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Reflecting on the COVID-19 pandemic or the global chip crisis reveals a harsh reality: supply chains broke down, production ground to a halt, and companies faced enormous losses. These moments underline the importance of a flexible procurement strategy—not just to survive but to thrive during turbulent times.
Dual sourcing is far more than a buzzword—it’s a well-thought-out strategy that secures businesses while creating competitive advantages. It reduces dependency and enables companies to react swiftly to unexpected disruptions.
Dual sourcing means sourcing critical components or services from two independent suppliers. It’s like insurance for your supply chain—with the critical difference that this insurance actually works when needed.
Instead of putting all your eggs in one basket, you spread the risk. If one supplier fails, the other can step in, keeping your business operational.
This approach is a contrast to single sourcing, where all procurement is concentrated on one supplier. While single sourcing offers benefits such as simpler coordination and potentially lower costs due to volume discounts, its major flaw is dependency on a single source. The crises of recent years have made the risks of this approach painfully clear.
A German car manufacturer faced the challenges of one-sided procurement during the global chip crisis in 2021/22. Its primary supplier in Asia could no longer meet demand, threatening to halt production completely. However, thanks to a forward-thinking dual-sourcing strategy, the company managed to maintain 75% of its production capacity.
This example highlights how dual sourcing can safeguard operations and deliver tangible financial benefits.
Dual sourcing offers a range of benefits beyond mere risk mitigation. One of its most significant advantages is increased flexibility. Companies can better manage demand fluctuations and respond more quickly to market changes.
At the same time, working with two suppliers strengthens negotiating positions. The competition between suppliers often results in better prices, higher quality, and more innovative solutions. Geographical diversification is another key advantage. By spreading procurement across different regions, companies can minimize risks from local or global crises, ensuring supply chain security even in uncertain times.
Like any strategy, dual sourcing comes with its challenges. Managing two suppliers requires more effort in communication and coordination. Contracts need to be more complex to clearly define the roles and responsibilities of both partners. Quality differences between suppliers may also demand additional checks and adjustments.
Additionally, costs can increase as order volumes with each supplier tend to be smaller, reducing the potential for volume discounts. Despite these challenges, the benefits outweigh the drawbacks, especially in critical industries or volatile markets.
Dual sourcing is particularly suitable for critical components whose unavailability could jeopardize production. It is also valuable in areas with high demand volatility or complex technologies. However, not every product or service requires two suppliers. Businesses should carefully evaluate where the benefits justify the additional costs and effort.
Implementing dual sourcing requires meticulous planning and effective tools. This is where modern Supplier Relationship Management (SRM) systems, such as those offered by Relatico, come into play.
Relatico provides companies with the ability to centrally manage all supplier data, monitor the performance of both partners in real time, and identify risks early. It streamlines communication with suppliers and automates workflows, making managing contracts, quality controls, and performance reports much more efficient. At the same time, the software supports strategic decisions through data-driven analysis and recommendations.
Dual sourcing is not just a reaction to crises—it’s a proactive strategy for making businesses more resilient, flexible, and competitive. While managing two suppliers comes with its challenges, the advantages are clear: minimizing risks and maximizing opportunities.
With the support of modern SRM software like Relatico, companies can handle the complexity of dual sourcing while fully leveraging its benefits. The message is clear: failing to diversify today could jeopardize your business tomorrow. Dual sourcing is the key to resilient supply chains and sustainable success.
Let’s talk about how Relatico can help your business achieve that goal.
Bernd possesses extensive experience in strategic procurement, shaped by his tenure at Eckes-Granini, Symrise and DuPont de Nemours. Currently, he is focused on sustainable sourcing and supply chains, collaborating with the relatico team to develop practical software solutions. Additionally, Bernd runs his own agricultural business and is involved in supply chain projects globally.
