Is "dual supplier" a good strategy?

Filed in archive Practical Tips on September 10, 2008

Based on industry experience in the recent years, it seems that reducing the number of suppliers is a way to go however many experts recommend to have two suppliers for the product components. The typical reasons behind this recommendation are: Ensuring timely delivery and less component shortage, encouraging competition between suppliers in a good way to decrease price and increase quality and having more flexibility in the case there is a need for more components.

The main question, however, is: "whether we should use this strategy for all the components or not?"

In my point of view, for a large base of your required items, having two strong suppliers is a good thing. It provides many advantages including the ones mentioned above and the successful examples of companies such as Nokia and Apple shows this. Besides this, we have to take into account that on single items dual sourcing strategies are often difficult due to the extra effort needed to properly schedule supplier deliveries. You also give up some of the quantity leverage that you may utilize for better pricing or service.

So for such components, I propose single-sourcing from an available base of 2-5 supplier candidates through competitive bidding. For the product components with dual suppliers, I also propose competitive bidding but not for selecting a supplier but for selecting the percentage which should be given to each supplier.

What do you think? Does this make sense?