In a new report, “Supply Chain Diversification,” DHL and academics set out to offer a new model which includes multi-shored supply networks, multi-sourcing, parallel modes of transportation, and concurrent or redundant logistics operations.
“The events of the last years have shown us the importance of resilient supply chains and companies adapting their global supply networks accordingly,” says Katja Busch, Chief Commercial Officer and Head of DHL Customer Solutions & Innovation, in a statement.
In the model developed by DHL in collaboration with Emeritus Professor Richard Wilding OBE, one of the world’s leading experts in Logistics and Supply Chain Management, four dimensions of supply chain diversification are excerpted below:
Dimension 1 – Multi-shoring the Supply Network
The first dimension involves geographical diversification. Multi-shoring means introducing redundant manufacturing capacities or additional supplier locations in separate areas. This might include adding locations in other countries or even continents to mitigate operational, compliance, or reputational risks. Multi-shoring can involve the same supplier but from an additional location – for example, getting the same part from two different plants.
The spectrum of multi-shoring diversification ranges from a supply network built on one country (low) to one widely dispersed across multiple countries or even continents (high).
Dimension 2 – Manufacturing & Supplier Network
The second dimension focuses on quantity rather than geography. The most common approach involves adding redundant suppliers, although integrating additional manufacturing capacities is also standard practice. Diversification can take place within local or regional ecosystems, such as adding a new supplier located in the same city. Multi-sourcing is primarily used to mitigate financial or operational risks, such as a supplier’s inability to deliver on time or at all.
The breadth of a company’s supply network can range from having a single supplier for a specific part or product (low) to maintaining multiple suppliers on multiple tiers for each part or product (high).
Dimension 3 – Mode of Transportation
The third dimension centers on utilizing more modes of transport for the trade lane of a particular product or part. Adding at least one transport mode to any part of the supply chain (first mile, long haul, last mile, etc.) makes a supply chain more diversified than it was before. Modes include air, ocean, rail and road. Simultaneously, using various modes of transport or multi-modal solutions for a part or product also typically diversifies shipping routes, which can reduce operational risk and buffer volatilities in demand. It’s important to note that adding modes of transport is not a contingency plan but rather a parallel transportation method for the same point-to-point connection. Furthermore, different modes of transport offer varying lead times, which must be considered and aligned with the business model.
Mode diversification spans from one mode for each part or product (low) to parallel modes for each part or product (high).
Dimension 4 – Logistics Operations
The final dimension of supply chain diversification involves expanding logistics capabilities. This means augmenting the logistics infrastructure with additional capacities, such as hubs, warehouses, and distribution centers. Depending on the requirements, this could include redundant logistics capabilities in other locations both near and far. Diversifying logistics operations may also involve outsourcing certain logistics activities. Like multi-shoring and multi-sourcing, a diversified logistics operation provides alternative options that maintain continuity in the supply chain during disruptions.
The spectrum of logistics operations diversification ranges from a single logistics operation for a specific need (low) to multiple redundancies across diverse geographies (high).
