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Flexibility

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Because surprises happen, supply chains need to be flexible. Flexibility is a measurement of how quickly your supply chain can respond to changes, such as an increase or decrease in sales or an interruption of supply. This flexibility often comes in the form of extra capacity, multiple sources of supply, and alternative forms of transportation. Usually, flexibility costs money, but it also has value. The key is understanding when the cost of flexibility is a good investment.

Suppose that only two companies in the world make widgets, and you need to buy 1,000 widgets per month. You may get a better price on widgets if you buy all of them from a single supplier, which would lower your supply chain costs. But you’d have a problem if that supplier experienced a flood, fire, or bankruptcy. You may save some money at first, but you’re stuck if anything goes wrong with that supplier.

If you established a relationship with the second supplier by buying some of your widgets from them — even at a higher cost — you wouldn’t be hurt as badly if the first supplier stopped making widgets. Having a second supplier provides flexibility.

Think of the extra cost that you pay to the second supplier as a kind of insurance policy. You’re paying more up front, but you’re increasing your supply chain flexibility and protecting yourself from a possible disruption.

Supply Chain Management For Dummies

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