Single sourcing--Part II
By Ken Stork -- Purchasing, 11/4/1999
My column in the September 16, 1999, issue of Purchasing prompted more e-mail than usual. That's great! The article was titled: A best practice that should be used more: single sourcing.The article was prompted by my disappointment with results of a reader survey of purchasing professionals on current trends in purchasing practices. I was very dismayed to read the following result: "Purchasing professionals still prefer to have multiple sources for a given item, but not by as wide a margin as two years ago. The percentage of survey respondents who prefer multiple sources slipped to 79% from 87% two years ago."
The key element is the condition--for a given item. This implies at least two sets of tools, fixture, gauges, test procedures, sampling plans, etc., for a single part number. It also means the annual requirements of the customer are split on some basis, such as piece, between two or more suppliers of each part number. The e-mails I received all shared experiences that they got better pricing when more than one supplier was used. They believe that multiple sourcing is the best practice--not single sourcing. Let's dig a little deeper into this debate.
I'm using this example to illustrate that effectively benchmarking other organizations is not as easy as it may appear on the surface. The value of process benchmarking generally comes from a digging deeply into how successful organizations readily perform important processes, and what range of economic processes and economic benefits they gain as a result of new processes. You can then compare your prior economic results from conventional approaches with potential new economic benefits from the new processes you discovered on a benchmarking project.
In the early 1980s, companies like Harley-Davidson, Xerox, and Motorola were early pioneers in a process of dramatically reducing their active supplier base. Each company had been experiencing significant market share losses to formidable foreign competition. Harley, Xerox, and Motorola survived, and then began to prosper after they had made major reductions in their suppliers. If they had persisted in multiple sourcing of given items, they might not be around today. They each received substantial improvement in quality, delivery, asset management, technology, and pricing from their much smaller active supply base.
To illustrate, Motorola in 1981 had 109 active suppliers of capacitors. "Active" means that each received payment for parts delivered that year. Purchasing installed a simple supplier rating system so they could tell which suppliers actually offered the best value. After a few years, three suppliers had won 955 of Motorola's capacitor requirements. The remaining 5% went for low volume, specialty capacitors not produced by the other three.
Devotees of multiple sourcing do so under a belief that it is the best way to have competition in their supply base. But it was possible for Motorola and others to still have competition in a world of single sourcing!
Motorola's sourcing strategy for capacitors was to have three suppliers: One that performed best in ceramic parts, one that performed best in tantalum parts, and one that was very good in both ceramics and tantalums. If a supplier faltered, business could be quickly shifted. Annually, the Motorola commodity team adjusted shares of business based on actual supplier rating results. The supplier(s) that performed best this year won more market share over the poorer performing supplier(s). That strategy prompted considerable competition in quality, delivery, technology, pricing, and provided the administrative simplification benefits of single sourcing. In my experience, these benefits are huge, but harder to measure.
Multiple sourcing of a given item is an illustration of a favorite saying of mine: "If you need a new process and don't install it, you pay for it without getting it." Maintaining high-cost conventional practices can eventually kill your business.
Old, familiar habits are hard to break for many reasons. That is why process benchmarking can play an important role in identifying best practices you should consider.
Stork is president of Ken Stork & Associates Inc. in Naperville, Ill., (630) 851-5445 or e-mail: ken@kstork.com. Formerly Motorola's corporate director of materials and purchasing, and a member of Purchasing's editorial advisory board, Stork focuses on consulting and custom educational programs in strategic sourcing and supply base management.
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