November 2005 | Commentary | Checking In

Diversifying Your Supply Chain Portfolio

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Diversification is a sound strategy for investors and logisticians alike. Just as those skilled in arbitrage hedge investments to mitigate risk and allow for modest portfolio growth by taking advantage of small value increases in other areas, supply chain practitioners diversify their proprietary and outsourced logistics assets—abroad and at home—to lay off risk, reduce costs, and create more reliable delivery flow for their customers.

For global shippers, diversification is an important tactic for managing risk and containing costs. Many stateside consignees no longer rely on manufacturing or importing product from single points abroad. Instead, they build dual and tertiary source models into their global blueprint, invest in inventory management technologies, and rethink postponement strategies to circumvent potential transportation obstacles and identify the optimum total landed cost.

At last month's Council of Supply Chain Management Professionals (CSCMP) conference in San Diego, attendees confirmed that the trend toward diversification on the global front is trickling down to the domestic transportation side as well. Inbound consignees are looking at pulling product through multiple ports of entry to avoid congested chokepoints and create contingency channels to help manage supply chain disruptions.

Similarly, as high transportation costs become institutionalized, businesses are reevaluating how they allocate and diversify their warehouses and configure their distribution networks to be as efficient as possible.

Will we have to revert back to a strategy of many warehouses close to supply points and customers because transport costs will remain high in the foreseeable future? That's what some conference attendees predict.

Industries with tighter lead times have traditionally opted for a more decentralized distribution model driven by customer service rather than cost.

As you'll see in Amy Roach Partridge's article, Apparel Logistics & Technology: A Perfect Fit, given the seasonality and fickleness of consumer-buying trends, apparel retailers and wholesalers must be particularly adept at expediting product to market and replenishing inventory as demand dictates.

Equally compelling are the challenges facing retailers, manufacturers, and distributors as they ramp up for the holiday season. Lisa Harrington's Inventory Velocity: All The Right Moves reveals how companies drive greater visibility and increase inventory turns to get the right products to the right place at the right time.

Supply chain velocity, regardless of industry, is ultimately contingent on having options—be it via different modes, or through multiple ports of entry, DCs, or sourcing locations.

As transportation costs continue to rise, shippers and consignees will have to rethink how they approach stateside warehousing and distribution to streamline their supply chains and drive greater return on their logistics capital and investments.

Those who don't will be throwing caution and supply chain currency to the wind.

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