This article was originally written for and published by Fast Company.
In a world where 75% of a product’s value is often outsourced, the resilience of supply chains has never been more critical, as highlighted by a recent McKinsey report. From the global turmoil unleashed by COVID-19 to today’s attacks in the Red Sea and the Francis Scott Key Bridge collapse in Baltimore, it’s abundantly clear that as business leaders, we should never get too comfortable as the shadow of unpredictability persists. Rather, we must continually reassess our supply chain strategies to compete in an era where only the most innovative and responsive thrive.
The practice of an engineering team specifying a component and then handing it off to procurement to find a source—without any interaction—is obsolete. Reality demands a dynamic approach where a single-sourcing strategy is replaced by supplier diversification and multi-sourcing to mitigate the risk of supply chain interruptions and to secure the continuity of production and, ultimately, revenue.
Today’s option to source a component from two or more different distributors, or even manufacturers, is not a choice, but a strategic necessity. This becomes starkly evident when disruptions like the ones outlined above continue to threaten the supply chain. However, the essence of multi-sourcing lies not just in the diversification of suppliers, but in geographical consideration and the logistics optimization to serve global markets effectively.
Throughout my three decades in enterprise software serving manufacturers across a number of industries, I’ve guided companies through a gamut of disruption. As a result, I’ve observed that supply chain strategies traditionally focused on balancing cost, quality, and logistics now need to factor in planning for disruption as the central tenet. We witnessed the importance of this just a few short years ago when the lack of availability of certain chips in the automotive industry during the COVID-19 pandemic halted production for months and significantly impacted sales.
Manufacturing companies wanting to mitigate risks should consider the following key pillars:
1. COLLABORATION EQUALS POWER
True innovation emerges from collaboration. The shift from a serial process of design and procurement to a more integrated approach can be invaluable. The dialogue between engineering, manufacturing, and sourcing departments ensures that decisions are made with a comprehensive understanding of design, supply, and market needs. Such collaboration may lead to altered design decisions or trade-offs, but ultimately strengthens the supply chain’s agility and responsiveness.
Companies that consider both geographical diversification and the balance of logistics to serve global markets effectively will win.
2. CULTIVATE TRUST AS YOUR KEYSTONE
Trust within the supply chain transcends operational reliability. It involves fostering a shared vision for excellence and innovation. Cultivating trust in your supply chain strategy requires insights from partners, enabling you to execute with precision and adapt with confidence.
An approach to multi-sourcing, for example, isn’t just about diversifying risk; it’s about building robust relationships with multiple manufacturers and distributors, thereby enhancing your agility and ability to navigate uncertainties.
3. LEVERAGE DATA FOR ONGOING EXCELLENCE
In today’s intricate supply chain ecosystem, data accuracy and connectivity are paramount. Component availability is constantly changing, so subscribing to data services that provide continuous updates is key to being able to make appropriate adjustments over time. This is also where AI will play an increasingly important role.
Additionally, the connection between engineering and commerce is becoming increasingly critical, as companies strive to map design decisions directly to sales forecasts. This holistic view enables businesses to understand not just the financial implications of their supply chain decisions, but also their impact on customer acquisition and retention. This data-centric approach is not merely about response; it’s about leading through uncertainty with informed, predictive insights.
4. UTILIZE STRATEGIC RISK MANAGEMENT AS A DESIGN PRINCIPLE
Proactive risk management is fundamental to any winning supply chain strategy. By identifying potential disruptions early and integrating flexible response strategies into your design and procurement processes, you can ensure that supply chains—and thus your products—are both robust and responsive.
Implementing multi-sourcing with geographical diversification is foundational to strategic risk management. It allows you to mitigate potential disruptions from global events and conflicts.
Builiding a Future-Proof Supply Chain
The continuous evolution of the global business landscape demands an equally dynamic supply chain response. By prioritizing multi-sourcing, collaboration, trust, and risk management, you will not only navigate the current terrain of unpredictability, but also pave the way for future innovation. The journey towards a resilient and efficient supply chain is rooted in continuous learning and adaptation, ensuring that each step forward is a step towards greater market success.
Now is the time to invest in your supply chain strategy. Taking a proactive approach with risk-mitigating methodologies and data to drive insights will allow your organization to withstand the dynamic environment that has become a constant in our world.
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