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In advanced flexible materials markets dual sourcing is frequently discussed and commonly required, but how well it is executed is often times a different story. Most companies, even suppliers, in technical markets like medical device manufacturing and biotech manufacturing understand this need, but struggle to implement it well. Below are five cornerstones of dual sourcing that will bolster your implementation of this strategy.
Dual sourcing can be a win-win solution if you work together with your supplier and clearly explain the requirement and its purpose. Ultimately, a supply chain that is dual sourced positions your company well to mitigate global risks and achieve supply chain stability. Here are five cornerstones to help implement a strong dual sourcing strategy.
Focus on Longevity & Transparency
If you are implementing a dual sourcing strategy from scratch the first step is to take a step back and ensure a few basic components of a strong supply chain relationship are already in place. Dual sourcing can have a negative connotation that surrounds it because it can mean lower volumes and more competitive pressures on things like pricing. As a result, how and when you engage a supplier is of critical importance.
Start by focusing on your strongest supply chain relationships. By their nature, these relationships should already have a tone and cadence that is strategic. As a result, the relationship is capable of working collaboratively towards common goals - like improving efficiencies, mitigating risk, lowering price, and growing. In other words, longevity and transparency are built in, but what does that look like?
For starters, a strong supply chain relationship should already have an annual cycle where quality agreements, supply agreements, pricing, risk, sustainability, among other things are addressed. The conversation is focused on building a strong relationship over the long run. At Boyd Biomedical, supply chains that have this tone receive a lot of attention from us. We typically meet face to face at least once quarterly and focus our annual dialogue around an annual review meeting in the fourth quarter each year.
Transparency is an important prerequisite, and also a great gauge of the quality of your relationship. If either party is resistant to sharing information - about capacity, quality, innovation, etc. you should be skeptical. Strong supply chains have transparency, and those that don't are weakened as a result.
- How can you deal with demand planning if your supplier won't discuss capacity?
- How can you develop new products if your supplier isn't aware of the changing requirements?
- How can a supplier address a quality problem if they don't know all the potential contributing factors?
Transparency is a must for a strong supply chain relationship, and when the discussion of dual sourcing comes up it will be a helpful participant. It helps to lead by example - sign a non-disclosure agreement - and then be transparent about your business. If your partner doesn't reciprocate, re-evaluate the relationship. This isn't always the easiest characteristic to develop in a relationship, but when you do the benefits speak for themselves.
Make Dual Sourcing Part of Your Supply Agreement
Supply agreements make supply chains for advanced flexible materials stronger by being straight forward and secure. Typically, you can't execute a supply agreement for everything you purchase because of volume or other commercial limitations. Nonetheless, a supply chain that touches a significant portion of your company's revenue should be secure, and supply agreements are a great way to accomplish that.
Adding a dual sourcing requirement to your supply agreement is a great way to formalize this strategy. The degree of implementation is up to you. A more simplistic approach would be to simply identify and call out the second source in the appendix of your supply agreement - essentially recognizing the risk and identifying the dual source. A more in-depth approach would be to require a certain portion of your volume actually be supplied from the dual source. Sometimes companies will still purchase everything through their main supplier, but this formality adds another degree of supply chain security.
Require Your Supplier to Help
Whether or not you chose to execute a supply agreement with your supplier, you can require them to support your dual sourcing initiative directly. In many cases, suppliers are well aware of their direct competition, so engaging with them and asking for their support can be a very efficient and effective way to tackle this. It can also cause friction in your relationship so your approach to this should be well executed.
Starting this dialogue off on the right foot is important to make sure you have a productive discussion. Here are a few ideas
- Explain the Issue More often than not if you communicate well with suppliers they will support your efforts. Explain the initiative clearly with concrete reasons and objectives.
- Know Your Value Don't just assume your supplier will cooperate. You need to know what you are worth to them and then negotiate appropriately. If you aren't worth much, and you apply too much pressure, it could end badly for you.
- Talk Upside Highlight potential upside for increased volume or new business opportunities. Suppliers want to grow just as badly as you do so use this as a way to find common ground.
Your current supplier is one of the best resources you have in a dual sourcing initiative. Try to engage them in the process by asking for help, communicating effectively, and offering them something in return. Successfully soliciting their help will make your dual sourcing initiative more effective and more efficient.
Commercialize Your Second Source
It's always a nice feeling to be recognized as a second source of supply, particularly in technical markets with long sales cycles and high barriers to entry - like medical device manufacturing or biotech manufacturing. But, there is nothing worse than sitting on the bench.
The most effective way (hands down) to maintain a dual source is to commercially engage them. There are a lot of short term strategies to identify and declare a second source - you can promise involvement in new projects or potential to pick up volume over time but if those things don't happen your second source will eventually lose interest in you. Maintaining your dual source in the long run means engaging them commercially. There's no way around it, but there are a few ways to do it.
One is to engage them commercially on something else. If you are lucky enough to have this kind of synergy in your supply chain it is a very effective way to maintain a dual source. Keep supplier A for product A and supplier B for product B, but identify them each as the dual source for the other.
A second is to simply engage two suppliers on one product. You can split the volume evenly between them or skew it so one supplier is dominant. We have also seen circumstances where the second source supplies material to the first source who then supplies the customer with both - it is a little less traditional, but it can work.
Make it an Internal Requirement
The final piece of the puzzle is to institutionalize dual sourcing by making it mandatory within your organization. Standardize the practice and push it throughout the company. This is certainly a more bureaucratic approach but it is effective and done frequently by larger organizations.
Institutionalizing dual sourcing is also the best way for your organization to perfect the practice. With different teams implementing the strategy on a variety of supply chains, the organization can better understand effective and ineffective strategies. Creating a feedback loop and using good documentation practices will help you refine the practice over time.
As this occurs your team will begin to implement the strategy more efficiently and effectively. Suppliers will also begin to accept this practice as part of the way your company works, becoming less resistant to it, and finding their own ways to navigate through it. Ultimately, an institutionalized dual sourcing strategy in your business can function smoothly and add a great deal to your overall risk mitigation strategy.
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