For many businesses, a series of unexpected supply chain disruptions last year have exposed the risks of working with just one supplier. If something goes wrong, there’s no contingency to get the products you need for your business.
In our Business Class: Money Minutes podcast, we speak to Mindful Chef co-founder Rob Grieg Gran and Dr Sam Roscoe, senior lecturer in operations management at the University of Sussex Business School, to discuss strategies small businesses can put in place to stress-test their supply chain and cope with unexpected pressure.
Here, we’ll look at how dual sourcing can help you build a resilient supply chain, and how that could benefit your business.
What is dual sourcing and what are the benefits?
Dual sourcing simply means operating with two suppliers for the same product. “Small businesses need to have multiple sources of supply,” says Roscoe, “and those need to be spread out around the world, so when [the unexpected] strikes, you are able to move your sources of supply around the world in order to maintain stock.”
But you don’t need to wait for an unexpected disruption to feel the benefits of working with more than multiple suppliers. Rob Grieg-Gran is the founder of delivery meal-kit company Mindful Chef, which sources more than 400 different ingredients. They try to source from UK farmers as much as possible, but when a product is out of season in the UK, they look further afield. Working with two suppliers of rocket – one in the UK and one in Italy – allows them to source that ingredient all year round.
Carrie Elizabeth, founder of the eponymous jewellery business, sources her contemporary women’s jewellery from five manufacturers in India. She says it makes sense to source her best-selling items from more than one supplier, to minimise risk to the business.
“Recently one of our suppliers had an issue with our best selling gemstone and couldn’t fulfil an order,” she says. “We needed to get this style back in stock as soon as possible as there was huge customer demand. Luckily, we had already sourced the style with two other suppliers, so had approved back up options that we could quickly turn to when we needed an alternative.”
If your supply chain is in the EU, check out our resources on Brexit, including a check list for your customs and contracts, plus a guide on auditing your supply chain.
How should I divide my orders between two suppliers?
Roscoe recommends the 80/20 rule: sourcing 80% of the volume you need from one supplier, and the remaining 20% from a secondary supplier. “That secondary supplier might be a little bit more expensive or maybe in a different part of the world,” says Roscoe. “By having a backup supplier, when a disaster strikes, you’re able to move your volumes in between your different suppliers.”
What about reducing costs in my supply chain?
Roscoe recommends finding suppliers that are close to home, offering shorter lead times because the products do not have far to travel. “If I place an order with a Chinese supplier and it takes them two or three months to deliver that product, I have a forecast that’s three months long,” he explains. “The further out that I forecast, the more forecast inaccuracies I will have. If my forecast is inaccurate I have to hold more inventory, because if something goes wrong I don’t want to run out of stock.”
On the other hand, working with local suppliers that offer shorter lead times means you can work with shorter – and more accurate – forecasts. “You hold less inventory and that can bring down your total supply chain costs,” says Roscoe.
Working with local suppliers also allows your business to be reactive to sudden trends and spikes in demand. “If you have short supply chains where you can bring products in very quickly and deliver them to the customer, you get a bonus in terms of sales,” Roscoe adds.
He recommends taking a holistic look at the costs of your supply chain, rather than simply the cost of orders. “If you really take into account how much it costs you to hold your products, your forecast accuracy, your delivery costs, the [potential] upsides of being more responsive to demand? In my opinion you’ll probably find that is cheaper compared to sourcing from low-cost centres overseas.”
How can I make the most of supplier relationships?
Grieg-Gran says that taking the time to sit down with suppliers and understand each other’s businesses has helped Mindful Chef to secure cost savings he might not have anticipated, such as on packaging.
Roscoe recommends paying supplier invoices within 10 or 15 days to ensure they have a healthy cash flow. “Make sure that the suppliers have access to working capital, so they continue to have access to raw materials and deliver products into you. By building up those relationships with suppliers that can move you up the list of priorities.” Read our article on how delaying payments to suppliers can hurt your business, and the strategies you can put in place to always pay them on time.
For more on future-proofing your supply chain, check out this episode of our Business Class: Money Minutes podcaston Spotify and all major listening platforms.
Dual sourcing ensures you always back a backup when the unexpected occurs. With the American Express® Business Gold Card, you have a 54 day payment period¹, allowing more time to deal with unplanned events and building a robust supply chain map. You will also earn Membership Rewards® points² for your spend, which can be used to reinvest into your business through statement credit.
- The maximum payment period on purchases is 54 calendar days and is obtained only if you spend on the first day of the new statement period and repay the balance in full on the due date.
- Membership Rewards points are earned on every £1 spent and charged, per transaction. Terms and conditions apply. Enrolment is required.
