Benefits and Risks of Single Sourcing

For many companies, sourcing decisions can be some of the most strategic in the organization. Single sourcing has become increasingly practiced today. The decision to sole source an item, particularly for manufacturing has many benefits and risks to be considered.

Benefits
Sole sourcing provides multiple benefits for an organization. Among these are reductions in product variation, training required, and cost of quality (1). The companies listed below highlight their reasoning for going with a single provider.

Beazer Homes (2)
Beazer Homes USA recently named Kwikset as the sole supplier of hardware and entry devices for all new construction. Beazer representatives felt that the sourcing decision would benefit the company in two ways:

• It “reflects Beazer Homes’ commitment to providing its customers with an exceptional experience,” by using a brand known for producing quality products

• The sole sourcing helps to optimize the company’s supply chain, lower production costs and product better value for shareholders and customers.

Toshiba (3)
Companies occasionally search for one source for IT solutions. Toshiba Electronics decided on a single sourcing arrangement with Asyst Technologies Inc. for fab production in its new 300mm fab in Oita, Japan. This decision was based on a few considerations:

• Streamlined training would be possible.

• Downtime and inefficiencies caused by interoperability issues would be reduced

Risks
Depending one a single source for supply has risks as well including: failures at the supplier, and greater supplier power.

Ford (4)
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 labor costs and the production of about 7000 vehicles.

Peugeot (5)
While not a recent situation, a discussion of the reliance Peugeot has on its parts supplier, Bertrand Faure-ECIA is relevant when considering the risks of single sourcing. Bertrand Faure-ECIA produces approximately 11% of Peugeot’s parts, in francs. Additionally, the manufacturing of seats is entirely dependent on the supplier. Should a shut down occur, the company would be left with no seats for its vehicles.

Peugeot, however, considered risk in its selection of a single supplier. While a situation has not occurred yet, other options are looked at and a different sourcing plan may be implemented.

As the examples above illustrate, a detailed analysis of the cost and benefits is necessary in strategic sourcing decisions. Reevaluation of these strategies, as was the case with Peugeot, is also necessary along the way.

References:

(1) Thakur, Dipak. “9 Reasons to Switch to a Single Supplier System.” Quality Progress. March 2002.

(2) Anonymous. “Kwikset Named as Exclusive Door Hardware Supplier to Beazer Homes USA, Inc.” Lexis-Nexis. July 2004.

(3) Anonymous. “Toshiba Installs Asyst Automation Tools in 300mm Fab.” Electronic News (North America). June 2004.

(4) “Supply Failure Won’t Change Ford Policy.” Professional Engineering. June 1998.

(5) Carreyrou, John. “Peugeot Has Reason to Watch GM Strike