Second sourcing is a procurement strategy that involves a company identifying and engaging with an additional supplier for a specific component, material, or service it requires.
This alternative supplier serves as a backup or supplement to the primary supplier, ensuring that the company is not solely dependent on a single source. The practice of second sourcing is particularly common in industries where supply chain reliability is crucial and where any disruption in supply could have significant financial or operational consequences.
The concept of second sourcing can be applied in various ways. In some cases, a company may only rely on the second source during emergencies or when the primary supplier is unable to meet demand. In other situations, the company may divide its orders between the primary and secondary suppliers to foster a competitive environment, thereby ensuring both suppliers remain committed to providing high-quality products or services.
Advantages of second sourcing
Second sourcing offers several advantages, particularly in terms of risk management, cost efficiency, and supply chain resilience.
One of the primary benefits of second sourcing is risk mitigation. By having more than one supplier, a company can reduce its dependency on a single source. This approach helps to mitigate the risks associated with supplier failures, which could result from various factors such as natural disasters, economic fluctuations, or political instability. In the event that the primary supplier is unable to fulfil its obligations, the second source can step in to maintain continuity of supply, thereby protecting the company from potentially costly disruptions.
Other benefits include:
Cost competitiveness. When a company engages multiple suppliers for the same product or service, it can create a competitive environment where suppliers are incentivised to offer better pricing and terms. The presence of an alternative supplier can prevent the primary supplier from becoming complacent, ensuring that both parties strive to offer the best possible value to the company.
Supply chain resilience. In times of high demand or unforeseen disruptions, having a second source can ensure that the company continues to receive the materials or components it needs. This is particularly important in industries where delays can have serious financial or reputational consequences. By spreading the risk across multiple suppliers, a company can better navigate the challenges of an unpredictable supply chain.
Flexibility. With more than one supplier, a company can adjust its procurement strategy based on changing needs, price fluctuations, or variations in supplier performance. This flexibility allows for more agile and responsive supply chain management.
Quality assurance. When a company works with multiple suppliers, it can benchmark the quality of products or services against one another. This benchmarking encourages suppliers to maintain or even improve their standards to remain competitive, which ultimately benefits the company.
Second sourcing can also drive innovation. Different suppliers may bring unique technologies, processes, or materials to the table, offering the company access to innovations that might not be available from a single source. This can lead to improvements in product design, manufacturing efficiency, or overall performance, helping the company stay ahead of the competition.
Finally, the presence of a second supplier can give the company more bargaining power during negotiations with its primary supplier. The option to switch to another supplier, or to allocate more business to the secondary supplier, can lead to better terms, whether in pricing, lead times, or service levels.
