When to Use Several Suppliers for the Same Product
The virtues of single, stable and trusted suppliers are well known in industry. It is theoretically the ideal scenario for every manufacturer, but is it always possible or does it always make technical and business sense? Of course not. The cases where two or more suppliers are used for the same product or families of similar products go beyond the exception scenario and many times represent the actively pursued norm. I should point out from the start that larger product volumes tend to increase the likelihood of having two or more suppliers for a single product or family of products. Below are some factors that will likely spark a strategy in support of having multiple suppliers.
Large order quantities might be impossible for a single supplier to handle. No quality issues, no technical issues, just simple numbers. In this case, the power of at least two suppliers must be combined in order to guarantee enough incoming components or sub-assemblies. In many instances manufacturers grow at a much quicker pace than their suppliers, in which case on-boarding additional suppliers for the same product is a natural development. Massive worldwide new product launches are typical cases where multiple suppliers are brought in to satisfy high demand.
Some products commonly demand specialized components that might not be available from established suppliers. To satisfy special technical needs, additional (and usually smaller) suppliers are brought into the supply chain. A common example is car models with non-standard 4x4 drive-trains or premium performance. The special components are usually sourced by specialized design agencies that will also take care of manufacturing and supply logistics.
Competition Between Suppliers
Using two or more suppliers for exactly the same component is a very common strategy for keeping the pressure at sky high levels for both quality and pricing. It can work wonders if used with a transparent purchasing strategy. However, this strategy always contains some risk of supplier alienation, especially when pricing is decoupled from quality and delivery reliability.
As analyzed in a previous post, there are cases when changing suppliers becomes a necessity. In this kind of situation, jumping ship without hard data can be as equally risky as staying in the current and problematic supplier relationship. Choosing to use many suppliers on a trial or permanent basis is then a very beneficial strategy that keeps options open and has the potential to iron out persistent supplier issues.
Geographic Coverage & Trade Legislation
This is quite a common scenario for large volume multinationals. When transport costs and time spent in transport between continents are prohibitive, or when trade taxes inflate costs, it is pragmatic to split production and suppliers by continent, trade block or country. We do live in times where the production of new products is set up very fast and transport logistics are better than ever. In many cases however, sourcing locally and using several suppliers, this time by geography, is an unbeatable strategy.
The issue of supplier choice and numbers is always a very sensitive one. Whether decided on out of necessity or by active choice, retaining two or more suppliers for identical or similar products is generally considered as an act of "keeping more options open". Handled in exactly that way, it is a method that can lead to lower inventory, high quality standards and competitive pricing.