How Can Supply Chain Diversity Mitigate the Risks
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Unexpected factors can have a significant impact on businesses. Recent years are proof positive, with examples such as the U.S.-China trade dispute and the COVID-19 outbreak. The pandemic sweeping the globe has brought the economy to a near standstill, forcing companies to re-evaluate their strategies. In the manufacturing sector, a growing number of companies are recognizing the importance of diversifying their supply chains in response to such disruptions. Relying on only one supply chain can put a company in a precarious position, like a raft adrift in the ocean.
Embracing a diverse supply chain can bring many benefits. In the following sections, we will take a look at the strategy of supply chain diversity in depth, and stress its significance and advantages for your best understanding. Without further ado, let’s move on.
Part 1. What Is Supply Chain Diversity?
1. Supply Chain Diversity Definition
Supply chain diversity, in the context of manufacturing businesses, refers to the strategic approach of engaging more than one supplier in sourcing to provide goods or services in multiple countries or regions.
2. Why Do You Need to Diversify the Supply Chain?
The supply chain encompasses all processes from sourcing raw materials to delivering the final product to the customer. It is a key link in turning ideas into reality and generating profits. The management and strategizing of the supply chain network have a far-reaching impact on business operations. Reliance on a single supplier alone can put a company exposed to risk. The recent global disruptions have highlighted the volatility of the environment. In the current market, the trend is to build a resilient and reliable supply chain. Diversifying supply chain not only helps to maintain stability but also provides many other benefits.
The purpose of having diversity in the supply chain is to expand sourcing options, optimize procurement timing for a competitive advantage in the market, mitigate risks and ensure the continuity of operations in the event of a supply chain disruption.
As a worldwide sourcing partner, SVI Global is well-equipped in this regard, with headquarters in the United States and offices in East Asia, Southeast Asia and Latin America. We have extensive knowledge of suppliers, manufacturers and logistics services in different countries. Whether offshore or nearshore outsourcing, SVI Global is committed to managing the supply chain efficiently while ensuring product quality.
Part 2. What Are the Benefits of Supply Chain Diversification?
Why would a business want to make sure that its supply chain is diverse? That’s because the pros of supply chain diversification strategies meet the strategic goals and impact a company’s overall performance. And the following are the benefits of diversity in the supply chain.
1. Improve Resilience of Companies
One of its pros is that a diversified supply chain can enhance the resilience of a company. By collaborating with different suppliers, manufacturers, etc., the company can minimize the impact of relying heavily on merely limited suppliers. In this case, companies can manage their supply chains and maintain stability if there is anything unexpected happens.
2. Reduce Potential Risks
This strategy involves identifying and diversifying risks within the supply chain. Disruptions such as natural disasters, geopolitical conflicts, or trade disputes can severely impact the supply chain. Supply chain diversification can spread sourcing across multiple suppliers, regions or countries. If one source is affected, companies can still work with alternative sources, which helps mitigate the impact of disruptions and ensure the continuity of operations.
3. Optimize Business Costs
A diversified supply chain contributes to optimizing overall supply chain expenses and improving the company’s financial performance. By exploring various sourcing options, companies can negotiate and leverage competitive pricing, and choose suitable suppliers based on specific circumstances. It reduces the risk of price fluctuations or sudden cost increases associated with depending on a single supplier.
For example, the imposition of increased taxes and tariffs between China and the US can significantly burden business costs. However, if a company has suppliers from other countries, such as Mexico, it can mitigate these costs by manufacturing products with alternative manufacturers and shortening the logistics time. This diversification strategy not only helps control expenses but also improves operational efficiency, ultimately contributing to improved cost-effectiveness for the business.
4. Adapt to the Market
There are different types of the supply chain diversity strategy, such as supplier diversity and geographic diversity. Geographic diversity in supply chain is to diversify the sourcing and manufacturing locations in various regions, enabling companies to access local or nearby markets more easily. This approach allows businesses to expand their geographical reach, gain market share, and establish proximity to customers, thus enhancing their ability to adapt to market demands.
5. Incentivize Innovation
Supply chain management provides organizations with the opportunity to tap into talent from various regions and industries. Diversity in the supply chain allows companies to access a wide range of ideas by collaborating with different suppliers who bring unique perspectives, expertise, and advanced technologies. This diversity of ideas serves as a catalyst for innovation, driving the generation of new ideas, and product improvements.
Part 3. Examples of Supply Chain Diversity
There are several notable examples of companies that have successfully implemented supply chain diversity strategies to gain a competitive advantage in the evolving business environment.
Apple Inc.: Forbes has illustrated Apple’s choice to diversify supply chains. Because of the lockdowns and geopolitical tensions in the world, companies who want to maintain their edge will start taking action to move or expand their supply chains out of the manufacturing giant, China. Apple Inc. is among the companies recognizing the need for diversification.
It has been relying on suppliers from China to produce its entire product lineup. However, this dependence on a single country has exposed Apple to vulnerabilities, particularly during the COVID-19 lockdowns. To mitigate these risks and ensure a consistent supply of products to customers, Apple has implemented a strategy of diversifying its supply chain across different regions.
Apple has taken the strategic decision to expand its manufacturing capabilities outside of China by producing iPhones in India and MacBooks in Vietnam. This approach has allowed Apple to reduce its reliability in individual countries and distribute its production across multiple locations, thereby increasing resilience and reducing potential disruptions in the supply chain.
Nike, Inc.: Nike is a global leader in the sports footwear and apparel industry and has strategically diversified its supply chain to mitigate risks and enhance operational efficiency. It started to explore other countries to settle its supply chain before the pandemic according to news from JustStyle. The regional diversity, expanding its distribution in North America (Los Angeles, Pennsylvania, Texas,) and Europe (Madrid and Belgium), helps Nike deliver goods to customers faster to lessen the global effect. Moreover, Nike also involves working with multiple suppliers and manufacturers across different regions and countries.
For instance, Nike has expanded its manufacturing operations beyond traditional hubs like China and Vietnam. The company has increased its production in countries such as Indonesia, Cambodia, and Bangladesh. By diversifying its sourcing and manufacturing locations, Nike reduces its dependence on any single supplier or region, thereby minimizing the impact of disruptions such as natural disasters, political instability, or trade disputes.
Part 4. Final Thoughts
Due to the shifting trend these years, the company now look for bets on multiple horses, learning the strategy of diversification in supply chain management. Supply chain diversity offers numerous benefits and strategic advantages for businesses. By having a diversified supply chain, companies can enhance their resilience, mitigate risks, optimize costs, adapt to market dynamics, incentivize innovation, and gain a competitive edge.
To get the best support with supply chains across borders, SVI Global can serve as an ideal partner for sourcing in various regions, collaborating with different suppliers and manufacturers. With our extensive supply chains spanning borders, we are well-equipped to assist you in building a diverse and inclusive supply chain. If you are interested in harnessing the advantages of supply chain diversity, please feel free to contact us. We are glad to assist you!
