Things You Should Know
Purchasing and Supply Chain – Dual Sourcing to Overcome Coronavirus Challenges
I spoke recently with Doug Huffine who has experience as a Senior Sourcing Manager at Cummins regarding the benefits of Dual sourcing.
He shared some interesting insight and according to Doug, “The 2019 tariffs with China and the 2020 corona virus have put tremendous strain on the global supply chain – all industries. Entire countries and cities are completely shut down, no production being exported and US landed inventory levels have been drained – there is little to no inventory in the US right now and many manufacturing plants have stopped production for lack of components.”
He added more insight, “It will take 6-8 weeks before fresh inventory of components begins to land in the US from the Ocean carriers arriving from Asia and parts of the EU. Companies can decide to use Air Freight to speed up the process, but the air freight expenses are sky high right now making air freight a painful option.”
Doug feels that implementing a Dual Sourcing Strategy of the critical, cost driving components is the best long term option for many reasons.
- Supply chain risk mitigation – if one supplier cannot produce your component, you increase orders from the other supplier
- Quality improvement – if a supplier is struggling with quality of a component – you increase orders from the other supplier
- Long term cost improve – Competition is the best leverage point to control costs – Many smart companies avoided the impact of tariffs because they have a dual sourcing strategy and competition always keeps everyone honest.
The dual sourcing strategy is not without its challenges. Accountants are typically against the strategy because of the increased initial up-front costs that are required for extra tooling, engineering, qualification and validation testing.
However, the long term Cost, Quality and Delivery benefits you gain from dual sourcing far outweigh the upfront costs.
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