News | July 24, 2020

In a Challenging Economy, Supply Chain Diversification Is an Invaluable Tool in Risk Mitigation

Whether it’s a natural disaster, a trade war or a global pandemic, suppliers face numerous risks. In an unpredictable world it has never been more important to diversify your supply chain to protect your business from supply shocks.

We spoke to Bryan Maloney, president of Harbor and Robert Krieger, an industry veteran and president of Krieger Worldwide, a global logistics and supply chain services firm, to discuss what businesses need to be aware of when building their supply chain and how diversification can be critical to ensure business continuity.

In the last few decades, manufacturing has predominantly gathered geographically around regions specialized in making high-quality products. An unintended consequence of this clustering is that many companies have an overdependence on a small number of locales and an insufficient number of suppliers, meaning their supply chains are prone to disruption.

“Limiting risk exposure is the primary goal of a diversified supply chain”, said Maloney.

Buying from one supplier has certain benefits but having multiple suppliers to circumvent disruptions, financial issues, or demand variations is key to growing a successful company.

Having a carefully-planned supply chain means buyers can avoid the risks that social or political incidents have on costs and product availability.

“You have to avoid putting all your eggs in one basket. Even with the greatest deal in the world a ship can break down or a company can have financial issues,” said Krieger.

Avoiding Disruption

It has been hard to avoid mention of trade wars, sanctions and tariffs, with U.S.-China tensions routinely at the forefront of the news cycle.

“Trade wars are certainly not on the horizon anymore. They’re here and in many cases companies have had to legally figure out how to avoid punitive tariffs,” said Krieger.

A critical factor in mitigating risk is to have multiple suppliers in different locations to avoid getting caught out by a natural disaster or geopolitical conflict.

With inventory shortages across a plethora of industries during the Covid-19 pandemic it has never been more apparent that diversifying supply chains is a necessity rather than a luxury.

“Protecting your business by sourcing volumes from multiple suppliers means that if one is disrupted, you’re able to increase volume from an unaffected supplier,” Krieger said.

Global freight forwarding companies, like Krieger, don’t just help corporates get their goods delivered on time, they assist organizations with reducing risk and cost. For example, helping to minimize the customs duties a company pays or finding ways of getting goods delivered faster to improve their bottom line. If problems do arise, global firms like Krieger can be a great partner because they are committed to reacting swiftly and affirmatively to minimize delays in the delivery of products.

Streamlining Relationships

Diversification of the physical supply chain leads to the need for optimization on the financial supply chain and a rethinking of the procure-to-pay process. The strong connection between the procurement and finance team has never been so critical as supply chain and sourcing strategies evolve.

Establishing relationships with new suppliers can be difficult and labor-intensive work, but the HarborTrade Platform can alleviate many of these concerns.

“Diversification can create new hurdles to overcome but procurement on the HarborTrade Platform allows for efficient vendor management,” says Maloney.

Buyers and sellers are onboarded to the platform quickly and higher overheads involved in negotiation and relationship management are avoided with longer payment terms.

With HarborTrade, as soon as a client receives an invoice from a supplier, Harbor will pay the supplier upon shipment, with the buyer then receiving up to 120 days to pay. This ensures all parties have the working capital required to maintain a healthy relationship.

“The supply chain finance program eliminates credit terms discussion during negotiation with suppliers by offering sight payments, at the same time optimizing the buyer’s accounts payable terms and cash conversion cycle,” Maloney continued.

Though at first it might seem a difficult task, the benefits to be gained from a properly diversified supply chain are immeasurable.

Securing a resilient supply chain allows companies to deliver products when others cannot, giving them the opportunity to satisfy customers and create new business, leaving those with a fragile supply chain at a competitive disadvantage.

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