Duel Sourcing? Awe the cost!

With the recent earthquake in China and its impact on supply, my team has been talking about dual sourcing a lot. First let me say that my thoughts and prayers go out to all of the families in these disaster stuck areas! 

Luckily none of my suppliers where in that part of China, but is raises the question of what if. We started asking who else can build our parts? What is our inventory strategy? Do we need to revisit our supply strategy? And does our supply base really have a good disaster recovery plan? And many other questions that lead to heavy conversation topics.

The first question is who else can build our parts. We looked at old suppliers and why we moved. The ones we moved for cause (IE quality/ delivery), we immediately moved them off the table. Then we asked if they have current drawings and BOMs. This was a big problem as our automated change control system ignores old suppliers and the old suppliers would ignore the change.

The second question is what is our inventory strategy. For the most part we are keeping only about the amount of inventory we needed for as long as the leadtimes:  around four weeks on a ship so four weeks in inventory. The question was raised if could we increase the inventory to six weeks, so I ask if this will still meet our inventory turns goal. The finance person indicated it would, but I asked what we would gain from that increase. The finance person pointed out that it would allow a two-week buffer to go and get new supply in region or a four-week buffer domestically. This would be true only for pre-qualified vendors.

The third question we grappled with is if we need to revisit our overall supply strategy.  Based on the above questions, the answer was yes, but how would it be affected and the team agreed that dual-sourcing is the best option. The next question we asked as a part of this, was “Is our current system capable of handling a true dual source?” We are still trying to answer that one.

The fourth question we took up at our meeting was if our supply base really has a good disaster recovery plan. This is a longer-term project and we are still doing research on this, but off the top of our heads, the answer seems to be no. Certainly, there are some suppliers that have multiple sites, but most are located in very close proximity to each other. And even if they do have multiple sites, then you have to get into space allocation and factory loading.

In all of this our team agreed that cost was a major driver and while we are not directly affected this time, we all agreed that it is not a question of if, but when. One suggestion is to dual source your critical items, meaning have a domestic based supplier and a low cost region supplier build the same parts. The only issue is cost, but you should be able to mitigate this through negotiation. Another action we did was identify a group of folks to go into region and help with getting our stuff back on line. In the end we will put disaster recovery higher in our goals for both suppliers and our company.