4 Key Steps to Diversifying Your Supply Chain
Editor’s Note: This is a guest post by Nathan Resnick, CEO of Sourcify.
The COVID-19 pandemic has completely changed the way many of us do business. From freelancers who need to adjust to social distancing to stores that must shift to a curbside pickup and delivery model, these adaptations are necessary to keep revenue flowing during these challenging times.
If there’s one thing we can take away from the coronavirus outbreak, it’s the fact that manufacturers and drop shippers need a diversified supply chain if they want to get through disruptive events such as this. It will take quite a while before supply chain operations return to normal, even as some factories in China are starting to resume operations.
A diverse supply chain builds in vital redundancies so you can continue operations even when one area is facing a health crisis, economic hardships or other issues that would otherwise contribute to delays and cancellations.
1. Identify New Primary and Backup Suppliers
Naturally, you should start by identifying potential suppliers that you can use to diversify your supply chain. Setting a few basic criteria will help you make the right selection, regardless of industry. As Micah Pratt writes for business.org, look for things like “Lead times from receipt of your order to delivery, minimum and maximum order quantities, storage and handling facilities, specific methods of delivery, quality assurance processes [and] payment terms and conditions.”
Submit bids to several suppliers who seem to have expertise in your industry to help you gain insight into your options. You’ll want to contact references to ensure that a potential supplier lives up to their promises.
Don’t just be content with selecting a few new primary suppliers, either. Establishing initial relationships with a few backup suppliers will enable you to switch quickly if something goes wrong with a primary supplier.
2. Evaluate Potential Risks with Each Partner
When making your partnership decisions, you must do your due diligence to evaluate risk potential. After COVID-19’s emergence, 94% of Fortune 1000 companies had experienced a negative impact on their supply chain as early as February because their manufacturing was primarily based in China.
Of course, this isn’t the first issue to cause brands to reconsider having all manufacturing based in China. The ongoing tariffs and trade war have already caused many to diversify in an effort to keep costs low. When evaluating new partners, be mindful of economic, political and environmental factors that could disrupt production in the future.
Remember, each location has different potential risks. A stateside supplier may not have as much political turmoil, but if they are in a tornado-prone area, their factory could be decimated by a single severe weather event.
3. Communicate with Your Current Provider
New suppliers are rarely equipped to immediately start ramping up production to meet your order requirements. If you were to cancel your existing contract with your current manufacturer or distributor, you could experience a delay before your new partners get fully up and running.
In addition, diversifying your supply chain doesn’t necessarily mean you should cut out your current supplier entirely. If you already have a good relationship and have been getting quality results, you’re likely better served by continuing to use them, just at a reduced capacity. A gradual transition will also ensure greater consistency in your operations.
In many cases, your legacy supplier might even still remain your primary provider after you diversify. Keeping them informed of your transition will help maintain a good relationship, particularly if the new suppliers are not viewed as a direct competitor.
4. Utilize Several Smaller Contracts
The purpose of diversification isn’t to move all of your supply chain operations out of China. Relying on a single distributor based in Vietnam (or even the United States) still comes with risk. The biggest risk stems from using a single location to meet your needs. If that location is compromised for any reason, your operations will take a major blow.
All of the previous steps are ultimately meant to help you use several smaller contracts in varied geographic areas, rather than a single large contract. When you have multiple suppliers taking care of different parts of what you need, you won’t be as severely impacted if one facility temporarily or permanently shuts down. You’ll already have other backups in place who can step up production if such a crisis occurs.
As Wharton Professor Marshall Fisher explained in an interview with Wharton Business Daily, “Just take it as a given that something could disrupt your supply. The prevention is either keep a buffer stock in inventory or have multiple sources of supply, geographically separated. Or you could do both.”
Securing Your Future With a Diverse Supply Chain
Diversifying your supply chain gives you an opportunity to reduce your business expenses, while also eliminating many of the risks that result when manufacturing, drop shipping and other vital tasks are all dependent upon a single supplier. Using suppliers from several different areas will ensure that a crisis in one part of the globe doesn’t have as severe of an impact on your business operations.
COVID-19 isn’t the first crisis to disrupt supply chain operations, and it won’t be the last. By being proactive in diversifying your operations now, you will have the security and versatility needed to get through future challenges.
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Nathan Resnick is the CEO of Sourcify, the fastest growing sourcing platform that helps businesses manufacture products across Asia.