Supply Chain Diversification: Rethinking Supply Chains for Agility and Resilience

The COVID-19 pandemic, geopolitical tensions, and natural disasters have exposed significant vulnerabilities in global supply chains. Since 2019, supply chain disruptions have increased by 183%, leading to an average of $1.6 trillion in missed revenue opportunities annually.

In this new normal, the business world is coming to grips with the importance of resilience. Many organizations have already begun to assess their new risk profiles and to explore ways to reduce their supply chain (inter-)dependencies.

But the seemingly countless considerations and uncertainties they face make it a complex challenge. The level of flexibility and agility needed or even achievable depends on many factors, such as the business model, industry, customer markets, risk appetite, and resource availability.

That’s where our new Supply Chain Diversification Trend Report comes in. It provides our valued customers and businesses across all industries with the latest research, industry expertise, guidance, and logistics solutions needed to leverage diversification and grow their competitive advantage.

At DHL, we define supply chain diversification as a proactive strategy that involves embedding one or more of these four dimensions into the supply chain network:

• Multi-shoring
• Multi-sourcing
• Adding modes of transport
• Diversifying logistics operations

Overall, supply chain diversification is about developing flexibility and redundancy to reduce risk and increase agility and resilience sustainably. A diversified supply chain is an enabler, giving organizations the tools and options they need to respond to external shocks, changing customer needs, and market developments. It is also the opportunity to create more sustainable, efficient, and competitive supply chains.

Supply chain diversification can entail everything from simple tweaks in specific links to major reconfigurations of entire global networks: It’s not an all-or-nothing proposition.

The new DHL Supply Chain Diversification Model aims to create a comprehensive and understandable framework organizations can use to approach this complex topic in a structured way. Divided into four dimensions, the model becomes a tool to assess current setup and develop a supply chain diversity strategy:

1. Multi-shoring: Introducing redundant manufacturing capacities or additional locations of existing suppliers in separate geographical areas. This approach might include adding locations in other countries or even continents to mitigate operational, compliance, or reputational risks.
   
2. Multi-sourcing: Incorporating additional suppliers or manufacturing capabilities within local or regional ecosystems. This strategy focuses primarily on mitigating financial or operational risks, such as a supplier going out of business.
   
3. Modes of transport: Utilizing more modes of transport (air, ocean, rail, road) for the trade lane of a particular product or part. This diversification reduces operational risks by providing alternative shipping routes and buffering against demand fluctuations with varying lead times.
   
4. Diversifying logistics operations: Expanding logistics capabilities by adding hubs, warehouses, and distribution centers in different locations. This approach may include outsourcing certain logistics activities to ensure continuity and flexibility during disruptions.
   

Our actionable, four-dimensional model is lean and straightforward by design, but diversifying a supply chain is not without challenges. Understanding those challenges becomes the key to success. It will be a new approach for many companies, often requiring a dedicated investment in processes, infrastructure, technology, and people.

But the possibilities and opportunities are endless. A more diversified supply chain allows companies to rapidly adapt and reconfigure their supply chains in response to external shocks, changing customer needs, and market developments, thereby enhancing customer centricity, sustainability, profitability, and competitive advantage. 

• A proactive strategy
  The Supply Chain Diversification Model helps companies proactively assess their supply chains and implement diversification strategies to mitigate risks.
• No one-size-fits-all
  The levels of diversification in supply chains will vary among companies due to factors such as industry, product portfolio, existing footprint, risk appetite, and risk management capabilities.
• Technology and collaboration
  Supply chain diversification is facilitated by state-of-the-art technology, proactive supply chain management, and multi-stakeholder collaboration.
• Future-proofing supply chains
  With disruption increasing, diversified supply chains are expected to become increasingly significant. Recent experience demonstrates that companies with strategically diversified supply chains are better positioned to navigate uncertainties and seize emerging opportunities.