The Dual Sourcing Trap

The “Eggs in One Basket” Lie

I was sitting in a board meeting in Munich. We were discussing a critical aluminum casting for a new engine block. The CEO, a man who loved safe, comfortable answers, looked at my procurement plan.

“Victor,” he said, tapping the paper. “You are giving 100% of the volume to Müller Guss? That is dangerous. What if they have a fire? What if they strike? We need a second source. We should split it 50/50.”

I looked at him. “If we split it 50/50, we lose the project.”

He blinked. “Explain.”

“If we give Müller 100%, we are 40% of their total revenue. We own them. If we call on Sunday, the owner answers. If we have a quality issue, they stop everything to fix it. If we give them 50%, we are just another customer. We are noise.”

The CEO was uncomfortable. He wanted insurance. But in the supply chain, insurance is expensive.

There is a pervasive myth in our industry that “Dual Sourcing” (using two suppliers for the same part) is the only responsible way to manage risk. It is the “safe” choice. It is what they teach you in school.

But as a Supply Chain Minimalist, I tell you: Safety is not found in numbers. Safety is found in depth.

Splitting your volume does not double your safety. It dilutes your power.

The Mathematics of Irrelevance

Let’s do the math. Not the financial math, but the psychological math of the factory owner.

Imagine you have an order for 10,000 units a month.

Scenario A: The Split (50/50) You give 5,000 to Factory A and 5,000 to Factory B.

• Factory A’s View: “This is a nice order. But it’s not critical. If we lose it, we survive. We don’t need to invest in new automation for this. Let’s just run it on the old machines.”
• Factory B’s View: “Why did they give half to the other guy? They don’t trust us. We will charge them a higher price because the volume is lower. And we won’t share our best R&D ideas, because they might leak them to Factory A.”

The Result: You have two mediocre suppliers. Both are charging you higher prices (because of lower economies of scale). Neither is committed to your long-term success. You have doubled your administrative work (two audits, two quality checks, two sets of logistics), but you have halved your importance.

Scenario B: The All-In (100%) You give 10,000 to Factory A.

• Factory A’s View: “This is a massive contract. We can buy a dedicated robot arm for this line. We can train a specific team just for this product. We must make this work, or we will miss our revenue targets.”

The Result: You get a lower price. You get better consistency. You get a partner who is terrified of losing you.

In the German machinery world, we have a concept called “Schicksalsgemeinschaft”. It translates roughly to “Community of Fate.”

It means: If I sink, you sink. If I swim, you swim.

You cannot build a Community of Fate with a 50% commitment.

The “C-Tier” Client Trap

I once audited a supplier in Suzhou who made injection molded parts. I looked at their production schedule. They had one client, a massive American electronics firm, taking up 60% of their capacity. They had another client, a European furniture brand, taking up 5%.

I asked the Production Manager: “What happens when the machine breaks down? Whose order gets delayed?”

He didn’t hesitate. “The furniture guy waits.”

“Why?”

“Because if the American guy screams, our factory closes. If the furniture guy screams, we just unplug the phone.”

If you dual source to be “safe,” you voluntarily make yourself the “furniture guy” to two different factories.

You think you are diversifying risk. In reality, you are guaranteeing that you will be the first one kicked off the production line when a crisis hits.

The Minimalist Rule: You must be in the Top 3 of your supplier’s client list. If your order volume is too small to put you in the Top 3, do not split it. Consolidate it. It is better to be the King of one hill than the peasant of two.

When Dual Sourcing is Actually Necessary

I am not a gambler. I do not advocate 100% single sourcing for everything. You have to classify your parts.

1. The Commodity (Bolts, Resistors, Cardboard)

• Strategy: Dual or Triple Source.
• Reasoning: These are standard parts. There is no “learning curve.” You can switch suppliers in 24 hours. Here, competition is good. Use an auction. Let them fight.

2. The Strategic Component (Custom Motors, Complex Castings, PCBAs)

• Strategy: Single Source (with a “Warm Backup”).
• Reasoning: These parts require tooling, specialized knowledge, and deep integration. Moving this part to a new supplier takes 6 months.
  • If you split this volume, you destroy the efficiency.
  • If you encounter a quality issue, Supplier A will blame the raw material, and Supplier B will blame the design. You will never find the truth.

The “German Marriage”: Fixing vs. Ditching

In the US/UK procurement style, the relationship is transactional.

• “You made a mistake? I fire you. Next!”

In the German/Japanese style, the relationship is corrective.

• “You made a mistake? We are coming to your factory tomorrow to fix it together.”

Single sourcing requires the German mindset. You have to be willing to do the work.

If you give a supplier 100% of the business, you lose the ability to threaten them with “I’ll leave tomorrow.” But you gain the ability to demand Total Transparency.

When I sign a Single Source agreement, I demand:

1. Open Book Costing: I need to see your profit margins.
2. Process Control: I need to see your live production data.
3. No Subcontracting: You cannot farm this out to your cousin.

I am not just buying a part. I am buying a dedicated extension of my own factory.

The “Warm Backup”: How to Sleep at Night

So, how do you protect yourself from the fire, the earthquake, or the bankruptcy of your single source?

You do not need an active second supplier. You need a passive one.

I call this the “Warm Backup” (The Shadow).

Here is the protocol:

1. Identify a Second Supplier: Vet them. Audit them. Negotiate a price.
2. The “Ghost” Tooling: This is the expensive part, but necessary. Pay for a set of tooling (molds/fixtures) at this second supplier.
3. The Annual Run: Once a year, place a small order (5% of annual volume) with the Backup Supplier.
   • This proves the tooling works.
   • This keeps their account active in your system.
   • This reminds the Primary Supplier that they are replaceable.

The Cost Analysis:

• Paying for duplicate tooling costs money ($20k - $50k).
• But splitting your production volume 50/50 might cost you $0.50 per unit in lost efficiency. Over 200,000 units, that is $100k/year.

The “Warm Backup” is cheaper than the “Active Split.”

It gives you the leverage of single sourcing (volume pricing, priority) with the safety net of dual sourcing.

The “Golden Handcuffs” of Single Sourcing

There is a final, hidden benefit to single sourcing: Intellectual Property (IP) Protection.

If you have two suppliers making the same proprietary product, your secrets will leak. Supplier A will hire an engineer from Supplier B. They will talk at the local bar. Eventually, a copy of your product will appear on Alibaba.

If you have one deep partner, you can lock them down. You can sign a strict NDA. You can monitor their IT security. You can tell them: “You are the only one in the world making this. If a copy appears, I know it came from you.”

There is no “it was the other guy” excuse.

Final Thoughts: Focus is the Ultimate Weapon

Supply Chain Minimalism is about removing friction. Managing two relationships is friction. Managing two sets of variations is friction. Mediating arguments between two suppliers is friction.

A single, strong, verified, and deeply integrated supplier is a weapon. They know your shortcuts. They know your quality standards. They anticipate your needs.

Yes, it requires trust. But as I always say: Trust, but verify.

Do not be afraid of the single basket. Just make sure you are the one holding the handle, and make sure you watch that basket like a hawk.

Stop dating. Get married. And sign a prenup (the Warm Backup).