Global supply chain executives have been sounding the alarm bells on their businesses’ dangerous vulnerability to disruption. The lesson? Relying on a small circle of suppliers, especially from a single region, is no longer a safe strategy.
Supplier diversity has emerged as a critical component in modern procurement strategies, with nearly 47% of global supply chain executives now recognizing their business as vulnerable to disruption. The COVID-19 pandemic and the global supply chain crisis of 2021-22 exposed something many companies didn’t realize was so fragile: their supply chains.
A McKinsey study highlighted that 73% of supply chain leaders discovered problems in their supply chain footprint during the pandemic that demanded immediate action. The once-praised 'just in time' model proved inadequate when faced with sudden demand surges. The Suez Canal blockage in 2021 was a logistical nightmare that caused a loss of over $9.6 billion every day in maritime traffic, highlighting just how quickly a single chokepoint can bring everything to a halt.
Now, with the potential return of Trump-era tariffs and aggressive trade policies, companies face renewed uncertainty around global sourcing costs—making supplier diversification not just smart, but essential for mitigating geopolitical risk.
An Ernst and Young study from 2022 showed that 62% of industrial companies made significant changes to their supplier base over two years, and those that diversified saw better outcomes: more flexibility, less disruption, and stronger operational continuity.
With the help of AI and digital tools, procurement teams can now identify qualified suppliers, assess risk profiles, and make smarter, data-driven decisions. In today’s volatile environment, supplier diversity is a strategic advantage.
Diversifying your supply base won’t eliminate every disruption, but it goes a long way in reducing risk and reinforcing the case for sourcing from a wider range of suppliers. When companies spread their supplier base across different geographies, ownership groups, and capabilities, they build resilience.
Trade wars, sanctions, political instability, or natural disasters: all events that can disrupt supply chains overnight. During the 2019 U.S.-China trade war, for example, 57% of supply chain leaders were forced to rethink sourcing strategies due to rising costs and delays.
Supplier diversification helps mitigate these risks by reducing reliance on any single region, giving companies the flexibility to shift sourcing when disruptions occur.
On one hand, relying on a single supplier or region is inherently risky. It creates a single point of failure and makes your business vulnerable to disruptions. By diversifying suppliers across regions, companies reduce this vulnerability. If one supplier goes offline for whatever reasons, others can step in, ensuring supply continuity.
On the other hand, having multiple suppliers means the loss of any one has less of an impact and can be more easily managed. It’s a strategic layer of protection: a broader supply base increases overall supply security.
Supplier diversification isn’t just about reducing risk, it can be a cost advantage. By working with multiple suppliers, companies can compare pricing, and avoid being locked into a single vendor’s rates. This competitive pressure creates leverage, enabling businesses to negotiate for better terms, improved service, and more flexible payment options.
Diversity can also help your business be more competitive by tapping into new markets and technologies. Working with suppliers from multiple regions and gaining insights into different customer segments can also help develop new products and services.
We learned some time ago that having everything in one location had too much risk with it and so we have opened up new sources of supply over time — Tim Cook, CEO of Apple
A prime example of all of the above are this industry leader’s recent moves. In response to geopolitical tensions and the need for supply chain resilience, Apple has been diversifying its manufacturing operations beyond China. A significant step in this strategy is the expansion of iPhone production in India. As of late 2024, 15% of iPhones are now produced in India, up from just 5% two years prior, with plans to increase this to 25% by 2027. This shift not only mitigates risks associated with over-reliance on a single region but also allows Apple to tap into new markets and leverage local expertise.
Let’s bring it closer to home. Let’s take a look at Europe:
Recent findings from the ifo Institute reveal a strong shift toward supplier diversification among German manufacturers. According to the survey, 58% of manufacturing firms in Germany have expanded their supply chains and sourced new suppliers in the past year. This trend is set to continue, with one-third of respondents planning further supplier base expansion.
Sector-specific data underscores the urgency: 80% of electronics companies and 71% of machinery and equipment manufacturers have already diversified their suppliers. In the automotive sector, the response goes a step further—34% of companies have begun reshoring production by manufacturing components in-house that were previously outsourced. This move highlights a broader push not just for diversification, but for greater control and resilience in supply chains.
In short, supplier diversification is not just a safeguard—it's a strategic imperative. As seen above, with a wider supply base you can:
That being said, diversifying supply chains does not come without its challenges and trade-offs. It can often require a significant upfront investment, especially as costs rise with the number of suppliers you manage. It may also lead to:
Increased Complexity. Managing a larger, more geographically dispersed supplier base requires more oversight, coordination, and administrative effort. This can strain procurement teams and systems.
Supply Chain Fragmentation. Diversification can lead to fragmented sourcing strategies, making it harder to achieve economies of scale or maintain centralized control over supply chain decisions.
Data and Visibility Issues. Tracking performance, risk, and compliance across a broader supplier network often requires sophisticated digital infrastructure that not all companies have in place.
Potential for Weaker Relationships. Splitting spend among multiple suppliers can dilute the depth of partnerships and reduce incentives for suppliers to prioritize your business or invest in co-innovation.
These challenges don’t mean supplier diversification isn’t worthwhile, but they do underscore the need for strong digital tools, clear processes, and effective supplier management strategies to make it work.
Regardless of the industry, manufacturers must evaluate their existing supply chains and identify opportunities to broaden their supplier base. However, it is an often complicated process that must be done strategically. From the auditing of the current supplier base and careful sourcing of new suppliers, to the evaluation of risks and later monitoring of their performance—digital solutions are necessary for improving supply chain resilience and successfully implementing your diversification strategy.
At present, AI is setting the stage for major transformation. As industries embrace digital tools, AI is expected to unlock substantial value, especially in retail sourcing and supply chain management. Modern AI-powered discovery tools are changing supplier identification, evaluation, and selection processes, turning what once required 40 hours of manual filtering into minutes of automated searching.
Matchory stands out for its ability to expedite supplier diversification. By leveraging AI and global data intelligence, Matchory enables procurement teams to instantly identify and evaluate qualified suppliers based on key criteria like location, certifications, and production capabilities. Its intelligent search functions eliminate manual research and reduce sourcing time. With access to comprehensive supplier insights and real-time data, companies can make faster, more informed decisions.
As global supply chains face mounting pressure from geopolitical tensions, natural disasters, trade policies, and shifting consumer expectations, supplier diversification has moved from a best practice to a business imperative. It offers a crucial layer of protection against disruption, while also unlocking competitive advantages like cost savings, innovation, and enhanced supply security. Companies that take a proactive approach to broadening their supplier base are better positioned to navigate uncertainty and maintain operational continuity in a volatile global landscape.
However, diversification isn’t without its hurdles: from increased complexity to the need for stronger data infrastructure and supplier management capabilities. This is where digital AI-powered tools come into play, helping businesses not only identify and vet suppliers faster but also manage risks more effectively. As we look ahead, companies that invest in intelligent sourcing strategies and technology-driven procurement will be the ones that emerge stronger, more agile, and ready to lead in the next era of global trade.
Stay tuned for our future articles where we dive into the best-cost countries for finding reliable and competitive suppliers. Discover how to strategically expand your supplier base while optimizing costs and boosting resilience. Don’t miss it!
Procurement Professionals & Category Managers
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Using a practical use case – the renegotiation of a (e.g., CNC best cost countries) – we’ll show how data literacy and strategic planning go hand in hand. You’ll receive concrete recommendations for action.
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