August 19, 2021
In decades past, buyers demonstrated a strong preference toward single sourcing in their production and supply chain. And it made sense: build a strong, solid relationship with one manufacturer, focus on consistent communication and collaboration so you can take advantage of economies of scale by ordering in higher quantities, thus driving the price per unit down.
Globalization, though, has extended the length of supply chains through low-cost country sourcing. This has created greater margin for risk, especially when relying on a single vendor. While the benefits of having a strong relationship with a single source still ring true in principle, we’ve seen firsthand how today’s marketplace demands diversifying production resources.
1. Mitigate Risks
We are all keenly aware of the potential for supply chain disruptions given recent events. From a global shutdown due to a pandemic to the Suez Canal blockage putting the transfer of goods at a standstill, it’s never been more important to take the necessary steps to mitigate possible risks.
When you don’t have a diverse production plan, you open your company up to a myriad of supply chain disruptions. Your single manufacturing source could face any of number of situations, forcing you into a space where you’re unprepared to pivot.
Possible risks include…
- Capacity risk: unexpectedly unable to meet quantity or lead time requests
- Catastrophic risk: regional disasters or conflicts
- Quality risk: lapse in compliance requirements
- Financial risk: foreign exchange rate variability and part procurement changes
- Management risk: internal fraud or embezzlement scandals
- Market risk: increased competition on a global scale which drives up costs
If you have a portfolio of established manufacturing partners and suppliers you can turn to if any isolated, regional, or global crisis occurs, your company’s bottom-line has a better chance of remaining unaffected by the adjustment.
2. Keep Costs Down
Keeping costs down can be a benefit to single sourcing and multiple sourcing depending on your perspective. Single sourcing drives costs down through higher quantities. Multiple sourcing, though, provides opportunity for cost reductions through continued negotiation year after year. It also allows you to have a blended cost strategy where you can amortize cost across all sources which can mitigate against giant, unpredictable spikes.
When you’re reliant on a single manufacturer, the door is wide open for scope creep and cost increases because you have limited options. When your suppliers know that you have a diversified production plan, they are more likely to make a concerted effort to keep scope creep in check, knowing you could pivot quickly to another resource should the need arise.
3. Social Responsibility
Diversifying production also gives you the opportunity to explore local sourcing options, which can be crucial when other parts of the world are facing crises and conflicts.
Additionally, as a manufacturer who works on federal contracts and with other third parties who support government projects, it’s imperative to keep the Buy America Act in mind. This legislation demonstrates preference for products that are sourced domestically and details additional standards that must be met if components are imported or manufactured overseas.
As an organization, it’s important to prioritize corporate social responsibility (CSR). Not only is it a byproduct of solid corporate governance structures, but it is also a sign of accountability to your geographic location and local economy. CSR can be demonstrated through philanthropic, environmental, or volunteer efforts and building local partnerships.
At Electro Soft, we pride ourselves in being one of the largest contract manufacturers serving the Philadelphia Tri-State area, and we actively seek out partnership opportunities with other businesses in our community and the surrounding areas. We assemble every circuit board and wire harness in-house, keeping every project as local as possible.
Today’s global economic trends no longer lend themselves to relying on a single manufacturing partner without running into issues and risks. If you wait until catastrophe strikes, it’s too late. You must have a diversified production plan in place in order to effectively mitigate risks before they happen.
When you start the conversation with a new potential supplier, always come with your actual target prices, approximate margins, and knowledge of the weaknesses of your current supply chain partnerships. This will set realistic expectations from the start – the foundation of a productive partnership moving forward.
Are you ready to diversify your production plan? Let us show you the benefits of partnering with us!