What is meant by "supplier diversification" in supply chain strategy?

Supplier diversification refers to the practice of engaging multiple suppliers for goods and services within a supply chain strategy. This approach is primarily implemented to mitigate risks associated with reliance on a single supplier. By sourcing from various suppliers, a company can enhance its resilience against disruptions that might occur due to operational failures, geopolitical issues, or market fluctuations linked to one specific supplier.

Furthermore, engaging multiple suppliers can foster increased competition, potentially leading to better pricing and improved quality in the products and services obtained. It also provides a buffer against swings in demand, as different suppliers can adjust to changing needs in diversified ways, maintaining availability and reducing lead times.

In contrast, focusing on a single supplier may yield short-term cost efficiencies but leaves a business vulnerable to supply chain disruptions. Choosing suppliers based solely on location disregards the broader strategic benefits of diversification, such as quality, reliability, and risk management. Likewise, limiting suppliers to cut costs could lead to reduced options and increased risk, undermining the stability and flexibility that diversification aims to achieve.