Single Sourcing vs. Sole Sourcing vs. Multisourcing: What’s the Difference?

For a long time, manufacturers, importers, and other businesses perceived sourcing and procurement in a straightforward, one-dimensional way. Establishing a relationship with a single supplier was almost always preferable because it fostered continuity, simplified the supply chain, and yielded the many benefits that come with investing in a long-term partnership. There also wasn’t the same level of strain on supply chains that made relying on multiple suppliers a necessity.

The pandemic era, however, challenged that longstanding conventional wisdom. The manufacturing shortages, shipping crises, and waves of turbulence that roiled supply chains throughout 2020 and 2021 threw a painful light on the vulnerabilities that come with the widely embraced single sourcing strategy. 

Businesses in key sectors like energy, healthcare, and aerospace and defense incurred crippling supply chain disruptions during the first two years of the 2020s, with average annual losses for larger firms climbing north of $180 million. In the years since, companies have shifted their procurement strategies in significant ways. According to a survey published by Deloitte in October 2022, 63% of public companies have increased the level of dual and multisourcing they engage in (the figure was even higher for private firms). The rationale behind this evolution in thinking is not particularly difficult to discern. Organizations are beginning to understand the economic value conferred by supply chain resilience—a supply chain risk management (SCRM) measure that often starts with transitioning away from the perils of sole sourcing. 

According to a survey published by Deloitte in October 2022, 63% of public companies have increased the level of dual and multisourcing they engage in (the figure was even higher for private firms).

But what, exactly, is sole sourcing, and how does it compare to alternative procurement methods like single sourcing and multisourcing?

Sole Sourcing 

Though the terms “sole sourcing” and “single sourcing” are often used interchangeably, they refer to distinctly different supply chain circumstances. A company is engaging in sole sourcing when they are working with a single supplier to purchase a part, product, or commodity that is not available from any other vendors. The buyer has no alternative suppliers to choose from, and therefore has no choice but to work with the sole existing manufacturer—the only game in town, as it were. This is, by some definitions, a monopoly and a monopolistic market. 

Benefits

• Access to a singular, irreproducible product and the proprietary technology and functionality that come with it. In many cases, sole sourcing is established because a single supplier is manufacturing something so valuable and difficult to produce that no other companies are able to enter the marketplace with a competitive alternative. 

• Fewer demands on company personnel. When practicing sole sourcing, strategic sourcing specialists and procurement professionals don’t have to research, identify, and engage multiple suppliers. Further, they don’t need to invest the time required to familiarize themselves with the larger vendor landscape. 

Costs

• Single source dependencies. When a company can only source a product or part from a single supplier, they’re highly vulnerable to any disruptions experienced by that manufacturer. Anything from a factory shutdown to a labor strike to a compliance snafu can have an immediate and significant impact on the buyer’s supply chain continuity. 

• A demonstrable lack of leverage. Vendors that function as the sole source of certain products, goods, or materials are often referred to as monopolistic suppliers because they hold exclusive control over that specific market. As a result of that market dominance—and the competitor vacuum that comes with—these companies have a great deal of power and latitude with their customers. They’re able to set prices, impose barriers to entry, and establish the ground rules for doing business with them more broadly. 

Why Sole Sourcing Matters Today 

One of the most compelling examples of sole sourcing today can be found in the semiconductor manufacturing industry. Taiwan Semiconductor Manufacturing Company (TSMC) controls around 55% of the global market for contract chip fabrication, and manufactures a staggering 90% of the world’s leading-edge semiconductors (chips used for higher-order functions like AI and quantum computing). Some of the largest and most profitable technology firms in the world engage in sole sourcing with TSMC. This is because few, if any, other foundries are capable of producing a comparable product. 

Taiwan Semiconductor Manufacturing Company (TSMC) controls around 55% of the global market for contract chip fabrication, and manufactures a staggering 90% of the world’s leading-edge semiconductors (chips used for higher-order functions like AI and quantum computing).

These conditions have led some organizations to characterize the chip fabrication market in stark, damning terms. The American Economic Liberties Project has called TSMC a “manufacturing monopoly” that is “dominating the fabrication of most advanced ‘leading-edge’ logic chips.” Until an alternative foundry emerges that’s capable of offering a competitive product in the hyper-specialized, niche market of advanced chips, however, companies will continue to practice sole sourcing with TSMC. 

Single Sourcing 

Single sourcing is similar to sole sourcing in that it entails a company sourcing goods from one supplier. The crucial difference, though, is that businesses practicing single sourcing are actively choosing a single manufacturer among a field of possible vendors. Firms participating in single sourcing are not operating within a monopolistic market, and can always reach out to alternative suppliers to seek out better prices, more accommodating terms, or a superior product. 

Single sourcing has historically been seen as the most convenient and advantageous procurement method. As Deloitte puts it, the single sourcing strategy has “traditionally been considered a preferable approach to sourcing.”

Benefits

• Clarity and simplicity. Working with a single supplier reduces the burden on procurement teams, who often have to maintain an unwieldy sprawl of supply chain relationships. 

• Price stability, supply continuity, and other advantages. Engaging in an exclusivity agreement with a specific supplier can bring a range of benefits that aren’t available to other companies. This could include more competitive pricing, a guaranteed supply, and preferential treatment when it comes to factors like service and distribution. 

• Transparency and personalization. Working with a single supplier over the longer term often leads to a closer relationship between the company and its vendor. That sort of consistent, sustained business builds trust—which, in turn, leads to stronger communication, higher levels of transparency, and more personalized service. While these might be largely intangible benefits, they can collectively contribute to a better, more seamless experience for manufacturers.

Costs

• Supply chain vulnerability. As with companies engaging in sole sourcing, firms that practice single sourcing are assuming all the risks that come with their supplier. Any disruptions experienced by the vendor—including manufacturing issues, extreme weather events, financial problems, or cybersecurity attacks, to name just a few—are going to extend to the buyer, too, negatively affecting their production and supply chain continuity. 

• Lack of innovation. While having a stable supply of a specific product or part confers security and peace of mind, that continuity can also breed complacency. Companies that stick with a single supplier for years may not be exposing themselves to compelling alternatives, newer technologies, and other advancements taking place in that particular product space. 

Why Single Sourcing Matters Today 

Single sourcing continues to be a relevant and highly popular procurement strategy. Part of this has to do with the sheer scale and complexity of modern supply chains. Manufacturers that source electronic components have hundreds of direct suppliers and thousands across all their sub-tiers (automakers, for example, have around 18,000 suppliers throughout their value chain). When sourcing becomes this dizzyingly expansive, firms often find significant logistical and administrative relief by maintaining a relationship with a single supplier for a given part or subassembly. 

Manufacturers that source electronic components have hundreds of direct suppliers and thousands across all their sub-tiers (automakers, for example, have around 18,000 suppliers throughout their value chain).

Put more concisely, the simplicity and directness that’s made single sourcing the most attractive procurement strategy for decades may hold even more appeal in the dense, labyrinthine supply chains that snake through the world in 2024. 

Multisourcing 

Multisourcing is the practice of establishing relationships with multiple suppliers for the same, or very similar, products. This sourcing strategy has gained significant traction over the last five years, as a cascade of disruptions set off by the coronavirus pandemic, geopolitical instability, and escalatory trade conflicts have snarled supply chains and cast doubt on the single-sourcing status quo. 

As multisourcing has increased in popularity over the first half of the decade, a string of other, synonymous terms have taken root that generally refer to the same set of practices. These include dual sourcing, competitive sourcing, and supply chain diversification. 

Benefits

• Risk management. Ask manufacturers and their strategic sourcing professionals why they’ve transitioned from single to multisourcing, and the majority will cite a single reason (though it may be communicated using different terms of art): the reduction of risk. Multisourcing helps companies cut down on their supply chain dependencies, eliminate single points of failure, and reduce other potentially costly vulnerabilities. As researchers at the University of Tennessee put it in a 2017 academic paper on the practice, “Multiple sourcing can help reduce a firm’s exposure to various types of risk, e.g. shortages, strikes, natural disasters, technological uncertainty and can help maintain competitiveness between suppliers.”

• Bargaining power. Multisourcing is an effective way to stimulate competition between prospective suppliers. By working with multiple vendors for a specific product, companies create valuable leverage for themselves. Manufacturers that know they’re competing for a firm’s business are incentivized to offer better prices, more attractive contract terms, and even faster delivery times. 

Costs

• Greater complexity and time investment. For all the ways that dual sourcing reduces risk and enhances supply chain resilience, it also requires more work. Procurement teams employing the strategy have to juggle more contracts, phone calls, documentation, and everything else that business partnerships entail. 

• Weakened supplier relationships. Vendors aware of the fact that their customers are using other suppliers may not feel as invested in the supply chain relationship as they would under more exclusive arrangements. This sense of tenuousness may lead them to deprioritize the partnership, reduce transparency, and generally provide a lower level of service. 

Why Multisourcing Matters Today 

There is profound relevance and appeal to multisourcing in today’s tumultuous supply chain environment. To take just a single representative example, U.S. businesses that source from Chinese electronics manufacturers are at near-constant risk of facing import controls that could impose prohibitive tariffs or else cut them off from their suppliers entirely. The tariff rate for Chinese semiconductors, to cite one foreign product, is set to increase to 50% in 2025. Companies that foster relationships with multiple vendors are able to remain agile and responsive to disruptions like these. 

The tariff rate for Chinese semiconductors, to cite one foreign product, is set to increase to 50% in 2025.

Additionally, the steady increase in extreme weather events worldwide—including devastating hurricanes and typhoons, crippling droughts, and destructive floods—deepen vulnerabilities across global supply chains. Companies that practice single-sourcing amid a stark rise in billion-dollar climate disasters are effectively declining to fortify themselves against the factory shutdowns and manufacturing disruptions that are inexorably triggered by such calamities.

Gauging Supplier Risk in a Threat-Laden World 

While employing diligent, deliberative sourcing practices is always an effective supply chain risk management (SCRM) strategy, businesses would also do well to recognize the value of knowing their suppliers. Given the sheer breadth and diversity of risks that these manufacturers now face, the stakes are arguably as high as they’ve ever been for companies to educate themselves on who they’re going into business with. This means obtaining visibility into prospective supply chain partners, carrying out risk assessments, and poring over legal and financial histories. 

Companies determined to mitigate supplier risk in a comprehensive fashion often leverage SCRM software to help them reach their objectives. Z2Data, an industry-leading platform, provides customers with in-depth profiles of over 150,000 worldwide suppliers. The tool allows businesses to examine everything from financial records and patent filings to key management changes and past litigation. Moreover, Z2Data renders detailed risk scores for tens of thousands of suppliers. By feeding criteria like ESG performance, data transparency, geopolitical context, and a range of financial data into a proprietary algorithm, the tool provides customers with a holistic, actionable picture of the threat posed by businesses. 

Z2Data, an industry-leading platform, provides customers with in-depth profiles of over 150,000 worldwide suppliers.

To learn more about Z2Data and the wealth of actionable supplier insights the platform provides to customers, schedule a free demo with one of our product experts.