Strategic sourcing, single-sourcing, multi-sourcing and global sourcing; so many methods can be used to manage your supply chain, but which one is right for your company? Many large companies spent the last decade consolidating suppliers in order to reap the benefits of an easy to manage supply chain with lower pricing achieved through consolidated purchases. Smaller companies followed suit, and aggressively moved manufacturing to low cost countries, patterning their own business practices after what they saw the global giants doing. But now those same global giants are starting to diversify their supply chain to multiple geographic areas, with some even bringing portions of their manufacturing closer to home in order to mitigate risk. It’s possible that, by consolidating their suppliers to create a lean supply chain, companies have been putting too many of their eggs in one basket.Risk is an ever-present element of business, and both big and small companies take risks on a daily basis. The question is how to stay one step ahead of risk? Consolidation of suppliers may lead to many returns and benefits, but if done the wrong way, it could prove to be disastrous. In this article we will discuss the various ways of understanding and choosing a supplier effectively and efficiently, sustaining the company in the long run.
Where many of the larger companies might have a high risk tolerance, small companies’ lack the resources needed for a big recovery, and must take into account where they stand on the risk scale. Where are disruptions likely to occur within an organization’s supply chain? Future disruptions can be partially rooted out with proper due diligence when identifying suppliers. When reaching out to future or incumbent suppliers, review their financials to ensure stability and look at their processes to judge their organization and their ability to produce and deliver on time. Review and understand their inventory management capabilities. Look to see if they have the physical bandwidth to supply all of your facilities without adding extra or unforeseen costs. Growing pains can limit a supplier’s ability to produce steadily, and can lead to supply chain disruptions.
For years, companies looking to cut their production costs have looked overseas to traditional low cost countries. These countries have traditionally been low on labor costs and even lower on political regulations. Every company looks to save money through cutting costs and earn revenue through efficient and effective sourcing, and many times sourcing globally has been the ideal way to make this happen. To fully mitigate risk factors, however, one should consider the regions their suppliers’ facilities are located in, and their unique natural and soco-political climates. Socially and politically, there could be different regulations for shipment, internal or economic affairs that sway delivery and pricing, potential hostile political situations, and labor concerns. Climate-wise, the region could be prone to certain natural disasters that could hinder production or shipping of a product. Diversifying suppliers to include those in more stable regions, or simply locating and using suppliers in less-risky environments are two common methods employed by industry leaders. Source One has itself seen a rise in business from those companies looking to relocate production facilities to the much more politically and climate stable areas of Latin America; a trend known as “nearshoring”.
“Many supply chain professionals are adopting multi-sourcing as a part of a retail supply chain resiliency strategy to optimize sourcing decisions,” says Ty Bordner, VP of Product Management and Solutions Consulting. Continue using all your strategies and tactics, but heed the warning of potential risk – consolidating suppliers without performing due diligence could result in having too many eggs in one risky basket.