Multi Sourcing vs Single Sourcing

Samarth Gulati 91047Shefali Srivastava 91050

Problems in Supply Chain

• Disruptions: natural disasters, strikes, terrorism attacks

• Uncertainty• Vulnerability• Complexity

What should be done

• Build a resilient supply chain• Prepare the firm against disruption• respond to uncertainty effectively• secure the supply-chain

Single Sourcing

Multiple Sourcing

CRITICAL/BOTTLENECK

Unique SpecificationSubstitution DifficultUsage fluctuates and

unpredictable

STRATEGICAvailability is essentialSupplier Technology

essentialSubstitution Difficult

NON CRITICAL/SPOTCommodity type itemCompetitive marketSubstitution possible

LEVERAGEUnit cost

management important

Competitive Supply market

LOW HIGH

HIGH

LOW

SUPP

LY R

ISK

FINANCIAL IMPORTANCE

Need for Single Sourcing

Better Pricing through higher

volumes

Better quality through

continuous improvements

Lower costs incurred to source,

process and inspect

Streamline the procedure

Build stronger and longer-term relationships

Reduce Inventory and Lead Time

Need for Multiple Sourcing

Protect buyer during times of shortage, strikes and other

emergencies

Maintain a Back up source Maintain competition

Avoid complacency on part of single supplier

Meet local requirements for international

manufacturing locations

When technology path is uncertain

Multiple Sourcing vs Single Sourcing

PRICE INDIRECT COSTS

Multiple Suppliers

PRICE INDIRECT COSTS

Single Supplier

Ford Case

In 1998, supply problems at Ford resulted in the temporary, three-day shutdown of the Fiesta and Puma manufacturing facilities in Cologne and Dagenham, Germany.

The source of the supply problem was a computer glitch at Ford’s provider of door and trunk latches.

Those three days cost Ford approximately £70 million in labour costs and the production of about 7000 vehicles.

Ericsson vs Nokia• Philips suffered a fire in its plant of Alburque in march 2000.• Philips’s site became unable to produce the computer chips

that its customers, Nokia and Ericson, needed to produce mobile phone handsets.

• Nokia realized very early that there was a problem in the production of chips, and pressured Philips to reroute capacity.

• Ericsson detected the problem slowly and when it turned to Philips, it was too late as Nokia had already claimed all the production.

• The damages were very important for Ericsson as Philips was its only supplier:

• Ericsson lost $1.8B, and almost 4% of market share to Nokia.

Conclusion• high indirect costs• involvement with a single supplier • Risky• Eg- JIT

Single Sourcing

• low indirect sourcing costs • competitive bidding • Flexible• Eg- for stategic items

Multiple Sourcing