Understanding Risk In Single Source Components

Dependence on single-sourced components puts companies at significant risk for not meeting their customer demands in the event of a natural disaster, factory damage from fires, or a man-made crisis such as worker strikes and political upheavals.

Single source components endanger a manufacturer’s profitability since a supply line disruption can cause the inability to fill orders, increases warehousing costs as products and parts back up when assembly stops and cutting revenue as deliveries are missed.

A complete risk assessment of your supply chain must understand the full breadth of single sourcing for your components, pulling back as many layers as you can and requesting increased visibility when you hit a blind spot.

Building True Multi-Source Processes

A common misconception is that a company has successfully secured multiple source of a component when vendor lists include the initial manufacturer as well as different regional distributors of those components.

This process, unfortunately, doesn’t provide significant protection. Since the manufacturer supplies the distributors and distributors currently run very low-volume operations in order to control costs, a production problem or recall can dry up all sourcing options.

Parts need multiple sources to be appropriate for your production, and the secondary sources you secure need to have the same engineering standards to be valid replacements.

Your Hazards with Vendors’ Single-Sourcing

When it comes to vendor partners, a good rule of thumb is: if your component manufacturer is single-sourcing a part or raw material, you are too. Basic visibility in the manufacturing supply chain may not initially reveal that your partners use single source components, so you’ll need to look deep to make sure you’re avoiding these pitfalls.

For complex products and parts that rely on rare raw materials, an OEM may have multiple sources for their parts, say three different vendors, but these vendors may all source raw materials from the same supplier, mitigating the benefit of the OEM’s diverse partnerships.

Risk mitigation is dependent on your visibility, so the farther you can look back the safer you are.

The Sourcing Checklist

Vendors and manufacturers should be able to provide clear insights into their supply chains and production processes to show they’ve secured their production lines – and help secure your production lines at the same time.

When you’ve found multiple sources for your components, make sure that their prices are aligned – or at least close enough to make each a feasible supplier if your primary supplier experiences a disruption. Secondary sources aren’t useful if they are cost-prohibitive.

Be wary: of an partner that relies on distributors for their secondary sources of products, lists components as coming from only one manufacturer, has a limited part list, relies on subpar replacements as alternatives, or uses end-of-life products as substitutes.

Since EOL support varies greatly by each component, their use can significantly shorten the lifecycle of containing products.

If component manufacturers do have multiple raw material vendors, you’re operations have a much higher level of security. This can be somewhat mitigated, however, if your partners and their vendors are geographically close, you’re still vulnerable to natural disasters.

Close proximity can speed up production and order delivery from your suppliers, but you’ll need to keep the risk in mind.