Supplier diversification is a business strategy and describes the abundance and flexibility of the suppliers for a certain product. Supply chain resilience is increasingly important as businesses look to mitigate the impact of COVID-19.
The success of diversifying your supply chain, more specifically looking into offshoring and nearshoring, depends on how prepared you are to thoroughly and realistically identify the potential risks in your supply chain. Companies must focus attention on understanding vulnerabilities and sources of potential risk, and how to react swiftly and effectively.
According to a recent McKinsey report, 16% to 26% of exports, worth between $2.9 trillion and $4.6 trillion in 2018, could be in play—whether that involves reverting to domestic production, nearshoring, or new rounds of offshoring to new locations.
Nearshoring and Offshoring in a risk context
Diversifying suppliers can unlock innovation and it can also help create more agile and ethical supply chains. Nick Wildgoose BA (Hons) FCA FCIPS, guest speaker in our recent webinar on Supplier Diversification, exposed the huge impact that nearshoring has had, particularly in Europe when it comes to driving standards around both carbon footprint and a CSR perspective.
The current context is that many companies, particularly those in the retail, electronics, pharma and automotive sectors, are heavily dependent on China. There are a total of 51,000 companies with Tier 1 in China and up to 80% of active drug ingredients are produced in China/India. The COVID-19 pandemic has only served to further emphasise this dependency and the impact on global supply chains. One main piece of advice from Nick for companies that are nearshoring their supply chain or planning to do so – “when it comes to nearshoring, you may only be seeing the tip of the iceberg whereas the danger lies below”.
Supplier diversification also provides a real potential opportunity, given the current oil crash, for companies in the Oil and Gas sector looking into offshoring their activities into renewable energies, such as offshore wind. Our guest speaker, Joanne Leng MBE, talked us through how offshore wind will play a huge role in the journey of companies looking into moving to net zero and low carbon world.
Stay ahead of the game
Watch our webinar to understand the impact of supplier diversification in a risk context and best practices when it comes to minimising supply chain disruptions. Now more than ever, it is crucial to be able to have a complete view of your supplier base coupled with the ability to access the whole range of alternative and pre-qualified suppliers in real time.