Managing a Dual-Sourcing Strategy

Within Purchasing groups there are always 2 topics of debate.

One, Centralized or De-Centralized Purchasing? we will leave this topic for discussion at a later date.

More common, is whether a product or service should be dual sourced. There are strong reasons in reality and philosophically to support either strategy. Before we explore the merits of both let us first place the provider in the proper context.

If working with a Vendor, they typically are providing a commodity item with little to now IP (Intellectual Property). These items can be sourced from multiple sources so you are judging based on quality and price. For example you need Silicone Sealant you can either purchase it from Home Depot or Lowes. It will most likely come from the same supplier, have the same specifications so you will source based on price and location.

Procuring from a Supplier is a much more complex relationship. A Supplier typically is part of your Success Strategy and often can include Intellectual Property, it could also include special Tooling, Jigs and Fixtures. With a Supplier, Dual Sourcing may be the driver to protect your capability to produce.

Dual Sourcing a part coming from a Supplier requires a lot of thought before making a conscious decision.

Let me start with a personal experience. We sourced a plastic injection moulded part which required a dual durometer type of plastic, well that was tough enough but not the challenge. To make life a whole bunch more challenging the part also required a metal insert . It was a stamped metal component and due to the anticipated volume the team felt that we should make two stamping tools and have the part dual sourced. Capacity concern averted. Maybe ....

Let us follow the traditional rational and academic approach toward justifying dual sourcing and how we got bitten ... bitten hard!!

One more supplier can either be insurance or extra work. The difference lies in how you coordinate. Learn how to turn dual sourcing from a cost center into a predictable resilience tool.

Key Highlights

• Dual sourcing reduces dependency on single suppliers, increasing flexibility and minimizing production outages.

• Standardizing processes and communication helps maintain quality and reduces manual management efforts.

• Leveraging technology like APS and IoT enhances visibility, automates decision-making and lowers operational costs.

• Continuous performance monitoring with shared metrics ensures supplier accountability and early problem detection.

• Incorporating regionalization, ESG criteria and AI tools future-proofs sourcing strategies against geopolitical and logistical risks.

• Dual Sourcing makes sense if it is a vulnerable supplied component steeped with a lot of IP and you are dual sourcing as an attribute of your Disaster Recovery Plan.

Today’s volatile market has pushed supply chain resilience to the top of every operation leader's agenda. Dual sourcing—the practice of qualifying two suppliers for the same part or material—is one of the most crucial tools for avoiding single-point failures. Integrating another vendor can add flexibility. With disciplined supplier selection and efficient processes, dual sourcing can be a solution for improving continuity without incurring excessive overhead.

Regarding our metal part read the above paragraph very carefully, then read it again. To dual source it is imperative that you own the process. I mean really own the process down to the minutely details. we did not and we got bitten, really bitten. Well we thought we had but turns out we did not go deep enough.

Dual Sourcing Benefits and Risks

Dual sourcing provides an important safety net, but it can still be costly. The upsides include:

• Reduced supplier dependency: Having a second source minimizes the likelihood that an outage will stop production. As a result, you keep customers happy and avoid expensive rush fixes.

• Increased negotiation leverage: When suppliers know they are not the only game in town, prices and lead-time promises become more negotiable, which can lower costs.

• Enhanced flexibility during disruptions: If a plant or shipping lane is delayed, the alternate supplier can pick up volume and help you maintain service levels without costly safety stock.

The challenges of dual sourcing include:

• Increased administrative workload: Managing contracts, forecasts and quality checks for two suppliers takes time. Plus, without streamlined processes, that time becomes recurring overhead.

• Risk of quality and communication inconsistencies: Different processes and standards can cause variability. That forces extra inspection or rework unless you standardize requirements upfront.

• Potential for diluted supplier relationships and higher management costs: Splitting volume can weaken a supplier’s incentive to invest in your business, which means you may need stronger governance or small incentives to keep performance high.

• Hedging of Supplier Intellectual Property: All suppliers have their own little tips and tricks to insure they are competitive. Exposing or potentially sharing them with another supplier dilutes the supplier's competitive capability. My experience is when you dual source you run a very high risk of your supplier loosing passion and commitment to your success as they migrate to just supplying you a widget.

Despite its drawbacks, many companies see more growth than setbacks with dual sourcing. McKinsey’s research indicates that 73% of survey respondents are experiencing progress with this strategy. They capture resilience gains without letting overhead spiral by carefully weighing benefits against risks and balancing supplier selection, governance and streamlined processes.

Here the premise is that the dual sourcing strategy is divided between 2 different companies. But you can accomplish dual sourcing in another manner if your supplier is large enough to have multiple sites you can source parts from separate locations of the supplier. You can still run into some I.P. Challenges because even within one company site General Managers are highly competitive.

Strategy for Lean Dual-Sourcing Management

Successfully managing dual sourcing without increasing overhead requires building repeatable systems that minimize the need for manual tasks.

1. Build a Strong Foundation with Strategic Supplier Selection and Contracting

When firms pick a second source, they should evaluate financial stability, quality systems, spare capacity and cultural fit. Suppliers with stable finances and repeatable quality processes are less likely to miss shipments or deliver inconsistent parts, lowering the chances of last-minute fixes and reducing the risk of dual sourcing becoming a recurring time sink.

When you are ready to sign up with a partner, the contract must set shared expectations. Ensuring tighter, simpler agreements is key because they can reduce day-to-day handholding and minimize costly firefighting when issues arise.

For instance, a contract should include volume triggers and metrics to serve as a reference for decision-making. These rules can reduce back-and-forth negotiations and keep responses seamless. With fewer manual processes, you incur lower recurring management costs and have a better chance of capturing a financial upside. Research shows that better supplier coordination can translate into a 6% profit uplift on average.

2. Streamline Operations Through Standardization and Communication

Standardize routines to ensure consistent performance across all suppliers. Start by creating a set of technical specifications and uniform quality control checklists that all suppliers will use. It is also important to standardize ordering, invoicing and packaging rules because it keeps information the same across the board and reduces manual handoffs. Fewer processes mean fewer errors and faster onboarding for new suppliers.

Centralize how your team communicates with suppliers so that messages are transmitted cleanly and are only sent once. This tactic could involve assigning a single point of contact for each supplier or using a shared portal. Clear communication reduces duplicate work, shortens response times and keeps day-to-day management light.

3. Leverage Technology to Automate and Optimize

Technology enables teams to handle the additional coordination required by a second supplier without requiring more personnel. For example, advanced planning and scheduling (APS) systems move planning off spreadsheets and into rule-based engines that balance demand, capacity and lead times.

Industry reports found that 48% of manufacturing companies plan to invest in these tools due to their ability to optimize allocation and scheduling automatically. APS handles the obvious decisions and surfaces only true exceptions for humans to review, shortening decision cycles and enabling greater flexibility with other suppliers.

Another technology that significantly contributes to dual sourcing is the Internet of Things (IoT). From integrated sensors to inventory dashboards, IoT provides timely data and real-time visibility, replacing guesswork. Poor inventory visibility is expensive. Estimates place inventory-related losses at $1.1 trillion globally, and feeding accurate stock, transit and lead time data into your planning stack prevents artificial shortages and emergency purchases.

Automated alerts for low stock or delayed transit move your team from constant status checks to exception-based actions. This enhanced visibility reduces safety-stock needs, lowering the incremental cost of running two suppliers.

4. Drive Accountability with Continuous Performance Monitoring

Pick a set of measurables such as on-time delivery, defect rate, lead time and total landed cost and make them visible in a shared dashboard. These metrics should be simple and consistent across suppliers, allowing you to compare performance and focus on metrics that minimize downstream impact. This data is essential for surfacing problems early and allowing you to focus on improvement efforts where they lower costs or reduce risk.

Sound good Eh ... Our metal part got plagued with something outside of our traditional performance monitoring. We got bitten real bad ....

Futureproofing Your Sourcing Strategy

Many companies are moving toward regionalization, opting for closer suppliers to mitigate geopolitical and logistical risks. One survey found that 97% of companies have incorporated regionalization into their resilience plans, as it reduces lead times and enables faster contingency swaps.

Dual Sourcing may have other strategies. I recall early in my career that GM mandated that we have a back-up plan to provide a critical part to them. We were providing them a "Lost Foam Casting" for one their engine plants. I proposed activating an additional press in another building and that we could test provision twice per year ... sounded like a great contingency plan until GM appeared and asked one question, If your primary plant were to explode how far would the effects of the explosion make an impact? Yup, our contingency plan was way too close to the primary source.

In today's world of uncertain Tariff applications it may be prudent to dual source from different countries and perhaps even different continents.

Next, make environmental, social and governance (ESG) criteria part of your supplier scorecard. Metrics like emissions, waste, labor standards and traceability are tied to brand reputation and customer expectations. Suppliers that meet ESG standards lower compliance and reputational risk.

Finally, treat predictive analytics and artificial intelligence (AI) as tools to accelerate decision-making. Models that combine demand, weather, logistics indicators and supplier performance can flag likely disruptions earlier and suggest allocation changes. Consider proactively shifting volumes and scale your sourcing strategy.

Can Dual-Sourcing Work?

Dual sourcing can deliver true supply chain resilience, but only when you treat it as a systemic problem. When you combine several effective tactics into a single strategy, your team can capture redundancy without increasing daily workload. Balance the trade-offs deliberately and you’ll get the continuity you need with overhead that stays predictable.

Dual Sourcing makes a ton of sense if you feel vulnerable should your supply chain become disrupted. It also makes sense if you are planning a Disaster Recovery Plan.

TEST, TEST and TEST your dual sources before committing.

For our wonderful metal part we did all of the right things. We followed our APQP religiously. We created our FMEA and tested them. We had our Control Plans, heck the parts even passed through our PPAP and PSO process gates. All passed great, we were elated and awarded the contracts and negotiated the split in supply. Our supply facilities were located in two different geographical locations. On paper we looked Golden and we were very happy with our decision and plan ... until.

As hoped , demand for the product took off. Market acceptance was greater than anticipated. No worries we had incorporated a contingent trigger within our APQP to satisfy the injection moulding capacity. Of course being dual sourced with the metal part, this was going to be a walk in the park.

Parts arrived from both sources and being exactly the same we were not too disciplined about keeping them separated. Slowly we started experiencing moulding problems, the metal parts were not inserting into the mould, the metal parts were not seating properly before being over-moulded ... ultimately our moulding process not only stopped being predictable ... it just simply stopped, period ... Big Problem.

The smartest formal Problem solvers converged and investigated diligently for days, weeks and even a couple of months until the root cause was finally identified. We had verified the part specifications and adherence to tolerances by both suppliers were well within our specification and tolerances. We double checked the steel source, since we purchased the steel on behalf of both suppliers ... good.

Eventually what we found is that our two suppliers were using a different lubricant during the stamping process. The one lubricant had a lower viscosity and as a result was a bit more sticky. Ultimately, we helped a student earn enough money to pay their tuition since all of our IDC components had to be washed in a de-greaser before being allowed into production.

The suppliers were initially reluctant to tell us what lubricant they were using, they felt it was their slight competitive edge.

Dual Sourcing can work, but you really need to worn the process at your supplier (Well you should anyway for any critical sourced component either single, dual or multiple). Test your process in a production environment , most likely you will have missed something. We got bitten by an "Operating Supply", something we had never even considered.

Ultimately I prefer to single source since I have found my suppliers to be more aggressive with the application of their Intellectual Property and I tend to get preferential treatment, they love beating out their competitors.

But if must or need to Dual Source, do it carefully run a dual APQP and hopefully you will not get bitten.