Sourcing Strategy (Single/Dual/Global)
A sourcing strategy (single/dual/global) defines how many and which suppliers a company uses for a material group: single sourcing concentrates demand on one source, dual sourcing splits it across two, and global sourcing opens procurement to worldwide sources.
A sourcing strategy (single/dual/global) is the fundamental decision about how many and which suppliers a company uses to source a specific material group or item. It answers two core questions: how many sources of supply should there be, and from which geographic area should they come? The first question yields single sourcing (one source), dual sourcing (two sources) and multiple sourcing (several sources); the second yields local, domestic and global sourcing. The strategy therefore largely determines purchase prices, security of supply and dependence on individual suppliers.
Sourcing strategies are part of strategic procurement: they are set per material group, not blanket across the whole company. An A-item with a high value and few vendors requires a different strategy than an interchangeable C-item. The goal is always a viable balance of cost, quality, availability and risk. In the ERP system, the chosen strategy is reflected in the supplier master, framework agreements, purchasing conditions and the rules of requirements planning - for example, whether a purchase order proposal is automatically assigned to just one main supplier or to several sources.
At a glance
- Single sourcing = one source per material: low cost, close ties, high risk of disruption
- Dual/multiple sourcing = two or several sources: more security and competition, more effort
- Global sourcing = worldwide procurement: price advantages against longer lead times and more risk
- Decided per material group, not blanket - depending on value, criticality and market situation
- Mapped in the ERP via supplier master, framework agreements, purchasing conditions and planning rules
The dimensions of a sourcing strategy (single/dual/global)
A sourcing strategy cannot be reduced to a single metric. The usual approach is to classify it along several dimensions that can be combined. The best known is the number of sources of supply (supplier concept); alongside it are the geographic area (procurement area), the number of value-creation stages and the degree of inventory holding. Single, dual and global address the first two dimensions and are therefore often mentioned together - yet they describe different aspects and are not mutually exclusive.
By number of suppliers: single, dual, multiple
Single sourcing deliberately concentrates the entire demand for a material on a single supplier, even though several would in principle be available. It lowers unit and process costs through volume pooling, enables close development partnerships and reduces coordination effort - but increases dependence. Dual sourcing deliberately splits demand across two sources, often in a fixed ratio (such as 70/30). It secures supply if one source fails and keeps competition alive, but costs volume discounts and adds administration. Multiple sourcing uses several interchangeable vendors and maximizes price competition and flexibility, typical of standardized commodity parts.
By procurement area: local, domestic, global
With global sourcing, the procurement market is deliberately opened worldwide to tap price, quality or technology advantages and to reduce dependence on domestic vendors. Against this stand longer replenishment times, currency, customs and transport risks, and higher coordination and quality-assurance costs. Local and domestic sourcing (regional and national respectively) score with short supply routes, easy communication and lower risk - often at higher unit prices. After the supply-chain disruptions of the early 2020s, relocation back home (reshoring, nearshoring) is gaining importance as a deliberate countermovement to global sourcing.
How companies set a sourcing strategy
The strategy is chosen per material group and rests on a structured assessment. A widely used tool is the Kraljic procurement portfolio analysis: materials are placed in four fields according to profit impact (purchasing volume) and supply risk - non-critical, leverage, bottleneck and strategic items. The matching strategy follows from the field: for leverage items with many vendors, multiple or global sourcing is worthwhile for price optimization; for strategic items with high risk, dual sourcing or a partnership-based single-sourcing relationship with contractual safeguards is often recommended.
Beyond cost and risk, further criteria feed in: the criticality and re-availability of the part, the required quality and certifications, the pace of innovation, legal requirements, and sustainability and compliance demands on the supply chain. The strategy is not a one-off decision but is reviewed regularly - for example when a sole supplier becomes a concentration risk or the procurement market shifts. A sound supplier evaluation provides the data basis for this.
Benefits and risks compared
Every strategy is a compromise between conflicting goals. Single sourcing minimizes cost and complexity and fosters deep collaboration, but leaves the company vulnerable: if the source fails through insolvency, strike, fire or a natural event, supply grinds to a halt. It is precisely this concentration risk that the supply-chain disruptions around 2020 brought home to many companies. Dual and multiple sourcing buy failover security and negotiating power at the price of smaller volume discounts, higher coordination and quality effort, and more demanding supplier management.
Global sourcing opens access to cheaper or technologically leading sources and spreads geographic risk, but brings long lead times, larger safety stocks, exchange-rate and customs risks, and quality that is harder to control. The right choice therefore does not depend on one variant being generally superior, but on the specific material group, its criticality and the market structure. Many companies deliberately combine the approaches - for example single sourcing for innovation parts while qualifying a second supplier in parallel as a fallback option.
Sourcing strategy in the ERP system
An ERP system implements the chosen strategy operationally. The supplier master holds one or more suppliers per item with purchasing conditions, replenishment times and priority; via supplier-item relationships, main and alternative suppliers as well as sourcing quotas can be stored. Framework agreements and price lists map agreed volumes and tiered prices that requirements planning follows. This way, a purchase order proposal under single sourcing can be assigned automatically to the main supplier, while under dual sourcing a stored quota splits demand across two sources.
Beyond operational purchasing, the ERP provides the data basis for strategic control. Analyses of purchasing volume per supplier, on-time delivery, complaint rates and price development make dependencies and concentration risks visible and support supplier evaluation. Metrics from ABC and XYZ analyses help classify material groups sensibly and assign the matching sourcing strategy. To connect supplier portals, electronic catalogs or e-procurement platforms, ERP systems use interfaces such as EDI or an API.
Sourcing quotas and alternative suppliers in requirements planning
The practical core of the ERP mapping lies in requirements planning. If a sourcing quota is stored per item, the system can distribute the calculated demand across the defined sources on a rule basis and generate a separate purchase order proposal for each. Alternative suppliers stand ready as a fallback option in case the main supplier cannot deliver. This way, the sourcing decision made at the strategic level is translated into the daily ordering process without manual assignment.
Delimitation: sourcing strategy, procurement and make-or-buy
The sourcing strategy is a building block of the broader procurement function, but not identical to it. Procurement covers the entire supply process from requirements determination through ordering to goods receipt and invoice verification. The sourcing strategy, by contrast, answers the upstream strategic question of how many and which sources a material group is fundamentally obtained from. It therefore does not control the individual ordering transaction, but the framework within which it takes place.
To be distinguished from this is the make-or-buy decision, which comes even earlier: it clarifies whether a service is externally sourced at all or provided in-house. Only once "buy" is settled does the sourcing strategy take effect. Also related, but narrower, are concepts such as just-in-time or consignment stock - they concern the temporal and logistical design of delivery and can be combined with any number of suppliers.
Example
Example: electronics manufacturer switches from single to dual sourcing
A mid-sized manufacturer of chargers sourced a central microchip exclusively from a single Asian supplier for years - cheap, closely coordinated and with joint development. When this supplier suffered a production outage lasting several weeks, the company's own manufacturing came to a standstill because no qualified second supplier was on hand.
As a result, the company switched the material group to dual sourcing. A second supplier was qualified and stored in the ERP with its own supplier-item relationship, purchasing conditions and a sourcing quota of 70/30. Requirements planning has since distributed purchase order proposals automatically across both sources. The unit price rose slightly because volume discounts fell away, but the risk of disruption dropped markedly and the negotiating position improved. Through reporting, purchasing keeps an eye on volume, on-time delivery and quality for both suppliers.
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