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Resilience has always played an important role in supply chain management, but it’s becoming more important than ever in today’s volatile business environment. The global pandemic, subsequent disruptions, labor shortage and ongoing geopolitical turbulence are just some of the high-level issues that have forced companies to increase their focus on supply chain resilience.
A new DHL report shines a light on diversification as a strategy that more chief supply chain officers (CSCOs) should be using in the current environment. In Supply Chain Diversification, the global transportation provider says companies that take a “proactive approach to redefining industry standards” will stand the best odds of reaching their supply chain resiliency goals.
By DHL’s definition, supply chain diversification is a proactive approach that finds companies incorporating one or several dimensions into their supply chains to minimize risk. This includes multi-shored supply networks, multi-sourcing, parallel modes of transportation, and concurrent or redundant logistics operations.
“The events of the last years have shown us the importance of resilient supply chains and companies adapting their global supply networks accordingly,” DHL’s Katja Busch said in a press release. “At DHL we are committed to supporting our customers in staying resilient in a sustainable way by providing tailored solutions, sharing best practices, and facilitating collaborative initiatives.”
Steps to Better Resiliency
Supply chain diversification has already become a popular theme in supply chain management, and for good reason. It’s an essential strategic lever for building resilience, enhancing customer centricity, driving profitability, improving sustainability and gaining a competitive advantage.
“Supply chain resilience holds utmost importance in ensuring the attractiveness and viability of global trade,” DHL’s Yin Zou said in the report. “For businesses, the diversification of supply chains to adapt to the evolving global economic landscape, mitigate disruptions, and maintain seamless operations is a cornerstone of sustainable long-term economic success. Key areas include sourcing locations, partners, transportation mode shifts and additional logistics infrastructure.”
Here are four approaches that DHL advises companies to use when working to diversify and shore up their global supply chains:
- Leverage the power of multi-shoring. Spread manufacturing and supplier locations across different regions or countries to mitigate risks. This includes duplicating manufacturing capabilities and using the same supplier in different locations.
- Expand your manufacturing and supplier networks. Expand the network to include redundant suppliers and manufacturing capacities to address financial and operational risks.
- Don’t limit your transportation modes. Utilize multiple transportation modes simultaneously, covering all stages of transport—including first mile, long haul and last mile—to diversify routes and reduce risk.
- Broaden your logistics operations. Expand logistics infrastructure to include additional functions like hubs, warehouses and distribution centers. This may involve adding redundant capacity nearby and outsourcing certain logistics activities for diversification.
Continuous Management and Improvement
In its report, DHL also provides some action steps that companies can take on their path to better supply chain resiliency. For example, it tells organizations to start with a comprehensive map of their existing supply chain to ensure a high level of transparency. Then, conduct an analysis of the “level of diversification” based on the four points outlined in the previous section.
The next step is to chart all supplier locations, including company-owned manufacturing facilities and ideally down to tier 3 suppliers. “Identify key customer locations and evaluate the company’s current capacity to supply main markets,” DHL advises in its report. Identify and assess key suppliers, partners and manufacturing facilities. Analyze the company’s dependency on each and its ability to supply essential parts, products and services.
To best determine a desired level of supply chain diversification, define the objective in terms of diversification in alignment with the company’s overall strategic goals. For example, consider the most common benefits of diversification, including customer-centricity, agility, sustainability, resilience and profitability. “It’s also imperative to remember that supply chain diversification is not a ‘set-and-forget’ endeavor,” the company adds, “[and that it] demands continuous management and improvement.”
