In today’s unpredictable climate, supply chain diversification remains a tried-and-true strategy. Amidst skyrocketing costs, driver shortages, and demand shocks, an effective risk management method isn’t just an advantage—it’s a necessity.
Over the last year, 59% of businesses have adopted new risk management tactics. Many have begun diversifying their supply chains, turning away from single-supplier sourcing and supplier consolidation. This approach tackles regional and global uncertainties head-on, equipping businesses with the flexibility and agility to drive resilient supply chains.
Expanding supply networks mitigates risk
Over the last few years, economies worldwide have seen significant material shortages and production delays. In early 2020, COVID-19 forced China to shut down many of its factories, leaving thousands of companies with unfulfilled orders. Meanwhile, factories in Europe and the U.S. resumed normal operations—until the worst of the pandemic shifted westward. Last year’s Suez Canal blockage exacerbated existing disruptions, delaying nearly $10 billion’s worth of goods each day.
While low-cost labor and production might result in short-term savings, many fail to account for long-term risk. How can businesses avoid unforeseen disasters? Diversifying supplier networks—by relying on multiple suppliers instead of one consolidated source—is essential. By establishing multiple regional supply chains, businesses can avoid major production and manufacturing delays. Doing so also ensures agility: logistics teams can quickly adopt new strategies and maintain consistent cash flow in the event of a public health crisis or geopolitical instability.
The right diversification strategies pay dividends
A transportation management system (TMS) can help businesses looking to jump-start diversification. TMS platforms provide real-time insight into the movement of raw materials and finished goods, allowing businesses to optimize procurement, transportation, and costs. Fueled by a centralized, intuitive interface, this technology streamlines sourcing by providing data-driven supplier recommendations. The result? Businesses can mitigate risk by diversifying their supply base—without sacrificing cost-efficiency or overhauling daily operations.
Businesses can further refine their diversification strategies by considering regional advantages and drawbacks. Nearshoring, or moving production and operations to a nearby country, may prove useful—especially for those whose final market lies within or near the area in question. To diversify production, for example, American businesses might consider transferring a portion of labor from China to Latin America. In time, this strategy can improve oversight and flexibility, maintain cost-efficiency, and reduce dependence on factories halfway across the globe.
Diversification: a risk in its own right
For logistics teams everywhere, diversification can be a transformative risk management strategy. Proper foresight is critical, ensuring both efficient adoption and long-term success. What precautions should businesses take when pursuing diversification?
- Fine-tune existing logistics tactics. Diversifying production involves countless complexities. Consider China, a primary production and manufacturing hub: its ports, designed to accommodate massive container ships, process some of the highest daily shipment volumes in the world. When moving production elsewhere, businesses must consider the capacity and speed restrictions of smaller, less advanced ports—and the transshipment requirements and longer transit times that may accompany them.
- Maintain backup inventory. Due to bureaucratic delays or supply shortages, new suppliers may be temporarily unavailable. In these cases, keeping backup stock—enough to meet short-term demand—is essential. By doing so, businesses can immediately fulfill their customers’ orders and circumvent pricing surges.
- Consider environmental, social, and governance (ESG) impact. ESG regulations, such as those governing labor and sustainability, have transformed the way businesses approach sourcing and compliance. A thorough evaluation process can filter out unethical, non-compliant suppliers, and instead spotlight those that meet fair labor, sustainability, and product safety standards.
More resilient supply chains await
Logistics teams need smarter, more reliable solutions to navigate global supply chain challenges. By diversifying their sourcing, businesses can effectively mitigate risk—a must in today’s high-stakes environment.
CTSI-Global’s groundbreaking software—including Honeybee TMS™, our proprietary TMS—helps connect businesses with the suppliers they need. As inevitable as they are, supply chain disruptions don’t have to be a nightmare—nor is the right diversification strategy out of reach. Instead of wondering what if, businesses can ask a better question: what’s next?