A recent report on the state of the global supply chain describes the current climate as persistently unpredictable. That is not a favorable forecast for any company, regardless of what they are selling. Profitability in large part demands that schedules be kept. When supply chain issues challenge this factor by failing to deliver on deadlines, business begins to break down.
One option for addressing the current state of unpredictability is supply chain diversification. Businesses seeking to navigate the current supply chain climate can utilize diversification to increase their options and their flexibility.
Reducing Risk Exposure by Diversifying your Supply Chain
At its core, supply chain diversification is about providing businesses with more supply chain options. To simplify logistics and take advantage of economies of scale, businesses will often consolidate suppliers. The downside to that approach is that one system means one point of failure. If anything affects that supplier’s ability to deliver as expected, businesses can find themselves with no recourse other than to wait for the issues causing the delay to be resolved.
However, focusing solely on having more than one option will not necessarily reduce the business risks associated with supply chain breakdowns. To truly utilize supply chain diversification, businesses must incorporate a variety of options that respond differently to the issues that threaten to cause disruptions. In this way, they increase their chances of having a reliable option, no matter what disruptive issue has arisen.
Factors at Play in Supply Chain Diversification
Moving toward supply chain diversification involves addressing a wide range of logistical issues. Optimally, the links in the supply chain are determined based on convenience and cost. Building a supply chain that is flexible, however, requires looking at other factors.
For example, the location of suppliers is a critical factor to consider when pursuing diversification. Social, political, and weather events that can lead to supply chain interruptions are often geographically isolated. If such an event affects the production capabilities of a supplier in one area, diversification allows a business to pivot to a supplier in another geographic area that has not been affected. Although in such cases it can take time to transition production from a supplier in one location to another, it is crucial that businesses looking to diversify their supply chain plan ahead as much as possible. To this extent, using predictive analytics wherever possible can provide greater supply chain agility.
Transportation details are another important factor to consider when seeking to establish diversification. Many factors can interrupt product delivery, from weather events to labor disruptions to infrastructure breakdowns. Supply chain flexibility involves having options that rely on different delivery logistics.
Another important element to consider is that achieving diversification might mean onboarding suppliers that cannot produce or deliver on the same timelines as the first choice provider. A global provider, for example, may be able to provide materials more quickly than a smaller regional provider. Still, the regional provider may be the best option if supply chain disruptions make the global provider inaccessible. In such cases, businesses must have procedures in place to allow for a longer timeline.
Leveraging Technology to Achieve Diversification
Digitalization has made it considerably easier for businesses to implement and benefit from supply chain diversification. Thanks to the transparency that digitalization enables, businesses have a much greater capability for assessing their supply chains in real time and anticipating problems that are on the horizon. Businesses that have already developed diversification can make informed decisions about when to begin utilizing available options, as well as which options will be most advantageous.
Supply Chain as a Service (SCaaS) is a technological innovation that promises to dramatically increase flexibility in the supply chain and empower unprecedented diversification. In general, SCaaS platforms enable businesses to outsource components of their supply chain as needed, giving their users access to proven supply chain solutions that can be utilized as needed in order to supplement a business’ in-house logistics.
Furthermore, because it is cloud-based, SCaaS dramatically increases visibility and transparency along the supply chain, allowing businesses to respond to interruptions with a heightened level of efficiency. SCaaS also empowers businesses to build diversification into their supply chains by providing a broad selection of vetted providers based in countries around the world. SCaaS does the work of ensuring that a supply chain gap created by a disruption in one region can quickly be addressed by pivoting to a supplier in another region.
SCaaS also helps businesses to achieve and maintain supply chain diversification by streamlining the process for supply chain scaling. When disruptions demand a shift to a new provider, the logistics involved with ramping up production in a new facility can cause costly delays. In the same way, disruptions that require volume to be cut back can result in costly waste if supply chains take time to adjust. SCaaS provides diverse options that allow these issues to be addressed with minimal loss of efficiency for the business.
Businesses that hope to remain profitable despite the persistently unpredictable supply chain environment must find ways to increase their flexibility. Supply chain diversification serves as a solution that is not only viable but also accessible to a growing number of businesses, thanks to innovations empowered by digitalization.
Edward Routh is an enterprise technology entrepreneur who strives to leverage emerging technologies to solve conventional challenges. Originally from the UK, Routh began his career in product and marketing, setting up a product design studio in Los Angeles with a small team of passionate and creative entrepreneurs. Edward went on to work with startups across the technology sector, including eCommerce and digital retail, as well as gaining supply chain experience handling the manufacturing and distribution for a CBD company based in the UK. In 2020 he co-founded Relloe, Inc., a Supply Chain as a Service platform that helps businesses manufacture and transport products while providing end-to-end visibility over their supply chain. With over 30 years of experience, Relloe distinguishes itself as a leading resource for supply chain management and manufacturing for companies, operating across 15 countries with a footprint of 6,500 people.