Dual Source vs. Single Source

PurchTips - Edition # 134 September 5, 2007

By Charles Dominick, SPSM

Should You Dual Source Or Single Source?

To dual source means to use two preferred suppliers to provide the same product or service. To single source means to use just one preferred supplier, despite there being multiple capable suppliers available.

Many purchasers decide to single or dual source prior to issuing an RFP or tender based on certain assumptions. Common assumptions are that there is a lower cost with a single source due to you leveraging your volume but less risk with a dual source due to having a qualified supplier up and running if the other fails to perform.

Those assumptions may be right sometimes but, as a professional, you should make decisions on facts, not assumptions. To acquire facts, request three prices from your suppliers: (a) for 100% of your business, (b) for 70% of your business, and (c) for 30% of your business.

Upon bid receipt, compute the cost of doing business with the two qualified suppliers who bid the lowest for the 70% and 30% chunks of your business. Compare that cost with the lowest qualified single source bid. Is there a cost difference between the single and dual source options? If so, does the lower risk justify the premium?

I must close this article with these caveats:

• Executives may resist paying a premium for goods and services. If they need to be sold on the concept, compare it to buying insurance - expending funds to protect your company from the unexpected.
• A dual source situation can have disadvantages beyond just a higher cost. Consider any potential problems from inconsistencies in quality or the extra work involved in managing two suppliers.
• For simplicity, I used price as the only decision criterion above. Make complex supplier decisions on a total cost of ownership basis, considering quality, delivery, service, and other variables.
• Keep in mind that just because you contract with a single source doesn’t mean that a non-contracted supplier won’t be available if you might need one.
• Why might one of the dual source suppliers fail? Could any such reason cause both to fail at the same time? If so, dual sourcing may either (a) not truly reduce your risk and/or (b) work well only if you choose suppliers with materially different traits.

(keep reading for a FREE Offer)

Spotlight On Professional Development Opportunities

Are you tired of not getting enough opportunities, respect, and money out of your purchasing career? Well, guess what? Nothing will change unless you take action towards becoming a world-class purchasing professional.

Earning your Senior Professional in Supply Management^® (SPSM) Certification is the action to take if you want to bring the most modern purchasing practices into your organization and achieve your career potential. Learn how to earn your SPSM^SM Certification at:

www.NextLevelPurchasing.com/spsm.html

The Latest Purchasing News

• Do you supervise a purchasing team? If so, learn about a FREE service that may be just for you at: www.NextLevelPurchasing.com/benchmark
• Learn how to beat our October 1, 2007 price increase. Read more at www.NextLevelPurchasing.com/price
• Considering a career move? Browse over 80 jobs preferring candidates with the SPSM Certification at www.NextLevelPurchasing.com/jobs

FREE Offer!!!

Do you want to research the purchasing salary you should be earning? Get “The Guide To Benchmarking Your Purchasing Salary” today!