Revolutionising retail risk management

Written by Ty Bordner, VP Product Management and Solutions Consulting at Amber Road

Global multi-sourcing (the practice of obtaining identical merchandise and components from more than one international supplier) has risen in profile recently, following a renewed focus on risk management in the supply chain. Whether you are considering or already undertaking a global multi-sourcing strategy, it is important to weigh the qualitative and quantitative factors against what your company can reasonably support.

Many supply chain professionals are adopting multi-sourcing as a part of a retail supply chain resiliency strategy or to optimise sourcing decisions. By multi-sourcing, organisations can insulate themselves from risk factors such as storms, port closures and labour disputes.

While multi-sourcing is straightforward in theory; organisations accustomed to working with only one vendor per item may have to make some adjustments. Here are some questions to help determine whether multi-sourcing is the right choice for your company.

Consider your level of risk tolerance

Similar to an investment strategy, a multi-sourcing strategy should take into account the level of risk the organisation is willing to accept, based on the likelihood of supply chain disruption for a particular item. An analysis of how difficult or easy the item is to obtain versus how important it is to the overall supply chain is a good first step to determining whether to find multiple sources for the item.

Can you afford the risk?

What would the effect be on your business of not being able to obtain the product? This is closely related to the concept of risk, but adds a quantitative aspect to the analysis. If a particular item is not available, what is the effect on revenue? Would you lose customers? Would employees be laid off? Would you close factories or plants? Or, as with Superstorm Sandy, would you miss a key window to bring seasonal items to your retail shelves? With the results of your quantitative analysis, you can determine its worth to the organisation to have the item available from additional sources.

Sourcing a comparable cost

Do other suppliers offer the same product at a comparable cost? Can they provide it if your primary supplier can’t? If you determine that alternative suppliers are necessary, then set about finding them. As with qualifying any supplier, ensure they can meet your deadlines at an acceptable total landed cost, not just product cost. These other charges to be considered include freight, insurance, duties and taxes; preferential trade programs; and countervailing or anti-dumping duties. Perhaps it is worth it to pay a premium to the alternative supplier to guarantee availability. Just make sure the alternative supplier won’t also be affected by the same factors that could disrupt your primary supplier. Choose suppliers from a different region, and use a different port of entry.

Can you manage multiple suppliers?