In the volatile world we are currently living in, many supply chains are at risk through various forms of disruption, whether that is geopolitical tensions, tariffs, climate emergencies, logistical challenges, supplier manufacturing difficulties or product sunsetting.

Single sourcing

There are a number of benefits to single sourcing:

• Price – volume discounts.
• Often priority over other suppliers due to volume, for example, when higher volume means heavier reliance on that custom.
• Better product reliability, potentially due to focus on consistency with a single product.
• Fewer suppliers to manage.

There are also a number of risks associated with single sourcing:

• Supply chain disruption in the form of:
  
  • Geopolitical restrictions (tariffs/import bans and other restrictions)
  • Fab supply chain issues
  • Climate emergencies
  • Logistics disruptions (shipping route disruption or significant cost increases)
• Lead time extension – for example if the supplier extends the lead time there is no contingency for such supply chain shocks without a large stockholding, tying up significant cashflow.
• The negotiating power can fall with the supplier if they know it would be difficult to switch, thus making it difficult to resist price increases.
• Components often reach end of life (EOL), meaning redesign, requalification and likely delays due to the two aforementioned stages.

Dual/multi-sourcing

When components are approved from two or more suppliers it can provide significant benefits to a manufacturer, including:

• Supply chain resilience: Better support when demand flexes unexpectedly, particularly when a single supplier may not easily or quickly have the capacity available .
• Geographic risk spreading: Multiple suppliers from different areas can be leveraged to offset risk when geopolitical tensions cause regional disruption.
• Competitiveness on pricing and terms when the suppliers know they are in a market pricing situation.
• More favorable lead times can be achieved: Procurement can shift to faster lead time suppliers more easily when production can’t meet delivery expectations.

There can also be downsides to dual/multi-sourcing:

• Increased workload up-front in the form of component validations, electrical equivalence checks and testing.
• Qualification costs for lab testing, compliance validation and reliability testing.
• There can also be performance variations in sourcing components from different suppliers. These can be differences in tolerances, thermal behavior, noise and other minor quirks.
• Volume discount leverage.  Splitting orders between multiple suppliers can reduce leverage as the economies of scale will not be achieved in the same way they would for placing a single large order with a single supplier.

Where is the real risk?

With many decisions like this there are pros and cons for both, and often the best solutions tend to be somewhere in the middle.

Key points to consider:

• One of the biggest hidden risks is design lock-in, where designs may not have pin-compatible alternatives, be firmware dependent or be tied to proprietary software. This means single sourcing then becomes structural and forced. This needs careful consideration as dual / multi-sourcing some complex components also have long qualification cycles which can cause significant delays to market.
• The economies of scale derived from placing large orders with a single supplier cannot be ignored in terms of unit cost. That said, it is very smart to have at least 1 other supplier on hand with a portion of the business and the flexibility to ramp up production quickly should the main supplier experience disruption.
• Particularly after COVID-19 and the volatility which followed, a significant number of manufacturers have spent additional engineering resource on specification and qualification of alternate parts for critical components to give procurement flexibility if the supply chain of a component becomes disrupted. This has proven to very effective in mitigating supply chain disruption.

Summary

The real risk therefore, is not single source vs dual sourcing (though of course they both have merits and downsides), but how fast you can switch when disruption happens.  

Lantek can help

Whether it is designing in new alternate components, adding in new supply routes, management of supplier groups, more robust geographic sourcing or sourcing EOL / hard to find components, Lantek can help you reduce risk across your component procurement strategy.  Call us now to discuss on +1-973-579-8100 or email us on sales@lantekcorp.com.

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