News / Don't have all your sourcing eggs in one basket, shippers advised

Photo: © Ileanaolaru

Shippers “stress-testing” their supply chains should consider how every supplier is at risk of ‘black swan’ events, with some, like Shein and Nvida, set to diversify sourcing.  

At TPM25 by S&P Global, delegates were told that, for example, automotive giant Ford “could be brought to its knees and shut down” by a part that costs it $0.10, but that component had never shown up on its resiliency report “because the aggregate spend with the supplier didn’t get put on the list”.  

Holly Pearce, director of logistics and warehousing at Otis Elevator, advised other shippers: “Don’t look at your largest suppliers you spend $30m with. If I’m getting screws or nuts or bolts that go in every single component of my elevators, that’s just as important. 

“Look at your bill of materials. Understand all the components. You can say, ‘oh it’s just a screw’. But I use that screw every single day, 20 times in every elevator. My spending with them might only be $1m dollars, but guess what, liquidated damages are expensive,” she added. 

The panel advised shippers to consider “multiple sources” and “supplier optionality”. 

Ms Pearce explained: “We coast our bids, we go through the supplier qualification process, we make sure that they could make our parts to spec, and then we’d say ‘we’re not giving you everything’ and sign contracts with each of them.” 

She urged that “it’s no good” making a supplier feel like a “backup” by commissioning them for insignificant volumes and then expecting them to step up in a time of need. 

“The optionality is a relationship, and it is a cost at times.” 

Ms Pearce added that the cost-benefit ratio became worth it “when everything hits the fan” with your main supplier and you need to ramp up production elsewhere. 

“You’re already established partners. They know how to make your materials, and you’ve been giving them business. Have multiple geographic regions as well as different tiers of suppliers,” she underlined. 

Transport intelligence (Ti) noted today that Chinese e-tailers, such as Shein and Temu, had realised the importance of diversifying their manufacturing – despite garnering their initial success from China’s low-cost high-volume production set up. 

“Shein had been moving to change [its manufacturing base] through 2024, with contracts and investments in other production locations, notably in Brazil and Turkey. Shein has indicated in 2024 that Turkey in particular will be used as both a production location and logistics hub to serve European markets in the future,” said Ti. 

Further, the UK Financial Times reported today that semiconductor manufacturer Nvida’s CEO, Jensen Huang, had promised to manufacture “several hundred billions” worth of electronics in the US, out of its total “half a trillion” manufacturing in the next four years. 

“At this point, we know that we can manufacture in the US, we have a sufficiently diversified supply chain,” said Mr Huang. 

Nvida mainly manufactures in Taiwan, a country susceptible to earthquakes and which was particularly impacted during Covid.