The retailers who made it through recent years without too much trouble were not just fortunate. They had introduced redundancy into their systems well in advance of any issues. Previously regarded as optional, supply chain diversification is now what separates those who can continue to ship from those who lose customers forever.
The real cost of doing nothing
Many retailers know that when something goes wrong, it’s costly, but few can quantify it. Supply chain disruptions cause firms to lose, on average, 42% of one year’s EBITDA every decade. Spread across ten years, that’s not a crisis – it’s a recurring tax on doing business the old way. The challenge is that preparing for risks, and the costs they incur, often gets deprioritized in favor of the most pressing day-to-day demands. The relentless pressure to drive costs lower everywhere you can drives shortsighted decision-making. The “lowest cost” mindset drives sourcing to be based solely on unit economics – the costs associated with producing or procuring a single item.
Regional partners make decentralisation practical
You don’t need to worry about having infrastructure available everywhere around the world to deliver your products. This is the main reason why third-party logistics providers exist. But how does this become reality? The strategy to support this is pretty simple. The more granular complexity is in determining which 3PL partners you choose, in which locations.
For retailers, working with 3pl logistics melbourne providers gives you a local node without the capital overhead of a leased warehouse, warehouse team, and transport fleet. If you stick with better-quality providers, you’ll get a step change in supply chain performance with better IT, greater compliance with service level agreements, and faster throughput to consumers. The tipping point will come where the advantages outweigh the simplicity of using your freight broker or 3PL based out of your source country. And you’ll have a far better experience of working with a 3PL in a foreign land if they are doing business with a partner in your backyard.
The same reasoning applies for any major market. A well-selected network of 3PL partners in different regions is, functionally, a diversified distribution supply chain.
Single-sourcing is a structural weakness, not a strategy
Depending on a single supplier or a single region for your products is risky business. It is inevitable that at one time or another your supply chain will be disrupted by a geopolitical shift, localized port congestion, labor disruption, or weather event. When this happens, your product is stopped in its tracks.
For many, the response has been the “China Plus One” strategy, which means you don’t walk away from your current supplier relationship, but you also build a secondary source in another region. This protects you from any one political or logistical event shutting you down entirely. Retailers have increasingly started manufacturing in Vietnam, India, and Mexico for this reason. It’s not an issue of not trusting any one market. It’s an issue of not allowing one variable to control your operation.
Redundancy also means you are not scrambling to network and negotiate contracts when you need to switch quickly. It means you’ve been talking, visiting, and having your new supplier visit you for dinners before the business relationship is even necessary.
Multi-node distribution cuts your exposure
When you store too much inventory in one place, you run the risk of significant losses in the case of local disasters. It also increases the costs of final delivery since they are generally higher the longer the distance to the final customer. For instance, a customer in a specific region, town, or city won’t care for the central national warehouse. They will be solely interested in the delivery time.
Another benefit of distributing inventory across multiple nodes is the ability to balance workloads and avoid bottlenecks. When you have stock in different locations, you can shift volume between warehouses based on current capacity, seasonal demand, or labor availability. This flexibility means you’re not locked into a single fulfillment approach that works well in normal conditions but fails under pressure.
Visibility and digital integration aren’t optional extras
Managing a diversified supply chain is more challenging than managing a simple one – that’s the reality. Spreadsheets just won’t do the job when you have to monitor various suppliers, multiple freight forwarders, and multiple distribution nodes with your inventory.
Supply chain visibility or the capability to observe stock from the source of production to the final point of delivery, is what helps you handle complexity. Retailers that have integrated logistics systems are able to identify a delay at the source and redirect the shipment before it affects the customer experience. Meanwhile, those handling large networks manually only realize that something went wrong when the customer reaches out to them.
Integrating your digital systems with your logistics partners is not a technology initiative per se. It is a requirement for managing a robust operation when you reach a significant level of demand.
Building the supply chain that actually protects you
Investing in diversification may not feel good in good times. But it almost guarantees that you’ll be in business to see the good times return. The retailers who wait until a crisis hits to diversify will find themselves competing for the same limited alternatives as everyone else. By then, the best suppliers are already committed, the most strategic 3PL locations are at capacity, and you’re negotiating from a position of weakness rather than strength.
