How to Diversify Your Supply Chain
Those new to the logistics industry may believe the supply chain is an invincible force that a few delays or disruptions cannot shatter. This could not be further from the truth: the supply chain is just as vulnerable as the assets a company fortifies it with. If one asset fails, the entire chain is threatened, sometimes permanently.
To combat this, companies utilize a strategy called supply chain diversification. Instead of relying on one supplier, facility, or carrier to fulfill shipping needs, companies contract with multiple asset providers. The term usually refers to just having multiple suppliers; however, the concept can apply to your carriers and facilities as well.
This approach ensures that if one supplier or carrier is unable to fulfill demand or if a facility is rendered inoperative due to severe weather, alternative resources can step in to maintain operations. This keeps operations running smoothly while also avoiding disruptions and satisfying customers.
Manage Costs
Having multiple suppliers may increase the prices for shipping products, but having only one supplier at hand can be pricey as well. Suppliers who realize they are your company’s only source of supplies may jack up their rates in the future in exchange for exclusivity. Having multiple suppliers means suppliers, threatened by the competition, will offer better pricing and visibility.
Increase Flexibility and Scalability
Diversified supply chains are more agile and adaptable to any unexpected situations. Companies that invest in diversifying will be able to anticipate market demand and trends more efficiently while being able to predict and prepare for emergencies.
Reduce Risks and Build Resilience
Businesses with diversified logistics are better prepared for supply chain disruptions like natural disasters and political upheavals. Multiple suppliers and facilities allow operations to continue if one part fails. This approach enhances resilience to unexpected changes, enabling teams to rely on past data for guidance.
Implement Technologies
Every supplier and carrier experiments and utilizes different technologies and digital platforms to increase their efficiency. By working with multiple suppliers, companies can gain access to these innovations to create solutions that speed up production and improve both product quality and supply chain processes.
Guarantee Transparency
Trade rules and customs regulations are vital for ensuring transparency between domestic companies and international suppliers. However, distance can lead suppliers to ignore ethical standards. By locating facilities and suppliers nearby, companies can enhance compliance with regulations and find new suppliers that align with their values.
Improve Customer Satisfaction
When companies have multiple suppliers on hand, stockouts and backorders become a thing of the past. Businesses will always have a sufficient inventory of products that can be delivered to their customers on time and in perfect condition. This, in turn, satisfies customers and drives profits up.
How to Implement Supply Chain Diversification
Businesses desiring the benefits of supply chain diversification may not know where to start. After all, how do you find and balance multiple assets at once?
Step 1: Research suppliers, facilities, and carriers in your region.
When looking for suppliers and carriers, your main goal is to balance quality delivery with costs. You want your supplies and products to be delivered in ideal conditions, but you also don’t want to let the expenses interfere with profitability. Discuss with your team the goals and objectives you desire for your new suppliers and carriers so you know what to expect from them and vice versa. Monitoring progress via metrics and KPIs will help you in this regard.
It is the same with facilities; you want your fulfillment centers or warehouses to service your team and provide an adequate amount of space. However, you also don’t want the lease or rent costs to overtake your budget. You may also wish to have all your buildings to be within a respectable distance from one another to keep travel costs lower.
Step 2: Organize delivery schedules
When you have multiple suppliers and carriers on hand, determining delivery times can be a pain. You will need to carefully plan when your suppliers and carriers pick up or deliver to your locations and map out alternate locations and routes in the event a facility is unavailable.
The best way to organize delivery schedules is to use an automated system that can keep track of schedules and inform drivers of changes. That way, your team doesn’t have to worry about the arrival and departures of your supplies and shipments and can prioritize your efforts to other aspects of your supply chain.
Step 3: Have alternate suppliers and carriers in mind.
Even if you have a solid set of suppliers and carriers under contract, there is still a chance for trouble later on. When things go wrong or unexpected events disrupt your supply chain, having a contingency plan (or more) in place will make navigating the crisis easier.
Maintain an updated list of alternative suppliers and carriers. This will serve as a safety net in case a supplier or carrier goes out of business or encounters difficulties. Additionally, having this list will make it easier if you choose to switch suppliers or carriers, as you can start your search with readily available options.
Extra Tips or Diversifying Your Supply Chain
Need some more help on how to diversify your supply chain? Here are some additional suggestions for diversifying your supply chain:
– Mix regional and national carriers: While national carriers can go almost anywhere within the United States, it might be more prudent to employ regional carriers for more local deliveries. Leave the cross-country shipments to the national carriers.
– Keep facilities in the same region: To cut down on travel expenses and to maintain a tightly-knit network, try to lease or own facilities close to one another. They can be within the same city, the same state, or the tri-state area.
– Have backup systems in place: Your supply chain processes are valuable assets for maintaining flow but can fail during unexpected events. Ensure you have backups, such as multiple internet connections, order verification, and cloud storage for documents.
– Diversify customer base: While having dedicated customers can be good for long-term profit, overreliance will leave you cold if a customer ends their relationship with you. Shift production to need-based operations, target new customers with existing profits, and switch from B2B to B2C marketing to humanize your operations.
Supply chain diversification can be a valuable strategy for companies preparing for the worst-case scenario. Disruptions like system errors, natural disasters, and international conflicts can jeopardize your operations and create shipping delays and dissatisfied customers. To ensure your supply chain runs smoothly without interruption, it is essential to have contingency plans, including acquiring multiple suppliers, carriers, and facilities.
Diversifying your supply chain may pose initial challenges, but the long-term advantages are significant. A varied asset network reduces reliance on a single source, enhances resilience, and provides access to a wider range of products and innovations. This strategic investment can transform your company into a more agile logistics powerhouse, increasing efficiency, lowering costs, and improving customer satisfaction.
Protect your supply chain by experimenting with supply chain diversification. It’ll make your business stronger than ever before!
