There are very good arguments for using a single source of supply and there are also very good arguments about using more than one supplier. Our previous articles have discussed the pros and cons of each policy, but perhaps more needs to be said about the advantages of having a second source. The idea of the old adage, "Never put all your eggs in one basket" can be applied to putting all your particular requirements for an item coming from one supplier. If that supplier fails for any reason whatsoever satisfying the need for that particular material may be a big problem.

There is little or no risk of purchasing standard products, or what is often referred to as shelf-items, from a single source. That is especially true when the same product is sold by many suppliers. However, buying proprietary items from a single source is another matter.

Buyers purchase from a single source to obtain the economies of scale, to avoid paying for any required duplicate tooling, and to reduce administrative costs, but they are then dependent on that supplier. They trust that supplies will not be curtailed by a strike or that the supplier will not go out of business. However, a single supplier is usually aware of the dependency and is in a strong negotiating position in the short-run to raise prices or impose other unfavorable terms for the buyer.

A buyer may minimize the single source risk by having a well-qualified alternative supplier waiting in the wings. This would be a supplier who has been pre-qualified as a reliable vendor. Another possibility is to alternate between two suppliers who have the necessary tooling and capabilities or give one supplier a major portion of the requirements, perhaps as much as ninety percent while giving the alternate supplier the balance. This will obtain the lower price for the high volume from the major source, but will probably mean paying a premium for the supplier with the low volume.

A solution to the duplicate tooling problem is to make sure the buying organization owns the tooling used by the primary supplier and that the tooling can fit the equipment of an alternate source if and when needed.