by 
Edward Routh
With supply chains being affected across almost every industry, many companies’ risk exposure has increased dramatically. It’s important to reduce risk exposure as much as possible, and one key method to achieve a healthy amount of risk exposure is by diversifying your company’s supply chain.
New emerging trends and an evolving retail landscape are creating results in more businesses where diversification is becoming the priority. According to a recent PwC report, insufficient diversification amongst suppliers is seen as a top risk for businesses in 2022, with 62 percent of respondents saying it is either moderate or high risk.
Electronics companies, for example, concentrated much of their production in China. Covid-19, trade wars and IP-security concerns are prompting manufacturers to build operations in the Americas, the EU and alternative nations in Southeast Asia.
Diversification reduces risk exposure for companies by scaling production across multiple suppliers and regions. This spreads the risk across several nodes of a supply chain, reducing the impact of a single point of failure. Essentially, a bigger supply network can enhance a supply chain’s resilience, providing greater capacity to overcome a lack of supply elsewhere in the network.
Regarding logistics, there are numerous benefits associated with supply chain diversification, ranging from reduced risk exposure and greater resilience to duty advantages and radically shorter shipping times. There are two best-practice logistical solutions companies can use to optimize growth.
Logistics strategies
The first is utilizing hybrid shipping in your supply chain which is great for new product launches or quick replenishments; much like having multiple suppliers, many companies ship a portion of their products by air and the rest by sea. This is useful for businesses to launch a product or restock faster without taking on the unnecessary expense of shipping all the inventory by air.
The second solution is utilizing extended planning and analysis (xP&A). This tactic promotes the coordination and integration of all departments within a company to inform business leaders better so they can make important logistical decisions more easily. Successful xP&A allows companies to forecast their shipments and plan ahead, saving time and money due to a more efficient shipping process, robust inventory management, and lower transportation costs.
However, while diversification is a great strategy for reducing risk exposure, companies that exercise caution to avoid over-diversification in a growing network will be the most successful. A company that maintains a good balance in everything they do will achieve success more easily — in other words, the fewer, the better. While diversification can offer a range of benefits, expanding a supply network too quickly can result in over-diversification. It is crucial for companies to focus on fewer, better suppliers, as opposed to quickly growing an unstable supply network without sufficient oversight.
Another component companies suffer from later on is not properly structuring their organization and establishing clear roles and responsibilities. Over-diversification typically occurs when a supply network outgrows the infrastructure and resources required to sufficiently manage it. By establishing a comprehensive onboarding process for new suppliers, coupled with clear operating practices, managers can help maintain standards and ensure accountability as the supply network grows.
Additional opportunities
Other important elements businesses should keep an eye out for when diversifying their supply chain or reducing risk exposure are sustainability opportunities, increasing capacity, and shortening shipping times. Diversification can provide opportunities to access new sustainable materials and practices that can spark new ideas, services, and optimization strategies. It also helps promote growth by organically increasing production capacity, which leads to multi-departmental growth.
Lastly, time is money — getting your products from the factory to the warehouse as quickly and as cost-effectively as possible should always be one of a company’s top logistical priorities. When shipping times increase, it affects the entire business, making it imperative to constantly manage and optimize operational processes to ensure shipments arrive where they need to be on time, if not earlier than estimated.
Challenges remain
Companies with a good understanding of which markets they want to diversify into are still faced with an array of challenges. Finding and onboarding a reliable, new supplier in another country can be tough. Many suppliers in the developing world are still without an online presence, meaning simply trying to track down the right person can quickly become time-consuming and unproductive. This is where manufacturing and supply chain platforms that offer logistics and order management services to empower companies with end-to-end supply chain visibility are crucial.
Without a strong management system in place, it’s easy for the details to fall through the cracks, and the details in supply chain management are pivotal in preventing hiccups. Ultimately, the best solution lies in establishing better relationships with your suppliers. This includes ensuring values and incentives are aligned, as well as having transparency over the quality control processes and operating procedures in place.
