There are a lot of reasons why companies diversify their supply chains, with some of the most recent drivers being the pandemic-related disruptions, the global semiconductor shortage and the recent rash of natural disasters and catastrophic weather events.
Much like organizations work to diversify the customer bases that they serve, companies should always have an ample selection of capable suppliers to rely on. This not only helps reduce risk and improve resilience, but it also puts companies in touch with new markets and helps them save money. For instance, an organization that works with multiple suppliers for critical components may be able to negotiate lower prices, faster delivery times or other favorable terms.
“Diversifying the supplier base can provide businesses with a supply chain more able to absorb external shocks when needed,” Andrew Black writes in CIPS’ “Why supply chain diversification is now a business imperative.” “It is more important than ever to create an agile supply chain that can weather economic pressures and disruptions.”
A more diverse supply may be less vulnerable to external shocks, but there are also logistical challenges to consider when operating a complex, diverse supply chain. “Multiple suppliers in different countries require considerable management time and effort,” Black points out. “Embarking on a strategy of a diverse supply chain cannot be done half-heartedly – to be an effective hedge, each supplier relationship must be actively managed and well maintained.”
The Heart of Supply Chain Resilience
Calling supply chain diversification the very “heart of supply chain resilience,” DHL says companies that take steps in this direction stand the best chance of being able to both minimize risk and increase agility.
“Many companies across a broad range of industries have already begun to realign their sourcing strategy, manufacturing footprints, and distribution networks,” DHL reports. Citing a recent Ernst and Young (EY) study, it says over the next two years, 77% of businesses expect to increase the total number of suppliers they work with.
Another 55% of companies expect to make significant changes to their supplier bases, all with the goal of becoming more responsive, agile and competitive.
Tips for More Diverse Supply Chains
From his vantage point as VP of semiconductors at DigiKey, an authorized distributor of electronics components, David Stein is seeing improvements in product lead times this year. He’s also seeing a “softening” in the market, but says some products are still experiencing tightness and extended lead times in the microcontroller and microprocessor area. In addition, sourcing challenges still exist with some electromechanical areas that are dependent on those integrated circuits (ICs).
“Inventory levels are at a record high, however orders are slowing. This is a marked contrast from the supply shortage many had experienced over the past couple of years,” says Stein. “While the demand for products is decreasing from the end customer while inventory levels deplete, there are still market segments where we’re seeing growth, including medical, biotech, agriculture, data centers and electrification (automotive).”
While most electronic components and automation products are currently plentiful, Stein says it’s a good time to think ahead. He shares these top tips with procurement professionals that want to start developing more diverse supply chains:
- Identify alternative parts through your distributor rather than waiting until it’s crunch time or when there’s another supply chain issue. “At DigiKey, we recommend reviewing bill of materials (BOMs) every 6-12 months,” says Stein.
- Procurement professionals should also be thinking about obsolescence checks and running through their active parts list to find obsolete components on their bill of materials. “For example, DigiKey’s myLists platform recommends alternatives if a product is unavailable, soon to be obsolete or has a long lead time,” says Stein.
- Collaborate with your suppliers to stay abreast of any planned product changes, when they plan to introduce new products and what products may be discontinued. “Engineers should be designing in the newest and most popular products, and working alongside a distributor can help you in this effort,” Stein advises.
- Infuse more flexibility into the product design and engineering stage. By understanding which parts are available and designing in alternatives, you can mitigate supply chain issues in advance versus designing with a specific part in mind only to have that part be sunsetted (i.e., become obsolete) four months later.
- Use this time of mostly-plentiful inventory to line up dual or even triple sourcing opportunities. “Engineers and designers should be looking at their current BOM and trying to get parts that are dual- or triple-sourced,” Stein says. “Being proactive now will make your entire team’s life easier when it's crunch time.”
