The Importance of Source Flexibility in Manufacturing
Flexible sourcing is the ability to react to a change in supply needs. Investing in flexible sourcing intensively is the key to improving performance.
Before choosing suppliers to work with, supply chain managers must have a balanced and extensive list of criteria to help them select suitable suppliers. Whether choosing local or international suppliers, source flexibility can improve your ability to deliver high-quality products to your clients on time.
Why Does Flexible Sourcing Matter?
Globalization has given manufacturers access to low-cost suppliers, and supply chain disruptions and changes in demand make flexible sourcing necessary. The supply chain can be unpredictable. Transport delays and delays or issues with raw materials cause disruptions.
In the past, companies depended on one supplier, which made sense — build a strong relationship and negotiate better prices. A solid relationship with a supplier is still essential, but as globalization has extended the supply chain to low-cost country sourcing, single-source dependence has become risky.
How to Make Production More Flexible
Companies use three primary examples of flexible sourcing to diversify production in manufacturing — multi-sourcing from several suppliers, dual sourcing from two suppliers and local sourcing from local suppliers. If you're wondering how to improve source flexibility in manufacturing, these steps can help you:
- Determine your volume: Once you know your average order volume, you can start researching suppliers that can keep up with it. Choose suppliers who can work with your demand to leverage flexible sourcing. Ask the suppliers how much they can produce for you in the time you need it.
- Determine your timeline: Having a supplier that meets your volumes is only worthwhile if they get the goods to you on time. Your timeline between placing the order and its delivery must match the suppliers' lead time.
- Consider their location: In some cases, local suppliers make sense, and in others, a foreign supplier may be the better option. The supplier's location will affect shipping fees, lead time, costs and communication. Think about their location and how it will affect your supply chain.
What Are Examples of Flexible Sourcing?
Now that you know how to choose a supplier, let's look at some flexible source options available to manufacturers.
Multi-sourcing, or multiple sourcing, is when a manufacturer relies on various suppliers for materials and goods. How many suppliers to use differs across manufacturers. Some believe working with a smaller selection of suppliers allows them to manage the relationships better and negotiate contract terms. Some manufacturers prefer a more extensive selection of suppliers to ensure their requirements are always met.
Manufacturers can enter into backup supply contracts with vendors. In this agreement, the company identifies a supplier that produces a good at an acceptable standard and reserves them as a backup supplier in case of a supply chain disruption. This agreement is often more affordable. Instead of an ongoing contract, you only pay when you need the goods from the backup supplier.
These are some of the benefits of multi-sourcing:
- Reduce risk: Relying on a single source for your goods is high-risk. Staying competitive in the market can be more challenging as you rely on the pricing and quality of materials from one supplier. By using multiple sourcing, you can avoid dependence and have backup plans in case of disruptions.
- Gain supply chain stability: You can maintain your supply chain and protect yourself from disruptions by relying on multiple sources. For example, relying on one supplier who has a problem delivering on time disrupts your supply chain. You can diversify your risk and remain flexible in unforeseen events by depending on various suppliers.
- Get high-quality products: You can choose a supplier with the best materials when you have more options. That quality improvement can impress your current customers and entice new ones to choose your business.
- Lower your costs: Multi-sourcing promotes competition between suppliers. You can monitor which performs best for you and negotiate better prices. When suppliers know you have other options, it may incentivize them to provide you with a better deal.
Dual sourcing relies on two different suppliers for a particular raw material. For example, instead of receiving 100% of the material from a single source, you divide the supply by 80% from one source and 20% from another.
Having two suppliers for a core raw material is a great way to mitigate risk. Natural disasters, weather, material shortages, political unrest and other issues can affect a supplier's delivery ability. A second supplier can ensure you meet your client's demand during these disruptions.
Other benefits of dual sourcing include the following:
- Reduce costs: Having more than one supplier prevents supplier monopolies, which drive up prices. Dual sourcing balances the relationship and ensures one supplier doesn't have too much power in the price negotiation. Additionally, if you have multiple manufacturing plants, you can choose the closest supplier to help reduce freight costs.
- Scale and grow your company: As client demand increases, you can better meet the need when you have two suppliers to rely on. A single source may struggle to keep up with your increased demand.
- Drive innovation: Dual sourcing encourages your suppliers to innovate and provide you with the best materials because they know they have competition. It gives you access to the best quality material and improves your competitive advantage.
- Change suppliers easily: Supplier relationships change over time. What was once a great supplier may become an underperforming one that can't meet your requirements. Having two suppliers enables you to rely on one while you find a replacement for the other.
In local sourcing, manufacturers choose to use suppliers nearby. You can pick suppliers that are in your country or close to it. Selecting local suppliers then has a positive impact on your country and its neighbors. It helps increase the suppliers' income, promotes jobs and contributes to the exchange of knowledge and skills. Local sourcing for manufacturing is possible as long as a supplier can meet your requirements.
How does choosing locally sourced goods and materials help the supply chain? These are the benefits you can expect to see for your business:
- Improve flexibility: Local suppliers can respond to your needs quicker than suppliers farther away. It makes it easier to adjust and coordinate shipping requirements.
- Have better control: If a supplier is nearby, you can drop in for in-person meetings to manage the relationship and improve your communication and collaboration. Seeing a supplier face to face allows you to ensure your materials are up to standard.
- Lower environmental impact: Local sourcing reduces your carbon footprint and improves your standing with environmentally conscious clients.
- Reduce supply chain costs: Localizing your supply chain can help you reduce the cost of shipping materials and improve your bottom line.
Streamline Your Supply Chain With ParkourSC's Inventory Performance Software
Automatic alternate sourcing or local sourcing may be the key to agility. At ParkourSC, our platform equips you with streamlined integration through the supply chain so you can stay on top of potential disruptions by monitoring suppliers and potential supply risks. You can then predict potential issues to set up alternatives. Reduce your operations costs and improve your bottom line through better materials management. Minimize your disruptions and unlock value in your supply chain.
Let's talk — contact us to learn more about our platform.