Supply chain diversification

supply chain systems - supply chain strategy - supply chain planning

Supply chain diversification is a manufacturing business terminology to describe the act of increasing choices for when to order what supplies from whom to bring products to the market. It describes abundance and flexibility of suppliers for a certain product. As in any business decision, there are advantages and disadvantages to having more or less diversity in a supply chain.

Supply chain diversification is not a simple method of making suppliers compete with each other for the best price. It is about preparing a supply chain to be flexible for any kind of problem the market throws at you.

Simply having an abundance of suppliers does not mean supply chain diversity. Each supplier must provide similar or equal products and be distinguishiably competitive in a way that each supplier is mutually exclusive under certain conditions.

supply chain case studies

That is to say, supplier Alpha and supplier Beta both sell identical sprockets. Alpha sells each sprocket for $1.00 a piece and can fulfill the order in 24 hours. Beta sells each sprocket for $0.25 but will take two weeks to fulfill. The trade offs between time and cost is the decision one must make.

In diversifying the supply chain for one's products, it is necessary to assist and educate suppliers on expectation from the suppliers and what one intends to do with supplies. It becomes important to maintain an open line of communication with suppliers, and this in turn will increase the overhead necessary to maintain the managers for each supplier. To minimize overhead involved, one can utilize a proceduralized method of developing a relationship with their supplliers such as RFPs and taking bids on jobs.

When doing business with multiple companies, such is the case here, it can become necessary to standarize paperwork - such as RFQs, and purchase orders. As price fixing is illegal in countries such as the USA, accountable paper trail management becomes a legal obligation for companies seeking supply chain diversification.

In the International market, import and export regulations may become a hurdle for finding the right suppliers to diversify ones supply chain. This is especially true for USA businesses after 9/11. The USA customs department enacted new regulations such as C-TPAT to encourage trade. The extra time and money spent on certifying a supplier for regulations like C-TPAT is a trade off management must consider when diversifying a supply chain.

Legacy suppliers

Because supply chain diversification cannot occur overnight, the legacy supplier must be involved throughout the transition phase. In most cases, the legacy supplier will remain as the primary supplier even after diversification, as there is usually good reason that they became the original supplier.

The most common cases of the original suppliers being phased out after diversification is when supplies were being provided in-house or the material provided by that supplier has become obsolete. This is usually not the case with third party suppliers, as the market drives them to stay competitive.

As with any new supplier, communicating with the legacy suppliers of the new direction of one's company is important for a smooth transition. At first, legacy suppliers may be apprehensive about the diversification, as it brings competition to an otherwise dominated market. That is why it is important that each supplier is distinguished from one another and they are not in direct competition with each other. Otherwise, diversification may cause duplicated efforts, extra costs, and non-cooperation that the price savings may not be able to justify.

definition of supply chain management

Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible. Supply chain management spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption. chain supply management. Several companies choose to outsource their supply chain management by partnering with a 3PL

supply chain definition

A supply chain, logistics network, or supply network is a coordinated system of organizations, people, activities, information and resources involved in moving a product or service in physical or virtual manner from supplier to customer. Supply chain activities ( value chains or life cycle processes) transform raw materials and components into a finished product that is delivered to the end customer. Supply chains link value chains.

Cold chain is the term used to refer to a temperature-controlled supply chain.

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