THE headwinds of global trade have never been more volatile and unpredictable than today. The critical importance of establishing a robust supply chain ecosystem has never been more acute.
At the heart of every resilient supply chain ecosystem should be the capability to pivot and thrive amid supply chain challenges.
The Covid-19 pandemic, alongside its long-stretching pain points illustrated the hidden vulnerability of supply chains.
And the current trade barriers obtaining in major economies are also reshaping the supply chain management landscape.
Global supply chain disruptions experienced over the years have served as a wake-up call by exposing the vulnerabilities of relying on a narrow supply base. The increasing frequency of black swan events such as geopolitical tensions, natural disasters, and pandemics underscores the necessity of diversifying supply sources.
The lessons from recent supply chain disruptions are clear, it is important for businesspeople to spread their risks across multiple vendors in order to safeguard against potential geopolitical, economic and operational shocks.
The depth and breadth of the impact of such supply chain disruptions could be huge. Not surprisingly, the biggest priority for organisations today is to find a way of ensuring that there is continuity of supply.
Embracing supplier diversification paves the way for a host of competitive benefits that extend far beyond internal metrics. Supply chain diversification emerges as a pivotal thread for a sustainable supply chain model.
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There is more reason to double down on maintaining a diversification strategy in the complex tapestry of global trade. After years of cautious enthusiasm, supply chain professionals are beginning to see the importance of diversification.
Organisations continue to experience a series of disruptions that call into question the rationale of relying on a thin supply base. Today’s world of business is slowly turning into a war zone due to the dog fight for all forms of resources.
Today’s challenges, pandemics, supply chain disruptions and geopolitical tensions demand more immediate reactionary responses. Supply chain professionals are obligated to continue navigating an ever-winding course of ups and downs.
The key to future readiness lies in creating diversification platforms that were built to handle the exponential surge in supply chain challenges. The relevance of this very important concept has grown with increasing global trade complexities that we continue to witness. Natural disasters are joining a litany of factors elevating the challenges to a new level.
The suppliers that used to be sources of stability are the ones that are creating liabilities given that complex business challenges are now defying conventional solutions. These challenges now require multiplicity of thought which is where diversification becomes relevant.
Diversification refers to the expansion of the supplier base to include vendors from different locations or regions. A diversified supplier base acts as an insurance policy against unexpected supply chain disruptions.
Developing a robust supply chain ecosystem that can flex and absorb the impact of future turbulence is now a serious value proposition.
A diversified supply base is capable of ensuring an uninterrupted supply of goods and services even during the worst turbulent times. It has been proven over the years that such a model will be able to increase the overall supply security.
The spreading of risk among several vendors will create stiff competition for better pricing structures, improved quality and better delivery terms. It will breed a healthy competitive business environment that encourages suppliers to deliver best outcomes, resulting in a competitive posture in the marketplace.
At the end of the day, it is all about improving flexibility and redundancy in supply chain operations. Diversification will enable supply chain professionals to adopt swift pivots that will guarantee operational continuity whenever supply chain challenges rear their ugly face. Diversity of thought will infuse creativity.
It will spark the innovation mindset across the supply chain ecosystem. It will provide an array of fresh perspectives and solutions with businesspeople benefiting from the diversity of new ideas that are infused into an organisation’s supply chain.
Each different vendor has the capacity to bring its distinctive vantage point to the corporate conversation, challenging traditional thought processes in the process. If one supplier fails to fulfil a particular requirement, another competitor will be willing and able to step up and fill the gap, opening up a world of new possibilities.
Embracing suppliers from diverse backgrounds is very important because organisations will be better placed to navigate uncertainties. Tapping into this pool of creativity holds the power to transform the organisation.
The embracing of various types of suppliers from different locations, regions and or countries will allow organisations to leverage on dispersed production and sourcing capabilities across different geographical locations, resulting in increased global reach.
When an organisation has multiple suppliers competing for their business, they are in a stronger position to negotiate better prices, terms and conditions. Where there is no competition, an organisation may be forced to pay higher prices for products due to limited options.
Multiple sourcing strategies increase better product availability and variety. It will widen your supply chain, making it possible to stay responsive to customer demands.
Building a global network of vendors across multiple regional blocs provides a greater access to new raw materials, production equipment and expert labour resources. Different suppliers may offer your organisation different brands of high-quality materials with more options to choose from.
A diversified supply chain enhances agility, flexibility and responsiveness which will allow organisations to adapt more swiftly to market changes and disruptions.
During times of inflation or currency devaluations in a particular region, businesses with a more diversified supplier network can adjust to pricing fluctuations without significant disruptions to their margins.
Diversification also facilitates quicker adaptation to new market opportunities and ever-changing consumer demands. Organisations that embrace supply chain diversification are better positioned to capitalise on new product offerings and more technically advanced novel products at a moment’s notice.
Depending on a single region is a liability. Relying on monopoly or sole suppliers is akin to creating self-imposed limitations. Monopoly suppliers must not be allowed to define the future of your organisations.
Procurement professionals must be fully aware that the spreading of their spend across multiple vendors has got the added advantage of reducing the concentration risk. It will result in de-risking of the supply chain network.
Companies can reduce exposure to trade tensions and adapt faster to changing economic landscapes. A diversified supplier base also enhances resilience against natural disasters, cyber threats and financial instability.
Supply chain risks come in various forms, including supplier bankruptcy, quality issues, production delays and transportation disruptions. Diversification offers multiple backup options in case of supply chain risks at any stage of the chain.
It will act as a safeguard against the domino effect of concentrated shocks. Business can lower their exposure to country – specific risks such as political instability, economic downturns and natural disasters.
Organisations will be in a position to sidestep global gridlocks and political tariffs that are now coming in shocking frequency.
A supplier might no longer be dependable through no fault of their own, especially in isolated cases where there is prevalence of natural disasters, political unrest or economic instability. Diplomatic and trade issues can sometimes cause the supply chain to become fractured.
The knock-on-effect of such events has often exposed the fragility of current supply chains. Geopolitical uncertainties and tariffs have made single-source dependencies untenable.
Vendor diversification will mitigate the effects of relying heavily on a single point of failure. In some cases, your organisation’s specific supply chain partners may appear very strong, but your vendor’s vendors could be the weakest point in the chain.
The ripples of their failures may have a significant domino effect downstream. A single point of failure in the supply chain will have a cascading effect on your entire production process.
Diversification will prepare many supply chains to exploit changes in the economic environment through the use of breakthrough technology offered by a diverse supply chain network.
With a supplier diversification strategy, when you bring more technical partners into the mix, the innovation pipeline will expand with exposure to new ideas becoming a common feature. New technologies and novel operational systems will become common practice.
Cross-pollination of ideas will inevitably lead to new design concepts and technological improvements at very little cost. When you bring a diverse supplier base into the mix, the results will be amazing.
Coupled with that, a bigger network of vendors will bring the benefits of increasing the capacity to handle a much bigger production capacity when the need to scale arises at short notice.
While the future cannot be foretold, supply chain diversification strategy is the way to go.
The takeaway is that supplier diversification gives brands more than a passive safety net. Organisations are operating in a high stakes and challenging settings.
In procurement, foresight is power — those who see ahead, stay ahead. Those organisations that continue to operate with both feet planted in traditional procurement will not survive. The pursuit of the diversification strategy is slowly becoming the de facto standard in the coming years.
It will ensure that if one domino becomes unstable, the entire line-up does not fall. Suppliers are not just ordinary stakeholders; they are symbols of the organisation’s present and future identity. They are often celebrated as blueprints for sustained success.
- Nyika is a supply chain practitioner based in Harare. — charlesnyika70@gmail.com.
