The handling of a product or service's full manufacturing flow, from the raw materials through the delivery of the finished product to the customer, is known as supply chain management. A business establishes a network of suppliers (or "links" in the chain") to convey the product from raw material suppliers to businesses that interact with customers directly.
Controlling the expenses of their supply chains is becoming more and more difficult for businesses. When a supply chain fails, businesses put their reputations in the hands of their suppliers, either because they don't understand how they work or because they don't have sufficient risk management plans in place.
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What Is Supply Chain Diversification And Why Is It Important?
The COVID-19 epidemic has caused unprecedented levels of instability at both ends and practically all stages of the supply chain. The pandemic's repercussions have made the vulnerabilities that lurk under the surface of contemporary supply systems more obvious.
Consumers are increasingly aware of how quickly the global multimodal shipping system may disintegrate if one method of transportation becomes clogged or malfunctions.
Businesses have discovered the hard way that depending too much on a small number of suppliers and exporting an excessive amount of their manufacturing. The resurgence of interest in supply chain risk management techniques and tactics is one outcome – supply chain diversification.
What Factors Contribute To Supply Chain Costs?
Prof. Henry Quesada and colleagues listed generic factors and sub-factors that might affect supply chain management activities in a major work published in 2012. Here, we broadly outline several of the factors.
1. Company Environment
This sub-factor is related to the company’s relationship with suppliers and their level of trust and commitment. Company environment is also related to the company’s expectations of quality, on-time delivery, competition in the sector, and the level of rivalry among firms.
2. Government Support
The level of support that the company receives from the government when importing raw materials or products from overseas or using domestic materials. It includes the use of norms, regulations, policies, and advice for the sector.
3. Uncertainty Aspects From Overseas
Factors such as political uncertainties in other countries and social uncertainties such as religion, environment, language, cultural issues, limitations of communication, and also the technology used in other countries might interfere with supply chain planning and function.
Take a look at our guide on surviving cultural differences in global business
4. Planning Tools
Supply chain management planning tools are intended to integrate resource planning activities in a firm or organization. For example, an Enterprise Resource Planning (ERP) tool is the backbone of the logistic systems for a variety of firms. It might include order management, inventory fulfillment, production planning, financial planning, and customer service in a company.
5. Relationships With Suppliers
This could be based on production, personal, and or symbolic networking, that will turn on strategic alliances, allowing information sharing, risk sharing, obtaining mutual benefits and coordinating plans, permitting the improvement of the supply chain
6. Relationships With Customers
The global markets offer a variety of products of different quality and cost. Customers look for more choices, better service, higher quality, and faster delivery. The relationship with customers has turned into a strategic issue for today’s companies.
7. Flexibility
The complex markets, fierce competition, and fast changes in demand require that companies be ready to react promptly to customers’ needs. Flexibility can be understood as the ability to react and adapt quickly to changes in the market due to an increase or decrease in customers’ requirements, accelerating or decelerating the manufacturing processes when it is requested.
8. Quality
High costs, low productivity, and loss of market share are directly related to poor quality. Quality is meeting or exceeding the expectations of your customer. Achieving better efficiency, quality, and productivity, and acquiring the highest value of a product at a lower cost will improve the business performance of a company.
Related Article: The importance of quality control in manufacturing
Some Diversification Strategies To Reduce Supply Chain Costs While Maximizing Product Quality
To have a strong, flexible supply chain, we can't rely just on one particular group of sourcing, manufacturing, or other partners. As an alternative, we must create resilience and backup plans for each stakeholder or link in the chain.
By doing this, we spread out our risk and offer a backup plan, allowing us to lessen the impact of interruption in one area of the supply chain.
For the purpose of creating your supply chain continuity and contingency plans, careful preparation in advance is crucial. Your supply chain's resilience will be considerably increased if you can switch to alternate sourcing and production.
You can't improve your business unless you know where all of its parts come together. That's why a supply chain audit conducts an end-to-end assessment from start to end, looking at every partner involved and their strengths as well as weaknesses.
Make sure your partnerships have a backup plan and service level in case they cannot meet the standards set by you for supply chain risk management.
It is important to have a backup plan in place for your business. You should contact the manufacturers, distributors, and logistics providers who can step into if you're experiencing supply chain issues at some points during production or delivery.
You should establish contracts that outline the conditions under which you may move from one partner to another. This will help protect both your current and new business partners in case anything goes wrong, but also make it easier for them when things go smoothly because there won't be any surprises.
To improve customer service and relieve inventory pressure, determine the demand for products at different times of the year. Plan to use resources efficiently so that there is not too much strain on either storage space or workforce hours during peak seasons.
You can't predict the future, but you should at least consider how your product would perform in an unexpected interruption or sudden demand situation. A lot of companies don’t take into account what will happen if their supply is suddenly interrupted by factors outside their control.
It's not enough to just have a lot of product on hand, you also need the ability and time necessary for demand. If your lead times are too long or there isn't enough inventory available then people will go elsewhere because they'll get their purchase faster by going somewhere else.
You are not required to manage every area of your business internally. It's worth evaluating whether to use third-party services, such as an offshore warehouse or chain-supply experts to help reduce your costs. For more info see our article on the growth of outsourced supply chain
Analyze your market’s needs and requirements and put a demand-planning approach into practice. Create product movement rules based on consumer segmentation. The more efficiently your firm operates, the more profit it will make.
The Evolution of Supply Chain Diversification
Today's supply chains are about the management of data, services, and goods packaged into solutions, whereas yesterday's supply chains were concentrated on the availability, transportation, and pricing of physical assets.
Systems for managing the supply chain in the modern day involve much more than just where and when. Quality of goods and services, the timing of delivery, expenses, client satisfaction, and ultimately profitability are all impacted by supply chain management.
Modern supply networks are curated by data scientists and analytical professionals and make use of the enormous volumes of data produced by the chain process. Future supply chain directors will likely concentrate on maximizing the value of this data by conducting real-time, low-latency analyses of it using the Enterprise Resource Planning (ERP) systems they oversee.
Strategic, tactical, and operational are three broad levels that some experts find useful for categorizing supply chain tasks and ensuring that it supports company objectives.
The whole network and procedures of a company's supply chain are covered by the strategic side. In a comprehensive plan, it covers the key long-term components, such as the variety and quantity of facilities, technologies, and suppliers.
The tactical level identifies the precise methods of manufacturing plans, logistical procedures, contracts, or software applications. Customer service, efficiency, cost, standards, and best practices are also included.
Operational-level activities include forecasting, production scheduling, shipping, and billing.
Conclusion
With the competitive nature of today's market, it is more important than ever to have a strong supply chain strategy of diversification. Your customers are constantly bombarded by other companies advertising their products and services – companies who are forever refining and reviewing their supply chain management.
The path to success for any company begins with a strong supply chain. A diversified network of suppliers provides the ability lower costs, and meet strict regulations and compliance demands while still managing risk effectively - all of which helps you stay ahead of your industry competitors.
Looking to maximize product quality & reduce supply chain costs with diversification strategies? Get in touch
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