What needs to be done prior to the supplier diversification?

Introducing supplier diversification into your strategy demands a thorough evaluation as well as a new potential risk for your procurement. Because your business needs to manage the communication, the quality of products/services and the shipping nodes separately for each supplier. Imagine the complexity added once you add an overseas supplier for a locally sourced product. You would need to monitor both the product quality and the complexity of dealing with language and cultural norm variances. The root cause analysis for each quality issue dependent on the supplier visibility. For instance, quality issues on a batch of plastic body parts can potentially be relevant to the injection mold or production settings of the supplier overseas. This calls for your business to initiate and manage the resolution process, thereby optimizing supplier management. And yet, there are other efforts in the form of contract negotiations and process executions that need to be managed along with the quality factor. Managing these issues with multiple suppliers can be way more complex than the single supplier approach, emphasizing the need for optimizing supplier management strategies.

Sustainable Procurement & Supplier Management

Supplier diversification necessitates careful consideration of environmental, social, and governance (ESG) factors, crucial elements impacting your brand’s reputation. Monitoring supplier social responsibility KPIs, such as energy use, carbon emissions, and labor policies, becomes more challenging as your supplier network expands, adding complexity to the evaluation process.

It is critical to analyze the capacity of your business resources dedicated to managing the complexity of additional supplier management. This commonly ignored step should take place prior to adding more suppliers or vendors to your procurement function. Your business may not have the systems, processes, workforce, and knowledge base for managing the complexity. In that case, it’s wiser to explore the opportunities for outsourcing these functions or resources.

The decision making for diversifying your supply chain