Trust being the distinctive element in the relationships between the members of a supply chain, generally there is only one supplier of any item category of items. Supply chain would cease to be a chain if at every point in it there were multiple links. It believes in a single link. Or else, it will become too complex and will start having all the negativities of the traditional approach to business.
The traditional business corporations use multi-sourcing so as to keep process down through competition between the suppliers. The basis of interaction between the customer and supplier companies being a lack of trust, the purchasing company believes that the supplying firm would not be able to deliver the required materials in the required time, quality and quantity. Hence, the purchasing company protects itself from supply failures by having multiple sources of the same item. This becomes a self-fulfilling prophecy. The business volume per transaction being low for the supplier company, the latter has no incentive to analyze the problems/bottlenecks and thus improve its performance for the purchasing company. The supplier is not sure whether he should invest its time and effort for a customer who may after all withdraw the business from him the next day. It is indeed a vicious cycle.
Customer lacks trust in any one supplier. He believes that to supplier would be unable to fulfill on the dimensions of time, quality and quantity. He is suspicious of the intentions of the supplier. He is doubtful about the supplier’s capabilities.
Full trust in the supplier. Therefore, the customer conserves his efforts by dealing with only one company.
Volume of business for the supplier:
Intentionally kept low in order to engender competition and in order to safeguard against supply uncertainties having several alternative suppliers.
Large volumes (entire requirements)
Economies of Scale:
May not be realized, unless several firms order the same item. In the latter case, the supplier will wait for bunching of orders from several customers, thus delaying the deliveries in some cases
May not be able to give special attention to a customer as the volume of business with him is low. He has too many customers to attend to. Lacks focus. Tends to provide parts/ material that serve the needs of all of the customers.
Can provide focused attention to the customer. Thus, he may produce specialized parts or material for the customers.
Cannot be expected to provide improved quality on his own initiative. Will go by what all of his customers generally want. Also it is difficult to pinpoint the source of a defective part when are several suppliers.
Supplier would be willing to provide specialized quality. Willing to improve quality as per the customer’s specific needs
Multi-sourcing increases overall variability in quality for the buying company. Variability is additive. It can be in quality, delivery (time and quantities) and many other interactions with a supplier.
Variability is due to one single supplier. It could be, hence, low. More importantly it may be easier to control as only one supplier is involved.
Control over the Suppliers/s
Difficult to control the output or any performance (e.g. variability in quality) as there are many players.
As mentioned above, it is easier to control.
Failures in all respects are compounded due to multiple actors (multiple suppliers for the same item). There are too many suppliers to attend to; therefore specialized attention even from the buyer suffers. The buyer, therefore, goes by the manual and/or quality specifications and becomes preoccupied with conformance to the specification. Quality in any area cannot be improved by simple conformance to specifications or just by going by the rule book. What may be needed is to locate the sources of process variability and reduce that variability. This needs a concerted effort from the buyer and the supplier, which may not be possible with multiple suppliers.