As we have seen over the last few weeks, the retail and manufacturing supply chain has been tested to its limits. And if you have been relying on only one or two sources for your materials, products, or even shipping, you might seriously consider diversifying your entire supply chain, as well as (where applicable) being the diversified options.
Supply chain logistics experts are recommending that bigger businesses start sourcing from small- and medium-sized enterprises (SMEs), rather than relying only on large organizations.
As IndustryStar.com said in a recent article:
”Today’s global supply chains are leaner and more dispersed than ever before, leaving them extremely vulnerable to operational risks and unpredictable disasters, both manmade and natural. Developing an effective risk mitigation strategy against these inevitable threats is paramount to success in the global marketplace.”
Puneet Saxena, Group Vice President, Supply Chain Planning at JDA Software, echoed those sentiments in a SupplyChainDigital.com article: ”Supply chains face many challenges in today’s global and volatile economy. Increasing outside pressure from the likes of omnichannel retailing, political upheaval and even extreme bouts of weather mean businesses have to deal with increased risk and uncertainty, placing pressure on overall profitability and growth.”
As manufacturers and retailers, it’s important that you keep your own supplies coming in, even as you’re fighting to keep your operations, well, operating.
6 steps to diversify your supply chain
To that end, here are six ways you can diversify your supply chain.
- Retailers, use a tool like SPS Commerce’s sourcing tool.
- Identify backup suppliers and not just additional suppliers.
- Find different manufacturers.
- Find different dropshipping suppliers and 3PLs (third-party logistics providers).
- Break up your contracts into smaller parts.
- Base your supply chain on issues like climate change risks.
We’ll review each in detail below.
1. Retailers, use a tool like SPS Commerce’s sourcing tool
SPS Commerce is a major player in the retail supply chain automation world, beginning with their EDI (electronic data interchange) solution, which helps retailers and suppliers share their various documents back and forth.
But they do so much more than that: They also have a very large sourcing platform geared toward retailers, grocery stores, ecommerce, and even distributors and logistics providers.
This has become a welcome tool to many retail buyers who used to have to wait for the annual trade shows in order to find the different products they wanted to carry for the different seasons.
Buyers who are looking for retail suppliers or even dropship-capable suppliers can use SPS Commerce’s tool to start sourcing different products.
And if you’re already using SPS’ EDI solution, just know that these suppliers are already plugged into that system, which means you can onboard them in a few days, not several weeks.
2. Identify backup suppliers and not just additional suppliers
In addition to finding those new suppliers, keep an eye out for backup suppliers as well.
For example, if you have a steady supplier of, let’s say, hammers and screwdrivers, what will you do if that supplier can’t make an order one week, or they have a major factory fire, or that particular part of the country is hit by a weather disaster?
By having a backup supplier in place, you can immediately switch and start purchasing products from your backup.
If you’re on any kind of ERP (enterprise resource planning) and EDI software, give the backups a couple of small orders when you first work with them.
This way you can work out all the kinks and hiccups weeks and months before you ever need them. This is especially true if you use an EDI system like SPS’s: If the supplier is not on their system, they’ll need some extra time to get up and running, too. This helps you avoid the mad rush if you’re facing a shortage of a particular product.
3. Find different manufacturers
In some cases, you may need to find different manufacturers. For some large manufacturers, it’s often possible to buy the same product from different distributors.
For example, in the construction market, there are a few dozen distributors all selling the same lines of construction adhesive and fire stop sealant, but those distributors all buy from the same manufacturer.
In cases like this, switching distributors won’t solve anything if the manufacturer goes out of business, which means you need to find a completely different manufacturer.
You could always ask your distributors to find a second manufacturer, but it may be just as wise to find your own manufacturers as well.
4. Find different dropshipping suppliers and 3PLs
You also need to find different dropship-capable suppliers and even different third-party logistics providers (3PLs). There are plenty of shipping companies around, including a number of large trucking companies, as well as thousands of small shippers who can do some of the work.
That’s because even large shipping companies are not necessarily immune to problems: Logistics giant Celadon closed down in December 2019, leaving 4,000 drivers without work, and countless customers without a shipping option.
Some drivers were actually en route when word of the closure came, which means those deliveries never arrived.
As the Celadon closure shows, it’s not always a good idea to put all your eggs into a single basket, so either work with a few individual 3PLs, or contract with a dispatcher that only works with small truck lines.
It helps keep those small businesses operating, and gives you plenty of options in case of another major closure.
5. Break up your contracts into smaller parts
If you have a large contract you’re fulfilling with a single supplier, you may want to consider breaking that contract into smaller ones in order to work with a few different fulfillment options.
Yes, you may end up working with three or four different suppliers who could each provide you with the entire contract, but that’s a situation you’re trying to avoid.
You don’t want to work with just a single supplier only to find out they had to close down because their warehouse was wiped out in a fire or tornado, or they shut down in a surprise move (see point #4).
Your goal is to diversify enough so that if one distributor failed or ran into problems, one of the others could step up and fill in the gap on an emergency basis.
6. Base your supply chain on issues like climate change risks
Depending on the geographic location of your various suppliers, your supply chain may be vulnerable to severe weather and climate change disruptions.
For example, if you normally bring a lot of goods into the PortMiami cargo port, you’re at risk of disruption during the Atlantic hurricane season, from June 1 through November 30.
If your warehouse is in the Oklahoma area, April and May are particularly worrisome, especially as Oklahoma recorded a record number of twisters in 2019.
And we’ve had a couple of years where winter weather affected retail deliveries during the holiday shopping season.
Unfortunately, there’s no part of the country that’s not vulnerable to extreme weather, but you can reduce your risk by having a few different options to choose from.
This particular crisis will end. They always end, and we always recover. We will recover from this one, too. But there will always be another crisis of some sort.
Even if you don’t want to change your current fulfillment processes during this crisis, you could at least explore your options so you can start when the crisis ends. That way, you’ll be ready next time.
More importantly, if you adopt these new practices, don’t drop them once we’re out of danger and life has returned to normal. You’ll only find yourself further behind the curve when you need to start diversifying your supply chain once more.