Why Diversifying Your Supply Chain Is So Important
The Power of Diversifying Your Supply Chain – You don’t need us to tell you how essential supply chains are. Without them, we wouldn’t have access to food, health products or items that enable us to entertain ourselves, work, travel and more. Managing a supply chain involves working with a network of suppliers who are all connected via a centralised supply chain management process. Each supplier serves as a link that moves the product further along the chain.
Of course, the fact the suppliers are all linked creates the potential for some real disaster. An issue in one part of the chain can have a knock-on effect on the rest of the chain. This makes it important to diversify your supply chain. Below is a look at this and other reasons why diversifying your supply chain is so crucial.
Diversifying your supply chain mitigates risk
COVID-19 illustrated the damage that keeping a supply network small can do. In the early days of the pandemic, China shut down lots of factories because of the pandemic, and, as a result, lots of companies failed to complete their orders. Factories in Europe and the US were able to resume operations, but then the worst of COVID-19 shifted towards the West and wreaked havoc once more. A blockage in the Suez Canal also caused chaos.
Keeping production and labour costs low might generate savings in the short term, but many businesses fail to account for the long term. Diversifying supplier networks by sourcing from more than one supplier can help you to avoid disaster. Establishing regional supply chains can expose you less to delays in production and manufacturing. It also affords you agility: if a public health crisis or a geopolitical one emerges, you can maintain your cash flow and adopt new logistics strategies.
Diversifying your supply chain is necessary because of increasing profits and competition for suppliers
If you’re a large supplier, the chances are you’ll benefit from a bigger worldwide reach, stronger infrastructures and reporting, and more experience in your market. Diversifying your supply chain so that you bring more small and medium enterprises (SMEs) into the mix can reward you with some real benefits. SMEs, for instance, can provide more efficiencies and innovative services in a bid to stand out from their competitors. This means they may be willing to develop bespoke services or solutions that meet your requirements.
Diversifying your supply chain also creates the opportunity to analyse your costs, location and range of availability between suppliers. You can encourage competition to acquire goods and services at better prices. Prioritising supplier diversity can cut your costs considerably.
Diversifying your supply chain can soften your environmental impact
When diversifying your supply chain to prepare yourself for external shocks and protect yourselves against them, consider the environmental consequences of your decision. Sustainability is one of the biggest strategic initiatives into which businesses are now investing.
No matter how you transport materials, you contribute to greenhouse gas emissions. Diversifying too much can increase your impact on the environment, but sourcing from local suppliers may reduce it and cut down your transportation miles.
Exploring collaboration with new, diverse, local suppliers can help you to meet on-demand requirements as well. If you get the supplier diversification right, you can build greater resilience in your business, generate better outcomes in terms of social, environmental and governance outcomes, and potentially undertake more innovative and more cost-effective approaches.
Diversifying your supply chain provides access to diverse human talent
Diversity is good for business. The supplier can offer unique perspectives that can strengthen a business and support innovation in the supply chain. It can even go as far as enhancing the local economy.
A lot of companies are looking to make their teams more diverse to improve company culture and financial results. It’s been a game changer when it comes to recruitment, and a company that prioritises diversity stands a better chance of securing the opportunity to work with other businesses as a supplier. Diverse teams can be more productive, more engaged and more innovative.
As part of our procurement transformation service, we speak to your suppliers when conducting our review to gain an external view of how they work with you and any issues they may be experiencing. We can then make recommendations on how to improve these collaborations and also how you can enhance your supplier network as a whole. To find out more, contact us and see how we can overhaul your procurement operations, including your supply chain, for better performance.