Trend Report

Supply Chain Diversification

Setting the Scene

While not a new concept, supply chain diversification has come into sharp focus in recent years, driven by the need to mitigate risks and enhance resilience in a volatile world. In practice, supply chain diversification comes in many forms, with the level of intensity depending on each company’s markets, strategies, objectives and risk-taking appetite, to name a few.

The public discourse often oversimplifies the complexities of this topic, focusing on popular terms such as near-shoring, re-shoring, friend-shoring, China +1 and the like, but fails to consider the full breadth and depth of diversification.

In this report, DHL Trend Research introduces a comprehensive definition of Supply Chain Diversification and a versatile model outlining its dimensions. Developed in close collaboration with our academic partners, it provides our customers and organizations across all industries with the latest research. This research combined with our industry expertise and logistics solutions charts a course for growth and ultimately a competitive advantage. The report also aims to enrich public and academic discussions around this critical component of business.

The framework provided here can be leveraged at different stages of strategic supply chain management, from interpreting current market dynamics and patterns and assessing the status quo to evaluating options and implementing new diversification strategies. We at DHL are happy to support our customers on this journey and utilize our expertise in cross sector industries and supply chain management at both the strategic and operational level.

We hope this trend report will inspire and guide you and your organization. We look forward to collaborating with you to leverage the benefits of supply chain diversification and continue connecting people and improving lives together.

Dr. Klaus Dohrmann, Vice President and Head of Innovation and Trend Research at DHL Customer Solutions and Innovation

Globalization has emerged as the defining socioeconomic phenomenon of our time. Since 1980, global trade has increased more than tenfold, reaching a record high of over $32 trillion in 2022. DHL’s own analysis of global connectedness confirms that globalization hit a peak in 2022 and remained near that level in 2023.¹

However, this picture only tells part of the story. Hidden behind these figures is a complex network of globally interconnected supply chains with an ecosystem of countless customers, suppliers, service providers and partners. The recent accumulation of shockwaves caused by COVID-19, geopolitical crises, and natural disasters has led to considerable volatility, with disruption increasing by 183% since 2019 (33% in 2023 alone). The record highs also disguise the challenge of agility and resilience in supply chains, which prevent companies from responding effectively. This vulnerability has resulted in an average of $1.6 trillion in unrealized revenue opportunities annually in the past few years.²

In this new normal, the business world is coming to grips with the importance of resilience. Numerous companies have begun to explore ways to minimize their supply chain dependency on one country, trade lane or source by moving away from linear, lower-cost supply chain setups. But understanding the complexities and dimensions of supply chain diversification and how they can be leveraged strategically beyond resilience can ultimately be a key to gaining a competitive advantage.

Supply chain diversification is neither a universal solution nor a strategic necessity for every company. However, every business that relies on logistics should regularly conduct a strategic review of their current supply chain to assess options and decide whether changes are needed or desired. This requires a concerted effort, often including a dedicated investment in processes, infrastructure, technology, and people.

The supply chain diversification model provided in this report is, by design, as lean and straightforward as possible in order to make it as actionable as possible. It is intended to help practitioners manage the wide variety of options, classify actual changes in supply networks and ultimately grasp how to approach this complex topic.

Defining Supply Chain Diversification

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, and diversifying logistics operations.

It enables rapid adaption and reconfiguration of the supply chain to enhance customer centricity, resilience, sustainability, and agility which can improve competitive advantage.

Supply chain diversification along the entire supply chain is facilitated by technology and proactive relationship management along the entire supply chain enabling multi-stakeholder collaboration.

Benefits

Supply chain diversification is not without challenges, but it is a strategic approach that can unlock many benefits. The five principal advantages are:

Customer Centricity

Sustainability

Resilience

Agility

Profitability

Elements of the Report

Building on the definition of supply chain diversification, Chapter 2 “Dimensions” outlines the four dimensions of the supply chain diversification model, which provide the foundation for developing supply chain diversification strategies.

Chapter 3 “Examples” explores the strategic nuances of each dimension of the model across various industry sectors, showcasing real-world examples that demonstrate the benefits of diversification strategies.

Chapter 4 “Implementation” provides guidance for leveraging the model and implementing a supply chain diversification strategy.

The next section maps out the Supply Chain Diversification dimensions and perspectives to consider.

Go to Dimensions