Having a single supplier for each item your company needs to do business makes sourcing simple. And while having multiple suppliers for each item can add complication, it also provides protection against the risk of interruption. Balancing these two concerns is a key task in crafting an optimal supply chain strategy.

Relying on single sourcing as a supply chain strategy exposes a company to the possibility of not being able to get critical supplies in the event of a disaster that disrupts a supplier's operations. (Think fires or floods.)

Natural disasters are just one of the hazards that may cause a business owner to regret single-sourcing a vital component.

“That source might go out of business or be unable to meet surges in demand," says Abe Eshkenazi, CEO of APICS, a supply-chain certification, education and networking organization based in Chicago.

“Even worse, what if you discover your source uses unethical practices, such as slave or child labor?" Eshkenazi adds. "You have to stop using that source immediately."

Having flexibility in case of interruption is an important reason to consider multiple suppliers, agrees Harry Hough, CEO and president of American Purchasing Society, a professional association of buyers and purchasing managers based in Aurora, Illinois.

And there are other reasons to seek multiple sourcing.

“Multiple sources are necessary when one supplier does not have the capacity to furnish the total requirements of the buying organization," Hough says.

This could be because the supplier can't provide sufficient volume of an item or because the item has multiple components that no one supplier can produce.

Multiple sourcing may help buyers get more for their money.

“Using multiple sources provides competition and an incentive for each supplier to improve cost and service," Hough explains. “Some organizations award a higher percentage of the business to the supplier with the lowest cost or best performance."

Possible Costs of Multiple Supplier Supply Chain Strategy

The benefits multiple sourcing offers can come with a potential price tag. When a business adds more than one supplier for the same item, it also adds some complexity.

“While multiple-vendor sourcing may reduce dependency, increase flexibility and reduce capacity risks, it can lead to more complicated supplier relationships and increase the resources necessary to manage those supply relationships," Eshkenazi notes.

Including multiple sourcing in a supply chain strategy can result in lower efficiency, less control over quality and, ultimately, higher costs as the number of suppliers grows.

Businesses considering multiple suppliers have to balance these potential negatives against the risk of supply interruption and other downsides that may go with having a single supplier.

Techniques for Managing Multiple Suppliers

Many of the risks of having multiple suppliers can be mitigated by making sure you're working with high-quality suppliers.

Eshkenazi suggests purchasers use supplier scorecards. These help you objectively evaluate key supplier criteria such as product quality, delivery, returns, defects and customer complaints.

“The supplier scorecard ties the company's short- and long-term goals to the supplier's performance, and enables the company to determine if they want to take a single- or multi-source approach," Eshkenazi says.

Eshkenazi suggests buyers use a formal supplier certification process to identify the relationships most likely to reduce risk and ensure supply continuity. Assessment and certification can be done by a cross-functional team that evaluates a supplier's strategic fit and capabilities against criteria for performance, reliability, innovation and other factors, Eshkenazi says.

Using multiple sources provides competition and an incentive for each supplier to improve cost and service. 

—Harry Hough, CEO and president, American Purchasing Society

“This process helps pinpoint suppliers that can bring the most value and remain competitive in the long term," he says.

Certifying suppliers is, however, just the first stage.

“To truly capitalize on the benefits of supplier certification, you also need an ongoing system to carefully manage your suppliers," Eshkenazi says.

Regularly renegotiating contracts and periodically exploring other sourcing options can be part of this process.

Figuring Out Your Supply Chain Strategy

One of the key questions to ask when crafting a supply chain strategy is whether to buy from one source or to build in backups.

The answer isn't always simple.

“There are pros and cons to both single source and multiple source approaches," Eshkenazi says. “There is no single number of suppliers that works for all companies and all products."

But as business owners increasingly recognize that supplier relationships can be an important competitive advantage, purchasers are coming to regard sourcing as a strategic matter that should involve multiple functions, job titles and departments.

“To achieve a competitive advantage, it's important that you approach sourcing as a strategic, systematic, cross-functional and cross-enterprise process," Eshkenazi says.

Technology, in the form of analytics tools that help monitor product inventories within the enterprise, are also playing an increasingly important role, he adds.

“The resulting business intelligence enables supply chain professionals to more effectively manage sourcing," Eshkenazi says.

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