When to split a Production Order (PO) between vendors

I had an email today from Chuck over at Supplier Global Resource magazine, a magazine for the promotional products industry. Supplier Global Resource Magazine.  Chuck is doing an article on China and had a question for me as follows:

“The process you describe in your four-post series is pretty thorough, and seems to cover a lot of the bases. But I was curious if, at the end of the process, a company had 2 or 3 Chinese candidates they felt comfortable proceeding with – would there be any benefit to placing an order with more than one manufacturer, possibly splitting a large order, to best determine the qualities of each manufacturer?”

My reply:

Good question. It is a good theory but in practice I don’t think works, at least not for most of the small businesses I assist. And for this reason:  Most companies that source in China have hard orders they have to fulfill and there are expectations from their customers, usually big box retailers, as far as delivery dates, not to mention quality standards and pricing. So most small companies do not have the luxury of time nor the resources to try out hard orders on as yet untested suppliers. They usually have to designate one supplier and hope things go well. If they don’t they salvage what they can and move on to the next supplier.The one exception would be if I had a new product that I was marketing online only, and the scope of my business was small,  Then I might try as you suggest. In this case, I would not have firm delivery dates to meet and could proceed cautiously, maybe trying out multiple suppliers at the same time to see who might be a good long term partner for me.

I will say that I have worked with companies that have resorted to the practice of splitting large orders between suppliers but usually those suppliers are already verified suppliers. And usually there are two reasons they do this.

1.)  They have a big order and one supplier alone cannot meet the delivery dates. Most of the time it is for this reason.

2.)  They have had a problem with one of the suppliers in the past e.g. usually quality or late delivery and are nervous about giving a big order to this supplier. Dividing a production order among 2-3 suppliers ensures that they will have at least some good product to pass on to their customers in a timely manner.

I would add that I have always found it very risky to divide production between suppliers. The reason is this:  Let’s say you have an order for 50,000 promotional shirts for a large US retailer. This retailer has very strict compliance guidelines.  50% of the order you do with Vendor A and the other half with vendor B.  When the shirts come in you find that the shirts from Vendor A are a slightly different color than the shirts from Vendor B and the large sizes from Vendor A’s are also running small.  The result is that your customer is not happy with the  wide variance in quality, issues charge backs and cancels all future orders.  In short variation in production lots from just one vendor can be a major challenge depending on the product.  So when you have more than one vendor producing the same product it becomes a major challenge to maintain product standards and consistency.

In sum: I have always advised people to try to have as few vendors as possible, a major vendor or two and then a couple back ups.  In Chinese there is an expression. 人多手杂。 Trans:too many cooks spoil the broth

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