Posted on 28 Aug, 2014 by Graham Smith
Chances are if you are single sourced with an EMS partner, you will have a dozen potential suppliers telling you why dual sourcing is the way to go. Conversely, if you already have multiple suppliers, they will each be telling you how much better life will be if you committed yourself to just the one! This is one business decision you may have to make on your own.
So what are the benefits of dual sourcing?
Most buyers instinctively prefer dual sourcing. We are taught from an early age ‘not to have all our eggs in one basket’ but why? Surely if we poka-yoke the design of our egg basket to the point that it is bomb-proof, then knowing where all our eggs are and maintaining only one basket is simpler and safer. After all, not many of us keep a spare car ‘just in case’.
So, here are some things to think about when evaluating the one supplier v multiple supplier question:
Can your supplier react when volumes ramp up? If that large infrastructure project in Brazil finally materialises, does your current supplier have the elasticity in their operation to double or even triple output, for either a short time or a sustained period? Conversely if a product line demand crashes, will your supplier still be interested in it? Also, consider what happens if one of your suppliers other customers experiences a serious upturn - what happens then?
Skills and Competence:
Most EMS providers will claim to be masters of everything. However most have a ‘sweet spot’. They may excel in radio frequency/microwave or military work. Be good at low volume prototype, or conversely specialise in consumer goods. Some will specialise in PCBA, others will be more focused on final assembly. If you have a broad product portfolio with a mixture of technologies and/or volumes you may need a second source with different skills.
We’re back with that egg basket again! But fires, floods, and computer crashes do happen. The Philippines tsunami was a chilling reminder to many OEMs how vulnerable the supply chain was to a natural disaster. It’s may not even be a disaster, simple things like a change of ownership or key personnel changes can have a devastating effect on the relationship with a key EMS supplier, with service and price changing almost overnight.
Part of most agreements with EMS companies is the underwriting of material, pack sizes, MOQ’s and lead times make this necessary. If you dual source, you will end up increasing this level of liability, and the numbers can be eye watering. So consider the total costs of dual sourcing.
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Managing the supplier:
All suppliers take time to develop, and manage, and three or four suppliers is disproportionally more complex than just one. However, investing the time to ‘groom’ a second source when you don’t need one may pay dividends if things change with your preferred supplier.
Old school buyers may believe that keeping two sources will ensure they get a good deal. This rarely works, by splitting the volumes you may well lose some economies of scale. Price competitiveness can be achieved by regular benchmarking with other suppliers.
Conversely having two suppliers can help with service. You will be able to benchmark not only the obvious tangibles like delivery and first time pass rate, but more subtle things such as communication, obsolescence management, and proactive cost reductions. A second source may help you introduce innovation within your original supplier, or conversely may prove to you and your colleagues just how good the original supplier is!
So, some things to consider in terms of supply chain outsourcing, and to discuss with potential suppliers. Many EMS companies will be able to counter the advantages of dual sourcing, they will have thrashed through these arguments already. Often offering multiple factories, full disaster recovery programmes and other initiatives to ensure they offer a ‘one stop shop’. However there is also no substitute for trying something different for size!
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