Supply chain diversification

Supply chain diversification, within the context of manufacturing businesses, refers to the strategic approach of expanding sourcing options and optimizing procurement timing to facilitate the efficient flow of products into the market. It encompasses the breadth and adaptability of suppliers available for a particular product or component. However, the concept extends beyond mere supplier competition for favorable pricing, emphasizing the creation of a supple supply chain capable of responding adeptly to dynamic market conditions.

Supply chain diversification entails more than the mere presence of multiple suppliers; it necessitates that these suppliers offer comparable or interchangeable products while maintaining distinct competitive advantages that are situationally exclusive. For instance, consider two suppliers, Alpha and Beta, both providing identical sprockets. Alpha prices each sprocket at $1.00, ensuring delivery within 24 hours. Meanwhile, Beta offers the same sprocket for $0.25 but requires a two-week delivery period. The decision-making process hinges on a trade-off between cost and time considerations.

Ultimately, the goal of supply chain diversification is to strike a balance between sourcing options, risk mitigation, and operational agility. This approach enables businesses to navigate challenges while optimizing procurement strategies for enhanced performance in a dynamic marketplace.

In diversifying the supply chain for a product, it is also necessary to assist and educate the suppliers on what one expects from the suppliers and what one intends to do with the supplies. It becomes important to maintain an open line of communication with all the suppliers, and this in turn will increase the overhead necessary to maintain the managers/reps for each supplier. To minimize the overhead involved, method of developing a relationship with their suppliers such as RFPs and taking bids on jobs can be utilized.

When doing business with multiple companies, such is the case here, it may become necessary to standardize paperwork – such as RFQs, and purchase orders. As price fixing is illegal in countries such as the United States, traceable paper trail management becomes a legal obligation for companies seeking supply chain diversification.

In the International market, import and export regulations may become a hurdle for finding the right suppliers to diversify ones supply chain. This is especially true for US businesses after 9/11. The US customs department has enacted new regulations such as C-TPAT to encourage trade. The extra time and money spent on certifying a supplier for regulations like C-TPAT is another trade-off that management must consider when diversifying their supply chain.