Supply chain diversity is just one example of modern supply chain planning and is becoming ever more important for private companies, nonprofits and government agencies. Despite its level of significance, some firms still make the mistake of believing that supply chain diversity is simply a tick box exercise or quota system.
The reality is that the strategy provides significant advantages for organisations in terms of agility and the ability to swiftly adapt to any changes in the market, but also provides significant economic and social benefits.
What is Supply Chain Diversity?
Supply chain diversity (or inclusive procurement as it is also known) is the process of ensuring that all relevant and potential suppliers have a fair and equal chance of winning a pending contract. This could include micro firms, SMEs, local vendors or social enterprises.
At the most basic of levels, supply chain diversity provides contingency in times of difficulty. If there is a problem with one vendor, another will effortlessly be able to step in and provide coverage without there being too much disruption.
Without this diversity, companies can easily become over reliant on a single group of suppliers. If circumstances change, such as one supplier going out of business or raising its costs, this can have huge knock on effects for the viability of your business.
Supply Chain Diversity in Action
One of the most-referenced examples of supply chain diversity is with General Motors (GM) in the USA. They developed a specific Diversity Program that draws on the expertise of over 400 different vendors.
The process of supply chain diversity is actually, largely, ingrained in the business culture of America following the Civil Rights Movement. This is because all government agencies and their contractors were obliged to allow diversity into their organisation.
Here in the UK, a good example of supply chain diversity is Waitrose. They get nearby vendors to supply their stores on a local and regional level, looking for specific values, qualities and skills in their suppliers – rather than just dealing with the larger ones. This provides each region with different unique selling points and local buy-in.
Why Supply Chain Diversity is Important
There are many different ways in which supply chain diversity can benefit your business. Here are just a few:
According to research, working with a diverse chain of suppliers could actually help business owners cut their costs by up to a third. A study of 50 companies from the US service and manufacturing sectors showed that those with a strong and diverse network generated a 133% greater procurement return on investment than the average comparable firm. This equated to an extra $3.6 million to their bottom line for every $1 million in procurement operation costs.
Another way in which supply chain diversity can help reduce costs is the fact that many SMEs are able to better leverage their expertise and specialism in a particular product or area than their larger counterparts.
New Business Opportunities
Having a strong commitment to supply chain diversity could also result in greater innovation by introducing new solutions, services and products. It can also shed light on potential opportunities for business expansion by highlighting new consumer trends.
In addition, broadening your horizons can create healthy competition on price between existing and potential vendors, while also expanding a firm’s range of procurement channels. It can also open the doors to new technologies and efficiencies that you previously had no idea about.
Communication with suppliers should never be just a one-way street where the client simply places an order and supplier merely fulfils it. Having this approach with a small group of suppliers denies a company access to new ideas outside of their organisation.
Greater communication with a wider pool of suppliers helps fuel innovation and more creative approaches than you would normally get within your own organisation.
The world of business is forever changing, meaning it is essential that companies keep up with the latest events. Failure to do so means falling behind – and that can be something that is extremely difficult to recover from.
Not only that, but having a diverse supply chain can also help when the circumstances of your business change. Let us say that there are two suppliers, A and B. Supplier A is able to provide products at £4 per unit with a turnaround time of a week, while Supplier B charges £5 per unit with a turnaround time of two days. If your current business model is geared towards speed then you will be more likely to go with Supplier B.
However, your business circumstances may change to a point where there needs to be an emphasis on reducing costs. In this situation, you may feel that you can stomach the extra turnaround time and switch to Supplier A instead.
If you were only working with one vendor, rather than multiple, you would not be able to adapt your model as easily and could find yourself in trouble if your circumstances change.
Enhanced Business Image
Today’s average consumer is a lot more conscious about environmental, economic and social causes than ever before. As a result, they will be more likely to purchase products from a company they know are supportive of causes that are close to their hearts.
Social representation and diversity within a supply chain is one of the key pillars of being viewed as an ethical organisation. It will immediately improve the image of the business, something that is incredibly important to the bottom line.
Part of a Holistic Approach
Reviewing your supply chain should not simply be done as an isolated task and instead should be carried out as part of a holistic review of your business practices and financial situation. Regularly monitoring your circumstances is essential to ensure that your firm is able to cope with a multitude of eventualities and not be caught off guard.
Whether it is help with cash flow management, obtaining an opinion on the solvency of your firm or finding the right source of corporate finance, obtaining specialist help can be extremely important to maintaining your business. This is where Inquesta can help.
We’ll carry out a thorough assessment of your business and recommend what we believe is the most appropriate solution for you. We’ve amassed decades of experience in all aspects of business and financial management, and have helped clients from all areas of industry to achieve their goals.
For more information about how Inquesta can help your company, book a free consultation or contact a member of our team today.