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Comparison between Single and Multiple Sourcing

3520 words (14 pages) Business Assignment

23rd Oct 2020 Business Assignment Reference this

Tags: Business AssignmentsBusiness

Executive Summary

 

This report examines the types of sourcing commonly used in supply chain which are single sourcing and multiple sourcing. The report covers the core definition of single sourcing and multiple sourcing, underline the significant differences between the two theories and discuss the application of those theories in the real world scenario.

The report initially defines and draws attention to the difference between the two sourcing types. This includes the pros and cons of using single sourcing along with the pros and cons for multi-sourcing. The report then evaluates how these differences have occurred in the real world companies.

The report later concludes that multi-sourcing and single sourcing are different from one another since they have their own respective advantages and disadvantages. Thus, single sourcing could be ideal for some companies while multi-sourcing could be ideal for other companies.

The report also describes the proposal of 2 recommendations towards this topic. The recommendations include risk mitigation strategies and governance design. These recommendations would allow companies and suppliers to mitigate potential threats in both single sourcing and multi-sourcing.

Discussion

 

4.1 Single Sourcing

Single sourcing is defined as the practice of using one supply source without competitive bidding source for justifiable reasons (BusinessDictionary 2019). In short, single sourcing generally refers to businesses utilising only one supply source. Contradictory to sole sourcing, single sourcing occurs when more than one supplier or distributor for a product exists in the market but one of them happened to produce a product with a specific feature which the company wanted. For instance, should a hospital chooses to purchase only wheelchairs with tilt and recliner feature from a wheelchair supplier with that specific feature rather than other wheelchair suppliers, then that would be classified as single sourcing (Quain 2018). Single sourcing is often used in situations for the purpose of reducing material costs since placing all purchasing requirements through only a single supplier often makes it possible to create better negotiation regarding purchasing conditions (Quain 2018).

There are justifiable reasons for single sourcing rather than multiple sourcing. Among them is the benefit of long term relationship. Single sourcing is simple in terms of establishing and maintaining relationships, considering that there is only one supplier for the company to collaborate with. It enables companies to create a partnership with their suppliers which improves cooperation and shared benefits (Rongala 2015). This would create higher levels of trust which also leads to reduction in risk of opportunistic behaviours from either buyers or sellers. Opportunistic behaviours could place on either sides at a disadvantage and preventing it helps to prosper the buyer-seller relationship (Rongala 2015). Plus, single sourcing is capable of lowering the purchase price from the company’s side. This is due to the supplier’s knowledge of understanding its manufacturing process for its respective buyer from their singular long term relationship. Thus, this would result in reduced production cost (Rongala 2015). Also, the said relationship could potentially enable suppliers to largely commit their investments in new facilities and technology in order to provide numerous exceptional quality of end products (Dawson Consulting 2018).

An example of a successful single sourcing approach from a company would be the Beazer Homes in the United States. The company decided to name Kwikset as its single supplier of door hardwares and entry devices for all of its new constructions (Dawson Consulting 2018). The representatives of Beazer believed that the sourcing decision would benefit the company in terms of contribution to successful cost reduction and supply chain optimisation (Dawson Consulting 2018). Another example of a successful company that uses this approach would be Toshiba. Toshiba Electronics made a decision regarding a single sourcing contract with Asyst Technologies Inc. for the production of its 300mm fab in Oita, Japan (Dawson Consulting 2018). This decision benefits Toshiba Electronics as it enables possible streamlined training and reduction in downtime and inefficiencies from any interoperability issues (Dawson Consulting 2018).

 

Despite its beneficial reasons, single sourcing does have its downsides if not carefully managed. As single sourcing enables higher levels of trust between buyers and sellers, this would also create a greater dependency among one another (Nelson 2013). Greater dependency would also mean that there would be less room for either buyers or sellers to negotiate for better price of the products. Plus, companies that use single sourcing do not have any alternative sources to help mitigate the uncertainties which would likely lead to an increase in supply chain vulnerability to disruptions, especially asset specific products (Nelson 2013). The lack of competitive bidding for the supplier’s side also enforces the suppliers or vendors to specialize in certain niches for their products or services which might cause significant fluctuations in their other products or services.

An example of a company that suffered the risks of single sourcing is the car company, Ford. During the year 1998, supply issues at Ford triggered a three-day shutdown of Fiesta and Puma manufacturing facilities in Cologne and Dagenham, Germany (Dawson Consulting 2018). The cause of the supply issue was from a computer glitch at Ford’s supplier of door and trunk latches. Those three days had cost Ford an approximation of 70 million pounds in labor costs along with an estimated production of 7000 vehicles (Dawson Consulting 2018).

As business organization’s operations become complex, it is quite unlikely that a single supplier or vendor can meet their multiple needs. With the illustrated examples of the companies that use single sourcing, it is highly recommended that companies should have detailed analysis of their costs and benefits in single sourcing decisions.

4.2 Multiple Sourcing

 

Multiple sourcing is defined as the purchase of individual items used to create a product from multiple different providers (BusinessDictionary 2019). In contrast to single sourcing, multiple sourcing basically means that businesses rely on two or more suppliers. A common example of multi-sourcing would be a supermarket company such as Coles that usually have one or more suppliers for most products, especially food and sanitary products. Multi-sourcing is often used by small and medium businesses unless single sourcing outweighs it in terms of advantages (Pellegrino et al. 2010).

In comparison to single sourcing, multiple sourcing has its own advantages. Firstly, multiple sourcing enables companies to have reduced risk of uncertainties (Pellegrino et al. 2010). Unlike single sourcing, multiple sourcing prevents unexpected events that could potentially create unnecessary liabilities. Instead, the companies could utilise alternative supply sources of materials (Pellegrino et al. 2010). This would allow multi-sourcing companies to be more flexible, less dependent on one specific supplier than single sourcing and have at least another supplier to fall back on. Moreover, multi-sourcing enables companies to gain better quality and price from suppliers. This is because multi-sourcing creates an increase in competitive bidding among suppliers which would lead to opportunities for the companies to take advantage of, depending on their importance to their suppliers (Pellegrino et al. 2010). Plus, demand fluctuations can become more manageable due to the choice of suppliers which the companies could choose from, enabling companies to adjust their order volumes (Pellegrino et al. 2010). In addition to that, multi-sourcing could increase their capabilities to bypass and solve supply disruptions which reduces any unnecessary cost (Pellegrino et al. 2010)s.

An example of a successful company using multi-sourcing is Biogen. Biogen chose to change from a single sourcing to multi-sourcing for specific materials following a cataclysmic arrangement of regular occurrences in 2017 (Dawson Consulting 2018). In spite of having a propelled procedure for store network hazard the executives, Biogen had a few near disasters when Hurricanes Harvey, Irma, and Maria, alongside a quake in Mexico, took steps to disturb providers' generation, and on account of Maria, really did as such (Dawson Consulting 2018). Biogen subsequently execute quick responses to stop its productions at Puerto Rican suppliers’ facilities which leads to Biogen perceiving the need of alternative sources to proceed (Dawson Consulting 2018). Consequently, Biogen started multi-sourcing off-the-shelf parts, replacing its initial strategy to single source exceptionally customised items (Dawson Consulting 2018).

While it is beneficial to use multi-sourcing, there are disadvantages when dealing with a multitude of suppliers if behaviour of sellers and buyers is not managed properly. The suppliers would have lesser efforts in item productions that match the companies’ requirements (Pellegrino et al. 2010). Unlike single sourcing, multi-sourcing does not solely rely upon a specific supplier which would potentially lead to suppliers having less time and effort invested  for companies’ ideal end product. Also, multi-sourcing could lead to higher costs for the buyers. Companies or buyers have to deal with a great number of order volumes and records. This is because lower amount of order volumes would mean lower bargaining power plus the competition between suppliers may not be enough to generate an equivalent value of cost savings as volume leveraging (Pellegrino et al. 2010). Moreover, companies have to deal with overhead involved in management, contract negotiation and process execution especially if they are dealing with numerous suppliers (Pellegrino et al. 2010).

An example of an industry that faced with the multi-sourcing risk is a textile industry. If the business purchases the “same” fabric from more than one supplier, then maybe as upholstery for furniture business, it is quite likely that there will be certain differences between the said suppliers’ products. It could be a slight change in terms of texture, colour and fabric rolls’ dimensions (Dawson Consulting 2018). In such circumstances, the business should be more cautious about maintaining consistency in quality, by verifying for instance, that the fabrics from two or more suppliers are not utilised onto a single piece of furniture (Dawson Consulting 2018). However, with a single supplier, production is simplified and quality control is rather easier unlike multi-sourcing. This underlines how use of multiple suppliers could create complexity to business processes along with the pricing and supply chain management.

5. Conclusion

 

In conclusion, single sourcing is a sourcing type that involves a single supplier while multiple sourcing is a sourcing type that involves two or more suppliers. There are many positive effects associated with both single sourcing and multi-sourcing, along with several particular risks that is worth considering. Single sourcing has high indirect costs and is risky due to its dependency on either the buyer or seller. As for multiple sourcing, it has lower indirect costs and is flexible to uncertain events as buyers rely on more than one sellers. Plus, this would significantly impact on the buyers (Pellegrino et al. 2010). These two types of sourcing covered in this report; single sourcing and multiple sourcing is dependent on the companies and their suppliers as both sourcing types have their pros and cons. While multi-sourcing outweighs single sourcing in terms of benefits and risks, single sourcing can work out effectively if the company or business is well aware of its supplier in terms of its strengths and weaknesses.

6. Recommendations

As this report outlined the sourcing types coupled with their pros and cons, it is safe to say that dealing with sourcing is challenging for businesses in terms of decision making and future planning. However, there are 2 proposed recommendations that could potentially overcome the problems of sourcing.

6.1 Risk Mitigation Tactics

There are two risk mitigation tactics that companies could use; process mapping and seeking out their suppliers for their request for proposal. Process mapping refers to tasks involving the definition of business entities, their roles, types of standard procedures needed to be completed and their interpretation on a successful business process (Barstow n.d.). In other words, it is planning and managing tactic which helps to clarify the flow of business processes. With that said, it could potentially help companies and suppliers in terms of their sourcing issue. Companies should create a process map for each supplier and examine each step in the process for redundancies, room for errors to occur or any potential bottlenecks (Barstow n.d.). The companies could then consider their corrective actions to fix or improve their business process and proceed to the next issue. Generally, companies should have continuous improvement in process within the single sourced relationship to maintain a transparent communication with suppliers (Barstow n.d.). The other tactic is that companies could ask the suppliers to provide their specific ranking criteria used within the companies themselves. As part of the assessment, companies could ask vendors or suppliers to provide their risk mitigation strategies (Barstow n.d.). No company can foresee the future, but the degree to which a supplier is prepared to correct the problem can help to select the company with the lowest risk (Barstow n.d.).

6.2 Governance Design

 

Governance traditionally involves around separate contract managers that are responsible for their siloed arrangements who are incentivised to advocate their "own" suppliers. A reasonable holistic approach to governance is needed in a multi-sourcing environment. This would require an integrated common governance process that works across the distinct supplier contracts with reports, reviews, joint meetings along with standardised processes and its documentation (Sumroy et al. 2016). Another requirement would be trust whereby companies must create and enforce trust by abandoning any opaque strategies which are occasionally used to pit their suppliers against one another (Sumroy et al. 2016). Although it is beneficial for multi-sourcing to retain the competitive tension among suppliers, it is important that the suppliers cooperate. Though as competitors, it is highly unlikely for them to volunteer themselves on this unless the company or buyer could create an open environment for them to do so. Another tactic is to provide the suppliers with sufficient comfort in terms of intellectual property protection and information confidentiality. Companies should share their perspectives with their suppliers regarding the service issues and methods of obtaining efficiencies and innovation (Sumroy et al. 2016). For instance, the confidentiality arrangements should create a balance in the distinct needs among the parties as it enables cooperative discussions to occur without allowing any disclosed information in those discussions to be used for any other purposes, specifically with other clients (Sumroy et al. 2016).

7. References

8. Appendices

 

Figure 1: Sources of Supply Chain Risk

(Nelson 2013)

Figure 2: Results of the Hackett Group's 2012 Key Issue Study

(Nelson 2013)

Figure 3: Dependency Matrix

(Nelson 2013)

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