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.

Regards,

Paresh