Posted on 01 Nov, 2018 by Neil Sharp
Supply chain risk is an ever-present threat for manufacturers, whether due to adverse weather conditions, natural disasters, political unrest, mergers and acquisitions or product shortages - all of which have the potential to adversely impact production.
Today, huge value is being placed on a supplier’s ability to be able to respond to customers’ new-product requests, to ensure shorter delivery times, and to offer the reassurance of swift action to correct or improve designs.
All this means that, more than ever, there’s a need for responsive and flexible supply chains.
For Original Equipment Manufacturers (OEMs), one solution to mitigate the risk of supply chain disruption is to maintain relationships with more than one supplier through dual sourcing - the practice of purchasing a chosen raw material, product, or service from two (or sometimes multiple) sources.
There’s no doubt that dual sourcing can be beneficial under the right circumstances - with the potential for faster lead times, the opportunity for more consistent supply and the capacity to be able to compare and benchmark pricing.
However dual sourcing can also pose a number of risks.
In this blog post we explore both the advantages and the potential drawbacks of adopting a dual-sourcing approach for OEMs.So let’s first start by considering some of the benefits.
Pros of dual sourcing
If your order book suddenly spikes and you need your assembly providers to ramp up production, whether just for a short time or for an extended period, dual sourcing can help. Working with multiple suppliers means you are not reliant on just one and their ability (or not) to double or even triple their output.
Increased cost flexibility
Choosing to work with multiple companies can offer the opportunity to secure better deals. Assembly providers will naturally want to increase their share of business with you and should therefore remain committed to offering you the most competitive pricing they can.;
If you’re selling your products within multiple regions then dual sourcing can be invaluable, enabling OEMs to trim shipping costs, and take advantage of tariff benefits by having their products built and tested within the region that they’re selling to.
An OEM with a broad product portfolio or a mixture of technologies and volumes may well gain value from having a second source (or multiple sources) who can offer specific areas of expertise.Not all Electronics Manufacturing Services (EMS) providers offer the same range of services and cannot, therefore, be all things to all customers.
Many will have a specialisation or a ‘sweet spot’. Some providers may be great at low volume prototype work for example, or they may specialise in high volume consumer goods. Certain suppliers might excel in automotive or military work while others may be more suited to low volume, high complexity industrial electronics and electro-mechanical assembly.
So what are some of the potential drawbacks of a dual sourcing approach?
Cons of dual sourcing
Product uniformity is a crucial customer expectation. OEMs who choose to purchase from multiple EMS providers will need to ensure their expectations are met when it comes to areas such as external cosmetic specifications, internal wiring standards and packaging, particularly if goods are sent direct to the end user.
Building relationships with any EMS company takes time and effort - so upping that workload by having to manage the quality, efficiency, timing and pricing of multiple suppliers could end up becoming an administrative headache.
While dual sourcing may offer a cost-advantage in terms of competitiveness of pricing, it can also have the opposite effect.
Choosing to split volumes across multiple sources can lead to reduced economies of scale for example. It's also crucial to consider the total costs of choosing to dual source - to allow for the underwriting of materials, pack sizes, minimum order quantities (MOQs) and lead times with both suppliers, along with all of those hidden costs associated with an increase in administration and supplier management.And whilst suppliers competing for your business may offer some short term gains, you need to ask yourself how committed they will be in the long term and how sustainable their pricing really is.
Dual sourcing presents both opportunities and risks for OEMs. But the concepts of sole and dual sourcing needn’t be mutually exclusive. With the right management, the combined use of multiple suppliers that each offer their own unique advantages and strengths, might well be a better solution than conducting a single-sourcing supply chain strategy.
But if in doubt, a consultation with an EMS provider could be invaluable in helping to thrash out the advantages and pitfalls of your supply-chain outsourcing options.
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