One Supplier Away From Shutdown: 6 Rules for Single-Source Risk and Dual Sourcing

On March 17, 2000, lightning hit a power line in New Mexico and started a small fire at a Philips chip plant in Albuquerque. Sprinklers put it out in about ten minutes. The smoke and water, however, contaminated the plant's clean rooms, and the factory supplied radio-frequency chips to the two biggest phone makers in Europe: Nokia and Ericsson.

Nokia noticed the irregular deliveries within days, sent engineers to Albuquerque, redesigned some chips and locked up alternative capacity from other plants. Ericsson relied on that single plant for key components and had no backup ready. It lost months of production and hundreds of millions of dollars in sales, as the Wall Street Journal reported in January 2001. Within a year Ericsson had moved its phone business into a joint venture with Sony.

The same fire hit both companies. Only one of them had already decided what it would do if a supplier disappeared.

Our group was founded in 1890 and today runs eight business verticals in more than 75 countries. In wine and mineral water, a missing input stops a bottling line as surely as a broken machine: glass, closures, labels, capsules, cartons. These are the six rules I use to decide where one supplier is acceptable and where it is a risk we cannot carry.

Single source is a choice. Sole source is a condition

Procurement people use two terms that sound alike and mean different things.

• Single source: other suppliers exist, but you chose to buy from one, usually for price, quality or simplicity.
• Sole source: only one supplier can provide it, because of a patent, a unique capability or a regulatory approval.

Single sourcing is often the right call. One supplier gives you volume discounts, a simpler relationship and a partner who knows your specification. The problem is not single sourcing itself. The problem is single sourcing that nobody decided on, where the company drifted into dependence because the first supplier was good enough.

Rule 1: Map dependency, not spend

Most supplier reviews start from the spend report, which ranks suppliers by how much you pay them. That is the wrong list. A label printer you pay a small fraction of what you pay for grapes can stop every shipment just as completely.

For every purchased input, I ask two questions:

• How long would it take to replace this supplier? Days, weeks, or months.
• What stops if it fails? One product, one plant, or the whole company.

Put the answers on a simple grid. The inputs that are slow to replace and stop everything are your real exposure, regardless of what they cost. In our experience that list is short, often under a dozen items, and almost never matches the top of the spend report.

Rule 2: Compare time to recover with time to survive

David Simchi-Levi of MIT, writing in the Harvard Business Review in 2014, proposed a clean test that he developed with Ford. For each supplier, estimate two numbers:

• Time to recover (TTR): how long the supplier would need to be fully running again after a disruption.
• Time to survive (TTS): how long your company can keep meeting demand without that supplier, using stock, substitutes and other sources.

If time to recover is longer than time to survive, you have a gap, and that gap is where you should spend money first. The test is powerful because it ignores the probability of the event. You do not need to predict a fire, a strike or a port closure. You only need to know what would happen if it occurred.

Rule 3: Qualify the second source before you need it

A backup supplier that has never delivered is a phone number, not a backup. Qualifying a new source for a critical input takes time: samples, trial runs, quality checks, label and packaging approvals, and sometimes customer sign-off.

The 2022 US infant formula shortage showed what happens when that work is not done in advance. After Abbott recalled formula and closed its plant in Sturgis, Michigan, in February 2022, out-of-stock rates at US retailers reached 43% in the week ending May 8, according to retail data reported by PBS. The Baker Institute at Rice University noted that four companies controlled about 90% of US formula sales. When a market has almost no qualified alternatives, a single plant becomes a national problem.

My rule: for every input in the danger zone of Rule 1, a second supplier must have delivered real product that passed our quality checks within the last 12 months.

Rule 4: Split the volume so the backup stays warm

Qualifying a second supplier once is not enough. A supplier who receives no orders will not reserve capacity for you when the market is tight, and may not even remember your specification.

Give the second source a real share of the business, enough that you matter to them. A split like 70/30 or 80/20 keeps the main supplier's volume discount mostly intact while keeping the second one active and familiar with your product. Yes, you may pay a little more on the smaller share. Treat that difference as an insurance premium, and compare it with the cost of a stopped line.

This works best when you talk openly with both suppliers. A dual-sourcing policy is not a threat. Good suppliers understand that a customer who survives a crisis keeps buying. It also strengthens your hand in the next negotiation, as I explained in how to negotiate with suppliers.

Rule 5: Look one tier down

Two suppliers do not always mean two sources. Your two label printers may buy paper from the same mill. Your two packaging suppliers may depend on the same raw material producer. The Philips fire hurt Ericsson because it reached a plant one level below the company's own suppliers.

Ask each critical supplier where its critical inputs come from, and look for the names that appear twice. You will not map the whole chain, and you do not need to. You need to find the hidden shared dependency behind your "diversified" supply base.

Rule 6: Where you cannot dual source, buy time

Some inputs are truly sole source: a patented component, a specific mineral spring, a single approved packaging format. For those, the answer is not a second supplier but more time to survive:

• Buffer stock sized to the supplier's realistic recovery time, not to a round number of weeks. The trade-off between stock and cash is covered in how much inventory you should hold.
• Contract clauses that require early notice of problems, fair allocation of scarce capacity, and the right to move your tooling or molds to another producer.
• Insurance that covers losses caused by a supplier's disruption, not just damage to your own buildings. See our guide to business interruption cover.

Toyota offers the classic example. Reuters reported in 2021 that Toyota coped with the first months of the global chip shortage better than most rivals, partly thanks to a business continuity plan it built after the 2011 earthquake in Japan, which included asking suppliers to hold extra stock of chips. A decade of preparation paid for itself in a single crisis.

Key Takeaways

• Single sourcing is a valid choice; unplanned dependence on one supplier is a risk.
• Rank suppliers by how long they take to replace and what stops without them, not by spend.
• Compare each supplier's time to recover with your time to survive; close the biggest gaps first.
• A backup supplier only counts if it has delivered approved product in the last 12 months.
• Keep the second source active with a real share of volume, such as 70/30.
• Check one tier down for shared dependencies hiding behind two suppliers.
• Where only one source exists, buy time with buffer stock, contract clauses and insurance.

Frequently Asked Questions

What is a single source supplier?

A single source supplier is the only company you buy a specific input from, even though other suppliers could provide it. It is a deliberate choice, often made for price, quality or simplicity. It becomes a risk when the input is critical and no alternative has been qualified.

What is the difference between single sourcing and sole sourcing?

Single sourcing means you choose one supplier when others exist. Sole sourcing means only one supplier can provide the item, for example because of a patent or a unique capability. Single sourcing can be fixed by qualifying a second supplier; sole sourcing usually needs buffer stock and strong contract terms instead.

What is dual sourcing?

Dual sourcing means buying the same input from two qualified suppliers, usually with most of the volume going to one and a smaller share to the other. The goal is to keep a working alternative ready if one supplier fails, while still getting most of the benefits of scale.

What are the risks of single sourcing?

The main risk is that a single disruption at the supplier, such as a fire, strike, insolvency or quality problem, stops your own production. Other risks are weaker negotiating power and price increases you cannot resist. These risks are highest for inputs that are critical and slow to replace.

Find Your Ericsson Moment Before It Finds You

This week, pull your list of purchased inputs and mark the ones that would stop a product line if they disappeared for a month. For each one, write down the second supplier who could deliver tomorrow. Every blank line is a decision you have not made yet. The same thinking applies on the sales side of the business, where customer concentration can be just as dangerous.

To see how we apply these principles across eight businesses and five generations, explore the Manzanos Enterprises group.