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How can supply chain diversification reduce your risk?

Posted by: Tim Zullo September 28, 2017 Supply Chain Management

There are many risks to supply chain continuity. Natural disasters, electronic attacks, politics, or the economy can make it so your usually reliable supplier can no longer meet your company’s needs. Without a robust supply chain ready to pick up the slack, these disruptions can impact customer delivery, operations, or utilization—ultimately costing your company time and money. Supply chain diversification mitigates your risk by making sure you have a diverse supplier base, no matter what problem may arise.

Taking the time in advance to source, pre-qualify, and onboard multiple suppliers speeds up your response time when an incident occurs. This reduces the time and money lost to the disruption. But true diversification is more than just onboarding a bunch of new suppliers. In order to optimize your risk management, you must be strategic in the suppliers you choose.

For example, select a mix of large and small businesses, and include a range of geographical locations. Small businesses can be more agile and easier to work with, but what if they suddenly close their doors? That’s why it’s good to include a reputable large business that can easily step up.

Similarly, having all your suppliers in one region can cause huge issues if that area experiences a natural disaster. Think of the areas recently hit by Hurricanes Harvey and Irma, or remember Hurricane Sandy in 2012, Hurricane Katrina in 2005, or the earthquake and tsunami that struck Japan in 2011. These kinds of events are devastating and have long term effects on area businesses. Diversification is a vital component to your supply chain risk plan.

Supply chain diversification is more than a backup plan, however. You need a full range of trusted suppliers for more flexibility. Evaluating suppliers against one another ensures that you are getting the best value. Of course, this could be through cost savings. However, you can also compare other supplier performance metrics like shipping times or ability to meet regulatory compliance to select the right vendor for your needs. If your needs change, or the supplier’s ability to meet them does, you can quickly and easily adapt.

For example, if you conduct a reverse auction to generate cost savings, a prequalified pool of suppliers to source against accelerates the auction time and reduces supplier disqualification post action.

When looking at the Aerospace and Defense industry, the problem is amplified. Suppliers must meet stringent DoD requirements, which means that the amount and type of suppliers is limited. The vetting process to insure your suppliers are compliant takes time.

Applying diversification tactics to validate and onboard will give you a huge strategic advantage and improve your business performance. The ability to source suppliers that meet these strict qualification not only strengthens your organization but creates significant value.

Adding more suppliers also adds a level of complexity to your supply chain. In order to realize the value of your diversified supply chain, you must manage it well. Make sure you have a process plan and work flow in place to handle the increase of suppliers.

For instance, Exostar offers Aerospace and Defense organization the opportunity to help secure and diversify their supply chains. They do this by on-boarding and evaluating thousands of suppliers simultaneously against our network of 100,000+ vetted suppliers. Furthermore, it provides access to a management dashboard which offers a comprehensive overview of the cyber-health of individual companies in their supply chain and where they stand related to current NIST 800-171 standards.

By taking steps toward supply chain diversification now, you can ensure you are getting the most value out of your supply chain and mitigate your risks for the future.

Looking for more information on reducing supply chain risk? Watch the reply of our recent webinar, “Emerging Trends in the Maturing of the A&D Supply Chain.”