multiple sourcing vs single sourcing
DESCRIPTION
Presented by Samarth Gulati and Shefali Srivastav of FMG-18A, FORE School of ManagementTRANSCRIPT
Multi Sourcing vs Single Sourcing
Samarth Gulati 91047Shefali Srivastava 91050
Problems in Supply Chain
• Disruptions: natural disasters, strikes, terrorism attacks
• Uncertainty• Vulnerability• Complexity
What should be done
• Build a resilient supply chain• Prepare the firm against disruption• respond to uncertainty effectively• secure the supply-chain
Single Sourcing
Multiple Sourcing
CRITICAL/BOTTLENECK
Unique SpecificationSubstitution DifficultUsage fluctuates and
unpredictable
STRATEGICAvailability is essentialSupplier Technology
essentialSubstitution Difficult
NON CRITICAL/SPOTCommodity type itemCompetitive marketSubstitution possible
LEVERAGEUnit cost
management important
Competitive Supply market
LOW HIGH
HIGH
LOW
SUPP
LY R
ISK
FINANCIAL IMPORTANCE
Need for Single Sourcing
Better Pricing through higher
volumes
Better quality through
continuous improvements
Lower costs incurred to source,
process and inspect
Streamline the procedure
Build stronger and longer-term relationships
Reduce Inventory and Lead Time
Need for Multiple Sourcing
Protect buyer during times of shortage, strikes and other
emergencies
Maintain a Back up source Maintain competition
Avoid complacency on part of single supplier
Meet local requirements for international
manufacturing locations
When technology path is uncertain
Multiple Sourcing vs Single Sourcing
PRICE INDIRECT COSTS
Multiple Suppliers
PRICE INDIRECT COSTS
Single Supplier
Ford Case
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 labour costs and the production of about 7000 vehicles.
Ericsson vs Nokia• Philips suffered a fire in its plant of Alburque in march 2000.• Philips’s site became unable to produce the computer chips
that its customers, Nokia and Ericson, needed to produce mobile phone handsets.
• Nokia realized very early that there was a problem in the production of chips, and pressured Philips to reroute capacity.
• Ericsson detected the problem slowly and when it turned to Philips, it was too late as Nokia had already claimed all the production.
• The damages were very important for Ericsson as Philips was its only supplier:
• Ericsson lost $1.8B, and almost 4% of market share to Nokia.
Conclusion• high indirect costs• involvement with a single supplier • Risky• Eg- JIT
Single Sourcing
• low indirect sourcing costs • competitive bidding • Flexible• Eg- for stategic items
Multiple Sourcing