Sourcing Diversification

Sourcing Diversification

In a recent survey, 53% of retailers were looking at expanding their supplier base to mitigate risks associated with supply chain disruption.  In recent years, disruption has worsened due to a number of factors including:

  • Wars
  • Issues with the Panama Canal and the Suez Canal
  • Rapid changes in container costs due to changes in Chinese priorities and the shortage of containers during the pandemic
  • Greater use of sanctions on certain countries
  • Concern about domestic companies being sold to foreign owners, creating greater risk in difficult times.

Some retailers have had dual supplier policies for many years.  More companies are looking at it now and even some Governments.

Mitigating risk is an important factor and some risks may justify cost increases just to mitigate them.  The lifecycle cost of a product is also an important factor, especially when the risks are more modest.

In essence, the lifecycle cost includes:

  • The costs to identify a new supplier and carry product quality tests and compliance with acceptable standards on things like child labour, safe working environments and climate impact.
  • Product intake costs, manufacturing, shipping, import duties, etc.
  • The achievable inventory turn, which drives carrying cost.  This is partly dependent on the length of the supply chain and the consequent safety stock impact caused by greater demand forecasting errors.
  • The clearance costs at end of season or end of life. 
  • If not private label, any promotional support available from the supplier.

Learn more about the risks and how to address them at:

Challenges Importing Goods in Recent Years
Disruption to Canal Transits
Panama Canal
How Much Stock is Needed

Posted by Brian Hume
24th May 2024

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