Supply Chain Diversification

Trend Definition 

What is the essence of this trend? What is its impact? 

• Essence: Supply chain diversification focuses on expanding sourcing across different companies (multisourcing) and regions (multishoring)
• Impact: Diversification hedges the risk of outages and increases sourcing security, adaptability, and agility compared to traditional single-sourcing

Trend Drivers 

Why is this trend emerging now? What’s changing? 

• Disruptive Events: The pandemic, Russia’s invasion of Ukraine, and the US-China trade conflict all posed serious risks to many companies since they sourced their material, goods, and energy from a very limited number of suppliers and regions
• Feasible Efforts: Newly integrated suppliers will serve the same hubs as existing ones do, therefore the costs of increasing resilience present a positive business case
• Technological Advancements: New technologies, for instance in the field of automation, enable additional cost-competitive manufacturing in countries that normally have high labour costs

Use Cases 

How to apply this trend? 

• China Plus One/N Strategy: Companies extend their China operations with activities in other countries 
  Example: Nike shifted a significant share of its Sneaker production from China to Taiwan and Indonesia to reduce the risk of procurement disruption with China now being only the third-largest manufacturer
• Multishoring: Expanding sourcing regions for critical inputs 
  Example: TSMC expanded its production locations from Taiwan to the US and plans to do so in Germany as well to mitigate the risks of having only one sourcing country which is constantly threatened by China

Procurement Relevance & Response Strategies 

How should Procurement adapt its Processes, Organisation, and Strategy?

• Strategic Partnership and Upstream Value Chain Redesign: Procurement sources should transition to a core strategic element in order to ensure resilience and business continuity
• Robust Diversification and Strategic Resilience: Reassess sources for every input and extend procurement activities for inputs with little risk mitigation