Multiple sourcing: certainty in uncertain times

Approximately since the beginning of the new millennium, a trend has emerged of reducing the number of suppliers, concentrating volumes with a few strategic suppliers, and making large investments into the development of key partners.

And for these reasons, the time has come to turn the wheel and try the tactic of parallel suppliers, professionally called multiple sourcing, which is based on the diversification of supply chains and increased resilience.

🔍 What is multiple sourcing?

Multiple sourcing means that a company purchases the same supply from multiple suppliers at the same time. For example, a manufacturer of office chairs buys the same bearing for its best-seller from two suppliers. Similarly, in the processing industry, we often see the model of splitting deliveries of a key commodity among several suppliers. The best receives 60% of the volumes, the second 30%, and the third 10% (so-called contact volumes). In the next quarter, the ratio changes based on the competitiveness of the bids. In this way, contracting authorities both avoid putting all their eggs in one basket (reducing risk) and maintain tension and a competitive environment (increasing bargaining power) in the supplier panel (we all know demotivated suppliers who keep submitting bids but never receive any volumes).

⚠️ But the multiple sourcing strategy does not come for free:

• Higher costs for relationship management, administration, and communication

• More complex logistics and coordination of deliveries

• Possible loss of volume discounts (vs. single sourcing)

💡 How does Promitea help with multiple sourcing?

Our cloud platform makes it easy to implement a multiple sourcing strategy within any tendering process. In practice, it works like this: the buyer evaluates supplier bids and then allocates the corresponding volumes to them based on competitiveness.

After approval, suppliers receive information about the allocated volumes for the upcoming period, so they can reserve the corresponding volumes even before the purchase order arrives.

If the buyer wishes to negotiate prices and conditions with some suppliers, nothing prevents them from opening another round, inviting selected suppliers for improved offers, and allocating volumes only after this round.

Similarly, Promitea can work with parallel framework contracts and monitor their fulfillment with individual suppliers, while alerting the buyer to approaching depletion of agreed volumes or the fact that users are not adhering to volume allocations.