Why you need supply chain diversification

supply chain diversification

With the increasing sharing of information and transparency due to the internet, customers are looking for a better experience. We live in an age where customers expect whatever they buy to reflect their value while using social media to showcase their shopping habits. Businesses are upping their game to meet their expectations of sustainability, diversity, and procurement practices.

What is supply chain diversification?

It is a term that deals with the strategy of manufacturing businesses to enlarge the range of suppliers they work with to increase their product choices when it comes to the supply chain. Working with larger suppliers allows manufacturers to operate in a flexible manner, thereby adapting to the ever-changing customer market.

Importance of Supply Chain Diversification

A company might decide to use supply chain diversification for various purposes. However, these benefits are broken into four areas, which we will discuss briefly.

Encouraging Innovation

Communicating with suppliers isn’t a one-way process where the producer places an order, and the supplier fulfills it. When you work with different suppliers, you can think beyond your company while encouraging innovation and more creative approaches.

Quality service and commitment

Supply chain diversification enables flexibility, which allows you to respond to changing market trends and customer demands. Furthermore, it helps provide quality customer service.

Diversifying the supply chain not only helps to decrease backorders, but also ensures you will meet with demand in case of supply shortage.

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Drives better approaches

When you have a diversified supplier base, it means you can easily become the reflection of the customers you serve. Broadening your geographical supplier bases allow you to offer competitive prices within the local level. Small-medium enterprises tend to be flexible and focused on their customer base compared to large global suppliers.

Cost savings

Another benefit of supply chain diversification is that it allows you to save costs. For instance, recent research shows that when you work with different suppliers, it helps to minimize the cost to a certain level. Interestingly, it is a fact that the biggest suppliers don’t always offer the best cost efficiency compared to small-medium businesses, which have a lot to offer to customers.

Stay ahead of competitors

It is never a secret that successful businesses look for opportunities to minimize the cost of operation. Strategically sourcing for raw materials, minimizing waste, and efficient processes helps to save more money while providing more scope to charge a competitive price. It means the competitive price is not more about price but about the ethics of growing concern for the environment.

Risk of Supply Chain Diversification

There are several risks associated with supply chain continuity, including politics, electronic attacks, economy, and natural disasters. A lot of things can disrupt your supply chain if you don’t have a robust supply chain. These can disrupt your business and impact your operation, customer delivery, and cost money and time on your business.

However, with supply chain diversification, you can mitigate these risks by ensuring you have a solid supplier base to cater to your business. Nevertheless, to optimize risk management, you need to be strategic in choosing your suppliers.

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