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Consider a sourcing decision problem faced by a manufacturer (a buyer) and suppose that there are two suppliers that have the capacity and technology to provide a needed critical part for the manufacturer’s final product. Supplier1 is located outside the manufacturer’s country, and offers competitive price; however, this supplier is prone to breakdowns or the supplied material can experience substantial loss during transit due to long lead time and distance . Supplier2 is local, relatively reliable but more expensive. The buying firm thus has two sourcing alternatives to select. One is single sourcing, where supplier1 is used as the main and only source for the critical part. The other is dual sourcing, where supplier1 is the main supplier and supplier2 is secondary who is given a portion of the demand to produce during each supply cycle.
The supplier/service provider and defining the critical parts and risk sources in the process, i.e. products, components, sites, etc. The goal is to get a better understanding of what the probability and impact of the risks are. So far, more than10,000 components have been analyzed, mainly of first and second tier suppliers. First, each component is classified into four different classes depending on the number of sources:
(1) The product is currently sourced from more than one approved source (e.g. two
or more manufacturers or one manufacturer with two or more sites).
(2) The product is currently sourced from one approved source; other sources are
approved and available but not used.
(3) The product is currently sourced from one approved source; other sources are
available and approved but no tools, masks or other equipment needed are in
place.
(4) The product is currently sourced from one supplier. No additional manufacturer is available
I AGREE RAHMAN SHIEKH..........
am fully agree with your answer mr.wasi....thank you
Decision to sole source an item, particularly for manufacturing has many benefits as following:
1) Product Quality Variation
2) Product Cost Variation
3) Products from other source may require training to be provided
However it also have some cons in this policy. Which include greater supplier power and risk of supplier failure
The critical part may be an OEM item and thus a single source.
I agree with the experts.>>>>>>>>>>>
There are several reasons for doing this:
-Customers trust company's quality image and it is boosted by that critical component, because of possibility of damaging this trust, the company may want to source such component from that particular supplier only.
-Supplier has agreed to supply component at terms, that are acceptable to company.
-Supplier after so many years of this relationship, is now aware of company's sale pattern and so is able to anticipate the demand quantity for a season and plan his production so. This is helpful to component buying company because they cannot afford to lose customers for running out of stock for this component in peak times, plus can also limit their inventory carrying cost, knowing they may trust supplier. And so on.
I full agree with the answer been added by you MR Wasi Rahman Sheikh And other EXPERTS .
thanks.
In scenario where there would be one supplier to critical component in a manufacturing concern is where there is transfer pricing and group company is the supplier, ORThe manufacturing process is highly specialized and confidential type product, and also perhaps very high quality, so the sourcing would be a long process, where there has been lots of investigations into the viability of the supplier, the strength of its management, its shareholders, its liquidity (strength of its balance sheet). Will this supplier be around for a long time, it is a strategic supply component.
Agree with Mr. Wasi
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