a lurking peril: single sourcing. While it may seem smart to simplify procurement and lower costs, single sourcing can actually expose businesses to risks that can jeopardize their operations and bottom line.
The pandemic was a wake-up call to the dangers of single sourcing. With lockdowns across the globe and major port backlogs, many companies realized too late that the key parts and materials they needed often came from one small supplier or factory. In this blog, we investigate the intricacies of single sourcing in supply chain management and shed light on the hidden dangers. We explore the various facets of risk that accompany overreliance on a solitary supplier and discuss how your business can diversify its supply chain.
What is single sourcing and sole sourcing?
Single sourcing and sole sourcing are two different procurement strategies in supply chain management. Single sourcing refers to a situation where a company specifically chooses to buy from one supplier, even though there are alternative suppliers available—often due to price or convenience. This can also allow the company to develop a closer relationship with the supplier and potentially negotiate better terms. However, it also means the company is more vulnerable if that supplier underperforms or experiences issues.
Sole sourcing, on the other hand, refers to a situation where a company has no choice but to buy from a single, monopolistic supplier. This is often the case when the product or service is highly specialized, or the supplier has proprietary technology that cannot be easily replicated. While sole sourcing can provide access to specialized expertise, it also leaves the company vulnerable to the supplier’s terms and conditions, with less leverage for negotiation.
What are the disadvantages of single sourcing and sole sourcing?
Single sourcing presents a huge risk for companies in all industries. 85% of disruptions occur in the lower tiers of the supply chain, where most businesses do not have visibility. If you can’t see the full picture of your supply chain, you most likely won’t know where single sourcing risks even exist—until it’s too late.
Imagine a critical part of your product is only made in one factory in Taiwan. This is very possible, considering 60% of the world’s semiconductors are made in Taiwan—and 90% of the world’s highly advanced chips are made by the Taiwanese company TSMC. If something were to happen in Taiwan—like the recent 7.4 magnitude earthquake—your company could lose access to that part, which could halt your entire supply chain as your company scrambles for an alternative supplier during the aftermath of the disruption.
Nearshoring, reshoring, ally-shoring, and China+1
Strategies like nearshoring, reshoring, allyshoring, and China+1 can help mitigate location concentration of a key supply or part that often occurs with single sourcing. They can also eliminate logistical risks in sourcing from distant countries or at risk countries. Here’s a look at each of these strategies:
Nearshoring is the practice of outsourcing business processes to companies located in neighboring countries rather than distant locations. This provides benefits like shorter transportation times and improved inventory efficiency. For example, Mattel moved production of Barbie toys from Asia to Mexico.
Reshoring (also called onshoring) is when companies move production and services back to the country where they operate. For example, companies like Apple, General Electric, and Ford have moved some manufacturing back to the US. The benefits of reshoring include more control over the supply chain, lower shipping costs, and increased adaptability to market changes.
Ally-shoring (sometimes called friendshoring) is when companies move manufacturing and sourcing to countries that are politically and economically aligned with their home country. With geopolitical risks on the rise, this is a way for companies to protect against geopolitical risks.
China+1 is a strategy that many large manufacturers are following to increase diversity and resiliency by moving some Chinese-based sourcing to other countries. The aim of this strategy is to avoid investing only in China and diversify to other locations to ensure long-term stability. Key countries that businesses are moving to include India, Thailand, and Vietnam.
Learn more about nearshoring, reshoring, and other supply chain diversification strategies in Resilinc’s annual supply chain report: Ascension: 2023 Annual Supply Chain Report.
What if sole sourcing is the only option?
There are times when sole sourcing is truly the only option, such as true monopolies. Other circumstances can also lead to sole sourcing, such as high exit barriers, highly integrated supply chains with suppliers, or situations driven by agreements or regulations. However, there are times when sole sourcing can be avoided. For example, some companies may choose non-standard components that require single or sole sources—limiting the resilience of their supply chain. Instead, they could look for products that have standard components or more generic parts that can be produced by different sources.
Build a more resilient supply chain
To address single and sole source dependencies in your supply chain, you must first have visibility into the lower tiers. Without fully understanding where your suppliers are located and how critical they are to your supply chain, you cannot take the steps needed to diversify. The path to resilience starts with utilizing technologies like Resilinc’s Multi-Tier Mapping for comprehensive visibility into single sourcing and sole sourcing within your supply chain. By identifying potential points of failure, proactive measures can be taken to ensure supply continuity.
Resilinc’s database of supply chain data contains over 800K validated suppliers, one million validated sites, and four million validated parts—giving our customers a competitive advantage by thoroughly mapping their supply chains. While visibility is the first part of the journey, diversifying your supply chain cannot happen overnight, making it even more urgent to initiate these efforts as soon as possible. Ultimately, investing in resilience today is an investment in the long-term sustainability and viability of the supply chain tomorrow.
Learn more about how Resilinc can help you identify single and sole source suppliers in your supply chain: schedule a demo today.
