Diamond-Shaped Supply Chain

A diamond-shaped supply chain is a supply chain configuration in which a manufacturer has multiple sources for a particular component whereby all of those sources rely on a same single deep-tier supplier. In a diamond-shaped supply chain scenario, the manufacturer believes it has diversified its sources when in fact there is a single point of failure (SPOF) in the system. A diamond-shaped supply chain is prone to risk because capacity issues at a single deep-tier supplier can effectively impact numerous companies and even entire industries. Typical supply chains, based on their bill of materials (BOM), have a tree-like structure that branches out at each sub-tier level. However, diamond-shaped supply chain risks can arise when a critical component/material has very few original suppliers, or when Tier-2 suppliers/ manufacturers in a given industry rely on a sole tier-3 supplier or a limited set of clustered tier-3 suppliers nestled deep in the supply chain. Diamond shaped supply chains highlight the benefits of supply chain visibility because often companies are unaware of the deep-tier bottlenecks or SPOFs that can disrupt supply chains, especially following a disruptive event.