Supply chain breakdowns can paralyze your operations without warning. When parts don’t arrive or a key vendor suddenly can’t deliver, production comes to a halt, and so does your revenue. The traditional approach of relying on a single supplier for critical components is becoming too risky in today’s unpredictable business environment.
This ongoing uncertainty has prompted companies to accelerate their efforts with innovative sourcing strategies, such as dual sourcing. According to one McKinsey survey, 73% of respondents report making progress with dual-sourcing strategies.
Dual sourcing offers a practical solution by dividing your procurement between two vendors, creating a safety net against disruptions. Besides risk management, this approach can drive better pricing, quality improvements, and access to innovation.
This article will explain how dual sourcing works and why it may be a smart move for strengthening your supply chain.
What is Dual Sourcing?
Dual sourcing is a strategic sourcing strategy that involves purchasing the same materials, components, or services from two different suppliers, rather than relying solely on one. Essentially, you allocate your purchase orders among these suppliers based on specific factors such as capacity, reliability, pricing, and geographic location.
This approach differs from diversified sourcing, which might involve multiple suppliers for different components rather than the same item. At its core, dual sourcing is about creating planned redundancy.
You’re intentionally building flexibility into your supply chain to protect against disruptions that might affect a single supplier or region.
Dual sourcing is a standard practice in the following industries:
- Automotive: In the automotive industry, production lines are highly dependent on the timely delivery of parts. Using two suppliers ensures that if one faces delays or disruptions, the other can step in to keep production running smoothly.
- Electronics: Electronics manufacturers often require specialized components that are in high demand. Dual sourcing helps them avoid the risks associated with relying on a single supplier for critical components, such as semiconductors or circuit boards.
- Aerospace: Aerospace companies operate under long lead times and stringent safety standards. Dual sourcing helps them ensure that, even if one supplier faces issues, they can still meet stringent production and safety deadlines.
- Pharmaceuticals: Reliable supply chains are crucial for meeting regulatory requirements and addressing patient needs in the pharmaceutical industry. Dual sourcing mitigates risks such as raw material shortages or production disruptions, ensuring a steady supply of critical drugs.
- Consumer Goods: Customer demand in the consumer goods sector can fluctuate unpredictably. By dual sourcing, companies can better manage changes in demand and reduce the risk of stockouts or delays.
- Food and Beverages: The food and beverage industry often faces challenges with perishable goods and varying seasonal supply. Dual sourcing ensures that there is always a reliable backup source to prevent stock shortages and ensure uninterrupted production.
When to Use Dual Supply Sources Instead of One
A report by the U.S Chamber of Commerce revealed that 47% are struggling to keep up with customer demands due to supply chain issues. Needless to say, these disruptions result in heavy revenue losses.
These costly disruptions have prompted companies to diversify their supplier base, rather than relying on a single supplier.
While single sourcing can offer simplicity and volume discounts, the risks often outweigh these benefits. Below, we’ve outlined the specific scenarios where maintaining two sources makes more business sense.
1. When Critical Components Are Involved
When components are essential to your production process, dual sourcing becomes a necessity rather than a luxury. If a part represents a single point of failure for your entire operation, having a backup supplier prevents complete shutdowns of your operation.
This applies particularly to custom-made components with long lead times that can’t be quickly sourced elsewhere. For automotive manufacturers, electronic control units fall into this category. Without them, vehicles simply can’t be produced.
2. When You Need to Mitigate Market Volatility Risks
Industries facing significant price fluctuations benefit from maintaining multiple suppliers. When market conditions change rapidly, having relationships with suppliers in different regions or with different cost structures provides flexibility.
Energy companies, for example, maintain relationships with multiple fuel suppliers to protect against regional price spikes. Similarly, food processors maintain multiple sources for agricultural inputs, which are subject to seasonal or weather-related price fluctuations.
3. When You Need to Reduce Disaster Risk
Natural disasters, fires, and other catastrophic events can disable supplier facilities without warning. Companies with manufacturing in regions prone to specific risks should maintain geographic diversity in their supply base.
- Earthquakes and tsunamis (Pacific Rim suppliers)
- Hurricanes and flooding (Coastal facilities)
- Political unrest (Emerging markets)
- Infrastructure failures (Regions with aging facilities)
- Pandemic impacts (As demonstrated by COVID-19 disruptions)
4. When Supplier Reliability is Uncertain
Not all suppliers are equally reliable. Some might offer lower prices, but they often come with inconsistencies in delivery time or quality. By working with two suppliers, you can ensure that, even if one supplier struggles with performance, you have a backup to fulfill your needs. This approach reduces the impact of reliability issues.
5. When You Need to Secure Competitive Pricing
Dual sourcing helps ensure you aren’t overpaying, as it gives you more leverage in negotiations. If one supplier raises prices or fails to deliver according to the agreed-upon terms, having a second option allows you to seek better terms. This also encourages suppliers to remain competitive, which can lead to better deals for your business.
6. When You Need High-volume Purchase
For materials or components that you purchase in large quantities, dual sourcing helps ensure a consistent supply while maintaining competitive pricing. When volumes are substantial, you can split orders while still giving each supplier enough business to remain engaged and economical.
This approach works well for high-volume commodities, such as packaging materials, raw materials, and standard components, where multiple qualified suppliers exist in the market.
7. When You Need a Backup for Quality Control
When product quality directly impacts your brand reputation, having multiple suppliers creates healthy competition and provides quality comparison benchmarks. Medical device manufacturers, for example, maintain alternate suppliers for critical components to ensure consistent quality standards.
If one supplier’s quality begins to slip, orders can be shifted to the other while issues are addressed, thereby maintaining overall quality standards.
8. When You Are Facing Capacity Constraints
If your current supplier can’t meet your growing demand, dual sourcing offers an easy solution. By splitting your orders between two suppliers, you ensure that you can scale production as needed. This flexibility prevents bottlenecks and enables smoother operations, even during peak demand periods.
9. When Geographic Coverage is a Factor
When your supply chain crosses international borders, political tensions, trade disputes, or regulatory changes can disrupt supply overnight. Dual sourcing across different political jurisdictions provides insurance against these unpredictable events.
Electronics manufacturers learned this lesson when U.S.-China trade tensions affected the availability of components. Those with suppliers in multiple countries could adjust procurement strategies quickly, while single-source companies faced significant disruptions.
10. When You Have Innovation Requirements
For products where technology evolves rapidly, maintaining relationships with multiple suppliers keeps you connected to different innovation streams. This approach is particularly valuable in technology sectors where different suppliers may develop complementary or competing technologies.
Smartphone manufacturers, for example, often source display technologies from multiple vendors to stay current with the latest advances while ensuring sufficient supply.
Also read: Understanding the Importance and Basics of Strategic Sourcing
The Advantages of Dual Sourcing for Supply Chain Resilience
Implementing dual sourcing delivers multiple strategic advantages that strengthen your supply chain position. Beyond just risk reduction, this approach creates competitive benefits across operations, finance, and product development.
These benefits compound over time as supplier relationships mature and your procurement team gains expertise in managing multiple vendors.
Below are the major advantages that dual sourcing brings to your supply chain:
1. Reduced Lead Time
Dual sourcing enables businesses to reduce lead time by relying on two suppliers for the same goods or services. If one supplier faces delays, the other can step in to fulfill the order, ensuring that products reach customers on time.
This flexibility allows businesses to stay on track with tight production schedules and meet customer expectations even during times of disruption. By distributing orders, you prevent bottlenecks that could otherwise halt operations and delay product delivery.
2. Lower Switching Costs
Dual sourcing acts as an insurance mechanism, protecting you from future opportunism. When you work with a single supplier, they may take advantage of your reliance on them by raising prices or cutting corners.
Having a second supplier reduces this risk, allowing you to switch suppliers more easily if necessary, without facing major disruptions or costs.
3. Pricing Leverage
Maintaining multiple suppliers through dual sourcing helps create a competitive environment in which suppliers are motivated to continually improve their offerings. Multiple suppliers create natural price competition. This dynamic helps control costs and provides negotiating leverage during contract renewals.
These savings come not just from competitive bidding but from improved contract terms and conditions when suppliers know they aren’t your only option.
This also leads to a more reliable and consistent supply chain, as suppliers know they must perform at their best to maintain your business.
4. Geographic Diversification
Having suppliers in different geographic regions helps reduce risks associated with local disruptions. Whether it’s a natural disaster, political unrest, or supply chain interruptions in one area, the other supplier can continue to provide goods from a different location.
This geographic diversification ensures that your supply chain remains intact, regardless of regional developments.
5. Quality Improvements
Competition between suppliers often drives quality improvements. Vendors know you have alternatives and work harder to maintain standards.
Additionally, dual sourcing allows you to compare quality metrics directly between suppliers, creating benchmarks that help identify opportunities for improvement.
6. Improved Flexibility
Dual sourcing gives your business the flexibility to adapt to shifting market conditions or sudden changes in demand. With two suppliers, you can easily adjust production volumes between them based on factors such as pricing, availability, and delivery time.
This flexibility allows your company to respond swiftly to unexpected changes, ensuring that operations continue smoothly without unnecessary delays.
As we’ve seen, dual sourcing offers numerous advantages for enhancing supply chain resilience. However, to fully understand the impact of this strategy, it’s important to compare it with its counterpart, single sourcing.
By exploring the differences between the two approaches, you can better appreciate how dual sourcing addresses the risks and limitations of relying on a single supplier.
The Difference Between Single-Source and Dual-Sourcing Strategy
Single sourcing and dual sourcing represent fundamentally different procurement philosophies. Single sourcing concentrates volume with one vendor to maximize efficiency, while dual sourcing distributes orders across multiple suppliers to enhance reliability.
Let’s take a closer look at how these strategies compare in terms of risk, cost, and flexibility.
Aspect | Single Sourcing | Dual Sourcing |
Risk Profile | Higher dependency risk | Reduced risk with a backup supplier |
Cost Structure | Better volume discounts | Potential price competition |
Supplier Dependency | Full reliance on one supplier | Less dependency, can manage risks better |
Quality Control | Consistent but vulnerable to a single point of failure | More variable but with built-in backup |
Implementation Complexity | Simpler vendor management | More complex coordination is required |
Innovation Source | Limited to one supplier’s capabilities | Access to multiple innovation streams |
Supply Disruption Impact | Potentially severe | Typically manageable |
Administrative Overhead | Lower | Higher |
Having examined the differences between single and dual sourcing, it’s clear that dual sourcing offers many advantages in terms of risk reduction, flexibility, and supply chain continuity.
However, it’s essential to recognize that adopting a dual sourcing strategy presents its own set of challenges. These challenges need careful consideration to ensure a smooth and effective implementation.
Challenges of Dual Sourcing Strategies
Successfully implementing this strategy requires acknowledging these challenges and developing specific approaches to address them. The complexity increases with the number of suppliers and the criticality of the components.
- Higher Administrative Costs: Managing multiple supplier relationships demands more resources for vendor oversight, contract administration, and coordination. A typical procurement team may also need to expand slightly to handle the additional workload.
- Reduced Volume Discounts: Splitting purchases between suppliers often means losing volume-based price breaks. This effect is most pronounced for commodity items where economies of scale drive significant pricing advantages.
- Quality Consistency: Maintaining uniform product quality across different suppliers requires rigorous specification management and testing protocols to ensure consistency. Even minor variations in manufacturing processes can create noticeable differences in the final product.
- Intellectual Property Protection: Sharing proprietary designs or processes with multiple suppliers increases the risk of information leakage. Each additional vendor represents another potential point of vulnerability for sensitive intellectual property.
- Relationship Complexity: Building strong partnerships becomes more challenging when suppliers know they’re one of several options. This can impact the quality of communication and the willingness to invest in customer-specific capabilities.
Understanding these challenges allows for more realistic planning when transitioning to a dual sourcing model. With proper preparation, many of these hurdles can be overcome through thoughtful strategy and implementation.
Also read: Sourcing and Procurement Transformation Strategy Consulting Services.
Now that we’ve identified the potential challenges, let’s shift focus to how you can effectively implement a dual-supplier strategy. With the right approach, businesses can overcome these hurdles and maximize the benefits of dual sourcing.
How to Switch to Dual Suppliers Effectively? Implementation Strategies
Transitioning from single to dual sourcing requires careful planning and execution. The process involves not just identifying alternative suppliers but also reconfiguring internal processes and stakeholder expectations.
A phased approach typically yields better results than attempting a complete transition all at once.
1. Conduct Supply Chain Risk Assessment
Start by analyzing your current supply chain to identify critical vulnerabilities. Map your entire supply network, including tier 2 and tier 3 suppliers, to pinpoint single points of failure.
Prioritize components based on their importance to your finished products and evaluate current suppliers’ risk profiles, including financial health and geographic concentration.
2. Segment Your Supply Base
Not all items require dual sourcing. Utilize a segmentation approach to identify suitable strategies for various categories. Strategic items (high value, critical to operations) should receive full dual sourcing with active relationships with multiple suppliers.
Bottleneck items benefit from contingency relationships with alternative suppliers. Leverage items work well with competitive bidding across multiple vendors, while non-critical items may remain single-sourced.
3. Select Compatible Suppliers
When selecting secondary suppliers, consider geographic diversity to mitigate regional risks and ensure capabilities that are similar yet distinct, providing genuine alternatives.
Look for financial stability to ensure long-term viability, cultural fit with your organization, and capacity to scale production when needed. The goal is to create redundancy without duplicating risks.
4. Develop Fair Allocation Strategies
Decide how to distribute orders among suppliers using approaches like fixed percentage splits, primary/secondary designation with minimum order guarantees, or performance-based allocation adjusted quarterly.
Whichever approach you choose, ensure it provides sufficient volume to maintain active relationships with all suppliers and creates appropriate incentives for performance.
5. Standardize Specifications
Develop clear, standardized specifications that multiple suppliers can meet. Review current specifications to remove unnecessary supplier-specific elements and create performance-based rather than process-based requirements.
Standardize testing procedures and document the tribal knowledge currently applied to quality evaluations to facilitate easier production shifts between suppliers.
6. Implement Robust Quality Systems
Develop quality assurance protocols that maintain consistency across suppliers. Create standardized testing methods and acceptance criteria, along with regular supplier audits and performance reviews.
Establish shared quality metrics and reporting systems with clear procedures for addressing non-conformances to prevent quality variations from undermining your dual sourcing strategy.
Need some real-world examples of successful dual sourcing strategy implementation before you consider restructuring your sourcing strategy?
Companies That Successfully Implemented Dual Sourcing Strategies
Many companies have successfully used dual sourcing to strengthen their supply chains and navigate disruptions. Here are some examples of how businesses have implemented dual sourcing to ensure resilience.
- Apple: Sources Retina panels from Sharp and LG Display to ensure flexibility and reduce supply chain risks.
- Boeing: Procures aircraft seats from Zodiac and B/E Aerospace, diversifying its supply base to avoid dependency on a single supplier.
- Tesla: Diversified its balance ring suppliers from China to South Korea, enhancing supply chain security and reducing geopolitical risks.
How akirolabs Can Help You Simplify Your Dual Sourcing Strategy
akirolabs is a cloud-native, AI-enabled SaaS platform built specifically for strategic category management within procurement organizations. akirolabs functions as an end-to-end operating system for developing, customizing, executing, and tracking procurement strategies.
We transform strategic procurement from fragmented PowerPoints and Excel sheets into a structured, collaborative, and repeatable digital process that makes dual sourcing implementation straightforward and effective.
1. Strategic Scenario Modeling
Our platform offers strategic scenario modeling, allowing you to compare sourcing models (single-source vs. dual-source) and visualize trade-offs across cost, resilience, sustainability, agility and other value dimensions of importance. This helps you assess the most effective dual sourcing strategy, taking into account all relevant factors, such as supplier capacity, delivery timelines, and potential risks.
- Simulate various sourcing models and their impact on your business
- Understand cost vs. risk trade-offs to make the best decisions
- Track performance and adjust strategies dynamically2.
2. Supplier Strategy Development
Our platform provides specialized tools designed to help you manage complex supplier relationships with ease.
- Map strategic suppliers and assess dependencies with visual tools
- Compare supplier capabilities, performance metrics, and risk profiles
- Build specific engagement plans for each supplier in your dual sourcing system
- Track supplier performance against key metrics in real-time
3. Supplier Mapping and Risk Assessment
Use akirolabs’ supplier mapping and risk assessment tools to easily evaluate and track your suppliers. With built-in risk heatmaps and scenario modeling, you can understand the strengths, weaknesses, and potential risks of each supplier.
- Visualize supplier dependencies and potential risks.
- Use AI-powered insights to assess financial, geopolitical, and ESG risks
- Plan and execute risk mitigation strategies more effectively
4. Real-Time Tracking of Initiatives
akirolabs’ execution and performance tracking tools allow you to monitor dual sourcing initiatives in real-time. From KPIs and savings tracking to project timelines and supplier performance, our platform ensures that you’re always informed about the progress of your sourcing strategies.
- Track progress and outcomes of dual sourcing initiatives
- Visualize savings, risk reduction, and ESG impact in real-time
- Receive proactive notifications on milestones and task completions
5. Seamless Collaboration Across Teams
akirolabs fosters seamless collaboration between procurement teams and other stakeholders. With tools like stakeholder mapping, surveys, and real-time communication features, your procurement teams can work effectively with R&D, finance, and legal departments. This would help you ensure that your dual sourcing strategy aligns with organizational goals.
- Collaborative tools for easy communication across departments
- Built-in surveys and feedback loops for cross-functional alignment
- Stakeholder management features to ensure everyone stays on the same page
6. Centralized Strategy Framework
akirolabs allows you to centralize your dual sourcing strategy, bringing all relevant data and tools into one digital workspace. This eliminates the need for fragmented systems, spreadsheets, or PowerPoints, ensuring that everyone involved has access to the same strategy framework and key insights.
- Centralized data and strategy access for all teams
- Real-time updates on supplier performance and strategy execution
- Ensures alignment across departments and geographies
With akirolabs, you can make smarter decisions, reduce risks, and drive better outcomes. Get in touch with us today to see how we can help streamline your sourcing process and optimize your supply chain.
Conclusion
While implementing dual sourcing requires careful planning and ongoing management, the benefits far outweigh the costs for strategic items.
As supply chain disruptions become more frequent and severe, dual sourcing will continue gaining importance. Companies that develop this capability now will be better positioned to weather future challenges while maintaining operational performance.
At akirolabs, we simplify dual sourcing with a data-driven platform that supports strategy development and execution. Our AI-powered tools help assess risks, track supplier performance, and ensure your sourcing strategy stays on course. Ready to optimize your procurement process?
Schedule a demo today to see how akirolabs can help you strengthen your dual sourcing strategy. Let’s build a more resilient, efficient procurement system together.
